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The Keckley Report

What the K Recovery Means for Healthcare

By October 12, 2020March 1st, 2023No Comments

There’s growing evidence that the U.S. economic recovery will be a K recovery: a bi-directional response to the pandemic that will produce winners and losers. And the implication is profound in healthcare.


Economists say recoveries from recessions are of four basic types:

  • A V recovery is fast and strong. Markets recover to pre-downturn levels and a return to normalcy is achieved within 12 months.

  • A U recovery is similar to the V, but recovery is slower.

  • A K recovery is different. It’s slower. Some industries emerge stronger while others are permanently impaired. Markets fundamentally change as a result.

  • A L recovery is no recovery at all.

Per Bloomberg, there’s consensus among economists and business leaders ours is a K recovery. They expect widespread availability of vaccines and drugs is unlikely before mid-2021. They anticipate the hardest hit industries- travel, leisure, restaurant and others- will be fundamentally impaired. Others will adapt, recovering stronger and leaner. Bigger organizations with access to capital to leverage data, technology and knowledge workers are advantaged in the K recovery.

The same bifurcation occurs in households: upper income households do better while low wage households struggle emotionally and financially. Overall household net worth hit an all-time high in the second quarter, but the lift was uneven: the top 20% of households that control 71% of net worth saw gains while the bottom 40% lost ground.

For the 55% in our population who own stocks, the equity markets have recovered nicely, closing Friday at 3-month highs and without question anchored by the mega cap tech names (FAANGM). The major indices are trading at inflated forward multiples even with forecasts being slashed. While on the other hand, the NASDAQ in particular seems to suggest that the trend of growth vs value is here to stay, at least for now. And the most recent Fed meeting where J Powell essentially said he was prepared to run the economy hot, targeting 2% inflation and full employment, combined with widespread consensus  that a new wave of stimulus will be passed, seems to suggest that market accretion will continue, even if the fundamentals don’t make much sense right now.

Given the circumstances, the impact of the K recovery in healthcare is profoundly positive for organizations with strong free cash flow, and a keen view of value-creation for healthcare consumers. They brake glass.

United, Cigna, CVS Aetna, Anthem, and Humana are posting record profits while diversifying well-beyond insurance. Walmart Health may emerge as the front door to the U.S. health system, leveraging its Walmart Health Clinics with Clover health insurance. CVS and Optum are pursuing similar game-changing strategies, assembling assets to deliver consumer and employer health programs greater value for the health dollars they spend. And Facebook, Amazon, Apple, Microsoft, and Google are intent on replacing patient centric care with technology-enabled self-care for consumers.

Each of these sees a new value proposition in healthcare that’s more appealing to consumers and employers. All have deep pockets. All see healthcare’s recovery from the K as an opportunity to take advantage of the lack of resources, regulatory constraints and antiquated business models that plague incumbents in healthcare delivery. Most hospitals, medical groups and long-term care providers will be on the descending bar of the K; some won’t survive.

Understandably, post-election attention among the traditional players will focus on tweaks to policies and programs that dominate their attention: alternative payment programs, consolidation, physician burnout and workforce effectiveness, reimbursement, and many others. But a more fundamental challenge for most is replacing pre-pandemic strategies with new ways to compete for the hearts, minds and purchasing power of healthcare consumers and employers.

The U.S. heath system in its pre-pandemic form evolved over 70 years. In the last 7 months, the pandemic-induced K economy has rendered its rich history and traditions inadequate to meet the needs of its future.

The K recovery will have profound impact in healthcare. For some, it’s an opportunity. For many, it’s a death spiral.


P.S. HCA Healthcare owns 186 hospitals, 123 surgery centers and 104 freestanding emergency rooms in the U.S. and U.K. It employs 280,000 and processes 35 patient encounters annually. Friday, the company announced it will pay back $6 billion in pandemic relief funds– $1.6 billion in CARES Act (Coronavirus Aid, Relief, and Economic Security Act) direct funding and $4.4 billion received through the Medicare Advanced Payment loan program. The rationale: Per CEO Sam Hazen and CFO Bill Rutherford, it’s “socially responsible” and it gives the company more flexibility to deploy capital for acquisitions (freestanding emergency rooms, ambulatory surgery centers, et al) and growth. I’d offer a third: the move imposes peer pressure on other investor-owned systems like CHS, UHS, Tenet and LifePoint to follow suit.


