Houston – Health Care, Big Data & Energy
The economics of health care was the focus of Craig Cordola, the CEO of Houston’s Memorial Hermann Hospital-Texas Medical Center.
For every dollar of cost, Cordola says the hospital is reimbursed differently, depending upon the patient’s insurance. Uninsured, or self-pay patients, bring in 15 cents on the dollar. Medicaid is reimbursed at 52 cents on the dollars. Medicare goes up to 85 cents of cost. It’s not until he sees a managed-care patient, one with employer-based health insurance, that he makes more than he spends – about $1.62 for every dollar of cost.
“I need more managed care reimbursement to balance out the rest of the equation,” Cordola said.
Under the Affordable Care Act, reimbursement is expected to be between the Medicaid and Medicare levels. But Cordola said that managed care patients will migrate to the insurance exchanges, and become unprofitable patients, bringing in somewhere between 52 and 85 cents on the dollar.
“It’s not a rate that’s good enough to cover our costs of doing business,” Cordola said. A good operating margin for a nonprofit health care system in the U.S. is between three and five percent, he added. “It is not a very profitable area of business to be in, but those are the margins we work with.”
The health plans available through the exchanges carry high deductibles, Cordola said. That will lead to people who are gainfully employed who do not pay their co-pays and deductibles. That becomes bad debt. “My cost of doing business didn’t change, but the dollars coming in the door do change,” he said.
Premiums for health insurance and workers’ contributions are going up faster than inflation, said Cordola, “And that’s unsustainable.” But he sees no let up. “Our premium contribution as individuals is going to increase because more and more of these costs are going to fall on the employer and then to the employee,’ he said. “Employers just can’t afford to continue to pay the costs.”
Although health care in the United States is perceived as being high quality, it comes out poorly when compared to other countries, Cordola said, including some that are not so sophisticated. “We’re great at sick care, but we’re not great at health care,” Cordola said. Now, the effort will be to prevent sickness and improve people’s health.
Besides health care, the Houston event featured energy and big data.
Greg Peters, Chairman and CEO of Zilliant, said companies today are making use of big data because the world of business has become more complex. Return on
assets – net income divided by total assets – is down 75 percent since 1965. Revenue is getting harder to come by which is leading to higher margin challenges.
“The companies we deal with are pretty skittish right now,” he said. “Those are manufacturers, distributors and industrial manufacturers.”
The businesses Peters’ company deals with have from hundreds of thousands to millions of products they are trying to price and sell, to thousands of customers. “The volume of information they are trying to manage is on a grand scale,” he said.
“The big trend in our world is that optimizing data is giving management a way to push data back to employees to impact their businesses and P&L,” Peters said. “I’ve recently heard that data is the ‘oil’ of the 21st century, and while I don’t know if that’s true, it is the largest off balance sheet asset companies have today.”
On the energy front, W. Keith Maxwell of Marlin Midstream listed three major themes: First, the U.S. is moving toward energy independence. Second, the technology that is driving advancements in drilling and shale discoveries is responsible for the drive to energy independence. Third, how do we get the new hydrocarbons from places like North Dakota and Ohio to market?
We are now the world’s largest producer of hydrocarbons. “That hasn’t happened since before World War II and today we are leading Russia and the Middle East,” Maxwell said. We’re in that position because technology has enabled us to produce “tight” oil, or shale oil. The Bakken field in North Dakota is the largest, but the Permian Basin and the Eagle Ford play in Texas, when combined, are larger than the Bakken.
However, Maxwell said dry gas – the kind of natural gas businesses and consumers use – is selling at a depressed price. Because of our slow economic growth, demand for gas is not growing, either. “The good news is the resource isn’t going anywhere,” he said. “I’ve seen private surveys that forecast the dry gas envelope goes out 100 years. It’s bullish for the consumer.”
It’s also helping the employment situation. Maxwell said a resurgence of jobs in the United States is happening because companies are bringing their manufacturing back here. The work force is available, gas and electric costs are low now, and in the foreseeable future. “It’s almost like a tax advantage that we’re enjoying based on these low prices,” he said.
In addition, the low price of gas is attracting demand from overseas. “Based on where production is expected to be by 2040, we should be exporting 12 percent of our product versus 2011 where we were importing eight percent of what we used,” Maxwell said. But some American industries oppose exporting gas because they want it to stay here for strategic reasons. “It will be interesting to watch how all this plays on the demand side,” he said.
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