by Karl Denninger
The Burning Platform
Accordingly, I must communicate to you at this time the full extent of our dire fiscal straits and the potential disruptions that we face in addressing even our most critical core responsibilities going forward into the new fiscal year. My Office has very serious concerns that, in the coming weeks, the State of Illinois will no longer be able to guarantee timely and predictable payments in a number of areas that we have to date managed (albeit with extreme difficulty) despite an unpaid bill backlog in excess of $15 billion and growing rapidly.
We are effectively hemorrhaging money as the state’s spending obligations have exceeded receipts by an average of over $600 million per month over the past year. (ed: That’s $7.2 billion/year)
My cause for alarm is rooted in the increasing deficit spending combined with new and ongoing cash management demands stemming from decisions from state and federal courts, the latest being the class action lawsuit filed by advocates representing the Medicaid service population served by the state’s Managed Care Organizations (MCOs). As of June 15, the MCOs, and their provider networks, are owed a total of more than $2.8 billion in overdue bills at the Comptroller’s Office. There is no question that these obligations should be paid in a more timely manner and that the payment delays caused by the state’s financial condition negatively impact the state’s healthcare infrastructure. We are currently in court directed discussions to reach a workable and responsive payment schedule going forward, but any acceleration of the timing of those payments under the current circumstances will almost certainly affect the scheduling of other payments, regardless of other competing court orders and Illinois statutory mandates.
Now folks, you can call this a “one off” if you wish.
It is also not a surprise where the problem is centered. It’s in health care.
I’ve only been yelling about this since the 1990s, when I saw the impact on my firm’s balance sheet and cash flow statement on a year-over-year basis for a few years running. You don’t need to see it for more than a couple of years to grasp the gravity of the problem if you have a brain and are not politically poisoned to wave it off.
Anyone with a $3 WalMart calculator can figure it out, given 5 minutes and an IQ greater than their shoe size. You merely need to run the exponential series out 5, 10, 20 years and what happens becomes obvious.
At ~9% expansion the rule of 72 gives you a close-enough approximation: Costs double every 8 years; in 24 years you spend eight times as much money as you did originally.
There isn’t 8x as much money and you can’t raise it.
You can’t increase taxes by 800%. You can’t expand the economy by 800% over 24 years; at a 3% GDP expansion rate (which we haven’t had in the last two decades for any sort of time period, I remind you) the economic output expands by 200%. This means that you’d have to quadruple taxes compared against economic output, and if you try to do that GDP will collapse because you will consume all of the expansion in economic output and then some.
There is only one answer to this problem and that is to take the entire medical system, which is where the entire problem resides, and dismantle it. Prosecute every single hospital administrator, owner of an imaging center, drug company executive and physician that has ever, even once, stuck his head in a hospital room and then billed someone $1,000 for a “drive by” consultation — or anything like it, such as charging $90,000 for a drug here that’s $2,000 in another nation, or billing one person $100,000 for a procedure where another is billed $5,000 or $10,000.
Bankrupt them all by imprisoning every last ******ned one of these people and fining their firms out of existence using the 100+ year old and still valid body of law found in 15 United States Code, Chapter 1.
Force every single one of these institutions out of business now.
Let the courts administer bankruptcy sales on every single ******ned hospital and diagnostic center in the nation along with every single pharma business in the United States. Sell them all off at 2, 5 or 10 cents on the dollar and make damn sure you tell everyone who bids that any repeat of the previous owners performances over the last 30 years will lead to instant indictment and imprisonment — period, full stop, no exceptions.
Tell all the remaining doctors and medical centers of any sort that (1) they will publish a price on everything, (2) they will charge everyone the same price for the same good or service and (3) any attempt to cheat or perform any anti-competitive act will lead to immediate indictment, trial and imprisonment of everyone involved using perfectly-valid 100+ year old that has twice been confirmed as valid in the US Supreme Court over the last 30 years.
No bail, no kidding, no mansion, no Porsche, no exceptions — and no bull****.
At the same time tell the AMA and all the Colleges that if they collude to (1) drive up the cost of learning to be a doctor or (2) limit the number of people who can go through school to be a doctor in an attempt to fix prices and restrain trade, including attempting to continue or enforce state-specific licensing you will lock all of them up too and give the people the controls of CAT D8 bulldozers so they can take out their frustration on the ivory towers of said schools — after we chain the administrators and AMA board members to the columns.
