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The Keckley Report

Four Environmental Trends that Pose Unprecedented Challenges to U.S. Healthcare

By October 11, 2021March 1st, 2023No Comments

As healthcare leaders and Boards consider strategies for post-pandemic growth and sustainability, four environmental issues pose unprecedented challenges:

1. Workforce Shortages

The healthcare industry’s labor shortage is not simply the result of the pandemic nor unique. The U.S. labor market will be tighter as a result of 3 concurrent demographic trends:

  • Declining labor force participation: the rate has declined from 66.8 in September 2001 to 61.7 overall and 57.4 among working age women—key to the healthcare workforce.

  • Declining Birthrate:The U.S. birthrate has declined from 15.613 births per 1000 people in 1989 to 12.001 this year and is forecast to shrink to 11.103 over the next 3 decades.

  • Baby Boomer exodus: Since 2011, 2.0 million baby boomers/year (28.6 million those born between 1946 and1964) left the workforce. In 2020, it spiked to 3.2 million and is projected to continue for the next 20 years.

It is compounded in healthcare as its skilled workforce (doctors, nurses, techs) and direct care workers face heightened risks from the pandemic. Additional insight:

  • Nursing vacancy rates in nursing homes and hospitals now exceeds 20%. Costs associated with travel nurses have doubled in 2021.

  • Per Moody’s “The rise in Delta variant COVID-19 cases is exacerbating the shortage of workers in not-for-profit hospitals, hampering recruitment, driving up wages and weighing on margins… The trend is likely to continue into 2022, as patient acuity in both COVID-19 and non-COVID cases rises”

  • Companion bills in the U.S. Senate and House have been introduced to improve working conditions for the direct care workforce (4.5 million), family caregivers while also adding residency slots in primary care.

2. Supply Chain Disruption

Just as the energy and auto manufacturing industries have been mal affected by the availability of processing chips, healthcare’s supply chain faces similar dysfunction. The global supply chains for prescription drugs, medical devices and over-the-counter therapies have been paralyzed by the pandemic. Adoption of blockchain technologies to track manufacturing, procurement, storage and transportation has been derailed and labor shortages have cut the supply chain management (SCM) workforce dramatically.

The pandemic exposed the fragility of the U.S. healthcare supply chain: that’s in large measure why the U.S. ranks last among the G-7 economies for vaccinations despite spending significantly more per capita. Additional insight:

  • The Producer Price Index for Medical Equipment and Supplies has increased annually from its baseline of 100 in 2003 to its high (124.1) in August 2021—substantially lower than overall spending growth for healthcare in the U.S. Most annual supply costs increases were constrained as supply chain management efforts intensified though wholesales costs for specialty drugs exceeded overall trends.

  • Only 38% of supply chain executives feel their workforce is mostly or completely ready to leverage the technology tools provided to them. (Accenture)

  • U.S. healthcare supply chain management costs are projected to increase 14.2%/year from 2021 to 2028.

3. Consolidation

In every sector of healthcare, horizontal and vertical consolidation accelerated during the pandemic as a result of readily accessible capital from private equity and shrinking operating margins in most provider sectors (hospitals, long-term care, medical practices et al). Despite threats by the Department of Justice’ Antitrust Division and Federal Trade Commission to limit consolidation, deals are continuing as SPACS (Special Purpose Acquisition Company) deploy their $700 billion in fragmented sectors and strategic investments by market leaders with healthy balance sheets pursue their targets for growth (i.e. United Health-Change Healthcare, Spectrum Health-Beaumont) et al. Additional insights:

  • Per Bloomberg, the U.S. saw 252 deals in August 2021 alone, bringing the monthly average for the year to 243, a sharp increase over 2020’s average of 161 led by life sciences (53) health-care information technology (36), device and supplies (29), cannabis (24), and physician practices (24). There were 8 hospital deals and 4 among managed care plans. More specifically:

    • Over all healthcare industry codes and deal types, median deal size saw a relatively steady increase in the first half of 2021- starting off at $5M in January and peaking at $20M in June. But Q3 2021 saw both median deal size and Total Capital Invested trend downward, falling to $8M and $50B, respectively by August.

  • Among the 1943 deals for the year to date, life sciences (345) health-care information technology (297), device and supplies (255), cannabis (197), physician practices (235), 63 for hospitals and 27 for health insurers/managed care plans. Across all healthcare industry codes and deal types:

    • In looking at the “retail” provider space a bit closer, clinics/outpatient services saw the lion’s share of deals and capital invested over 2021 thus far, averaging roughly 14.9% and 8.4%, respectively, per month thru August; whereas Practice Management realized 2.7% and 3.5%, respectively, on average per month over that same time period.

