Health-Care Industry Debt Turns into “Systemic Recession Risk”

Debt binge hits its limit, with big impact on overall economy.

Sector booms and busts have historically been driven by speculation and over-borrowing, often triggering regional or even national recessions. Textbook examples include the 2014 Energy and 2008 Financial sector collapse. In both of these instances, fallacies such as perpetual $100+ oil and ever rising home prices drove rampant speculation, overinvestment, and unsustainable debt buildup.

So warns John Burns Real Estate Consulting, in a new paper, “Industries at Risk and Implications for Housing.”

This time, three sectors stand out where “a similar pattern of unsustainable growth has driven rapid expansion” since the end of the Great Recession: technology, automotive (whose current travails I keep dissecting), and health care.

But health care poses the biggest “systemic recession risk” to the US economy, according to the report. After employment in the sector has soared 113% since 1990, it accounts for 16% of private sector jobs, up from 10% in 1990.

[T]thus a correction to the industry will likely cause a slowdown for the national economy. Several large housing markets have an even bigger concentration of jobs tied to the Health Care industry and will be disproportionately hit by a Health Care slowdown, including: Philadelphia, Boston, New York, and Nashville.

As so many times, it has to do with debt. Health-care sector debt has soared 308% since 2009, the depth of the Great Recession which elegantly bypassed the sector. Over the same period, GDP has grown 30%, and overall jobs have grown only 18%. Thus health-care sector debt has grown 10 times faster than GDP and 17 times faster than private-sector jobs, “exceeding multiples of prior finance and energy sector boom-and-bust cycles.”

Hospitals and other health-care facilities, funded by this “debt binge,” have sprouted like mushrooms. Due to their “large multiplier effect on local economies” as doctors, nurses, and other employees live and spend money in the area, “municipalities have been eager to invest in health care facilities because of the assumed jobs/tax dollars.” This overenthusiasm and over-investment has “accelerated the industry’s growth.”

It occurred during a period of industry consolidation via, you guessed it, a debt-fueled wave of Mergers & Acquisitions. This chart shows the annual number of announced deals (green) and the number of hospitals (blue) involved:

M&A activity has also consolidated the pharmaceutical sector, health insurers, and the like, which further lowered competition and helped contribute to surging prices that have become “unsustainable” for consumers.

Medical costs for a family of four in an employer-sponsored PPO plan soared 190% since 2002, from $9,000 to $26,000, according to the Milliman Medical Index, which includes health care costs and employee and employer contributions but not plan administrative expenses or profit:

The medical needs of the aging boomers support growth, “but not at the breakneck pace seen in recent years,” the report explains. The population aged 65+ has grown 41% since 2000 and will likely grow another 29% through 2025. Medical spending increases with age, and folks aged 65+ account for about 40% of total personal health spending.

But these “demographic tailwinds do not justify skyrocketing debt growth,” the report points out. The health care sector’s debt per 65+ person has soared from less than $1,000 in 2000 to over $13,000 in 2016, a stunning rise of 1,376%:

The unsustainability of this debt binge is showing up in the higher yield that investors are demanding in order to hold health-care junk-rated bonds – a sign investors see higher industry risks. Hence, borrowing costs are rising.

The chart below shows the difference in yield between junk-rated health care bonds and all junk-rated bonds (between the Effective Yield of the BofA Merrill Lynch High Yield Health Care Sector Index and the BofA High Yield Index).

A negative spread, which dominated for much of the period of the chart, means that investors saw the sector as less risky than the overall junk-bond market. But that changed in 2015, and John Burns Real Estate Consulting anticipates that the sector’s corporate borrowing costs will continue to “trend higher”:

And now there are “early signs” the industry is cutting back, “after years of rapid expansion and renewed political pressure.” The report cites some examples, including these:

“Community Health Systems Retrenches. Hospital operator forced to sell some hospitals after long buying spree” – Wall Street Journal, October 2016. “After years of acquiring hospitals and increasing debt [current debt to equity of 10x], one of the largest hospital operators announced it would be selling several of its 158 hospitals in order to pay down debt.”

“High price tags for medicines are about to come under renewed pressure” – The Economist, December 2016. “The president-elect, the pharma industry’s preferred candidate, has promised to bring prices down.”

“MD Anderson cutting staff by 1,000 workers via layoff, retirement,” Houston Chronicle, January 2017. “MD Anderson Cancer Center, Houston’s second-largest employer, is eliminating about 1,000 jobs as the elite medical institution continues to wrestle with losses that exceeded $100 million last quarter.”

So the report: “Speculative investing – often fueled by debt – has preceded 11 of the last 12 recessions; we believe debt will spark the next downturn.” And the number one candidate for that spark is the phenomenally over-indebted health care sector.

Under onslaught of new competition, monopoly status collapses. Read…  After Years of Price Gouging, Mylan’s EpiPen Gets Crushed

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  102 comments for “Health-Care Industry Debt Turns into “Systemic Recession Risk”

  1. Mike Guidry says:

    More of this going on in Houston which has biggest medical concentration. Baylor College of Medicine built a $500 white elephant hospital almost a decade ago. Debt. Never opened. Catholic Health Initiatives (CHI) made a deal to for some sort of joint venture which gave CHI ability to use the hospital to replace its aging St. Luke’s Hospital that it acquired a few years ago. I’m sure none of this was done with cash. Now CHI is in trouble and laying off lots.

