2 – Home Health Consolidation | Chevron Deference Doctrine | Uncertainty in the Banking System

Marcus: [00:00:00] All right, welcome back. This is episode two of health further, where my partner, Vic Gatto and I, we try to make sense out of this crazy world and relate it back to the healthcare industry. Glad we made another week. Yeah, yeah. We’re, uh, you know, two, two down and a thousand to go. So, um, today’s show, we’re gonna, we’re definitely gonna talk a little bit about some, some healthcare deal news, but there’s going to be a lot of, uh, financial stuff we’re going to cover today.

Um, so just a heads up on that, but I think we’re going to start with a conversation about. A MEDICIS,

MEDICIS had a big deal last week, um, yet another big deal in the home health space.

Vic: Yeah. Yeah. And there’s been a lot of deals in home health over the last couple of years. MEDICIS has been, I think, kind of struggling to keep up and catch up since the pandemic really. But they, but they got a big deal done

Marcus: this week.

Well, they were riding high. They were a high performing company leading into the [00:01:00] pandemic. And then when the labor problems hit, it was right. Yeah. That was, that was a pretty tough, difficult, um, you know, situation for them to navigate, but they found, they found a home. So option care health, which I actually hadn’t like, I didn’t really know who they were, but they’re, they’re the nation’s largest independent provider by revenue of home and alternative site infusion services.

Interesting. Yeah,

Vic: all stock deal, right? Yeah. Yeah. So there’ll be joining forces and it’s actually a pretty good combination. I think there’ll be, I think so too. Able to help each other out.

Marcus: Yeah, I think it makes sense. So let’s, let’s just kind of take a look at, uh, a medicines and how they have been performing here.

So like we said, I mean, before the pandemic, it was, it was a pretty good run up and even, you know, leading into 2021, you know, that peak market cap of 10 billion, um, that’s pretty, that’s pretty impressive, right? That run up there. Uh, and then they acquired Contessa. Yeah. And this

Vic: [00:02:00] management team had turned it around over a five year period from, uh, from the depths of, uh, nothing.

So they’d done a great job building for that.

Marcus: That’s right. But then, I mean,

Vic: it’s, it’s been a rough run. Uh, I was really surprised about Contessa. I mean, it was a startup here in town. We know the team. I love Contessa. I thought it was a good deal, but the stock market didn’t like it.

Marcus: Well, I mean, I think, I think it was a, it was a big innovation deal.

And I think what is interesting is. Um, it, it was a big innovation deal, but it was an innovation deal that didn’t have as much sort of revenue underneath it. Right. You know what I mean? And it’s a public traded company making this kind of acquisition. It was not a small acquisition. I mean, for a company at 10 billion, if you’re spending two 40, right.

That’s, that’s, that’s a pretty good nut. Right. So, um, yeah, it did not, did not, was not a creative to earnings. No, it probably still is not a creative journey. So it took a while. And, and I mean, you know, it’s hard to knock. There’s a pretty big, Downshift after, after that acquisition in terms of value creation.

[00:03:00] Um, and, uh, uh, Optum and LHC, uh, gets announced. And, uh, and so now we are at the option care sale. So I think this is pretty interesting overall, Vic, you pulled together this, this, uh, uh, this nice graphic that really shows over the last 12 months. Yeah. Home health has been the hotspot for acquisitions and mergers, right?

Vic: Yeah. I mean, I, I think it is the place where people have. Um, kind of put a bunch of chips. So, I mean, you see, um, we, we had on the last slide, LHC and Optum, Optum buying LHC, um, of course we’re talking this week about Emeticis. Joining forces with option option care. Yep. Um, but it’s, it’s been a trend, um, Humana bought Kindred home and they rebranded it, so it’s all Humana, but the rebranded, which is interesting.

I think it allows them to end to sell it to other payers more easily. Uh, another trend, the pay, the paybiter trend, right? Yeah. And then encompass which of course had inpatient rehab [00:04:00] and home health spun out their home health to have a more pure prey and both of CVS and Walgreens have, uh, really expanded into the home health.

In addition to their primary care.

Marcus: Yeah. I mean, the signify deal is a, that’s a big, big deal because it’s like remote patient monitoring on steroids. Right. I mean, it’s like every single thing that’s going on in the home, they’re tracking, um, that was a very big deal. It was like 4 billion. Uh, I think it was 4 billion.

That was, that was a really big deal. Uh, and obviously Walgreens, you know, with the village MD, you know, hook up. So, yeah, so, I mean, look, there’s a, there’s a lot of consolidation happening in the, in the home health space. Um, I think. It’s it’s tip of the spear, right? For these, for these players, um, they recognize care moving to the home.

It’s going to be, you know, a decade long transition, but there’s no question that if you’re going to ever get value based care, and I think it’s also important to note that, um, you know, Optum, uh, Humana into center, well, CVS, Aetna, right. So there’s [00:05:00] payers in the mix in, in, in half of these, these, uh, these acquisitions.

Vic: Yes. There’s payers and risk risk contracts. Everyone on this page, right? And I think, um, you’re right. You need home health for value based care. I also think it’s, um, I mean, people think about it as post acute, you are recovering and you often need home health for a period of time. And that’s certainly true, but I also think it is a, it sort of drives the referral patents because as you start to build relationships with these people, they’re offering frequent flyers, like they’re going to come back again to the health system.

And if you control that relationship, I think you then can direct it if it, if you choose to, if you have all the assets. So a group like Optum certainly has everything wired up, uh, but I think CVS Compass and now OptumCare and Amedesis. Sort of can, can do that same thing. He managed probably more in the Medicare advantage space.

Uh, but so [00:06:00] they’re all taking slightly different approaches, but I think it’s, that’s the kind of thing.

Marcus: So, so let’s, let’s just riff a little bit about what you think this means, um, for innovators like us, right? So we’re, we’re in the venture space where we, we generally don’t think many of our companies are going to IPO, right?

So now you have a whole nother set of acquirers here, uh, in these home health. I mean, you know, sort of, I mean, obviously the top, you know, The headline here is Humana, Optum, CVS, Walgreens. So really not new companies, but new capabilities, right. That have been created. And there’s going to be a lot of needs for innovation.

That’s going to happen here. Now, I think what’s going to be interesting is how much did they learn from the past? Right. So a Metasitizen Contessa is sort of an interesting, um, analogy. Yeah. Right. So. Are we going to see more of those types of businesses? There was a big move around hospital at home, but now it feels like we’re thinking more about very specific, maybe disease states, maybe very specific risk contracts, maybe, maybe specific bundles, maybe specific, you know, payer mixes and [00:07:00] models.

