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Market Meltdown


The financial sector and Wall Street, as we know it, are gone. The carnage is breathtaking in its breadth, swiftness and finality. As a passive retirement investor, with an even more passive understanding of the world of finance, I was shocked when Bear Stearns collapsed. Then Lehman Brothers, a 158-year old investment firm failed, and Merrill Lynch narrowly avoided bankruptcy, albeit through a Bank of America buyout.

Questions swirled in my mind: How could a company like Lehman, which makes money by trading money, go bankrupt? How could they have survived the economic crises of 1873, 1929 and 1987 only to succumb in 2008? How could a company with billions of dollars in assets fail? How could an established company go from leader to loser so fast—sweeping the streets that they used to own?

If this calamity could befall presumably intelligent, highly educated, seasoned managers of Fortune 500 companies, could it happen to my company, the hospitalist group I direct? I have neither an MBA nor an undergraduate business degree; never set foot in the business school at my college. Truth be told, I don’t even balance my checkbook.

With the disclaimer that I know about as much about Wall Street’s operations as they know about mine, here are a few cautionary lessons I learned from watching this financial meltdown.

“Now in the morning I sleep alone, I sweep the streets that I used to own.”

—Coldplay “Viva la Vida”

Liquidity and Reserves

It appears many of Wall Street’s problems can be traced to liquidity—that is having dollars held in reserve. Although sub-prime mortgages are at the center of this crisis, the reality is the vast majority of these loans are not in default. Instead, as big a contributor to this meltdown was the practice of lending money without liquid reserves to back those loans. Investment firms had plenty of assets, just not enough in reserves to cover a spat of delinquencies or a rush of withdrawals.

Hospitalist groups operate in similar ways, with the major difference being almost all of us lose money. In the most recent SHM Bi-Annual Survey on the State of the Hospital Medicine Movement, 85% of hospitalist groups reported an operating deficit. This means we require capital from an outside source to stay afloat. That someone, our creditor, is most often the hospital. Ninety-one percent of HM groups receive financial support from hospitals through offset agreements or an annual stipend.

Just like our Wall Street counterparts, HMGs have a ton of assets in the form of human capital, but often hold very little financial capital in reserve. So, if our investors suddenly pulled their support, the result might not be too dissimilar to what is happening on Wall Street. I’d venture a guess that very few hospitalist groups have enough money in reserve to weather a storm. Look at your balance sheet. Could your group handle a 20% cut in hospital support next year without having to lower salaries or cut hospitalists? If the answer is “no,” you probably could benefit from more reserves.

Understand Your Business

It seems so obvious, but to be successful you need a firm grasp of what you do. I have no doubt someone at Lehman understood credit derivatives, credit default swaps, and mortgage-backed securities. However, it is painfully clear they didn’t recognize all the implications of these products. For example, what would happen if a company that increasingly invested in sub-prime mortgages suddenly saw a rash of these investments go sour—namely, a rush of creditors wanting their money back—immediately? Bankruptcy, that’s what would—and did—happen.

This couldn’t happen to hospitalists, could it? Well, shockingly, 35% and 37% of hospitalist group leaders said they did not know their group’s annual professional fee revenues and expenses, respectively. It is, therefore, likely many leaders do not know the more granular data points necessary to have long-term success (i.e., payer mixes, service line profit margins, rates of quality adherence and reimbursement and denial rates). To understand the potential implications of not knowing your business, look no further than the current crisis on Wall Street.


The old saw about not putting all your eggs in one basket seems as applicable to the credit crisis as it is to your retirement accounts. The more traditional banking institutions, such as Bank of America, appear as if they will survive in large part because they remained diversified. Although they engaged in sub-prime mortgages, they also maintained a large commercial banking operation that deposited savings and kept them in holding. The upshot? When creditors came calling, Bank of America had plenty of cash on hand.

I’m not suggesting hospitalist groups open a savings and loan, rather we diversify the services we offer to help soften potential future turmoil. I often hear from hospitalists who don’t want co-management, as it is not traditional medicine and it may subjugate them to their surgical colleagues. While the latter point is valid and must be mitigated, surgical co-management, stroke services, observation units, palliative care services, and preoperative clinics all serve as potential markets for diversification. We cannot predict how future market forces (e.g., Medicare coverage changes, payment bundling, disproportionate share cuts, etc.) will impact our practice; but we can increase our chances of future success by diversifying our business portfolio.

Although clinical diversification is important, don’t forget to grow your quality service line. I strongly believe those that can impact quality in meaningful and measurable ways will win in the end. Once the hospitalist market saturates, there will be competition and groups that have a track record for systematically improving outcomes will be the ones who continue to garner hospital funding.

I fundamentally believe in the strength of the hospitalist movement and doubt our business will ever experience the type of calamity that has ensnared the financial sector. However, it behooves us to learn from our fallen Wall Street brethren, lest we someday find ourselves sweeping the streets alongside them. TH

Dr. Glasheen is associate professor of medicine at the University of Colorado Denver, where he serves as director of the hospital medicine program and the hospitalist Training program, and as associate program director of the Internal Medicine Residency Program.

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