Follow the Money: Healthcare

Americans spend a lot of time hating about how much other people make.  Throughout the financial crisis there was considerable scrutiny on banker's pay.  I get it.  The word "bonus" became a 4-letter word. "How can bankers get paid so much when they ruined the economy..." - we all remember the anger. 

There is a new crisis in America and its the healthcare industry. However, the tone is very different. 

There are many similarities between finance and healthcare.  They both require licenses, or degrees, or some form of expensive higher education.  They both require a massive amount of regulation and government oversight. They create highly lucrative jobs.  And my favorite: people will persistently overpay for advice, or services, related to both of them. People generally don't skimp on decent medical care or financial advice...am i right or am i right?

America loves to hate on the fat cat bankers (myself included) but as mad as everyone is about the healthcare gridlock our nation faces, you never hear about the fat cat doctors. 

I was browsing the website of the BLS (Bureau of Labor Statistics), cuz that's how I roll, and came across this table on average mean wages for all occupational groups in the US and it really got me thinking.

You can view the full list here: http://www.bls.gov/oes/current/oes_nat.htm#13-0000

  

See any themes here?  The highest paying jobs in America are healthcare jobs.  Is it a coincidence that health insurance and medical care is so expensive and the people in the industry are the highest paid earners in the US?  I'm no expert but I have to imagine there is a relationship there.

Here is the funny part: there isn't a finance related job in the top 25 (a "Financial Manager" was #29 on the list), though Wall St wages and bonuses are still (5 years later) volatile topics of discussion.  

No one ever says "this Doctor made $X and they should have to give it back because so many patients died along the way." It's part of the job. 

We are happy to blindly pay whatever cost a doctor or an insurer says because our health...our lives, our children's lives, are on the line.

Well, I think we are getting duped here.  The cost of medical care in the US is many times more than anywhere else in the world.  The system is riddled with middlemen and friction. Not to mention doctors have little incentive to keep people healthy.  Instead we over medicate, over treat, and over charge.

I know a guy who started a consulting business to help doctors "optimize" the numerical codes they submit on insurance claim forms to earn more money.  He basically finds similar procedures and treatments that the insurance company accepts to get the biggest bang for the buck.  I'd like to punch this guy in the face. 

The system sucks. It needs to change. Will there be a day when the doctors who have the fewest sick patients get paid the most?  Maybe.  i like that incentive system.   

From I.B.G.Y.B.G. to I.B.H.Y.B.H.

I was 22 years old. I had my first job on a Wall St. derivatives desk. A large client calls us to do a 5 year OTC trade (for the non-wall st folk, these were customized over-the-counter transactions that the bank had to underwrite itself). As the trader and salesperson bickered back and forth about the "right price," they finally agreed at a level after one of them joked: "I.B.G.Y.B.G.?" They shared a laughed, nodded at each other, and went back to their desks.

 

 

Being the young eager grasshopper on the team, and frequently confused by the barrage of acronyms used by my colleagues, I asked what it meant:  

I'll Be Gone, You'll Be Gone.

Its common to job jump on the Street so long-dated trades had a high probability of maturing well after the salespeople and traders moved onto bigger better jobs at competing firms. The thought was why not just dump a bunch of trades onto the bank's balance sheet, collect a boatload of commissions, and let someone else figure it out later. By the time the trade had significant risk, it would be the mess of some other sorry sap.

I get the feeling the days of I.B.G.Y.B.G. are behind us.  Couple reasons:

-People are just not able to jump around as they did pre-2008.  Less opportunity to move means taking better care to bring quality business that won't blow up the firm.

-Wall St. compensation has shifted from less upfront cash bonuses, to more deferred stock bonuses that vest over the following 3-5 years.  

-Clients are gravitating toward more transparent and liquid transactions that are NOT over-the-counter. The counterparty risk of facing a bank is higher than facing a central clearing house (like the OCC).  Products that trade on exchanges are in demand as customers want to rely less on banks for liquidity and pricing.  This means less room for the I.B.G.Y.B.G trades as volumes increase in the highly competitive listed products that do not require a bank.

Converting employees to think about transactions from start to finish is important to ensure long-term success of an organization.  This holds true for all industries.  Salespeople who just want to close crappy business to pad numbers and make the quarter have misaligned incentives with stakeholders.  Employee compensation should be tied to the long-term profitability of the business motivating them to stick around.   

Cheers to making business more about I.B.H.Y.B.H:  I'll Be Here, You'll Be Here.