In 63 days, Americans will know the composition of the 119th Congress and the new occupants of the White House and 11 Governor’s mansions. We’ll learn results of referenda in 10 states about abortion rights (AZ, CO, FL, MD, MO, MT, NE, NV, NY, SD) and see how insurance coverage for infertility (IVF therapy) fares as Californians vote on SB 729. But what we will not learn is the future of the U.S. health system at a critical time of uncertainty.
In 6 years, every baby boomer will be 65 years of age or older. In the next 20 years, the senior population will be 22% of the population–up from 18% today. That’s over 83 million who’ll hit the health system vis a vis Medicare while it is still digesting the tsunami of obesity, a scarcity of workers and unprecedented discontent:
- The majority of voters is dissatisfied with the status quo. 69% think the system is fundamentally flawed and in need of major change vs. 7% who think otherwise. 60% believe it puts its profits above patient care vs. 13% who disagree.
- Employers are fed up: Facing projected cost increases of 9% for employee coverage in 2025, they now reject industry claims of austerity when earnings reports and executive compensation indicate otherwise. They’re poised to push back harder than ever.
- Congress is increasingly antagonistic: A bipartisan coalition in Congress is pushing populist reforms unwelcome by many industry insiders i.e. price transparency for hospitals, price controls for prescription drugs, limits on private equity ownership, constraint on hospital, insurer and physician consolidation, restrictions on tax exemptions of NFP hospitals, site neutral payment policies and many more.
Fanning these flames, media characterizations of targeted healthcare companies as price gouging villains led by highly-paid CEOs is mounting: last week, it was Acadia Health’s turn courtesy of the New York Times’ investigators.
Navigating uncertainty is tough for industries like healthcare where demand s growing, technologies are disrupting how and where services are provided and by whom, and pricing and affordability are hot button issues. And it’s too big to hide: at $5.049 trillion, it represents 17.6% of the U.S. GDP today increasing to 19.7% by 2032. Growing concern about national debt puts healthcare in the crosshairs of policymaker attention:
Per the Committee for a Responsible Federal Budget: “In the latest Congressional Budget Office (CBO) baseline, nominal spending is projected to grow from $6.8 trillion in Fiscal Year (FY) 2024 to $10.3 trillion in 2034. About 87% of this increase is due to three parts of the federal budget: Social Security, federal health care programs, and interest payments on the debt.”
In response, Boards in many healthcare organizations are hearing about the imperative for “transformational change” to embrace artificial intelligence, whole person health, digitization and more. They’re also learning about ways to cut their operating costs and squeeze out operating margins. Bold, long-term strategy is talked about, but most default to less risky, short-term strategies compatible with current operating plans and their leaders’ compensation packages. Thus, “transformational change” takes a back seat to survival or pragmatism for most.
For Boards of U.S. healthcare organizations, the imperative for transformational change is urgent: the future of the U.S. system is not a repeat of its past. But most Boards fail to analyze the future and construct future-state scenarios systematically. Lessons from other industries are instructive.
- Transformational change in mission critical industries occurs over a span of 20-25 years. It starts with discontent with the status quo, then technologies and data that affirm plausible alternatives and private capital that fund scalable alternatives. It’s not overnight.
- Transformational change is not paralyzed by regulatory hurdles. Transformers seek forgiveness, not permission while working to change the regulatory landscape. Advocacy is a critical function in transformer organizations.
- Transformation is welcomed by consumers. Recognition of improved value by end-users—individual consumers—is what institutionalizes transformational success. Transformed industries define success in terms of the specific, transparent and understandable results of their work.
Per McKinsey, only one in 8 organizations is successful in fully implementing transformational change completely but the reward is significant: transformers outperform their competition three-to-one on measures of growth and effectiveness.
I am heading to Colorado Springs this weekend for the Governance Institute. There, I will offer Board leaders four basic questions.
- Is the future of the U.S. health system a repeat of the past or something else?
- How will its structure, roles and responsibilities change?
- How will affordability, quality, innovation and value be defined and validated?
- How will it be funded?
Answers to these require thoughtful discussion. They require independent judgement. They require insight from organizations outside healthcare whose experiences are instructive. They require fresh thinking.
Until and unless healthcare leaders recognize the imperative for transformational change, the system will calcify its victim-mindset and each sector will fend for itself with diminishing results. No sector—hospitals, insurers, drug companies, physicians—has all the answers and every sector faces enormous headwinds. Perhaps it’s time for a cross-sector coalition to step up with transformational change as the goal and the public’s well-being the moral compass.
