Health Care and the Broader Economic Crisis

Over at HealthLeaders, Dr. Richard Reece and I have an article, Will Primary Care Be Re-Empowered By An Ailing Economy?, arguing that the turmoil in the larger US economy – and particularly the tightening of credit – is going to significantly enhance the pressures on purchasers and industry players, and grease the wheels of meaningful change throughout health care.

Consider, for example, the fact that most hospitals and health systems
have remained in the black only as a result of investment income. Many
lose money on operations. How will health systems remain afloat if the
returns on their investments are diminished?

Then there was the Wall Street Journal story
a couple weeks ago in which Vanessa Fuhrmans described significant
drops in office visits, filled prescriptions, elective surgeries as
consumers cope with the economic downturn. That was before the big
crashes that began a few weeks ago.

What will happen when insurance renewal time rolls around again –
it’s upon us now – and companies hope to access lines of credit for the
payments? If they can’t get the money they need, many might be forced
to forego health coverage or settle for reduced benefits, which would
drive up uncompensated care and bad debt.

Health care is the largest part of the US
economy, 1/7th of the dollars and 1/11th of its jobs. I used to worry that as the cost explosion prices more people
out of the coverage market, the health care economy’s turmoil might cascade to and disrupt all other sectors within the larger economy.

Now I worry that the turbulence in the larger economy will constitute
enough additional stress in health care that at least some of the
presumably rock solid health care institutions will begin to fray.

Hospitals are the most vulnerable institutions in all this. While some are very profitable
and flush, the data show clearly that, on average, community hospitals
make only about 5 percent net margins and safety nets make about 1 percent. Their cost structures are so large that it will be difficult
to adjust to significant reductions in resources. That said, we can
hardly make due without them.

The good news is that economic crisis favors approaches that drive down risk and cost. Organizations that focus on medical homes, Health 2.0, advancing clinical technologies (like minimally invasive procedures, or genomic tests that can often eliminate the need for certain treatments) and medical tourism should all do well in this environment.

It is too early to fully understand how the financial crisis we’re experiencing now will manifest throughout health care, but it is reasonable to believe that our industry will be profoundly impacted. Hopefully at least some of those changes will be positive, as the system seeks to cope with dramatic reductions in resources.

9 replies »

  1. I’m glad to read some common sense. But I can’t help but think that the people who are in charge of the U.S. Health care industry are counting on more people dieing and not surviving their next operation. If only the wealthier survive and remain in full health then there will be just about enough of them around to continue paying the outrages cost controlled prices created by the health industry executives.
    Who are we kidding people, do you honestly think that when a sick person gets rejected for coverage it is due to overwhelming care? Even state funded free health care allows for the sickest to apply. Meaning that if you are near death or unable to work then chances are that you will not be able to live long enough for them to cover you.
    Our wonderful country is obviously counting on more of us to die and not live long. I think they have made it perfectly obvious, or else we would not even be having this conversation to begin with. Lets be more realistic and a little more logical.

  2. Admittedly, she sounds as superficial as Obama. But her statement is consistent with what is probably the optimal solution: Break them up into 10 or so smaller entities & privatize them. Privatize as in ‘if you fail, you fail’.
    Credit Card Debt

  3. I would like to say that as a 30 plus Veteran of the health care system, the patients that are actually admitted into a hospital now a days usually have so many health problems they are unable to survive outside of the hospital. If the future of medical services will be judged as who can afford insurance or those who are poor who are given insurance, alot of middle income people will not be making it. The only ones making income in hospitals are the ones high up on the totem pole. The people actually taking care of you are not. Believe it or not half of them don’t have insurance.

  4. Microvolt t-wave alternans, is a non-invasive stress test with a proven, 98% negative predictive value that could potentially save the Medicare budget 700 million dollars a year by identifying and eliminating up to 1/3 of th unneccessary implanted ICDs. It’s been commercially available for 10 years and has had to fight all the powers to be
    This is a story of pure greed by the ICD industry and the EP community that has done everything to eliminate and discourage this test use and or apatation.

  5. Brian, like the rest of the U.S. economy, healthcare has been operating on debt creation. After real estate it’ll be the credit card companies who want their uncollectible debt secured by taxpayers. The underlying problem is most of us are either living beyond our means or our means is not producing enough return to pay for essentials. I’m looking forward to hearing Republicans explain why the free market needs to work in healthcare, but for the financial sector the market needs government to save it from itself.

  6. I agree with John that people overconsume health, and the system was and is promoting this.
    However, you can barely expect from a patient/consumer to know what spending makes sense and what doesn’t. The individual doctors have to do this, with common sense and the help of guidelines (and they should be able to feel safe of litigation if they use them grossly correctly). Conventional wisdom (and I think some empiric research) indicates that with financial hardship (such as copays), both necessary and unnecessary care gets delayed. We don’t want the former.

  7. Our US health care system absolutely mirrors the US economy, but with one even more concerning attribute: people actualy consume health without really knowing the real cost. We over consume in health, as we do in the economy, and the consumer is at the mercy of a health care system that knows alot about spending and little about saving. Money is not the answer to this problem. Instead, consumers need more empowerment, and want it. There should be a supply shake-out in healthcare. Like investment banks, fewer hospitals may be a better outcome and a more efficient use of limited resources.

  8. I still wonder how the current economic crisis is going to affect the healthcare system. With Insurance companies having problems as well as the loan industry, it’s scary to think the direction this could lead to!