Michael Dowling, North Shore-LIJ Health System’s President and CEO, discussed with clients, colleagues and friends of First Long Island Investors the current state of healthcare in the United States, the ramifications of the Affordable Healthcare Act (what some call Obamacare) and the future of healthcare for hospitals, service providers and patients.

Here are some of the highlights from the discussion:

Hospitals are Big Business and an essential component of the health delivery system

• People don’t like to think of them as such, but they are
• North Shore-LIJ employs over 47,000 people, making it the largest employer on Long Island, and it faces the same challenges as other employers
• Quality care and a high level of service are important, and patients want the best value for their dollar

Healthcare Today

• Changes in lifestyle is one of the reasons that has  led to poorer health in the US
  • Obesity rates, particularly among children and teens have risen significantly
• We are doing a better job of keeping people alive longer
  • We have added 35 years to life in the last 100 years, and have gotten so good at extending life that taking care of the elderly has added to high costs
• The government doesn’t focus primarily on the total costs of healthcare, just the cost to the government
  • More than 60% of hospital reimbursements come from the government (Fed & State)
• We are using a fee for service payment model which causes interests to be misaligned
  • It is to the hospital’s advantage to have beds full, so they are not compensated for providing well-care, and may do things they would not do with a different reimbursement structure
  • Some estimates suggest that 20% of the patients in hospitals shouldn’t be there
  • More procedures should be done outside of hospitals
  • The terminally ill should if possible be dying in their homes, not in hospitals

The Affordable Care Act

• The Affordable Care Act (also known as Obamacare) is a maze of confusion, not completely understood by many and the White House has already begun to make adjustments
  • Not everyone is covered under the Affordable Care Act and the plan doesn’t lower costs (no proof yet that it will)
  • The politicians who wrote the bill have limited knowledge about the healthcare business – especially what it takes to implement at the ground level

North Shore- LIJ

• The country needs more quality, well-rounded doctors
  • Opened a new medical school with Hofstra, which threw out the traditional method of medical education and focuses on training doctors in a different way
• Involved in more research
  • Would be surprised if a North Shore-LIJ employee doesn’t win a Nobel prize soon
• Building more ambulatory centers, 400 and growing
• Working with CVS to operate in-store clinics manned by nurse practitioners
  • Will lower emergency room visits
• Partnering with the Cleveland Clinic and Mayo Clinic to become more innovative
• Want to be like Starbucks, be in the community and deliver a quality product

The Future of Healthcare

• The business model of healthcare should change
  • Want to be paid not just for services but for keeping the population healthy and out of the doctor’s office and hospital as well
  • North Shore-LIJ is spending time and money on population well-care
• North Shore-LIJ is building its own health insurance company, and is working in conjunction with other insurance companies, to hopefully obtain an insurance license by the end of the year
  • Incentives for hospitals will be turned around, and hospitals will want to keep you out of the hospital to reduce total health care costs
  • Medical tests, which are overused in the US, will be reduced
• There will be fewer independent practices, as more doctors will be employed by hospitals
• Nurses and nurse practitioners will become more important and take on more roles of the primary care physician
• Prices for treatments will become more transparent and a larger proportion of the cost of treatment will fall to the patient, perhaps leading to a change in their lifestyle
• “Healthcare is what we do to ourselves, and unless we think of it that way we are not addressing the problem”

 

 

Michael J. Dowling
Mr. Dowling is president and chief executive officer of the North Shore-LIJ Health System, which delivers world-class clinical care throughout the New York Metropolitan area, pioneering research at The Feinstein Institute for Medical Research and a visionary approach to medical education, highlighted by the Hofstra North Shore-LIJ School of Medicine.  North Shore-LIJ operates 16 hospitals and nearly 400 outpatient physician practices and is the nation’s third-largest non-profit secular health system.  Mr. Dowling has been recently recognized as one of the 100 most powerful people in healthcare by Modern Healthcare magazine.  Prior to joining North Shore-LIJ in 1995, Mr. Dowling served in New York State government, as director of Health, Education and Human Services, and as deputy secretary to the governor.

JERICHO, NY – First Long Island Investors, LLC (FLI), a wealth management firm based in Jericho, announced today that its Dividend Growth Strategy has been ranked in the top one percent of large-cap U.S. equity managers by PSN Enterprise, a division of Informa Investment Solutions, for both the three-year and two-year periods, ended March 31, 2013. Informa Investment Solutions compiles investment returns and ranks more than 3,500 money managers. FLI Dividend Growth’s performance since inception on March 31, 2010 is up a cumulative 53% and has outpaced the S&P 500 Index by 10%.

