Switching to the dark side? — Moving from clinical care to finance - Careers: Special Report - a report of a former hospital administrator who finds work as a health care stock analyst

Physician Executive, May-June, 2003 by Brian A. Meltzer

IN THIS ARTICLE

Take a peek inside the world of a former hospital administrator who left for a job as a health care stock analyst working with Wall Street.

Imagine a world where every new therapy that gets FDA approval is a blockbuster, a world where every hospital budget decision is based solely upon utilization of drug eluting stents, a world in which the HMO rate that the California Public Employees' Retirement System negotiates for 2004 has implications for every single private payer nationwide.

* In this world, clinical realities that we physicians know in our gut do not always translate into the outcomes we would like,

* In this world, the recent mild flu season that we've experienced is said to have led to a drop in "same-store sales" at hospitals and had a negative effect on revenues for the private hospital companies.

* In this world, owning shares of a company that gives you the ability to squirt your flu shot up your nose will make you wealthy beyond your wildest dreams.

This is the world created by health care analysts on Wall Street. It is a world of tunnel vision that makes every stock move as though explainable on a simple single cause/single effect basis.

I now live in this world.

Buyers and sellers

Let me first explain a bit about Wall Street analysts. There are those on the "buy" side and those on the "sell" side. Sell-side analysts work for the big brokerage houses. Sell-side analysts in the health care sector are impressively intelligent. They ask smart and challenging questions of management.

From a medical-surgical frame of reference, they are the internists: rounding endlessly, questioning mercilessly (to complete the metaphor, traders are the surgeons: caring not about fundamentals, trading by reflex).

Brokerage house analysts spend their clays schmoozing with company management within their "universe" of companies. They spend their evenings stuffing the voice mail and e-mail boxes of buy-siders with reports, estimates and, of course, upgrades.

Upgrades mean you should drop everything and buy. You don't get many downgrades. I wonder why?

Sell-siders are the guys (and gals) with the voice. Theirs are the opinions that matter to investors. They are the ones interviewed on TV and in the newspaper. They spout the health care gospel according to Wall Street. They tell the brokers what to say when they call their customers with trading ideas.

And while the stocks they cover usually respond to their published opinions, from a health care perspective they are wrong quite often.

I'm a buy-sider. I work for a private investor partnership and spend my days trying to pick potential investments in the health care world. I routinely speak to these analysts by phone and meet with the management of companies who are either currently in our portfolio or are potential portfolio additions.

The challenge of the job is to make rational sense out of the constant barrage of information that flies into your face from two flat screen monitors for nine hours a day. The challenge as a physician is to separate clinical reality from Wall Street sentiment and try to make a rational buy, sell or sell short decision based on detailed fundamental analysis.

This is not an easy thing to do, especially when you're not fluent in finance-speak.

So, what's your day like?

I find myself constantly barraged with dozens of minor daily data points. Little news clips and rumors about the companies I follow are then subject to the "interpretation" of those whose job it is to rack up commissions on stock trades.

My job is to make sense and extrapolate the potential market reactions to all these snippets of information.

If news "hits the tape" that Centers for Medicare & Medicaid Services Director Tom Scully offhandedly mentions that he thinks implantable pacemakers and defibrillators are interesting, you can sit back, look at your two flat screens and, within seconds, watch the market snap into action.

To come up with my personal rationale for what happens next, it helps to have the logical mind of the physician and the single through-line framework approach of the classical Stanislavski method actor.

My approach to these rapid action-reaction responses of Wall Street is to be the internist-to question, to interpret and to be the "watchful waiter."

For obvious reasons, once Scully finishes his statement and takes a breath, you'll see the defibrillator makers' stocks go up 10 percent. You'll also notice that the private hospital company stocks will go up eight percent because they'll get reimbursed for these things.

And the nursing home stocks will plummet. In the "giveth beget taketh" tunnel vision view that is pervasive among analysts, nursing homes always feel the pain of unrelated Medicare reimbursements.

Tom Scully might like defibrillators? It's time to short the nursing homes.

I've witnessed the stock of a biotech company go up 27.6 percent in one day on the news that the FDA approved one of its drugs. Never mind the fact that the ailment that this drug targets is a rare genetic disorder with a prevalence of only 5,000 patients worldwide.