Review of Second Quarter 2024
In the Healthcare Executive Highlights for the First Quarter 2024, two critical areas for healthcare leadership were emphasized to look for during the second quarter: monitoring consumer spending trends and cultivating robust alliances with policymakers and community stakeholders on healthcare priorities. By all reports, both were tackled to various degrees in the second quarter. Regarding the first of the two — monitoring consumers’ spending patterns during the second quarter — little did we know that consumer sentiment would plunge by 12.7%(1) (month-over-month) as early as May. Although consumers are aware of the current shape of the economy, particularly softening inflation and the robust job market, the sentiment index is a futuristic metric that measures people’s idea of their potential to thrive and progress. Psychologically, consumers usually prefer spending over saving for long-term goals during such times, which calls for healthcare leaders to design and push offerings that focus on self-satisfaction and fulfillment.
On another note, the current bifurcation of our economy has probably just started showing off, and this quarter will likely go down in history as the first to witness the potential play turn out. This phenomenon is precipitated by the incongruous alignment of fiscal and monetary policies, which manifests initially as an inflationary divergence favoring producers before it is ultimately passed over to consumers, who, hopefully by then, will be able to handle it to evade the stagflation scenario.
Two pertinent considerations arise for discussion: (1) the Federal Reserve appears poised for impending challenges, influenced notably by the approaching election and the widening fiscal–monetary disparity; and (2) owing in part to the latter, a departure from exclusive reliance on these two policies (what we call the fiscal–monetary trap) may be foreseen to have instead more comprehensive policies and tools to run the economy during the next major economic crises. Current circumstances offer an opportune moment for policymakers to contemplate such transitions. The constraining effect of selective focus is evident not only in healthcare, where options remain restricted to a handful of payment models, but also in overarching economic policy. Alternative strategies such as Johnson’s surtax, Nixon’s wage and price controls, Ford’s Whip Inflation Now (WIN) initiative, and Carter’s fireside chat(2) offer a multitude of avenues that warrant consideration.
Lastly, before we delve into numerical analyses, three significant events from the preceding three months are highlighted here:
Disinformation campaigns against COVID-19 preventive measures 2.0 — lessons learned. There is profound concern regarding the extensive disinformation campaigns undermining established scientific protocols during outbreaks. In today’s context, where self-interest may obscure public well-being, it is crucial to convey a clear word to history and the people: COVID-19 preventive measures have saved lives — including yours, and you just need to reflect on the aftermath of the 1918 Spanish Flu to realize how successfully we limited the morbidity and mortality scale. Time and again, history underscores two enduring facts:
Quarantine and isolation remain pivotal in pandemic control across past, present, and future, pending advances in science.
Weaponizing healthcare does not serve the people, and it undermines public welfare. Nearly four and a half years after the onset of the COVID-19 pandemic, uncertainties persist regarding the origin of the virus, preventing the critical insights necessary for enhanced preparedness in the event of future pandemics.
Banning medical debt from credit reports — the fallout and solution. The recent initiative to expunge medical debt from credit reports should be carefully weighed. Although it is ostensibly beneficial for improving credit profiles, stringent measures should be in place to prevent exploitation. Potential risks include severe financial strain on the healthcare system and, even worse, ballooning federal debt, should subsidized government programs become the lifeline for financially distressed healthcare institutions. To aid individuals burdened by medical debt while accounting for these risks, a targeted approach focusing on patients with exceptionally high debt levels through a federal “carry-on” facility that assumes the debt is proposed. Such a strategy offers many advantages: targeting those in greatest need, immediately enhancing their credit score; offering a runway for mutually agreeable debt settlement negotiations; and ensuring sustainability of this initiative by safeguarding against exploitation and other nefarious actions, all while ensuring hospitals remain self-sufficient and do not to run on government financial support.
Importance of adopting agile and localized contingency plans. The recent water main break incident in Atlanta underscores the commendable swift actions of Emory University Hospital Midtown and other centers. It also serves as a reminder of the importance of developing contingency plans for such events, in Atlanta and elsewhere, where infrastructure needs some serious improvements.
Macroeconomic indicators showed a slightly mixed picture during the second quarter, as demonstrated in the following sections.
