Healthcare is a Prime Target for DOGE: How to Prepare

Last week, the reality of change in the U.S. political landscape became real, especially for the health industry.

• Robert F. Kennedy Jr. won the Senate Finance Committee’s vote 14-13 and appears headed for confirmation by the full Senate this week to become Secretary of the U.S. Department of Secretary of Health & Human Services. HHS oversees all 13 major health agencies including CMS, CDC, FDA and others. It employs 89,000 with a budget of $1.844 trillion in FY 2024 ($144.3 billion discretionary, $1.7 trillion in mandatory) and a FY 2025 requested increase of 8%.
• The White House suspended all foreign relief activity by the United State Agency for International Development (USAID). USAID was created by President John F. Kennedy in a 1961 executive order, Congress passed a law in 1998 to make it an “independent establishment” like others in the cabinet. It provides humanitarian relief in developing countries for eradicating diseases like smallpox and polio, providing COVID-19 testing and vaccinations, assisting in food safety and others. It employs 10,000 but all but 294 have been placed on administrative leave pending the Executive Order.

In all likelihood, healthcare will be front and center again this week as…

• The confirmation process accelerates for heads of the FDA (Marty Makary) and CMS (Mehmet Oz) working under RFKJ.
• The Department of Commerce releases it year-end Consumer Price Index Wednesday which is likely to “Medical Services” prices (which include hospitals, physicians, insurers) well above the overall CPI.
• Congress debates a reconciliation bill to avoid a federal government shutdown March 14: Medicare, Medicaid, VHA and other programs represent a fourth of federal and state spending.

The Trump-Musk predisposition toward the U.S. health system is negative: it is viewed as wasteful, self-serving and ripe for Department of Government Efficiency (DOGE) cuts and disruption. It favors private solutions over public programs, and relishes favorable attention and punishing critics. And it shares its views of the health system with the majority of Americans:

Per Jarrard’s’ The State of Play: Healthcare in 2025 released last week, the public is not a fan of the system despite its penchant for calling itself “the world’s best.”  In its survey of 1000 adults, 57% believe the system needs complete/significant re-design vs. 10% who think it’s OK as is and 34% who think minor improvements might be useful.

And per Gallup’s post-election poll in December, the public’s discontent is rooted in one issue: affordability. It’s a particularly thorny for hospitals, drug companies, insurers, physicians and other insiders who acknowledge the issue but rank it among others.

The impact of the Trump-Musk predisposition toward U.S. healthcare and its actions 20 days into its oversight is widespread uncertainty. …

• Uncertainty in the healthcare workforce
• Uncertainty in healthcare funding
• Uncertainty in boardrooms
• Uncertainty for patients
• Uncertainty for public health

Among the most immediate directional shifts that appear certain include…

• Red States & Private Solutions for Public Problems: DC is out; RDU, Nashville, Austin, Silicon Valley are in.
• Medicare Advantage and Big Insurance: Medicare for all is out and Medicare Advantage for all is in.
• Healthcare Workforce modernization: DeepSeek enabled R1 large language reasoning models, AI application layers and expanded scope of practice is in and traditional training, licensing and credentialling are out. (One of many strategic Achilles in healthcare where Big Tech and private capital will be pushed to engage).
• Chronic care management 2.0: Technology-enabled self-care, nutrition, non-allopathic interventions and alternative health providers are in and traditional call-centers and medication management are out (for many). Pharmacies, schools, religious organization and workplaces will play large roles.
• USA first supply chain: USA headquarters are in and off-shore is out.
• And others.

For Senior managers and Boards in U.S. health organizations, the imperatives are clear:

• Leaders must refresh short and long-term assumptions about changes in the regulatory, competitive, clinical efficacy, capital (especially private investment) and public expectation (attitudes, spending) environments.
• Leaders must concentrate on short-term capital investments targeting operational improvements and accelerate cost reduction in workforce modernization, procurement and non-core functions.
• Leaders must invest in state and local advocacy and relationships.
• Leaders must assess and expand the scale and scope of services offerings necessary to long-term sustainability and competitiveness via M&A, partnerships and diversification.
• Leaders must streamline organizational structure, executive compensation, outsourcing and consultative relationships and enterprise value creation to lower costs and improve performance.
• Leaders must modernize governance: decision-rights, committee structures, by-laws, board composition, performance evaluation and industry awareness to optimize Board effectiveness.

Attached to this report are citations upon which much of the content above is based. To effectively operate in today’s health system as a provider, payer, supplier or user, one must accept two realities: disruption is certain; the destination is unclear.

Paul

 

Sections in today’s Report

• Quotables
• Economy
• Governance
• Hospitals
• Insurers
• Physicians
• Polling
• Prescription Drugs
• Public Health

Quotables

NYT on Musk: “In Elon Musk’s first two weeks in government, his lieutenants gained access to closely held financial and data systems, casting aside career officials who warned that they were defying protocols. They moved swiftly to shutter specific programs — and even an entire agency that had come into Mr. Musk’s cross hairs. They bombarded federal employees with messages suggesting they were lazy and encouraging them to leave their jobs.