Paul
PS: Last week, I caught up with Drs. Steve and Pat Gabbe in Columbus, Ohio. Having served alongside them at Vanderbilt and now as an observer of their work at Ohio State, I am reminded of the goodness and integrity of those in healthcare who devote their lives to meaningful, worthwhile work. Steve “burns with a clear blue flame” as a clinician, mentor and educator. Pat is the curator of a program, Moms2B, that seeks to alleviate Black-White disparities in infant mortality and maternal child health in Ohio. They’re great people who see purpose in their calling; they’re what make this industry worth fixing!
Resources:
- Keckley Poll: The Public is Fed Up with the Health System…so what else is New? – Paul Keckley
- Are Employers Ready to Move from the Back Bench in U.S. Healthcare? – Paul Keckley
- Interest, Social Security, and Health Responsible for Nearly 90% of Spending Growth-2024-08-20 (crfb.org)
- The future of health care | Deloitte Insights
- Winning with transformational change | McKinsey
- The Top Five Trends That Are Impacting Healthcare Right Now (forbes.com)
- 2024 Outlook: The Future of the Healthcare Industry | West Monroe
- Axios Future of Health Care Into the Hospital Margin Rabbit Hole August 30, 2024 Caitlin Owens
- Prior authorization targeted by more states as Congress stalls | Modern Healthcare
Sections in today’s report:
- Quotables
- Consumers
- Hospitals
- Insurers
- Polling
- Prescription Drugs
- Public Health
- Workforce
Quotables
Re: transformational change in organizations: “With transformations, long-term impact is rarer than one may think. While 56% of respondents say their organizations have achieved most or all of their transformation goals,3 only 12% report that they have sustained these goals for more than three years. Significant value is lost during the executing and sustaining phases. Respondents say that on average, 42% of the potential financial benefit from their organizations’ transformations is lost during the latter of four stages of a large-scale change effort… Top-performing organizations are more likely than others to commit themselves to three implementation practices: maintaining implementation rigor in the later phases of the program; focusing on “people” goals, including employee experience and talent management; and devoting appropriate resources to every stage of the effort. In fact, those organizations that commit to all three areas are 3.4 times more likely than others to achieve and sustain their performance gains for more than three years.”
What to expect in US healthcare in 2024 and beyond | McKinsey
Re: consumerism in healthcare: “The portion of healthcare spend covered directly by consumers has shot up in the last several years—as of 2022, total out-of-pocket healthcare expenditures reached $471 billion. As such, consumers are effectively a new class of payor. And a number of opportunities exist to build solutions for those consumers (aka these new “micro payors”) to fund, navigate, and manage their healthcare purchases…
As insurance-covered healthcare costs continue to balloon to unsustainable levels, we see consumer-driven purchasing becoming a more widely utilized release valve that holds the promise of creating more free market dynamics and commensurate price competition in healthcare. While consumer-directed spend is still a relatively small portion of overall healthcare spend, the trendline indicates that this phenomenon of consumers behaving like a new class of payor could potentially become one of the major drivers of how the dollars flow through our healthcare system.”
Consumers as a New Class of Payor | Andreessen Horowitz (a16z.com)
Re: Chevron doctrine: “In Loper Bright, the Supreme Court overturned the 1984 landmark decision in Chevron U.S.A. v. Natural Resources Defense Council. The 40-year-old precedent known as the “Chevron deference,” required courts to defer to the interpretation of a statute given by the relevant executive branch agency.
For the healthcare community, Loper Bright offers a clear lesson: The healthcare industry’s advocacy and lobbying work must equip Congress with clear and unambiguous language. When proposing policy solutions to protect and strengthen America’s healthcare system and support patients, clarity is paramount….
Following Loper Bright, look for judges to more actively disregard executive agency interpretations, reinforcing their role in interpreting the law. This underscores the need for the healthcare community to offer clear and direct guidance to lawmakers on our most critical priorities. As healthcare leaders, we have a chance to engage with lawmakers and deepen their understanding of our industry’s opportunities and challenges. This is our moment to increase our influence on policymaking, driving meaningful change beyond the standard rule-making process.
Chevron decision means healthcare lobbying must focus on clarity | Modern Healthcare
Re: PE Investments in healthcare: “Exit data suggests that PE healthcare investments made in the early 2010s outperformed investments made in other sectors; deals done in the late 2010s saw a waning performance advantage; and healthcare investments made since 2020 have underperformed other sectors. We posit that this is due to increased competition resulting in elevated pricing and complexity in healthcare deals over time. In response to these challenges, many healthcare specialist firms have made investments to become more sophisticated operators and thematic investors…. PE and VC’s fortunes are starting to diverge materially. PE healthcare specialists are outraising the broader asset class, with bigger fundraises and more frequent above target closes. Meanwhile, VC healthcare and life sciences fundraising declined as a proportion of overall VC fundraising. Moreover, as PE healthcare investing has become more competitive and complex in recent years, firms are becoming more operationally and thematically sophisticated.”