  2. Willy2 says:

    – This is one more reason why the Healthcare sector is so fiercely opposed to the Trump administration’s plan to cut Healthcare costs. All those cutbacks will hurt the sector’s ability to service their (soaring) debts.
    – With the introduction of Obamacare the sector got a giant boost and those extra income/revenues are now in danger of shrinking as well.
    – I hope that one Wolf Richter doesn’t blame the Federal Reserve as well (think: low short term rates) for this bubble.

    • Wolf Richter says:

      I was fixin’ to.

    • James Levy says:

      Obamacare can, I think, be tied to a revenue explosion, but not to a debt bubble. If they didn’t have such cheap borrowing costs then they would have had to plow back revenue to increase cash flow. But they didn’t do that because they had access to cheap credit in vast quantities. So, although we can, and should, critique Obamacare, the debt bubble in medical services is another issue entirely.

      • Willy2 says:

        – As a result of a larger revenues the Healthcare industry was able to borrow more money. Falling rates also helped to increase the debtload.

      • Valuationguy says:

        The causes are many (debt bubble, Obamacare, low interest rate, etc.)….but the solution is clear but extremely undesirable.

        The ONLY solution is to CUT COSTS…which nether Obamacare or Trumpcare addressed. Those gov’t initiatives are all about changes in DISTRIBUTION…reasoning that by getting various populations at each others throats (rich v. poor, men v. women, religious v. abortion supporters, etc.) …the politicians can continue to kick the can farther down the road before the entire edifice (house of cards) collapses because a popular consensus mandate cannot be reached. (BTW – this is exactly the strategy those in power try to use to keep a national consensus from forming over OTHER reform efforts as well…..divide & conquer!)

        Cutting costs however costs jobs in the short run (entire hospital systems melt down and shrink due to overwhelming debt….insurance companies shrink as policy values decline…biotech industry falls 50+% on lower reimbursement and higher risk…etc.). In the long run however…the lower costs increases OVERALL job formation by promoting small business hiring and lowering employee costs.

        #1 to cut costs….eliminate the monopoly healthcare regulations which promoted the rise in LARGE hospital systems and the disappearance of the private practice. Force hospitals to POST SET PRICES (i.e. provide a full cost estimate) AHEAD OF SERVICE (except emergencies where consent cannot be obtained) and NOT DISCRIMINATE among the insured and uninsured. Eliminate the mandate to provide service to all in need regardless of ability to pay (a hospital can still CHOOSE to do so…). Reduce the incentives which put 10 middlemen between the end consumer/patient and the payment. Cut the # of hospital admin people from 6:1 staff/doctor to 3-4:1 staff/doctor.

        Just a couple of suggestions which might dramatically reduce the cost….after which the problem of DISTRIBUTION become addressible.

    • David G LA says:

      What plan does Trimp have to REDUCE health care costs? First time I’ve heard of this.

      • Michael Fiorillo says:

        Reduce health care costs?

        That’s an easy one: people will just have to die faster.

        • Frederick says:

          Isn’t that where Monsanto comes in and big pharma?

        • Gerald Stehura says:

          Reduce health care costs? Easy! Take responsibility for your own body. Adopt a nutritional diet. Stop eating processed foods, sugar drinks, and large hunks of meat. Fruits, vegetables, nuts, legumes, seeds. Exercise. Take responsibility for your own body and health.

        • HudsonJr says:

          It’s sad, but I’ve benefited from “dying sooner”. About 20 years ago my father died unexpectedly around age 60 and he never had major medical expenses or long term care costs. Then my mom married another widower who had the same thing happen. So they had their own social security, plus their spouses social security, and the husband still was working.

          Because of that situation they were not rich, but doing fairly well. They paid off my college debt on my behalf. It wasn’t anywhere near what today’s kids have, but it was still a good chunk of change.

          So even though I got a pretty poor paying job out of college, my wife and I were able to start saving in our early 20’s since we had very little debt. Even though it wasn’t much it was enough of a base to scrape together a down payment for a house after several years. Then that house appreciated significantly, we sold and moved somewhere cheaper and now sit in a decent financial place.

          However, every time I think about it, it’s largely the circumstance of my father dying that made it possible. If I had to pay my college debt, and my mom/dad had ongoing medical problems I’d probably be struggling along.

      • Willy2 says:

        – When Obamacare was approved (april (???) 2010) Healthcare stocks rallied.
        – Look at the Healthcare ETF called XLV. It barely made a new high this month. Compare that with e.g. the S&P 500 & the Dow Jones.
        – Never heard that Trump wanted to get rid of Obamacare ? Because of the high costs ?

      • Smingles says:

        There is no plan, there are just the musings of an egotistical idiot who is in way too far over his head.

        February 2016 (tweet): “We will immediately repeal and replace ObamaCare – and nobody can do that like me. We will save $’s and have much better healthcare!”

        October 2016: “My first day in office, I am going to ask Congress to put a bill on my desk getting rid of this disastrous law and replacing it with reforms that expand choice, freedom, affordability. You’re going to have such great health care at a tiny fraction of the cost. And it’s going to be so easy.”

        November 2016: “When we win on November 8th and elect a Republican Congress, we will be able to immediately repeal and replace Obamacare — have to do it. Obamacare has to be replaced and we will do it and we will do it very, very quickly.”

        February 2017: “Nobody knew that healthcare could be so complicated.”

        March 2017: “I never said — I guess I’m here, what, 64 days? I never said repeal and replace Obamacare — you’ve all heard my speeches — I never said repeal it and replace it within 64 days. I have a long time.”

