Politics. It was a nice little bit of choreography. On Jan. 11, Federal Reserve Bank Chairman Jerome Powell told Congress that the central bank was prepared to raise rates to tame inflation. A few days later, J.P. Morgan’s CEO, Jamie Dimon called for seven or eight rate increases in 2022. Bill Ackman, who presumably also attended the zoom call from the Hall of Justice with all the other super friends, demanded a 0.50 increase to “restore’ the Federal Reserve’s credibility.
The air cover granted Powell, probably means but one thing. Rate hikes might not work and, in keeping White House policy in general, could make things worse.
(As Macro subs already know, neither Jamie Dimon nor Bill Ackman is likely to get what they want.)
Mr. Powell’s testimony January 11 looked and sounded like a guy trying to keep his job. The White House may not be demanding rate hikes explicitly but there is no denying getting a lid on CPI is a political priority. For an administration whose accomplishments are few and far between they are looking for wins where they can get them. There is no easier a target than the simpering sycophants of monetary policy.
If you don’t think about it too hard and long, monetary policy offers a good solution. On the other hand, if you listen to health care companies’ earnings commentary, like SYK, you have a very different understanding to the problem.
America has a supply problem and to Mr. Powell’s credit, that is something he readily admits cannot be fixed by monetary policy.
Nonetheless, it is off to the Kryptonite mine for Superman.
Policy. For the health, science and medical industries, supply and demand are going to have difficulty finding their intersection. Lost in the narratives about exciting demand with direct payments or paying people not to work are the realities of federal contracting and procurement.
Of the $4.6T in total budgetary resources available from all the COVID-19 relief packages, $3.6T has been paid out in contracts and awards. Another $500B has been contractually obligated, leaving $500B available for future awards and contracts.
Direct payments and loans provided by the Treasury Department and the Small Business Administration have mostly been exhausted. Sending Americans checks is straightforward and easily accomplished. For other agencies, required to observe procurement rules (excluding vaccines development and early testing efforts), the process is much slower.
Health and Human Services has $487B in budgetary resources associated with COVID relief legislation. Of that amount $401B has been obligated and $243B has been paid out. Many of these contracts, such as those dedicated to future pandemic preparedness have life expectancies into 2026.
For context, CMS spends about $800B annually on the sprawling Medicare program.
That means the demands on the health care’s most precious resource, labor, will continue and no amount of central bank interference is going to fix that. As efforts to develop new vaccines, expand the utility of mRNA technology, refine therapeutic responses, and harden all these things as targets of international intrigue, the needs of the industry are and will continue to expand into instruments, supplies, secure software and analytics, just to name a few.
The demand for products and services made possible by the federal treasury, is going to compete with preexisting commercial demand for things like semiconductors and electronic inputs for ISRG and SYG robotic systems; consumables made by HOLX and others; and supplies procured and distributed by CAH.
It will be easy to blame the federal government – because they are indeed responsible – but however painful, the demand and supply imbalance may be just the thing to kick health care into the present century.
Power. Health care’s sway over politics rests primarily on the massive number of people that depend on it for a job. Since 1990, when the largest subsector of the U.S. economy was manufacturing, health care has slowly taken over and become the largest employer in many communities. Hospital systems ask and are granted nearly all their requests from pretty much everyone.
In the face of ongoing and not likely to be corrected labor shortages, the American Hospital Association – which knows precisely which side its bread is buttered on – has asked for an additional $25B in Provider Relief Money.
HCA, which reported last week, has a different idea.
“The second thing we are working on is what we call new models of care. We are exploring and experimenting with different approaches to staffing models that will allow our nurses to be supported by different approaches; creating more capacity if you will for our nurse population in a way that delivers the patient outcomes that we want and that recognizes some of the market issues. And then the final piece is what I had mentioned previously around throughput and capacity management. And again, case management is a piece of that, telemedicine inside of our hospitals is a piece of that, load balancing across all of our bed capacity in a market is a piece of that - so we have a lot elements - technology also factors into that and how we are using some new technology solutions to help us in throughput management.”
As manufacturing was transformed by globalization and will so again via onshoring, health care is finally meeting, and if HCA is any model, embracing a period of innovation that is long overdue.
Have a great rest of your weekend.
Emily Evans
Managing Director – Health Policy
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