What, what do you, what do you think is going to be the,

Vic: as a VC or as a. Small high growth company. I think it’s really important to focus, so focusing on a disease state or a population type like maybe Medicare Advantage and cardiac care, um, really allows you to focus in and get very good at what used to call disease management.

But now I think it’s, it’s sort of the entire, um, kind of length of care across, you know, leaving the health system, that whole recovery phase, but then ongoing, making sure that they stay healthy. And if they need to go back, then you direct them to the right provider. Yeah. I think, I think these groups are going to be interested in those kind of focus niche plays and they have now the breath to sort of buy up several.

Things that we build here.

Marcus: Here’s, here’s another angle. Um, I don’t know that much about encompass health, but the rest of them, even Humana because center will actually, I [00:08:00] believe that brand was really a primary care urgent care brand. That’s now been expanded to the home health,

Vic: right? It’s an urgent care for seniors.

Marcus: Right. Right. Okay. So, so I think another thing is, You know, Optum obviously has OptumCare, but CVS and Walgreens clearly are in the primary care, urgent care business, right? Yeah, and Oak Street was a big play to that. Exactly, exactly. So, so there’s also clearly something going on around that, that primary care loop, right?

So not necessarily everything thinking about, you know, discharge and post acute. But like just general wellbeing, right. And, and, and even with the option care, right. You talk about, you know, infusions. Yeah. Okay. You know, you can add phlebotomist to that. And now, you know, you’ve got something that can be more of a consistent wellness platform thinking into the future, obviously thinking 10 years, not necessarily what we’re going to be doing today.

I

Vic: think that’s right. Whether you start in a primary care setting or you grab them post acute and then sort of bring them over to have a consistent. Uh, care. It [00:09:00] used to be called medical home. I hate that term. Like who is the point of contact that I always call when I need help. And I think all of these brands are looking to do that and enter through different doors.

I think there, there are people that have a primary, I have a primary care doc that is my go to person, but there’s a lot of people that don’t have that. Yeah. But you and I are Gen X.

Marcus: Yes, I

Vic: mean, I think he might be able to grab people after they have a new knee and they have a ton of rehab, a lot of home health.

They need. Then you can sort of pull them into the system through that door. But either way, you want to get a long term relationship and kind of steer that patient one to be more healthy, take better care of themselves. But I think also with all of these Payer focused, uh, now providing services, steer them into our universe.

Marcus: So last question, do you think that this overall accelerates value based care?

Vic: I don’t know that this [00:10:00] accelerates it. I think it has to be, um, well, I guess it accelerates it. I think it’s still pretty slow.

Marcus: Yeah. Agree.

Vic: Agree. Yeah. So, so maybe it accelerates it, but from a slow base, what’s the pace of acceleration?

Right. Yeah. Yeah.

Marcus: Yeah. Agree. Agree. Okay. Awesome. Um, so, so good discussion, something we’ll need to be watching over the next year, I think, you know, really see what ends up happening because all the pieces are now off the chessboard. I mean, the medicines and LHC, those were the big ones and they are now embedded into other systems.

Right. And so it’s going to be interesting to see how this all plays out.

Vic: Yeah. There’s another group of what I’d call regional. Home health groups, but they’re not nationwide. They don’t, they don’t give you an entire swath of the country like a medicine system. Right. Right.

Marcus: All right. So we’re going to go to our first break where we’re going to have our first sponsor, which is ourselves.

Yeah. Yeah. It’s a friendly, friendly sponsor. Yeah. Yeah. Tell you a little bit about a jumpstart foundry.

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Marcus: All right, we’re back. Um, so next we’re going to move into sort of a non healthcare specific topic, but obviously we’re going to loop back into healthcare, which is to talk about productivity. Um, so the Bureau of Labor Statistics on Thursday, May 4th, when we recorded the last show, uh, had their release of productivity numbers.

And I think the headline is pretty scary, which is for five consecutive quarters. Year over year declines in productivity. And it’s the first time ever that this has happened going back to 1948 when they were collecting the data. Have we had five back to back quarters of decreased productivity?

Vic: Never seen that much or that little productivity.

Marcus: Yeah. So this, this graph here, The gray in this graph is output per hour. And you can see it does, it does on occasion in certain windows, not often, but on occasion, it goes down. This is actually pretty remarkable that our country has had [00:13:00] such consistent productivity growth. I mean, this is what’s great about America.

Yeah. It’s incredible. And when you really think about it from the, in the long view, you know, from 1948, that’s, that’s an amazing chart. Um, but the seventies were a hard decade for sure. And that’s when we had productivity. That’s right. That’s right. So are we in another hard decade? Yes. Uh, yeah, back to back course.

Yeah. And look, there’s also something I think pretty interesting and it seems to be a bit of a pattern. I mean, look, I mean, I guess this was in 1970 or something like that maybe, but the, the growth of the cost of the unit. Of labor versus the output per hour. There’s a dislocation between those two things, right?

Which is when, when the cost for labor just kind of skyrocket for some cataclystic reason,

Vic: inflation,

Marcus: right? You end up getting this decrease in productivity. So there is some relation there we can see over time. Yeah. I think the,

Vic: the parts that I would put is like in the nineties here, [00:14:00] do you have, um, you know, people are earning more money, but also productivity is going up to the internet.

I mean, there’s lots of. Big advances in productivity through technology. And in the seventies, you have huge inflation and several quarters, although never five in a row when you have declines, right? And so it’s, it’s not a good sign. I mean, maybe it’ll turn around, but it’s not a good sign that we are.

Have very high labor costs and declining productivity.

Marcus: Yeah. It would be interesting to kind of go back and see where we had these significant decrease in the costs, um, over the last 20 years, whether those related to globalization, related to technology, um, it would just be interesting to see what drove those particular things, 2008, this could, that’s

Vic: a GFC, right?

Yeah. That’s GFC. Yeah. That that one is maybe a recession in a one like the dot. Yeah. Yeah, probably, probably,

Marcus: probably.

Vic: Yeah. Yeah. Okay. So that’s, we should probably just for the audience talk about [00:15:00] productivity because I had to go look it up to make sure I knew what the hell I was talking about on the show.

Marcus: Yeah. So, so the definition of productivity, uh, in, in economic terms is, yeah. Productivity is a measure of economic performance that indicates how efficiently inputs are converted into outputs. So it’s an efficiency metric. Yeah. Um, and you’ve basically posited that the economy can grow in three ways, which I’ve got listed here.

So I’ll just, I’ll just read it off and then you can kind of go through them. Right. Um, one more people in the work for. In the workforce, right? All right. Uh, two more raw materials, energy, wood, plastic, et cetera. So that, that makes a lot of sense. Yeah. Um, and then third, more productivity through technology or new methods of production.