        Donald Trump said we’d be tired from all his winning, but I think he misspoke– I believe he intended to say we’d become tired of all his whining, not winning.

        • Liah says:

          That is utterly charming, Smingles. You have made me smile and that is a real improvement today.

    • Enquiring Mind says:

      Too Big to Heal.
      That is the message about debt-addicted providers.

  3. John Doyle says:

    This really shows up the major dysfunction in the healthcare sector in the USA. It’s all debt based and bank financed for profit.
    Just about everywhere else its a public good, a citizen’s mandate to government to run the show. Neo-liberal policies aim to privatise so much of it is spectacularly backfiring.
    The government will end up taking it over. While there is room for a private sector, it’s a small specialised industry the bulk should be free to the public. It’s a big drag on the economy, and it never needed to be.

    • Vern says:

      This. A 1000x this.

    • Coaster Noster says:

      Agree 100%, it needs to be a “public good”. Americans have a knee-jerk reaction to “socialism”, and that label is easy to slap on ideas. Of course, our US Military is one of the greatest examples of a socialistic society, but everyone ignores that fact and waves the flag. Same with Interstate Highway System. Are we so arrogant as to think other advanced countries arrived at a national way of funding medicine with zero critique and complaint? Of course they looked at every thing, and in multiple countries. But here…”Socialism!!”
      Bernie Sanders plans to introduce “Medicare for All” soon. I’m on Medicare right now. It’s the insurance system that works.

  4. TJ Martin says:

    OK .. perhaps my ignorance is showing but this one’s got me thoroughly befuddled ;

    All the money health care is raking in – all the H1B abuses going on [ from MD’s to Techs ] in the industry in order to keep employee costs down – all the wretched over charging [ such as $25 for a single Advil and $115 for a nurse/aide to give it to you ] – the massive increase in health care needs as Boomers age – as well as the blatant overcharging to both the patient and their health insurance .. etc .. et al .. ad nauseam ?

    And yet Health Care is up to its neck in debt imbedded in a bubble about to burst ?

    Truly the inmates have taken over the asylum .

  5. Mary says:

    You have documented how overexpansion in the auto industry and overbuilding in real estate has led to better deals and price discounts for cars and collapsing prices for homes and condos. Any possibility of corresponding cuts in health care costs for consumers? Or (my suspicion), does the law of supply and demand somehow not apply to hospital rooms?

    • TJ Martin says:

      I’ll offer my two cents . Yes the law of supply and demand does apply … problem is when they lose money due to vacancies they close rooms , wards and even entire hospitals down in order to circumvent the laws of supply and demand .

      e.g. Its a lose lose .. with no winners in sight

  6. Petunia says:

    One of the leading causes of personal bankruptcy in America is healthcare debt. If Americans are getting this debt discharged in bankruptcy, no matter how big the hospital bills get, they are never going to be paid.

    Someone we know had their child in the hospital for 4 days and the bill was $18K. The insurance company doesn’t want to pay it because the child was not sick enough to spend 4 days in the hospital. The implication is that the parents had control over the length of the hospital stay, which is ridiculous. If the insurance company doesn’t pay, there is no way this family can pay, so the bill will remain unpaid or be discharged in bankruptcy.

    My dead inlaws lost their home to medicare. After working a lifetime they couldn’t even leave a crappy condo to their children.

    We need a single payer system and we need it now. Healthcare needs to be totally non profit.

    • TJ Martin says:

      ” We need a single payer system and we need it now. Healthcare needs to be totally non profit ”

      Agreed .

      In which case you’d better get out from behind the screen doing everything you can to help oust each and every Republican both in the USHouse and Senate in your District / State along with every local and State representative .

      Cause Petunia .. guaranteed you aint never gonna see Single Payer never mind non – profit Healthcare as long as those Ayn Rand addled RNC sycophants are running the show .

      • Petunia says:

        Do you think the globalists on the other side are any different. The current system is the biggest give away to the health care industry yet.
        Maybe our current president is right, let the whole system implode.

        • Frederick says:

          Hey it’s going to implode eventually anyway Might as well get it over with and move to a true recovery where the responsible people will prosper instead of what we have now where they are getting killed

        • TJ Martin says:

          No but at least with the other side of the aisle there’s a fighting chance with the likes of Uncle Bernie pushing them along .. whereas with the R’s in the room the only thing they care about is shoveling as much wealth up to the rich as they can to the detriment of all others .

          In as far as the globalist comment .. get a grip on reality .. its here and regardless of what lies the Chaos in Chief tells you to further his celebrity it aint ever going away . And suffice it to say about the only thing this ‘ so called ‘ president has ever been right about is nothing . Everything coming out of his mouth being either outright lies , exaggerate truths of half truths all in the name of his greed and celebrity status

        • Petunia says:


          Let’s agree to disagree and leave it there.

        • polecat says:

          “let the whole system implode” ….

          I and mine are doing our part this season, by NOT paying for that extortionate piece of shite .. the ‘individual corn-holing mandate’ !!

      • WorldBLee says:

        Or with the Democrats, who refused to even look at single payer the last go-round, which is how we ended up with ACA–which only looks good if you stick next to the pig of Ryan’s AHCA plan. To put this solely on Republicans is incredibly short sighted as the Dems are fully in the pockets of big insurance/pharma–the only difference is they want more public money flowing to their donors rather than booting more working poor off the rolls entirely.