Empowered by President Trump, Mr. Musk is waging a largely unchecked war against the federal bureaucracy — one that has already had far-reaching consequences.

Mr. Musk’s aggressive incursions into at least half a dozen government agencies have challenged congressional authority and potentially breached civil service protections…

Mr. Musk, the world’s richest man, is sweeping through the federal government as a singular force, creating major upheaval as he looks to put an ideological stamp on the bureaucracy and rid the system of those who he and the president deride as “the deep state.”

Inside Musk’s Aggressive Incursion Into the Federal Government New York Times https://www.nytimes.com/2025/02/03/us/politics/musk-federal-government

Related: New Yorker on Elon Musk: “In its short existence, Musk’s small occupying force has gained access to the entire U.S. Treasury federal payments system—to what end, no one yet knows—and has seemingly orchestrated the dismantling of U.S.A.I.D., the decades-old federal agency in charge of distributing American foreign aid around the world. Upcoming targets reportedly include everything from the Department of Education to the government weather-forecasting service and the U.S. aviation system. Federal employees were given a deadline of Thursday at midnight to accept Musk’s offer of a government-wide deferred-resignation “buyout.” A federal judge has delayed the move, which was expected to yield more than forty thousand takers—well short of the five per cent or more of the federal workforce that Musk hoped to purge, but still an enormous upheaval whose repercussions will echo for years.”

Elon Musk’s Revolutionary Terror: The evisceration of U.S.A.I.D. isn’t a policy fight—it’s an execution designed to strike fear in our own government Susan Glaser, New Yorker February 6, 2025 https://www.newyorker.com/news/letter-from-trumps-washington/elon-musks-revolutionary-terror

PK note: The health industry employs 21.4 million including 3 million who care for family members/others remaining unpaid. It is diverse, growing and worried.

Economist on DEI dismantling: “It amounts to a bonfire of rainbow tape. Donald Trump has declared war on DEI, or diversity, equity and inclusion. He is already reshaping American institutions. Companies are abandoning programmes that they had put in place to increase the racial and gender diversity of their workforces (or at least renaming them to avoid Mr. Trump’s ire). The whiplash has been most severe inside the federal government. There, Mr. Trump’s people, in the form of Elon Musk and his DOGE tenants, are uprooting DEI staff, programmes and contracts with unseemly relish. A reasonable idea for reform is straying into self-defeating cruelty and, possibly, outright illegality.

Insofar as Mr. Trump’s moves against DEI are designed to make America more meritocratic, they are welcome. Firms owe their shareholders an open competition for jobs. In recent years they have paid lip service to anti-discrimination laws while intervening to diversify their labour force. Such policies were justified by research by McKinsey, a consultancy, tying diversity to profits. But the methodology has been criticized, the causality unproven and other studies have reached different conclusions. Indeed the policies may backfire by casting suspicion on the merits of minorities and women who are promoted. One of the most flagrant interventions—a rule which required companies listed on Nasdaq to have a diverse board, or explain why they did not—was shot down by an appeals court in December. Since the election, firms including Google, McDonald’s and Target have scrapped policies designed to engineer the composition of their workers and suppliers.”

The Economist February 6, 2025 The meaning of Donald Trump’s war on woke workers

Related: The future of DEI efforts: “It is easy to dismiss D.E.I. programs as ineffectual, because in many ways they have been. But that raises the question of why the right is so determined to undermine and dismiss them. It is because these widely varied efforts represent a commitment to integration, to opposing bigotry and racism, to offering an invitation to belong. Maybe that seems corny in our deeply cynical and dour society, but given the pervasiveness of loneliness and depression, we should look at improving these efforts, not subverting them. The problem with D.E.I. is not that it went too far but that it has not gone far enough.”

The War on Diversity, Equity, and Inclusion New Yorker Magazine February 8, 2025 https://www.newyorker.com/news/the-lede/the-war-on-diversity-equity-and-inclusion

The Medical profession: “A visitor approaches 3 stonemasons chiseling boulders for a massive structure in the city square and asks each what they are doing. The first replies, “Making a living to feed my children”; the second says, “Learning how to shape rough rocks into fitted stones”; and the third replies, “Building a glorious cathedral.”

Earlier generations of doctors would likely relate to the third stonemason, with clinical work viewed as contributing to a professional ideal of deep connection and meaning. This came to be known as a calling, defined as “Deriving a sense of purpose or meaningfulness and [holding] other-oriented values …”

A Calling No Longer? When Medicine Is Redefined as a Job | Annals of Internal Medicine

Chinese role in biotech: “China’s rise in biotech has been years in the making, but it is now impossible to ignore. In 2020, less than 5% of large pharmaceutical transactions worth $50 million or more upfront involved China. By 2024, that number had surged to nearly 30%…

China’s biotech boom mirrors its rise in tech. In both cases, China has moved up the value chain, from manufacturing goods to becoming a more sophisticated hub for innovation, competing in industries once dominated by the U.S. There are several reasons for the industry’s growth. For one, many top scientists trained in the U.S. have returned to China over the past decade, fueling the emergence of biotech hubs around Shanghai. And just as DeepSeek built a formidable chatbot—allegedly on a lean budget with limited access to semiconductors—Chinese biotech companies are also scrappier, capitalizing on a highly skilled, lower-cost workforce that can move faster.

