In this week’s interview we speak with Shawn Tully, Senior Editor At Large for Fortune Magazine, where we discuss the intersection of public policy, public health and government spending as it relates to the coronavirus and the huge cost we are shouldering by keeping the economy closed.


Jeffrey Freedman: Hello and welcome to the RP HealthCast by RooneyPartners. I am your host, Jeffrey Freedman.

The intersection of public policy, public health and government spending as it relates to the coronavirus is the subject of this week’s interview with Shawn Tully, Senior Editor at Large for Fortune Magazine. This topic is almost tailor-made for Shawn given his career and his education. you see, Shawn joined fortune in 1979 and in 1983, became the magazine’s first Paris Bureau Chief. Shawn was also an on-air reporter for CNBC from 1996 to 1998 when he returned to Fortune and he is now approaching his fortieth year with Fortune. Shawn received an MBA from the University of Chicago, a Masters in Applied Economics from the Université Catholique de Louvain in Belgium and holds a Bachelor of Arts degree from Princeton University

Shawn, it is a pleasure to have you join us today to share your thoughts and insights and discuss some of your recent coverage about the policy and financial implications of the US federal and state governments response to the Coronavirus.

Shawn Tully: Sure, my pleasure.

Jeffrey: Great. Now before we dive into this extraordinarily important topic though, I would like to post a couple of career track questions if I may. At first, your decision to dedicate your life to journalism. Now, if I were only studying your education pedigree, the logical conclusion is this is someone destined for the C-suite or Wall Street? Why the noble path of journalism, Shawn?

Shawn: Actually, I started at what was then called First National City Bank. So I was an MBA student and had also gone to graduate school in Belgium in economics and right after I finished in Belgium, I went to work for First National City, which is now Citigroup and they were in the building on Park Avenue. I think it is 390 Park Avenue and I was in the real estate lending division and I was there for about a year, but I did not love it. And then, I just started freelance writing and I work for New Jersey Monthly and then, the editor there said, “You really should concentrate on business writing. Your stock will go up.” And it was the best advice that I ever got because I had kind of the technical background to understand business subjects, but I also like writing so when you put the two together, I was able to succeed as a freelancer, initially. And then, go do more and more business stories and then go on to get hired by Fortune and then, work with some great writers as their reporter; the likes of Carol Loomis, who recently retired in early 80s and is a legend in the business. I worked under her, learned a lot from her. Roy Rowan, covering the Hunt Brothers trying to corner the silver market back in the 1980.

So just working for these greats even though I was not writing at the time. I was just taking notes for them and doing reporting for them really prepared me and then, I was promoted to being a writer within a couple of years and had been at Fortune the entire time, except for a year and a half when I worked at CNBC as a TV reporter. But I spend the entire career as a business writer and trying to do as many types of stories as possible. Some about drama personalities takeovers. It is kind of yarn style stories. Others that are much more about the markets and numbers based, but the good thing is business reporting gives you the ability to use all of those skills and tell a variety of stories.

Jeffrey: Yeah, but I think you have interviewed more Fortune 500 CEOs over your almost forty years span of Fortune than any other business journalists. When you are conducting an interview with a captain of industry, you know, based on your pedigree, do you ever think that could have been your job. I mean, let me put it another way. What goes through your mind when you are sitting face-to-face with a CEO subject.

Shawn: Well, no, I would never want to run a company or to have wave or be qualified to run a company, but normally I am… You cannot fake it. When I interview for CEO, I have read up on the company. I have done a lot of homework. I am intensely interested in how he manages and deals with a crisis which, of course, has been a big subject recently. So my interest is strictly from a journalistic standpoint and trying to take a lot of what is often highly technical information or covered up with lots of cliches and explanations. You cannot understand which is often what the companies put out and make it understandable and colorful for readers. And therefore, the background, the personalities, the styles of these CEOs become very important to getting people to read the more serious stuff because the more fun you can make it, the broader the audience becomes.