        • Coaster Noster says:

          Agree about the Democrats when the ACA was being built. “Moles” funded by the healthcare insurance giants (fact: lobbying Congress at a cost of $1million per DAY) insured that health insurance giants would survive and prosper post ACA passage. Single Payer, and no giant insurance companies, would be so much LESS costly.

        • TJ Martin says:

          Please try and focus on the facts rather than alt reality . The DNC barely got the system we have in place .. and had they tried to go the single payer route we’d still be stuck with nothing instead of a somewhat broken system thats better than nothing .

          As for the RNC .. in their minds any form of health care is entitlement verging on socialism .. which they despise to the core of their being

          As for who’s in the backpockets of whom … once again look at the facts not the fiction .. the RNC is in everyones back pockets .. especially the insurance and finance industry

        • Kent says:


          I am fully on-board with single payer. However, the Democratic Party had full control of the Congress and the Presidency and 60 votes in the Senate to boot in 2010. They chose not to go single-payer. This is not on the Republicans (though I don’t disagree with your thoughts on Republicans, though I am one myself). Conflicted, I know.

      • Niko says:

        It’s both parties. As long as we have “establishment” politicians things will never change. We need campaign reform before anything else can change and I don’t see that happening with either party.

    • kitten lopez says:

      i really wish you’d write a book. a rant. a rageful screed. i wish you lived down the street so i could talk to you while folding laundry at the laundromat. you’re like a mixed race mixed EVERYTHING person. fascinating. and i feel like you see the future because you see what’s going on under the rocks.

    • JZ says:

      America is the home of the free and land of the brave. It is not a safe place where you are taken care of.

  7. Saylor says:

    The problem of getting single payer system is that there is so much investment money tied up in insurance companies. You could roust out all the Repugs and Demos and the 800 pound gorilla would still be sitting there looking at you.

    To untie that money before taking away that sort of revenue stream would mean either the insurance companies agree to reduce their profits (good luck with that) or a collapse so great as to kill off that segment of insurance. We had a chance for single payer up until the 1990s. Then the insurance companies got too big to fail also.

    • Coaster Noster says:

      Agree that it is a punishing slog uphill. I know a mid-level Blue Shield exec who retired at 60, and received her “golden egg” of a retirement package: $6 million.
      Well, what do all those Sears execs expect to end up with? Reality is tough.

      If we can get to the 40% of Americans who could vote, but never vote, maybe by 2020, the landscape would vastly different.

  8. Beans says:

    Wolf – it would be a nice study to look at the corporate debt in Dental Service Organizations like Pacific Dental Services, Western Dental, Aspen Dental, Smile Brands and the rest. Dental is a lot less complex than medical to analyze and is experiencing many of the same trends.
    These DSO’s are growing rapidly but hold a ton of debt. I’ve assumed that the high debt level is necessary to grab market share from private practicing dentists, however maybe it is just the nature of the beast. Despite the rapid expansion of dental service organization outlets, the quality of dental care seems to have plunged while the patient costs have only moved on the margins. I’d love to see your thoughts on this.

  9. FDR Liberal says:

    As I recall the homebuilding bucket of the construction index was approximately 18% of GDP in 2005 and overall healthcare is approximately the same percentage today. Wolf may’ve tapped into the next bubble to pop.

    Construction employments was only 5.1% of total employment in 2005.

  10. kW says:

    Wolf: I failed to find the corp. greed chart

  11. unit472 says:

    Only a consumer of healthcare but what concerns me is not industry debt but industry receivables. How do you call a person with a $6000 deductible insured? Try that on an auto loan and the lender will laugh at you. What was the percentage of Americans able to write a $500 check for some unexpected expense? Half?

    I realize hospital expenses can rapidly climb far beyond the deductibles of most insurance policies but my guess is many people are going to wait until they are at death’s door before they incur that deductible or… more likely they will simply not pay their bills.

  12. andy says:

    The US healthcare sector at 17% of GDP with worse outcomes than many western countries is totally out of control.
    Simply put, the prices paid for healthcare goods and services in the US are way, way too high.
    They need to come down by orders of magnitude.
    Maybe Trump is smart enough to make that happen….but there are lots of vested interests….

  13. Ricardo says:

    “After years of acquiring hospitals and increasing debt [current debt to equity of 10x], one of the largest hospital operators announced it would be selling several of its 158 hospitals in order to pay down debt.”

    Well that sums up America for me. I thought a hospital was to treat people for accident and illness.
    Not with that paragraph.
    More like “stuff you Jack, where’s the money”
    Sad very sad.

  14. Dan Johnson says:

    I’m a financial analyst for a top 10 healthcare organization. I’ve really enjoyed your articles on this website before wolf, but I’m not necessarily buying this one. Two major sources of debt growth: extremely expensive Electronic Health Record systems and M&As (which you were right on). The thing with M&As though is that health systems are vertically and horizontally and using their new EHRs to ensure that they are keeping their patients in the system for all operations. EHRs could be an amazing investment that will improve health outcomes and provide data for researchers to mine for more cutting edge innovations. Just my two cents, but I think hospitals are grabbing cheap money while they can and are using it because medical equipment and buildings are expensive.


    • Tim says:

      I’d guess it’s expensive cause they’re obliged to buy it. “Electronic Health Record” is not a rocket science, essentially it’s just a database, even with all sophistications and shouldn’t be a significant cost for them.

      • Dan says:

        I don’t think you understand how fragmented the field is nor do I think you’re taking into account the average age/computer literacy of physicians.