Gross Domestic Product
In the second estimate, the gross domestic product (GDP) increased in the first quarter by 1.3%, with healthcare alone contributing 0.7 percentage point, marking it as the largest single sector contributor.(3) Looking ahead to the third quarter, we anticipate a more optimistic outlook as nonresidential investments gain momentum and consumer confidence stabilizes heading into and beyond the quarter’s close.
Fiscal and Monetary
Fiscally, the effects of the infrastructure projects under the Invest in America agenda (including the American Rescue Plan, Inflation Reduction Act, Bipartisan Infrastructure Law, and CHIPS and Science Act) are becoming evident. Although the government splurge is likely to rally prices for producers and corporations, the tightening up on the part of the Federal Reserve is hurting consumers. Should these conflicting policies continue, healthcare executives should be prepared to deal with three successive phases of changing client behavior:
Consumers feeling the pinch;
Consumers cutting spending; and
Job market pressures, in terms of both wages and employment.
Effective coordination between both branches of economic policy is essential to maximize the benefits of “The Agenda” while mitigating potential risks of a catastrophic scenario such as stagflation.
Interest rates remained unchanged. With inflation leveling off, speculation about a rate cut mounts. It is believed that a prolonged plateau phase is being entered. Not much change in the Federal Reserve’s finance rate is anticipated, and it could remain steady until the end of the year had we passed September without rate changes.
Inflation and Prices
The Producer Price Index (PPI) had some considerable moves this second quarter (Table 1):
April: 0.5% MoM, 2.3% YoY;
May: – 0.2% MoM, 2.2% YoY; and
June: 0.2% MoM, 2.6% YoY.
Prices of oil and its derivatives together with machinery and equipment costs were the main drivers of PPI direction early in the quarter.(6) Although machinery and equipment are directly attributed to government spending, as indicated earlier, it is believed that the rate of increase will wane a little bit in the second half and toward the end of the year.
Of special note to healthcare leaders is the April PPI for outpatient services. Although the adjusted number came up as positive, a second look highlights a drop in the unadjusted value: 0.3 versus –0.1 adjusted versus unadjusted PPI. This is quite concerning, because the unadjusted number reflects the income that hospitals actually receive from outpatients, a significant part of hospitals’ operation and revenues.
On the consumer side and compared with how this year kicked off, the consumer price index (CPI) has gradually cooled off, starting with a blistering April (0.3% vs 0.4% MoM estimates; 3.4% vs 3.4% YoY estimates) but followed by a moderate May (0.0% vs 0.1% MoM estimates; 3.3% vs 3.4% YoY estimates), and, finally, the cool June (–0.1% vs 0.1% MoM estimates; 3.0% vs 3.1% YoY estimates).
The personal consumption expenditures (PCE) price index grew by 0.3% in April, in line with the increase in both personal income and disposable personal income (0.3% and 0.2%, respectively).(7) Healthcare came second after housing and utilities, with a total of $15 billion added to the economy, whereas in terms of real value — that is, after adjusting for inflation via chained 2017 dollar — healthcare moves ahead to take the lead position.(8) The thing about healthcare spending is its ability to influence the real economy dynamics, because it not only increases the GDP but also is tied up with employment status (see the section Labor and Productivity). In the strongest disinflationary signal of all, the May PCE price index remained unchanged, pretty much in line with expectations. Healthcare moved up in May to become first in terms of both current and real PCE, led by hospitals and outpatient care, respectively.(9)
Labor and Productivity
Second-quarter data have dispelled concerns about labor market deterioration. Robust increases in payroll and wages have exceeded expectations throughout most months. April began slightly below expectations, with the addition of 175,000 nonfarm payroll positions and an unemployment rate ticking higher to 3.9%.(10) One reason why this number came out as the lowest in the first half of the year could be the remarkable drop in new job openings in healthcare that month (–204,000), more than triple its succeeding sector with the second least openings.(11) Then came the blockbuster May payroll number of 272,000, with our sector contributing the largest share (68,000 jobs).(12) The June employment report was interesting in three aspects:
Corrections in June payrolls (206,000);
Major revisions of the former two months’ numbers (108,000 and 218,000 for April and May payrolls, respectively); and
The 4.1% unemployment rate, which is the first in 30 months to break above the 4% level.(13)
As usual, healthcare is the shining star when it comes to employment and creation of new jobs, leading other sectors by leaps and bounds (Table 2). This is a winning card with enormous power to use as leverage to better healthcare. As previously stated, healthcare leaders should engage in transparent dialogues with community and governmental stakeholders at all levels — federal, state, and local — to make their cases clear. The following are the most pressing issues:
Federal level: value-based care and reimbursement plans.
