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Industry Insights

Opinion: Is healthcare set to face a pandemic bubble?

The following is a column from Mick Raich, former President of RCM Consulting for Lighthouse Lab Services.

In 2020 and early 2021, more than $4 trillion was pumped directly into society, including funding for healthcare providers and facilities. While most Americans spent last year wondering if the world was collapsing, healthcare had one of its best years ever. While all of healthcare felt the effects of the pandemic, many of the providers found it very profitable. 

A recent Google search showed this for Hospital Corporation of America (HCA): Revenues for the six months ended June 30, 2020, totaled $23.929 billion, compared to $25.119 billion in the same period of 2019. Net income attributable to HCA Healthcare, Inc., was $1.660 billion, or $4.84 per diluted share, compared to $1.822 billion, or $5.22 per diluted share, for the first six months of 2019.

Meanwhile, a search for a local health system near me show this result: ProMedica, a 12-hospital system based in Toledo, Ohio, posted a net income of $234.7 million in the second quarter of 2020, according to recently released financial documents. It had a net loss of $22.3 million in the same period a year ago.

What does this really mean? Let’s consider human nature for a minute. No one knows when they are having their last meal or viewing their last sunset, or more importantly, when they are having their best year financially. Everyone thinks the gravy train will last. But consider the fact the government is stopping the money machine; the federal unemployment benefit ends for 26 states on Sept. 6. What will the American healthcare landscape look like going forward?

In my mind’s eye, I see systems and providers spending all this newfound money on improvements and capital assets. So, imagine if they start spending this cash in this economy. That’s a boon for America, right? Yes and no. Everyone is out spending their funny money and buying their own stuff as the pent up year in quarantine has everyone doing things differently. Demand far out reaches supply, so the prices on things being sold increase, and the law of scarcity engages. Inflation naturally occurs. and then interest rates rise to counter inflation. 

So just like Joe Lunch Bucket, health systems will not be immune to these changes. Many systems will be flush with cash and they will spend accordingly. They will overpay for goods and services; many will have their best year ever. 

What is the timing of this bubble? It is likely the fall of 2022 or the spring of 2023. By then, all the money is spent out and unless there is another stimulus, unemployment lowers and supply catches up with demand.  

There could be two outcomes here: one set has providers who over bought running headlong into debt in a world where interest rates have gone up. Another outcome has providers sitting on cash and waiting for the correction to happen. 

What is the best course? In this case, perhaps the old adage rings true: Cash is king. Good providers and systems will sit on their coffers while others will spend their way into more debt at a higher percentage.  This may inevitably lead to an even further consideration of the industry as the systems with bigger debt look for dance partners to offset their situation.   

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