Random Walk at Night: Healthcare YIMBY

One way to solve a nursing shortage is to make their lives less terrible

If elder care is a growth vertical, why is it pretty unpopular with investors? This and other mysteries, revealed.

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Random Walk at Night

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Healthcare YIMBYism

Why isn’t eldercare a growth vertical?

Given that the population is getting older, Random Walk has wondered why “eldercare” isn’t more of a thing.

It’s a growing customer segment! A secular tailwind! INVEST HERE NOW! It hasn’t really happened though.¹

When it comes to home healthcare (“HHC”), at least, it turns out that it’s just a very tough business.

From Cory Wake, margins for HHC are super-low:

~4% margins at the low end is just a little better than a grocery store.

Normally when margins are low, the problem is solved with volume—again, like a grocery store. You don’t need to make a lot of money with each sale, if you make a lot (a lot) of sales. Grocery stores do better with size.

That doesn’t work with home healthcare, however, because the product is primarily people, and it’s hard to scale people. Plus, as everyone knows, we have a people shortage.

It’s challenging to find home healthcare workers, get them where/when they need to be, and make sure they do a good job. In that sense, getting bigger doesn’t make an HHC’s provider life easier—if anything, it makes it harder. The staffing and quality control issues simply compound with scale.²

Again, to compare with grocery: the incremental difficulty of expanding from 1 million twinkies (ordered and routed) to 2 million twinkies is probably more than zero, but it’s almost certainly less than 2x. The incremental difficulty of expanding from 1 million HHC workers (hired and routed) to 2 million HHC workers is probably closer to 2x (if not more).

So the business just makes less and less sense, even as we need it more and more (which doesn’t mean it can’t or won’t be done, but it’s less appealing than it should be).

Nursing homes face a similar problem: we want to consume elder care aplenty, but supply is disappearing into the night:

To be fair, some part of the decline in nursing homes has been the siphoning of care workers to HHC services, which is a less scalable, more labor intensive version of the eldercare service.

But the point remains: why doesn’t a growth vertical grow?

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Too much work for too few people

To a Random Walk hammer, everything is a nail, but in a world with increasing demand for healthcare (and eldercare especially), we shouldn’t see a surfeit of supply—and yet, healthcare workers have been some of the hardest to find.

One reason that might be true is because we’ve tried to do-more-with-less, i.e. throw ever more work at the same number of healthcare workers, making their lives increasingly miserable. It’s help put off increasing costs for a bit (and probably created some unrealistic expectations around consumption), but we’ve made their lives so miserable to the point where the shortage problem begins to compound—even if healthcare jobs are in high-demand, no one wants to do it.

Not labor, and not capital.³

If that’s not a microcosm of the broader problem, than I don’t know what is.

To wit, now pharmacists are walking out on the job (adding to the rise of labor disruptions RW foretold moons ago):

Chain pharmacies like CVS and Walgreens have consistently slashed staffing levels while saddling their front-line workers with a burgeoning list of additional duties. The situation was bad before the coronavirus pandemic; COVID-19 made it worse . . .

Stores that a decade ago might have had two pharmacists and six pharmacy technicians filling an average of 500 prescriptions a day now may have half the staff and an even higher prescription volume – plus an endless crush of vaccine appointments, rapid tests and patient consultation calls, the investigation found.

Now, I wouldn’t take these claims at face value—and doing more with less is often a sign of increased productivity (which is good)—but naturally, because of my priors, I suspect part of this complaint is valid.

Too few people doing too much work for too long makes the people angry.

If you can’t pay them more (because there’s no juice left to squeeze), then eventually they will say “enough” and move to Florida or something.⁴

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Can’t throw more money at it

The inevitable (and non-) solution to this problem is throw more money at it, which in turn makes healthcare more expensive (which is why service-inflation has long been the persistent inflation to watch).

It’s already happening, as healthcare premiums are on the march:

Can’t blame the rising cost of health insurance on climate change, no sir.⁵

A secular people-shortage is also the most charitable explanation for why the government is facilitating the illegal transfer of ~2M people/year into the country (which is also a very bad solution).

The correct solution in the longer run is, of course, babymaking.

The other correct solution, especially for healthcare, is YIMBYism, i.e. unthrottle supply.

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Healthcare YIMBY is the only way

Random Walk makes no pretense of being a healthcare economics expert (or having anything better than a surface level understanding of the industry, albeit enough to observe that it’s the worst industry in the country).

