Cartoon – We don’t have any Rebellious Employees
Category Archives: Strategy
Health-care stocks are in their longest losing streak since 2016
The health-care sector just closed out a third straight month in the red, its longest losing streak in three years.
A fourth monthly decline would be its worst stretch since 2011, and one trader says there could be more pain ahead.
“I view the whole sector as a wounded target right now,” said Boris Schlossberg of BK Asset Management on CNBC’s “Trading Nation” on Monday. “Health care, in my opinion, is the most bloated, the most bureaucratic, the most inefficient sector of the economy. At 20% of the GDP and at $20,000 premium per capita at this point, they pretty much have squeezed all the rentier profits out of the system that they can at this point.”
The sector also has a target on its back as the 2020 presidential election draws closer. The XLV health care ETF has fallen more than 3% in the past three months as Democratic presidential candidates such as Elizabeth Warren have pushed for a “Medicare For All” solution.
“Even if the Democrats do not win, there’s going to be tremendous amount of pressure to cut costs, control drug prices,” said Schlossberg. “Any way you slice it, basically the sector is a ‘sell the rally’ trade at this point. Any time you have a pop in the sector, it’s going to be a sell for quite a long time.”
Health-care stocks faced similar pressure in 2015 and 2016 as Democratic presidential candidate Hillary Clinton pledged health-care reform. At its worst, the XLV ETF plummeted 11% in the third quarter of 2015.
However, Miller Tabak equity strategist Matt Maley does not see that degree of decline this time.
“I don’t think it’ll be anywhere near as bad as it was four years ago because the setup is much, much different. In the 12 months leading into the summer before the election year the last time around, the XLV had outperformed the S&P by two times,” said Maley on “Trading Nation” on Monday. “This group had become very overbought, and very over-owned.”
This time around, Maley says the XLV ETF had performed in line with the S&P 500 before beginning its breakdown in April.
“I don’t think you’ll have that forced selling or at least that reweighting that you had going forward. So even though I think it’s a problem, it’s not as big a problem,” said Maley.
Recession Panic May Have Passed. But the Economy Is Still at Risk
The underlying forces that fueled worry a few weeks ago haven’t gone anywhere.
For one brief, terrifying moment this summer, the word “recession” was on everyone’s lips — the stuff of television segments, front-page articles and Google searches.
Then, just as abruptly, everything started to look pretty much fine.
The trade war with China went into another of its periodic phases of de-escalation, as the Trump administration seemed rattled about the possibility of a faltering economy. The Federal Reserve cut interest rates twice, something of an insurance policy against a recession. Much of the data on the economy, particularly on the job market and the service sector, remained quite solid.
And the proximate cause of many of those August recession warnings, a sharp drop in longer-term interest rates and a yield curve inversion, was partly reversed.
Crisis averted! That, anyway, has been the mood in financial markets in the last few weeks, as stocks have remained near record highs and the fearful tenor of economic commentary has subsided.
But it would be premature to declare a clean bill of health. Public attention may be focused on an impeachment battle in Washington, but the underlying forces that drove recession fears in the summer are still very much here — with some new ones potentially in play.
The latest, starkest reminder was a new manufacturing number published Tuesday. It showed the sector was contracting in September at its fastest rate since 2009. That might have been dragged down in part by a strike at General Motors, but the softness in the factory sector is evident in other data that predates the strike.
For example, in the last six months, the manufacturing industry in the United States has added an average of only 3,000 jobs a month, down from 25,000 a month as recently as the spring of 2018. (The Labor Department will release the latest employment numbers Friday.)
A less noticed piece of data on Friday showed that manufacturing wasn’t the only pocket of weakness.
Spending on nonresidential construction fell 0.4 percent in August, the latest indication that businesses are not investing in new warehouses, factories and office buildings at the rate they were a few months ago.
There is a tendency to think of the economic angst caused by the trade wars as resembling a light switch — something that President Trump can turn on and off. Some even think of it as a “Trump Put,” referring to a financial contract that insures against big losses. That is, there’s an assumption that the administration will ease trade tensions if they start to affect the stock market or the economy too negatively.
As the last few weeks have shown, there’s some truth to that. The spike in recession fears in August seemed to bring a more conciliatory tone from the Trump administration, even if concrete progress in trade negotiations isn’t really in evidence.
But the $20 trillion United States economy is a slow-moving beast, and just as the trade rift between the world’s two largest economies didn’t cause a major disruption overnight, neither do a few conciliatory comments make everything O.K.
