Friday, August 30, 2013

The Future Health Care Oligopoly in America

Oligopoly (noun): a state of limited competition, in which a market is shared by a small number of producers or sellers.

Research by Booz & Company shows that the hospital business in the United States is changing at a rate that has not been seen for years.  In 2012 alone, there were 105 merger and acquisition deals in the hospital and health systems sector, double the number seen in 2009.  Here is a graphic showing a history of the number of announced U.S. hospital transactions between 1994 and 2011 and the key government actions that accompanied the activity:

The authors suggest that the forces behind this trend are related to:

1.) Federal healthcare reform (i.e. the Affordable Care Act and changes to Medicare and Medicaid reimbursement).

2.) Deep budget cuts at the state level.

3.) Insurance companies are holding the line on costs.

4.) Difficulty in using credit to raise the capital necessary to fund new infrastructure.

5.) Declining admission rates.

All of these factors are creating an environment where hospitals and health systems have to think outside the box to survive and remain profitable.  The most vulnerable targets are stand-alone hospitals which on average, in 2011, saw their operating margins in negative territory as shown here:

While these deals will be publicly touted as creating economies of scale that result in greater efficiencies and reduced costs to hospitals, the Booz study shows that this is not the case.  Out of a sampling of 201 hospital and health care system deals between 1998 and 2008, only 41 percent of acquired hospitals outperformed their peer group.  In addition, 18 percent of acquired hospitals went from having positive margins before being acquired to having negative margins after acquisition.  One would think that having more beds would result in greater efficiencies, unfortunately, of the deals that ended up with more beds, only 39 percent outperformed the broader market and of the deals that resulted in the same number or fewer beds, 42 percent outperformed the broader market.  Basically, the idea that a merger or acquisition in the hospital or health sector would improve the bottom line is worse than a coin toss.

Let's go back to my opening definition of oligopoly.  Booz & Company predicts that out of the 5000 hospitals in America, roughly 1000 will seek a merger or acquisition opportunity in the next five to seven years.  While on a nationwide basis there is still plenty of competition, the same cannot be said for specific geographic areas.  The 2012 attempted merger of OSF Healthcare and Rockford Health, both located in Illinois, is a case in point.  This merger was cancelled after the Federal Trade Commission determined that the number of acute health care hospitals in Rockford, Illinois would be reduced from three to two and that the combined hospitals would control nearly two-thirds of acute-care inpatient services.  That is pretty much the dictionary definition of an oligopoly.

While many independent hospitals are clinging to their independence by their figurative fingernails, the writing may well be on the wall.  It will be increasingly difficult for them to retain their independence in the face of competition from their larger peers.  On top of that, once their competition is eliminated, it will be increasingly tempting for the new mega-health and hospital systems to raise health care costs for Americans, especially since the Booz study shows that most mergers do not result in higher margins.  Ultimately, the margins will have to rise to positive territory.  Another factor that must be considered is the case where health and hospital systems load themselves with debt in order to make themselves bigger and bigger.  Eventually, the debt has to be paid and we all know who will pay in the end.

Thursday, August 29, 2013

Spending on Spies

Updated October 2013

Another day, another revelation about the NSA.  

A recent release of the so-called Black Budget document shows American taxpayers how much was budgeted for the Office of the Director of National Intelligence, covering expenditures on the CIA, the NSA and other government departments excluding funding for military intelligence gathering.

Here's the opening page of the FY 2013 Congressional Budget Justification, signed by one James Clapper:

For fiscal year 2013, James Clapper's objective was to receive $52.6 billion in funding which would be allocated to the following activities:

The Central Intelligence Agency was to receive 28 percent of the funds, to be budgeted into the following categories:

The budget for the CIA has risen by 56 percent since 2004, most of which has been spent on data collection.

The National Reconnaissance Program (NRP) which operates the nation's networlk of spy satellites was to receive 20 percent of the funds, to be budgeted into the following categories:

The Consolidated Cryptologic Program (CCP) which includes the National Security Agency was to receive 21 percent of the funds, to be budgeted into the following categories:

In case you wondered, here's a graph that shows how the funding for CCP has changed since fiscal 2004:

The budget for the NSA alone has risen by 53 percent since 2004.  The NSA has spent heavily on management, facilities and support and spends about 20 percent of its budget on data analysis.

Here's a graph showing how the number of employees working within CCP (including the NSA) has changed since 2004:

In total, there are just over 107,000 employees in the intelligence community with the equivalent of just under 84,000 full time equivalent civilian employees and just over 23,000 military positions.  Sequestration has had an impact on the intelligence community as well; just over 1200 positions have been shed or just under 1 percent of the total workforce.

