Futures of Health Care: Dallas Company Develops Market Model for Medical World

By Terry-Cobo, Sarah | THE JOURNAL RECORD, March 6, 2012 | Go to article overview

Futures of Health Care: Dallas Company Develops Market Model for Medical World


Terry-Cobo, Sarah, THE JOURNAL RECORD


Uncertainty was a consistent theme throughout Oklahoma State University's International Conference on Innovation and Entrepreneurship in Health at the Reed Conference Center. But on the second and final day, a financial products and services firm offered a way to help stem the uncertainty and variability associated with changing legislation and the rising costs of health care.

Officials from Dallas-based Open Market Partners spoke about its product publicly for the first time. The company has developed four financial indices to measure per-person health care costs in the United States. The four indices are combined health care, pharmaceutical, health care and health insurance.

Thomas Smith, Open Market Partners executive and chairman, said the product is similar to a bond market and would help both buyers (health insurance providers and large self-insured employers) and sellers (large hospitals and pharmaceutical companies) hedge financial risks.

"Everyone has a financial problem in the equation," company executive Marshall Hudes told the audience. "The government, employers, pharmaceutical companies; every single stakeholder has a problem."

The product will help manage the risk and variability associated with regulatory change and increased costs.

By analyzing monthly data published by the U.S. Bureau of Economic Analysis, the indices would provide a market for futures contracts for the buyers and sellers. This would allow, for example, a large hospital in Texas that built a huge MRI facility to get assurance it will be utilized, Smith said. The hospital could approach a big health care plan and presell a number of MRIs at a discounted rate, similar to what is done in the bond market.

Smith told the audience he and Hudes worked together for seven years to develop the four indices. With expertise from the accounting firms PricewaterhouseCooper and Ernst & Young, the consulting firm Milliman and the law firm Skadden, they compiled a regression analysis of 50 years of data from the BEA. Even though they didn't have a background in health care, they worked to understand the needs of the industry.

"Hospitals identified three other major concerns," Smith said. "They would like visibility beyond a year or two, but need to improve cash flow; there is a huge operating risk component, like plant facilities."

If a hospital could forecast the market years from today, the way an oil and gas company could in a futures market, it could build a new wing or purchase a new facility, but not have to hope that people would come spend their money, he added. …

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