Additionally, companies can conduct clinical trials at a fraction of what they would cost in the U.S., while recent changes in the Chinese regulatory system have streamlined and accelerated the approval process to get a study started…

From a patient’s perspective, the growing global competition is a win. People with cancer probably don’t care which country a drug was developed in. What matters is that it works. But for policymakers focused on maintaining America’s competitive edge, China’s biotech surge is a wake-up call. The innovation race isn’t limited to AI or crypto—it extends deep into life sciences.”

The Drug Industry Is Having Its Own DeepSeek Moment WSJ February 7, 2025 https://www.wsj.com/health/pharma/the-drug-industry-is-having-its-own-deepseek-moment-

Polling about Consumer Confidence: “The Trump bump in consumer confidence is already over. Tariff threats, stock market swings and rapidly reversing executive orders are causing Americans across the political spectrum to feel considerably more pessimistic about the economy than they did before President Trump took office.

Consumer sentiment fell about 5% in the University of Michigan’s preliminary February survey of consumers to its lowest reading since July 2024. Expectations of inflation in the year ahead jumped from 3.3% in January to 4.3%, the second month in a row of large increases and highest reading since November 2023…

Morning Consult’s recent index of consumer confidence, too, fell between Jan. 25 and Feb. 3, driven primarily by concern over the country’s economic future….

Fears over inflation surged after Trump’s Dec. 16 press conference in which he threatened 10% tariffs on China and 25% tariffs on Mexico and Canada, according to the University of Michigan. And they rose again on Jan. 21, when the president said he would follow through on his promises by the first of the month. American consumers believe that they would have to cover almost half the cost of a hypothetical 20% tariff, on average, according to a survey commissioned by academic economists from mid-December to early January…

Expectations that stock prices will fall over the next six months rose to 42.9% in the latest weekly survey by the American Association of Individual Investors, the highest level since November 2023 and well above the historical average. “

The Mood of the American Consumer is Souring Wall Street Journal February 7, 2025 https://www.wsj.com/economy/consumers/americans-jittery-over-inflation-university-of-michigan-survey-suggests

On Bain acquisition of Surgery Partners: “This is a textbook example of how private equity firms are consolidating their hold over healthcare in general, and the outpatient surgery business in particular. This merger will again glaringly outline the negative impact that private equity has had over our business. Not only will this limit fair trade and good patient care, by prioritizing financial returns over quality care and fair competition, private equity would continue to negatively impact our business. This is also a recipe for the implementation of aggressive contract negotiations with payers, which then results in more restrictions by the same payers on patient treatment options and lower reimbursement rates for doctors.”

Shakeel Ahmed, MD, CEO of Atlas Surgical Group in St. Louis,. Beckers February 6, 2025 https://www.beckersasc.com/asc-transactions-and-valuation-issues/why-bain-capitals-3-2b-bid-for-surgery-partners-could-glaringly-outline-pes-impact

Pollack to Trump on Tariffs: “Dear President Trump: America’s hospitals stand with you in seeking ways to prevent the ravages of illicit drug use in this country. Every day, the doctors, nurses and other caregivers in our hospitals and health systems treat those suffering from addiction. They work tirelessly to prevent deaths from overdoses of fentanyl and other addictive drugs. We commend your focus on this issue in the first few days of your second term. We are, however, concerned that the approach of using tariffs may inadvertently put others’ lives at risk by jeopardizing the availability of vital medications and essential health care devices.

We ask that you consider granting exceptions to the current and proposed tariffs for medical devices and pharmaceuticals made in Mexico, Canada and China that are essential to the provision of safe, effective care in America’s hospitals, clinics, and other settings. It is especially critical to have these exceptions for products already in shortage and for which production in the countries subject to increased tariffs supply a significant part of the U.S. market. We are aware, since the announcement of the potential tariffs, conversations with the leaders of Canada and Mexico led to a delay in the imposition of tariffs on products made in those countries, but we believe the principle still prevails.

Rick Pollack, CEO and President, American Hospital Association February 4, 2025 https://www.aha.org/lettercomment/2025-02-05-aha-urges-administration-grant-exceptions-tariffs-medications-and-medical-supplies

KFF on USAID support: “On January 20, President Trump issued an Executive Order calling for a re-evaluation and realignment of U.S. foreign aid that put a 90-day pause on new obligations and disbursements and initiated a full review of all foreign aid …

In FY 2023, USAID obligated/implemented 73% of all U.S. global health bilateral assistance. Of the $8.5 billion for bilateral global health efforts, across all program areas, USAID obligated/implemented $6.2 billion (73%). The next largest share was at the Department of Health and Human Services (HHS) ($1.9 billion or 22%), primarily the Centers for Disease Control and Prevention (CDC). Two percent ($141 million) was at State and 3% ($280 million) at all other agencies combined.

