Giving a patient medications in the ER, having them pop positive on a test, and then withholding further medications because…
The Financial Crisis – Let’s Hear Your Thoughts on How It Will Affect Healthcare
As I write this, it appears likely that Congress will approve spending $700 billion to bail out financial companies whose risky investments came back to bite them. They don’t really have a choice, of course, since the alternative is even less savory. Even Warren Buffett says the alternative is "the biggest financial meltdown in financial history." Gee, everybody said things were great until just a few months ago.
Some of that money may be repaid in sales of assets, but that’s only slightly likely. In the worst case, the national debt jumps to $11.3 trillion, the dollar tanks even more against more stable currencies, and inflation jumps along with unemployment. Foreigners start buying everything in sight at fire sale prices. All of that reduces tax revenue.
Average citizens are hopping mad that Wall Street is dumping its garbage on Main Street, which seems to have surprised the Washington insiders. They’ve been burned before by false declarations of national urgency (chasing nonexistent WMDs in Iraq). As in that situation, the demand is that full trust is put in a very few hands inside the administration to spend the money wisely and to prop up a system that isn’t working efficiently.
It looks like the same government insiders helping out their private industry pals behind closed doors. It doesn’t help that Treasury Secretary Hank Paulson’s last real job was CEO of Goldman Sachs, which made a bundle on subprime mortgages and short selling and gave him compensation of up to $37 million a year and a net worth reported to be $700 million (giving Sachs a nice position as all of its competitors are now out of the picture and making Paulson something close to the CEO of the country when the bailout passes). Or that his views on exactly how much the socialist-like help Uncle Sam should give failing financial houses seemed to change day-by-day as the government reacted to the crisis only after it happened.
Those who pay their bills and taxes on time will suffer. Those who don’t, the same folks who simply walk away from financed cars whose value is "upside down," are likely to take advantage of loose bankruptcy laws and simply stop paying for houses worth less than they owe, reducing the value and future prospects of Uncle Sam’s cash flow stream on so-called "toxic" investments (homeowners were speculators, too, after all). And, there’s no guarantee that banks will start lending again just because they get to dump their failed bets onto the backs of taxpayers. Formerly affluent neighborhoods may look like Rust Belt cities, full of boarded-up houses that the collapsed real estate market can’t absorb.
Unemployment is reminding middle income citizens of just how much wider the gap has become between them and the highly compensated CEOs, and more than 1,000 billionaires whose net worth jumped a lot more than theirs, especially since the homes and 401ks of the average citizen suddenly don’t look so lucrative. The illusion that all of us were getting wealthier together has been shattered. The "have nots" will likely use the one advantage they have — at the polls — to punish those they see who prospered while they didn’t.
Some reactions seem obvious. Democrats will claim it’s yet another example of Republicans favoring the wealthy and will benefit at the polls, yet they won’t have anything left in the federal till to pay for their expensive social programs even if they win offices. The financial industry will wither, with high unemployment and a loss of luster that may never be regained. Taxes will rise, entitlements will finally have to be curtailed, and uncompensated healthcare will certainly rise with unemployment and debt.
Here’s where you come in. HIStalk has a lot of smart readers, some of them in the investment industry and in executive positions. What will the impact be on healthcare and, specifically, healthcare IT? Click Comments at the end of this posting to share your thoughts, maybe thinking about these areas:
- How will hospital IT spending change?
- Will physicians keep buying EMRs?
- What exposure do vendors (publicly traded and private) have to changes in financial conditions?
- Will market conditions cause vendor consolidation and discourage new entrants?
- What changes can we expect for HIT industry employment?
- If healthcare costs have to be dramatically and painfully cut, can IT justify its cost?
Nobody else is talking much about this. It’s not about politics, but about reality. Let’s hear what you have to say.
My brother, who worked for Lehman for a long time until he left about 6 months ago, put it something like this:
“People should realize that white collar markets will be flooded with really smart, highly motivated individuals with a work ethic that isn’t matched by any other business. And they are all masters of the ethically grey areas. Look out.”
Consumer-driven healthcare, Healthcare 2.0, healthcare reform …. dead. Companies trying to create those markets won’t get the money and consumers suddenly don’t have the upper hand if they ever did. Medicare and Medicaid programs will have to be cut fast. IT investments may shift to those providing quick financial wins to keep buyers afloat.
