Economics is known as the dismal science. Someone should tell that to Uwe Reinhardt.
The Princeton University professor of economics and public affairs tried to humor attendees of the Federation of American Hospitals annual meeting in Washington while delivering the gloomy story of whats going on in the economy and how we got there. Reinhardt became intimately familiar with investor-owned hospitals as a director of Triad Hospitals, Plano, Texas, which was acquired in 2007 by Community Health Systems, Franklin, Tenn. Reinhardt is now a director of Legacy Hospital Partners, the Plano-based sequel by the Triad team led by Denny Shelton, Legacys nonexecutive chairman. (Legacy is not a member of the federation.)
Thanks to his service on Triads board, Reinhardt said, he is able to understand the comic stylings of Larry the Cable Guy. I learned a whole new English there, the German-born Reinhardt said.
That quip was just a warm-up. The audience seemed particularly pleased with Reinhardts extended analogy explaining the crisis in mortgage-backed securities that marked the start of the economic downturn in the eyes of many observers. Their ranks swelled with disaffected mathematics and physics whizzes, Reinhardt said, banks believed that they had developed a formula to turn manure into sweet-smelling rose water. Reinhardt didnt spare his fellow economists who, he said, followed the rule, Est, ergo optimum est, dummodo ne gubernatio civitatis implicatur, or Latin for, roughly, It is, therefore it is optimum, unless the government came up with it.
Reinhardt did not, however, mention government policies that may have contributed to the housing bubble, such as the tax deduction for mortgage interest and the promotion of mortgages by Freddie Mac and Fannie Mae.
Reinhardt did get in one dig at Washington and its odd ways. Speaking about executives traveling to Washington to beg for bailouts, Reinhardt noted, When youre a banker, you can jet. When youre an automaker, you have to drive. Thats another rule that only Congress understands.
Reinhardt showed a graphic plotting yearly healthcare expenditures and the long-term trend line, and he noted that there is always a reaction when expenditures rise above the line. Referring to such an instance in the early 1990s, Reinhardt said, This displeased God, and He sent down the locusts known as managed care.
Reinhardt made one point that wasnt designed to generate any laughs. He counseled the executives in the room to plot their facilities on the Dartmouth Atlas of Healthcare map that vividly displays the wide variations in healthcare resources and utilization by geography. The reason, Reinhardt said, is that the new head of the Office of Management and Budget, Peter Orzsag, is very aware of the variations. In November 2007, when Orzsag led the Congressional Budget Office, it issued a report on the long-term trends in healthcare spending that prominently featured the Dartmouth Atlas.
I think its a fair warning, Reinhardt said.