As HLTH 2023 Convenes, Three Themes speak Volumes about Where U.S, Healthcare is Headed

In Las Vegas this week, 10,000 healthcare entrepreneurs, investors, purchasers and industry onlookers are gathered to celebrate the business of U.S. healthcare. It follows the inaugural Nashville Healthcare Sessions last month that drew a crowd to Music City touting “the premier healthcare conference set in the most relevant, exciting, and welcoming city in the south.“

Besides their locations and exceptional marketing, three notable themes are prominent that speak volumes about where this industry is:

1- The focus is systemness—integrated, connected, data-driven and scalable. Traditional divides that separate health and social services, hospitals and insurers, biotherapeutics and companion diagnostics are obsolete and access to private capital and swift execution vitals. And embedded in systemness is an expanded role of human resources that create workforces that are right-sized, diverse, AI-enabled and productive.
2-Technologies focused on end user value are gaining traction. Solutions that enable better, quicker, more accurate and affordable transactions with consumers are prominent. While traditional providers—hospitals, physicians, long-term care providers and public health programs– see HIT and AI investments as ways to make their work more efficient and satisfying, disruptors are focused on the untapped consumer market that’s dissatisfied with the status quo.
3-Access to smart capital is key. The venture capital and private equity markets in healthcare services are weathering corrections that have deflated returns and forced many to pullback or exit. The possibility of regulatory reforms involving greater transparency, carried interest restrictions and minimum hold periods means stronger funds with experienced operating partners and stable LP funding will be advantaged. In Vegas, they’ll be working the hallways to find tuck-ins for their platform bets and courting not-for-profit hospitals needing non-operating income to fund their growth and diversification efforts.

Those attending recognize the U.S. health industry faces unprecedented challenges:

• Growing employer activism against lack of price transparency and inexplicably high unit costs for hospital care, prescription drugs, insurer overhead and mal-effect of consolidation in each sector.
• Medical inflation that’s persistent but disproportionately absorbed by fewer and fewer employers and individuals who lack bargaining power.
• Value-based purchasing activities that have failed to achieve desired cost containment goals.
• Public dissatisfaction with the “system” and growing receptivity to alternatives.
• Growing hostility in media coverage about hospitals, especially large not-for-profit hospitals, deemed to be profitable and wasteful.
• Increased tension between providers (hospitals, medical groups) and insurers.
• Increased regulation in states and court rulings that change (or have the potential to alter) how care is defined, provided, funded and legally authorized.

HLTH and Session attendees recognize the uncertainties of the political, economic and global markets in which healthcare operates. Israel will be front of mind to all as the fast-paced HLTH proceedings continue this week. 

The root causes of the system’s poor performance are understood and considered: they’re daunting. But that does not impede the willingness of private investors to make bets presuming the future of the U.S. healthcare is not a repeat of its past.

Contrary to pop culture, what happens in Vegas this week will not stay in Vegas: that’s the point. The health system is not working well. While some HLTH and Sessions attendees are no doubt focused on incremental innovations to improve the performance of their legacy organizations, others are looking beyond. And, if industries akin to healthcare like financial services and higher education are instructive, the latter are better prepared to respond than the former.

Paul

PS: Nearly 50 years to the day after the Yom Kippur War in 1973, Israel was again taken by surprise by a sudden attack. Unlike the series of clashes with Palestinian forces in Gaza over the past few years, this appears to be a full-scale conflict mounted by Hamas and its allies including Iran. Thousands are dead, more are injured and the health systems in both will be overwhelmed by the need. Health systems matter!

And please take time to scan the items below that reflect the complexity and opportunities in our system.
Thanks for reading.