A problem: I just got laid off from my HIT Vendor position …. I don’t feel so bad as they canned their VP of sales the day B4.
The Solution: The Gov should simply mandate that home loan interest rates be fixed at … like 3% … everyone should be able to refi to that rate, it would put lotsa $ in homeowners hands as disposable income every month. The economy would bounce back.
Will the financial crisis effect Healthcare? Do you really even need to ask the question???
My guess is that …
— Hospital IT spending will not change, for good or ill.
— Physicians will acquire EMR technology only when their affiliated hospitals require them to do so.
— Vendors compete on the open market for financing, so constricted or more expensive credit impacts their operations. We can expect some vendor consolidation in the short term.
— Market conditions encourage niche start-ups, discourage other new entrants, and punish vendors’ mistakes harshly. This has been the case for many years.
— HIT employment will decrease slightly, but start to increase in 2010-2011.
— If healthcare *costs* are cut severely, everyone will cheer. But if healthcare *funding* is cut, the associated IT will proportionately suffer since IT spending in healthcare is largely tactical and operational, not strategic.
With credit and credit facilities tied up in this mess look for there to be a significant slow down in large project like new facilities and major IT projects. Healthcare reform just moved off at least another 5 years. My guess is the ACS (ambulatory surgery center) niche market just dried up too. Public company vendors (GE ,Siemens, Cerner particularly) will make things good for IT consulting firms as they will not be able to carry sufficient staff to complete installs or manage support due to the need to keep P/E ratios looking good.
There could also be a boomlet in process redesign efforts as large IDN’s, hospitals and academic medical centers have to retrench and live of their internal revenue streams and less of public funds, bonds, etc.
Probably not all bad
Let me strongly encourage all to strongly protest against ANY health plans, INCLUDING medicaid, which do not include a co-pay. Unless and until the CONSUMERS take some responsibility for costs, all plans are DOOMED to mind-numbing cost overruns, which will cripple the remainder of our economy. Even in India, all consumers are required to make a basic co-pay.
How will hospital IT spending change? Could stay the same in the short run, but if reimbursements decrease there will likely be a ripple effect. In any case, people have a tendency to hold money tighter in their fist and “wait and see”
Will physicians keep buying EMRs? Some will, of course, but this could also put downward pressure on pricing. On the other hand, more physicians should start to evaluate using standalone ePrescribing and Disease Registries which are practically free and still allow them some benefits, not the least of which is qualifying for CMS incentives that could eventually help pay for more expensive EMRs.
What exposure do vendors (publicly traded and private) have to changes in financial conditions? I believe both will see sales dip; actually they already have for the last year.
Will market conditions cause vendor consolidation and discourage new entrants? I would think so. It will be challenging for the less well-financed to fund the R & D needed to go the distance.
What changes can we expect for HIT industry employment? Lots of sales reps not hitting their targets, getting laid off, trying to find another gig, and starting the whole thing all over again with a new employer. I have to believe this has a negative affect with physicians and hospitals.
If healthcare costs have to be dramatically and painfully cut, can IT justify its cost? HIT will be pressed to demonstrate that there really is value in automation.
Projects will shift from clinical improvements to operational improvements. Hospital execs will shift their focus from investments that they believe attract potential patients to those investments that reduce operating budgets.
The emphasis will be on improving throughput, staff patient ratios (without increasing turnover and stress), and cash flow. These are the same productivity technologies and processes that manufacturing has been doing for the last 40 years. True, hospitals have been making good strides in these operational improvements, but the emphasis will have to move in this direction just to keep the doors open and to remain “competitive”.
I think the Misys / Allscripts deal will be delayed for it ever closes
I predict immediate reductions to travel and training budgets, hiring freezes, salary freezes, etc. We are already seeing this impact vendors with conference attendance dwindling. EMR projects will continue, but scaled down. Healthcare Training Vendors will be hit hard as those dollars dwindle.
You are absolutely correct, Mr. HISTalk (as usual.) Foreign investors will be snatching up bargains. It will be sad, again, to see the U.S. sold off in the world’s largest garage sale.
The general public doesn’t understand how bad things will get. Those in the southeast are seeing some prediction with the fuel shortages, albeit not caused entirely by the financial crisis. Basic necessities will be all we will be able to afford.
