If You Build It, Use Technology

There’s a famous movie instantly recognized by its tagline, “if you build it, they will come”. That’s exactly what Kevin Costner did—he built a farm land baseball stadium and the great players of the past came. In the movie Field of Dreams the construction process lasted a few frames and was executed with nothing more than a hammer, a saw, and some nails. We all suspend belief for the sake of the story being told, but once we snap back to reality, the truth is any construction, regardless of size, cannot be properly executed without the right technology in place.

The advances in construction technology are real, they are here, and they aren’t going away. If construction contractors are not already implementing these new ways to build, they’ll be as obsolete as the dot matrix printer.  Grassi & Co. recently completed our 2017 Construction Industry Market Outlook Survey and the results, when it came to technology, were thought-provoking—of the responding companies, 53% reported their technology investment would increase in 2017. However, the overall revenue percent spent on new technology to improve project construction/delivery is minor as the participants plan to spend less than 1%. One could read the message being sent by the thin technology budgets as these advances, which cost money, are still viewed as overhead with a still undefined return.

The reality is that when properly utilized by everyone in the organization, technology will increase productivity and profitability. Most contractors’ work on-site is enhanced by mobile devices. Integrated with the company’s ERP, these platforms are designed to increase communication between the field and home office—fostering real time collaboration between employees, regardless of their location or role, to make informed decisions based on current information to execute a profitable project.

For example, if labor hours exceed the budget, the project manager and office no longer need to wait to understand why and what the contractor’s recourse is. Technology, used properly, will allow the project team to make immediate and impactful decisions based on real-time data. Taking it a step further, once overruns or out-of-scope conditions are encountered, a properly equipped field team can use adopted technology to ensure documentation and other compliance requirements are properly utilized and submitted timely. Think about the immediate savings this translates to for the construction company.

Attract, train and retain has become the motto of most contractors when it comes to labor and the ongoing shortage. Construction companies who implement and use cutting edge technology have an untapped recruiting tool in their hands. By marketing their tech savviness to the millennial generation, a labor group who understands and embraces today’s technology can open the door to skill sets and new ways of thinking, which can translate to building better and more profitably. The opportunity to work within augmented reality models, with job site drones, using wearable technology focused on worker safety should be touted as an experience “you’ll only get here”. Further, talent will be less likely to seek career opportunities elsewhere if they know the construction company continuously makes an investment in the advancement of technological solutions and new ways to build.

Another consideration is the safety benefits to the contractor’s labor force from investing in technology. Construction companies today need to take proactive steps in differentiating themselves to demonstrate that labor is the most important resource. Developing and implementing an industry-leading safety program is an important step in helping the construction contractor solve labor issues as it demonstrates the welfare of workers and the worksite is priority number one. Coupled with the proliferation of wearable tech, an opportunity has emerged for the construction contractor to differentiate themselves from the competition. Making an investment in wearable technology designed to monitor the workforces’ vitals and project conditions can revolutionize on-site worker safety.

Consider these three pieces of wearable technology and how they could impact worker safety:

• Smart Vests – safety vests that can alert you to any fast-moving objects and detect unsafe environmental conditions as well as provide a log of the wearers safe work practices. Not to mention monitoring personal health indicators of its wearer, such as body temperature and heart rate.
• Smart Watches – smart watches can track the workers vitals: body temperature, heart rate, etc. Further, these assist in clocking time between breaks, so if one is warranted, the project manager is alerted. Management can also use the device’s GPS functionality to discern a workers’ location at all times—consider how valuable this becomes with respect to an employee who may be injured or lost on a job site.
• Bionic Suits – granted, these are uncommon in the construction industry today, but when one considers that the majority of health and safety issues on a job site are related to arduous physical labor, (which could lead to long-term physical problems for a worker) the argument to invest in a technology that will provide the contractor’s workforce with the ability to pick up and operate heavy machinery with ease, becomes stronger. In addition, bionic suits have the ability to reduce labor time for manual intensive tasks which leads to greater efficiencies and job productivity. (And, of course, fewer accidents and/or injuries mean fewer insurance claims and lost dollars.)

Cutting edge contractors are already employing emerging technologies to help develop new ways of building and alternative methods of delivery. They understand technology is here for the construction industry to build better, eliminate the silo effect and truly get every person in the organization on board and focused on overall strategic business goals. Decisions to invest dollars in this area are not made on the fly, in fact, hours of productivity are invested and those dollars spent on researching and developing new technologies could qualify for R&D credits, which could be sizeable income tax savings to the construction company as well.