One phrase that I did find interesting was under the Objectives section of the report as noted here:

"Counterintelligence (CI). To further safeguard our classified networks, we continue to strengthen insider threat detection capabilities across the Community. In addition, we are investing in target surveillance and offensive CI against key targets, such as China, Russia, Iran, Israel, Pakistan, and Cuba.

I found the inclusion of Israel as an offensive Counterintelligence target in amongst China, Pakistan and Russia rather odd!

Here's another one:

"The counterproliferation (CP) mission continues to support a variety of actions to deter, disrupt, and prevent proliferation. This includes improving our understanding of Pakistani nuclear weapons and dangerous nuclear material security; intelligence on proliferators, such as Iran and North Korea, to roll back and block weapons programs; increasing our ability to ascertain global chemical and biological threats; and better integrating multidiscipline coverage of WMD targets such as chemical weapons in Libya and Syria." (my bold)

So, how well did that work for the people of Ghouta in Syria?
Now at least we know where some of those tax dollars that are remitted to Washington are headed and how much it is costing American taxpayers to have their emails, text messages and cell phone calls listened to, not to mention those of approximately 40 world leaders.  

Syria - A Minor Oil Player

Updated September 2014

Syria has been in headline news off and on for three years now and it appears that the looming ISIS-related conflict in the Middle East is once again weighing heavily on the world's consciousness   That said, there is very rarely any mention of Syria's oil and gas reserves or production levels, a situation that I hope to resolve with this posting.

Syria's first oil production began in 1968 with most of the current oil production being located along the Euphrates Graben in the northeastern part of the country.  For those of my readers that are non-geoscientists, a graben is a downthrown block of land that is bounded on both sides by a series of faults that is created as the earth's crust is pulled apart.  In the case of the Euphrates Graben, the feature is about 100 kilometres wide and extends for 160 kilometres in a southeast-northwest orientation.  Here is a map showing the location of the Euphrates Graben

Here is a cross section across the Euphrates Graben showing the "sag" in the earth's crust:

Here is a map showing Syria's oil and natural gas infrastructure:

Here is a map showing the contract areas and oil and gas fields in Syria:

For my Canadian readers, please note the participation of PetroCanada in the northeastern-most part of the country.

According to the Energy Information Administration (EIA), Syria produced around 334,2400 BOPD of oil in 2012 and 315.72 BCF of natural gas in 2011.   This puts Syria at 33rd place in the world of oil production and 41st place in the world of natural gas production.  

Here is a graph showing the peak and decline of Syria's total oil production:

Here is a graph showing the peak and decline of Syria's net oil exports and imports:

Here is a graph showing Syria's proved oil reserves:

According to the Organization of Arab Petroleum Exporting Countries (OAPEC), Syria has 2.5 billion barrels of oil reserves, putting it in 31st place in the world.  

In sharp contrast, here is a graph showing Syria's growing natural gas production:

Here is a graph showing Syria's proved natural gas reserves:

Sanctions and security concerns have put a halt to several international pipeline projects that were scheduled for Syria and exports of crude and petroleum products were severely curtailed in 2012, also due to sanctions with oil production down by over 50 percent from 2011 to 2012 as shown here: 

Syria's oil production had been in a state of decline for a decade and a half since peaking at 583,000 BOPD back in 1996.  Until hostilities began, a successful program of development drilling, new discoveries and field rehabilitation were expected to increase production capability and put a halt to production declines.

Oil production and development are managed by the Syrian Petroleum Company  (SPC), an offshoot of the Ministry of Petroleum and Mineral Resources.  Foreign oil companies have been offered a share of Syria's oil industry in an attempt to stem the country's production decline with formation of the Al-Furat Petroleum Company.  This joint venture is 50 percent owned by SPC, 32 percent by Shell Oil and China's CNPC.  China is also active in other parts of Syria through its Sinochem and Sinopec government oil companies.

For the past 2 decades or more, Syria has consumed less oil than it has produced.  Domestic consumption has risen slowly over the past 2 decades from around 200,000 BOPD to nearly 300,000 BOPD in 2010.  As shown in this chart, Syria has exported up to 400,000 BOPD back in 1996; this has declined to 109,000 BOPD in 2010, according to the EIA:

As shown on this more recent graph, Syria became a net oil importer in 2012 when consumption outran production:

Most of Syria's oil exports are/were shipped to European OECD nations including Austria, Germany, Italy, the Netherlands and France as shown on this pie chart:

In 2010, EU nations imported a rather insignificant amount of their oil from Syria, totalling 1.35 percent of all imports.  On the other hand, these exports provided a significant amount of Syrian government revenues, reaching 30 percent ($4.1 billion) in 2010.

