Chicago is the historical birthplace of futures contracts linked to grains, stock indexes, interest rates, and various other assets. What about futures tied to medical procedures or promising new drugs?
Investors and executives have applied for regulatory approval to launch the first futures market tied to healthcare. They call it the Intelligent Medicine Exchange, or IMX, and claim it can help control rising prices.
Healthcare accounts for 20% of the US economy but has no system to hedge against financial risks, said James Plante, CEO of the proposed exchange and a managing partner at Thynk Capital, IMX’s lead investment firm. He said pharmaceutical companies, insurance companies, hospital chains and large employers are among the businesses that need protection from rising medical costs.
Plante compared healthcare to the oil industry before it got futures contracts in the 1980s. “Oil was perceived the way healthcare is today. It’s just a cost. When you own a futures contract, you benefit from cost increases and own it as an asset. You can short-circuit that if you think prices are going to go down,” he said.
IMX has applied to the federal regulator of futures markets, the Commodity Futures Trading Commission, to function as an exchange. Plante and Felix Carabello, chief commercial officer at IMX, said they would be in business by the first quarter of 2023.
They declined to speculate exactly which contracts the exchange will offer. Any type would require regulatory approval. But they did offer examples of how an exchange could be used in healthcare.
A pharmaceutical company that needs to offset research costs and obtain funding could sell a contract associated with a treatment it is working on and receive cash up front. Insurance companies and employers anticipating higher medical costs could buy contracts tied to cost indices. A patient expecting knee surgery can trade a contract tied to the number of surgeries performed. The examples are the anticipation of future costs that farmers have been doing in commodity markets for decades.
There can now be healthcare exchanges because of anonymized data on medical costs and procedures, Plante and Carabello said. They said IMX has developed patent-pending cost indices that will underlie its futures contracts.
“Typically, higher prices advertise more capacity,” Carabello said. “So the healthcare market is crying out for more capacity, and with our tools we will then be able to put investors at the forefront [and] hopefully those prices will stabilize.”
Plante said it’s possible the exchange could offer futures linked to the COVID-19 outbreak or other infections.
IMX operates from offices at 141 W. Jackson Blvd., also known as the Chicago Board of Trade Building. It has about a dozen employees and expects to increase hiring as launch gets closer, Plante said.
The company has no financial ties to the CME Group, owner of the Chicago futures markets. But some people involved in the company used to work for this company.
They include Carabello and strategic advisors Phupinder Gill and Kim Taylor. Gill is a former CEO of CME Group, while Taylor is a former president of the exchange firm’s clearing house.
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