Quotable
Re: trust in hospitals: “As trust diminishes, political vulnerability grows, leaving space for other players with less-friendly agendas to enter, dig in and act. It’s happening right now. Consider this: A year ago, our research team asked adults across the country whether their healthcare system’s highest priority was serving patients or generating profits. Just over half chose profits (53%). Asked the same question two weeks ago, a startling two-thirds (65%) said profits come first. When asked how much they trust hospital and health system leaders when it comes to making decisions about healthcare, only 20% trusted healthcare leaders “a great deal” or “a lot.”
 Jarrard October 8, 2023 www.jarrardinc.com

Re: Dysfunction in House GOP impacts confidence in government:  “Kevin McCarthy’s stint as speaker of America’s House of Representatives ended the way it had begun: in utterly humiliating fashion…The coming weeks are likely to be chaotic, and the results of this chapter of congressional dysfunction will reverberate far beyond Capitol Hill…The chaos and intrigue will be as entertaining as any episode of “The West Wing”, a Washington-focused television drama. That will provide little comfort for Americans who want their government to stay open—or for Ukrainians who rely on American power and largesse to sustain their fight for survival.”
Kevin McCarthy’s sacking deepens the chaos in American government The Economist October 4, 2023https://www.economist.com/united-states/2023/10/04/kevin-mccarthys-sacking-deepens-the-chaos-in-american-government

Re: employer activism: “A bruising battle over hospital costs in Indiana previews a growing trend: Employers are sick of the ever-rising price of healthcare, and they are ready to do something about it.
The fight started with the simple goal of helping Indiana employers learn what they were spending on hospital services received by their workers. Gloria Sachdev, who is chief executive officer of the Employers’ Forum of Indiana, launched research that produced a stunning takeaway: They paid the most out of all the states studied…  The resulting law, passed by Republican lawmakers with bipartisan support, contained significant actions for tackling high healthcare costs.

Now the Indiana campaign—and Sachdev, who testified in Congress earlier this year—is getting attention well beyond the state. In places including Texas, Florida and Maine, employer groups are pushing for legislation blunting hospital costs, saying they are fed up with increasing rates and fees, as well as the failure of private efforts to contain them.

Most working-age people get their health coverage through their jobs, and employers either pay an insurer to provide the benefit or bear the cost of medical claims themselves. The cost now tops $22,000 a year for a family on average, according to the health-research nonprofit KFF.
Hospital care is the single biggest component, amounting to about $449 billion in 2021, the federal government estimates.”
Anna Wilde Mathews “These Employers Took on Healthcare Costs, and the Fight Got Nasty” Wall Street Journal Sept. 28, 2023 www.wsj.com

Re: employer purchasing: “In this new age of transparency we are shocked to find out that carriers have been self-dealing; we are shocked to find out about spread-pricing in pharmacy; shocked to find out that rates that should be posted are not; shocked to find out that cash-pay patients sometimes pay less than insured ones; shocked to find out that companies that have an obligation to remove gag clauses and attest to those removals are refusing to attest; shocked to find out that the number of mental and behavioral health providers in an employer’s network aren’t even close to matching the number of cardiologists or orthopods. And that’s on top of all the other things that shock us on a daily basis, from increasing maternal mortality rates to increasing patient safety failures…And the patsies in this real-life drama are the employers and their employees. Because they really believed that there was no gambling going on in this establishment. They believed that the TPAs/Carriers they selected to administer the health benefits of their employees had their best interests at heart. They believed that these organizations had their back, and were trying like heck to help them.” Francois de Brantes Signify Health October 5, 2023 www,signifyhealth.com

Re: usefulness of AI: “Many people have been thinking about the rest of the back office from scheduling to prior authorization. One of my favorite topics, which you could say is sort of front office but maybe not, is helping patients understand the content of messages, especially if those patients have limited English proficiency or might otherwise have challenges with the way the message has been written. Perhaps it was written by a doctor who loves acronyms, for example. I think that as the literature in this evolves over the next few years, we’re going to find that many of the back-office functions get tested before the front-office functions because there’s less at stake. There’s a lot more that we can learn and critique without it impacting a very stressed workforce.”
Kevin Johnson “Electronic Health Records Failed to Make Clinicians’ Lives Easier—Will AI Technology Succeed” JAMA October 4, 2023 JAMA. doi:10.1001/jama.2023.19138

Re: Medicare spending: “For decades, runaway Medicare spending was the story of the federal budget. Now, flat Medicare spending might be a bigger one. Something strange has been happening in this giant federal program. Instead of growing and growing, as it always had before, spending per Medicare beneficiary has nearly leveled off over more than a decade.