“Stocks Close Higher to Finish Best Week in Three Months” Wall Street Journal

“What Percentage of Americans Owns Stock?”; Gallup; June 4, 2020

Eric Morath, Theo Francis, Justin Baer “The Covid Economy Carves Deep Divide Between Haves and Have-Nots”; Wall Street Journal; October 5, 2020

Cooper “Trump Halts Pandemic Relief Talks Until After November Vote”; Law360; October 6, 2020

Allana Akhtar “Meet the ‘K-shaped’ recession, where professional workers are largely fine and everyone else is doing awful”; Business Insider; September 30, 2020

Barry Ritholtz “Sadly, One Letter Perfectly Captures the Recovery”; Bloomberg; September 2, 2020

Justina Lee “A Clear-Cut Biden Win Is Emerging as a Bull Case for Stocks”; Bloomberg; October 5, 2020

“Powell Warns of Prolonged Economic Pain without More Aid”; New York Times; October 6, 2020

Melanie Evans “HCA Says Return of $6 Billion Pandemic Aid to Restore Financial Flexibility” Wall Street Journal October 9, 2020 


CDC: Positive Cases in U.S. Spike to 50,000 Last Week

Update: The world recorded more than one million new cases of the coronavirus the last three days, the highest total ever in such a short span, a reflection of resurgences in Europe and the United States and uninterrupted outbreaks in India, Brazil and other countries. The pandemic has sickened more than 37 million people and more than one million people have died globally

In the U.S., Deaths, though still well below their peak spring levels, have averaged around 700 per day in October. That is far more than the toll in early July. The United States has more than 7.7 million cases and 215,000 have died.


Primary Care Encounters Decreased 21% in 2Q 2020; Office Visits Down 50%, Televisits Up 35%

In this cross-sectional analysis of 125.8 million primary care visits in the 10 calendar quarters between quarter 1 of 2018 and Q2 of 2020, primary care visits decreased by 21.4% during the second quarter of 2020 compared with the average quarterly visit volume of the second quarters of 2018 and 2019. Other Highlights:

  • In the 8 calendar quarters between January 1, 2018, and December 31, 2019, between 122.4 million and 130.3 million quarterly primary care visits occurred in the US most of which were office-based (92.9%).

  • In 2020, the total number of encounters decreased to 117.9 million in Q1 and 99.3 million in Q2, a decrease of 21.4% (27.0 million visits) from the average of Q2 levels during 2018 and 2019. Office-based visits decreased 50.2% (59.1 million visits) in Q2 of 2020 compared with Q2 2018-2019, while telemedicine visits increased from 1.1% of total Q2 2018-2019 visits (1.4 million quarterly visits) to 4.1% in Q1 of 2020 (4.8 million visits) and 35.3% in Q2 of 2020 (35.0 million visits).

Caleb Alexander et al “Use and Content of Primary Care Office-Based vs Telemedicine Care Visits During the COVID-19 Pandemic in the US” JAMA Network

Franklin Templeton-Gallup: Confidence in Avoiding COVID-19 Linked to Consumer Behavior

The study is based on 5,000 web-based surveys completed Sept. 4-13, 2020, as part of the Franklin Templeton-Gallup Economics of Recovery Study:

  • Mask use: Americans living in states that mandate mask use for workers are more likely than those who do not to be “very confident” in their ability to protect themselves from infection while out in public (30% vs. 22%, respectively).

  • Fear: after controlling for age, those who say it would take them at least a few months to recover from COVID — or that they would never fully recover — are less likely to be confident in their ability to avoid infection.

  • Demographics: Older Americans are less likely to be very confident in light of their greater vulnerability to severe illness from COVID-19, and men are more likely than women to express confidence. Despite higher levels of concern about coronavirus among Black and Hispanic Americans, they are more likely than White and Asian Americans to say they can protect themselves from infection in public.

FT-Gallup Economics of Recovery Study; October 9, 2020

Pandemic Disrupted Mental Health Services in Most Countries

The pandemic has disrupted mental health services in 93% of countries worldwide, according to a new WHO report that surveyed 130 countries around the globe. Here are some highlights:

  • Telemedicine: While more than 80% of high-income countries report deploying telemedicine to help people access mental health services, fewer than half of low-income nations have done so.

  • Vulnerable populations: Majorities of countries report service interruptions for vulnerable populations, including 61% that said so about services for pre- and postnatal women and 70% that reported disruption in mental care for older people.

  • Types of service: Two-thirds of countries saw disruptions to counseling and psychotherapy services, while 30% reported interruptions to medications for mental, neurological, and substance use disorders.

“Global challenge for movement on mental health kicks off as lack of investment in mental health leaves millions without access to services”; World Health Organization; October 7, 2020


Supreme Court Begins Term, Barrett Confirmation Hearings Start This Week

This week, the Senate Judiciary Committee is scheduled to hold hearings on the nomination of Amy Coney Barrett to the U.S. Supreme Court (SCOTUS) succeeding Associate Justice Ruth Bader Ginsburg who died September 18. Widely considered a conservative jurist, Barrett was appointed to the United States Court of Appeals for the 7th Circuit in 2017 by President Trump and confirmed by the U.S. Senate by a vote of 55-43. She previously clerked for U.S. Supreme Court Associate Justice Antonin Scalia.

Last week, SCOTUS began its 2020-2021 term after being in recess since July. Notably, in the current term a number of key healthcare cases will be heard:

  • California v. Texas: The Court is scheduled to hear arguments in the ACA case on Nov. 10, with significant implications for health coverage, health insurance markets and protections for people with pre-existing conditions that could affect virtually every American.

