2020 outlook: Health care

Despite political headlines, the long-term trend toward value creation should support managed-care stocks.

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Key takeaways

  • Despite recent volatility, the managed-care industry should benefit as the US health care economy transitions to a payment model that incentivizes value over utilization, with the patient at the center of care decisions.
  • The sweep of merger-and-acquisition activity across the managed care space—with medical providers combining with health insurers and drugstores—is representative of this overall shift to a more holistic and coordinated approach to health care.
  • A more personalized, lower-cost model should save money both for patients and for the entire health care system.

Managed care stocks faced stiff headwinds for most of 2019, as increasing political rhetoric ahead of the 2020 presidential election related to government-sponsored health care and legal wrangling about the Affordable Care Act weighed heavily on the industry. However, I still see managed care as one of the health care sector's long-term winners, backed in part by the strong fundamentals and attractive business models of the industry's leaders, as well as by their ability to bend the cost curve in the long run.

Moreover, I think this industry is best-positioned to benefit from what I believe is one of the sector's prominent secular trends: the transformation of the US health care economy to a payment model that incentivizes value over utilization. After a multi-decade stretch of precipitously rising health care costs, consumers are becoming more powerful decisionmakers. For the first time in U.S. history, the incentives of health care's three most important stakeholders—patients, providers, and payers—are finally aligning, with a focus on patient outcomes that are clinically better and help consumers navigate a complex system.

With the patient at the center of the decision-making process, US health care is moving to an integrated care delivery model, which is gradually replacing the fragmented delivery of various health and social services.

Over the past few years, the sweep of merger-and-acquisition activity across the managed-care space—with medical providers combining with health insurers and drugstores—is representative of this overall shift to a more holistic and coordinated approach to health care.

These companies are working toward building a new and innovative health care infrastructure that can address patients in lower-cost settings, such as through cloud/telemedicine that can be delivered to patients in their homes. They are also providing a better consumer experience by using digital technologies to engage patients in health care decisions, thus bringing greater understanding of health to people, which in turn allows them to make better decisions and lower their long-term medical costs. This more personalized, lower-cost approach to health care also saves money for the entire health care system.

Overall, I see us continuing to move to a consumer-driven health care economy, fundamentally changing how people interact with the health care system, and I believe managed care providers will maintain their integral role.

Next steps to consider

Research the Fidelity® Select Health Care Portfolio (FSPHX).

Get the details on the lineup of mutual funds.

Go back to the full 2020 sector outlook.

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