A Slowing Economy--What Impact Will It Have On The Health Care Sector?
Health care is considered a business that tends to be resistant to economic downturns. Brian Klepper returns with a post asking just what the impact of a slowing economy will have on the health care sector. He specifically points to changes in real wages and home prices.
Health Care and The Gathering Storm
by Brian Klepper
Here are two very interesting and frightening charts that my good friend Warren Brennan, the CEO of SMA Informatics in Richmond, passed along recently, with this question, aimed at the CFOs of hospitals and other health care organizations:
What do these mean for hospital bad debt and for the health care sector's future financial performance?
Here's the text from Warren that accompanied the chart on wages:
This chart, from the NYT, shows annual growth in real wages. What that means is that workers today are earning significantly less, in real terms, than they were a year ago: their January 2008 earnings were down 19 cents per hour or $8.31 per week from January 2007.
The chart doesn't mention the main reason for the fall: unusually high inflation. Since inflation is running at a 4% clip right now, you'd need wages to be rising at the same rate in nominal terms just to stay at zero on this chart. If food and energy prices stop rising at some point, real wages will start looking much healthier.
On the other hand, however, it's clear that for most of the past year weekly wages have been lagging hourly wages. That's not good news at all: it shows that the workweek is shortening for most workers. Slower increases in food and energy prices aren't going to help on that front.
And here's an excerpt of text that came with the second chart on home prices:
The S&P/Case-Shiller Home Price Indices show a 9.8 percent year-over-year decline for the 10-City Composite Index, the steepest decline on record.Health care has ridden a very long wave of prosperity that appears to now be in jeopardy. Combined with an explosion in information technology, transparency and decision support, the coming turmoil should force health care organizations to become far more interested in efficiency and competitiveness.
Wherever you look things look bleak, with 17 of the 20 metro areas reporting annual declines and the remaining three reporting flat or moderate growth rates. Looking closely at these negative returns, you will see that 14 of the metro areas are also reporting record lows and eight are in double digit decline. The monthly data paint a similar picture, with all metro areas now reporting at least four consecutive negative monthly returns.
One lesson is clear: Companies that economically reduce both financial and health risk will be winners.
1 comments:
I think Klepper is trying to say lower real wages, growing inflation and deflating housing prices will increase the number of uninsured and bad debts for providers? The question is, will consumers drop health insurance so they can continue to enjoy multi flat screen TVs, two or three gas guzzling cars and trips to Las Vegas? Or will they see the value in their health insurance and drop the luxuries. So far, the stock market shows Starbucks and other "luxury" retailers are taking it on the chin even though we still have the equivalent of full employment. Health insurance stocks have been looking weaker recently, too, but that may be more in anticipation of the ascent of Obama or Clinton than a reflection of what's happening to the economy. Health care providers and insurers, historically, I think, have done pretty well during recessions, compared with other industries.
Generally, I"d bet, the providers who are in trouble or will get in trouble are suffering more because of political decisions regarding Medicare and Medicaid payments and because of decisions by the FDA than because of what's going on in the general economy. It's hard to make it under socialized medicine, which is what Medicare, Medicaid and VA health care are.
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