Vic: Yeah. I think those are the ways that GDP, like our economy can grow and the best of those is productivity because otherwise you, I mean, it’s hard to, we have to have babies. Um, and we’re not, we’re declining. We’re declining relation. Yes. Um, it would be great. I mean, immigration or other ways [00:16:00] we could put, but that’s kind of stealing from other countries, um, finding new raw material has its limits, has its limits with probably aren’t many new sources of energy or other materials that we haven’t already found, not those that wouldn’t

Marcus: come out of technology.

Right. I mean, so

Vic: yes, technology would enable. Maybe a new, a new support source or something.

Marcus: Yeah. Yeah. How, how you would love leverage the weather, how you would leverage solar or wind or, you know, water forces, right? You know?

Vic: Yeah. So if we, if we put a bunch of solar installations in and we had very cheap, um, cost of energy, at least on a marginal basis, then you would have.

Economy growth, and it would be great. So that would be an example. You get more, more broad materials, but through the technology of then implementing solar, right? So I think it’s not a good sign that productivity is down. That’s why it made headlines. That’s why I think it was worth bringing up.

Marcus: Yeah. So, so let’s now relate this back to healthcare.

Um, so there’s an MGMA study that came out, uh, beginning of May, [00:17:00] and this is largely physician groups, uh, contributing to this survey, and they’re just talking about Stop staff shortages are draining productivity among, among their, yeah, their, their, their team.

Vic: Yeah. So, I mean, I think healthcare is not immune to this.

It might be worse than the overall economy. There are. There’s a shortage of workers. We don’t use technology tools. I don’t think any of us would say that healthcare is super efficient at using its inputs to help people. It’s just not efficient and it is trending with the rest of the economy.

Marcus: Yeah. And, and it’s, we talk about this a lot in healthcare circles, but it is a different kind of industry because it is 50 percent paid for by the government, which means it’s got all sorts of government.

Incentives and regulatory, regulatory capture embedded in its economic model. And, you know, look, it creates a lot of jobs and the government likes to say that it creates jobs. That’s like one of those important [00:18:00] metrics that it has. Right. And so like, when you think about all the different, just the, just the web of incentives and who’s scratching his back, create

Vic: jobs

Marcus: is to

Vic: be

Marcus: inefficient.

Exactly. Exactly. And you can do that through regulation, right? You can, you can say we must have a person sitting here to do this thing instead of a piece of technology.

Vic: Yeah. Right. Yeah. I mean, that CMS is trying to push that out right now in Nome health. Yes. You have to, we have, uh, people do doing work.

We’ll talk about that in a minute. Right.

Marcus: Yeah. So, so, so this is, this is, uh, I mean, this productivity issue, which is not a healthcare specific issue, which is an overall, uh, Economy us economy issue is going to be really, really pronounced in healthcare because of our dependence on the labor force, because we are a very inefficient industry when it comes to that third category of productivity, which is leveraging technology, leveraging innovation, um, finding new ways to lower the cost of a labor unit.

[00:19:00] Right. Um, We,

Vic: we, we don’t run well, but, but from an opportunistic point of view, and that allows us to make. Games. Yes. If we just get our act together and begin to be more efficient, right? Healthcare has more room to run on the productivity front than maybe other industries. A lot

Marcus: more room. A lot more room.

It’s, it’s really not a matter of the room to run. It’s really a matter of the will. Will. It’s a matter of the will. Yes, exactly. All right. And I think that’s a good time to, to, to shift to the CPI because, uh, you know, this is definitely going to be the storyline until we get this under control around all things this week.

Yeah. And, and, and it’s a driver. We should just at least explain that inflation impacts the cost of labor. Right. And so that it’s, it’s feeding into this overall productivity conundrum that we’re in. Um, so we just had a print this week and we came out at 4. 9, so that’s good. Slightly better. Yes. It’s a good ish, right?

It’s we’re, we’re a little bit [00:20:00] down. Um, but that durable portion of it, if we can look at this, uh, this graph here from CNBC, uh, the durable portion remains pretty consistent. It remains durable, right? The, the services component that the non commodities piece of inflation is not really going down. Um, so what, what do you think is going through the, the, the minds of the fed as they continue to.

To increase the rates and they don’t see this part.

Vic: I think they’re still worried about inflation. Like energy is going down. Oil is going down, but that’s not going to get it all the way. They’re really looking for it to be 2 percent and we’re more than double that.

Marcus: Yeah.

Vic: So I think they’re still going to stay.

Hopefully I’ll stop raising, but I don’t think they’re going to be cutting rates anytime soon.

Marcus: Yeah. And that’s, that’s going to set the stage for, for everything else. So this is probably a pretty good time to shift to our health further friend, Emily Evans, who is the health policy leader at hedgeye. And she’s going to walk us through a great conversation [00:21:00] on the Chevron deference doctrine.

All right. Uh, here in studio, we’ve got health further friend, Emily Evans, who is a health policy resident expert at Hedgeye. Uh, Emily, can you tell the listeners and the viewers a little bit about Hedgeye?

Emily Evans: Uh, yeah, Marcus, thanks for having me today. Hedgeye is an independent research firm. We focus on all areas of the U.

S. economy and parts thereof. My particular specialty is health policy and health care. And I am a translator and a tour guide for investors and people in the industry.

Marcus: You, you slacked over a pretty esoteric topic, but we thought it was, it was worth covering. Cause I think there are some implications for, uh, the future of healthcare, innovation and entrepreneurship.

So, uh, we’re going to talk a little bit about the Chevron doctrine today, right? Uh, it’s technically called the Chevron deference. Okay. All right. Let’s see. Right away.

Emily Evans: Let’s talk a minute before we, and don’t, [00:22:00] nobody fall asleep quite yet, because this is actually pretty interesting. Um, the, uh, on Thursday of last week, CMS made a proposal, just a proposal, not finalized, that says that for home and community based services, which is a growing area in the Medicaid program, it’s a growing area because states went, you know, it’s not great to keep our, our IDD populations or our dual eligible populations institutionalized.

We should, we should have them served in a more of a community setting, less institutional, more of a home setting. When when possible, and it’s a lot of states have moved those populations into home and community based services instead of having them institutionalized and say, a long term care facility like a nursing home.

The proposal for CMS said that all Medicaid payments that companies, businesses that serve. The home and community based services component of [00:23:00] Medicaid, their vendors to Medicaid, would have to spend 80 percent of their Medicaid payments, states would have to spend, when they pay the vendors, 80 percent would have to go to compensation.

Um, that would leave 20 percent for SG& A margin, uh, etc. This is, as far as I know, never happened before. Never has CMS said. Oh, yeah. Let’s say here’s which margin is going to be the exception, of course, being the insurance business where they set, you know, minimum loss ratios for, for certain insurance plans, but, but you don’t have them say, say, okay, let’s, the margin for home health care should be 15%.