  • At least 6 “mega biotechs” like Contessa, Senda Biosciences, Sana and others have been launched in the past year after creating or acquiring smaller ventures—each with a valuation of more than $1 billion.

4. Economic Anxiety

Third-quarter earnings season kicks off this week with investors anxious about rising costs (labor, supply chain) and the lingering impact of the pandemic that might cut into corporate profits this quarter and beyond. It comes after a shaky September for investors that saw the S&P 500 down 3.2%. Additional insights:

  • Among bell weather companies reporting earnings this week that provide particular insight to the healthcare industry: JPMorgan Chase (capital markets), Delta Air Lines (supply chain, disposable income) and UnitedHealth Group (coverage).

  • The S&P grew 28% in the 3rd quarter and is up 17% YTD–down from a year-to-date gain of 21% at its early-September record. The net profit margin for the S&P 500 is forecast to come in at 12.1% for 3Q 2021– down from a record of 13.1% in the previous quarter, according to FactSet.

  • The S&P 500 traded Thursday at 20.6 times its projected earnings over the next 12 months, above a five-year average of 18.6 times but down from the 22.8 at the end of last year. However, when you consider the CAPE multiple- an inflation adjusted earnings estimate- there are some serious concerns on the horizon. The current reading is 38x, the second highest multiple ever recorded since the measure has been kept, topped only by early 2000 readings. And frothy conditions aren’t limited to the public markets- PE and VC dealmakers are noticing increased competition across all deal types where money is moving both up and downstream due to increased demand, which more often than not leads to highly adjusted multiples.


Notwithstanding daily vaccination of 1 million previously hesitant and promising news about Merck’s breakthrough Covid pill (molnupiravir), the healthcare industry still faces its perpetual challenges– affordability, accessibility, transparency and user satisfaction.

The prospect for a ravaging flu season in 2021-2022 and the lingering impact of the pandemic further complicate strategic planning, especially in every sector.

But the four environmental shifts noted above—workforce shortages, supply chain disruption, consolidation and economic anxiety—are an unprecedented context for sustainability, growth and innovation in healthcare. They cut across every industry and expose healthcare’s unique vulnerabilities,



“The pace of Boomer retirements has accelerated in the past year”; November2020; Pew Research

“Moody’s expects labor shortages to drive down hospital margins”; October 5, 2021; Moody’s

“Investors Watch for Rising Costs in Earnings This Week”; October 10, 2021; Wall Street Journal

“Mega-Biotechs take over drug industry boosting valuations”; October 7, 2021; Business Insider

“Health-Care Deals Stay Strong in August Amid Covid-19 Surge”; September 29, 2021; Bloomberg Law

“Future-ready supply chains linked to data, sourcing, real-time visibility strategies”; September 28, 2021; Healthcare Purchasing News

“Producer Price Index by Industry: Medical Equipment and Supplies Manufacturing”;

“Deals continued to surge in Summer months”; October 6, 2021; Health Evolution

“Healthcare Workforce Bills Moving Along in Congress”; October 8, 2021; MedPage

“The 2020 Gartner Healthcare Supply Chain Top 25”; November 12, 2020; Gartner

Brent Kendall “Justice Department Makes Quiet Push on Antitrust Enforcement”; October 9, 2021; Wall Street Journal

“Kaufman U.S. hospital merger and acquisition volume decreases but revenue remains high”; October 6, 2021; Kaufman Hall


Facts, Trends Update (CDC, FDA Hopkins)

  • Case Rate: the seven-day case average is 95,448 as of October 8–11.6% decrease from the previous week’s average and third consecutive week the national case average has declined. The Delta variant accounts for 99% of all U.S. COVID-19 cases. Children under the age of 18 accounted for around 27% of all Covid cases in the US last week.

  • Hospitalizations: the current seven-day hospitalization average for Sept. 29 to Oct. 5 is 7,440–a 13.2% drop from the previous week’s average. (CDC)

  • Vaccinations: 216.3 million people/65.1% of the total U.S. population have received at least one dose of the COVID-19 vaccine, and 186.6 million people/56.2% of the population, have gotten both doses. About 6.4 million have received booster shots. The seven-day average number of vaccines administered daily was 948,921 as of Oct. 7– 30.5% increase from the previous week.

  • Deaths: The current 7-day death average is 1,431, down 8.4 % from the previous week average.

  • Testing: The 7-day average for % positivity from tests is 6.1%– down 5.9% from the previous week. The nation’s 7-day average test volume for the week of Sept. 24-30 was about 1.5 million, down 6% from the prior week’s average

  • Drug authorizations: Officials from Pfizer and BioNTech have asked the FDA to authorize their Covid-19 vaccine for emergency use in children between the ages of 5 and 11 years old at a.10 μg dose

  • Vaccination impact: the net reduction in infections, hospitalizations, and deaths among all 62.7 million from January until May 2021 were associated with an estimated reduction of more than 265,000 COVID-19 infections and nearly 39,000 deaths among Medicare beneficiaries.