We are only starting to see the delayed economic impact of a series of trade escalations over the summer and of a slowdown in the global economy. It’s starting to show up in hiring and capital-spending plans, as the latest numbers demonstrate.
For some time, close watchers of federal policy have been urging businesses to think of the trade disruptions not as one-off headlines, but as the continuing cost of doing business globally.
“This kind of goes to the advice we’re giving clients, and we’ve been trying to do this for a while, ‘no head-in-sand behavior here,’” said Scott McCandless, trade policy leader at the accounting firm PwC. “Be cleareyed about this. This will probably be around a while.”
There is reason to view the seemingly more optimistic signs being flashed by financial markets with skepticism.
The yield on 10-year Treasury bonds fell to 1.45 percent in early September from 2.07 percent in late July, an uncommonly sharp drop, before rebounding to 1.64 percent Tuesday. The big swings can be chalked up to global capital flows that aren’t necessarily reflective of the economic outlook in the United States.
But that doesn’t mean there is no signal in the noise. Lower long-term rates imply lower growth and inflation in the United States in the years ahead. While the bond markets are becoming more stable, yields are settling at levels consistent with an American economy that is growing more sluggishly than it has the last few years — albeit not at recession level.
Even after sharp drops Tuesday and Wednesday, the S&P 500 has remained not far from its record highs. But the market is often slow to reflect a shifting economic landscape. When the first rumblings of what would become the global financial crisis took place in August 2007, for example, the stock market actually peaked in October; the economy fell into recession that December.
“The lights haven’t gone out on the economic outlook yet, but they are certainly growing very dim,” said Chris Rupkey, chief financial economist of MUFG Union Bank, in a research note.
A recession is certainly not a foregone conclusion, and a period of slow growth still looks more likely than an outright contraction. But just because the recession talk is out of the headlines doesn’t mean all is well.
Critical Steps for a Hospital Turnaround
https://www.modernhealthcare.com/hospitals/critical-steps-hospital-turnaround
Operational changes can improve a hospital’s performance and prospects, but time is of the essence.
The challenges many community hospitals face have become so unrelenting as to threaten long-term financial viability. It’s important that this threat be met with prompt action and operational changes that can improve the immediate situation as well as sustainability. A formal turnaround plan includes analyses and actions, and becomes a roadmap to redirect hospitals and help them stay on track to serve as community resources for years to come.
What prevents some struggling hospitals from getting an earlier start on a turnaround plan?
JK: Leaders from ailing community hospitals sometimes don’t recognize the severity of their problems or that certain indicators call for quick, corrective action. Some common alarm signals that leaders may tune out at first include a downward trend of days cash on hand, shifts in patient volume across the delivery spectrum, medical staff dissatisfaction or defection, and even bond covenant concerns. Recognizing that problems need to be addressed and changes must be made is the first step toward improvement.
Once it’s clear that “business as usual” isn’t working, how does the turnaround process start?
JK: Typically, the process starts with an operational assessment to evaluate strategy, operations, supply chain, revenue cycle and leadership with the aim of reducing costs and increasing revenue—the tried-and-true formula for financial solvency. The analysis includes a review of data and documents, as well as interviews with board, executive and physician leaders. The process reveals any organizational problems or vulnerabilities that aren’t immediately apparent, and it forms the basis for a turnaround plan, including a detailed action plan. An open mind and fresh perspective are important to be able to see options to go beyond operations as they have always been.
What are some of the key areas an operational assessment looks at for potential savings and cost reduction?
JK: Almost every hospital has room to improve staff productivity. Labor is a hospital’s greatest expense, so optimizing productivity by having the right number and mix of staff can make a big impact. Community hospitals that do not have a productivity tool to achieve and maintain the right staffing levels can typically find savings of 15 to 20 percent in salaries and benefits by implementing a tool. In those hospitals where there’s already some productivity monitoring, implementing a more effective tool or improving processes can result in 5 to 10 percent savings. After labor, supply costs are the second highest expense for a hospital, so that’s another key focus area for cost reduction and savings. Industry benchmarks show that many community hospitals have an opportunity to reduce supply costs by as much as 20 percent.
Assessing revenue cycle is also imperative to help identify, monitor and collect every dollar a hospital is due. Gains can be made in this area by renegotiating health plan contracts, streamlining billing for faster payment, auditing medical record coding and reviewing the chargemaster.
Why do the early stages of a turnaround include benchmarking?