    • James R. Chaillet, Jr., MD says:

      I’m not buying your response. I’m a physician in a large healthcare system and I see huge sums spent on EMRs (Epic) and growth through building and buying up medical practices of all types. The EMR is expensive to maintain and upgrade and is a huge drain on physician productivity – not only in numbers of patients seen and treated but how well they are treated. The physician spends more of his/her time treating the computer than treating the patient. This is being documented more and more. In one study, I believe last year published in the Annals of Internal Medicine, internal medicine physicians spend an average of 65 minutes a day just on the In basket of Epic. You literally can’t do anything in medicine, such as a phone call, without at least one person documenting it in Epic.

      As far as clinical outcomes, like morbidity and mortality rates, go, I’m not aware of any research indicating that improvements occurred because of the EMR.

      This doesn’t mean that EMRs are, per se, bad or cause ineffeciencies; but that the implementation so far has been mostly horrible. Note that the big EMRs have been designed to help the government, the finance people, the insurance companies, the accrediting bodies and other parasites, but not to help physicians or patients.

      Also, the hospital systems are becoming more vertically integrated to keep patients within the system – at great costs. As you may remember from basic economics, if you took such a course, vertical integration is not inherently efficient; if is usually driven by increasing regulation.

      And Mr Richter: thank you for this article. It helps to explain why the system in which I work is hiring and building as if no tomorrow. (there probably isn’t).

      • Dan says:

        I was more speaking to EMRs helping to create vast amounts of data that never before existed in a data form that was mineable. I agree with your statements about EPIC and other EMRs being a strain on physicians, but as an analyst I can see and manipulate and display information from the data you are providing. This was never before possible on such a scale that it is today. I’m sure you have more experience in terms of years in the medical profession, but logically you can’t deny that reporting and data mining has ever existed like it can today; and all that data has value…I just felt that Wolf wasn’t taking into account expenses of newly mandated EMRs and wanted to bring that up

        • Lune says:

          Have you heard the term garbage in garbage out? That data you mine from your desktop is useless for improving clinical care because it was entered strictly to maximize billing and revenue. Progress notes have become so torturous, filled with page after page of bullet point garbage to fulfill billing and legal requirements that most actual communication between doctors (you know, the original purpose of progress notes) is now done via text messages.

          Perhaps it’s not a coincidence that a financial analyst like yourself is one of the few people who sing the praises of current emr systems? It probably does help your goal of maximizing your organization’s revenue. (although once you remove all the extra money spent on maintaining the emr, plus the productivity loss of turning clinicians into glorified data entry clerks, I doubt most hospitals come out ahead)

      • Petunia says:

        EMRs are all about creating another product to sell as a revenue source. In the future the value of the healthcare provider will be in the database. Your financial, medical, DNA both family and regional structures, and all your contact information will be readily available for sale. You are the product, welcome to globalization.

      • Kent says:

        I’m the CIO of a good-sized County in Florida. My father-in-law retired as CFO of a local hospital.

        These kinds of database systems (including EMRs) are designed to provide management with the data necessary to provide consistency in operations. They make life worse for front line users because they have to enter a lot of data. They make life better for customers.

        However, medicine is not asset maintenance of infrastructure. The front-line user is a medical doctor. Medical doctor’s are not minimum wage clerks. That is far too expensive labor for data input.

        And humans are not standardized products. Everybody is physically and emotionally different. Physicians are working on a different product every time. That can’t be standardized.

        There are some things that just don’t make sense to computerize. This is one of them.

      • Beth Goodwin, R.N. says:

        Well stated, Doc. We nurses also find ourselves spending more time charting minutiae to make insurance companies & CMS happy than we do taking care of our patients. We were promised that Epic would lighten our workload; instead, Epic doubled it.

      • harvey says:

        Epic, the company that got Obama money to make all the EMRs, flew me to their headquarters in Madison for a job interview while I was still in college. From the talks of their employees, their software is written in ancient programming languages that was invented in the 70s, the part where everyone is complaint about implementation? Their implementation consultants are the most over worked group ever, turnover in that department is very high.I know a guy who interviewed with me, got an offer, and only lasted 4 month in that company.

    • jeff gram says:

      I call bullshit on your claim of affordability and efficiency from electronic medical records. Our hospital is considering purchasing one (Epic) for 50 million dollars. There are only a few major players left in the EMR field. They know hospitals are required to have one so they expect them to pay up.

      Our CEO is considering reverting to paper records and paying the fine. This is a short term survival plan to live a little longer. Long term survival requires hospitals and physicians to submit claims electronically. As a provider, I assure you there is little (if any) benefit to patients or providers from using EMR’s.

      In fact, EMR’s will accelerate closures and consolidations of smaller (read rural) hospitals because of their insane cost. Small physician group practices will evaporate as they are being forced to work in large health systems with established EMR’s.

      NEWSFLASH: We are evolving toward a government run single payer system like every other industrialized country. The original system was on borrowed time. Obamacare and the Republican plan will only accelerate the trend. American exceptionalism will not save us from “regression to mean”. Our standard of living (including health care) will decline.

      • Dan says:

        With all do respect I think you’re being short sighted…in the next 15 years wearable devices will become more and more prevalent. When you have a watch or an implant that can detect when you’re have symptoms related to a chronic disease and will automatically communicate that to you and you doctor, what medium do you think that information will be transmitted: pen and paper? Healthcare needs to go digital for a number of reasons. DNA sequencing really doesn’t have much benefit at all if there is no electronic health record to which the output can be assigned.