After all, a D8 beats the destruction of our cities and state governments, along with 100+ million dead Americans, which is exactly where we’re headed over the next couple of decades if we don’t cut this crap out right now.
Go ahead and believe if you wish that “owning” property in one of these cities — any of them — is real. Go right ahead. You have a nice piece of land and house there. It’s maybe worth what — $500,000? If it carries a property tax levy of $12,500 a year you paid for it again in 40 years but got nothing of value for the money spent the second time.
By the way, how do you afford that $12,500 property tax bill on a middle-class — or even upper middle-class income, say $80,000 or $100,000 a year? You can’t.
It would be bad enough if it stopped there but it won’t. My former house near Chicago has seen its property tax levy double in 10 years time. What makes you think yours won’t have the same thing happen? It not only will it has; I’ve seen it on other properties I’ve been watching including property my family members own in such places.
Why would I provide services to the state of Illinois if they can’t pay my invoices Net 30? I would not — period. I saw a tiny bit of this with Chicago in the 1990s when they started trying to “stretch” my invoices. I went into the computer room and yanked the line card out of the cage that fed the Washington Public Library and tagged it off with a warning that any tech that put the card back in would be fired. The caterwauling could be heard all the way to Waukegan (and came within minutes of my action) but that card didn’t go back in the cage until I had a check in-hand. I don’t get to pay my parking ticket when I feel like it and thus neither does the city — or state get to pull that crap on me. That was the end of the discussion.
Will someone “factor” their invoice and thus allow people to provide services to the state? Probably, for a while, but the factoring cost will get added to the bill. That’ll work right up until the credit risk gets to the point that the discount rate on those factored invoices is 20% or more at which point there’s no chlorine for the water plant that keeps your drinking water safe.
How far are we from that folks? How long does Chicago, Milwaukee, Detroit, St. Louis, Atlanta, New York, Newark or Philadelphia remain standing upright and operating when there is no sanitary water to drink, the pumps don’t work at the sewage plant so there is literal **** coming up out of the sewer manholes, the cops and firefighters don’t get paid and there’s no food distribution in the city either because the city and state try to tax the businesses at a rate they cannot pay and a pound of coffee winds up costing $20 and a gallon of milk is $10, which nobody can afford on a welfare check?
You think this is a joke or hyperbole eh?
This was much-more easily resolved 20 years ago when I started raising hell about it.
It was rationally resolvable in the 2007/2009 time frame when I started writing The Market Ticker.
Now it’s a real bitch, but we still have to do it.
I’ve laid it all out here, on the air multiple times, and in Leverage.
I’ve been to Washington DC in the 2011 timeframe and spoke to Senate staffers who confirmed they understand the math and what will happen if this crap doesn’t stop.
But they also told me they’re unwilling to act because you are more-concerned about abortion, gays, boys pissing in the girl’s room and how much you can get in welfare checks then whether your state and ultimately the federal government is going to be bankrupted by a bunch of jackasses in white coats who first told you to eat **** that makes you sick with government sanction, prescribed pills that gave you diabetes, loved the trillions of dollars they stole to treat the diseases they caused at mark-ups of 1,000% or more against a market price — and all of that after they tossed your health in the ****ter on purpose.
Exactly when you do pull your head out of your ass, America?
Is it before or after our cities lay in ruin and a third of you are dead?
Oh, and if you’re dumb enough to think that Trump gives a flying **** about any of this?
He knows good and ******ned well exactly what’s going on. He has to since he’s run a company in this very environment for the last 30 years and he’s seen all of it and knows the math, just as I do. I’m not the smartest man in the room by a wide margin but I sure as hell can use a ******ned calculator and so can both Trump and you, if you choose to.
The very day Trump was elected every bit of the bullet points on “health care” found on his campaign site that actually bore on the real issues disappeared from public view and not one word of it has been seen since anywhere — not on his transition site and not in a single policy pronouncement since. There were multiple entreaties made to his transition team on this exact point during those months including by people I’ve cited here and who were “supposedly” part of the group he was going to consult with. Those meetings were canceled folks and they have not been rescheduled six months later.
Trump is an actual, willing and intentional co-conspirator in all of this — and that’s a FACT