Syria is estimated to have proven natural gas reserves of 8.5 trillion cubic feet (Tcf), half of which is associated with oil reservoirs.  Gas that is non-associated is found in the central and eastern part of the country.  In 2010, Syria produced 316 billion cubic feet (Bcf) of natural gas, however, due to hostilities, the rate fell to below 200 BCF in 2013 as shown here:

Approximately 23 percent of Syria's natural gas production was injected into oil reservoirs in an attempt to boost oil production with the bulk of the remainder used domestically for power production and industrial usage.  According to the EIA, Syria plans to substitute natural gas for oil by 2014 for both power production and industrial usage since Syria does not have the refining facilities necessary to produce refined oil for these purposes.  With Syria now producing more natural gas than it consumes, it is exporting small volumes to both Lebanon and Turkey.

According to this report from Syrian Oil and Gas News, the discovery of oil-bearing shales in the area to the southeast of Aleppo could be another important source of hydrocarbons with the possibility of over 50 billion tons of reserves.    

As you can see, while Syria did export a small volume of oil to Europe, those importing nations have easily substituted oil from other sources for their supply of Syrian imported crude.  Perhaps this explains why there has been reluctance on the part of both Europe and America to get involved in Syria's civil war; there simply is no economic reason to involve oneself as there is in the case of Libya and Iraq.  After all, other than saving a few thousand lives, there is no economic upside as there is in both Libya and Iraq who both had unseemly human rights records.

Wednesday, August 28, 2013

The Use of Chemical Weapons and How History Repeats Itself

Updated November 2013

The irony of the world's stance on Syria's use of chemical weapons is lost on most of us. In researching another posting on the subject of chemical weapons earlier this week, I stumbled on a very interesting bit of history that I would suspect that most of us are not aware of or have forgotten, a time in history that is particularly pertinent given that the United States and Europe are attempting to negotiate some sort of anti-nuclear agreement with Iran.  As usual, I'm using what I consider the highest quality sources for this posting; although it may appear that this comes from the "tin foil-hatted, conspiracy obsessed", in fact, the source for much of this posting is the CIA.  While I definitely don't believe that governments and their agencies are always truthful, in this case, I see no reason for them to prevaricate.

Let's open with a 1990 quote from Saddam Hussein:

"By God, spare us your evil.  Pick up your goods and leave.  We do not need an atomic bomb.  We have the dual chemical.  Let them take note of this.  We have the dual chemical.  It exists in Iraq."

As I posted here, Iraq has a great deal of experience with chemical weapons (CW) during the protracted Iran-Iraq war that lasted from September 1980 to August 1988.  I know it's hard to recall the reality of that decade but Iraq was considered to be a friend to the United States and as such, was the beneficiary of American technology and intelligence.  One of those benefits, granted by corporations from at least three NATO countries, was the implementation of a chemical weapons program.  

Fortunately, the CIA reveals the source of at least some these chemical weapons for us.  Let’s start with some background on Iraq’s CW program.

Iraq first became interested in the use of chemical weapons in the early 1960s when it perceived that it was under threat from both Israel and Iran.  The Iraqi Chemical Corps was established in 1964 and began to synthesize small volumes of CW agents in 19??.  According to Global Security, during the 1960s, Iraqi junior Army officers were trained in chemical warfare by both Russia and the United States during the 1960s.  It is these officers that were folded into the Chemical Corps.  Oddly, the more Senior officers in the Iraqi Army favoured a defensive CW program whereas the foreign-trained Junior officers favoured both a defensive and offensive approach to CW.  By 1974, the Al Hasan Ibn al-Haithem Research Foundation was founded and new laboratories were constructed near Baghdad.  Al Hasan was intimately supported by the Iraqi Intelligence Service and was founded by Ghassan Ibrahim a captain in the Chemical Corps.    The facility was closed and the organization was liquidated in 1978 because it failed to achieve its objectives as well as mismanagement and fraud.  By the end of 1979, the Chemical Corps was reorganized and began to produce CW agents under the guise of testing defensive equipment.

When the war with Iran began in 1980, the Iraqis suddenly had motivation to expand the development of their CW program.  This project, code-named Research Center 922 or Project 922 was initialized on June 8, 1981 with the objective of producing mustard gas, Tabin, Sarin and VX as well as white phosphorus munitions.  Project 922 began construction of a 100 square kilometer CW research and production centre near Samaara.  To maintain its anonymity, Project 922 was known to civilian Iraqis as a pesticide production company with a front company named the State Establishment for Pesticide Production (SEPP).  The facility quickly began production of CW agents, producing 85 tons of mustard agent from 1981 to 1982.  The facility produced 350 tons of mustard by 1985, growing to 900 tons in 1987.  Between 1984 and 1986, Iraq produced between 60 and 80 tons of Tabun annually.  By 1987 - 1988, Iraq produced up to 394 tons of Sarin annually.