You know, this has never done it before. And, and one of the reasons they felt they could do it, there are a lot of political considerations in there which we can get into, but, but the one of the reasons I felt they could do it is because of the Chevron. deference doctrine. Now, do you want to tell you what that is?

Yeah,

Marcus: [00:24:00] I, yeah, I do. But, but I want to just make sure I’m, I’m, I’m understanding like the, the, the big issue here. So it sounds like the big issue is that we have an agency, uh, that is acting under some level of authority, um, to set margins, um, in a really, really tight labor market, uh, for the segment of the market that.

You know, we’re hearing a lot of people talk about, um, home care, um, people with, with high specialty needs. Um, sort of an area where you may have challenges finding providers, and now we’re putting some, some level of capitation on that market. Am I basically understanding that correctly?

Emily Evans: It’s not so much capitation as what, because what you’re saying here is no matter what this government is saying here is no matter how tight your labor market is, no matter how much you have to pay people to work in home and community based services, 80 percent of your [00:25:00] Medicaid payments Would have to go to compensation.

So that means either you pay people more or you pay more people or some combination of both of those things and If we focus in you meant you just said something important, which is cms under some authority Is doing this and that’s the trick when a an agency as cms is doing Proposed here makes a proposal like this.

And please understand this sort of action is very nonpartisan. You know, every president since really Obama has engaged in this kind of pushing the envelope of that regulatory authority. Uh, and, and, and what see what CMS is doing here under the direction of the White House because we haven’t seen a ton of policy.

saying, Oh, yeah, this is the direction we’re going in. We’ve seen some political signals, but the, you know, the, the mechanics of policymaking really had not brought this topic up until it landed on [00:26:00] Thursday, which is why, you know, it sent the stocks flying and I’m sure created some heartburn in the, in the private sector, but the, But, but the real question is, do they have the authority?

And I think a lot of people listening to this and a lot of people on the street think, oh, well, they’re the government, they have, they have the authority. Yeah, sure, government could do anything. Um, which isn’t really true, but it’s more true and has been more and more and more true every year since 1984.

When the Chevron efforts doctrine was adopted by the Supreme Court and the opinion was written by Chief Justice Antonin Scalia. And it’s been slowly evolving into more and more stretches, if you will, under that regulatory authority or under that legal authority you mentioned earlier.

Vic: Yeah. Yeah. So, I mean, I want to just dig in to make sure I understand the issue because if it If it’s, as I understand it, it’s really going to be damaging, [00:27:00] I think it is, the stock market has been behaving this way.

I think if you are bound to pay compensation equal to 80 percent of what CMS reimburses, that does not allow for technology innovation, or the ability to use tools, data, better practices to gain an advantage. It’s basically socialism or allowing like every competitor is going to have to pay, be the same, basically using all human labor.

It’s like the, the unions are taking over our healthcare and I, I’m, I’m in favor of people delivering care in the home. I think that’s needed, but I also want to reward companies that maybe create a new technology and deliver better care with fewer people. And have profit for investors. It doesn’t it seems like the anti american to do this.[00:28:00]

Emily Evans: Well, and there, there’s been a, uh, conservatives have really led the charge on this kind of creeping authority from C, from all agencies. And actually the Supreme Court accepted a case, uh, just a couple of days ago. It has nothing to do with healthcare. It’s about phishing. Okay. Um, but they accepted a case that actually challenges the authority of Chevron deference, which challenges the authority of CMS to even do this.

So, in fact, from the justices point of view, the four that voted in favor of accepting this case, um, from their point of view, you’re absolutely right. They’re saying, wait a minute, you know, if you’re going to adopt a margin, a specific margin for a specific area, that’s really something Congress probably has to do and would have to do it after all of the usual deliberations.

It’s not really something that an agency could do. At least that’s the way I think that [00:29:00] they will, it will eventually evolve because we’ve been seeing signals that the Supreme Court is not like, Okay. Chevron deference at all. And there were some fairly big reaches during the Trump administration, particularly in that 2020 period, um, that have all been shot down by the courts, not because of the Chevron deference, but kind of coming up pretty close to, to that.

So, so you’re, your perception’s right. How can this be? And the answer is because of politics. And politics overriding the policy mechanism because a policy discussion would identify almost immediately the problems you just cited. Where’s the innovation going to come from? Where’s the technology where the people going to come from, you know?

Marcus: So, I mean, can we just talk about how this may have historically. uh, shaped healthcare the way that it is today, you know, um, because, because as you’ve said, [00:30:00] we all just, you know, when something’s been happening for, for several decades, we just sort of build it into like, that’s just the way it works. Um, but since it is based on this case from Scalia, um, as you said, what was it?

Eighties. 1984. 84. Okay. You know, remember Scalia was conservative justice, right? This is how times have changed. Yeah. Yeah, totally. Totally. Yeah. So, so, you know, what are other areas where we may be seeing, uh, the important healthcare agencies? You know, leveraging this, this, uh, this doctrine, you know, in ways that could be questionable, or, you know, could have impaired the healthcare industry’s ability to innovate up until this point, you know, is there a way to sort of look at certain things and be like, ah, that probably was because of, you know, You know, the Chevron deference doctrine.

Emily Evans: Well, exactly. So in the show, what the Chevron deference doctrine suggests is that if Congress has not explicitly prohibited something, I haven’t come out and said, okay, do not do that [00:31:00] terrible thing. And it’s reasonable what the agency is proposing. Well, then you should defer to the agency. Okay. Um, the, in the, in the case of the CDC banning, you know, putting a moratorium on evictions during COVID, you know, the, the court didn’t even get that.

Didn’t even review the Chevron doctor doctor because they’re like, that’s not reasonable. You know, it’s not reasonable to say people can never be affected because it’s might create a homeless crisis that you don’t have any work done. Oh, um, so, uh, so, so in the context of healthcare, this doctrine has allowed the agencies to dictate.

And I’ve heard investors say through the stroke of a pen, certain activities. that they like or don’t like that have don’t have Political support by which I mean congressional support. Um, a great [00:32:00] example of that was the Trump administration came up with this. And I know we don’t want to use a lot of statutory citations like 3 40 B.

But most people listening to this probably know what 3 40 B is. It’s a drug discount program and the Trump administration Kind of reallocated revenue from that. They had no, absolutely no statutory support for that. And of course, courts eventually said, said no. Again, not getting to the Chevron deference.

Where it gets iffy, take a law like the Affordable Care Act, and remember Barack Obama, really frustrated because he couldn’t get, he couldn’t get through Congress. You know, Congress, this is when things really, the wheels really came off, um, on Capitol Hill. And, and he couldn’t, he wasn’t getting anything done.

