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Life Sciences industry may see more investments; more uncertainty for health care sector

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The recession may be officially over, but ground reality is very different for many industries, including the life sciences and health sectors.

Biotech companies found it tough to raise the capital they needed this year. On top of that, pushing products through the Federal Drug Administration approval process was especially challenging for San Diego firms.

“That has more to do with the FDA’s policies than it does with products being developed here,” said Joe Panetta, president and CEO of BIOCOM, the local life science association.

He said it will become more challenging going forward, given the FDA’s risk-averse attitude, unless patient groups and others apply significant pressure to change things.

Panetta hopes 2011 will bring in more investments, and he thinks the tax cut extension announced by President Barack Obama will help.

A good portion of new investments will focus on biofuels, medical devices and emerging fields such as wireless health care, according to Panetta.

Partnering with China is a key strategy for the local industry, one that Panetta has intently pursued, having made four trips there in the last year.

“The Chinese pharma industry is quickly moving from producing generics to focusing on licensing innovative U.S. products and producing them. We’ve signed several agreements with a large biotech park and several companies,” Panetta said.

BIOCOM has a committee that works on introducing local companies to China and Chinese firms to the local market. It is also working on forming a Sino-American biopharmaceutical association.

A global partnering conference to be held in February is expected to bring more investors to San Diego.

“I’m really optimistic about two fields -- personal genetics and stem cell research,” Panetta said. “We’ll see a lot of growth in medical devices, which is thriving locally, although the medical device tax will hurt small companies.”

Health care sector

The health care reform act made 2010 a significant year for the industry.

“A very momentous year for hospitals, physicians and health care in general,” said Steven Escoboza, president and CEO of the Hospital Association of San Diego and Imperial Counties (HASDIC). “There’s something for people to like as well as dislike.”

Escoboza said HASDIC has spent much of 2010 trying to figure out the reform act and its potential effects.

It will have a positive effect on hospitals where it will be phased in over 10 years, while insurers have already begun to feel initial consequences, he said, referring to the requirement for coverage for those with pre-existing medical conditions.

“We’ve already recognized that patient safety improvement is needed. Standardizing best practices, quality and performance improvement in this area is a special focus for San Diego,” Escoboza said.

When it comes to implementing information technology systems, San Diego is ahead of the curve, having received a federal grant of $15 million to better track patients who move between facilities, he said.

Consolidation is one trend to expect, across the state and even the nation, said Escoboza. Hospitals here have begun to consolidate and insurers will follow suit.

This will lead to certain services being merged, and some services may be contracted out to partner hospitals.

Hospitals will focus on finding a more efficient way to see more people in emergency rooms.

Another trend going forward will be the increased use of Medicare and Medicaid, because of affordability issues with commercial insurance programs.

“In San Diego County, we have approximately 500,000 to 700,000 uninsured people. As more insurance products become available, they will be able to afford insurance,” Escoboza said.

Job openings will improve for diagnostic, laboratory and technician categories, which Escoboza characterized as lower paying jobs for which the government will fund training opportunities.

Tom Gehring, executive director and CEO of the San Diego County Medical Society (SDCMS), said 2010 has been a very tough year for everyone.

SDCMS has a diverse membership, and physician members come from both ends of the spectrum, small and individual practices as well as large group practices. Of about 7,000 physicians in the county, roughly one-third are solo-practitioners, another third belong to large groups and the rest fall in the middle.

“Physicians have been whipsawed by Congress’ lack of action in resolving San Diego’s misclassification as a rural community by Medicare,” he said.

This allows Medicare to reduce reimbursement by 5 percent to 7 percent.

Congress’ inability to provide either timely short-term fixes or sustainable long-term solutions to Medicare rates, nationally and locally, has created significant uncertainty and major downside risk for physician practices. It also has directly impacted the future ability of doctors to see Medicare patients, according to Gehring.

He predicts that as medical costs increase, insurers will be less able to pass some of those costs to patients, so they may have to reduce reimbursements to doctors.

Summing up what to expect in 2011, Gehring said, “Uncertainty, reduced reimbursements, increased pressure on solo practitioners, diminishing number of paying patients for large groups.”


Nagappan is a San Diego-based freelance writer.

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