JK: Hospitals can potentially identify significant cost-saving opportunities by comparing themselves to hospitals of similar size and volume. Comparing clinical, operational and financial data also identifies areas for improvement and where to allocate time and money for improvement initiatives. For example, a CHC-managed hospital that recently underwent a successful turnaround had discovered through benchmarking that its staff ratios were higher and its benefits were more expensive compared to similar hospitals. This information prompted leaders to take a closer look at the hospital’s situation, and they found it made sense from a sustainability perspective to downsize staff and bring benefit packages to competitive levels. These actions slashed the hospital’s annual expenses by $5.3 million.
To support and sustain a turnaround effort, who needs to be involved?
JK: It’s a collaborative process requiring the participation of the board of trustees, executive leaders, physician leaders, and in many cases an outside management firm to evaluate the situation and develop a specific plan of action. As we discussed, leaders of struggling hospitals usually see the need for improvement but don’t recognize the severity of their situation. Because of that blind spot, it’s often external stakeholders or bondholders who set corrective action in motion by seeking outside assistance.
Federal Reserve announces 2nd consecutive rate cut
The Federal Reserve cut interest rates by a quarter point on Wednesday, bringing the target range for the benchmark Fed Funds rate to 1.75%–2%.
Why it matters: The Fed’s 2nd consecutive rate cut reflects worries about the U.S. economy. The trade war and slowing growth around the world have made corporate executives more worried than they’ve been in years.
The U.S. has fantastic health care, the problem is….
Click to access wf1341834-cmo-campaign-wyatt-decker-article-part1.pdf
In part 1 of an executive interview series, CEO and physician Wyatt Decker discusses his perspectives on today’s challenges and opportunities for reinventing health care.
IMAGINE THIS SCENARIO: there are 200 people in a room and each person has a serious health condition. Cost is not a barrier to each of these people receiving their prescribed treatment. A question is asked — how many of you would book a flight to a different country to get your care? You guessed it. No hands go up.
Dr. Wyatt Decker is chief executive officer of OptumHealth and an emergency medicine physician who brings more than two decades of service within the Mayo Clinic. He held dual roles as chief medical information officer for Mayo Clinic and CEO of Mayo Clinic in Arizona. Dr. Decker often conducts this experiment with audiences to underscore the quality of care delivered in the United States. We often hear about the problems of health care. No doubt, there are deep and serious problems. However, in scenarios like the one above, we understand that the quality of care delivered by our nation’s physicians is among the finest available. So why do we hear so much about what’s wrong?
According to Dr. Decker, the real opportunities for reinventing health care lie in improving system access, increasing affordability and meeting consumer preferences. “ All of these things really require us to think deeply about how health care is delivered and how can we do it better,” he says. In part 1 of a recent conversation, Dr. Decker shares lessons learned and offers his perspective on where today’s health care executives and clinical leaders should focus.
What is your take on the state of the health care industry today? What challenges are driving the need to rethink health care systems and delivery?
THE CHALLENGE OF HEALTH CARE ACCESS: “ People want to get to a doctor or a health care team and they can’t. Either because they are underinsured or they don’t have the financial resources. They don’t know where to go or sometimes there just aren’t enough doctors or the right type of doctor, whether it’s primary care or a specialist available in their area to see.”
THE CHALLENGE OF HEALTH CARE AFFORDABILITY:
“ We hear a lot about affordability of health care and outof-pocket cost can be very high, but also the health care system itself is very expensive. So how do we make it more affordable for large employers, individuals, consumers and even the government itself? Can we get on a more sustainable path?”
THE CHALLENGE OF CONSUMER PREFERENCES: “ Most people who’ve experienced the health care system feel that it isn’t focused around their needs, schedules or preferences. We’re entering an era where in most other industries there’s lots of personalization and consumer focus. Health care has been very slow to evolve. We need to make it an experience where people feel appreciated, valued and respected. Not just that they’re getting great quality care, but also that their preferences and needs are being met.”
“ Our nation’s care providers are deeply committed and among the best-trained in the world. But I also see them in a system that is struggling. Emergency departments are, at times, the last resort for people who lack resources and access to care. I’ve seen patients struggle to manage chronic conditions without the right support and how the absence of good guidance can create confusion.”
Clearly, the need to reinvent in all aspects of health care is top of mind for many. But it can be difficult to figure out where to start. Can you discuss where you think it’s smart for leaders to focus?
“ We should all be thinking about how we drive towards a health care system that really creates and adds value to people’s lives,” says Dr. Decker. Here’s his advice on key areas of focus.
PAYMENT MODELS: “ Move towards payment models that actually reward the correct behaviors in health care. What do I mean by that? The pay-per-value model — rewarding groups of providers to keep people well and healthy — is far more powerful than the traditional fee-for-service model.”
