While hospitals perform life-saving work every day, patients are far more likely to be receiving treated for unexciting conditions like heart disease than they are to present with something as dramatic as the bubonic plague.
The hospital business itselfisn't quite what we'd expect from seeing it on TV, either. Hospitals are costly to run, and administrators are constantly managing expenses andnegotiatingreimbursement dealswith insurers so that they can deliver the profitmargins necessary to invest in next-generation equipment, such asroboticassisted surgical systems, and to build new facilities.
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In this episode of The Motley Fool's Industry Focus: Healthcare, analyst Kristine Harjes is joined by Gaby Lapera and Todd Campbell to chat about how the hospital industry is portrayed in pop culture, and what investors should really know about hospital companies like HCA(NYSE: HCA) andTenet Healthcare(NYSE: THC) before investing. The trio also update investorson how onebig challenge for charity last year has paid off with a new advance in ALS treatment, and offer up insight into some companies working on this challenging disease.
A full transcript follows the video.
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This podcast was recorded on Aug. 3, 2016.
Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. I'm your host, Kristine Harjes, and it's Aug. 3. As per usual, Todd Campbell is calling into Fool HQ here in Alexandria, Virginia, and in keeping with this week's Industry Focus theme of pop culture, Todd, I want to ask: What is your all-time favorite TV show?
Todd Campbell: If we're going to be talking about healthcare, which I think we are, there are a few that I really loved. I loved M*A*S*H. M*A*S*H was awesome. I loved Scrubs. I love House.
Harjes: You guys might recognize the giggling in the background. We actually have another guest on the show today. This is our Industry Focus Financials host, Gaby Lapera.
Gaby Lapera: Hey, guys!
Harjes: Welcome to the show. Gaby, what's your favorite TV show?
Lapera: Favorite TV show of?
Harjes: Of all time.
Lapera: All time, I'm going to have to go with Star Trek, all of them, which is a little bit cheating. But then, my favorite medical drama is definitely Scrubs. Drama-comedy.
Harjes: So as you guys picked up on, we are going to be talking about healthcare, because it's Wednesday, and that's what Industry Focus does on Wednesdays. We thought it would be kind of interesting to talk about healthcare TV shows -- specifically, medical and hospital shows. These shows, they are a staple of prime-time television. You've got medical dramas, you've got cop dramas ... these are just really classic TV shows. Gaby already called me out on the Monday episode for not actually knowing that much about TV.
Lapera: I'm so sorry.
Harjes: But it's true, I really don't, so I'm very glad to have not one, but two guests on the show that do know a little bit about these shows. I've heard of them. I know there's Scrubs, you guys mentioned that one. House, Grey's Anatomy ... what else?
Lapera: What was the one with George Clooney?
Campbell: That was ER. That was around for a long time. I think they did 15 seasons of that.
Lapera: It was on for forever.
Harjes: So that means 15 years?
Harjes: Yeah, that's a lot.
Lapera: 15 years. There's also General Hospital, which is more of a soap opera of the style of "evil twin appears, takes over normal twin's life, then goes into a coma and wakes up seven years later," dramatic type.
Harjes: That's the thing. These shows are very dramatic, so the question that gets raised is: How does that influence people's perception of reality? There are these studies that look into frequent viewers of these types of shows, and they found that the vast majority of them report that they actually learn something about a new health condition, or they took an action after seeing something about a health issue on TV. I'm not sure if that's a good thing or if I should be concerned about that.
Lapera: I think it's a little bit of both. It's a little column A, a little column B. It's great that people are more concerned about their health, and they're like, "Maybe I should get out and walk and lower my cholesterol a little bit," or like, "Oh my god, that guy's symptoms for that super-rare disease are exactly like my regular life. Maybe I should go to a doctor," and maybe that helped save their life. On the flip side of that, you have a lot more people, I think, freaking out about rare diseases, that are actually rare, that they probably just don't have.
Campbell: Gaby, if you were watching House as often as I was back when it was on, you would have thought that these rare diseases were as common as cancer and heart disease and diabetes.
Harjes: Because the things that actually contribute to people's deaths more frequently, that doesn't make good TV.
Harjes: You also get a lot of really super-life-threatening conditions that end up being not actually being all that life-threatening, if you were to keep count of how many people end up surviving these conditions due to some miraculous intervention on the doctor's behalf.