Thing are going to get a lot worse before they get better.
Contrary to Greg’s prediction, I believe CDHC will grow. Reason?
Employers costs are going up and will be looking for ways to cut. Going with a less expensive HDHP premium, regardless of whether that choice is better for the employee, will likely be their choice.
Employees will be looking for how to minimize their out of pocket. They will either “shop” on price and quality (if they have the money)or (and more likely) will delay care when it’s non-emergent. Chronic care patients will likely discontinue their care plans or not seek needed care. Overall population health will decline, and emergent care will spike, putting even more burden on already overburdened emergency departments.
Although employees with the HDHPs will be counted in the numbers of insured, they probably should be counted in the numbers of underinsured. As energy, food, housing and other basic costs rise, employees will choose to divert less money to their HSAs and will be caught with not enough resources to cover their deductibles and will postpone care.
Utilization changes are likely, some providers will see unfilled schedules. For those patients with money in their HSAs, providers able to communicate value and market with great patient relationships should be able tol attract these patients and survive. Providers who don’t know how to make a connection with the patient will struggle or fail.
CDHC will probably survive, but probably not for the reasons these plans were originally designed or intended.
1) Most hospital vendor spending will not change for this year or even next year (Budgeting Cycle is already under way to hard to move the ship). Also most IT spending are cash outlays for over 1-3 years. For the most part it is what it is. What I think what will happen is smaller discretionary spending will be cut. I also will be headcounts will be cut before vendor expenses are cut.
2) EMR’s sales will slow down. Again that is long term purchase in theory. If you feel depressed about the economy as most of us do, other excuses will manifest on why not to by EMR’s. If prices fall I think people will not buy. Again EMR has long term cash out lay, so it will be avoided.
3) Vendors exposure. Not sure. There are still many investment firms that made their money outside of Real Estate. I think those niche players will still supply the small capital (20 M). However I think what will happen is companies need 10-20M will find themselves with out a home. To small to warrant the anemic return, or too large to warrant the risk. Large capital will be slower. However if you need large capital outlays, scrutiny will be high as for the reasons and the returns. More then likely IPOs and capital fundings will be slowed down by presenters themselves. The CEO’s, CFO’s etc will fear a weak economy and weak funding and hold off. Which opens us up to the next point. However if you have a good product and good business model you will still find funding.
4) with IPO’s and capital slowing down, companies will turn to mergers and acquisitions. Justification will be cost synergies and efficiencies. Also, will the markets being tight it will go into the private deals. Buyers will be wary of new deals, and sellers will be cautious b/c the are selling at a lower price. However at the end of the day the deal will be down. Sellers will want to move on and just cut their losses or get out the company. Buyers will be aching for the returns for the “Synergies” which will never arrive.
5) Sales forces will be cut, regretfully. Sales is an easy cost to get ride off. This is a short sided action. B/c cutting sales staff reduces the companies interaction with the market. So sales will drop b/c less interactions amongst vendors and buyers. I would also keep my eye out for big pushes to outsourcing. If the company has held out this long against outsourcing this could be the straw that breaks the camels back. Finally like Harmon said the work force will be flooded with my “Evil Brethren.” I am Finance and accounting guy and chose to be a real finance guy, and not some slicked up salesmen. I can read a balance sheet and CASH FLOW. Most of these investment bankers cannot. So these guys with some trumped up degree are going to flooding our market space. The big key to remember none of them ran/worked in business. They were traders and investors. They have no clue on projects, ROI’s, or business in general. So I hope HR is wary of the slick shysters.
6) There will be two sides of the coin on Drastic IT cost cutting. Those that can justify their costs, and have the track record proving it. They will be fine. In fact they will be successful and have a good career path. However if the executive group feels that there is not a track record of performance or returns on projects, see ya. The executive team will see IT expenditure as strategic expenses that can be foregone. IT costs will cut drastically or removed completely. Remember people practiced medicine without networks, computers and the likes before. People will revert to that mind set. What will determine which side of the coin you are on, will be what did you do yesterday and today, and does the executive team know and understand that. First thing I would do is start educating my executive team today.