Jeffrey: Right. That is a great insight. Thank you. This is a healthcare podcast. So if you do not mind, well let us turn to coronavirus. In late April, the Fortune published the story under your byline. It was entitled “Pandemic economics. The U.S. is learning why limiting hospital beds carries a steep cost.”

Shawn: Right.

Jeffrey: All right. As New Yorkers, recalling the erection of the field hospitals in Central Park at the arrival of the USNS comfort and other measures to boost bed capacity, the issue of hospital shortage remains an open wound. Sorry, forgive the expression. But you identified an arcane government regulation as responsible for effectively blocking the construction of new hospitals. Now, can you explain the certificate of need laws and its role in capping hospital bed capacity?

Shawn: Yes. These are state laws. These are not federal laws, but they are very widespread. You have them in over half the states. These laws force hospital companies or companies that want to get into the hospital business or expand to go to the state authorities, which are often controlled by the existing industry in order to get permission and get the permits to add beds, which would involve either adding more beds to an existing facility or building new facilities. Now, the industry, obviously, the existing players want to have all their beds full all the time. So they resist construction of new hospitals, which would add to the surge capacity that we need to fight this virus. And that was the rationale for most of the lockdowns, was that we were going to swap our hospital capacity and not being able to treat the people who were in serious need of respirators and hospitalization due to the virus.

So, what really worked was the suspension of the certificate of need laws in many states, then enabled hospitals to add beds and to move beds between hospitals. Under most of these certificate of need laws, hospitals are not able even to move beds from one part of a hospital chain to another part of the hospital chain, if you can believe it. So, they are extremely restrictive and they prevent the market from determining how many hospital beds you really need and they leave it in the hands of the industry and the entrenched players who want to shrink the supply to keep the prices higher and keep the capacity lower. It is not unusual. You see it in OPEC or any cartel and it is not healthy, right? So, my objection to it was that first of all, it is never a good thing because it just simply raises prices and does not allow hospital beds. There is a view that you cannot have more beds in rural areas. That is not true. It simply caps the total number of hospital beds. You have fewer beds everywhere than you really need and this was brought into bright relief by the virus where we needed a lot more capacity and we are only able to get it because these laws were suspended.

Jeffrey: Okay, so I get the concept of permitting the free market to dictate need. But as I understand that the CEO and programs help distribute care to disadvantaged populations or geographic areas that new and existing medical centers may not serve, right? So, according to some policy experts, the removal of CON well actually favor for profit hospitals because they may be less willing to provide indigent care. So, given the disproportionate impact of the coronavirus on communities of color, are you not concerned that the dreadful death data we have experienced would have been even worse without the CON laws.

Shawn: No, and the proof is that they were suspended. In other words, if you have a shortage of capacity in a crisis as what we had and it were a good thing, why did they not shrink the number of beds and strengthen this thick certificate of need laws? Not at all. In other words, what… The reason they were able to serve underprivileged populations was that they got rid of the laws. If you are in a densely populated urban area and you cannot move beds from one facility to another or add more beds in an existing facility. What is the good of a Certificate of Need law? It freezes and place the number of beds. So it was the suspension of these laws that opened up the capacity needed to serve underserved populations and to take care of the surge. They should be suspended indefinitely. And one of the mysteries of the entire crisis is why this is not a major topic of discussion and of a policy point that would be extremely helpful in solving this surge problem that we have. 

Jeffrey: Okay. Thank you. Switching topics a little bit, still staying in our home state though. Last week, Fortune posted another thought-provoking article by you entitled “New York City’s lockdown is costing $173 million per day. Is it still worth it?” All right. That is quite interesting. Now, clearly the trade-off of public health and economic health, it is a Hopson choice. But what struck me was your estimate that New York City shutdown has cost the economy a staggering sixty-three billion dollars. Now, I am having a census taker shot. That is a big number. So, walk me through those numbers.