Medicare is growing more slowly than ever, but still more quickly than the rest of the federal budget. If the slowdown per beneficiary ends, it will strain the Medicare trust fund and drive up the federal debt — and may dominate the Washington policy conversation again. That means the uncertainty about the future has high stakes.”
Margot Sanger-Katz, Alicia Parlapiano,  Josh Katz “A Huge Threat to the U.S. Budget Has Receded. And No One Is Sure Why” New York Times Sep. 4, 2023 https://www.nytimes.com/interactive/2023/09/05/upshot/medicare-budget-threat-receded

Re:  Nobel Prize for MRNA research: “The Kariko-Weissman breakthrough has evolved as a remarkable foundation for new vaccines, for both infectious diseases for which we didn’t have a vaccine, and many non-infectious diseases, and as therapeutics. The multiple refinements in mRNA itself, no less how it is packaged, may ultimately lead the discovery in 2005 to be one of the most important platforms to emerge in this history of biotechnology, in good company with the 2020 Nobel Prize in Chemistry to Jennifer Doudna and Emmanuelle Charpentier for their groundbreaking discovery work on CRISPR genome editing. It’s noteworthy that none of the “tweaks” of mRNA have yet to enter large scale clinical trials, so we should consider what we have seen to date as the early days of mRNA. In many ways, the 2023 Nobel Prize in Physiology or Medicine may someday be viewed as a promissory note for the unprecedented expansion of mRNA’s utility to promote or preserve human health in the future. Let’s hope it won’t take another pandemic to add to its exceptional success story.”
Eric Topol “A Nobel Prize and the Future of Vaccines” Ground Truths October 6, 2023 https://erictopol.substack.com/p/a-nobel-prize-and-the-future-of-vaccines?

Re: declining life expectancy in US: “The United States is failing at a fundamental mission — keeping people alive. After decades of progress, life expectancy — long regarded as a singular benchmark of a nation’s success — peaked in 2014 at 78.9 years, then drifted downward even before the coronavirus pandemic. Among wealthy nations, the United States in recent decades went from the middle of the pack to being an outlier. And it continues to fall further and further behind.

While opioids and gun violence have rightly seized the public’s attention, stealing hundreds of thousands of lives, chronic diseases are the greatest threat, killing far more people between 35 and 64 every year, The Post’s analysis of mortality data found. Heart disease and cancer remained, even at the height of the pandemic, the leading causes of death for people 35 to 64. And many other conditions — private tragedies that unfold in tens of millions of U.S. households — have become more common, including diabetes and liver disease. These chronic ailments are the primary reason American life expectancy has been poor compared with other nations.”
“An epidemic of chronic illness is killing us too soon” Washington Post October 6, 2023 https://www.washingtonpost.com/health/interactive/2023/american-life-expectancy-dropping

Re: obesity medications savings: ”To date, the evidence suggests that the amount of potential savings on cardiac care and other health care would be less than the current net federal cost of anti-obesity medications (AOMs). That is partly because federal spending on health care for people with obesity who have lost a significant amount of weight has not fallen substantially, despite the health benefits they experienced. Thus, CBO expects that at their current prices, AOMs would cost the federal government more than it would save from reducing other health care spending—which would lead to an overall increase in the deficit over the next 10 years. That could change in later decades, depending on the future prices of AOMs and their longer-term effects on the use of other health care products and services. Most approvals of AOMs for treating obesity occurred within the past few years, so little is known about those longer-term effects.”
A Call for New Research in the Area of Obesity CBO October 5,2023 ttps://www.cbo.gov