LOCAL ECOSYSTEMS: “ Recognize that health care is local. It’s important to create ecosystems that deliver great, connected care for individuals throughout the health spectrum. This means the patient and their health data move seamlessly between specialists, hospitals, ambulatory care centers, and so on. These kinds of networks and interoperability of data is crucial to create a successful health care system.”
SOCIAL DETERMINANTS OF HEALTH: “ Health care outcomes are driven not only by the quality and capabilities of the health care provider, but also by social determinants of health. Good health care addresses things like access to good nutrition, social connections, transportation and more that can limit the ability for a person to get and stay healthy. For example, in-home health visits to help patients who have difficulty traveling or easily obtained referrals to social and community services can really enable success.”
From your perspective, what could health care reinvention mean to a patient, provider or health plan?
TO PATIENTS: “ It means a health care system where instead of waiting for something to go wrong, there is a team helping you proactively flourish and be healthy. It means a simple phone call or an app or a video chat could advise you on when you might be at risk of developing a serious condition before you develop it. It means a system that is always there for you, almost like a guardian angel. It helps you navigate the system and your journey towards health and wellness. It means all of this in a health care system that is easy to access, affordable, high-quality and compassionate.”
TO PROVIDERS: “ Providers have high rates of frustration and even burnout with their own profession. Reinvention looks to reduce the very heavy clerical burden driving these trends. Doctors today spend about two hours of clerical and non-visit care for every hour of direct patient care that they provide. However, when you talk to doctors, they find the most fulfillment in engaging directly with patients and making a difference in their care. Reinvention means relieving exhausted providers of administrative and clerical duties that don’t bring enjoyment or result in improved care and outcomes.”
TO HEALTH PLANS: “ Health plans are frustrated because they pay for a lot of care that evidence shows doesn’t improve outcomes or help patients on their journey to health and wellness. Payers are happy to pay for health care if it’s necessary. But it doesn’t make sense to pay for care that doesn’t add value. Reinvention means reducing this financial waste to bring down the cost of coverage for everyone.”
“ We have an opportunity now to make the health care system work better for everyone. Improve access and affordability for patients, allow doctors to spend more time with patients, and increase efficiencies within health plans. There’s an opportunity to help people connect the dots and get everyone working together.”
You’ve been a practicing physician and a business leader. Tell us the lessons learned from this unique vantage point.
“ I have spent most of my career as a practicing physician in busy, level 1 trauma centers and emergency departments. In that environment, you see health care at its finest and also how the health system can be challenging. I think in amazement of the times I’ve seen teams of people — multiple physicians, nurses and technicians — come together as one unit to save someone from a major trauma. I also have great admiration for the persistence of doctors who save lives by diagnosing life-threatening conditions through nuanced symptoms.
I’m a deep believer that in health care, we need to place the patient at the center of everything we do. I always remind young doctors and medical students…imagine for a moment that your patient is you or a loved one. You’d want the doctor to listen and explain things in a compassionate and thoughtful manner. You’d want them to be focused. You’d want them to recognize your unique history and what’s important to you. The notion of putting the patient at the center of everything is something that I have carried with me throughout my career. I have also dedicated myself to developing better models of care and systems that allow doctors and care teams to function seamlessly, be high-performing and deliver great outcomes for patients.”
“ I have an appreciation for how powerful it can be when you work to reduce waste, create care that’s efficient and care that is patient-focused. Today I’m focused on an interesting juxtaposition — creating the right mix of scalable innovations that help our whole nation succeed in health care while also improving the personal and individual patient health care experience.”
STAY TUNED FOR PART 2 of this executive interview series to learn more about Dr. Wyatt Decker’s perspectives on the intersection of technology and health care, the human impact of transformation and physician burn-out.
A Wave of Layoffs Loom for Wall Street
Investment-banking revenues had their worst first half since 2006, according to a report last week by Coalition, a London-based research firm. The weakest performance is in bond, currency and commodity trading, which accounts for 42% of revenue, down from almost two-thirds before the financial crisis. When bankers complain about regulation tying them down, this is what they mean. Shed a tear?
Because revenues have fallen faster than expenses, the industry’s return on capital has dropped to 6.7%. Its cost of capital, however, is in the 10% to 12% neighborhood.
“The long-term outlook for investors is changing and requires a more conservative approach,” state Comptroller Thomas DiNapoli said in a statement.
If big buyers of investments are dialing down expectations, their dealers will have little choice but to follow.
Cartoon – It made Sense at the Executive Retreat
The 25 Best Warren Buffett Quotes in One Infographic
Cartoon – Focus on the Core Business
HENRY KOTULA 