        An aside, I strongly believe we will be a single payer healthcare system. It’s take so long because of entrenched parties benefitting from the current system. It’s always a fun conversation to have with someone who calls me a socialist for believing this. I simply say: if John doesn’t have healthcare coverage and has a big bill, what do you think happens to that debt: it gets passed along to everyone else in terms of higher costs.

        Anyways, i’m glad this topic brings up such good conversation. It’s a pressing issue and it affects us all.

        • polecat says:

          Wearable ‘devices’ …. HAHAHAHAHA !

          …. that can be hacked into, for less than benevolent intent !

        • jeff gram says:

          Much of what you say sounds logical. I can only tell you what is happening from the trenches. I have been in practice for 30+ years and have served on many hospital committees and boards. I am not arguing with you. I’m only telling you what I see.

          The trend toward a single payer system has been in place for some time. It is not necessarily better or worse, but all we can afford. It is not coming. Rather it is already here in poor communities such as the one I practice in. Medicare, Medicaid, and Tricare cover the majority of our patients. Our hospital lives and dies on government payments.

          In many communities insurers pay only a percentage of Medicare rates (Medicare is the highest payer in these places so having insured patients is a negative). I have been told by our CEO that Medicaid pays three tranches that make a Medicaid delivery pay better than Blue Cross. Medicaid pays the lowest rates for most everything else.

          Insured patients are skimmed off to the surgery centers for better paying procedures. Hospitals like mine are essentially already surviving in a single payer environment. We have already shut down services that are not profitable – Hearts, Neuro, inpatient chemo, pediatric inpatient, … The list goes on. We are focused on profitable procedures. Our competing hospitals are losing money much faster than us. Last man standing wins. Right?

          A friend of mine who has done very well in various medical ventures (surgery centers, compounding pharmacies, physician headhunting, etc) told me once “There is still money in medicine, … just not in providing it”. That statement is very true. It is funny how health care managed to function before such expensive derivatives of existing services came to life over recent decades. They were developed not to improve health care, but to maximize fees outside of the existing procedural fees. As 3rd party payers evolve toward bundled fees you will see such “con operations” fade away.

          I appreciate your enthusiasm for what medical advancement are possible and I share your hope. I can only tell you that money, unfortunately, determines the structure and function of healthcare. Healthcare already consumes 20% of our GDP and there is no room for that amount to grow. There is tremendous waste and little appetite to control it. Medicaid block grants are only the first attempt to decrease federal spending. We are only one good recession away from a health care system you won’t recognize.

    • TJ Martin says:

      Funny thing . Ever since our primary care physician sold out to the corporation now inundated with EMR mandated by Boss Centura the office has become less efficient , office visit costs have risen , records are lost , appointments automatically deleted , office visits wasted by multiple irrelevant and repeated questions using time better spent on the reason for the visit , the MD and PA wasting time punching data into the EMR , more problems in regards to insurance , increased 10 fold privacy issues etc etc – et al – ad nauseam .

      So sorry Mr Johnson … but from mine as well as everyone else’s experience commenting here … seems to me about the only ones benefitting from EMR are the IT and FA personal such as yourself .

      Once again showing technology .. especially expensive and unreliable technology is not the end all to end all

      • Dan says:

        We can respectfully disagree with each other, that’s the beauty of conversation. The point I am trying to convey is that the medium for fast and effective communication these days is electronic: email and text. And that unless data is stored electronically, health care providers can not communicate in today’s world.

        Do you know how effective follow up messages are with patients to remind them of their discharge instructions? John Doe, remember to take this pill twice a day for 7 days. How can I efficiently communicate with a patient if their health information is not in an electronic format?

        I appreciate everyone’s criticism of the cost of implementing the systems, but I consider it to be the infrastructure that will pay dividends. 90% of all data that has ever existed has been produced in the last two years. If anything, I’m happy that we started the conversion to EHR when we did or we would be even more behind the eightball

        • Petunia says:

          If it’s any consolation, I agree that big data is here to stay, and I’m sure it’s not a good thing. Adaptation of big data will kill privacy and truth. Who will be the arbiter of truth, the database even when in error, or the data emitter. Eventually, one will be the decider.

        • d says:

          “Who will be the arbiter of truth, the database even when in error,”

          we are already past that try convincing the state the information it holds, is incorrect. Or for that matter a debt collection entity.

          21 years ago a Jury and judge said not guilty.

          A state offical did not agree and wrote guilty on the paperwork (not an accident a deliberate act) 21 years, and still they refuse to correct it

        • Enquiring Mind says:

          Many dental offices are completing procedures without any release notes for patients. Instead, a quick verbal recap on the way past the front desk out the door seems to be their MO. In cases where there are specific needs for detailed patient attention to follow-up steps, such as Take this every X hours, then do Y, then Z, that is not memorialized. Imagine your elderly relative, under the influence of some pain-killer(s), just completing a root canal or getting a bridge, or what have you, and then being bombarded with a single pass through the post-treatment steps. Or imagine yourself in that position, and how much information do you retain?

          Dentistry appears to be behind the times when it comes to what happens once the patient gets out of the chair. Perhaps they, or more likely their vendors, may learn from the medical side, and listen to patients, when putting together a comprehensive care package.