That said, it requires no expertise to observe that the barriers to entry and innovation in healthcare are insanely and absurdly high (and often arbitrary)—regulation has cartelized every individual component part of the ecosystem (e.g. insurance, doctors, nursing, pharma, hospitals, devices, etc.) and then thrown additional layers of regulation on top of it all just to make all the cartelized parts “fit” together.⁶

As Random Walk has observed in the past, part of why healthcare workers are so miserable is because everyone agrees that regulation is terrible, and it makes their work so much more complicated and wasteful than it needs to be.⁷ And healthcare workers are, of course, frequent “customers” of other participants in the value chain, who similarly have unnecessarily complicated and wasteful jobs.

The net result is that not only do healthcare workers have to deliver suboptimal services, they have to consume them, as well. Docs complain about insurance companies who complain about hospitals who complain about nurses who complain about everyone else. And they’re all not-wrong.

It’s like a daisy-chain of misery, where there are no good guys.

Hilariously, one reason why we have a shortage of nurses, is because we have a shortage of staff and faculty nurses to train more nurses—a staffing shortage begets a staffing shortage—because, get this, rules!

Nearly 78,200 qualified applications were not offered spots at nursing schools last year . . . This includes nearly 66,300 applications for entry-level bachelor’s degree programs . . .

Staffing shortages are the main reason why nursing schools are not able to accept more students who want to become registered nurses. The programs are contending with a lack of faculty, clinical placements for students and preceptors who supervise the students during their rotations at health care providers. Preceptors also have strict limits on how many students they can oversee, with the ratios often set by state nursing boards.

You can’t make this stuff up.

One final anecdote.

My own personal experience with this was when I (briefly) consulted with a sleepcare startup on some go-to-market, UI/UX and product issues.

The business was straightforward: make the whole CPAP process much easier and better.

What we soon discovered was that the threshold question of figuring out what was even permissible with respect to order flow, pricing, checkout, service level agreements with providers and manufacturers, reimbursement, licensing, etc. (and all the various permutations), was incredibly complex (and expensive).

Random Walk used to be a very fancy lawyer, I might add, so believe me when I say the DIY setup was out of scope.

And even once we figured it out—or took an educated guess with the added layer of risk making it harder to raise capital—we were still stuck between choosing various suboptimal alternatives. At that point, it was also obvious why the whole process of CPAPs was terrible to begin with.

While it’s possible that sleep apnea is a uniquely regulated niche of the healthcare industry, I strongly suspect it’s the rule, not the exception.

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If you want to do more with less, which is a civilizational necessity at this point, then an obviously good place to start is to stop doing the stuff that no one needs or wants (except for incumbents, hall monitors regulators, and lawyers).

We baked in a lot of fat—and made a lot of promises to keep paying for that fat—when it was a luxury we could afford, and demographics we’re in our favor. If we can’t unwind those promises, and it’s going to take some time before demographics revert in our favor, then we better start trimming the fat.

Let freedom reign! We can do this.

My own personal preferred solution is to create a medical “Shenzhen Zone” in a civilized state, like Texas or Arizona, and just let ‘er rip.

I mean, we let people write software without a license, so we can definitely let people sell pimple cream without a license. This is obviously correct. Likewise, I’m pretty confident that Walmart could deliver the vast majority of routine care in a cost-effective way to far more people than what we currently have going.

But something might go wrong!

More wrong than all the current wrong? Not a chance.

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1. I would note that there are some investments in this space. Chapter and Charlie come to mind.

2. In fairness, being larger can help negotiate better reimbursement rates with insurance and/or managed care.

3. See also Olive shutting down and Amazon Care shutting down. These are bad businesses, which is why hospitals keep consolidating, because only monopolies can stick around.

4. It’s not unlike the accounting shortage. It’s not fun work, and it’s relatively low-status compared to the clients (who make a lot of money moving money around, as opposed to keeping the books), so people say “enough.” And then all of a sudden there’s a shortage of accountants.

5. For property insurance, a people shortage is an opportune time to create an energy shortage, by deciding first it’s because climate change, and then demanding the data:

I will go out on a limb and predict the investigation will, after careful review of the data, conclude “we were right all along.”

6. The other exactly wrong, but seemingly inevitable, solution is “nationalization” or “single-payer.” Cartelization is what made the mess in the first place, surely even more cartelization will make it better by further attenuating consumers from cost. OK, alright. (No. Obviously, we need more/better price signals, not fewer.) Again, the intellectual gymnastics to get from “all of our interventions have made it impossible to do this businesses sustainably and profitably” to “therefore we need even more cartel-like protections and interventions” are just impressive.

7. The people who make money in healthcare, however, are the people who optimize for the exploits and inefficiencies—i.e. they capture the fat that would otherwise be trimmed—like the administrative bias towards “procedures” (as oppose to consults) or high-volume, price inelastic and merchandising-rich verticals, like pimple care dermatology:

Good thing that AI can’t read an X-Ray.