Thursday, February 24, 2011 | |

Empty Storefronts and the Price of Health Care

My work as a conceptual artist (next week's post) gives me quality time to think about the future of health care and medical economics (last two posts) while painting.  Juxtaposing images and colors on a canvas opens my mind to synthesized thinking about health care, too.  Here's how it happened this Tuesday...

I went out for coffee with a friend and neighbor who works in commercial real estate.  It being municipal election day, we discussed the daunting challenges confronting our new mayor.  Chicago has serious economic problems that are visible in many ways, including a growing number of empty storefronts in the neighborhood where we live.  My friend has specialized in leases for small businesses in the area for the past 20 years, so I asked him about prospects for filling the empty retail spaces in Lincoln Park.

His answer was disturbing.  Historically, the most common client for smaller stores along the major streets has been an entrepreneur who takes out a second mortgage to create a "mom and pop" business -- a jewelry store, small restaurant, art gallery, clothing outlet, specialty book shop, wine or cheese store, neighborhood gym, etc.  The crisis in housing has effectively shut down financing via second mortgages, which means no start-up capital for small business entrepreneurs, which means the store fronts will stay empty for the foreseeable future, etc.  

I know a few small retail property owners, and yesterday's coffee talk led me to thinking about something they have had in common with health care proprietors.  For landlords, commercial tenants have always come and gone, but empty space was not a long-term problem because money was available to support replacement businesses...until now.  For the first time, retail property owners cannot count on new entrepreneurs to fill empty space.  Small business owners don't have their traditional access to start-up financing, and their customers cannot pay higher prices due to stagnant incomes.  Landlords have only one obvious way to fill empty properties now -- lowering the rent for retail space, perhaps a lot.

For decades, health care enterprises could turn to insurance companies to keep their businesses going. Third-party payers passed expenses along to employers, who absorbed most of the added costs and passed some of the increase along to workers....until now.  Global economic problems in general and domestic unemployment in particular are health care's equivalent of disappearing second mortgages.  Disposable consumer income is very hard to find.  How will health care businesses keep their doors open when consumers don't have any more money to pay rising costs of health care?  I see one obvious way -- lowering the price for medical services, perhaps a lot.  I can't see a pretty picture emerging for providers that fail to reduce costs and pass the savings along to payers, purchasers, and patients as lower prices.  I think the Affordable Care Act is a misnomer; it doesn't help solve the problem of keeping providers in business.  What do you think?

  

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