Will the stable levels of technology investment, cited above, hold through 2018? One cannot say, but it is reasonable to conclude the way we build will only rely more heavily on technology tomorrow.
Hollywood loves to remake the classics, so I cannot help but wonder when Field of Dreams will get this treatment. Will we see Kevin Costner’s replacement building in a bionic suit, on farm land riddled with drones? We can only hope.

For more information on how you can use technology to improve your business, contact Carl Oliveri, Partner-in-Charge of Construction Practice at Grassi & Co. at coliveri@grassicpas.com.

Rebuilding NYC Construction Safety Standards

New safety standards, the STEP program and digital learning, are impacting construction companies, their personnel, engineering and design firms, and all others along the supply chain in the NYC construction industry. The financial and operational implications of these changes are worthy of consideration.

NYC Construction Safety Reform

Reform would typically originate from OSHA and the District Attorney’s office, the entities who govern safety standards for the industry. These agencies hold the General Contractor and Construction Management accountable, especially in the pre-qualification of subcontractors. Amongst their recommendations, increased safety planning prior to stepping onto jobs sites including higher certifications and law enforcement for work done involving scaffolding and elevator structures, better overall enforcement of laws,  and expansion of training and monitoring processes.

Prevention

As the saying goes, the best cure is prevention. Proper planning of not only how job sites operate but also how they are designed will make a world of difference. The Associated Builders and Contractors Inc. Safety Training Evaluation Process (STEP) program, is a leading set of safety best practices for the NYC construction industry. Initiatives such as cocooning an entire building during construction to protect from falling debris, advances in tethering to guarantee 100% fall protection, and digital innovations can shorten the learning curve and shield both workers and employers from costly and devastating accidents. Technological advancements from virtual reality training—which will reinforce key concepts to e-learning through mobile devices to deliver just-in-time safety tips to workers—will be at the forefront of these safety measures. Additional technological enhancements would also include the use of GPS tracking systems to keep abreast of everything and everyone on the job site at all times. Life vests may also be used to track how each worker is doing , i.e. are they experiencing fatigue, is the environment safe?, etc. It is recommended that foreman look for key indicators for depression, addiction, and suicidal behavior while on site.
To further educate those in the industry, ABC is also bringing a Safety Culture Academy to the NY area.

The Impact

Architects, designers, engineers, contractors and all firms along the supply change will feel some impact from these new safety standards, however, the costs of non-compliance rates much higher. It is imperative that owners understand that all of these risks, or even the threat of them, will either add considerable cost to the contract or decrease the potential profit one can make on any one specific job.

The good news is that since contractors are already mandated to comply with local, state and federal regulations, the up-front costs to the owners to implement and maintain safety standards is minor. If successful at safety implementation, and prevention of injury, the overhead costs of insurance and accident costs may be significantly reduced.

In the long term these developments will create a stronger and more productive operation at every touch point.

For more information on safety regulations within the construction industry, contact Robert Brewer, Partner-in-Charge of A&E Practice of Grassi & Co. at rbrewer@grassicpas.com, or Carl Oliveri, Partner-in-Charge of Construction Practice of Grassi & Co. at coliveri@grassicpas.com.

Cybersecurity and Investment Advisors and Brokers

The tides are turning for investment advisors and brokers when it comes to cybersecurity. The states are starting to flex their authority in a realm that has historically fallen under the jurisdiction of Federal authorities. We urge investment advisors and brokers to keep apace of the regulatory outcomes pending this May as developments may have a deep impact on their compliance obligations and trigger a need for additional firm resources.

For a number of years, the SEC and other federal regulators have mandated that their member firms establish cybersecurity policies and procedures.  The SEC, for instance, requires its members to establish policies and procedures that will (i) identify the firm’s Cybersecurity risks to Network Components, assets, data and capabilities; (ii) develop necessary policies and procedures to limit or contain the impacts of potential Cybersecurity Incidents; (iii) develop and implement policies and procedures to identify the occurrence of Cybersecurity Incidents; (iv) identify and implement appropriate activities to combat detected Cybersecurity Incidents; and (v) develop and implement appropriate procedures for restoring any capabilities or services impaired as a result of a Cybersecurity Incident. The actual policies and procedures that a firm develops and maintains will be dependent on a number of factors, including the size of the firm, the complexity of its technology architecture and the use of third party vendors. 