He really used all of his political capital on the Affordable Care Act. So what does he say? I’ll use my phone and my pen. And that was just, that was his, I’ll just direct these, these [00:33:00] agencies to do what they need to do. And they did certain things that I think our industry would go, okay, that’s, that’s great.

Like suspending certain, you know, risk corridor repayments during the Affordable Care Act because Risk profiles have gotten so haywire and, and so bad for the insurers that I think our industry would say, Oh, you know, okay, that that’s good, you know, in the case of the Trump administration and the three 40 B program, you took a big old sledgehammer to some of the, you know, revenue models for nonprofit.

Hospitals and and that I think most people would say was not good because you know, there was there was no notice on it. So so it is it’s always been part of it’s just really ramped up in since the Obama administration. And now we’re in this kind of tit for tat. Well, Trump did it, you know, so we can do it, you know, the Biden administration can do it.

And Trump said he could do it because Barack Obama did it. And it’s just sort of, it’s sort of devolved, uh, [00:34:00] from there, but this rule, this proposed rule that says home and community based services, you know, you have to take 80 percent of your Medicaid payments and, and, uh, you know, create, use, use it for compensation.

That’s just another devolution, if you will, of, of using the bureaucratic, uh, system. And there, there’s, uh, tons of others. The, the way in which home health has been, uh, you know, home health is getting, been a red headed stepchild of the, of CMS for years and, no offense to any redheads, but, um, but it’s been a, and so it takes a lot of abuse, um, in terms of coding changes and so forth.

Um, there’s also like this rules in Medicare Advantage. It’s, it’s stuff that doesn’t make the front pages. It’s really material to the operations of, of the industry and getting, and now we’ve seen this. This home and community based services rule, it really is kind of extended, um, to [00:35:00] a, into a new level.

Vic: I mean, I think it is really a sign of the dysfunction of our nation, national government, right?

It’s supposed to be that we have three different, three different branches of government, legislative, executive, and judicial. And this is, in my view, this is the executive division trying to grab power from the legislative body, which is pretty incompetent. And so whether I agree with the ruling or I don’t agree with the ruling, it would be better to have the three branches be functional.

Um,

Emily Evans: Well, you’re exactly right. The, the, and Vic, one of the, the, the reason this has happened, the reason we have, the federal government has leaned deeper and deeper into the bureaucracy is because you can’t get anything done on Capitol Hill. And, and the last bipartisan piece of healthcare legislation, I believe was 2006 when Medicare Part D was [00:36:00] approved, uh, as part of the Medicare Modernization Act.

I was at 2006. And then you had the Affordable Care Act was passed on a, on a partisan vote, you know, through reconciliation process, um, which is why it’s still a pretty hot topic even today. And, and that, that, that was, that was over a decade ago, you know, that that happened. So it’s, it’s, it’s a function of that, that, that, that power struggle in Congress.

And if you’ve been elected president, well, you want to get something done, right? You want to do something cool. And And you can’t, because, so which, what do you do is you bend those, you bend that Chevron deference doctrine into all kinds of pretzel shapes. Um, so what, if those justices take, they’ve taken this up, if they decide, and you know, it takes four justices to take up, uh, a case, and they only need five, um, if, if they decide that the, and they [00:37:00] narrow the Chevron deference, or they actually toss it out completely.

Uh, then what you’re, what will happen, and I think this is kinda what you’re getting at, what will happen is that Congress will have to do its job if it wants to do anything at all. Right. Um, because it won’t be able to lean into the bureaucracy. And you’ll hear people in leadership and, and they’ll say things like.

Yeah, there’s this conflict in this bill or whatever, but yeah, we’ll let the bureaucrats figure it out. They actually say that. And, and now they won’t be able to really say that if this happens the way I think it will.

Marcus: So Emily, I’m, I’m a little confused because, you know, I mean, Vic was just talking about how broken our, our, our legislative body is, but, uh, you know, I think now our Our judicial body is, is pretty partisan, um, which it was never really supposed to be.

And so, you know, now, as, as we’re talking about the Supreme court taking this up and, and I think, are you, first of all, just two questions. [00:38:00] One, are you implying that this case has nothing to do with healthcare, that they’re, that they’re, they’re. Uh, you know, talking about taking up right now about fishing about fishing, right?

This fishing case, uh that this actually has implications broadly to set precedent for the the chevron deference doctrine first And then the second question is because it is a weapon that has been used On both sides of the aisle depending on who is in power in the executive branch Um, what’s the incentive?

for this partisan supreme court to You Eliminate it, uh, you know, before, you know, but there’s a potential change in who’s in the white house. I mean, you know, it seems like it would be a pretty short term view change to make, uh, when, when it’s pretty clear, the house and the Senate are going to be broken for the foreseeable future.

Like that’s not going to get fixed in the next four or five years.

Emily Evans: Well, I think that when you think, I know, and I understand, and particularly what’s happened up on Capitol Hill today, uh, that people [00:39:00] view the Supreme court as. Partisan, meaning R versus D or left versus right, and that’s really not the way to think about it.

Um, the way to think about it, and remember, Justice Scalia wrote the opinion for the Chevron deference. He was saying at the time that we can trust the bureaucracy, these professional group of people who can, you know, make these reasonable determinations. He’s the one who started that ball rolling. The Supreme Court has kind of divided more between Federalists, and that’s Kavanaugh, Gorsuch, um, as two of the most, uh, recent examples.

And more, the more traditional group, that’s John Roberts, who, who was Chief Justice on the, um, marriage, uh, I can’t remember the law, um, the marriage equality, uh, decision. Uh, and then there is the, because it’s so small, we [00:40:00] kind of lump them together. And that is the kind of progressive, liberal, traditional activist judges.

Uh, Kagan, for example, Sontemayor, uh, Breyer was in that group as well. Jackson has to recuse herself on this particular Chevron case because she, she ruled at the, at the lower court level.

Marcus: I don’t think you mentioned Alito and Thomas. So, so where would you put them? Are you putting them in the Federalist?

Thomas is a

Emily Evans: Federalist.

Marcus: Yeah. Yeah. Okay.

Emily Evans: I would say Alito too. The, I think though it’s easy, like I said, it’s easy to kind of plug the R versus D thing, which I don’t even think applies. Yeah, that’s fair Politics. But it, it, but, but the reason the Federalist project to get judges on the lower bench. And the appeals courts that has been a project that’s been underway for about 35 years, and you’re seeing that emerge at the Supreme Court now, but that that has been a concerted project for 3035 years by the Federalist Society, and they’ve been quite successful with it.

So, so when you think [00:41:00] about it, you kind of reframe your mind a little bit. Federalists are the dominant. force on the Supreme court. And as the dominant force, they believe in, they, they are very much constructionalists keep the federal government out of it as much as you can, you know, leave this to the States, whatever you can, you know, and, and mind this creeping authority, uh, for the bureaucracy.

