There are moments when seismic shifts in the economy and society become an unmistakable realization that life will never be the same again.
Two of those remarkable moments of economic transition are playing out before our eyes in Massachusetts across the key areas of telecommunications and health care. The flashpoint in both cases comes from organized labor. Several unions recently conducted an acrimonious two-week strike against the land line business of Verizon while other locals are pressing for rich benefits and staffing ratios at Bay State hospitals.
Two industries, both confronted by fundamental change in technology and customer expectations, running squarely into hard-working employees struggling to come to terms with their roles and futures in the new economy. It is the same economic crucible that in an earlier time transformed the Massachusetts business landscape from one dominated by Digital, Polaroid and Filene’s to one fueled by Google, Biogen and Macy’s.
Approximately 45,000 Verizon workers ended their strike against the company over the weekend without reaching a contract agreement. Verizon and the unions remain at odds because the company needs to cut costs in its land line business in the wake of customer migration to wireless platforms. More than one-quarter of Americans now use wireless phones exclusively, a fact that comes as no surprise to anyone who has recently tried to call someone under 30 years of age.
Verizon says that the great phone unplugging has reduced the number of wire lines it maintains by more than half, from 55.5 million in 2003 to 25 million this year.
Boston Globe columnist Steven Syre wrote last week about the financial impact of the changes:
- In 2002, Verizon reported that its revenue from wired communications was $40.8 billion, with an operating profit of nearly $9 billion. Eight years later, the wired business delivered revenue of $40.2 billion, but earned less than $1 billion on an operating basis.
• Verizon’s wireless operation is very different. In 2002 they posted revenue of $19.5 billion - less than half the comparable figure of its wired business. Operating profit was $3.6 billion, also less than half that of the wire-line unit. But the wireless business boomed over the next eight years. It generated revenue of $63.4 billion by 2010 and earned operating income of $18.7 billion last year.
“The existing contract provisions, negotiated initially when Verizon was under far less competitive pressure, are not in line with the economic realities of business today,” Verizon CEO Lowell McAdam wrote in a letter to employees.
It was impossible to miss the irony that Verizon landline workers went out on strike the same week that Apple Computer became the most highly capitalized corporation in America. The Wall Street Journal reported recently that Apple has sold 28.7 million iPad mobile devices since 2010 and is having trouble keeping up with demand.
Labor unrest is also swirling around health care institutions as they face changes every bit as fundamental as those confronting telecommunications companies.
Massachusetts hospitals and outpatient facilities have begun to restructure in the face of pressure from employers, consumers and insurance companies desperate to control health insurance premiums. Medical providers are preparing to change the financial model of health care in Massachusetts from the current fee-for-service system to one in which insurers pay doctors and hospitals global fees for patient care.
The shift is already shaking up the normally predictable world of health care. Steward Health Care System LLC, a for-profit company backed by private equity giant Cerberus Capital, bought six struggling Caritas Christi hospitals in 2010 and has since grown to eight hospitals with four more acquisitions due to close by the end of the year. Partners Health Care, the parent of Massachusetts General and Brigham & Women’s hospitals, last week announced that it will purchase Neighborhood Health Plan.
AIM is strongly supports payment reform because it holds the promise of reducing costs and improving quality. Payment reform will encourage doctors and hospitals to focus on keeping people healthy rather than treating illness. This change in care delivery through new Accountable Care Organizations will eliminate much of the current inefficiency and lead to better health outcomes.
The structural changes in health care have run headlong into labor unions that have long seen hospitals as a significant opportunity for membership growth. Unions such as the Massachusetts Nurses Association and the Service Employees International Union are aggressively fighting steps hospital administrators believe are necessary to their survival.
The nurses’ union last week called upon state regulators to put on hold Steward’s proposed acquisition of bankrupt Quincy Hospital until Steward honors an eleventh-hour agreement the union made with Caritas to create a defined-benefit pension plan and to increase wages. The median compensation of a registered nurse at Steward’s St. Elizabeth Hospital in Brighton is currently $141,760 with nine weeks of paid time off.
Steward Counsel Joseph Maher told a hearing on the Quincy deal that any delays would threaten the financial viability of the institution.
“That doesn’t bother the MNA- they are willing to hold the employees and the communities hostage to improve on what already is an unprecedented agreement. They are willing to let these important community hospitals potentially close, taking with them thousands of jobs and creating economic chaos,” Maher told the hearing convened by Attorney General Martha Coakley.
The Steward scuffle follows the MNA’s contentious contract bargaining last spring at Tufts Medical Center in Boston and St. Vincent Hospital in Worcester, which is owned by another for-profit entity, Vanguard Health Systems. And Local 1199 of the Service Employees International Union has called on Baystate Health of Springfield to scrap plans to eliminate 354 jobs this week, arguing the hospital’s projected budget shortfall will be offset by a Medicare windfall. The SEIU does not represent workers at Baystate.
Despite all the rhetoric about lowering health-care costs, we have not yet made sufficient progress. The time to lower health care premiums has arrived. Transparency and competition in health care will help to drive lower costs, create sustainable health-care system and help businesses grow.
The tragedy of the union actions against Verizon and the health care industry is that they distract everyone from the task of discerning the new opportunities that will exist in the reconstituted economic landscape here in Massachusetts. The future belongs to those who don’t fear these changes.