For PEPFAR, the U.S. global HIV/AIDS program, USAID obligated/implemented 60% of bilateral assistance. Of the $4.2 billion for bilateral HIV programs in FY 2023, $2.5 billion (60%) was obligated/implemented by USAID, followed by $1.6 billion (37%) at HHS, and 2% ($79 million) at State Just 1% ($25 million) was at other agencies

USAID’s role is even greater in some sectors, including 100% in some cases. For maternal and child health, TB efforts, and global health security, USAID obligated 100% of all bilateral support in FY 2023 It obligated 99% of family planning and reproductive health and 96% for malaria efforts. PEPFAR, as noted above, is 60%, and nutrition programs are 59%

USAID’s role is even greater in some sectors, including 100% in some cases. For maternal and child health, TB efforts, and global health security, USAID obligated 100% of all bilateral support in FY 2023 (see Figure 3). It obligated 99% of family planning and reproductive health and 96% for malaria efforts. PEPFAR, as noted above, is 60%, and nutrition programs are 59%.”

How Much Global Health Funding Goes Through USAID? KFF February 7, 2025 https://www.kff.org/policy-watch/how-much-global-health-funding-goes-through-usaid

NACD CEO on Board Compensation: “Directors today operate in a complex and fast-paced environment that requires agility and adaptability. The commitment needed for board membership has increased significantly due to oversight of emerging risks related to economic uncertainty, along with oversight in areas of human capital, technology and cybersecurity.”

Peter Gleason, NACD president and CEO National Association of Corporate Directors Board member compensation has increased, but is that good for investors? Investment News February 5, 2025 https://www.investmentnews.com/industry-news/board-member-compensation-has-increased-but-is-that-good-for-investors/259192

PK Note: The majority of board service in not-for-profit provider organizations (hospitals, social service agencies et al) is voluntary resulting in highly variable industry experience and effectiveness. Many NFP insurers, including Blue Cross plans, compensate directors as do all investor-owned organizations. In most NFP healthcare organizations, Board service requires one-third the time commitment expected of directors in investor-owned organizations.

Fed on 2024 economy: “…Finally, prices for core non-housing services—a broad group that includes services such as medical, travel and dining, and financial services—increased 3.5% last year, a bit above their increase in 2023 and their pre-pandemic pace. However, the lack of further progress in this category masks important heterogeneity within its components. For the “market-based” category of core services, which account for roughly three-fourths of core non-housing services, prices increased 2.9% last year—similar to its pre-pandemic pace and slower than its 3.5% increase in 2023. Market-based core services include components such as food service and lodging that are more directly influenced by supply–demand conditions, so easing in the labor market has likely contributed to the ongoing deceleration in this category of prices. In contrast, price inflation for the “non-market-based” category, where prices are imputed and which includes some volatile categories such as portfolio management that tend to be heavily influenced by idiosyncratic factors, jumped last year.”

Monetary Policy Report Federal Reserve February 2025 p.8 https://www.federalreserve.gov/publications/files/20250207_mprfullreport.pdf

PK note: The 83-page February Fed Report is data rich providing both short and long-term perspective about the state of the U.S. economy. Notably, though healthcare is almost 18% of the U.S. economy, one of 3 industries driving job growth (along with retail and social assistance) and responsible for consumer prices above inflation and GDP growth, it is obscure in the Fed’s analytics. As referenced above in its report, idiosyncratic factors’ must be considered.

StatNews on Mehmet Oz: “He ruled the operating room and then daytime TV. Now, Dr. Oz is set to take over a $1.5 trillion health agency…

Oz has kept a decidedly low profile since his nomination, and he hasn’t given any clues about his plans for the agency he’ll likely run. What is clear: Like most Republicans, he’s all in on privatized Medicare — he once called for Medicare Advantage for All, which is exactly what it sounds like. And he seems willing to amend his views so they fall in line with his party, even if that means pushing back against Covid-19 lockdowns…

Oz’s fondness for Medicare Advantage isn’t surprising, but his financial ties to the program are unusual for someone vying to be CMS administrator…

Oz’s health policy positions have grown more conservative in response to attacks from GOP rivals. While running for Senate, he argued that “life begins at conception” and told voters to “push back” against Covid-19 mandates.

Other stances are informed by his experience as a doctor. In 2013, he urged an audience of governors not to let their states hire smokers, claiming it would reduce their health care budgets by 15% within five years. In the same speech, he said he’d decided years earlier never to operate on smokers. “

Trump CMS nominee Dr. Oz: From top surgeon to major health role | STAT

 

Economy

Arnold Ventures’ “Top 20 Proposals to Reduce Wasteful Spending, Close Tax Loopholes, and Save up to $4 Trillion”: Among “top 10 spending cuts” were five specific to healthcare: Notably, they represent spending reductions of $1,413 billion, or more than a third of targeted DOGE spending cuts:

• Repeal limitation on recapture of ACA exchange subsidy overpayment
  Savings: $47 – 96 billion
• Advance comprehensive site-neutral payment reforms
  Savings: Up to $157 billion
• Reduce the payment benchmark for Medicaid state-directed payments
  Savings: Up to $120 billion 
• Extend drug price inflation penalties to commercial plans
  Savings: $40 billion
• Modify risk adjustment payments to Medicare Advantage insurers
  Savings: Up to $1 trillion

Achieving Fiscally Responsible Tax Reform Arnold Ventures February 3, 2025 https://www.arnoldventures.org/resources/achieving-fiscally-responsible-tax-reform

PK Note: Arnold Ventures is a major critic of the industry, especially hospitals. It funds research and hosts meetings to advance its belief that hospitals have not been held accountable for unnecessary costs, price transparency, excessive executive compensation and questionable tax exemptions.