In a departure from the past, several states have started to promulgate their own rules in recent months.  In March of this year, for example, Colorado regulators proposed changes to increase the amount of electronic security that financial firms must exercise when dealing with secure client information.   The two new rules of the Colorado Securities Act are Rule 51-4.8 and Rule 51-4.14(IA)— both of which may be referenced here. Among other aspects, the proposed rules would require broker-dealers and investment advisors to include cybersecurity in their annual risk assessment procedures and uphold a set of written procedures to protect clients from these risks.[1]  There are many areas where the proposed cybersecurity rules in Colorado overlap with the SEC guidelines, but there are also areas in which the proposed rules are more prescriptive.  For instance, the Colorado proposal requires use of secure email, including digital signatures and encryption, and would require firms to inform clients regarding the risks of using electronic communications.[2]  In such cases, the more stringent regulation would have to be followed and the onus would be on the firm itself to recognize this distinction. A hearing on the proposal is set for May 2nd. If the rule is approved as proposed, it will mean that any investment advisor and broker-dealer that conducts business within Colorado will have to comply with the new state regulation. This translates into a need for additional cost and time resources to implement these new requirements. 

New York also has their own cybersecurity rules for financial institutions. Though New York State does not license investment advisers and brokers, it does issue licenses and exercise regulatory oversight over banks and insurance companies through the Department of Financial Services (DFS).  Advisors will be compelled to follow state rules if they are licensed by the department in another capacity (e.g. agents who sell insurance).

While the overarching theme of the new laws is clear, we anticipate seeing much variety on a state by state basis. Investment advisors and broker dealers seeking expert advice on the impact of laws in your specific state should reach out to Lawrence Wagner, Managing Director of COMPASS Regulatory and Compliance Advisers, at lwagner@compassadvisers.net for a consultation.

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[1] United States, Colorado Division of Securities, Department of Regulatory Agencies. Code of Colorado Regulations, Rules Under the Colorado Securities Act 3 CCR 704-1, Draft Statement of Basis and Purpose, Promulgation of Amendments to Division Rules. Colorado Division of Securities, March 6, 2017. Retrieved from https://drive.google.com/file/d/0BymCt_FLs-RGUWl5c3lDUVlzeDg/view on April 26, 2017.

[2] Ibid.

AML for Investment Advisors…They’re Serious This Time

They’ve been talking about it for years, but it looks like regulators are making motions to finally enforce tighter regulation on AML for investment advisors. We think they’re serious about it this time. Although most other financial regulations are likely to be scaled back under the present administration, cracking down on the financial power of terrorism seems to have picked up steam.[1] If you’re an investment advisor, read on to hear about the provisions of the applicable law as well as what impact it will likely cause.

2017 AML Standards

While banks, broker-dealers, investment banks, and insurance companies currently have had to abide by AML standards under the Bank Secrecy Act for years, there are rumblings that the breadth will expand to include investment management companies.[2] Registered Investment Advisor (RIA) firms are required to file with either the state in which they do business or the SEC. This is determined by such factors as number of clients, assets under management, place of domicile, location of clients, etc. These firms include traditional registered investment advisor entities, typically comprised of financial professionals who manage individual or institutional money for a fee in accordance with fiduciary standards. Certain hedge funds and private equity firms who offer pooled investment vehicles must also register as RIA firms. It is important to note that in some cases, investment advisors are not required to become RIA firms at all if they qualify for a de minimus exemption by having less than a certain amount of clients in a particular state.

Investment advisors should refer to the FINRA manual for further information on Rule 3310 for the basic tenets of a comprehensive AML compliance program.  Among other requirements, an AML program should be tailored to the investment advisers business model, compliant with AML/BSA standards, and tested independently on an annual basis. In addition, the identity of new clients/investors needs to be verified, transactions need to be analyzed and any suspicious activity needs to be reviewed.  Further, employees of the advisor must be trained.[3]

Industry Impact

Unfortunately, in our view, this movement is going to burden small to medium sized RIA firms, most of whom do not have in-house compliance teams. In such cases, the onerous cost of adhering to applicable law only increases with each new regulation imposed. This new development poses a major opportunity for technology and compliance vendors who serve this niche market. Small or medium sized firms even with in-house resources tend to lack the resource capacity to maintain such comprehensive policies and procedures satisfactorily.

