Inflation Risk and Investing

Posted on March 4, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

fp-book4Understanding Purchasing Power Risk

[By Julia O’Neal; MA, CPA]

Purchasing power risk refers to the effects of inflation and disinflation on the future purchasing power of the income and principal from an investment.

Seeking “Total Returns” 

The typical physician investor seeks an investment that at minimum returns the same number of dollars as originally invested.  In addition, he or she hopes to achieve current income flow and/or capital appreciation on the security due to favorable results at the underlying company.

This is called “total return.”

Although a physician or other investor may realize a positive nominal (actual) return, however, once the effects of inflation are factored into the return, there is a chance that the real return could be negative.

For example, if it takes 20 years for an investment to return 75%, during which time the price level has risen 100%, the investor is receiving a smaller amount of purchasing power than was originally invested.  

Assessment 

  • Over the very long term, common stocks have provided an effective hedge against inflation.
  • Over shorter periods of time, however, physician investors have been disappointed in stocks as a hedge against inflation, as the rate of inflation has often exceeded the gain in common stock prices.

And so, are you a long-term physician-investor; and how long-is long-term, anyway? 

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Conclusion

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Systematic Securities Risks

Posted on March 4, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Understanding Stock Market Risk

By Julia O’Neal; MA, CPA  

Systematic risk, also known as market risk, is that part of a security’s risk that is common to all securities of the same general class (e.g., stock or bonds) and is caused by economic, sociological, and political factors.

Systematic risk cannot be eliminated by the physician-investor through diversification in an investment class. 

Beta Co-efficient Measurement 

The measure of systematic risk in stocks is the beta coefficient. The beta coefficient is the covariance of a stock in relation to the rest of the stock market. It reflects the magnitude of the co-movement of the stock’s returns with those of the market.

Stock Market Proxy 

The Standard & Poor’s 500 Stock Index is generally used as a proxy for the market and has a beta coefficient of 1. Any stock with a higher beta is more volatile than the market. 

For example, a stock with a beta of 1.3 is 30% more volatile than the market (up and down), and any stock with a lower beta can be expected to rise and fall more slowly than the market. 

Investing Strategies 

Conservative physician-investors whose main concern is the preservation of capital should focus on low-beta stock.  Other doctors, more willing to take greater risks in an attempt to earn higher potential rewards, should include high-beta stock in their portfolios. 

Three Types of Systematic Risk 

Common to all assets are the following three systematic risk factors: 

  • Inflation or purchasing power risk,
  • Interest rate risk, and
  • Movements in the market in which a security is traded. 

Conclusion 

Are you willing to accept systematic, or stock market risk, in your investment portfolio; why or why not? 

More info: http://www.springerpub.com/prod.aspx?prod_id=23759 

Individual: http://www.jbpub.com/catalog/0763745790/ 

Institutional: www.HealthcareFinancials.com 

Terms: www.HealthDictionarySeries.com

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Of Medical Payment Paradigm Shifts

Posted on March 4, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Reimbursing Clinical Value – Not Medical Errors

By Dr. David Edward Marcinko; MBA, CMP™

[Editor-in-Chief] 

Dr David E Marcinko MBAAt our quarterly institutional print-guide: Healthcare Organizations [Financial Management Strategies], we strive to affect positive economic change in the enterprise-wide healthcare ecosystem and to optimize patient outcomes.  

And so, the Centers for Medicare and Medicaid Services (CMS) seismic decision not to reimburse “Never-Events” after October 1 2008, seems a wise one. Simply stated, in no other industry are frank mistakes reimbursed or tolerated by customers!  

Non-Payments for Never-Events 

Under the new policy, hospitals will stop requesting payment for the 27 National Quality Forum defined Never-Events listed in our last print issue – including wrong-site and wrong-patient surgery, patient death or disability due to wrong use of blood or blood products and medication errors – as well as related follow-up care to ameliorate such errors, if possible.

And, the list will likely expand going forward.  

Developing Trends 

More imminently as a vanguard, the Massachusetts Hospital Association (MHA)announced that it will no longer charge patients or health plans for treatments required to address NEs. The announcement makes it the second state whose hospitals have voluntarily made the pledge, following a September 2007 announcement by Minnesota’s HealthPartners – who not only requires its network hospitals to report errors to state governments – but also won’t let hospitals bill patients. 

Thus, an economic trend may be developing in the industry as a strategic competitive advantage. 

Future Pressures 

In the future, all covered entities may come under similar pressure as private insurers are gradually beginning to rule out payment for NEs. And, eventually as the trend evolves, hospitals and clinicians may end up eating the fee when more-minor errors occur; while allied healthcare providers, clinics and hospitals may adopt a proactive stand on the entirely logical issue well ahead of the deadline. 

Why Now? 

Q: Yet, why have public and private facilities and payers been indifferent to this basic business concept, until now?  

A: Perhaps the answer rests in human inertia. 

According to science historian Thomas Kuhn, such paradigm dislocations do not occur until defenders “can no longer evade anomalies that subvert the existing tradition.” To date, the suggestion that domestic medicine is inefficient and wastes money was merely an inert one.

But, the notion that it injures patients too; is not.  These “Never-Events”, defined as incidents that are not supposed to happen, spring more from human foibles than any evidence-based medical disaster. Of course, quality experts posit that public reporting of never-events is not meant to be punitive, but will promote correction among healthcare organizations and providers.

The Bigger Picture 

Nevertheless, the bigger epiphany lies in revising a certain mindset that existing medical payment schemes were not only appropriate, but somehow immutable to the laws of supply-demand.   The rise of consumer directed healthcare, retail clinics and concierge medical practices seem to suggest otherwise when the patient is fully informed.  

Only time will tell which “economic behavior” is prudent of course; although the absolute prohibition against clinical never-event outcome is clear, as we recall the admonishment “Primum non nocere”, or the fundamental medical precept of Hippocrates (ca. 460-ca.377 BC) to “First do no harm.”

Assessment

As insightful institutional subscribers to our print-guide – and readers of this complimentary companion personal economics blog – we trust that you and your hospital, medical clinic or healthcare entity will review, communicate, use and profit by this information.  

Moreover, let Healthcare Organizations: [Financial Management Strategies] reduce your resistance to future paradigm shifts that bespeak modernity, safety, economic utility, patient empowerment and common-sense. 

PS: Don’t forget to “review-read-rave and rant” online at this new companion web-log and communications forum. Your cogent thoughts, and informed opinions, are always appreciated. 

Conclusion 

Let us know what you think about this or any related issue? 

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA – Editor and Publisher-in-Chief – is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com 

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