BLS January 2025 Jobs report: Total nonfarm payroll employment rose by 143,000 in January, and the unemployment rate edged down to 4.0%. Job gains occurred in health care, retail trade, and social assistance. Employment declined in the mining, quarrying, and oil and gas extraction industry.

Among the major worker groups, the unemployment rates for adult men (3.7%), adult women (3.7%), teenagers (11.8%), Whites (3.5%), Blacks (6.2%), Asians (3.7%), and Hispanics (4.8%) showed little or no change in January. The number of long-term unemployed (those jobless for 27 weeks or more), at 1.4 million, changed little in January.

Total non-farm payroll employment rose by 143,000 in January, similar to the average monthly gain of 166,000 in 2024. In January, job gains occurred in health care, retail trade, and social assistance. Employment declined in the mining, quarrying, and oil and gas extraction industry.

Health care added 44,000 jobs in January, with gains in hospitals (+14,000), nursing and residential care facilities (+13,000), and home health care services (+11,000). Job growth in health care averaged 57,000 per month in 2024.

Social assistance added 22,000 jobs in January, led by individual and family services (+20,000). Employment also rose in the community food and housing, emergency, and other relief services industry (+4,000). Employment in social assistance grew by an average of 20,000 per month in 2024.

Employment Situation Summary BLS February 7, 2025, https://www.bls.gov/news.release/empsit.nr0.htm

US Health Annual Spending per Enrollee: 2002 vs 2022:

Coverage	2002	2022	% Annual Chg.
Medicare	$6,704	$14,814	4.0%
Medicaid	$6,144	$8,873	1.9%
Marketplace	$4,371 (2012)	$6,930	NA
Employer-Sponsored	$2,816	$6,492	4.3%
Medigap	$1,714	$2,716	2.3%
CHIP	$1,424	$3,264	4.2%
Other Direct Purchase	$1,182	$6,424	8.8%

California Health Care Foundation, National Health Spending, 2024 Edition, December 2024

PK Note: annual rates of spending growth have exceeded inflation and GPP growth in Medicare, Commercial and CHIP coverage.

Pitchbook: Q4 2024 PE Activity:

• The estimated deal count was down moderately from Q3, with 143 deals announced or closed in the quarter. While this marks a new low, it is not unusual for deals to be reported late, and we expect the final count to be near the 177 deals reported last quarter.
• We continue to see high levels of sponsor demand and interest in the subsegments of infusion, medspa and outpatient mental health. For full-year 2024, top deal categories in health services were dental (132 deals), veterinary (63), dermatology (53), and home-based care (52), consistent with leading categories in previous years.
• PE activity in pharma services and healthcare IT have been outpacing health services, as these sectors currently offer stronger growth and margin. Q4 deal activity in healthcare IT was headlined by the $7.8 billion buyout of revenue cycle management platform R1 RCM in November.
• Recent healthcare PE industry events, such as Nashville Healthcare Sessions and HPE NYC, have highlighted ongoing margin pressure in Medicare Advantage, a decrease in regulatory pressures around PE in healthcare (illustrated by California Gov. Newsom’s veto of AB 3129), and increased willingness by sponsors to consider IPO exit routes.
• Market participants have come to grips with the current rate environment and are using rate expectations less frequently for go/no-go deal decision-making. Considering the uncertainty reflected in prediction markets for upcoming Federal Reserve rate decisions, buyers may need to proceed at current rates. The moderate uptick in tariff-related inflation risks further diminishes the chance to hold out for further “jumbo” cuts.

Pitchbook January 31, 2025, www.pitchbook.com

 

Governance

NACD: Board compensation: Per the National Association of Corporate Directors survey of Director pay at 1400 companies across 24 industries:

• Median total direct compensation for board members in 2024 was up 3% year-over-year, while firms with revenues of $50M-$500M were most generous in percentage terms at 10%.
• The median TDC paid across all firms included in the report was $242,094 and ranged from $164,773 at the lower end to $323,375 for Top 200 companies.
• Equities played a larger role in compensation with a 60/40 ratio of equities to cash, generally full-value shares but also including stock options.
• Transparency for board members’ compensation is important to investors with this key layer of corporate governance seeing greater scrutiny.
• The percentage of companies delivering retainers to their audit, compensation, and nominating/governance committees also increased steadily, ranging from 76 to 88% in 2014, and from 87 to 91% today.

