A designated contract market (DCM) is a board of trade, or exchange, that operates under the regulatory oversight of the CFTC. DCMs may list for trading futures or option contracts based on any underlying commodity, index or instrument, CFTC said in a statement.
Just like a wheat farmer can lock in revenue for his commodity and a cereal company can lock in its cost in the commodities markets, healthcare companies can hedge on their revenues and costs with the exchange, said James Plante, IMX's co-founder and CEO.
Healthcare represents close to 20% of national GDP, some $4.5 trillion in spending, but it hasn't had a futures exchange, Plante said.
The business model has been based on financial uncertainty, creating risks that in turn create overcharging, he said.
"How do healthcare companies try to hedge against their risks?" Plante said. "Pharmaceutical companies will raise their prices, service providers overbill by five times what they expect to be paid and insurance companies set up barriers to care."
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He calls current healthcare pricing mechanisms "unsavory" and says a contract market like IMX can allow participants — including investors, payers and providers — to hedge their bets and provide price transparency and price discovery to boot.
The exchange would be less about contracts for vials of a drug and more contracts based on healthcare cost indexes, he said. IMX would publish cost indexes, from a general health index encompassing 90% of the spending in healthcare today to specific, granular indexes about procedures and diseases, such as diabetes or kidney disease.
Plante says he expects IMX could someday have hundreds of indexes.
While healthcare pricing may seem unique and nuanced in its pricing, Plante says the data is readily available to create indexes, for example among de-identified electronic health record data from some 200 million patients and billions of transactions.
IMX has built an artificial intelligence model, dubbed IMX GPT, to generate indexes using health records and more than one hundred thousand provider billing codes.
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"Then we put a futures contract on top of that," he said. In that way, IMX can help find where prices are and where they might be going.
"In healthcare, our indexes will reflect what is happening today, in almost real time. That sets up the discussion for what prices will be. The futures market doesn't set prices, it facilitates price discovery," Plante said. "The index says what's happening now, and investors look at where they're willing to bet it will go."
“With IMX, the entire healthcare industry will finally have access to the capital markets tools available to other major sectors of the economy,” said James Plante. “IMX will provide opportunities for market participants through competition for services and cushioning price shocks in the marketplace, potentially leading to lower prices and premiums.”
The ability to hedge against uncertainty with a futures market could have had a profound effect on many providers at the time of the COVID-19 pandemic arriving, he said. For example, COVID-19 shutdowns meant a huge drop in orthopedic procedures.
"Costs didn't change, volumes did, so revenues did. Payers were happy not to be paying out for as many medical procedures, but it would have been an ideal time for hospitals to have had a hedge on," he said. "Then, later, there was a surge in utilization, in which payers could have had the hedges."
This story first appeared in Crain's Chicago Business.