That’s how they, that’s, that’s how they’re trained and that’s how they think.

Vic: But it strikes me that if they modify the Chevron, Different, difference, is that what it’s called? Deference, Chevron, deference doctrine. They need to draw the line somewhere, right? The, the administrative bureaucracy is going to have to implement law.

Yes. And so they, they, where that line is drawn is what, is what is under debate. Right. So,

Emily Evans: and I think that there’s a very good possibility what they do is they narrow it, you know, so it’s not this wide open CMS right margin requirements [00:42:00] for every health care industry in America, and it just gets narrowed and that maybe that reasonableness.

gets defined more clearly. That could be a, a, a path that they take without tossing it over. Because you’re right, in a normally functioning government, it’s not a crazy idea to go, okay, the professionals do this all day long. Let’s, let’s get them to interpret it. Um, so it could just end up being, you know, quite the narrowing of, of the, of the doctrine rather than, you know, ending it all together.

Marcus: Yeah. And that’s, that’s probably where the smart money is landing, right? I mean, not on a total reversal or eradication, but like maybe a narrowing that, that maybe, uh, impairs the ability for CMS to do things like they just did, you know, this, this 80%, you know, labor requirement.

Emily Evans: Right, exactly. That, that’s the kind that, and that would be consistent with what we’ve seen out of the court over the last 15, 20 years, you know, the John [00:43:00] Roberts wing has been dominant, you know, but now with the appointments of Gorsuch and, and Kavanaugh and Thomas is now ascendant, um, you, you would, you’ve seen that, you know, kind of more of an incrementalism, you know, taking a little bites at different things and that, that could very well happen, But the result will be the same, which is either the Congress is going to have to start legislating again and stop being so sloppy because they, there’s no, I mean, the Affordable Care Act was a landmark bill and it was very sloppy.

Um, or CMS is going to have to be less active and stick to what the law says, which is a good news, bad news story, because most of the Medicare and Medicaid law was written in the 60s, you know, so, so there’s, there’s a lot of, there’s a lot of stuff in there that’s not particularly useful anymore.

Vic: Yeah, and I’m, [00:44:00] I’m, obviously I’m completely biased, but my belief is that Home health is going to be really needed.

We should be increasing reimbursement overall and encouraging technology adoption and new innovation. Mostly because we don’t have enough home health workers. I mean, we’re, we’re at a shortage. We can’t find home health workers.

Marcus: Yeah, that’s that’s pretty clear. Okay. Uh, we’re time Emily. Thanks so much as uh, as always you always make us smarter and uh, we will definitely be having you back.

Emily Evans: All right. Thanks for having me. That was fun.

Marcus: All right. Uh, so that was fascinating conversation with Emily. Every time I talk to Emily, it gets smarter

Vic: and I get more worried about the government.

Marcus: Yeah, she she’s, she’s really kind of one of a kind in terms of, you know, she, she was a local elected politician.

She understands the finance world really, really well. She’s working with some of the smartest people about macroeconomics and also wall street and hedge funds at hedge eye, but she really. Is every single week, she’s [00:45:00] reading through these, these briefs and these new rules that get rolled out. Hundreds of pages.

It’s, it’s crazy. You can

Vic: relate it and explain it to us.

Marcus: Yeah. It’s great. Yeah. Which is awesome. So, and, and, you know, we had that conversation, not knowing that the wall street journal was going to turn around and actually, you Have a whole story about this

Vic: on that this week.

Marcus: Yeah, it’s a big issue. Yeah, for sure.

All right So so let’s now just shift into talking about what’s going on in the banking world Uh, we talked about it a little bit in the last show with the collapse of a first republic second largest bank failure uh in u. s history and Now, potentially PacWest, uh, is, is, is, is in the crosshairs right now, right now in the crosshairs.

Um, I think we just need to try to back up and explain what’s going on in, in this, in this space, maybe even for our own understanding. What is the

Vic: business of banking and how can they be, how can these big banks. Be potentially [00:46:00] failing or already failing. Yeah. They can’t all be mismanaged. Yep. So the, when the first one happened, people blamed Silicon Valley that maybe they did something wrong in their bond portfolio or whatever.

Maybe they did, but, but now that we’ve had four, there’s a fifth one on their block. I just don’t believe that they’re all mismanaged. Right. And so I think we should just talk through the regional bank. Business model and see if we can unpack what’s, what’s happening just to learn what to expect, or maybe have a thesis of what to expect.

Marcus: Okay, great. So I think the place where you want to start is what the asset makeup, what’s the asset makeup of, of a regional bank.

Vic: Yeah. So the assets of a bank are largely. And so they, the deposits are liabilities to them there. Then they take that money and they make loans. And typically, I mean, I think [00:47:00] most.

Banks are doing pretty

Marcus: conservative loans. They have to, we need to just say for a second. Banks are incredibly rigorously regulated. You know, there’s been a lot of talk recently about, Oh, these banks are going, you know, fast and loose. Yeah. I don’t think that’s true. This is not true. Okay. Like this is not what’s going on in the banking regulatory environment.

Vic: You could maybe say maybe something happened, but I don’t think that’s true. Broadly. That’s right. That’s right. So the basic thing they do is make loans to, um, small businesses or someone that wants to buy a building right by a piece of land. Right? And I, I learned this by trying to get loans. They’re very conservative.

Yes. And they typically are looking for two ways to be repaid that are, uh, conservative, underwritten. So like they, it’s not like a VC where they’re hoping to get something. It has to be, you can pay me back and it’s, it’s [00:48:00] definitely going to work. And so if you just take a, um, an office building in downtown Nashville or downtown anywhere, USA, there are, there’s rents.

They have, they have companies that are renting. And so the, the first way you could pay back the loan is you’re You’re getting rent in, and hopefully you don’t spend as much money as you take in, and then you can pay off the loan. And that would be the first way. They wouldn’t give you, like, growth assumptions, and they probably make sure that you put appropriate, um, ideas about turnover, they look at all the leases and everything, but in general, that’s the first way, but that’s not enough.

Even when you have it fully. Rented, they still want a second payment. And so with real estate, that’s the easiest one to talk about. They will take the rights to the building. So if you don’t pay the, if you don’t pay the [00:49:00] loan, take back the building. And they will not loan 100 percent of the value.

Typically, they’ll do 70, 75, 80 percent of the value. And so they feel very comfortable that, well, these rents are gonna allow you to make payments. And even if you mismanage it and screw it up, we’ll sell the building. And if it’s worth 40 million, we will not loan you 40 million. We’ll loan you up to 30.

