This week we continue our conversation with Andrew Brady, Managing Director and Leveraged Loan Portfolio Manager of Marathon Asset Management, L.P.  Marathon is a global credit manager with approximately $13 billion of capital under management investing in the global credit markets. Second of two parts – View part one

The Lead Left: You mentioned health care. What happens if ACA is repealed?

Andrew Brady: We’ve long been skeptical about investing in U.S. healthcare companies given the globally unique structure and levels for U.S. pricing.  Pharma, for example, is much more expensive than elsewhere.  That’s also true of training, services, hospitals and devices, for a variety of reasons, but not including universally healthier people or better outcomes.  One key factor is that the largest payors, especially most government bodies, do not or cannot negotiate for group discounts.  Despite stable and growing healthcare needs, fixed income investors have seen plenty of defaulted borrowers across the healthcare industry, often from mandated changes in pricing of services or products.  If the prevailing pricing structure changes, there is real downside for many companies, especially those with high profits margins and high debt loads.  Hospitals, pharma, lab testing, dialysis, PBMs, and ambulatory surgery centers could all see more pressure.  It is difficult for debt investors, with no upside participation, to be properly compensated for such risks.  Changes in insurance programs such as higher deductibles have contributed to more attention on abusive pricing such as Mylan’s Epipen and others where marketing seems to triumph over efficacy.