State level: State tax or payments in lieu of taxes (PILT), depending on the specific state tax policy.
Local level: Infrastructure and collaboration to serve local communities.
With the U.S. election date looming, this could be the last shot to work out something with federal authorities. At the end of this article, themes of a “catchup game” that healthcare leaders can pursue during the remaining few months leading up to voting day are briefly discussed.
Looking Towards Third Quarter 2024
Discretionary Demand and Supply Pressures. With consumers feeling the pinch, they probably will be discretionary with their spending. It is also anticipated that this summer could see a subtle moderation in mobility activities. Therefore, hospital administrations, whether located in origins or destinations of road trips, should factor that into their forecasts of patient numbers and revenues. Ambulance services and other energy-dependent sectors of the healthcare industry could wind up getting a boon, thanks to the moderate to lower-than-expected gas and oil prices.
Supply chain pressures are mounting thanks to a host of environmental, geopolitical, and economic factors:
Environmentally, the drought in the Panama Canal and the subsequent restrictions on shipping remain.
Geopolitically, as if the Middle East tensions and the de facto partial closure of the Red Sea route were not enough, the newest U.S. tariff hikes on $18 billion worth of strategic sector Chinese products will deepen the pain. What matters most to the healthcare industry are the computer chips and medical products (nondurable), which are among the first to be affected by tariff increases, possibly in August (syringes and needles from 0% to 50%; PPE from 0–7.5% to 25%; and medical and surgical rubber gloves from 7.5% to 25% in 2026(17)).
Economically, in their rush to avoid the new tariffs, Chinese exporters have overstretched the capacity of marine cargo (containers, vessels, and ports). For instance, medical equipment is mostly shipped in containers, the cost of which has gone up 88% in China just over the last 2 month. Ships are also clogging up major waterways such as the Strait of Malacca, and shipping delays in some en route port centers — for example, Singapore — have doubled.(18)
Another factor that could come into play towards the end of the third quarter is the possible fallout of the East Coast and Gulf ports labor union negotiations. West Coast ports could take over if a new contract is not reached by September.
The overall risk remains manageable for the time being, with the possibility of some squeezes here and there in the short run. Over the last year or two, there has been a shift toward supply chain onshoring and nearshoring in Mexico. When it comes to intermediate products, however, China remains the uncontested global leader by a large margin. Bottom line: hospitals and practices’ procurement officers should anticipate price movements for some consumables (e.g., gloves) in the short-to-medium term, whereas, for durables there could be a little lag coupled with the potential of a supply disruption.
Paris Games. The Paris 2024 Summer Olympics took place this July and August and represented an opportunity to ramp up awareness efforts. Public and promotional messages focused on the benefits of these sports and how they can be of help to individuals health and well-being.
U.S. Elections. Domestically, election fever will certainly heat up this summer. Politicians have rushed to capitalize on the second of our two calls in the previous article. which recommended liaising with policymakers on healthcare priorities.(19) Although it is not yet clear how the Biden campaign’s initiative intends to collaborate with healthcare organizations, a lot of work must be done to ensure that is a step in the right direction. Patients’ agendas are very clear, and the issue of healthcare cost represents their biggest concerns (for about 50% of voters(20)), which is also the issue they least trust either candidate to handle.(21) The winner will be whoever provides a compelling vision and solution. Nationally, it is also important to monitor extreme weather conditions in the upcoming months, particularly temperature levels, which should receive the priority over blazes this year, and get prepared accordingly for potential uptakes in heat-related conditions (e.g., dehydration, sunburns, heatstroke/exhaustion, parasitic and viral outbreaks). Could this season be the about-face for insurance companies who enjoyed many boon seasons, with potential consequences on the financial health of medical insurers and reimbursements?
References
Preliminary results for May 2024. May 3, 2024. Surveys of Consumers — Consumer Sentiment Index. www.sca.isr.umich.edu/ . Accessed May 15, 2024.
Curtin R. Inflation psychology has set in: dislodging it won’t be easy. April 22, 2022.. https://data.sca.isr.umich.edu/fetchdoc.php?docid=69760 . Accessed May 11, 2024.