So we have a cushion there, and that’s

Marcus: worked well for 50 years. The reason why it’s worked well is because there are generally really good regulations in place that set all sorts of criteria on what you need to do to evaluate the creditworthiness of someone To whom you’re going to lend money to. The reason for that is [00:50:00] that you’re ultimately lending against depositors.

That’s your, that’s your base, right? That’s the base that gives you the ability to do this lending activity. Right. And then you have all sorts of income coming in from the payments that are coming and you know, that’s how, that’s what the. The banking business looks like it’s this combination of depositors and your loans and the dollars coming in.

And so, and sometimes you’re originating alone, but then you sell it off as an asset to somebody else. Right. Very safe. Yeah. Yeah. It’s, it’s very, it’s very regulated. I think just people need to understand this is not this like fast and loose industry. Okay. Cause as we’re talking about bank failures and they’re happening in such a tight succession, right.

It’s important to know this is a pretty well regulated industry. Okay. Now I

Vic: know what they’re not prepared

Marcus: for. Yes. Now we need to talk about why they’re failing.

Vic: They’re not prepared for anything changing fast. Yes. They can deal with changes in interest rate, but it has to change over a long period of time.

So Alan Greenspan [00:51:00] or previous. Fed chairs, they have changed the Fed funds rate, but they’ve changed it, um, 25 basis points in the next 90 days. And they tell you that’s coming, and then they wait for 90 days, they make it 25 basis points, then it’s very boring. Right, right, right, right. It’s monotonous, boring, it should not, the Federal Reserve should not be a high drama place.

Yeah. But unfortunately it has been,

Marcus: and we, and we went through that in the last show, we showed the rate of change. We talked about how crazy that rate of change is. Right. So, so, and Vic, you’re, you’re being a trooper fighting through the show. Okay. So, so let’s, let’s not just talk through this three act play that we’re in right now.

We’re, we’re, we’re, we’re, we’re in act two. So, so act one was there were bond portfolios that were poorly managed. Right. And, and that, that is what happened with SVB. That’s what happened

Vic: with them.

Marcus: Right.

Vic: They. They didn’t manage their quota maturity and they’re available [00:52:00] for sale. Yeah. They should have managed it better.

Marcus: Yeah. That was, that was, that was poor management. It was isolated to some banks. They were not the only one. Right. And the way, the reason we know they’re not the only one is because in response to what happened to SVB, instead of just taking over SVB, they also, Created the credit facility, created a discount window for anyone

Vic: to do

Marcus: it for any of the banks who had these held to maturity bonds that were now underwater because of the interest rate changes and said, you can play some back.

Okay, so that was that was sort of how they chose to address that one. And that’s

Vic: also was. Modifying the regulations to give them more leeway in the bond portfolio, they

Marcus: should not have been doing. Yes, that’s, that’s right. That’s right. Okay. Yeah. Now we’re, we’re kind of past that, right? Yeah, that, that, that, we have the credit facility is over.

Vic: Yeah, we have the credit facility. So you don’t, you should not, no, one’s going to fail from that. I mean, they would go to the bed and fix it. That’s been

Marcus: resolved. Okay. So act two is [00:53:00] we now every week. Okay. Have to have a target. Yeah. Right. Every week, the short sellers and the media, something else to fixate on for the, for each, for their own reasons.

Um, but they need a bank to fixate on and the media through just spinning up stories, whether it’s through cable or through print or short sellers in the, in the hedge fund industry, leveraging social media, they pick a week target and they start attacking. It’s like the jungle.

Vic: Yeah. Yeah. And, and I think.

There are weak banks, there’s weak, there’s weak players in every industry. So that’s always been the case. It’s always going to be the case. What’s different about this is because of the first act, which now has been fixed, right? There’s all this Uncertainty and worry and so the media or short sellers can take advantage of that Yep, and I think they will continue to keep doing that.

It’s not going to affect strong [00:54:00] regional banks but there are banks that are You know weak animals and uh Wolves will take them down. Yeah.

Marcus: Yeah. Okay. So, so then, then the, the third piece is this whole credit default issue surrounding the commercial real estate markets and everything that’s going on there.

Vic: And just to be clear, the fed, in my opinion, does not care about one off failures because they are. Forced out due to a short seller or a media thing or anything. That’s not a systematic risk. No, no.

Marcus: And, and I don’t even know that we’re able to define systematic risk, but we, I think we can define what it’s not.

And what it’s not is one or two or three banks going under because of pressure in the market. They don’t consider that to be a true financial system breaking. Right.

Vic: Yeah. That there are other banks in those same markets that can provide loans. And so there’s no, there’s no, there’s no shortfall in [00:55:00] the system.

Marcus: Yeah. Yeah. So we are at the, at what appears to be the potential beginning, meaning we’re, we’re hearing more and more people talk about it, the beginning of the credit defense, and that’s, that’s much more scary than the act we’re currently in. Right. Because that we’re currently in. They got to kind of pick one target at a time, you know, it takes, I don’t know, don’t get together.

Yeah.

Vic: So they don’t get their act

Marcus: together. Yeah, that’s right. You know, there’s, there’s no shelling point where they can actually truly collude to get it done. But this other one, this is, this is material, right? Because as the interest rates climb, that literally decreases the value of the underlying asset that is commercial real estate.

Yeah. Yeah. And that turns that business upside down in a, in a, in a very similar way that the bond portfolios were turned upside down. Yes. But in a way that is, I don’t think you can call, um, irresponsible because it’s fundamentally like the, this is [00:56:00] the business model of regional banks.

Vic: Yes. That’s what they do.

Yeah. They make very safe loans with collateral. Yes. And If that collateral decreases in value, typically in the past, they have had a long period of time. The reason you want to be slow and monotonous is it gives the banks time to adjust. And they will come ask for more collateral, but it has changed so quickly.

There are a lot of commercial buildings that are not worth enough to cover the debt. And so that’s the potential for this third act of, of it, which I’d call it a credit, uh, event where many people that own buildings and have debt will decide to not pay the debt. And give it, give the keys back to the bank because the building is not worth what they owe.

Right. And so it’s better for [00:57:00] them to give it back to the bank and the bank can’t manage it and they also can’t sell it. How does this all relate to healthcare? I think that’s going to happen in the next three to 12 months.

Marcus: Yeah. And, and, and why do you think that’s going to happen? I mean, I think there’s, there’s real data around this, right?

Yeah. So

Vic: there are, um, there are loans that have to be refinance that are coming due. Right. And they had to be paid off or refinance. Normally you would refinance them. Yeah. And the, and the number of those loans, it’s, well, I don’t know how many, but it’s 450 billion in value by value. Yeah. So those loans, I don’t see how they can get refinanced period.

And so that’s going to be a real problem. The reason it matters to healthcare or anyone really is the fed has to make a decision. Are they going to do anything? And if so, what, yeah, and I don’t think they can create a facility where they accept all of these buildings [00:58:00] because that’s not an asset that they can hold.

