Top of the Funnel: Macro + Earnings
Employment. HCA (+), THC (+), ENSG (+), ARE (-) The government continues to swallow the American economy. Health care employment YoY% increase continues to hang out around 3.8% with a modest deceleration in September versus August. This rate is quite a bit higher than the long-term historical trends of 2-3% YoY.
Driving the trend appears to be employment at nursing facilities which is up 5.12% in September YoY, down a little bit sequentially. We never thought we would see it, but nursing home care is tracking back to its pre-pandemic levels.
Ambulatory care employment is steady as she goes, growing YoY at around 4% versus 2-3% pre-public health emergency.
Employment at hospitals, on the other hand, has been decelerating on a YoY% basis. The sector gained 8k jobs, but employment has been decelerating since July, 2.87% YoY in September v. 3.29 in July.
We suspect this is just a matter of reducing inpatient head count, especially on the medical floors while increasing outpatient services. ER staff has also no doubt dropped as case volumes have never recovered to pre-pandemic levels.
We have been watching the research and development in biotechnology, except nanotechnology series for the purposes of evaluating the impact of flat/reduced funding to the National Institutes of Health.
Since June 2022, employment in the sector has decelerated from 14% YoY to 0.74% YoY in August, the most recent month available. We tend to think the funding risks at NIH are underappreciated as a risk factor for biotechnology and Life Sciences, more broadly.
CONGRESS.
Speaker’s Race. There are two viable contenders to replace Kevin McCarthy as Speaker, Rep. Jim Jordan, and Rep. Steve Scalise. Both could be characterized as to the right of Kevin McCarthy; both are experienced members with followings.
I would give a slight edge to Scalise due to his experience as Whip. The job of the Speaker is as traffic controller for legislation and part of that is knowing where the votes are.
Either choice spells difficulty for budget proceedings in FY 2024 and FY 2025, particularly as it relates to the Senate. The upper chamber is very friendly with the denizens of the Gucci Gulch and willing to compromise on tough issues.
The House, unfortunately, is not going to be down with that approach which means the Senate must move right or we are going to have some shutdown drama. Unlike the period 2011-15, when the House was in Republican hands while the Senate remained Democrat, the lower chamber’s C-Suite has tilted decidedly right. Steve Scalise and Jim Jordan are not as compromise friendly as John Boehner or Paul Ryan were.
Additionally, the mood of the country has moved away from tolerating budget deficits in the name of regular order and getting along. The fact is, inflation is a fiscal problem and just like in 1980, it will need to be solved through different spending policies.
Weight Loss Drugs. NOVO (+), LLY (+) The Congressional Budget Office issued an open call for research that shows anti-obesity medications like Wegovy save money for the health care system. The CBO indicated that their conclusion to date is that anti-obesity drugs will cost the government more money if covered by Medicare.
The CBO’s current position does not bode well for the Treat and Reduce Obesity Act of 2023 which is intended to reverse the long standing statutory prohibition on Medicare reimbursement for weight loss items and services.
The CBO’s research call may be seen as good news to those new to The Hill. For them a good reminder is the CBO’s repeated appeals for research on cost savings associated with telehealth began about a decade ago.
THE WHITE HOUSE.
Introspection, please. The Food and Drug Administration is launching a crowd source platform designed to help them understand the sources of what they call “misinformation.”
The good news is that the FDA recognizes a certain deterioration of public trust. The bad news is that they seem to think it is the public’s fault.
Chances are most of the public never gave the FDA’s reputation a moment’s thought, save the formerly niche medical freedom crowd, before the Public Health Emergency.
Since the Public Health Emergency of 2020-23, the FDA has blurred the lines between regulator and advocate through promotion of specific branded products, offering medical advice on use of off-label drugs, and been implicated in impeding the First Amendment rights of dissenters.
Not a great platform to crowd source trust.
OTHER STUFF.
Co-Pay Assistance. The D.C. District Court ruled this week that insurers cannot exclude co-pay assistance from the total out-of-pocket calculations. The prohibition was loosely enforced so the implications are not that significant immediately. The ruling only applies to ACA exchange plans as their remains a prohibition on co-pay assistance for drugs reimbursed in Medicare.
Strikes. AMN (+) Nurses and Service workers struck Kaiser Permanente’s hospitals and medical offices in six jurisdictions – California, Colorado, Washington, Oregon, Virginia and Washington, DC. About 75k employees are affected.
Coincident with labor unrest in auto manufacturing, this health care strike has raised the specter of systemic contagion. That is unlikely. Labor unrest in health care is driven mostly by the SEIU and, to a lesser extent, the nurses’ unions. The SEIU is particularly influential in California where Kaiser Permanente is based.
Most of the rest of the US is not really organized. Publicly traded companies like HCA are primarily located in Right-to-Work states. THC does have exposure in a few states where labor is organized, like California.
Strikers at Kaiser Permanente are asking for higher wages and improved working conditions, especially when it comes to filling vacancies.
It might help a lot if the CEO didn’t pay himself $16M
Have a great weekend.
Emily Evans
Managing Director – Health Policy
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