2024-2025 Director Compensation Report https://www.nacdonline.org/all-governance/governance-resources/governance-surveys/director-compensation-report/2024-2025-director-compensation-report/

 

Hospitals

Hospitals-drug companies litigating 340B: 340B Health, a coalition representing 1,600 hospitals, is challenging plans by Eli Lilly, Sanofi, Novartis, Johnson & Johnson and Bristol Myers Squibb to require hospitals to purchase 340B drugs at market price and recoup the discounts later via rebates. The hospitals say the arrangement will hurt their cash flow rendering some near insolvency.

Updated: Hospital group blasts proposed 340B rebate models, requests to join lawsuits with HHS Endpoints February 7, 2025 https://endpts.com/hospital-group-blasts-lillys-340b-rebate-model-requests-to-join-lawsuit-with-hhs

Kaufman Hall on Hospitals, Physician Groups: Hospitals’ financial and operational performance showed continued stability in 2024, with increased outpatient revenue compared to 2023 and fewer patient observation days, the number of days patients spend under hospital monitoring without formal admission. While expenses continued to rise throughout 2024, they did not outpace inflation on a volume-adjusted basis.

The report also finds that bad debt and the volume of charity care provided by hospitals in 2024 increased. Experts at Kaufman Hall say this may be due to fewer people being enrolled in public insurance programs like Medicaid as pandemic-era coverage protections expired, as well as increased rates of coverage denials by insurers.

…physician payment and productivity also rose in the final quarter of 2024. The median subsidy paid by hospitals to practice groups reached $306,792 per employed physician. Experts note that while physician output and productivity rose, reimbursement remains a challenge and an indication that traditional fee-for-service models may not be sustainable.

PK note: hospital operating margins vary widely: though improving overall, small, independent hospitals in markets where Medicaid and Medicare payments represent more than 75% of revenues, where commercial rates are low and where population growth is flat or declining face mounting near-term (1-2 years) and mid-term (3-5 years) solvency challenges.

Kaufman Hall Flash Report December 2024 February 4, 2025, Kaufman Hall https://www.kaufmanhall.com/insights/research-report/national-hospital-flash-report-december-2024

 

Insurers

Blue Cross Alabama settlement fees: Plaintiffs’ lawyers behind a pending $2.67 billion class action antitrust settlement with Blue Cross Blue Shield on Sunday asked a federal judge in Alabama for more than $754 million in legal fees and expenses for their work on the case, which has lasted for more than a decade.

The lawyers, led by Joe Whatley and Edith Kallas of Whatley Kallas, have requested, opens new tab $657.1 million — or 23.47% of the $2.8 billion settlement fund — in legal fees, as well as at least $97 million in expenses.

Whatley and Kallas noted in a statement that 23.47% is the same percentage a different group of plaintiffs, led by Boies Schiller Flexner and Hauser LLP, received for their work in securing a similar settlement from Blue Cross worth $2.7 billion in 2020.

The plaintiffs’ lawyers said in their fee request to U.S. District Judge R. David Proctor they have billed more than 373,000 hours in the case. The $657.1 million fee request amounts to about $1,760 an hour.

PK Note: Health providers first sued in 2012. The court granted final approval to the settlement on Aug. 9, 2022, but a lengthy appeals process followed that went to the Supreme Court, upholding the settlement agreement. 

Lawyers seek $754 million in new Blue Cross antitrust settlement | Reuters February 3, 2025

Cigna announces Exec Comp policy change: Last Monday, Cigna announced it will tie executive compensation to customer satisfaction. Last week, it also said it would overhaul prior authorization requirements for providers and policyholders and limit out-of-pocket drug costs for clients of its pharmacy benefit manager division, Express Scripts.

Cigna did not specify how much customer satisfaction would influence executive pay nor which executives would be affected. Cordani’s compensation exceeded $21 million in 2023, according to the company’s most recent disclosure.

The company outlined five planks for its new strategy: Easier Access to Care, Better Support, Delivering Better Value, Accountability and Transparency.

PK Note: Executive compensation in healthcare is increasingly targeted by industry critics, in media coverage and, recently, in Congressional hearings with health insurers, pharmacy benefits managers, drug manufacturers, and not-for-profit health systems.

Cigna to link executive compensation to customer satisfaction | Modern Healthcare

Moody’s Ratings: downgrades for issuers: MR is downgrading the insurance industry’s credit outlook to negative as elevated medical costs continue to batter payers. Moody’s analysts noted that spending in the commercial market alone is set to increase by 8% this year, the fastest rate recorded in 13 years. Spending in the individual market, meanwhile, is set to climb by 7.5%, another increase that’s higher than in recent years.

Factors driving these spending hikes include inflation, prescription drug spending and higher utilization of behavioral health. Based on those trends, Moody’s projects spending in Medicare Advantage (MA) will also increase by between 5% and 7%.

Moody’s – credit ratings, research, and data for global capital markets January 31, 2025

 

Physicians

Legislation to increase physician pay: A bipartisan coalition of 10 House lawmakers introduced the “Medicare Patient Access and Practice Stabilization Act” Jan. 31 aimed at reversing a 2.83% Medicare physician payment reduction and implementing a 2% increase to help stabilize physician practices and protect patient access to care.