Basically it is a case of follow the dollars. If this reaches a breaking point where the credit market largely cease up totally (and we are getting ever closer right now since Lehman went down in flames) and commerical paper (short-term bonds) becomes unavailable, then companies are going to do what is rational and begin to lop-off head-counts in quite a dramatic fashion in some cases. Going to vary widely from industry to industry and firm to firm but the result is going to big jump in unemployment by the end of the year if this is the case.
As for the direct effect on healthcare, again it is pretty much a case of the following the money. If companies get hit hard by this recession, they are going to scale back healthcare benefits and in other cases stop offering them completely. Basically rate of uninsured is going to rise. It is just going to be a matter of how much private coverage erodes and what/if any public programs (mainly at the state level) will be able to buffer. My bet is not a whole lot. This will have a shakeout effect on providers as the number of individuals without coverage rises (and potentially dramatically if unemployment rate increases alot and if firms stop offering coverage all together/slashing their level of benefits).
So will it have an effect on HIT vendors in the near-term? Sure but it depends upon how bad the credit market for commerical paper becomes. As for providers and their IT budgets, my bet is that it gets squeezed (hard potentially if payer mix hits the skids quick) and IT-related stuff gets frozen or pared back but staff will probably absorb most of the first hits (as you are seeing now in some markets). In some cases, it might mean that projects get postponed or delayed entirely.
End of the world – probably not but healthcare isn’t going to be “recession-proof” this time around and the effects on healthcare are going to be dragged out due to the annaul cycles of firms deciding on HR benefits. It could be much more greatly accelerated though if you start to see much larger jumps in the number of unemployed.
I’m with PMD that employers will continue to push more of the health cost burden onto employee shoulders. Recent reports from the HR consultants are already signaling this and now with the economy seeming to crater likely to be accelerated. Unfortunately, the average consumer will also pull back spending which may lead to less preventative healthcare, probable decrease on medication compliance and for those with a chronic condition, less compliance as well.
So what does this all mean to HIT:
– Primary care providers will be squeezed even more leading to anemic adoption of ambulatory EMR
– Large IDN CIOs will also see some pull-back in budgets leading to large projects stalling (of course dependent on what stage they are at). Focus will be on those projects that show clear, demonstrable ROI so look to those solutions that result in more referrals, lab orders, radiology orders etc. for the lg hospital within an IDN.
– Small innovative HIT companies with modest operating budgets, but good ideas and path to market will do alright. Those small companies that are just taking another HIT product to market that is not clearly differentiated, will die more quickly.
– Mid-tier companies will be in a squeeze box. High expenses, difficult access to operating capital will lead to very difficult times. If the current economic crisis is with us for 2-3 yrs, most mid-tier firms will be acquired.
– Large HIT vendors will weather the storm, thought they will be diligent in monitoring expenses. There will be lay-offs (sales & marketing likely hit first, followed by project teams developing products that have not gained traction in the market).
– 3rd party consultants will do OK, as long as they stay focused on the right things for their clients and make themselves very visible int he value they are providing.
I’ll be summarizing the best points from these comments in Tuesday’s HIStalk, so now is the time to weight in with your thoughts.
Pretty obvious actually. No money in the Government sector means that only private pay will flourish. Given the skinflint attitude and bad press that the American Healthcare market has gotten most of them will go overseas. Eventually it will all roll downhill and healthcare IT will dry up. There is a fix for this. And yes I di blame the Republican encomic standard. We saw what happened at the end of the first Reagan/Bush era. When the debt goes too high it drys up the open money pool. Recent out sourcing has exacerbated this by creating “trickle out” economics rather than “trickle down” so that the middle class is essentially broke. This amounts to a back end tax on the middle class. The only way to rectify it is to put a front end tax on the super wealthy. They’ve reaped the benefit of the past gains, so now they need to bail the situation out. After all they are the only ones with any real cash now. Ironically many of them are heavily invested in foreign markets (Isn’t Amalga based in Thailand?).
The truth is that the big players will get bigger and the little and many of the medium players will disappear, regardless of what is done next.
It’s so painful to see all this so called meltdown and American citizens are openly fooled by the administration and we all take it – like getting used to slow poisoning!!
Some points ( not necessarily healthcare)
A barrel of oil changes hands 25 times before someone takes delivery of the physical crude. So 24 times it was merely speculted upon with not intention to actually buy the crude. If all futures trading in crude is banned ( only buy if you intend to take delivery of the crude), i bet we’ll see $2.5 to $2.75 gas. Why on earth are investment banks allowed to trade in crude. I don’t know any investment bank with crude refining facilities or retail gas pumps!!
