Friday, September 7, 2007

Denny Not Willing to Pay Taxes to Help Health Care System in Crisis

Ex. Triad CEO Denny Shelton spoke to citizens of San Angelo on "the Future of Healthcare" yesterday evening. He stated 75-85% of community hospitals have a tough long-term future, while a quarter are in serious financial difficulty. The two groups that traditionally provide health coverage aren't stepping forward, but backward.

Employers cannot afford to bear the cost of such an expensive benefit as they try to sell their products worldwide. This is the opposite logic Henry Ford used in paying his Ford workers a high enough wage to afford to purchase a Model T. The U.S. Chamber of Commerce dropped its old "local employment" multiplier effect in favor of the "cheap goods dollar stretcher" multiplier effect.

The number of uninsured has grown to 47 million. While Denny broke this number down a bit, he failed to mention it includes 8.7 million children and 1 million employed but uncovered workers. The government failed miserably in its efforts to reduce the number of uninsured the last 7 years. He even spoke to the financial perils of President Bush's favored strategy to cover more people, high deductible health plans with $5,000 to $10,000 in annual deductibles.

To Mr. Shelton's credit he believes everyone in America should have health insurance coverage and that people with more financial resources should pay more. One solution he favors is means testing Medicare. Denny stated he has the resources to pay for his health insurance as a retiree and is willing to do so.

But he's not ready to raise taxes, despite taking home some serious profits in the sale of his company. Denny grossed over $40 million from his stock holdings according to SEC filings. His savings, due to the Bush capital gain tax cut, range from one to $2 million. Yet, the man with decades of experience isn't ready to pay even the old capital gains rate of 20%. If the Triad CEO won't part with 5% of his big profits to avoid the train wreck, who will? Surely not the private equity boys scrambling to keep their preferred tax status on "carried interest".

Denny said he'd be willing to pay more taxes once "inefficiencies" are driven out of the system. Some inefficiencies mentioned include malpractice costs, the costs of poor quality, medical mistakes, patient falls, and drug errors. While he called health care "a capital intensive" industry, he didn't mention the cost of capital.

Triad's sale increased Community Health Systems' interest expenses by $600 million a year. Add the sale of HCA to the mix and increased interest expense soars to $2 billion. Are those system inefficiencies? No new doctor was added. No new high tech diagnostic or treatment device got ordered. Company ownership changed hands at an annual cost of $2 billion.

That $2 billion turns into one of two things, medical price increases or operational expense cuts. Do you want to pay more so private equity companies like KKR can profit off hospital care? Do you want staff cuts or deferred equipment purchases so new corporate owners can meet profit margin targets?

Denny also left out pressures embedded in President Bush's "private health care", some which he recently faced. Triad's largest stockholder mounted a campaign challenging Shelton's corporate strategy and aggressive capital spending. Hedge funds bought into the company’s stock in anticipation of quick returns. They went from 3% of Triad shareholders to double digits in just a few months. Is this what Denny wants to spread to other health care executives? How will CEO's address system inefficiencies and quality when their focus is diverted by market machinations?

Leaving what Denny omitted, let's return to what he covered in the Q & A. Mr. Shelton cited the stacked deck insurance companies currently have. Recall those 8.7 million uninsured children? The Bush administration just issued two bureacratic blocks to states wanting to cover more kids and his rationale cited the need to maintain "private insurance" coverage. Hello, Mr. President? 47 million people have no coverage at all!

Opponents of change cite the looming disaster of "government sponsored health care" and its rationing and long waits. Denny thinks the private system will go the same way. He believes troubled hospitals will close and there will be waits for hospital beds. He worries about America's best students not pursuing medicine as a career, about doctors getting frustrated and retiring. Experts predict a major doctor shortage by 2020. That translates to waits for doctors and hospital beds.

Suddenly the private system doesn't look much different than the public one we're told to fear, it just takes care of fewer people in a less organized way. Episodic care will be sought as household resources allow. Will doctors start taking chickens again as payment? If you see a farm next to your local non-profit community hospital, you'll know the Bush plan is in full force.