The next bubble: health care 

City Sage

Some time ago I was chatting with a recently divorced friend who was mad at her ex, a Denver orthopedic surgeon.

"He doesn't want to pay for the kids' tennis lessons," she said, "and that's part of the divorce agreement, and it's not as if he can't afford it. He makes plenty!"

"How much is plenty?" I asked.

"Oh, he makes about $80,000," she replied.

I was stunned. "You mean an orthopedic surgeon only makes 80 grand?"

"I meant a month."


My friend was also irritated by the rapid depreciation of the marital residence, a Denver McMansion on the market for more than a year.

"I tried to stick him with that turkey, but he was too smart for that. We've taken a $500,000 hit so far, and we might have to short-sale it or just give it back to the bank. We got caught in the real-estate bubble, I guess."

We've all been touched by that bubble, but maybe there's another one about to burst — the health care-cost bubble.

My friend's ex makes a million a year, mostly repairing creaky knees and joints of guys like me who think they still should be able to run up Pikes Peak. It's a specialty that didn't exist a generation ago, treating conditions and ailments our grandparents had to live with, using tools and procedures that physicians of another era couldn't have imagined.

That's progress, and if you have the cash and/or the comprehensive insurance policy, it's great. But if you're on the wrong side of the health care equation, you're SOL. No knee operations for you. And, because of the extraordinary, accelerating costs of everything associated with health care, basic palliative health care is either unavailable or unaffordable.

Let's compare some numbers. According to economist Robert Shiller, inflation-adjusted prices of standard existing single-family houses in selected U.S. markets grew from $110,000 to $200,000 between 1998 and 2006. It was a classic bubble, which was predicted, analyzed and warned against even as it expanded. The aggregate assets of American households increased by trillions, which disappeared soon after the bubble popped.

How many of us are still stuck with that turkey? We're still making payments on an underwater mortgage, still paying off a home-equity loan, still hoping that the market will recover and bail us out.

Now consider health care costs, which, according to the government, have increased ten-fold (not inflation-adjusted) in 30 years, from $253 billion in 1980 to $2.5 trillion in 2009. Between 2008 and 2009, costs increased by $200 billion — during the worst recession in modern American history.

You don't have to be an economist to realize those figures are unsustainable. The numbers have to come down. But how?

In real estate, property owners who are heavily leveraged and/or overinvested go down — i.e., developers. In health care, the biggest cost centers may be the most vulnerable. That means hospitals, which account for 31 percent of all health care expenditures.

If you think you see a bubble about to burst, what do you do? You sell. If you're fast, lucky and smart, you make a profit.

That brings us to Memorial Health System. Those who want to sell Memorial to a private operator, rather than transferring it to a nonprofit, are not necessarily right-wing ideologues pushing privatization of city-owned assets, regardless of context. Some of the smartest people in our community (e.g., Bill Hybl and Steve Bartolin) see some city enterprises as time bombs, marketable entities that should be monetized before they become valueless.

The time to sell Memorial may have passed, thanks to sluggish local government decision-making. The system is losing value, so we may never have to make the pleasant choice between netting $250 million from a sale or turning over the system to a new, locally controlled nonprofit. At least that task force is considering the alternatives now.

Maybe we'll be in the position of my friend and her ex, making payments on an asset they could have dumped for a windfall — if they hadn't been slow. Maybe the health care bubble will burst, and hospitals and specialists alike will take big hits.

But that's OK by me — I got my knees fixed 10 years ago.



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