2019 is ending with a bang. While Impeachment and partisan bickering has dominated the news, the year will also be remembered for its steady economic growth, full employment (3.5%), tariffs, sanctions and candidate posturing leading up to Campaign 2020 just to name a few. Collectively, they’re the backdrop for the healthcare industry which is now 17.9% of our GDP and the nation’s biggest employer (17 million).
In healthcare, 2019 was frenetic. Medicare for All, Medicaid work requirements, alternative payment models, opioid addiction, retail health and price transparency were prominent topics. And social determinants took center stage as correlations between food insecurity, housing and transportation inequities and health status were recognized by policymakers, providers and payers.
Also, last week, the Appeals Court ruled in Texas v. Azar sided with Judge O-Conner in a decision that’s likely to put the fate of Affordable Care Act in the Supreme Court (again). Congress passed a $1.4 trillion spending bill that funds the federal government through fiscal year 2020 (September 2020). It included repeals of three Affordable Care Act (ACA) taxes (the Cadillac Tax, a 40% excise tax on certain high-cost employer-sponsored insurance plans and 2.3%, medical device tax) and raised the smoking age to 21. HHS announced support for a proposal to allow states to import drugs from Canada and debate about drug prices and surprise medical bills intensified.
Against this backdrop, healthcare will be front and center in 2020. Six themes will get heightened attention by industry leaders and their boards:
Affordability
40% of the U.S. population lives paycheck to check (Harris). Non-housing related debt now consumes 26% of the average household’s income—the highest on record. Per the U.S. Bureau of Labor Statistics, between 1990 and 2018, median earnings increased 117% but healthcare costs were significantly higher: physician services increased 130%, prescription drugs up 182% and hospital care was up 189%. Per Pew Research Center, 43% of U.S. households can’t afford basics like housing, food and healthcare (United Way Project) and the U.S. poverty rate, at 17.1%, is increasing.
Healthcare affordability is a defining issue in healthcare. Each hospital, physician, insurer, drug and device manufacturer are susceptible to public criticism about prices, affordability and business practices that appear to put profits and business interests ahead of all else.
Health IT
Where’s the beef? 10 years and $36 billion later, the replacement of paper charts with electronic records remains a work in progress. Per HHS, 86% of office-based physicians and 96% of non-federal cute hospitals have adopted electronic health records, but 21% of patients discovered an error in the record (Kaiser Family Foundation) and physician burnout is directly related to the usefulness of the 700 federally certified EHE systems. Bigger vendors are dominating market segments: Epic, Allscripts and eClinical Works in medical offices and Epic, Cerner and Meditech in hospitals. And optimism about FHIR (an open API allowing data exchange), voice activation, mobile platforms and digital connectivity remains strong. But interoperability remains aspirational and investments in HIT are increasingly unaffordable to many providers.
The promise of meaningful use is within sight for fewer organizations—large, regional systems of health with operating margins and scale adequate to sustainability and growth. HIT capabilities, particularly in homes, workplaces, personal communication and digital settings, will be a major differentiator for provider organizations competitiveness.
Private Equity Flexing its Muscles
Annual returns for private equity investors over the past 15 years have been almost double the overall S&P 500 (13.69% vs. 8.57%). Buoyed by favorable tax treatment (carried interest provision) and growing availability of funds available from their investors, private equity has made big bets in healthcare and their results to date have been good outperforming the overall market (providers +227%, distributors +182%, payors +665%, pharma +395%. Only PE investments in the acute sector have trailed the overall market in the same period at +54%.
The role private equity plays in healthcare is significant and increasing. Every organization should assess its competitive environment, needs and vulnerabilities recognizing the role PE-backed ventures might play as partners or investors.
Clinical Innovation
Effective, expensive, uneven and inaccessible: When Fleming discovered penicillin in 1928 and Salk found the polio vaccine in 1953, the world took notice. But the pace of clinical innovation today has surpassed the ability of clinicians to stay abreast: every day, more than 80 randomized control trials are published in peer reviewed journals. Though advances in cancer, heart disease, infectious diseases and others are notable, progress in mental health and innovations in preventive health have lagged. And a menacing problem is that many of our most promising clinical innovations are inaccessible due to costs. For example, Novartis’ Zolgensma is a novel gene therapy for spinal muscular dystrophy. Its price tag is $2.1 million making it beyond the reach for patients unless otherwise funded.
Clinical innovation in the U.S. health system is a major attribute. But cost is an issue. Leaders in U.S. academic medicine, drug, device and policymaking should explore alternatives to funding to accelerate adoption and use globally. The status quo is not working.
Healthcare in the Land of Giants
The U.S. healthcare landscape is no longer defined by community-based organizations nor is healthcare local for many consumers. According to the Petris Centre at the University of California, Berkeley, 90% of America’s hospital markets are highly concentrated today and half of America’s delivery system is controlled by multi-market operators. The 7 biggest U.S. health insurers operate across multiple states operating medical practices, retail services and a range of wellness and ancillary services with market capitalization of $549 billion. Walmart, CVS, Best Buy and Walgreens are becoming provider organizations. Facebook, Amazon, Apple and Google are making big plays in healthcare and they’re even bigger: Facebook’s market value is $558 billion, Amazon’s $886 billion, Apple is $1.26 trillion, and Google is $931 billion.
Healthcare’s no longer a local enterprise. Like many industries, the strength and sustainability of an organization’s balance sheet is key. Scale matters.
Campaign 2020 Punctuates Public Attention to Healthcare
Healthcare is the defining issue for a growing number of voters in Campaign 2020 for the White House. At year end, 30.7 million lack health insurance. Polls show the majority of voters think healthcare is unaffordable, complicated, profit oriented and inaccessible if uninsured.
In March 23, 2010 when the Affordable Care Act became law, unemployment was 10%; it’s 3.5% today. The U.S. GDP was $15B; it’s $18B today. Healthcare spending was 17.3% of GDP to 17.9% today. Then, as now, the political debate about the future of the health system boiled down to two views: healthcare is a fundamental right that should be accessible to all Americans regardless of their circumstances, or it’s a choice reserved for individuals who elect to use products and services from private and public sources. That debate continues today.
Healthcare reform is again on the radar for voters. An honest and open national discussion about the future of the health system is needed. Regretfully, that discussion is buried in partisanship for now.
2020 will be a pivotal year in U.S. healthcare. These six themes will be prominent. Stay tuned.
Paul
PS: The Keckley Report will not be published December 30. Happy holidays all!!!
Thanks for sharing, great insights.