CHICAGO – “I guess the number one question you have for me is are we going to experience a recession? And if so, when and how severe will that recession be?” Mark Zandi, chief economist and co-founder of Moody’s Analytics, said at HIMSS23 on Friday.
“There’s a lot of talk about recession,” he said. “In fact, in my more than 30 years as a professional economist, I don’t think I’ve ever seen so many people so pessimistic about the future economy.”
Some good news, potentially.
“I would make the case that while the next 12 to 18 months are going to be tough times – and I think it’s important not to worry too much about what lies ahead – I think we have quite a chance. opportunity to overcome without immediate intervention. economic depression.”
Zandi said economists, when they think about the future, are also looking at history.
“And historically, when the economy has been struggling with high inflation, and obviously we’re struggling with that, and the Federal Reserve is raising interest rates aggressively to combat inflation. that, to try to slow down the growth of the economy, to quell inflationary pressures, when that happened in the past, recessions have often happened.”
But it is not inevitable.
“There have been cases where we made it through without a recession, but the Federal Reserve is very, very hard to thread the needle to raise interest rates high enough, fast enough to slow things down and snuff out,” said Zandi. inflationary pressures, but not raising interest rates so quickly that it weakens the economy.”
However, while “recession risks are high,” he said, “I think a recession is avoidable.”
First, obviously.
“Inflation is the number one problem we face today,” said Zandi. “Just to give you a bit of context around that, the average American household today needs to spend almost $350 more per month buying goods and services like what they bought a year ago. But I think inflation has started to slow down and I expect it to be moderate going forward.”
Meanwhile, a number of other factors are also changing.
The pandemic that struck three years ago disrupted global supply chains and disrupted the labor market. And, of course, Russia’s war in Ukraine, which took place over a year ago, has sent oil and natural gas prices soaring.
“Two major shocks to the economy are now increasingly in the rearview mirror,” said Zandi. “Russia’s war in Ukraine continues, but its economic consequences seem to be fading and the pandemic is becoming less and less of an issue.
“So we’re starting to see inflation kick in,” he said. “The last data point we got in March shows that inflation has dropped to 5%. My expectation here going forward is that inflation will be moderate as we do throughout the year. 2023 to 24 and all of this I would expect to happen with only an even more modest increase in interest rates.”
Fortunately, he adds, “health care is a plus, not a minus, in the inflation picture. There are pluses and minuses here, depending on one’s perspective. But the reality is is that health care inflation remains at a modest level which has been important to help bring about overall inflation.”
This shows the cost of medical care services – medical care, goods, pharmaceuticals and medical equipment and supplies, compared to overall prices.
“During the pandemic, since the pandemic hit, we have seen relative prices go up,” he said. “It’s not that prices are falling, it’s that they’re rising more slowly than overall inflation. And that’s been a significant help here in trying to keep inflation from becoming an issue.
“A lot of this is required,” he explains. “In the beginning of the pandemic, people weren’t using the health care system to the same extent that it drove prices up. And obviously that hasn’t changed. I’ll come back to that in a few minutes. . It’s risky, but so far so good. Modest inflation in the healthcare sector is crucial to keeping inflation from rising to a more substantial extent.”
However, Zandi said he remains concerned about two potential risks.
“First there was the banking crisis. Remember that a few weeks ago we saw a couple of banks go bust at Silicon Valley Bank and Signature Bank. That sent people depositing money into the banking system. We’ve seen a bank run away. The banking system has been amazed at what happened, the speed with which people are pulling money out of the bank, which is quite a thing. shock.”
The good news is that the crisis appears to be over, he said. “The government has intervened in a very drastic way. And banks, especially small and medium-sized banks, have become much more cautious in their underwriting and lending standards. their.”
Another risk is more dangerous: the inability to raise the debt ceiling.
“I’ve seen a lot of Treasury debt limit battles over the past 30+ years as a professional economist. And based on that historical experience, I think we’ve seen them. I think it’s reasonable in the end to conclude that the legislators will come to an agreement and sign a law that will increase the limit and we have no problem.
