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An Odd, Bad Feeling

Philip Betbeze, for HealthLeaders Media, September 22, 2008

I had a great column set to go this week. It was written in advance. That was good for me, since I was at a conference for the first half of the week, and planned to be out of the office for the second half. But when I got back from the conference, I just had to put that column on hold.

Because events intervened.

Specifically, the events that intervened involved a further meltdown of our financial system. The Healthcare Deal Making Summit here in Nashville has always been a well-attended conference, with lots of power suits in attendance from investment banks, private equity funds, and organizations seeking money from those investment banks and private equity funds to build their healthcare businesses. Most years, as we say in this part of the country, you can't stir them with a stick.

But this year's event was eerie. By lunchtime on the first day, it was clear from the large number of name tags that hadn't yet found their owners that a lot of people were dealing with bigger problems than the next imaging center company to acquire or finding funding for the next big idea in healthcare IT.

One of the panelists in the first session I attended was from Merrill, where he's worked for more than a decade and has been involved in more than $80 billion in healthcare financings. With gallows humor, he told the audience that as of Jan. 31, Bank of America would be his employer, or so he hoped.

That something strange was going on was easy to see as I exited the session. Dozens of people were on their cell phones in the hallway talking in hushed tones. Panelists were fiddling with their BlackBerrys up to the moment the moderator kicked off the discussion. Nowadays, it's not unusual to see people bowing out of sessions at a conference to take or make phone calls, but at times it seemed as though those in the hallways outnumbered those in the sessions. And the hallway people multiplied after lunch.

Speaking of lunch, by my count, about 50 or so plated lunches went uneaten. As the markets continued to bleed, attendance at the sessions got more and more sparse.

The next day, Wednesday, was even worse. At the last session on distressed investment strategies—normally a very well-attended session—the irony was palpable as only 25 or so people listened to the five panelists on stage describe the typical financial problems healthcare companies and nonprofit organizations run into and how to tell whether a turnaround is possible. They could've just as easily been talking about the organizations that many of the attendees work for. And the hallways that the day before contained dozens of cell-phone toting power suits were nearly empty. I was witnessing a microcosm of what happens when the music stops playing in the musical chairs game of easy money run amok.

As I write this, the Dow Jones Industrial Average is down more than 500 points. That's just today's damage during this particularly vicious cycle. In the past four days, a large investment bank declared bankruptcy (Lehman Brothers) and another was taken under by Bank of America before the same thing could happen. The common stock of the last two independents, Goldman Sachs and Morgan Stanley, are hurting badly despite the fact that both made profits last quarter. Yesterday, the federal government essentially took over the giant insurer AIG, not because its core insurance business is bad, but because it leveraged that business to take on more risk and is now reaping the whirlwind, as many others have done over the past several months of pain on Wall Street.

So what does this have to do with healthcare finance? It's a trickle-down effect. Borrowing's going to be more difficult and leverage is now a four-letter word. Certainly my little experience doesn't spell the end of the world as we know it. Hospitals will still be able to borrow, good ideas will still get funding.

But it's scary. Awful scary.


Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.


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