Campbell: You wouldn't expect to get a lot of viewers if you were having people with diabetes sitting down across from you and you were saying, "You should probably eat better and you should go for more walks."
Lapera: On the flip side of that, I do want to point out that people think that stuff like CPR or getting electric shocks after getting a heart attack is way more effective than it actually is.
Harjes: Yeah, that's a huge problem. There are these false depictions of CPR. That's not the only thing. There's also seizure care. There was a study about seizure care in Grey's Anatomy, House, Private Practice, and ER, and it found that in 46% of seizure cases, the treatment that was happening on the show was completely inappropriate. Either they were trying to hold the person down, or stop their involuntary movements, or put something in their mouth, which, all of these things are a bad idea. For the record, proper seizure care is make sure they don't hurt themselves, clear the area of dangerous objects, maybe put something soft under their head, rotate them on their side. But 46% of the time, they were doing not that. They were doing things that are actually detrimental. If you're watching this show, there's no disclaimer that comes on at the end of it. Actually, I don't know this for sure. I'm pretty sure there's no disclaimer at the end that says, "Hey, kids, don't try this at home." Maybe.
Lapera: No, there's not. You're right.
Harjes: Another really interesting thing to look at here is cardiac arrest. There's another study of ER and a couple of other shows that found 75% of patients survived cardiac arrest immediately, which just is not the case. In reality, long-term survival is between 2% and 30% for cardiac arrest outside of a hospital. The question that this raises for me is: Are these shows helpful in bringing awareness to the realities of how hospitals and E.R.s work?
Campbell: I would argue that they're kind of not. You typically end up with a situation where you've got this flawed, brilliant, great, talented doctor, and he's pitted up against the mean, rules-following, penny-pincher administrator. The reality is that if you had someone like House providing care -- and he was, in the show, opiate-dependent -- you probably wouldn't want that person caring for you in real life. It certainly does diminish the nuts-and-bolts business behind hospitals. It talks about great doctor vs. penny pinching, but if you're not doing the penny pinching too, then hospitals can't afford to make the investments that they need to, to provide better care later on.
Lapera: Not only that, but it speaks to this thing that I think exists in most cultures where people kind of view doctors as god-like figures who can just, diagnose what's wrong with them, and immediately know what it is, and they know everything. That's not 100% the case. Diagnoses often take a long time. It's sometimes just guesswork. The other thing is, sometimes patients really have to advocate for themselves, as opposed to doctors just seeing them, and knowing what's wrong right away, and being like, "Yeah I can fix this, no problem." Sometimes patients really have to ask questions for themselves and double-check that whatever medicine they're been given is actually the medicine they were prescribed. It kind of sucks, but that's the way it is in real life.
Campbell: In real life, hospitals aren't very sexy, either. They're not this hotbed of -- or maybe they are -- romanticism, but the business of being a hospital operator... it's a single-digit growing industry. It's a boring kind of industry. You've got care, you give care, you charge payers for that care. It's not nearly as exciting, maybe, as some of these shows make it out to be.
Harjes: But, as investors, this is a way that you can invest directly in these hospitals. Todd, really quick, can you give us a rundown of some of the major players in the space?
Campbell: Yeah. The two that maybe investors would be most interested would be HCA and Tenet Health Care, symbols HCA and THC. I already said this, I alluded to it earlier, these are slow-growing businesses, but they do have the wonderful benefit of having an aging population providing a lot of tailwinds for demand. Most of these companies are growing their businesses 1% to 3% per year. Their margins aren't great, but they're not horrible. They're certainly not as profitable as a drugmaker. They spend about 80% of the money they haul in in revenue on operating costs. So they're profitable, they make money, but building hospitals is expensive. They're maybe not the most exciting stocks to own within the healthcare space.
Harjes: Next time you're binge-watching hospital shows, you're welcome for making you think about investing while you're trying to relax.
Lapera: I'm going to throw out a couple companies technically in the financial sphere, which are healthcare REITs. A REIT is a real estate investment trust. HCP (NYSE: HCP),Welltower Healthcare (NYSE: HCN) and Ventas (NYSE: VTR).
Harjes: How do they make money?
Lapera: What they do is they lease out space to operators. A lot of them make pretty good money because, one, there's a lot of demand for healthcare, because of the aging population, like Todd mentioned earlier. But since they're just leasing out the space, they don't really have to worry about making MRIs profitable or anything. They just get to benefit from having these people pay them. Because healthcare is not like Amazon -- you can't just get your healthcare over the internet for the most part. You actually have to go to a hospital or a doctor's office to get treatment. They are, as far as healthcare businesses go, fairly stable.