I don’t know if they’re allowed to hold a bunch of buildings,

Marcus: right?

Vic: And I also don’t know how they would go about that. So taking back treasury stocks that are underwater, they have, they make treasury stocks. They have treasury bonds. They, they know how to do that. I don’t think that they’re going to.

Create a bailout like that for commercial real estate.

Marcus: It doesn’t really seem like it’s possible because they’re not the producer of the underlying assets. So like their ability to sort of back it out, just kind of collect it. I mean, they could, you know, the fed can always just buy a bunch of assets. I mean, isn’t that kind of what happened during the credit default swap issue in the GFC?

I mean, you know, yeah,

Vic: they, yeah, they created a

Marcus: bunch of,

Vic: well, they like grouped all the shitty assets in one thing and then stood up and I think another And to buy it, buy it all. Yeah. Yeah. So it, whether it’s the Fed or Treasury, they would have to work together and do something. So they could [00:59:00] figure something.

I mean, the federal government can figure it out. They can figure it out. They can

Marcus: figure it out. But it’s, but it’s not insignificant, right? I mean, if it happens, it’s a lot, it’s a lot bigger

Vic: of a problem. Yes. It’s, Oh, I mean, this is just the 450 million is this year, right? You’d have to do it for other years.

Yes. And I think that would be very inflationary.

Marcus: Yeah.

Vic: Or they could reduce rates fairly dramatically to one or zero, which is what happened the last time, what they have in the last time. That’s the more likely scenario. And that would reverse all the asset prices. Yes. And fix the problem. Yes. But then it would have a secondary effect.

Right. Which is, it would be, it would drive inflation. Yes. And Which is already durable. Which it’s still on the screen. It’s, it’s, yeah, it’s, it’s already durable. It’s already at 5%. So it would go back to 8, 10, [01:00:00] 12, whatever. Yeah. And that is, I think, a real problem for healthcare. Yes. Because healthcare systems.

Do not get to set their price every day.

Marcus: Now

Vic: in a pizza place, you can change, you know, the price of your inputs go up. You can change the price of what a large pizza costs, right? Uh, health system can’t do that. They are stuck once a year. CMS comes out with new rates and almost all the payers. Tie to that.

Yep. So it doesn’t really, uh, almost a hundred percent of their revenue is, is largely fixed until the next year. And, and I guess in theory, CMS could raise their rates significantly, but they never have because we have, um, a challenge. I mean, as we heard from Emily, we have challenge in DC and I just don’t see how with the debt situation we have, they’re going to do that.

Marcus: So we’re, we’re either in a situation where we, we let the banks [01:01:00] Let’s not go so far as to say fail, but we let them suffer, right? And that’s going to be a pretty significant issue. Um, because look, these banks are in one way or another underlying financing that the healthcare industry depends on. Right.

And especially regional banks to regional health systems, especially like that particular segment of the industry for sure. And. That’s going to be bad. If the fed steps in and says, okay, enough, we now consider this to be a break. So we’re going to bail everyone out of the CRE issue and probably direction they take, whichever direction they take and probably pivot on rates.

Right. Yeah. Um, that’s good for wall street. That’s good for a lot of equities. Yeah. It’s probably good for our. So it’s good for venture venture funds, but it’s inflationary, which relates back to the productivity issue, which relates back to labor costs, which health systems in [01:02:00] particular cannot adjust fast enough on.

Right. Just right. I

Vic: mean, the, the pandemic drove inflation and all of a sudden you could get a job at the pizza place and make a lot more money than you were in the health system and it’s an easier job. And healthcare is just not designed for changing their costs that way. And so it is going to be damaging to everyone.

If this default credit crunch default thing is what I fear it is, but it’s going to then flow to the banks. And then to the health system and,

Marcus: and by the way, let’s just overlay that with everything. Emily just told us about the, about what CMS is. Well, no, but specifically about CMS and, and, and sort of the labor requirements that they’re pushing in terms of percent of what you’re going to spend on labor.

And then overlay that with the healthcare, the home health acquisitions. I mean, there’s just,

Vic: it’s all intertwined. I mean, [01:03:00] that’s why I was excited about doing this podcast because All these issues have connection to each other, but we don’t get to spend enough time pulling it apart and really examining it.

Marcus: Yeah. Yeah. So, so unfortunately I don’t think we’re going to leave on a clear note of, I don’t have a good answer. Yeah. Yeah. Yeah. I don’t know what to do about it. Right. But, but I do think it’s important for us to understand these things that are happening in the banking world. These things that are happening in, in the, in the overall universe of productivity, you know, the, the, the CPI prints that are happening, They’re not divorced.

They’re certainly not divorced from the health care system. And, um, we, as, as innovators, you know, we’re, we’re like bottom of the barrel in terms of like, who cares about the venture folks, but it’s really important that we, the innovators, the founders, the investors, we’re tracking all of this stuff so that we can a understand.

Where are there going to be needs for innovation and where do we need to be placing capital? Um, but B also, what are some of the pressures that the healthcare industry is likely to go [01:04:00] through so that we can maybe anticipate slower sales cycles, lower budgets availability, maybe a shift in dynamic power between one segment of the industry to another segment of the industry.

I mean, these are re we’re, we’re in the middle of something really, really. Significant, right? Those, those five quarters of back to back, uh, productivity decrease, that’s really bad.

Vic: That’s bad. The way out of this for the system or for one individual person or one company is to figure out a way to be more productive.

Yes. And I think our, we’re biased because we are innovators and investing in innovators, and that is typically meant to make People and systems more productive. We didn’t have to be with a venture backed company. Anyway, you can find a little more productivity from your team or your company or in your own career that will prepare you for this, this coming [01:05:00] challenge.

Um, but I don’t know if we’re going to be able to do it quick enough.

Marcus: All right. Well, we got to try. So, um, I mean, I think we’ve covered a lot today. Uh, but great show, man. Thanks for fighting through it. Yeah.

Vic: Yeah. Hopefully I will not be coughing and, uh, suffering.

Marcus: Yeah. Next week. We’re not going to be in the studio because I’m going to be traveling.

I’m going to be in Aspen for, uh, Okay. An executive seminar with the Aspen Institute. So we’ll be doing this remotely, um, from my room in the, in the Aspen resort. So hopefully the wifi is good enough to like hold up for, for, uh, for a quick conversation, but, uh, but we, we will, we will be back next week with episode three.

Vic: Yeah. Excited to do it. Hopefully we will not have any bank failures and we’ll be talking about something that’s more fun.

Marcus: Yeah. Yeah. Hope so. So, uh, until next week, thanks for hanging with us and, uh, we’ll see you next time.

Thanks

everyone.