(From the archives) Regional Bank opines on the real reckoning
MTB's CEO flags some major risks, and it's not what you think
Random Walk has the flu or something, but in all events horizontal, so I decided to republish this April 10, 2024 oldy-but-goody instead
a regional bank ceo sees some storm signals, and it’s not the ones you think
gross domestic healthcare
healthcare is still (nearly) all the jobs
👉👉👉Reminder to sign up for the Weekly Recap only, if daily emails is too much. Find me on twitter, for more fun. A bank CEO opines on the real reckoning
Every now and again, it’s refreshing to let someone else do the talking.
It’s especially refreshing when there’s this apparently obvious and important thing, which for whatever reason, doesn’t seem to get the attention it deserves. Sometimes people act like it’s not there at all—they may even question its existence entirely—and it makes you think “am I stupid? have I gone mad?”
Depending on your disposition, Random Walk will admit that that line of inquiry can, in fact, be exhilarating, at least in the right doses, but other times, it’s possible that it’s on to something.
But then, someone else says what you say, and it’s safe to conclude that you’re both obviously correct.
CEO of a regional bank offers some real talk
Anyways, in this case, the CEO of M&T Bank, Rene Jones, in his annual letter to shareholders describes the Rotation to the National Nursing Home, about as well as anyone could.1
Let’s dig in.
Storm signals in the healthcare system
First, take care to look for storm signals:
we must take care to not exclusively focus on what gets the most current attention and try to listen to the signals that could alert us to potential storms emerging on the horizon
And what might those storm signals be?
chief among such signals, in both our regions and virtually any sizable community in the country, is healthcare. One should think here not only of hospitals—so often major economic engines of communities—but also the assisted living and long-term care centers . . . In places like Buffalo, Baltimore, and Burlington, the healthcare industry is either the leader or runner-up in overall employment. It is a sector that will only grow in importance as the baby boomers continue to age, and our familiarity with these enterprises in our regions suggests they face significant challenges.
Oh gosh. Healthcare does sound pretty important. It’s the largest employer, too?
No way.
And “significant challenges” sounds bad.
What sort of “significant challenges”?
The healthcare sector has found it increasingly difficult to attract and maintain staff . . . As labor costs rise, the sector must offer higher wages to attract and retain staff . . . from 2020 to 2023, labor expense had risen by 20 percent . . . The National Center for Assisted Living reports that 77 percent of nursing homes face a workforce shortage—such that 55 percent of nursing homes are limiting new admissions . . . While not unique to the healthcare industry, these increased labor costs and staffing challenges will continue to weigh heavily on the financial sustainability of healthcare providers, and therefore their capacity to care for communities, across the country . . . one of many factors leading to increased consolidation.
A labor shortage, leading to rising costs that is threatening the sustainability of the business model, and seems likely to get worse?
Uncle Sam’s immigrant nursing brigade
And what has healthcare done thus far to address this challenge?
For this part, we’ll use screenshots:
Ah yes, it’s all that GDP and job growth we’ve read so much about.
Quasi-Americans providing low-end healthcare services to our flourishing gerontocracy is definitely an economy booming on all cylinders. It’s not the worst thing, either, that is certainly true.
So this is sustainable, right?
With the migrant crisis well-executed policy(?), we’ve got this under control, probably.
It sounds like what you’re saying is that the number of people who will want-healthcare-but-don’t-expect-to-pay-for-it is growing, and Uncle Sam’s tab is already maxed out.
That doesn’t sound sustainable, at all.2
What do you think Mr. Jones means “rescue . . . may simply not be the case.”
Again, to repeat: even now, taxpayer-funded reimbursement rates are already too low to cover rising labor costs (which is driving healthcare providers to consolidation or dissolution), and demand is only expected to increase.
Again, to repeat: even now, taxpayer-funded reimbursement rates are already too low to cover rising labor costs (which is driving healthcare providers to consolidation or dissolution), and demand is only expected to increase.
Healthcare is already nationalized, and the current course is more consumption, at even higher prices, and absolutely no plan to pay for any of it.
It’s a tomorrow problem, until it isn’t.
Healthcare is still (pretty much) all the jobs
In the meantime, the job market is booming (via CNBC):
At least Leisure + Hospitality is seeing some life, too.3
Here’s another way of looking at it, this time cut by earnings, as well (via BLS):
By far, the most substantial job growth continues to be in relatively low-paying jobs, especially in healthcare.
They’re still jobs. That’s better than not-jobs.
Anyways, Random Walk isn’t making this up.
This is a pretty big structural-looking change. This is the National Nursing Home, and it’s just getting started.
Call it growth if you want, but it’s tough sledding.4
Previously, on Random Walk
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You see now why it’s so hard to run healthcare businesses profitably (and why PE does all kinds of “shady” things to be the exception to the rule). We’ve nationalized healthcare such that the rules require that everyone get as much “healthcare” as they can, but no one should have to pay for any of it, because the government should pay for it instead, which naturally the government realizes it cannot do since it cannot magically pay for things any more than ordinary citizens, but having already told so many people “hey, it’s free!” it resorts to finding all kinds of ways to not-pay, which naturally providers don’t like, so they find all sorts of ways to squeeze money out of some other part of the system, and around and around it goes, a downward spiral of “system costs.”
Hopefully it’s not childless seniors enjoying retirement before running up their Medicare tab on their way out, for someone else’s grandkids to pay, lol.
Could this be catch up or normalizing (i.e. these healthcare jobs are returning to trend)? Yes, it could be, but (a) it’s still the case that healthcare is all the jobs; and (b) once we’re all caught up, then what?