H1_2024_Healthcare_Funds_Report_Preview.pdf (pitchbook.com)
Re: Medicare Advantage and MedPac : “The people at MedPac who are trying so hard to reduce the benefit levels for Medicare Advantage members and who do shamelessly inaccurate, distorted, and clearly intentionally fake news pieces on the cost of Medicare Advantage plans are trying to undermine and weaken the Special Needs Plan program in order to somehow create a level playing field with higher income patients for Medicare for the patients who get the most benefits from those programs.
That’s a very bad practice, and protecting those high-income people is a very wrong functional priority for MedPac to have. But they have it year after year in uncaring, insensitive, and cold ways relative to those patients and they seem impervious to data and information from all of the plans about those patients and that care, and their need for those benefits and services in their lives.
We need MedPac to clean up their act relative to their lowest income people, and we need them to start telling the truth about the actual relative cost of Medicare Advantage. And we very much need them to understand how much the lowest income members need those benefits.”
Fake News from MedPac on Medicare Advantage Needs to Be Corrected, Part 2 – The Health Care Blog George Halvorson is Chair and CEO of the Institute for InterGroup Understanding and was CEO of Kaiser Permanente from 2002-14
Re: retracted cancer research: “A flawed study attracted grants, investments and other researchers who based new work on the faulty findings
“Four years ago, a team of researchers led by a heavyweight in the field of microbiology made a stunning claim: Cancers have unique microbial signatures that could one day allow tumors to be diagnosed with a blood test. The discovery captured the attention of the scientific community, as well as investors.
A prestigious journal published the research. More than 600 papers cited the study. At least a dozen groups based new work on its data. And the microbiologists behind the claim launched a startup to capitalize on their findings.
Since then, the work has suffered multiple setbacks. The paper was retracted in June following criticisms by other scientists who questioned the methodology and said the findings are likely invalid. Support for the startup has dried up. And published research that relied on the study’s data might have to be corrected or retracted. The events illustrate the far-reaching ripple effect of flawed science. “
The Far-Reaching Ripple Effects of a Discredited Cancer Study – WSJ
Re: competition in healthcare: “If we sincerely want to contain health care prices, we should focus on promoting competition — the only time-tested way to deliver optimal outcomes for consumers. To win the market, any player must outperform competitors by pleasing consumers, rather than lobbying the regulatory process for government-granted protections. Free market competition leaves little room for price gouging — the “gougers” will price themselves out of the market. It also does not allow for shortages, as high demand drives up prices, which stimulates supply, improves access, and ultimately stabilizes prices.
What is blocking competition and compromising patient well-being? Government regulation, often backed by policymakers reaping political gain and special interest groups seeking government-granted monopolies… we must acknowledge that health care price regulation harms societal welfare because decisions made at a single point in time by a small group of individuals and imposed by force are no match for the dynamic collective wisdom of all market participants acting freely. Choose the democratic way. “
Ge Bai is a professor of accounting at the Johns Hopkins University Carey Business School The conundrum of health care price regulation | STAT (statnews.com)
Consumers
Study: Understanding medical bills, addressing questions: In this cross-sectional survey of 1233 US adults conducted August 14 and October 14, 2023, 1-in-5 reported receiving a medical bill they disagree with or cannot afford; 61% of them reached out to the billing office to address their concern; less educated respondents, those with lower financial literacy, and the uninsured were less likely to reach out to a billing office. Most respondents who reached out reported financial relief, bill corrections, or better understanding of the bill.
“Leading bill sources were physician offices (66 [34.6%]), emergency room or urgent care (22 [19.9%]), and hospitals (31 [15.3%]), and 136 respondents (61.5%) contacted the billing office to address their concern. A more extroverted and less agreeable personality increased likelihood of reaching out. Respondents without a college degree, lower financial literacy, and the uninsured were less likely to contact a billing office. Among those who did not reach out, 55 (86.1%) reported that they did not think it would make a difference. Of those who reached out, 37 (25.7%) achieved bill corrections, better understanding (16 [18.2%]), payment plans (18 [15.5%]), price drop (17 [15.2%]), financial assistance (10 [8.1%]), and/or bill cancellation (6 [7.3%]), while 32 (21.8%) said that the issue was unresolved and 23.8% reported no change. These outcomes aligned well with respondents’ billing concerns with financial relief for 75.8% of respondents reaching out about an unaffordable bill, bill corrections for 73.7% of those who thought there was mistake, and a price drop for 61.8% of those who negotiated…
Differences in self-advocacy may be exacerbating socioeconomic inequalities in medical debt burden, as those with less education, lower financial literacy, and the uninsured were less likely to self-advocate. Policies that streamline the administrative burden or shift it from patients to the billing clinician may counter these disparities.”
