Our 'New Normal' Wounded Healthcare System

Aug. 22, 2011— -- When wounded warriors are now sent to the Bethesda Naval Medical Center for treatment, whether missing a leg, an arm or having sustained a traumatic brain injury, they are introduced to a novel expression: "This is your new normal." It is explained to them that from now on they will have to accept a new way of life and their expectations must be changed to meet their new realities. These realities mean new sacrifices for them into their futures, with an even longer duration than the unparalleled conflict we are engaged in.

There is only one exception that can be labeled a comparator in our nation's history. That exception is the wounded U.S. healthcare system, which is suffering from inherent disabilities that are beginning to preclude effective functioning and will only become worse in the future.

Without significant investment in new medical technology, our wounded healthcare system will become our "new normal" of diminished quality-of-life, shorter life expectancy, and diminished access to healthcare.

The way to restore both the wounded warrior and the healthcare system is through federally funded research and development of new technology. Given the rough patch the U.S. economy is facing -- something not seen since the Great Depression -- experts both conservative and progressive will ask: "What will be the payback on this investment be?" The answer has a proven track record of creating new high-paying jobs, new business opportunities for biotechnology, medical device, and pharmaceutical companies -- this while adding a much needed positive contribution to our GDP and continued U.S. leadership in medical science and technology. So what is the problem?

Even the currently modest funding for healthcare research is now being threatened. To meet the current fiscal challenge, the director of the Office of Management and Budget sent a memorandum on Wednesday, Aug. 17, to all agency and department heads, asking them to submit two budgets for President Obama's consideration. One proposal would reflect a 5 percent budget reduction and the other would include a 10 percent reduction for the 2013 fiscal year. The memorandum also says that submissions "should identify programs to 'double down' on because they provide the best opportunity to enhance economic growth." This last sentence we believe carries the only credible opportunity for many Americans to receive the quality of medical care that they are hopeful of receiving. We believe healthcare research is one of those areas that has repeatedly proven its ability to enhance economic growth and its budget must actually be increased.

There are multiple examples of federally funded new healthcare initiatives leading to economic breakthroughs that have revolutionized daily life, put thousands of people to work and earned billions of dollars for Americans. Unfortunately, Wall Street has focused the healthcare industry on meeting today's earnings per share (EPS) demands instead of focusing on the challenges to create what is needed for tomorrow's healthcare requirements. This has resulted in neither the innovation that will be needed or even in meeting the future EPS demands. Large pharmaceutical companies are struggling to maintain their current operations by reducing or even eliminating research programs. Hospitals are increasingly financially challenged. Physicians and other healthcare professionals now work longer hours at compensation levels that bring into question the value of the many years they committed to their training.

The federal government is the only entity that has the resources to foster the technology that will achieve the breakthroughs to sustain high-quality medical care in the U.S., cut costs and sustain healthcare industries. The government already acts as the de-facto standards-setter for medical care through the Centers for Medicare and Medicaid Insurance, which decides the procedures and medicines that will be covered by health insurance and how much can be charged for each. But that is primarily a cost-cutting activity and there is an adage in business that you can't grow a business solely by cutting costs.

Compared to the potential benefit, the current investment in healthcare research is small and should be increased significantly. Research programs given the backing of agencies that most Americans only know by their initials have become the backstop of medical innovation with new Commercial Pharma, Biotech, and Medical Companies as the outgrowths of this funding. For example, the anti-cholesterol medication, Lipitor, the biggest selling drug of all time, came into being because of National Institute of Health (NIH) federal funding that identified LDL receptors.

Between 2003 and 2010, U.S. sales of Lipitor were more than $47 billion. Lipitor, and other drugs, biologics and medical devices that were made possible by federal funding have improved the quality of life for millions, provided jobs for thousands and created tremendous economic benefit to the U.S.

Just to make obvious that this process is still vibrant, an example of breakthrough technology funded by the Defense Advanced research Projects Agency (DARPA) (the scientific military collaboration agency) can be used. DARPA invested for a legitimate military need in a mechanized back support system called the exoskeleton (more equipment carried caused back problems, both short and long term impacts for soldiers). A start-up company, spun out of an academic institution brought the concept to actual practice, filling a military need and creating a whole new market. What is potential healthcare application? The 68 million people wheel chair bound worldwide which would dwarf any possible military usage.

President Obama has announced he will unveil a new jobs program early next month. Shovel-ready infrastructure projects will probably be part of the program and may be necessary short-term steps to alleviate immediate job shortages. Longer-term solutions also must be included in any economic stimulus and job development program. The steps taken will tell us what the "New Normal" will be in many ways.

No one debates whether future healthcare demographics will be unsustainable at current obligation levels even with a robust recovery. Given the return on investment from today's relatively modest government funding of healthcare research, increased funding to advance medical science is a crucial step toward economic recovery. Such a "double down" in research today has the hope of creating what we began this article by stating: new jobs, higher educational attainment, opportunities for economic growth, improving the quality of medical care in the U.S... It could also finally offer all Americans a real hope in finally holding down or reducing medical costs overall.

Steve Brozak is President of WBB Securities, an independent broker-dealer and investment bank specializing in biotechnology, medical devices and pharmaceutical research. Henry Bassman is a Managing Director at WBB Securities.