For more information about how to ease the business impact of AML standards and other compliance inquiries, please email Gary Swiman of COMPASS Regulatory and Compliance Advisers at GSwiman@compassadvisers.net, or Larry Wagner at LWagner@compassadvisers.net.

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[1] Corbin, Kenneth. “Anti-money laundering rule looms for advisers.” Financial Planning. Source Media, 8 March 2017. Web. Retrieved on 11 April 2017 from https://www.financial-planning.com/news/anti-money-laundering-rule-looms-for-advisers

[2] Ibid.

[3]“3310. Anti-Money Laundering Compliance Program.” FINRA, (n.d.),Web. Retrieved on 10 April 2017 from http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=8656

Total ACA Takedown in 2017? Let’s Talk Digital Health Instead.

Although a pall of uncertainty shrouds the healthcare sector, clear trends are visible in digital health, life sciences, and med tech investing. In this blog post we pick up where our last article left off with a discussion of key 2017 issues regarding the replacement or repair of the Affordable Care Act, the plight of Medicare and Medicaid, the great drug pricing debate, and the M&A/IPO landscape. We’ll also share popular views on these subjects as expressed by participants in the recent “Healthcare Investment Trends 2017 Summit” poll that Grassi & Co. hosted with the NYC Health Business Leaders.

Our proprietary poll revealed what the Health Summit audience has on its mind when it comes to healthcare issues in 2017. The ACA and MACRA nearly tied for first place, with healthcare technology adoption a close runner up. It is dubious that the Trump Administration would want to be held responsible for the undesirable outcomes of a total ACA takedown. What we predict, however, is a restructuring of parts of the ACA which are problematic, such as the astronomically high healthcare premiums. For example, it would not surprise us to see healthcare linked back to employment with coverage mandated rather than optional for all employees. This would balance the playing field by including those healthy workers with a low need for care, distributing risk more evenly throughout the system. 

One key 2017 healthcare proposal is the renaissance of block granting. Instead of Medicaid funding being covered by state and federal government together, funds are capped and handed over to the states who manage it as they see fit, deciding who gets support and what the money gets spent on.[1] This spending cut will dramatically impact even those who are not recipients of Medicaid. Treating the aging Medicaid-funded population could stir up some troubling budget issues for the large number of nursing homes, hospitals, and clinics who see these patients.[2]

Medicare reform is on the road ahead, but the journey may be long. Unlike Obamacare, which permits exchanges to sell only private insurance plans, public and private plans would be included under the Ryan policy.[3] Introducing public/private competition would increase efficiency and reduce overall cost. As with the Medicare Advantage system currently in place, navigating through such a complex arrangement could challenge functionally impaired beneficiaries.[4]

Despite healthcare legislation uncertainty, there are clear trends for what investment dollars are likely to be chasing this year. A little over a third of the Healthcare Summit audience surveyed predicts that venture capital and private equity investing in life sciences and medical tech will decline in 2017, while slightly less believed it will increase or remain the same. We see the market staying hungry for med tech, life sciences and orphan drug M&A and IPO deals as the astronomically high growth rate in this sector is not likely to abate anytime soon. Will drug pricing controls put a cap on this trend? Trump doesn’t seem to be chomping at the bit to incite the ire of the pharma giants. More likely to materialize is a movement towards more transparency for doctors and patients namely in areas such as pharmacy reimbursement rates. 

Interestingly, over half the Health Summit audience sees digital health investing on the rise, a view with which we concur. As the mobile phone takes over the world, digital healthcare trends we’re likely to include digital interventions (e.g., companies who use data such as glucose levels to improve diabetes treatments), workflow solutions, data analytics, behavioral health, and alternative insurance companies.[5] Regardless of what happens with legislation, one thing is for sure: the digital revolution game is clearly in town and startups,  whose profitability ratios in the areas mentioned above, will win the prize.

While the future of healthcare in the United States is a murky subject, the lack of clarity has not sidelined the progress of innovation. We predict legislative changes to be slow but that investors keep their eyes peeled for opportunities. For further clarification on any of the topics discussed here, please contact Joe Tomaino at Tomaino@grassicpas.com, or John Pellitteri at jpellitteri@grassicpas.com.

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^[1] “What you need to know about Medicaid block grants.” Kaiser Health News, 25 January 2017, http://www.healthcarefinancenews.com/news/what-you-need-know-about-medicaid-block-grants.