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“Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.” Peter Lynch

Summary Review

The first quarter resulted in very substantial gains for domestic equity markets (S&P 500 +11%), treading water in bonds, and a slow but continuing recovery in real estate. This is on top of last year’s significant appreciation in equities. Meanwhile, yields on bonds remain low as the Fed continues to buy bonds, unemployment remains stubbornly high and inflation remains low. Investors who have not participated in the record-setting domestic-equity market feel left out and somewhat trapped in their low-yielding bond investments and cash. Prudent asset allocation continues to be the answer for all investors enabling participation in the equity markets while being diversified. Meanwhile, we are pleased to report that we believe all of our clients have appropriate allocations to both defensive and traditional equity holdings and have participated in the escalating equity markets. In particular, our Dividend Growth strategy, one of our defensive equity strategies, led the pack for us in the first quarter appreciating by 14%. (For the three years since inception this strategy has appreciated by 53.3% and has outpaced the S&P 500 which appreciated by 43.1% while still being a defensive equity strategy, in our opinion.)

We believe those investors who have been too skeptical about “stocks” now seem to be finding a way to invest, in part, through buying companies that we own in our Dividend Growth strategy. These stodgy, larger, financially-strong companies that pay generous and growing dividends continue to attract investor interest. However, we believe, based on academic support, that the appreciation for these companies will result from the combination of their higher yields and dividend growth. We also believe that the current market appreciation is not overdone and equities remain a reasonable place to invest as compared to bonds that offer little yield and risk paper-losses if interest rates increase. Corporate earnings continue to grow modestly and price-earnings ratios for large companies (about 15 to 16 on forward twelve month earnings) remain well below that seen in either of the last two market tops in 2000 and 2007 when p/e’s were 26 and 20 respectively. Add to that the fact that bond yields were much higher then and thus more attractive versus the financially-repressed low rates of today. In our view, that combination of reasonable p/e’s and unattractive interest rates continue to make for an investor-friendly equityenvironment. This is further bolstered by the fact that money on the sidelines (both individual, institutional and corporate) is at very high levels and some of it appears to be migrating to quality equities.

Having said that, one needs to focus on our quote from Peter Lynch. What stops investors from achieving attractive long-term gains on investments is their understandable distracting focus on the worries of the world. Certainly there are many to be concerned with, including:

• Geopolitical issues resulting in dreadful headlines about both North Korea and the Middle East.
• Worries about U.S. debt and the viability of entitlement programs such as Social Security, Medicare, and Obamacare.
• The continued haggling in Washington over so many unresolved social (gun control, immigration, and same-sex marriage) and economic issues.
• Our inability to meaningfully bring down unemployment and spur better than weak economic growth.

Meanwhile, American business remains financially healthy and is fostering slow but profitable growth in part through efficiency and global demand. And, for the most part, businesses are sitting on a stockpile of cash giving us comfort that they are stable and can weather unforeseen crises that come on unexpectedly, and typically don’t last too long. Even our large banks seem to be healing and are subject to new regulations that may somewhat protect us in the future.

So it remains our view that there are opportunities to make reasonable returns over the long term from a prudent and diversified asset allocation among our investment baskets of security, defensive equities, traditional equities and private investments. A customized asset allocation among these baskets hopefully permits you to “ignore” the worries and let your investments work for you over the long term. And even though there will definitely be periods of volatility and market corrections, we can see from past history that those who stay the course for the long term are ultimately rewarded with meaningful appreciation. The key is in the asset allocation that provides the strength to weather the worries of the world. Having exposure to bonds, defensive equity strategies (Dividend Growth and FLI Partners Fund), traditional equities and private investments (private equity and real assets) with a quality and concentrated bias is a prudent formula for all of our clients. Patience remains a critical characteristic of the successful investor.

Please call upon us if we can be of further assistance in making sure you have an asset allocation that gives you the ability to ignore some of the worries and let your money compound for you.

Best regards,

Robert D. Rosenthal
Chairman and
Chief Executive Officer

Ralph F. Palleschi
President and
Chief Operating Officer

*The forecast provided above is based on the reasonable beliefs of First Long Island Investors, LLC and is not a guarantee of future performance. Actual results may differ materially. Past performance statistics may not be indicative of future results.

Disclaimer: The views expressed are the views of Robert D. Rosenthal and Ralph F. Palleschi through the period ending March 31, 2013, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.

Content may not be reproduced, distributed or transmitted, in whole or in portion, by any means, without written permission from First Long Island Investors, LLC . Copyright © 2013 by First Long Island Investors, LLC. All rights reserved.

First Long Island Investors, LLC (“FLII”) a wealth management firm overseeing approximately one billion dollars in assets is pleased to announce a number of significant promotions. Edward C. Palleschi and Philip W. Malakoff have both been appointed Senior Vice President – Wealth Management. Both Ed and Philip had been Vice Presidents at FLII. In addition, FLII is also pleased to announce that Brian Gamble has been appointed Vice President-Wealth Management. All of these executives serve on FLII’s Investment Committee and are involved in research and investment management as well as providing various wealth management services to the company’s clients. FLII is celebrating its 30th Anniversary this year as a leading independent employee owned wealth management company on Long Island.