Shawn: Yes. So the hit too… Well, okay what the… You have to start with how big is New York’s economy to figure out how big the hit is. This is not an easy task because you never see a number for New York City’s GDP or gross urban products. There is a couple of names for it, but essentially, it is the output of goods and services annually that the city itself of 8.4 million people produces. But you can find the number. Interestingly, it is usually referred to only by how much it is going to grow or shrink every year and they never tell you how big the dollar number is. But I was able to get it by going through the websites from the US Commerce Department that do give that number by county so you can add it up. So it is nine hundred billion dollars approximately. The projections of the shrinkage in GDP this year from Boston Consulting which did a study for the state of New York for the city is seven percent, which is much higher than for the country as a whole. Because the country as a whole is a 5.6 percent according to the Congressional Budget Office. So the sixty-three billion is an annualized number based on the seven percent of shrinkage in GDP that we are going to experience because of the coronavirus outbreak and the lockdown that is is brought on by the outbreak.

Now, that is an annualized number. The daily amount is actually much bigger because the shrinkage and GDP in the middle of the year is more like ten percent or eleven percent , but I use the annualized number. Now, what we do not know is how much of that would be restored if New York were opening much more quickly. Part of it would, but that number is impossible to come up with accurately. But we do know it is a lot of money and given that eleven percent of GDP in this crisis period is more like ninety billion a year. Would that be fifty billion? Would you save… Sorry, a million per year. It is ninety billion per year. Would you, with the daily amount drop by thirty million from one hundred seventy-five to one hundred forty-five? We do not know that number, but we do know that it is a big number. And my point in the story was that, again, there is a… Definitely, New York has been very successful in getting these numbers down as Dr. Scott Gottlieb, the former FDA commissioner, cites it has got the best track record in the country. Yesterday, they were three hundred and forty cases that tested positive in the entire city. That is a one percent positive rating. It is one quarter of the national average. We are way below the national average at this point, and we have been getting closer to fantastic results for several weeks. But the lockdown has been very severe and remains very severe.

So, the question becomes you are getting extremely small incremental improvements in the various metrics that the state has been using and the city has added to those metrics. There is ten altogether, three from the city and seven from the state. You know, if you are within one percentage point of reaching some of these metrics and you have acing almost all the other ones, question is what is the objective? Where do you want to get to before you open up? Because staying locked down is not getting you a lot of progress on the margin, but the costs on the margin are extremely high. So, I would like to see more discussion of what does it really costing and are there ways of dealing with the virus that would be less damaging to the economy and at the same time, protect the health of these few people now, who are getting the virus where at levels that are extremely small by national standards. Now, the virus is very contagious and I leave it to the experts to find ways that you can find hot spots and do tracking and treat the virus in tailored ways that do not lock down the entire economy. So the question I was raising is not to say that it has not been worth it, or even that it is not worth it now, but to point out what is really costing which is a subject that I had never seen addressed. 

Jeffrey: Right. So your argument, you know, is that we have already met most of the arguments set by Governor Cuomo and which perhaps we are taking too cautious in approach by delaying the restart. The numbers that you mention are staggering. So, yes, economic impact is significant. But New York has been victim number one, right? Seventy percent of total New York State coronavirus deaths are in Manhattan. I am sorry, New York City. And you know, we have had almost seventeen thousand New York City residents passed away due to COVID-19 so that equates to about fifteen percent of nationwide fatalities. So, you know, I think it might be understandable why New York is taking a more prudent approach to the reopening and you do not feel that way or you are…?