The AMA endorsed measure, if enacted, will retroactively nullify the 2.83% cut that took effect on Jan. 1, with changes set to take effect on April 1.

The latest cuts follow a 1.25% reduction in overall physician reimbursement for 2024, setting the updated Medicare conversion factor at $32.74 — a 3.4% drop from the previous year. Some physicians face additional financial setbacks of up to 9% due to the cost-performance category under the Merit-Based Incentive Payment System.

PK Note: a similar bill failed to pass Congress in October 2024.

Murphy Introduces Bipartisan Legislation to Preserve Medicare for Patients and Physicians | Congressman Greg Murphy

AAMC: Med School applications 2024-2025: “Despite an increase in first-time applicants, the number of total applicants reached the lowest point since 2017-2018. There were also significant declines in matriculants from groups that are historically underrepresented in medicine, posing challenges to diversity and inclusion efforts in the field. Although, 74.3% of medical school applicants were first-time applicants, which is a 2.3% increase over 2023.”

• “For the third consecutive year, medical school applications have declined, dropping 1.2% from 2023. This marks the lowest number of applicants since the 2017-2018 academic cycle, signaling a potential challenge in sustaining the pipeline of future physicians.
• Women continue to lead in medical school representation, comprising 56.8% of applicants and 55.1% of matriculants.
• Although Black and Hispanic applicants increased slightly, matriculants from these groups saw double-digit percentage declines, bringing their numbers back to pre-pandemic levels. Native American matriculants also experienced a sharp drop of 22.1%.
• Medical school matriculants continued to demonstrate strong academic credentials, with a median grade point average (GPA) of 3.86. The age range of matriculants was 17-55, with 2.8% over the age of 30, highlighting the profession’s appeal across different stages of life.
• Socioeconomic diversity saw setbacks in 2024-2025. Applicants with a parent whose highest level of education was less than a bachelor’s degree, or any degree with an occupation categorized as “service, clerical, skilled or unskilled,” fell by 2.2%. First-generation applicants and matriculants also decreased, marking the third consecutive year of decline for both groups.

Medical school applicant trends 2024-2025 January 27, 2025  https://www.medicaleconomics.com/view/medical-school-applicant-trends-2024-2025

Study: Primary care practice changes: Researchers assessed the capabilities and accessibility of US primary care practices change from 2017-18 to 2022-23.

“In this cohort study across 710 primary care practices that completed surveys in 2017 to 2018 and 2022 to 2023, access to primary care was reported to decline, yet modest improvements in capabilities were reported. Practices participating in accountable care organizations and those with more integrated ownership reported higher scores on average, though scores varied substantially within groups.”

Changes in US Primary Care Access and Capabilities During the COVID-19 Pandemic JAMA Health Forum. 2025;6(2):e245237. doi:10.1001/jamahealthforum.2024.5237

Study: inducements for robotic surgery: Researchers analyzed US-based physicians’ sentiments toward robotic surgery and whether industry payments (are associated with their perceptions.

“Physicians posting before and after receiving industry payments showed consistent positive sentiments and decreased subjectivity after receiving payment. Physicians in the top 25% of payment distribution had more positive sentiments and increased subjectivity after receiving payments, whereas those in the bottom 75% showed little change.”

Industry Payments and Sentiments Toward Robotic Surgery Among US Physicians Loh et al JAMA Netw Open. 2025;8(2):e2458552. doi:10.1001/jamanetworkopen.2024.58552

 

Polling

Gallup-Emory poll on public health: Per the Gallup-Emory poll conducted December 2-15:

• Healthcare access and affordability is Americans’ top public health concern, followed by ensuring safe food and water and reducing chronic disease, according to a new survey published by Gallup and Emory University’s Rollins School of Public Health.
• Republicans were more likely than Democrats to list ensuring safe food and water as their top public health priority and less likely to list the Centers for Disease Control and Prevention as one of their top three sources of trusted health information.
• Democrats and Republicans support federal action on their top priority public health concerns, with 60% of Republicans and more than 75% of Democrats indicating a preference for federal leadership over state action.

Preserving access, affordability are Americans’ top healthcare priorities: Gallup February 5, 2025 https://www.healthcaredive.com/news/preserving-access-affordability-are-americans-top-healthcare-priorities/739213/

Jarrard: The State of Play: Healthcare in 2025 poll: Per the online survey of 1,000 adults conducted in January, 2025:

Opinions about change needed in the health system:

• The U.S. healthcare system does not need major changes 10%
• The U.S. healthcare system has a few things that need adjusting but overall works well 34%
• The U.S. healthcare system needs significant reform 37%
• The U.S. healthcare system needs to be completely redesigned. 20%

Feelings toward major institutions: % Pleased/satisfied vs. frustrated/angry

• Hospitals and other organizations that provide medical care in general: 32/15
• My health insurance company: 41/17
• Hospitals in my local area: 43/14

Opinions about hospitals and insurers:

• 76% agree that “Hospitals in the U.S. are mostly focused on making money”—up from 23% in December 2021
• 24% agree that “Hospitals in the U.S. are mostly focused on caring for patients”—down from 77% in December 2021

Jarrard: The State of Play: Healthcare in 2025 2025 National Consumer Survey February https://email.chartis.com/hubfs/Jarrard/Jarrard

Sermo Poll of 500 Physicians: “In the U.S., 78% of physicians feel health insurance companies hold too much influence by approving or denying procedures and treatments for patients. Those feelings drop to 52% globally, and 38% in European nations, according to the findings of Sermo’s latest Barometer study of 529 doctors across a range of specialties.

