Politics. While Jim Cramer hawks Mezcal in Chicago, a Fed pivot starts to look and sound like Godot, and total capitulation based on last week’s days of green looms, it useful to remember what exactly happened to the U.S. Economy beginning in March 2020.
First, a president with few policy principles, guided by people either in over their head or up to no good, destroyed the supply side of the economy. Services like health care, restaurant meals, retail shopping were eliminated overnight.
Second, demand for those now-absent services was stimulated by direct payments, enhanced unemployment checks, the Paycheck Protection Program and other government transfers large and small.
Third, the supply and demand sides of the economy took evasive action to preserve their livelihoods and get the goods and services necessary to function. Shortages emerged, prices increased and voila, a political career-ending folly that was easy to predict but masked by partisanship, ignored.
The fed has but one choice now, destroy demand and let it re-synch with the supply side of the economy. Not having a political problem – President Biden is very unpopular according to nearly every poll out there and the majority party has problems that go way beyond interest rates - the opportunity to end some of the worst monetary practices in the history of economics has so far proven irresistible.
(No one can describe the current reality of monetary policy quite like Danielle DiMartino-Booth did at last week’s Hedgeye Investing Summit. Watch it here.)
What is coming to pass, unless the wreckage gets so bad, someone blinks or something breaks, is Donald Trump’s revenge. Although he, without any of the instruments of navigation on which good political leaders rely, started the unwinding of the gnarly hairball that is high leverage, securitization of everything but your house cat and asset price explosion, he will probably not get credit.
Higher for longer will belong to the hapless Joe Biden and, I suspect, his party’s majority in Congress.
Policy. It was not for lack of trying but demand for health care services was not as materially affected as other parts of the U.S. economy. You can see that in growth of employment in the ambulatory sector since 2019. It is right on pre-pandemic trends, the recent unpleasantness notwithstanding. Physicians’ offices, which make up the bulk of the ambulatory sector have been able to hire as necessary to meet demand.
In other respects, especially as it related to hospitals, nursing homes and certain low-wage, low-skill occupations like dialysis technicians, health care struggles with the results of some of the worst domestic policy imposed since Richard Nixon tried using price controls to tame inflation.
Employment at these particular sites of services is well below pre-pandemic levels and the pre-pandemic trend. The change could be permanent which begs the question, are we thinking about their performance metrics the right way.
The picture is muddled and the comparisons difficult given all the influence of the aforementioned federal cash infusions, but HCA’s 3Q report tells us that what mattered most to their hospitals was surgical cases.
Surgical cases have a lot to recommend them when staffing is challenged. First, keeping your surgeons happy and paid means they will continue to operate at your hospital. Staffing a surgery case is more expensive but reimbursement is higher. Well planned and staffed, including robotic support, means surgeries can overcome the loss of admissions on medical floors.
The second thing that mattered to HCA was outpatient services. The Emergency Room as we tend to think about it may be getting subsumed by networks of urgent care centers and outpatient clinics that are more convenient and represent a preferable site of service for many health care workers.
The urgent care center model has the added benefit of generally avoiding much of the c. 1985 regulation, known as EMTALA. Not coincidentally, EMTALA was passed during a period of high inflation and health care worker shortages.
Of course, what may be transpiring here is that hospitalizations are going to be discouraged when a patient can be sent home or redirected to another site of service. Patients, in effect, are sorted – responsibly I am sure – by margin contribution.
Not that this is new in health care. DVA is clearly managing its admissions based on cost and availability of labor. It is new for the center of the health care universe – hospitals which we think of as always open to all comers – need to allocate resources more efficiently.
That is definitely different.
Power: Senators Ron Johnson and Rick Scott have begun musing recently about moving Medicare out of the mandatory appropriations bucket into discretionary. It does not seem like a realistic goal now but keep in mind “health care” as an issue, polls well behind more pressing problems like inflation. It no longer carries the fire it did a decade ago.
If, as we expect, health care inflation goes on a bender next year as plans are re-priced to accommodate higher cost inputs, alternatives – which may or may not include Senators Johnson and Scott’s agenda – become more interesting.
What we know and what Jimmy Carter knew when he started deregulation of transportation in the 1970s, is that the supply-side constraints of health care that drive costs are not going to be fixed without deregulation.
Higher reimbursement won’t fix it, it will make it worse. Coverage mandates cannot solve the problem, they have had a predictable inflationary effect since the ACA. Unless something in the labor market changes abruptly, the policy choices to align supply with demand will be few.
We are pretty certain the Trump administration had a long-term deregulation agenda in mind when it issued many of the blanket waivers that allowed the health care system to operate with uncharacteristic flexibility. Waiving a three-day hospital stay for SNF admission is one example that has been beneficial as labor problems have persisted. Those waivers and flexibilities provide a starting point for Congress if they want to start thinking about health care differently for a change.
No record is perfect so we should acknowledge President Trump got that one right.
We wait with anticipation the first week of November.
Have a great rest of your weekend.
Emily Evans
Managing Director – Health Policy
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