        • Beans says:

          Enquiring minds – the EHR will not solve the problem you have presented. Someone still has to press print after clicking through a few screens to get to patient instructions. And then you have to hope that the patient doesn’t lose the page or through it in the trash before reading it. Plus in most states (all?) you cannot discharge a patient to drive themselves home if they have taken a narcotic or been sedated. State boards are the place to address improper patient management – not an EHR workflow flowchart.
          Agree with all the comments above that the EHR is wayyyyy over-rated, unless you are a biller or admin.

  15. Nowandthen says:

    I’m sure Wolf must have covered this at some point, but are healthcare costs considered part of the cpi (infaltionary and thus subtract from GDP) or do they just add to GDP?

    • Wolf Richter says:

      Health-care costs represent money that is spent by one side and earned by the other side. So it goes into GDP calculations. Health care spending accounts for about 17% of GDP. So yes, they add to GDP, massively.

      Health-care cost increases also go into CPI. But there is a lot of discussion over whether they weigh enough in the formula, given how much of household income actually is spent on health care these days.

      • John Doyle says:

        Are the benefits of healthcare factored in anywhere? You know, in GDP through less down time due to injury or illness etc? I haven’t seen any figures.

        • Wolf Richter says:

          I haven’t either. Nor have I seen any figures on time and resources wasted sending patients through unneeded tests, MRIs, and what not, all associated with time off work and other costs.

  16. Virginia says:

    I have medicare part A. On my low SS I decided I couldn’t afford part B, etc. I am just lucky this farce of ACA let’s me slide through.
    Every year the govt. increases my penalty to take part B by 10%. I decided to continue my early committed plan of action, to buy organic food and herbal/vitamin supplements and exercise and live a simple, rational, spiritual life. God willing, my health will remain manageable. I am saving up to go see the local acupuncturist.
    I continue to educate myself and make small improvements.
    This year I will try again to do a non GMO garden, barring past issues of wild fires and neighbor’s pigs.

    • Coaster Noster says:

      Really, really, really foolish, not to take part B, or the “D” (drugs). I was a very healthy guy until at 66 I got a pain. MMyeloma. If I had not paid $17 a month for Humana’s Drug plan, beginning this year, I would owe THOUSANDS already in drug costs, and nine months to go!

      Borrow from relatives, there are charities that will pay, too (!!!!) but get on Plan G, and certainly Plan B and Plan D.
      Next year.

    • Petunia says:

      I don’t know what other assets you have, but you have probably made a good choice. My parents, long dead, couldn’t afford it either. Not having the extra insurance made them eligible for more subsidies when they did get sick. They lived in NYC, but I don’t remember them having to pay any medical bills while retired, because they were too broke. Don’t feed the beast.

  17. d says:

    Wolf two sets of numbers missing/I would like to see from 1990 to now healthcare workers wage rates particular the lowest 25% and HB1 employee numbers.

    My crony meter tells me huge amounts have gone into the healthcare basket, both as revenue and investment, and less as a % is getting to the lowest 25% of workers now than in 1990.

    It also tells me the number of HB1s in corporate run facility’s will be considerably higher as a % now compared to years earlier.

    Not because teh US dosentb have the skilled labour just that Corporate US health prefers to find reason’s to hire cheap HB 1s.


    health care requires the end of militarism.

    end that, replace that with taking care of the public

    ending warmongering is the beginning of the solution

    • d says:

      “ending warmongering is the beginning of the solution”

      Best you have a meeting with comrades Kim and Xi and see if you can get them on board. With anything less than total capitulation of the US and the rest of the planet to them, as their opening requirement.

      World court decisions matter, until they go against china.

      Then they are instantly declared irrelevant, by china.

      Hit on warmongers by all means

      No 1 tehran, No 2 Pyongyang, No 3 Beijing.

      The only way to deal with a warmonger, is top be stronger than it. And be willing to use that strength. 1936 proved that.

      Failure of the largest land army with the most tank’s in Europe, to act in, 1936.

      Made the events that lead to 1939 and after completely unstoppable.

    • harvey says:

      Bullshit, military spending has averaged 4% GDP per year since the 2000’s, health care more than 10% every year, and now is 20%. We need reforms, not rub money from another industry to a wasteful system.

  19. Matt says:

    Wolf, Every day in one of my news feeds I am reading about Hospitals all over the country laying off hundreds of workers or a few here and a few in this dept.. Heck my wife is a team lead for the renal dept in the largest Hospital Chain in the Mid Atlantic . They laid off 2 of the people under her in October. . it was a brainstorm of the higher ups so they could keep the bonuses since they are salary and she is hourly. she works 12 hour days, 5 days a week. I refuse to let her work weekends. They wonder why some of the reports are not getting done. She is doing the work of the 2 people they let go besides a supervisor. . She is only human. She can not keep up with what they want and could care less about upper mgmt. anymore and how they want it. so much infighting and egos she has to deal with . nobody ever wants to work together. . work ethic of upper mgmt. sucks when you only want a paycheck and could care less about getting the money in so everyone gets paid. She is old school in work ethic. That is lacking everywhere anymore. These small layoffs are what you are not hearing about that are happening all over the country every day right now. The non reportable ones. The ones slowly bleeding the country to death

  20. Dan Romig says:

    A couple days ago, the Minneapolis StarTribune had an article on the Mayo Clinic in Rochester regarding its investment and expansion, and the state’s investment in infrastructure around the hospital.

    “Mayo Clinic will expand with $3.5 billion in investments over the course of the Destination Medical Center Initiative, while private investors are expected to add $2.1 billion in residential, retail and commercial investments. The $585 million in tax money goes toward infrastructure to tie it all together.”