Re: weight loss drugs: The development of GLP-1 agonist drugs to treat diabetes and, increasingly, support weight loss represents one of the most significant trends shaping the healthcare industry today. Given the prevalence of obesity in the US and worldwide and the documented link between obesity and other conditions—including cardiovascular disease, the leading cause of death globally—we believe the effects of this new drug class will extend far beyond the drugmakers themselves.
Healthcare Future Report: Weight Loss Drugs Pitchbook September 29, 2023 https://files.pitchbook.com/website/files/pdf/Q3_2023_Healthcare_Future_Report_Weight_Loss_Drugs.pdf

Re: Kaiser strike: “Nurses, pharmacists and other Kaiser Permanente employees have followed auto workers, Hollywood writers and other union members going on strike. But they are taking a decidedly different tack on when to end their walkout.

The healthcare strikers plan to be back to work on Saturday—whether they win new contracts or not.
The plans might seem to undercut the healthcare unions’ pursuit of higher wages and more staffing—large strikes in manufacturing, construction and retail typically run longer than three days—but union members and labor experts say there is a larger strategy at work: keeping patients safe and the public on their side.”
Melanie Evans “Healthcare Workers Throw Out UAW’s and Writers’ Strike Playbook” Wall Street Journal October 6,2023 https://www.wsj.com/articles/ Healthcare-Workers-Throw-Out-UAW’s-and-Writers’-Strike-Playbook

Re: physician payments: “The 2024 Physician Fee Schedule proposed regulation seeks to further extend specialized care management for “serious high-risk condition/illness/disease” by creating billing codes for Principal Illness Navigation. CMS would allow a billing practitioner to arrange for other personnel, including third-party external vendors, to provide these services if there is sufficient clinical integration among the care management provider, the billing practitioner, and the patient. CMS would also require that all of the “incident to” conditions of payment be met, and that the billing practitioner have an initiating visit. In other words, services can be billed if they are of a type commonly furnished in provider’s office or clinic and they are an integral, although incidental, part of the provider’s professional service. Billing would also be submitted by the primary care practitioner, not by the care management vendor.

We propose that CMS waive the initiating, face-to-face relationship requirement for the proposed and existing care management codes for partner organizations that have been designated by an ACO that accepts downside risk.”
Sean Cavanaugh  William H. Shrank  Farzad Mostashari  Delegation Of Chronic Care Management In The Medicare Shared Savings Program Health Affairs Forefront October 4, 2023 10.1377/forefront.20231002.907475 Authors are investors/leaders in Aledade and article supported by Arnold Ventures

Health spending
Commonwealth Study: spending on admin, drugs contribute to higher US spending relative to peers:  Commonwealth researchers analyzed components of excess U.S. health spending relative to 12 peer nations. Findings:

• The majority of “excess” U.S. health spending is associated with components likely reflected in higher U.S. prices, while utilization may explain a large portion of the remainder
• More than half of excess U.S. health spending was associated with factors likely reflected in higher prices, including more spending on: administrative costs of insurance (~15% of the excess), administrative costs borne by providers (~15%), prescription drugs (~10%), wages for physicians (~10%) and registered nurses (~5%), and medical machinery and equipment (less than 5%). Reductions in administrative burdens and drug costs could substantially reduce the difference between U.S. and peer nation health spending.