  • SCOTUS will hear arguments Tuesday over whether states can control the rates at which local pharmacies get reimbursed for drugs by health insurance plans, a case that could determine whether states can regulate pharmacy benefit managers without getting waylaid by federal benefits law

  • And justices will hear cases involving Title X Federal Family Planning regulations that prohibit federal funding for clinics that offer or refer abortion services; Medicaid work requirements, and others.

Ballotpedia Federal Tap October 10, 2020

KFF survey: Employers Expect 4% Health Cost Increase

Highlights of the 2020 Kaiser Family Foundation Employer Health Benefits Survey which was completed by 1765 employers before the coronavirus pandemic:

  • In 2020 the average annual premium for single coverage rose 4%, to $7,470, and the average annual premium for family coverage also rose 4%, to $21,342.

  • Covered workers, on average, contributed 17% of the cost for single coverage and 27% of the cost for family coverage. The average 2020 general deductible for individual-worker coverage was $1,364 was statistically no different from last year’s figure of $1,396.

  • 56% of firms offered health benefits to at least some of their workers (unchanged in past 5 years), and 64% of workers were covered at their own firm. 53% of firms with fewer than 50 workers and nearly all 99% firms with at least 200 or more workers offer coverage.

Gary Claxton et al “Health Benefits In 2020: Premiums In Employer-Sponsored Plans Grow 4 Percent; Employers Consider Responses To Pandemic” Health Affairs; October 8, 2020

“2020 Employer Health Benefits Survey”; Kaiser Family Foundation; October 8, 2020

Anna Wilde Matthews “Health Coverage Costs Continued Steady Rise Pre-Pandemic”; Wall Street Journal; October 8, 2020 


MedPAC October Meeting: Alternative Payment Models have had ‘Limited Success’, Need Review

In comments at last week’s October meeting, the Medicare Payment Advisory Commission expressed a desire to consolidate the 40-plus alternative payment models and revisit the long-term goals of the program.  MedPAC staff told commissioners that many of the APMs had “limited success.” The Commissioners remain divided about whether models should be mandatory or voluntary. Members seemed split on this issue, as well as on whether some of those models should be condition specific.

Samantha Liss “MedPAC commissioners urge condensing, revamping advanced alternative payment models”; Healthcare Dive; Oct. 5, 2020

Study: Big Pharma Profits Higher than Peers in Other Industries

The Bentley University researchers compared the cumulative gross profits, EBITDA, and net income of 35 large pharmaceutical companies with those of 357 large, nonpharmaceutical companies in the S&P 500 Index from 2000 to 2018. Highlights:

  • From 2000 to 2018, 35 large pharmaceutical companies reported cumulative revenue of $11.5 trillion, gross profit of $8.6 trillion, EBITDA of $3.7 trillion, and net income of $1.9 trillion, while 357 S&P 500 companies reported cumulative revenue of $130.5 trillion, gross profit of $42.1 trillion, EBITDA of $22.8 trillion, and net income of $9.4 trillion.

  • In bivariable regression models, the median annual profit margins of pharmaceutical companies were significantly greater than those of S&P 500 companies (gross profit margin: 76.5% vs 37.4%; EBITDA margin: 29.4% vs 19% and net income margin: 13.8% vs 7.7%

  • Controlling for company size and year and when considering only companies reporting R&D expense, pharma outperformed non-pharma peers: gross profit margin: difference, 30.5% EBITDA margin: difference, 9.2% net income margin: difference, 3.6%

Ledley et al “Profitability of Large Pharmaceutical Companies Compared With Other Large Public Companies “JAMA Network; March 3, 2020

RAND: Insulin Prices 11x Higher than Other Wealthy Countries

A new RAND Corp. report shows that insulin prices in the U.S. were often 11 times higher two years ago than all the other OECD countries. Highlights:

  • Although the ratio of U.S. to other-country prices varied depending on the comparison country and insulin category, U.S. prices were 5 to 10 times higher than those in other countries. Ex.: U.S. prices were 6.3 times higher than Canada, 5.9 times higher than Japan and 8.9 times higher than in the United Kingdom.

  • The analysis suggests that U.S. insulin prices would still have been considerably higher — about 4 times higher — than those in other countries even when accounting for potential rebates.

“Comparing Insulin Prices in the United States to Other Countries”; RAND; October, 2020


U.S. Senate

  • 2020 races: 35 seats (Republicans are defending 23; Democrats defending 12). 33 are regular cycle elections; two are special elections: one in Arizona to fill the vacancy created by the death of John McCain in 2018 and one in Georgia following the resignation of Johnny Isakson at the end of 2019

  • Current composition: 53 are Republicans, 45 are Democrats, 2 are Independents who caucus with the Democrats.

U.S. House of Representatives

  • 2020 races: all 435 seats

  • Current composition: 232 Democrats, 197 Republicans, 1 Libertarian, and 5 vacancies

  • 2020 Retirements:12 members announced their resignation:9 are Republicans, 3 are Democrats.


  • 2020 races: 11 states will cast ballots for governor; 8 are seeking reelection

  • Current composition: 26 Republican governors; 24 Democratic governors

Five Thirty Eight

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