Harjes: That's a good point.
Campbell: They pay out a nice dividend, too.
Lapera: Oh, that's true.
Campbell: Income investors can pay attention to that as well.
Harjes: That's a good point, Todd, too. We have another topic that we want to cover on today's show, and this is one that I can personally speak to way more than TV. This is the ALS Ice Bucket Challenge, which you guys might remember. Two years ago, there was this huge trend where people were dumping buckets of ice over their head. If you didn't pay too much attention that probably is all you took from it, but what was going on behind the scenes here is, there was this huge wave of challenges going on where you were given the option, if you were challenged, to either dump this bucket of ice over your head or donate money to ALS. Most people didn't really know what ALS was, but it went viral. Celebrities were doing it, you had professional athletes doing it. I did it. Did either of you do it?
Campbell: I did it.
Lapera: I did not. But Kristine ...
Campbell: It was a lot of fun. We did it right by the beach.
Lapera: But Kristine, what is ALS?
Harjes: Exactly. This is the most important question that you can ask when you talk about the ALS Ice Bucket Challenge, because it raised a lot of awareness for a disease that not a lot of people know about. ALS stands for, and I apologize if I butcher how you pronounce this, amyotrophic lateral sclerosis. I love language, so I'm actually going to get really nerdy about the language here.
Lapera: Break it down!
Harjes: Yeah! It comes from Greek. The first word, anyway, the "amyotrophic." "A" means "no," "myo" is "muscle," and the "trophic" means "nourishment," so you get there, "a lack of muscle nourishment." "Lateral" refers to the spine, particularly where the brain tells muscles what to do. Then "sclerosis" means "a hardening," so a scardening ... scarring of the region as it degenerates.
Lapera: "Scardening" is a good word.
Harjes: "Scardening." It's close enough.
Harjes: I did say I'm sorry for butchering the language here, as I'm trying to explain language. But you take it all together and ALS is a progressive neurodegenerative disease. It attacks these nerve cells in the brain and the spinal cord, and as these motor neurons die, the ability of the brain to initiate and control your muscle movement is lost. Eventually, three to five years after your diagnosis, the patient dies. This is not an extremely prevalent disease. Many people may know it as Lou Gherig's Disease. There are approximately 6,000 new cases in the U.S. annually, and there's only one FDA-approved drug that exists for it. And even then it just moderately slows the progression of ALS in some people for about three months. That's not great. There is a need here, an unmet need, and you find this with a lot of rare diseases, where it can be kind of hard to get funding to research them.
ALS and the Ice Bucket Challenge remade the news again recently. The challenge, and the money that it had raised, ended up discovering a new gene related to the disease, which is kind of cool, but it also raises a lot of questions. Was this money put to use in the best way, and what does this new discovery of the gene mean? What do you guys think?
Campbell: ALS is a disease a lot like Alzheimer's: very hard to understand. Unfortunately, most of the treatments that have made their way into the human clinical trials haven't borne fruit, if you will. There are a couple companies out there that are doing research that investors will want to know about -- we'll talk about those in a second. There's this whole big question of, "Where should I give my dollars, charity-wise," that people have to wrestle with all the time. Certainly doing things like the muscular dystrophy telethons of when I was growing up, and doing things like the ALS challenge, those kind of things raise awareness. I think that's important. Whether or not that's actually going to translate into an effective cure or treatment, we're in too early stages to say at this point.
Lapera: I think that one of the major things that people objected to with ALS challenge is that, if you look at a pie chart of diseases that kill Americans, ALS is not even in the top five, maybe not even in the top 10. Heart disease is the biggest killer by far of Americans, and so people were like, "Why don't you just send that money towards heart disease?"
Campbell: That's that whole of "funding cannibalism," right?
Harjes: Todd, can you explain that phrase a little bit?
Campbell: Essentially, there's this movement in the charity world toward effective altruism, or EA, and the idea is that you can quantitatively look at where your donation can have the biggest bang for its buck, if you will, and therefore theoretically, quantitatively speaking, that's where you should be making your donation. Which would speak to what Gaby was saying, which is that ALS is an important disease, and certainly there's a need for a cure, but you've got millions of people dying of malaria still, and maybe that's where the focus should be heading instead. It's a very touchy, sensitive subject, though.