“But I must say that in the last 30 years, I have never seen such an unpleasant environment in Washington DC,” he added. “Both due to the kind of acrimonious political landscape we’re all navigating with just the current circumstances in the House of Commons.”
The possibility that “there’s confusion here, that legislators don’t sign a bill by the time the treasury reaches its debt limit and someone doesn’t get paid on time is a non-zero possibility,” Zandi said.
Even if the debt ceiling is eventually raised, “what is very likely to happen is that from now until we get closer to that X day, we will see drama and growing anxiety and that can manifest in the form of lower stock prices and higher interest rates and a lot of volatility in financial markets, which is exactly what we don’t need in an economy that is struggling to avoid Depression.”
When it comes to healthcare specifically, Zandi said, “one of the most important challenges I think for the economy and especially for the healthcare industry is the cost of labor and finding employment.” looking for qualified workers,” said Zandi.
“We have a very important demographic problem. It was developing long before the pandemic hit. The pandemic has only exacerbated problems in the healthcare job market. But these were developments that stood out even before the pandemic and are now becoming more serious on the other side of it.
“The other demographic that really matters is immigration. We depend a lot on immigrants, both skilled and unskilled. Historically, we rely on about a million immigrants coming into the country. This is clearly happening during the pandemic. And because of the change in policy and politics around that, immigration has declined. In the future, status immigration will be weaker than before.”
That means tighter working conditions will continue “for the foreseeable future”, he said.
That’s no small problem for the healthcare industry, which is said to be “the biggest employer in the economy,” he said.
“It’s an ongoing problem that won’t go away and it is putting significant pressure on profit margins in the industry as a whole. Health care system margins are under strain due to labor costs. rising and the healthcare sector is having a hard time raising prices.” . The pace of price growth in the healthcare sector due to inflation is relatively limited.”
Since Obamacare and all related cost-cutting reforms, “health care prices have barely kept pace with general inflation,” Zandi said. “So you combine severe labor shortages, huge increases in labor costs, and above all constrained prices due to policy changes and competitive pressure, profit margins get compressed. and this is going to be very difficult for the healthcare sector. for the foreseeable future.”
But there is “one good way out of this squeeze, which is to increase productivity,” he said. “It’s got to happen. And that’s related to all of the work that you’re doing at HIMSS and your work in your organizations trying to figure out how to improve productivity growth in the care sector. health care.”
Another opportunity, says Zandi, is “new technologies are evolving very quickly.”
He specifically mentioned AI and machine learning.
“I really think there is a lot of opportunity here to improve productivity growth, especially in information-intensive industries like healthcare,” said Zandi. more than 30 years ago.
“What we have now that we didn’t have then is more data and a lot of better data,” he said. “And perhaps even more importantly, that tremendous computing power allows us to process more information, data that we have historically had. So there’s a huge opportunity here to help. future productivity enhancement.”
There are still many challenges – especially around what he calls the “black box problem”.
Often, AI makes decisions and relationships that you don’t understand or can’t intuitively explain.
“Now, for an economist to say, ‘This is happening, but I don’t understand it,’ everyone says, ‘OK, I get it. I’d love to know why it’s happening, but I understand what you are saying. ‘talking.’ But I can’t imagine a doctor saying that to a patient: ‘Here’s what’s happening, this is what the data says, this is what the statistics say, but I don’t know why. ‘ So that’s a problem.”
But ultimately, AI is a “game changer” for the healthcare industry and for the economy at large, he said.
“Ultimately, the financial health of the entire national economy depends on the healthcare sector,” said Zandi. “There is no greater contribution to our long-term financial problems nationally – Medicare, Medicaid and the cost of those – if we are going to tackle our long-term financial situation, If we can have a healthy and healthy economy in the long run, we need a healthy healthcare sector.”
Mike Miliard is executive editor of Healthcare IT News
Email the writer: [email protected]
Healthcare IT News is a publication of HIMSS.