Let's now look at who helped Iraq.  As you will see in the State Department cable below, the United States (and likely its allies) were well aware that Iraq was using chemical warfare by March of 1984 (and likely quite a bit earlier).

1.) Egypt - during its early years, Egyptian scientists provided consultation and technology that allowed rapid development and production of CW stocks, particularly during the Iran-Iraq war.  In 1983, Egypt modified the Grad 122mm Multiple Rocket Launch System to enable warheads to store chemical agents and exported these rockets to Iraq in 1984.

2.) Germany - West German businesses using East German designs supervised the creation of what was, at the time, the world's most modern and best-planned CW facility.  Construction activity was particularly heavy during 1982 - 1983 with Germany's Karl Kolb, a German supplier of scientific instrumentation and components particularly for developing nations, building five large research laboratories, an administrative building, eight large underground bunkers for the storage of chemical munitions and the first production buildings.  Karl Kolb described the production plants that it built as "general multi-purpose pilot plants" which provided both the company and the Iraqi government with plausible deniability since the buildings could and were used for both pesticide (civilian) and CW (military) development and production.

3.) Netherlands - two Dutch companies, Melchemie and KBS supplied Iraq with thousands of tons of chemicals that are considered to be the precursors to to production of CW including 1000 tons of thionylchloride, 100 tons of phosphor, 600 tons of sodium cyanide and 500 tons of thiodiglycol (TDG) between 1982 and 1985.  

Here's what Iraq's CW infrastructure looked like before 1991 and Desert Storm:

Unfortunately, in the early 1980s (and even today), the world was (and still is) the "wild west" when it comes to trading of components and chemicals that can be used to develop and produce chemical weapons.  Even Phillips Petroleum, owner of a small Belgian chemical plant, shipped 500 tons of thiodiglycol (TDG) to Iraq in 1983.  While TDG is a multipurpose chemical that can be used for agriculture, it can also be used to produce mustard gas.  To Phillips' credit, once they got word that Iraq might be using TDG to manufacture mustard, they refused a second order. 

Now, let's look at what happened in March 1984.  During that month, the United States refused to back a United Nations resolution condemning Iraq's use of chemical weapons even though by that time, there had already been at least three mustard attacks with more than 5000 casualties.  The U.S. preferred to back a resolution that condemned the use of chemical weapons without mentioning Iraq by name as shown in this State Department cable:

Note that U.S. Diplomat requests of Iraqi diplomat Kizam Hamdoon that the nation halt its purchasing of chemical weapons from U.S. suppliers,  "avoiding situations that would lead to difficult and possibly embarrassing situation. (sic)" and that while the U.S. government would be implementing licensing requirements on five chemical compounds for both Iran and Iraq, the U.S. "...does not want this issue to dominate our bilateral relationship nor to detract from our common interest to see the war brought to an early end." as shown here:

Now, let's look at the results of the use of chemicals by Iraq, keeping the above reticence in mind.  During the war, once again according to the CIA, Iran suffered more than 50,000 casualties including more than ten thousand casualties and thousands of fatalities from the use of chemical weapons.   This was an issue that was suddenly of importance to the United States as they prepared to invade Iraq during Gulf War 1.  In a memo dated February 20th, 1991, the CIA notes the following:

Here is a listing of the implementation of chemical weapons by Iraq during the war and the results:

Iraq ultilized almost 19,500 chemical bombs, over 54,000 chemical artillery shells and 27,000 short-range chemical rockets between 1983 and 1988, consuming 1800 tons of mustard gas, 140 tons of Tabun and 600 tons of Sarin, mainly in the last 18 months of the war.  I guess it's a good thing that there was no further embarrassment involved, isn't it.

While the world waits the military response to the Syrian chemical warfare issue, we can clearly see that the development of these weapons around the world can be laid at the feet of many nations.  We know that North Korea and Iran are connected to Syria's CW program, however, as we can see from the information that I have provided on Iraq's CW program, it is a very, very complicated web of suppliers from many nations that are ultimately responsible for the development and production of chemical weapons.  It's also interesting to see that, way back when, the United States was more concerned about being embarrassed by Iraq's purchase and use of chemical precursors from the U.S. than about their actual ongoing implementation.

Going back to the present stance of world, particularly the United States, on the issue of taking action against Syria; history really does repeat itself in one fashion or another.  The only difference from one act of irony to the next are the players.

I know that if I was Iran's leadership, I'd not forget how the nations currently negotiating the end of Iran's nuclear program stood by while thousands of Iranians were killed with chemical weapons.