U.S. Bureau of Economic Analysis. Gross domestic product, first quarter 2024 (second estimate) and corporate profits (preliminary). www.bea.gov/news/2024/gross-domestic-product-first-quarter-2024-second-estimate-and-corporate-profits
U.S. Bureau of Labor Statistics. Table 2. Producer price index percent changes for selected commodity groupings by Final Demand–Intermediate Demand category, seasonally adjusted. www.bls.gov/news.release/ ppi.t02.htm.
U.S. Bureau of Labor Statistics. Economic News Release. Table 2. Consumer price index for all urban consumers (CPI-U): U. S. city average, by detailed expenditure category. www.bls.gov/news.release/cpi.t02.htm .
U.S. Bureau of Labor Statistics. PPI latest numbers-producer prices indexes. www.bls.gov/ppi/latest-numbers.htm .
U.S. Bureau of Economic Analysis. Personal income and outlays, April 2024. www.bea.gov/news/2024/personal-income-and-outlays-april-2024 .
U.S. Bureau of Economic Analysis. Personal income and outlays, April 2024. www.bea.gov/sites/default/files/2024-05/pi0424-fax.pdf .
U.S. Bureau of Economic Analysis. Personal income and outlays, May 2024. www.bea.gov/sites/default/files/2024-06/pi0524.pdf .
J.P.Morgan Wealth Management. April 2024 jobs report: 175,000 jobs added, lower than forecast. May 6, 2024. www.jpmorgan.com/insights/outlook/economic-outlook/jobs-report-april-2024 . Accessed June 8, 2024.
U.S. Bureau of Labor Statistics. Job openings and labor turnover summary—economic news release. www.bls.gov/news.release/jolts.nr0.htm .
U.S. Bureau of Labor Statistics. Employment situation summary—economic news release. www.bls.gov/news.release/empsit.nr0.htm .
Wallace A. Key takeaways from the June jobs report. July 5, 2024. CNN. https://edition.cnn.com/2024/07/05/economy/june-jobs-report-final/index.html . Accessed July 6, 2024.
U.S. Bureau of Labor Statistics. Table B-1. Employees on nonfarm payrolls by industry sector and selected industry detail—Economic news release—Employment situation. www.bls.gov/news.release/empsit.t17.htm .
U.S. Bureau of Labor Statistics. Table B-2. Average weekly hours and overtime of all employees on private nonfarm payrolls by industry sector, seasonally adjusted—Economic news release—Employment situation. www.bls.gov/news.release/empsit.t18.htm .
U.S. Bureau of Labor Statistics . Table B-3. Average hourly and weekly earnings of all employees on private nonfarm payrolls by industry sector, seasonally adjusted—Economic news release—Employment Situation. www.bls.gov/news.release/empsit.t19.htm .
Briefing room at the White House. Fact sheet: President Biden takes action to protect American workers and businesses from China’s unfair trade practices. www.whitehouse.gov/briefing-room/statements-releases/2024/05/14/fact-sheet-president-biden-takes-action-to-protect-american-workers-and-businesses-from-chinas-unfair-trade-practices/ .
Shipment delays double as ships clog up Singapore’s ports. Channel News Asia. May 28, 2014. www.channelnewsasia.com/watch/shipment-delays-double-ships-clog-singapores-ports-4369036 .
Biden seeks to put focus on health care, infrastructure. The Washington Post. May 13, 2024. www.washingtonpost.com/elections/2024/05/13/election-2024-campaign-updates/ . Accessed May 29, 2024.
Lopes L, Montero A, Presiado M, Hamel L. Americans’ challenges with health care costs. Kaiser Family Foundation. March 1, 2024. www.kff.org/health-costs/issue-brief/americans-challenges-with-health-care-costs/ . Accessed May 28, 2024.
Sparks G, Montero A, Presiado M, Kirzinger A, Hamel L. KFF Health tracking poll May 2024: voters’ views of health policy issues in context of presidential campaigns. Kaiser Family Foundation. May 15, 2024. www.kff.org/medicare/poll-finding/kff-health-tracking-poll-may-2024-voters-views-of-health-policy-issues-in-context-of-presidential-campaigns/ . Accessed May 28, 2024.