  • CDC survey: The agency relied on a biweekly online survey conducted from August 2020 to June 2021: symptoms of anxiety rose by 13% and symptoms of depression by 15% but from December to June 2021, that trend reversed: Symptoms of anxiety decreased by 27% and of depression by 25%.

Study: Simulation Shows 50% Vaccination Increase will Save 700 Lives in the Next 7 Months

Researchers applied a simulation model to forecast the impact of 50% increased vaccination rates in low vaccination states during the next six months. Findings:

  • Through the end of March 2022, increasing daily COVID-19 vaccination by 50 % starting in September would prevent a total of approximately 19,500 hospitalizations and 6,900 deaths across the 10 states studied.

  • By the end of September, more than 210 million Americans aged 12 and older had received at least one dose; more than 180 million (56%) have been fully vaccinated. “The U.S. has ample supply, but its vaccination rate ranks last among the world’s seven wealthiest large democracies. “

“How Many COVID-19 Hospitalizations and Deaths Can Be Averted if States Immediately Accelerate Their Vaccination Efforts?” Commonwealth Fund October 5, 2021; The Commonwealth Fund

JPMorgan Chase Institute Study: Child Tax Credits, Covid Stimulus Benefited Low Income Households

Background: 35 million households with children, or 27% of the total 128 million households in the U.S., received Child Tax Credits; 85% of adults received a stimulus check. Findings:

  • Median household cash balances were 50% higher at the end of July 2021 compared to the same period in 2019.

  • The balances of lower-income families (income quartile 1) are roughly 70% higher than 2019 levels, while higher-income families (income quartile 4) have balances roughly 35% higher than 2019 levels.

  • Following each round of stimulus, the low end of the liquid assets’ distribution and families with low incomes experienced larger proportional increases in balances but also faster depletion of those balance gains in the weeks after the stimulus, showing the importance of targeted support.

“Household Finances Pulse: Cash Balances during COVID-19”; September 2021; JPMorgan Chase


Kaufman Hall: Hospital M&A Deals Continue as Focus Become More Strategic

Per Kaufman Hall’s 3rd quarter report:

  • 7 transactions involving 20 hospitals were announced in the third quarter, including two “mega-mergers,” in which the smaller partner or seller has average annual revenues over $1 billion. Total transacted revenue for the quarter was $5.2 billion.

  • Average seller size by revenue year-to-date was $659 million– double the average between 2015 and 2020. Total transacted revenue for 2021 is $22.4 billion, nearly on par with that of past years, despite only half (or even less) of the total transaction volume.

  • 67% of community hospitals are already part of a larger system.

“Kaufman U.S. hospital merger and acquisition volume decreases but revenue remains high”; October 6, 2021; Kaufman Hall

JD Power Study: Telehealth Use Increased but Satisfaction Decreased in 2021

According to the 3rd J.D. Power 2021 U.S. Telehealth Satisfaction Study, released September 30:

  • 36% of patients have accessed telehealth services during the past year, up from just 9% in 2020 and 7% in 2019. Usage is consistent across all generational groups, with the highest usage among members of Generation Y and Pre-Boomers.1

  • The top reasons for telehealth utilization are convenience (57%); ability to receive care quickly (47%); and safety (36%).

  • Overall satisfaction with both direct-to-consumer and payer-sponsored telehealth services decline in 2021 from 2020. The most frequently cited barriers encountered by patients are limited services (24%); lack of awareness of costs (15%); confusing technology requirements (15%); and lack of information about providers (15%).

“Telehealth Usage Surging but Service Issues and Barriers to Access Strain Patient Experience, J.D. Power Finds”; September 30, 2021; JD Power

Related Study: Opioid Prescribing for Young Patients has Decreased but Still Readily Used

A population-based, cross-sectional analysis of opioid prescription data was conducted from January 1, 2006, to December 31, 2018. analyzing retail pharmacy–dispensed opioids for patients younger than 25 years. Findings:

  • From 2006 to 2018, the opioid dispensing rate for patients younger than 25 years decreased from 14.28 to 6.45, with an annual decrease of 15.15% from 2013 to 2018.

  • Mean duration per prescription increased initially for all ages, but then decreased for individuals aged 10 years or older. The duration remained longer than 5 days across all ages.

Note: Prescription opioids are involved in more than half of opioid overdose deaths in the pediatric population. Prescription opioid use in children and adolescents is associated with a risk for future opioid misuse, opioid-related adverse events, and emergency department visits or hospitalizations for unintentional opioid exposures by younger children.