54% of U.S. physicians said they feel private equity investments lead to lower quality of patient care. A full 26% said they felt PE investment leads to a significant decline in quality, while just 2% said they have seen significant improvement in care with that investment.”

Sermo Barometer Finds 78% of US Physicians Think Health Insurance Companies Have Too Much Influence Over Patient Care Plans; 52% Globally January 30, 2025 https://www.sermo.com/covid-19-press-releases/#post-32653

 

Prescription Drugs

WSJ on GLP-1 market: “After months of choppy stock performance driven by fears of a market cool down, these figures shored up confidence in the obesity and diabetes sector.

Adding to investor optimism is the clear message from the obesity leaders that they are just getting started. During an analyst call on Wednesday, Novo’s U.S. head, David Moore, highlighted that only 1.2 million patients are currently being treated with obesity drug Wegovy, out of 55 million people whose insurance would cover the drug. This points to an enormous untapped market…

Novo is now trading at around 22 times forward earnings. That is down from 38 times last summer, but still higher than the NYSE Pharmaceutical Index at around 15 times. Lilly is still valued at a lofty 37 times, down from over 50 around six months ago, signaling Wall Street’s higher confidence in its pipeline. For both companies, clarifying what comes next in obesity treatment will be key to sustaining momentum. “

The Obesity Market Is Growing Just Fine. But Investors Want to Know What’s Next WSJ February 6, 2025 https://www.wsj.com/health/pharma/the-obesity-market-is-growing-just-fine-but-investors-want-to-know-whats-next

 

Public Health

RWJ-Urban Institute study: Death rate differences between blacks and whites: Key Findings:

• Life expectancy increased between 1990 and 2018 for each race/sex category (e.g., Black men, Black women, white men, white women),2 and overall, the gap between Black and white life expectancy decreased.
• The narrowing of the racial gap can be attributed to accelerated gains in life expectancy for Black people relative to white people during this period.
• Despite the gains, the long-standing Black-white racial gap in life expectancy persists. Nationally, in the three years before the COVID-19 pandemic, there was a difference in life expectancy of 5.2 years for men (69.7 years for Black men versus 74.9 years for white men) and 3.1 years for women (76.8 years for Black women versus 79.9 years for white women).
• The gap between Black and white life expectancy was evident in every state. But there was a substantial range across states within each race/sex category. For example, there was up to 16.5 years difference in white male life expectancy between the District of Columbia and West Virginia (86.2 years and 69.7 years, respectively). The extent of improvement over time varied substantially as well.

State Variation in Black and White Life Expectancy and Evolving Disparities

Obstetrics care in hospitals: Findings from a study led by the University of Minnesota’s School of Public Health on changes to obstetric care in U.S. hospitals:

• Between 2010 and 2022, the percentage of all hospitals without obstetric services rose from 35% to 42%.
• By 2022, 52% of rural hospitals lacked obstetric services, compared to 36% of urban hospitals.
• 537 hospitals discontinued obstetric care: 299 in urban areas and 238 in rural communities.
• Only 138 U.S. hospitals added obstetric care: 112 in urban hospitals and 26 in rural hospitals.

University of Minnesota’s School of Public Health Research Brief, December 2024

CDC: Maternal Mortality Rates in 2023: “A maternal death is defined by the World Health Organization as “the death of a woman while pregnant or within 42 days of termination of pregnancy, irrespective of the duration and the site of the pregnancy, from any cause related to or aggravated by the pregnancy or its management, but not from accidental or incidental causes” (1). Update:

• In 2023, 669 women died of maternal causes in the United States, compared with 817 in 2022.
• The maternal mortality rate for 2023 decreased to 18.6 deaths per 100,000 live births, compared with a rate of 22.3 in 2022.
• In 2023, maternal mortality rates decreased significantly for White non-Hispanic (subsequently, White) and Hispanic women. The observed decrease for Asian non-Hispanic (subsequently, Asian) and increase for Black non-Hispanic (subsequently, Black) women was not statistically significant. the maternal mortality rate for Black women was 50.3 deaths per 100,000 live births and was significantly higher than rates for White (14.5), Hispanic (12.4), and Asian (10.7) women. Rates decreased significantly for women ages 25–39 and age 40 and older between 2022 and 2023. Rates in 2023 were 12.5 deaths per 100,000 live births for women younger than age 25, 18.1 for those ages 25–39, and 59.8 for those age 40 and older. The rate for women age 40 and older was nearly five times higher than the rate for women younger than age 25. Differences in the rates between age groups were statistically significant

https://www.cdc.gov/nchs/data/hestat/maternal-mortality/2023/Estat-maternal-mortality.pdf