Shawn: I think there is going to be [crosstalk]. I think there are going to be some very interesting studies on this subject. The debate is really a little different. Clearly, New York was the hardest hit, but it clearly New York is the quickest to come out or the most successful in coming out. So, the question is how much do you want to spend to get to instead of three hundred and forty people yesterday testing positive; one percent to get to three hundred and twenty people. In other words, at what point do you want to… Have you reached all of the metrics that would justify a reopening. Now, you have reached them, the issue is that there are very long delays between the different phases of reopening that can be pushed back and there is not even any guidelines now for reopening restaurants, which do not even possibly open until Phase 3, which would be mid-July and that could be pushed back. So, the question is where do you need to get to to open up? And are you are you that much better off if there are three hundred people instead of three hundred and forty people getting it if you open that. Right? You are at such low levels that for whatever that improvements to come are going to be tiny. There is no other way because you are already at such excellent, excellent levels. So the cost per metric of improvement or unit of improvement is very high. That was the point that I was making, not that I think that the state has made a huge mistake or is taking the wrong course.

Jeffrey: Got it. Got it. I mean, at this point, what you are saying is it is not a health debate. It is not an economic debate. It may be more of a philosophical debate and I would love to actually have that in a future episode. All right, let us conclude where we began a little bit and by more of a personal look. Now, you live in New York City. And since the death of George Floyd in late May, the streets your neighborhood have been teaming with protesters and the medical community has voiced concern that these crowds are going to lead to another bout of coronavirus cases and, like you mentioned before, we may have to delay opening. Do you think that the results will lead to a further delay in the reopening in New York?

Shawn: Well, there is a lag in the statistics between when you have a dangerous signal such as people congregating in the streets and not respecting social distancing and when you get a spike in positive cases. Certainly, there has been no spike. The opposite, we have gone from four percent positive results to one percent in the last several days. Now, that does not mean it is not going to spike back up. I think it is going to take another week or so before we know. So it is possible. There is two dangers. One is that you get an additional spike which would lead to possibly to more delays, which is disastrous. Because from an economic standpoint, because as I said, you are probably looking at ten percentage points shrinkage in GDP during this crisis period that would have been counter balanced by coming out of it when we open up. So if you delay the opening up, the depth of the damage becomes much worse, the economic damage.

And the other problem is that these demonstrations tend to shut down clinics that are doing a lot of testing and New York state is doing a tremendous amount of testing. We were testing around between fifty and eighty thousand people per day. They are testing half a million people per week. It is tremendous and it has really helped and the great news is that despite much higher testing, the number of daily cases is dropping which means that the positivity rate is going way down. So, if those things are reversed, if you cannot test as much and more people have it, that is a bad situation. So you have a double hit, potentially coming in the form of people not respecting social distancing in these demonstrations and also the possibility that some of the testing clinics will have to close down.

Jeffrey: Now, if we do not see a increase, would it not warrant or do you think it would warrant a moving forward of the reopening of the different phases?

Shawn: Again, I think the city and the state have decided to stick to a preordained plan that sets a timetable so I do not think that Mayor de Blasio or Governor Cuomo are going to try to to accelerate the reopening schedule, which is I say pushes restaurants back to around July 8th. And then we do not have any guidelines on what the capacity would be in restaurants and that is assuming that there is no pushback in that fourteen-day difference between Phase 2 and Phase 3. So I do not anticipate that they would move it up. They seem to be determined to stick to the schedule that was settled long time ago. I do not know that that is from the economy standpoint. That stretches this out a very long time when you have very, very good metrics. So it definitely stretches the damage to the economy much longer which may or may very well be justified. It is just a fact. It just does. But I think the question then becomes more will they stretch out these interim periods between the phases and pushback the reopening? For example, theaters do not even reopen until Phase 4, which would be back getting close to August and that is if everything goes great. And as you said, you may be in a situation where the protests led to a spike, which given the extremely cautious stance that New York state and city are taking would conceivably push it back more.

Jeffrey: All right. Shawn, this has been a very enlightening and interesting conversation. So, I want to thank you so much for joining us today, and good luck in New York City. And we hope that everything comes back on board very quickly. So , thank you.

Shawn: Great, my pleasure. Thank you.

Jeffrey: We hope you enjoyed this week’s podcast. If you have any questions, comments, or future story suggestions, please reach out to us on social media. Thank you, and we hope you enjoyed the RP Healthcast.

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