“We were able to find evidence to support more than half of the difference in per capita health spending between the United States and the average of 12 comparator OECD countries. The components we estimated are all associated with higher prices, rather than being utilization effects.”
High U.S. Health Care Spending: Where Is It All Going? Commonwealth Fund October 4, 2023 https://www.commonwealthfund.org/publications/issue-briefs/2023/oct/high-us-health-care-spending-where-is-it-all-going

Employers
HCCI Study: Self-insured employers pay higher prices: Health Care Cost Containment Institute (HCCI) researchers examined unadjusted price variation in self-funded plans. Findings: “we found that unadjusted prices were higher in self-insured plans for most of the services we studied, with the largest differences found for endoscopies (approximately 8% higher in self-insured plans), colonoscopies (approximately 7%), laboratory tests (approximately 5%), and moderate-severity emergency department visits (4%). When patient characteristics, plan type, and geography were adjusted for, differences were generally smaller but were consistent with these findings. Higher prices in self-insured plans suggest that there may be opportunities for employers to lower prices and for policy makers to act where employers have limited leverage to negotiate with providers.”
Sen et al “Health Care Service Price Comparison Suggests That Employers Lack Leverage to Negotiate Lower Prices” September 2023 https://doi.org/10.1377/hlthaff.2023.00257

Hospitals
Highlights: Kaufman Hall’s August Hospital Flash Report:

• Hospitals logged an 8% month-over-month jump in daily net operating revenue while total expense per adjusted discharge dropped by 5%.
• Median year-to-date operating margin index to 1.1%, reflecting a 2.9% median single-month index.
• Hospitals’ daily net operating revenue jumped 8% from July to August and 6% year over year, Outpatient settings lead the way with a 12% month-over-month gain and 10% month-over-month increase, though inpatient revenue was also up 4% both month over month and year over year.
• The revenue improvements came alongside a bump in volumes. Daily discharges and adjusted discharges were up 5% and 9%, respectively, compared to July, when hospitals had logged a pullback in patient activity.

Kaufman Hall August Flash Report www.kaufmanhall.com

Fitch: NFP hospitals finances: Median operating margins for nonprofit hospitals declined to 0.2% in fiscal year 2022 as labor costs and staffing shortages drive a “labordemic” expected to persist into 2024.
“Clinical and nonclinical staffing shortages are likely to persist for nonprofit hospitals through 2024, and longer for some markets. Hospital employees’ average hourly earnings growth hit 3.75%, which is down from a high of 8.4% since the pandemic began. From 2010 to 2019, the average employee earnings growth was 2.3% meaning wage growth hasn’t returned to pre-pandemic levels. And it may not return at all…Median operating and operating EBITDA margins declined to 0.2% and 5.8%, respectively, in the 2022 fiscal year as compared to the year prior…We expect weak margins to persist through 2023 and into 2024 due to an inelastic revenue model and higher labor costs due to still very tight labor conditions, even as operations broadly continue to gradually rebound…Controlling expenses, especially labor costs, will be critical for not-for-profit hospitals to return to stronger margins and alleviate credit pressure,”
Controlling Labor Costs Will be Key to NFP Hospital Margin Improvement Fitch Ratings October 2, 2023 www.fitchratings.com

Study: hospital emergency room preparedness for children: “Hundreds of children die or are left severely injured around the country each year after they are rushed to hospital emergency rooms that are poorly prepared to treat them. Only about 14% of emergency departments nationwide have been certified as ready to treat kids, or are children’s hospitals specializing in treating young patients, The Wall Street Journal found…

Yet most hospitals haven’t taken action, according to the Journal’s investigation of certification levels in all 50 states, reviews of medical records and interviews with doctors, health officials and researchers.  Parents in many places can’t make an informed decision about where to take a child in a medical emergency. More than 70% of emergency departments have completed a federally funded assessment gauging whether they are ready for kids, but results for individual hospitals are confidential. Meanwhile, 25 states don’t check E.R.s’ pediatric preparedness at all, and even some that do check don’t publish names of the hospitals that earned recognition for being prepared.”
Liz Essley Whyte, Melanie Evans “Children Are Dying in Ill-Prepared Emergency Rooms Across America” Wall Street Journal October 1,2023

