Mark Sanchez: This is now a regular part of warfare and here in West Michigan, we saw it hard last week with Stryker Corporation down in Kalamazoo. This is the global medical device, orthopedic implant, healthcare technology, equipment company, 56,000 employees worldwide. And Wednesday last week, it was paralyzed. It was a victim of a cyberattack believed to be by this group out of Iran that targeted Stryker. It really hit the company hard. It's posting updates each day on its website and how it's recovering. How it's investigating. What exactly happened. How it happened, and they're sharing customers and clients that their connected equipment was not affected and it's recovering.
But one of the stories we did out of this situation last week was talking to some folks, and particularly a professor over at Eastern Michigan University in Ypsilanti that's really an expert in cyber security and information security. And he said, here's his quote, I almost say cyber is the new Cold War. We're in a state of conflict with the nation, and that is now considered to be a legitimate attack tool.
Remember 20 plus years ago, we had folks saying the next wars or future wars are going to be fought in cyberspace. And here it is. This was an organization believed to be, at least believed to be behind the attack. They claimed responsibility out of Iran that attacked a large American corporation and basically shut it down.
So, this is something that's just a reminder for all businesses, as well as all individuals, consumers, you know, to always protect yourself. And for companies big and small. And there's always this thought that small businesses you're not worth attacking. Well, yeah, you are. Especially if it's a ransomware attack where then you get your data encrypted and you need to pay to get it released if you can't get it fixed. But also, large corporations are targeted too now. Follow the basics. Constant training, constant updating your patches, your security patches that come down from your software companies. Let employees know if you don't recognize that link, don't click on it in the email. And there's just a lot of things to do to protect yourself, but this is a situation that really reaffirms. You need to be vigilant at all times because there are bad actors out there that are looking to get into your system and cause you a lot of problems.
Patrick Center: For major companies like Stryker, this disrupts supply chain. They're also a supplier of medical hardware and products. It's not just the company being attacked. It impacts the periphery.
Mark Sanchez: Yeah, and the tentacles go deep. We checked in with number of the health systems and hospitals around the state last week and said not seeing any impact at that point in time. But yeah, there's that supply chain there. You're providing that equipment, those supplies for surgical procedures. So basically, bottom line wasn't as of late last week, not any impact there yet. And the folks weren't anticipating, although they were clearly paying close attention to the situation.
And this is an issue we've reported on over the years where you've got an OEM manufacturer, or in this case a very large manufacturer. When they contract with the supplier, they're doing that due diligence and those audits down the supply chain of how well is your IT system protected? What's your response? What's your plan? They're doing that due diligence on how well is all this data protected because if a bad actor gets into your system, then they can get into our system. It's a big issue for all businesses of all sizes out there these days is protecting data, protecting your systems, and then having that plan in place and how you respond if you do get attacked and you are victimized by an attack.
Patrick Center: We're talking with Crain's Grand Rapids Business staff writer, Mark Sanchez. We are less than two months away from Acrisure Amphitheater opening its doors for its first performance. And you're beginning to see downtown businesses prepped for this, taking advantage of that foot traffic.
Mark Sanchez: Sure, I mean you're talking a 12,000 seat amphitheater that's going to open May 15th. Lionel Richie is the opening act.
You know, we've seen so many times where stadiums, arenas, venues are built in cities, especially core cities. We saw this with Van Andel Arena 30 years ago and that generated a lot of spin-out peripheral investment in that neighborhood on the south side of downtown.
Now there's anticipation that the amphitheater could create more investment. So, this is a story my coworker Kate Carlson did the other day about that Heartside downtown district and they're anticipating that influx of foot traffic and that's going to be a welcome boon for business. So how are they positioning themselves? You've got an event there on a weekday or Saturday evening, Friday evening, you've got thousands of people that are coming to that venue. They're going to be in the neighborhood before the event. They're going to be in the neighborhood after the event. How do you take advantage of that? So, you're seeing the businesses and the organizations down in those neighborhoods beginning to just think out and prepare for this influx of visitors. They're going to go to the Acrisure Amphitheater and how to leverage that, making sure they have a good night out, but also this is business.
Just as an example, we see Studio C, that's the parent company for Celebration Cinema in Studio Park there on the south side of downtown. They're targeting that pre-concert crowd at their open-air piazza. That's just three blocks away from the amphitheater. You know, the piazza has manicured public spaces in the middle of Studio Park that's surrounded by the cinema, the storefronts, restaurants, and they're anticipating this.
You're also seeing some of those residential complexes beginning to use this. Hey, we're nearby this amphitheater, and that's a selling point for marketing some of those apartments and condos that we've seen go up on the south side of downtown over the years.
There's anticipated significant economic impact from this. The amphitheater's expected to generate an average of almost $27 million in new economic spinoff across Kent County annually. That came from a research study commissioned by Grand Action 2.0 that's behind the project. So again, the folks in the neighborhood are getting ready for the opening come May and kind of that benefit to their business that they expect to come.
Patrick Center: So, from making money to some health insurers losing money. Two weeks ago, we talked about Blue Cross having its issues, and now you're reporting Priority Health HMO is also losing money. It seems to be the surging cost of pharmaceuticals.
Mark Sanchez: Yeah, not only the cost of the prescription drugs and specialty drugs, the GLP-1s, but also rising higher utilization rates. We're an aging population. We use more care.
So, first the numbers. Overall, Priority Health made money last year, about a $35 million operating income. That's on $8.1 billion in revenue. I'll let everybody else do the math, but that is a small operating margin. But it's a key core product, the HMO, that covers a whole bunch of folks around the state, mostly small businesses, the HMO for Priority Health had an underwriting loss last year. That's basically paid out more in medical claims than it took in in premium revenue. So that was a loss there, and how do you make that up? It's all made up in rates.
So, the question goes out, how is this underwriting loss for the HMO that has more than 700,000 members, how may that affect rates? We won't know for a couple of months. Those rate plans for next year get filed in May with a small group market. That's the market of 50 employees and less.
Bottom line, these high costs, the drug costs, there's prescription drugs, the specialty pharmaceuticals, and higher utilization rates, more people seeking more care, that's affecting the health insurers operating performance and ultimately that affects the rates that all employers and people pay for their health coverage.
One interesting aspect that we talked about when I talked to the CFO there the other day, Celeste McIntyre, is they're seeing something interesting in their paying their medical claims, which is more cancer cases, serious illnesses that are more acute when they're diagnosed. Remember three, four years ago, or longer 2021, 2022, we're hearing a lot from the health systems about after the shutdowns, people were delaying care. They weren't going to the doctor because of COVID and their concerns. So, they were maybe deferring care. They weren't going in for their colonoscopy. They weren't going in to have their mammography. They weren't going in for these health screenings. So here we are a few, three, four, five years later, people are showing up with conditions that are worse. That they didn't get detected earlier. That tumor is a little more advanced, that's a higher acuity case, that means more costs.
And also, part of what's driving these claims higher is so much more today than years ago is treatable through pharmaceuticals. Instead of a procedure, instead of X, Y, Z, we can treat this condition with a medication. So that's contributing to these rising pharmaceutical costs because some of these drugs, they do great things, but they're very expensive.
So bottom line, employers these high increases in your insurance premiums the last few years we'll find out in a couple of months on whether that's going to continue into next year, and chances are they probably will.
Patrick Center: Crain's Grand Rapids Business staff writer Mark Sanchez thank you so much.
Mark Sanchez: Thank you, Patrick.