Renny et al “Temporal Trends in Opioid Prescribing Practices in Children, Adolescents, and Younger Adults in the US From 2006 to 2018”; June 28, 2021; JAMA Pediatrics

“McKinsey never told the FDA it was working for opioid makers while also working for the agency” ProPublica October 4, 2021; ProPublica


Census Bureau: Median Household Income Drops from 2019, Poverty Rate Up

From the Bureau’s latest Current Population Survey conducted between February and April of 2021:

  • Median household income decreased 2.9%, dropping from $69,560 in 2019 to $67,521 in 2020. Regionally, median household incomes dropped by 3.2% in the Midwest and 2.3% in the South and West.

  • By the end of 2020, there were 3.3 million more people in poverty than the year before — the first poverty rate increase in six years. Nationwide, 37.2 million people lived in poverty. Poverty increased most for Hispanic households compared to other races and ethnicities, growing by almost 2 percentage points to 17%.

US Census Bureau

“Poverty grew in 2020 as Americans lost income and health insurance”; September 29, 2021; USA Facts

Child Care in US Lowest of Developed Economies

In the developed world, the United States is an outlier in its low levels of financial support for young children’s care — something Democrats, with their safety net spending bill, are trying to change. The U.S. spends 0.2% of its G.D.P. on childcare for children 2 and under — which amounts to about $200 a year for most families, in the form of a once-a-year tax credit for parents who pay for care.

The other wealthy countries in the Organization for Economic Cooperation and Development spend an average of 0.7% of G.D.P. on toddlers, mainly through heavily subsidized childcare. Denmark, for example, spends $23,140 annually per child on care for children 2 and under.

“How Other Nations Pay for Child Care. The U.S. Is an Outlier”; New York Times October 6, 2021; New York Times

Study: ED Visits for Medication Use Primarily Associated with Chronic Conditions

Researchers analyzed patient visits to 60 EDs in the US participating in the National Electronic Injury Surveillance System–Cooperative Adverse Drug Event Surveillance Project from 2017 through 2019. Findings:

The most frequent medication related ED visits were therapeutic use of anticoagulants (4.5/1000 population) and diabetes agents (1.8/1000 population) for patients aged 65 years or older; therapeutic use of anticoagulants (0.6/1000 population) and diabetes agents (0.8/1000 population) for patients aged 45 to 64 years; nontherapeutic use of benzodiazepines (1.0/1000 population) and prescription opioids (0.7/1000 population) for patients aged 25 to 44 years; and unsupervised medication exposures (2.2/1000 population) and therapeutic use of antibiotics (1.4/1000 population) for children younger than 5 years.

Budnitz et al “US Emergency Department Visits Attributed to Medication Harms, 2017-2019” JAMA. October 5, 2021; JAMA Network

GAO Report: MIPS Program has Mixed Success

Background: The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) changed how Medicare pays for physician services, moving from a payment system that largely rewarded volume and complexity of health care services to the Quality Payment Program, which is a payment incentive program intended to reward high-quality, efficient care. Providers participate in the Quality Payment Program through one of two tracks: MIPS or advanced alternative payment models. MIPS was designed to incentivize high-quality care through performance-based payment adjustments.

Under this system, MIPS-eligible providers receive a “final score” based on their performance on certain measures in four categories (relative weighting): quality (45%), improvement activities (15%), promoting interoperability (25%), and cost (15%). GAO analyzed MIPS data for performance years 2017 through 2019—the most recent year available at the time of GAO’s analysis. Finding:

“Across the 3 years, median final scores ranged from about 89.7 to 99.6 (out of a possible 100)—well above the performance threshold. At least 93% of providers qualified for a positive payment adjustment in any year, and no more than 4.8% of providers qualified for a negative payment adjustment… Most providers were part of larger practices or participated through other reporting methods in each year. For example, in 2019, only 6.4% of eligible providers participated as individuals and only 3.4^ of eligible providers participated through solo practice”.

“Provider Performance and Experiences under the Merit-based Incentive Payment System”; October 2021; GAO

September Labor Report: Disappointing Results

From last Thursday’s Labor Department report for the week ending September25:

  • Jobless claims totaled 326,000 last week vs. the median forecast of 348,000 from economists.

  • Unemployment benefits claimants declined to 2.71 million through the week that ended September 25. Economists expected a reading of 2.76 million continuing claims. The previous week’s sum was revised to 2.81 million. US private-sector firms added 568,000 jobs in September vs. median forecast for a 428,000-payroll gain and reflected a rebound in hiring.

“US private payrolls jump by 568,000 in September — a strong rebound as the Delta wave weakened”; October 6, 2021; Business Insider