REVIEW OF FIRST QUARTER 2024
It was a great start to 2024, with all major economic indicators appearing to be in good shape. In an interesting instance of déjà vu, the same banking crisis fears of early 2023 were looming again almost exactly one year later. Although the default of the three banks (SVB, Signature, and First Republic) last year was a result of a dwindling asset quality (treasury bonds) secondary to rate hikes, this time it is a credit quality issue in the regional banks concerning the $20 trillion of commercial real estate assets,(1) which includes a lot of the nation’s healthcare facilities. Although no imminent threat is seen, failure to address the root causes, mainly changing workplace dynamics, could have serious repercussions in the future. Regional banks were considered part of the safety net for some hospitals and healthcare systems during the post–COVID-19 transition via mechanisms such as the Community Reinvestment Act.
During the first quarter, what was described as the largest disruption in the U.S. healthcare system since COVID-19(2)—the cyberattack on UnitedHealth Group’s subsidiary Change Healthcare—was seen. Consequences have ranged from pushing some practices to seek financing for their urgent needs through loan facilities, to making the life of Medicare Advance bidders difficult as they wrap up and get ready to submit their 2025 policy plans to Medicare.
Macroeconomic indicators are stabilizing, as illustrated by the following observations:
Gross domestic product (GDP). GDP predictions had a narrow spread in the first quarter of this year compared to the last quarter of 2023 (4.2% – 2.0% = 2.2% vs 5.4% – 1.2% = 4.2%).(3) The final GDP figure will be influenced by two new and opposing factors: the significant increase in residential investments and the decrease in exports income. There is a chance for an equilibrium that hovers around or slightly higher than the 3.3% GDP of the fourth quarter of 2023.
Fiscal and monetary. The Federal Reserve has held the fund rate at 5.25% to 5.50% for the fifth straight meeting.(4) Three cuts are anticipated in the remaining six meetings this year, including those taking place during the current quarter (May and June 2024); whether the interest rate will end up matching the targeted 4.6%(5) remains to be seen. Healthcare leaders should pay particular attention to meetings taking place around the third quarter, because those are likely to have significant consequences in interest rate moves.
Inflation and prices. Inflation has picked up heat during the first quarter of 2024 to hit 3.1%, 3.2%, and 3.5% in January, February, and March. In three consecutive months of hotter-than-expected reports, the Consumer Price Index (CPI) has broken away from the relative stability shown during the last four to six months of 2023. This is driven largely by the uptake in core inflation (with shelter accounting for up to two-thirds in some months) and headline inflation to a lesser extent, because energy prices, particularly oil prices, cranked up in response to geopolitical tensions in the Middle East. This trend is likely to continue during the second quarter after an extended period of relative affordability.
In healthcare, two inflation-related patterns are important to observe. Firstly, the medical care CPI index (CPIMEDSL) leveled off subtly during February, putting a single-month pause on a seven-month long streak, before resuming its climb once again in March. Secondly, the increase in healthcare cost (0.6% to 2.1%) did not match that in other services (5.2% to 5.4%).(6,7)Additionally, that marginal rise in the cost of medical services was consistently lower, on an annual basis, compared with the larger increase in the cost of medical commodities (2.5% to 3.0% vs 0.6% to 2.1%).(6,7)
Labor and productivity. The labor market remains very healthy and favors supply side, with rising non-farm payroll and falling unemployment rate (303,000 and 3.8%, respectively). Healthcare wrapped up the quarter as the leading industry where most of the new jobs were made, with 72,000 new positions in March alone.(8)
POLICYMAKERS’ PUBLIC LIAISONS AND SPENDING PATTERN MONITORING: TWO AREAS WORTH LOOKING FOR DURING SECOND QUARTER OF 2024
The second quarter of 2024 is the strategizing quarter. As the 2024 presidential election draws nearer, sector leaders may want to take the initiative to launch a dialogue with the community and policymakers at both local and national levels. This represents the perfect opportunity for executives to have their organizations’ interests aligned with those of local, state, and federal governments. Election seasons prompt governments to show the economy in its best shape by any means, whether via revising economic forecasts or numbers, providing direct or indirect blanket subsidies, or, more actively, through fiscal or monetary steroid pumping. Healthcare executives also should be aware of the power their institutions exert over voter participation and turnout.(9)
In a nutshell, between the good economic conditions on the one hand, and the precarious global geopolitics and U.S. preelection politics on the other, a reserved view for the economy during the second quarter of 2024 should be maintained. There are two factors having the biggest impact in the near future—consumers’ spending choices and the U.S. election. New positioning strategies are needed, however, to attract consumers. In terms of the election, the stratagem should be to seize this great opportunity to bring about significant changes in healthcare at both organizational and system levels thanks to 1) the interests and motivations of policymakers being centered around those of voters, who have always prioritized healthcare and will likely continue to do so in the upcoming race(10); and 2) the influence of healthcare organizations over turnout numbers.
References
Goodkind N. Wall Street is worried about another regional banking crisis. February 26, 2024. Atlanta, GA. CNN Business. https://edition.cnn.com/2024/02/06/investing/premarket-stocks-trading/index.html .
Coombs B. UnitedHealth’s first-quarter report will offer a window into Change cyberattack costs. April 15, 2024. Englewood Cliffs, NJ. CNBC. www.cnbc.com/2024/04/15/unitedhealth-q1-results-change-cyberattack-in-focus.html .
Federal Reserve Bank of Atlanta. GDP Now. www.atlantafed.org/cqer/research/gdpnow#Tab3 .
Prasad N. US Fed Meet Highlights: Powell-led FOMC keeps key rates unchanged at 5.25-5.50% for 5th straight meeting . Mumbai, India.HT Media Ltd (Mint). www.livemint.com/economy/us-fed-meet-live-updates-powell-led-fomc-interest-rate-decision-today-us-fed-policy-20-march-2024-us-inflation-11710930885115.html .
Board of Governors of the Federal Reserve System. March 20, 2024: March 20, 2024: FOMC Projections materials, accessible version. www.federalreserve.gov/monetarypolicy/fomcprojtabl20240320.htm .
U.S. Bureau of Labor Statistics. Consumer Price Index News Release—Table A. Percent changes in CPI for all urban consumers (CPI-U): U.S. city average. www.bls.gov/news.release/archives/cpi_03122024.htm .
U.S. Bureau of Labor Statistics . Consumer Price Index Summary. Table A. Percent changes in CPI for all urban consumers (CPI-U): U.S. city average. Washington, DC: Bureau of Labor Statistics. www.bls.gov/news.release/cpi.nr0.htm .
U.S. Bureau of Labor Statistics. Employment situation summary. Washington, DC: Bureau of Labor Statistics. www.bls.gov/news.release/empsit.nr0.htm .
Brown CL, Raza D, Pinto AD. Voting, health and interventions in healthcare settings: a scoping review. Public Health Rev. 2020;41:16. https://doi.org/10.1186/s40985-020-00133-6
Harpaz J. Healthcare on the 2024 ballot: these are the issues to track. November 16, 2023. www.forbes.com/sites/joeharpaz/2023/11/16/healthcare-on-the-2024-ballot-these-are-the-issues-to-track/?sh=f148c232f13a .