Becton, Dickinson and Company (BDX)

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Becton, Dickinson and Company (BDX)

February 26, 2013 8:00 am ET

Executives

Vincent A. Forlenza - Chairman, Chief Executive Officer and President

Suketu Upadhyay - Acting Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Controller

Analysts

Amit Bhalla - Citigroup Inc, Research Division

Presentation

Amit Bhalla - Citigroup Inc, Research Division

Citi's life science tools and diagnostics team, and on behalf of Citi, I'd like to welcome you to day 2 of our annual health care conference. We're pleased to kick off our Tuesday keynotes with Becton, Dickinson. And with us from the company are Vince Forlenza, Chairman, CEO and President; and to Vince's right, Suky Upadhyay, acting CFO, Senior Vice President of Finance and Controller. For those of you aren't familiar with the company, BD is a global medical technology company with businesses in Medical, Diagnostics and Biosciences.

Now, Vince, before we jump into a discussion about the business, I wanted you to lean on your experiences as vice-chairman of the Valley Hospital Board of Trustees, and talk about the market impact you see as the health care system shifts away from fee-for-service to care-based on outcomes and value.

Vincent A. Forlenza

Sure. So I've been Chairman of the Board for 6 years now at Valley, which is in Ridgewood, New Jersey. And I've seen more change over, I would say, on the last 12 months than I have in the previous 5 years. And there's a number of things going on. First, picking up on what you said. Clearly, there is a real push to move away for fee-for-service. And of course, we're seeing doctors' practices being purchased by hospitals. And since the ACO regulations were put in place, a real push on forming ACOs and forming physician networks. Now, that's happening for a number of reasons. One, reimbursements are changing on the doctors, so they're looking at a very different economic equation. And of course, we've seen that in cardiology and other specialty areas. But big focus with the FP/GPs in building out the networks, so you can control the patient and position yourself. So you see that move away for fee-for-service. Second issue is standardization of care. You can do that much better in a staff model. So I see a lot of that happening, not just at Valley, but across the area. The third thing that's being debated is how big do you have to be as the government shifts risk on to the provider community. There's a big debate happening in terms of where that's going to go in terms of offering an insurance product on the provider side. And as I talk to other hospitals and hospital management teams in that capacity as Valley chairman, it's something people are thinking about.

So the first thing is how big do we have to be? If we're $2 billion, do we have to be $4 billion to really manage the risk in a capitated system? Secondly, what kind of an affiliation are we going to do? The New York/New Jersey marketplace has been one of the more unconsolidated markets. So there's a lot of conversation going on in terms of how much of our cost structure can we share and what kind of an affiliation makes sense. So all of those things are coming together and, I would say, have accelerated pretty significantly over the last 9 months.

Amit Bhalla - Citigroup Inc, Research Division

And what we heard yesterday in Peter Orszag's discussion was basically a debate between economic reasons versus structural reasons for health care costs flowing recently. What's your perspective there?

Vincent A. Forlenza

So I actually think it's both. I think certainly economics have played a big issue here, not just because of the unemployment rate, which I do think as families lost coverage, they have put off getting care. I do believe that, that has been an impact and has impacted utilization. But structurally, even those that are covered have high deductibles. You have the health care savings account, so they're buying more carefully, not using as much care. I don't see that going away. And when you combine that with the trend away from fee-for-service, I think there is a big structural component as well for the U.S. Things are different outside of the U.S., of course.

Amit Bhalla - Citigroup Inc, Research Division

And that's a good point. I mean, you were recently at Davos and this was the first year that health care had its own official track there. Talk a little bit about the debate outside the U.S. regarding sustainable health care.

Vincent A. Forlenza

Right. And I've been going to Davos for the last 4 years. And the focus in health care, for the first time, was sustainable health care. And the thinking going into the meeting was, there's not a single sustainable health care system on the globe right now. It doesn't matter if you're spending 2% in China or 18% in the U.S. And the major shift over the last couple of years has been from the focus on infectious disease to a much bigger focus on chronic disease. And of course, then you have countries caught in the middle in terms of dealing with both. Having said all of that, McKinsey secunded a team to the World Economic Forum which worked with 5 governments; 4 of them were European countries, 1 was China on a vision for 2040 and how are they going to attack this issue.

Read the rest of this transcript for free on seekingalpha.com