If crude comes down, we all ( including healthcare) benefit.
Second, we need to curtail our defense and war budgets. America has a war history like no other contry on the planet. Thats not the way to deal with problems today. The country’s popularity rating nosedive, people start hating and it’s god damn expensive. US spends over 100 biilion annually in Iraq. This is waste. Lets build our own country first before we help others build theirs.
( And now the Bush administration has the nerve to think war in Iran?????)
If Bush diverted 1/100 of his defense budget on alternate energy R&D, it would have been a totally different picture.
American citizens should really really take all these events seriously. In a Democracy, the real power lies with the people and it seems everyone is just too complacent to use it.
Can your leaders take you to war if you don’t want to??? Can you leaders promote future’s trading in crude if you don’t want to?? They can’t !!!!
Yes, the speculative nature of oil is an issue that needs to be addressed. However, we also have other issues involving oil, ie the quality and quantity of oil production as well. If this information was more freely available speculation would go away.
Ah the war. There is nothing that could be said that will add to the intelligent discourse of the war. Regretfully though some of the expenditures of the war that are being reported, and actually items paid for and produced years ago, so the cash outlay is over exaggerated. Most of these items would not be replaced but simply put out to rust and devalue. Also, most military R&D expenditures have lead the way to some great developments in the private sector, so this might not be the best idea. I am not defending the war, by any means just trying to show another side.
If you want something to get upset about lets talk about the financial inequity in America. The top 400 (based on volume is only 20% of the daily readers to this fine website) people in American account for over $70,000,000,000 in pre-tax income annually. That averages out close to $168,000,000 in income person. Lets be extraordinarily aggressive and say the average personal income is $50,000. That means the average American only earns .03% of the top 400 people. Frame of reference if you make $50k, .03% is only $15 dollars, or what you would pay to go out to eat.
Also, the wealthy rich have been getting serious tax cuts year over year. In fact their average tax rate is not much higher then what someone at 50K would make. I think the uber-wealthy can afford a bit more then 30% tax rate. Really how many golden toilets and diamond studded cell phones does one person need. Or for that fact how many houses do you really need. Because 20 households might not be enough this day and age. There is a common problem in businesses where a company makes too much cash and has excess cash flows. People are no different. Excess cash flow just creates waste. Higher tax rates prevent waste.
In fact if we charge them 10% of their annual income for 10 years, guess what we get…..We get $700B. There is a a simple way to pay for the bailout. Or hell for the next 30 years, we could pay the national debt down by 30%. Keep in mind these people would never have had a chance to earn this money without America. It time to give back, to what help gave you the opportunity for success.
Besides if you make $168M and are taxed at 50% that leaves you with $84,000,000 to go play around with, so you can still get your golden toilets in all your restrooms just might take 5 years instead of one to out lay your all the restrooms in your 20 mansions with them.
And to think their children not getting feed or educated, people walking around homeless, people with out health insurance.
It will be like the forest on the fire. Very large the benefits would cut but they will survive. Middle class will undergo the worse condition and several subclinical and obvious bankruptcies will occur. Later on the ashes numerous new more competitive, innovative, motivated, smart and hard headed companies will appear.(2-5 years) Internal white folds loose their market part to foreigner workers (Indians and chinise)(1-5 years). The lag of new technology employment will follow by cheaper and more effective solutions which already fostered by the fire’s ashes.(4-10 years).
I think except for a short period, it wont discourage new entrance but it will shift the nature and the paradigm( both technologic and business model). I guess it will encourage more web based, service oriented, free but closed source.
Insurances will pay more on HIT in middle and long term(4-10 years) specially on SMEs. In spite of bad short time, I am very optimistic with mid and long term consequences.
If this site is going to become a place for political diatribes, it will die a fast painful death. (And I for one would hate to see that happen. This site, until this evening, has been developing into a magnificent place for insight and creative solution building.)
Moderator, can we please keep the posts focused on how we can improve healthcare and help each other build the systems and policies that help patients and staff. Can you remove any posts that try to hi-jack this thread to make overt political statements. There are plenty of other blogs and sites where finger pointing and anger can be vented.
Thanks in advance.