Drug manufacturers
Drug companies create coalition to challenge antitrust guidelines: Last week, 31 drug manufacturers including Amgen, Merck, Gilead, AbbVie, Novartis AG and others launched the Partnership for the U.S. Life Science Ecosystem (PULSE), a coalition to raise awareness of the fundamental role of pro-innovation mergers and acquisitions (M&A) in advancing the next generation of treatments and cures for patients. PULSE argues the antitrust proposal would choke off a key source of innovation, since mergers and acquisitions are often the only way for biopharma startups to advance their treatments.
“AbbVie, Amgen Among Coalition Formed to Oppose New Merger Rules” Bloomberg Law October 4, 2023 AbbVie, Amgen Among Coalition Formed to Oppose New Merger Rules (bloomberglaw.com)

Health Insurers
Survey: member satisfaction: Member Satisfaction by Type of Coverage:

HealthEdge, Consumer Survey Satisfaction Insights Report 2023, August 2023 https://healthedge.com/resources/survey/consumer-survey-member-satisfaction-insights-report-2023

PBM lawsuit filed: In a court filing filed last Wednesday in Honolulu, the office of Hawaii Attorney General Anne Lopez, a Democrat, said that CVS Health’s (CVS.N) Caremark, Cigna Group’s (CI.N) Express Scripts and UnitedHealth Group’s (UNH.N) OptumRx violated state laws against unfair competition and deceptive business practices. The three companies account for about 80% of the pharmacy benefit manager (PBM) market. Suits against PBMs have previously been filed in CA, OH and KY.
Hawaii accuses top pharmacy benefit managers of illegally driving up prices Reuters October 5, 2023 https://www.reuters.com/legal/government/hawaii-accuses-top-pharmacy-benefit-managers-illegally-driving-up-prices-2023

Providers
Study: telehealth use: In July 2023, telehealth utilization fell nationally and in every US census region, according to FAIR Health’s Monthly Telehealth Regional Tracker. Highlights:

• At the national level, utilization decreased 5.6%, from 5.4 % of medical claim lines in June to 5.1% in July.
• Mental health conditions accounted for 74.5% of visits
• Median charge amount for 21-30 min visit with a physician: $215; median allowed: $105.07

Fair Health Monthly Telehealth Regional Tracker Fair Health October 3, 2023 https://s3.amazonaws.com/media2.fairhealth.org/infographic/telehealth/july-2023-midwest-telehealth.pdf

Regulatory updates:
CMMI: Last week, the Congressional Budget Office released its assessment of the Center for Medicare and Medicaid Innovation (CMMI)—the agency tasked in the Affordable Care Act with lowering Medicare spending through innovations in care delivery and payment. It has sponsored 49 pilot programs to “bend the cost curve” since 2011 with mixed success: between 2011 and 2020, direct spending in Medicare increased by $5.4 billion, or about 0.1% of the net spending, vs. its original projection of reduction of $2.8 billion. In response, the Congressional Budget Office (CBO) modified its 2021-2030 projection for CMMI from a $77.5B net spending reduction to a $1.3B increase, adding CMMI might generate annual savings in 2031 and noting that the government’s main “accountable care organization” program (aka Medicare Shared Savings Program) is not a CMMI model because it is a permanent part of Medicare. To date, MSSP savings have been significant for Medicare and profitable to ACO sponsors experienced in risk management, but participation by less-experienced and risk averse providers disappointing.

New DOJ safe harbor: Last Wednesday, the U.S. Department of Justice Companies announced a new safe harbor: Under the policy, the DOJ will not bring charges against an acquirer that voluntarily reports misconduct committed by a company it buys within six months of the deal closing, whether the illegal activity was identified before or after the purchase. Self-disclosing companies must then rectify the misconduct within a year of the deal’s completion, although the precise timelines are subject to prosecutors’ discretion.

BLS September Jobs report: The U.S. economy added 336,000 jobs vs. 173,000 expected with the unemployment holding steady at 3.8%. Increases were seen in leisure and hospitality, government, professional services and science; health care sector added 41,000 jobs last month, below its average monthly gain of the prior 12 month.