Harjes: It is. It's really hard to criticize altruism at all. Another layer to add to this story is that maybe some of these people weren't planning on donating any money at all to disease prevention, and now all of a sudden, they're like, "Hey, I don't want to dump a bucket of ice on my head. I'm going to give a hundred dollars where I might not otherwise have."
Lapera: I think the other thing to think about is that drug companies -- I think this is a point that we talked about a couple days ago -- drug companies have an incentive to do research for diseases that kill a lot of people, because they'll make way more money, because a lot of people get them.
Harjes: Yeah, they're for-profit companies.
Lapera: Exactly, but nonprofit research organizations don't get a lot of money to do studies on people who, frankly, die fairly quickly of diseases that are fairly rare. It's one of those things where maybe raising awareness for something like this is really good. It is an actual altruistic thing. I don't know.
Harjes: I can see both sides. One thing that I think is worth mentioning that we haven't quite touched on yet is, this new gene discovery that the media has been touting lately. This is only the very, very first step into actually doing something with it.
There is a huge gulf between discovering a gene and getting a drug actually out on the market. This gene is only present in about 3% of ALS cases, anyway, although it's still among the most common genes that contribute to the disease. So this is something that there's still a lot of work to be done, and it'll probably take a lot more money than has already been raised.
Campbell: The advances in treatment will probably come still in the form of addressing the symptoms, rather than the root cause. You've got a couple companies out there that are doing some good work in that regard. You've got a company called Cytokinetics(NASDAQ: CYTK), the symbol there is CYTK. They're working on a phase III trial for a drug they call Tirasemtiv. That's worth keeping an eye on. I think results are expected next year. Biogen (NASDAQ: BIIB) and Ionis (NASDAQ: IONS)are also teamed up with some early-stage work on ALS as well.
Harjes: To add another investing takeaway here, it kind of reminds me of the hype over the Zika virus. We've all seen the news about Zika. There's a lot of fear out there. Some of the stocks associated with developing cures for this diseases, or vaccines, have been really inflated recently. We did an entire show about this a while ago, but I would just warn investors to be cautious about following the big news stories and trying to find specific investing takeaways there. For example, if you're going to invest in Biogen, it probably shouldn't be for their ALS research.
Lapera: I think one of the things that you're getting at is that science reporting is very different for different audiences. If you're just looking at an article that appears on your Facebook that's US News and World Report -- which is not a bad news source, but they tend to say things like, "They found a gene! That's great! This is a huge advancement!" It is, but that needs to be tempered, like Kristine said. If you're going to try to use news sources to inform your investing decision, you're going to want to try and find more technical, academic sources that are like, "We found a gene, and now this is probably the progression for the next 10 years of research."
Harjes: Yeah, research is a marathon, for sure, and so while this is a really good step in the right direction, it's still something that, as you mentioned, does need to be tempered. Meanwhile, I'll also add that giving to charity is its own form of investing, and so I would say that we can talk about that as an investing takeaway for this show. My takeaway, personally, as far as charity goes, would be a site called Givewell. These guys do MBA-level analysis of charities so that you know exactly how effective these charities are, and how much bang for the buck, so to speak, you'll get from donating to them. It doesn't rate every charity, but it focuses on a couple that stand out the most to them, to produce a list of what they consider to be the best of the best.
Lapera: If you need a selfish reason to give charitably -- tax deductions.
Harjes: Spoken like our Financials host right there. Todd and Gaby, thank you guys so much for coming on the show today to talk pop culture and healthcare and the intersection thereof. Listeners, stayed tuned for the rest of the pop culture week here on Industry Focus. Avid Fool podcast listeners will be particularly interested in Friday's tech show, when there's going to be a very familiar voice from another Fool podcast. If you're scratching your head saying, "Wait, there are more Fool podcasts," head on over to podcasts.fool.com and check out the whole suite of them.
As always, people on the program may have interest in the stocks that they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. For Todd Campbell and Gaby Lapera, I am Kristine Harjes, thanks for listening, and Fool on!
Gaby Lapera has no position in any stocks mentioned. Kristine Harjes has no position in any stocks mentioned. Todd Campbell owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com, Biogen, and Ionis Pharmaceuticals. The Motley Fool recommends Welltower. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.