Hospital or Out of Hospital Facilities: All-America Research Team Member Matt Larew Tells You Where to Invest

August 20, 2019

Matt Larew is an Analyst who joined William Blair & Company, L.L.C. in September 2012 and primarily focuses on health care delivery companies. In 2018, Institutional Investor named Mr. Larew a Rising Star for the All-America Research Team.

Before receiving an MBA in finance and a Master of Health Administration from the University of Iowa, Mr. Larew completed his undergraduate studies at the University of Notre Dame, where he earned a B.S. in biological sciences.

In this 2,365 word interview, exclusively in the Wall Street Transcript, Mr. Larew sees some clear winners in the sector:

“I think HCA (NYSE:HCA) appears likely to continue to look for consolidation opportunities. The hospital sector in general is much more consolidated, and that’s largely in the hands of many nonprofits.

But in the last year, we’ve seen a number of fairly large-scale mergers among some fairly large hospital operators — like CHI DignityAdvocate Aurora here in the Midwest. But the hospital sector is a little more consolidated.

On the non-hospital side — think of home health and hospice operators — those are highly fragmented markets, so even the largest operators in the space own less than 5% national market share.

So there is a much larger opportunity there, and we expect names like Amedisys (NASDAQ:AMED), LHC Group (NASDAQ:LHCG) and Encompass Health (NYSE:EHC) to find smaller tuck-in assets that they can add to fill in their national footprint where it makes sense.”

The demographic trends are clear:

“The under-65 population in the U.S. is not growing, it is growing less than 1%, and that is expected to continue, and so the growth outlook for providers is muted compared with the providers that are more specifically focused on the elderly population.

We expect that to continue in the future.”

The government reimbursement specifics are driving much of the economics:

“…An acceleration in shift to Medicare Advantage from Medicare…And the incentives really are different as the patient moves from Medicare, where the government is just reimbursing on a fee-for-service basis, to the Medicare Advantage side, where payers — like UnitedHealth (NYSE:UNH) or Aetna or Humana (NYSE:HUM) — are paid a fixed or capitated amount for a patient and are then responsible for their care and, of course, any costs associated with that care.

So they become highly incentivized to, for example, keep patients out of the hospital, where the average hospital admission for Medicare is $14,000 to $15,000.

And the reason this is important is that you have an opportunity to then leverage non-hospital settings — using the home, using retail settings — to get more touch points with these polychronic, high-cost patients to help drive down their costs and simultaneously improve their health.”

Get the full picture of this important sector by reading the entire 2,365 word interview, only in the Wall Street Transcript.