[2] Ibid.

[3] Kodjak, Alison. “Paul Ryan's Plan to Change Medicare Looks A Lot Like Obamacare.” NPR.  26 November 2016, http://www.npr.org/sections/health-shots/2016/11/26/503158039/paul-ryans-plan-to-change-medicare-looks-a-lot-like-obamacare.

[4] Ibid.

[5] Fleshman, Skip. “Five digital health trends investors are watching in 2017.” MobiHealthNews, 16  February 2017, http://www.mobihealthnews.com/content/five-digital-health-trends-investors-are-watching-2017.

Bundles, and Century Cures—What Does 2016 Healthcare Transformation Mean for 2017?

At this year's “Healthcare Investment Trends 2017 Summit” that Grassi & Co. hosted with the NYC Health Business Leaders, an event that was attended by over 140 people, the future of healthcare investment was the main focus. At the Summit, participants were asked to vote on which five segments of healthcare investment were going to be active this year—biopharma, medical devices, diagnostics, healthcare IT, and healthcare services.  A panel of four investors was moderated by NYCHBL president Bunny Ellerin and Grassi & Co.’s leader of Healthcare Transformation Consulting, Joe Tomaino.

Key themes including the one that continues to weigh heavily on everyone’s minds—healthcare reform. 

2016 Healthcare Reform

While 2016 yielded several moves in the right direction for healthcare reform, none came to complete fruition during the year. There was a great deal of concern over the possible elimination of the Affordable Care Act. As the drug price debate rages on, Americans continue to advocate for legislators to curtail the rich margins enjoyed by prescription drug companies. Yet with FDA approval rates at a six year low, there’s little supply to meet burgeoning demand.[1] The 21st Century Cures Act was one of Former President Obama’s final initiatives. This law aims to support funding for medical research for diseases such as cancer and Alzheimer’s – a nice gesture, but whether President Trump puts the law into effect remains unknown.

In 2016, CMS released proposed rules for the expansion of bundled payment programs for Medicare fee-for-service beneficiaries. As these programs start up in 2017, it is incumbent upon hospitals and healthcare organizations to prepare themselves to be part of medically-complex bundles moving forward. It is likely the new era of value-based healthcare this year will bring challenges to providers. Our best advice is to balance the benefits of cost reduction with preservation of the quality of the patient experience. As organizations start to integrate primary care and behavioral health this year, there is no tested methodology to forecast patient participation rates. As this makes staffing and space a challenge for providers, Grassi & Co. professionals have formulated a new strategy to assist our clients with predicting such volumes.

Healthcare Reform Market Impact

While the stock market voted on the Trump presidency with a grand sell-off in the healthcare sector, the private markets told a different story. Oversized mergers abounded (e.g., Shire/Baxalta for $32BB, Abbott/St. Jude for $25BB, Bayer’s thwarted $62BB Monsanto offer) demonstrating the private market’s taste for the medical devices and rare drugs industries.[2] With an estimated CAGR of 11.7% anticipated until the year 2020, orphan drug sales are projected to be nearly twice that of the prescription drug market overall.[3]

2017 Healthcare Transformation Outlook

This will be discussed in the next blog entry, where we will share our take on what to expect in 2017 healthcare transformation, from the 21st Century Cures Act to digital healthcare and the Medicare Access and CHIP Re-authorization Act of 2015. Please stay tuned and feel free to reach out to one of our professionals with any questions.

[1] Hirschler, Ben. “New drug approvals fall to six-year low in 2016.” Reuters. 2 January 2017. Retrieved from http://www.reuters.com/article/us-pharmaceuticals-approvals-idUSKBN14M08R Accessed 1 March 2017.

[2] Shen, Lucinda. “These Are the 12 Biggest Mergers and Acquisitions of 2016.” Fortune. 13 June 2016. http://fortune.com/2016/06/13/12-biggest-mergers-and-acquisitions-of-2016/ Accessed 27 February 2017.

[3] Evaluate Group. “Per Patient Costs for Orphan Drugs is 13.8 Times Higher Than Non-Orphan Drugs.” Press Release.  Evaluate Ltd. 4 November 2015. http://www.evaluategroup.com/public/PressReleases/EvaluatePharma-Per-Patient-Costs-for-Orphan-Drugs-is-13-8-Times-Higher-Than-Non-Orphan-Drugs.aspx Accessed 27 February 2017.