 

“Time is the friend of the wonderful business. It’s the enemy of the lousy business. If you are in a lousy business for a long time, you’re going to get a lousy result, even if you buy it cheap. If you’re in a wonderful business for a long time, even if you pay a little too much going in, you’re going to get a wonderful result if you stay in a long time.”
Warren Buffett

Summary Review

Our recent thought piece discussing performance for last year and our outlook for 2013 was mailed earlier in January and we hope you had a chance to review it. We believe it is worth again reviewing the “wall of worry” that we overcame last year to achieve strong investment results. These worrisome challenges included:

1. Slow economic growth
2. The Presidential election
3. European Banking and Sovereign Crisis
4. Stubbornly high unemployment
5. Fiscal policy uncertainty culminating in the “fiscal cliff” last minute deal
6. Geopolitical hot spots in the Middle East, North Korea, and South China Seas

Now on the plus side we have some significant positive developments or expectations as well:

1. Housing has bottomed and is on the rise rebuilding some lost wealth and helping employment
2. Auto sales are at robust levels and growing
3. Consumer debt is significantly down and deleveraging of consumers’ balance sheets is slowing
4. Unemployment claims have dropped to below the 350,000 level
5. Corporations have strong balance sheets with significant cash and have borrowed at historically low rates to further bolster their finances
6. Corporate earnings remain strong
7. European banking crisis is being dealt with although not solved
8. Energy development is leading to not only potential U.S. energy independence, but is a catalyst to a manufacturing renaissance
9. We expect both institutional and individual money to flow into equities as the asset class of choice bolstering stock prices

Our guardedly optimistic outlook is tempered from lingering but real concerns about the following:

1. Unsustainable annual U.S. deficit and sixteen billion dollars of cumulative debt
2. Entitlement reform to reduce prospective deficits including sequestration
3. Unknown economic consequences from the Affordable Care Act (Obamacare)
4. Political paralysis in Washington holding back employment gains and energy development
5. A nuclear Iran and other global hot spots
6. The continued squeezing of the U.S. middle class
7. Unknown consequences when the Fed shifts to a less accommodating policy
8. Slow global growth and concerns about Europe

Our view of the investing landscape is reasonably bright, but any of the enumerated concerns could cause some turmoil and volatility. The net result is that we favor a higher allocation to defensive equity strategies (Dividend Growth and FLI Partners Fund) whose quality companies should participate in appreciating markets but be less volatile in market disruptions. At the same time, we continue to believe that concentrated portfolios (again) in quality traditional equities are prudent over the long term as part of one’s asset allocation. However, here unanticipated volatility will do more damage in the short term. Both our defensive and traditional equity allocations will benefit from the continuing global growth driven by innovation (e.g., smart phones and payments by plastic) and an emerging middle class in other parts of the world. We also believe that the slow but sure healing of the financial system will benefit the entire global economy. Also, the slower global growth (particularly China and Brazil) has capped what had been highly inflating commodity prices. This continued slower global GDP growth and continued productivity gains should keep commodity prices somewhat subdued. As for gold, if inflation heats up in the future, or if there are regional outbreaks (e.g., the Middle East), gold could be a sound investment.

We remain cautious on bonds for fear of higher interest rates. We believe the bull market in bonds is at or near an end (see Exhibit 1). Better yields and growing income can be obtained from our Dividend Growth strategy (here the growing yield that we expect is a hedge against inflation). Therefore we continue to keep our bond portfolios with shorter duration through reasonable maturities. (Primarily no more than five to seven years on average, even if you plan to hold bonds to maturity.) We also believe that corporate, high yield, and emerging market debt have seen spreads contract. This limits the opportunity there as well.
Prudent individualized asset allocation among our four investment baskets should yield you the best road map to compounding your wealth at reasonable levels despite continued economic, fiscal and geopolitical uncertainty. And the reallocation of liquidity, if it occurs, should benefit all of our investment baskets excluding fixed income (security).

Please call upon us with any questions you might have. We wish you the best for this New Year and look forward to reporting to you at the end of April.

Best regards,

Robert D. Rosenthal
Chairman and
Chief Executive Officer

Ralph F. Palleschi
President and
Chief Operating Officer

*The forecast provided above is based on the reasonable beliefs of First Long Island Investors, LLC and is not a guarantee of future performance. Actual results may differ materially. Past performance statistics may not be indicative of future results.

Disclaimer: The views expressed are the views of Robert D. Rosenthal and Ralph F. Palleschi through the period ending December 31, 2012, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.

Content may not be reproduced, distributed or transmitted, in whole or in portion, by any means, without written permission from First Long Island Investors, LLC . Copyright © 2013 by First Long Island Investors, LLC. All rights reserved.