  21. Bill Tilles says:

    Hi Wolf,

    Although part of a larger discussion re overall debt levels to GDP (Which I suspect we both agree are ahem elevated), could the phenonena you descibe here presage a ” Minsky Moment”?

    B Tilles

  22. Bob says:

    It doesn’t take a “rocket scientist” to understand the problem, the problem is Government setting prices via reimbursement scenarios and increasing cost coding to accomplish this. Look at the graphs on the cost of health care and when it started to increase. You can correlate with those significant increases each time the Government meddled in the market.

    Sad thing is that as long as you have medicare, which gives the Government the ability to meddle, you will never get rid of prices increasing. As regulations increase to justify HHS’s employment levels, and un-funded mandates from CMS change the way health care and the physical environment is to provide for patients, the cost of service will continue to rise.

    • John Doyle says:

      By “Government” you mean the politicians in Congress? The laws are theirs. The dysfunction is theirs. The entity called Government isn’t. It’s a collective and crosses a wide field, and is subject to vested interests. They get the prices set. It’s silly to say the government meddles in the market. It has to govern, but seems to do that according to which vested interest is acting. So “meddling” is the private sector skewing the administration. It doesn’t give you a supporting case.
      Medicare is a case in point. It’s vested interests which have shaped it. In other nations the governments are less beholden to VI and they have a health system not based on profit, so costs are half what you have in the US. You can’t blame “the government”. You can blame the politicians.

  23. Willy2 says:

    – In other words: Even Healthcare has succumbed to the “Growth for ever” story. Like the housing sector & the “” sector in the (very early) 2000s.
    – And pressure from the lenders has helped as well. Think: banks & the “reach for yield” investors.

  24. Leon says:

    No mention at all of drug price gouging. Must also be a significant part of the increase.

  25. RJ says:

    I’d be interested to know how much debt, if any, this surgery center has:

    The Surgery Center of Oklahoma is a 32,535 square foot, state-of-the-art multispecialty facility in Oklahoma City, owned and operated by approximately 40 of the top surgeons and anesthesiologists in central Oklahoma.

  26. GSH says:

    It is interesting to note that all the noise about Obamacare or Ryancare is about 4% of the population. It turns out 50% of the population are already on single payer or government healthcare. Why is nobody talking about this??

    I looked up the numbers:
    We have 57 million people on Medicare, costing $632 billion a year or $11,000/person.
    We have 69 million on Medicaid, costing $532B a year or $7,700/person
    We have 7 million on VA care, costing $160B a year, or $23,000/person.

    We have 10 million on Obamacare, costing $100 billion a year or $10,000/person.
    In addition, we have 22 million of government employees, covered by tax payer paid health care (no cost info on that).

    This adds up to 165 million people in the USA already on singe payer or government health care. Data is from 2014/2015.

    (1) Putting the 10 million Obamacare people on extended Medicare/Medicaid would be cost neutral.
    (2) Don’t let the government run the hospitals. VA care is 2.5 times more expensive than Medicare/Medicaid

    • Health Care RICO says:

      GSH: NO, it’s not about 4% of the population. It’s about the 20% of GDP that the health care extortion racket is consuming, while OECD countries are 8-12%. It’s like paying $500,000 for a Kia, and then complaining about the lack of access to affordable auto financing!

      It’s the prices, not the financing!

      • Rj says:

        Correct HCRICO, and those prices would be 90% LESS if current laws were enforced. You don’t shop for and buy a 500k KIA if you don’t know what it costs until you have it home for a few weeks, you simply leave the lot and get price discovery somewhere else, like India or the Surgery Center of Oklahoma.

  27. Betty says:

    I have a positive thing to say about our modern medical world, that is the people who have NOT been sucked into it have a huge mental and physical benefit over the people who are in it.

  28. Al Loco says:

    It’s not helping that the hospitals are run by corporate robots, figuratively speaking. Every tax return season I call and attempt to negotiate a discount and pay my bills in full. Advocate, who has received hundreds of thousands from my insurance and tens of thousands from me (3 C-section births and a 1 week ICU stay) won’t give me a 5% discount on that $25 Advil. So 8 years later I sit and pay the interest free minimum until I die.

  29. Rj says:

    Some of what has been discussed is presciently found here:

    “Since the crash in 2008, we’ve had 2% GDP expansion roughly on an average basis, and you are trying to expand the growth of one program in the government by 8.5%, and that’s not going to work. This is the problem you have. What Obamacare has done has caused the 2% expansion. . . . So, what has happened here is we have taken this program and crammed these costs into the economy on a mandated basis, and the result is the productivity expansion has gone into the toilet.”

    At the present rate, HC will be 2 T of the fed budget in just a couple of years, or roughly HALF. If you think it will ever get to or exceed the current budget (3.6 T) before a complete collapse, then you might want to reconsider.

  30. Leslie2024 says:

    Hey Wolf what’s up with the ameratrade ads that won’t go away. I know ads are a necessity evil but these are highjacking your page.

    • d says:

      Is that why i keep getting this

      “Bad Request

      Your browser sent a request that this server could not understand.
      Size of a request header field exceeds server limit.


      In firefox when it try to access the site only started yesterday???

      comment loaded by safari. Which is not as user friendly as firefox. I find.

    • Wolf Richter says:

      I fixed it for now. Ad agency problem. They tried a new piece of code and it blew up my site.

  31. FLR says:

    How much of this Health Care Corporate Debt is from Stock Repurchases? Are there any other large categories responsible besides M&A and new facility growth?

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