Hospitals
Strata’ July 2024 Hospital Financial Report: “Many U.S. healthcare organizations had a promising start to the third quarter with gains across revenues, margins, and patient volumes, but larger organizations saw margin declines…
- Median operating margins for U.S. health systems decreased to 2.1% in July while operating margins for U.S. hospitals rose to 6.5% to start the third quarter.
- Higher patient demand contributed to hospital operating margin gains as outpatient visits jumped 13.2% and inpatient admissions rose 8.2% year-over-year.
- Hospitals saw double-digit growth in non-labor expenses from July 2023 to July 2024, including a 17.3% increase in drugs expense and a 16.4% rise in supply expense following decreases in both metrics the month before.
- Physician expenses continued to climb, rising to nearly $1.1 million for July annualized, up 17.5% compared to two years ago in 2022. “
- Hospital KPIs for last 12 months (July ’24 vs. July ’23): Operating margin: +4.1%, total expense +8.2%, total non-labor expense +10.8%, outpatient revenue +15.9%, inpatient admissions +8.2%, observation visits +0.9%, emergency visits +0.4%, outpatient visits +13.2%.
- Physician KPIs for last 12 months: investment +18.2%, total direct expense +17.5%, productivity +16.9%, physician revenue +16.6%, support staffing -5.8%
Monthly Healthcare Industry Financial Benchmarks – Strata Decision Technology
NY Times Investigation: Acadia healthcare: NYT interviewed Acadia staff, patients and visited several facilities in its report: “Acadia Healthcare is one of America’s largest chains of psychiatric hospitals. Since the pandemic exacerbated a national mental health crisis, the company’s revenue has soared. Its stock price has more than doubled.
But a New York Times investigation found that some of that success was built on a disturbing practice: Acadia has lured patients into its facilities and held them against their will, even when detaining them was not medically necessary.
In at least 12 of the 19 states where Acadia operates psychiatric hospitals, dozens of patients, employees and police officers have alerted the authorities that the company was detaining people in ways that violated the law…Acadia is at the forefront of a shift in how Americans receive mental health care.
Psychiatric hospitals were once run by the government or nonprofit groups. But both have been retreating from psychiatric care. Today, for-profit companies are playing a bigger role, lured by the Affordable Care Act’s requirement that insurers cover mental health.
Acadia operates more than 50 psychiatric hospitals nationwide, and the bulk of its revenue comes from government insurance programs. More than 20 nonprofit health systems, including Henry Ford in Michigan and Geisinger in Pennsylvania, have teamed up with Acadia to open facilities.
The success has attracted notice on Wall Street. With its stock price rising, Acadia is valued at about $7 billion. Its chief executive, Christopher H. Hunter, was paid more than $7 million last year.”
How a Leading Chain of Psychiatric Hospitals Traps Patients (msn.com)
Polling
WSJ on Pursuit of the American Dream: “The American Dream Feels Out of Reach for Most. A Wall Street Journal poll shows people want a home, a family and a comfortable retirement, but say those goals are tough to achieve even with hard work Americans overwhelmingly desire all the traditional trappings of the American dream—owning a home, having a family, and looking forward to a comfortable retirement. But very few believe they can easily achieve it. A July Wall Street Journal/NORC poll of 1,502 U.S. adults shows a stark gap between people’s wishes and their expectations. The trend was consistent across gender and party lines, but held more true for younger generations, who have been priced out of homeownership and saddled with high interest rates and student debt.
While 89% of respondents said owning a home is either essential or important to their vision of the future, only 10% said homeownership is easy or somewhat easy to achieve. Financial security and a comfortable retirement were similarly labeled as essential or important by 96% and 95% of people, respectively, but rated as easy or somewhat easy to pull off by only 9% and 8%. Economic mobility has declined in recent decades on the whole, economists say…
In the WSJ/NORC poll, 62% of people said marriage was either essential or important to their vision of the American dream, but only 47% of people think it is easily attainable. AEI Survey of Consumer Finances: In 1989, the typical net worth of the wealthiest 10% of households was just under 15 times the overall median net worth for all Americans, compared with almost 20 times that number in 2022. Though median wealth is more than twice as high as it was in 1989 even after adjusting for inflation. The economy is working well for some people, including investors and many who bought homes when interest rates were low—creating a divide between higher-income Americans and most everyone else.
The American Dream Feels Out of Reach for Most – WSJ
Prescription Drugs
FDA Project Optimus for Cancer Drug Dosing: “The Food and Drug Administration’s Project Optimus requires companies to re-examine how they set doses of cancer treatments. For decades drugmakers have taken a more-is-more model when dosing cancer drugs in clinical trials. U.S. regulators want them to reconsider that approach. Companies with cancer drugs in clinical trials must strike a balance between doses high enough to thwart tumors, but low enough to avoid intolerable side effects….Project Optimus launched that same year, with a goal of pinpointing optimal doses before new cancer drugs reach the market. The FDA issued a draft guidance for industry on how to comply with the program in January 2023 and published a final guidance on Aug. 9. Because Project Optimus is still relatively new it will take a while for its full impact to be known. But it will likely add six to 12 months to the drug-development process…”
FDA Wants Safer Cancer Drugs, but Some Startups Fear Unintended Consequences – WSJ
Private equity
Study: No Surprises Act Dispute Resilution Process: “The data release for two additional quarters of 2023 provides a broader look at how the IDR process under the NSA is working and confirms that the story emerging from the early months was not a fluke. The volume of cases entering the IDR process remained high, and providers continued to maintain a high rate of success. Data from the most recent available quarter (the fourth quarter of 2023) suggest that case volume was growing from already high levels and providers were winning more often and with higher amounts.
It remains early, however, to draw firm conclusions about future trends in the IDR process…. The evidence to date suggests that strategies of using IDR are not uniform across the provider community. System use is dominated by a handful of organizations, especially those backed by private equity. There is little evidence that rank-and-file emergency physicians, radiologists, and anesthesiologists are using the system.”
Notes in study: 70% of the 657,000 new cases submitted to arbitration in 2023 came from just four organizations, all backed by private equity: Team Health, SCP Health, Radiology Partners, and Envision. Two organizations — Team Health and Singleton Associates, which is part of Radiology Partners — won more than 90% of their cases in the last three quarters of 2023. Team Health typically won about double the inflation-adjusted median rate insurers paid in-network providers while Singleton collected up to eight times that in the last three quarters.
2023 Data From The Independent Dispute Resolution Process: Select Providers Win Big August 19, 2024 https://www.healthaffairs.org/content/forefront/2023-data-independent-dispute-resolution-process-select-providers-win
Private equity in dentistry: “Over the course of the past twenty years, private equity (PE) has played a role in acquiring medical practices, hospitals, and nursing homes. More recently, PE has taken a greater interest in acquiring dental practices, but few data exist about the scope of PE activity within dentistry. We analyzed dentist provider data for the period 2015–21 to examine trends in PE acquisition of dental practices. The percentage of dentists affiliated with PE increased from 6.6 percent in 2015 to 12.8 percent in 2021. During this period, PE affiliation increased particularly among larger dental practices and among dental specialists such as endodontists, oral surgeons, and pediatric dentists. PE-affiliated dental practices were more likely to participate in Medicaid than practices not affiliated with PE. Future research should investigate whether PE’s role in dentistry affects the affordability and quality of dental services.”
Public Health
Study: Sickle cell care access: “Our research team studied Medicaid claims data between 2010 and 2019 from two states — California and Georgia — and the findings were alarming. We found that just one in five children between 3 months to 5 years old with sickle cell anemia — in a patient population that was 90% African-American — received daily antibiotics to prevent infections. And only about half of children and adolescents between ages 2 and 15 underwent a yearly brain scan to assess their stroke risk. Evaluations in several other states produced similar results.”
Too Many Kids with Sickle Cell Disease Aren’t Getting Appropriate Preventive Care | MedPage Today
Workforce
BLS: job growth 2023-2033: BLS projects total employment will increase 6.739 million (4%): healthcare and social assistance will increase 2.243.8 million (10.4%)—the highest of any industry. Six of the 15 fastest growing are in healthcare:
| % Increase 2023-2033 | # Projected Increase | Median Annual Wage | |
| #3 Nurse Practitioner | 46.3% | 133,500 | $126,260 |
| #6 Medical & Health Services Mgrs. | 28.5% | 160,600 | $110,680 |
| #7 Physician Assistants | 28.5% | 43,700 | $130,020 |
| #9 Physical Therapist Assistants | 25.4% | 27,500 | $64,080 |
| #11 Occupational Therapy Assistants | 22.3% | 10,600 | $67,010 |
| #14 Home Health & Personal Care Aides | 20.7% | 820,500 | $33,530 |
Employment Projections Home Page : U.S. Bureau of Labor Statistics (bls.gov)
