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The Keckley Report

Inflation and Healthcare: Prices matter

By December 13, 2021March 1st, 2023No Comments

Medical care services- one of two components of the Medical Care Index in the United States- increased 2.1% for the 12 months ending November 2021, after rising 3.2% in 2020 and 5.1% in 2019 over the same time period, according to the most recent inflation stats released December 10th by the U.S. Labor Department’s Bureau of Labor Statistics (BLS). That’s substantially less than overall prices which increased 6.8% in the last 12 months largely due to a 33.3% spike in energy prices, yielding a core CPI reading of 4.9%.

On top of the 2.1% in medical care services uptick, medical care commodities (drugs, disposables, supplies et al) improved a marginal .2% for the 12 months ending November 2021.

At a high level, there are 2 immediate takeaways for healthcare from the November CPI data:

1) In general, medical care services (operating costs), not supply costs are driving the medical care index up.

2) And medical care services costs were higher than prices for all items in the CPI in 2019 (5.1% vs 2.1%) and 2020 (3.2% vs. 1.2% in 2020), but dramatically below 2021 (2.1% vs. 6.8% or 4.9% core CPI).

So what? A one-month or one-year look-back period doesn’t tell the full story for healthcare. According to the Bureau of Labor Statistics, since 1935, annual healthcare price increases (4.69%/yr.) have been higher than overall prices (3.53%/yr.). But the CPI is not reflective of actual prices in healthcare: it’s simply a tool used by to economists and policymakers. Most expect the central bank to accelerate its bond buying to $30 billion/month setting the stage for interest rate increases by March or April. Most anticipate inflation will continue into 2022 at 5-6%, driving prices for consumers higher in the first half of the year. And most expect prices to increase, including healthcare, at a significant pace.

So, what’s all this mean for healthcare? Here are 2 predictions:

1. Healthcare Prices Will Matter More to Consumers

Conventional wisdom among hospitals, insurers and others in the system has been that out-of-pocket costs are what matters to consumers: prices per se don’t. And there’s widespread recognition that healthcare consumers, especially those in low-to-middle income cohorts, and young adults, worry about healthcare affordability and pay more attention to prices than others. Here’s what we know:

  • 37% of those who make less than $50,000 struggle with medical bills debt vs. 26% between $50,000-99,999 and 14% who make $100,000 or more.

  • Every year, 250,000 Americans start GoFundMe pages to seek help in paying their unpaid medical bills and more than 500,000 declare bankruptcy due to medical debt (78% of these had health insurance).

  • 69% of those who received care from out-of-network providers weren’t aware that the providers were out-of-network. Only 28% said they knew their healthcare providers were out-of-network.

  • 19.4% of American consumer credit reports contain medical or healthcare-related collections: 52.1% of these involve a healthcare provider wherein the median account payable is $579.

2. Retail Health Providers are at an Advantage in Price-Driven Healthcare

Recent expansion of health services by CVS, Walmart, Best Buy, Amazon and Dollar General underscore the growing consensus that healthcare services, especially in primary care, mental health, dental, hearing and eye care are attractive to the general population. Analysts anticipate the retail health market will grow at 10%/year through 2025 to $90 billion for direct purchases and consumer price sensitivity as a lever for channeling utilization to high-value providers using total cost of care (prices), outcome and patient experience guarantees as differentiators.

The CPI reading in November is not inconsequential to healthcare even though the medical care index- namely medical care services- was relatively tame in that report. What remains to be seen is how providers will manage their operating costs in a time of growing reliance on locums. Because the readings aren’t necessarily clear at this point- an uptick in contract labor could be offset by a reduction in total staff headcount and/or a different mix of specialty providers. And that’s all before factoring in administrative compensation, payor negotiations, or how pass through costs could impact bad debt reserves.

Every player in the U.S. health system must come to grips with the reality that prices matter. Opposition to the No Surprises Act and price transparency rule lacking a meaningful substitute that is credible to consumers is short-sighted.


PS: This week, we’ll pass a threshold: 800,000 deaths from Covid. And the tornado that tore through six states (KY, IL, TN, AR, MS, MO) killing at least 64 and injuring hundreds was another reminder of the health system’s unique role in our communities, economy and the nation’s health.


“Consumer Price Index- Interactive Chart”; December 10th, 2021; BLS

“Medical cost trend: Behind the numbers 2022” PWC

“2021 Global Medical Trends Survey report”; November 15th, 2021; Willis Towers Watson

“Why Wages Are Growing Rapidly Now–And Will Continue to in the Future”; Conference Board

“Americans Are Flush with Cash and Jobs. They Also Think the Economy Is Awful”; November 12, 2021; New York Times

“Study Estimates That More Than Half of U.S. Hospitals Not in Compliance with New Pricing Disclosure Rules in First Five Months”; December 9, 2021; Johns Hopkins Bloomberg School of Public Health

“Future Reimagined: Consumerization of Healthcare – What’s in Store?”; 2020; UBS

“U.S. Inflation Hit a 39-Year High in November”; December 10, 2021; Wall Street Journal

“Consumer Prices Rose at Fastest Pace Since 1982, Pressuring Washington”; December 10, 2021; New York Times

“An examination of surprise medical bills and proposals to protect consumers from them”; February 10, 2020; Peterson KFF Health System Tracker


Recent Deal Announcements

December 8, 2021: Cerebral– a Miami based telemental health provider- raised $300M in its most recent Series C financing round, bringing the company’s post money valuation to roughly $4.8B. Softbank- a new investor- led the round and names like Access Industries, Prysm Capital, WestCap Group, and ARTIS Ventures also participated. Note that 3 out of the 5 investors in this round were already participants in Cerebral’s cap table.

December 8, 2021: ConnectRN– a digital platform based RN staffing solution that connects healthcare providers to credentialed RNs in real time- raised $76M in a late stage VC deal, bringing the company’s post valuation in the range of $117M. The increased demand for staffing solutions shouldn’t come as a surprise as locums have been in hot demand ever since the pandemic kicked off. And this most recent financing round shows the extent to which investors will pay up for a piece of the action. Out of ConnectRN’s 8 total rounds, the most recent deal represents approximately 75% of all $ the company has raised since inception.

Poll: Lowering Health Costs Remains the Major Issue to Voters

Key findings of the November 2021 Voter Vitals poll of 2000 adult likely voters:

  • Lowering costs (67%) remains the top health care priority for Democratic, swing, and Republican voters.

  • 75% of voters with health insurance coverage are satisfied with their coverage.

  • Support for government-run proposals remains low – including for Medicare for All (45 %, +0 % since August) and the public option (47%, +1% since August).

  • 65% prefer building on our current system rather than creating the public option or opening up Medicare – including a majority of Democratic voters.

  • An increasing majority are concerned about limiting access to quality care (74%, +3% since August), increasing payroll taxes (70%, +3%since August), and bankrupting the Medicare Trust Fund (70%+3% since August) to expand Medicare.

“Voter Vitals November 2021 Edition – National Tracking Poll”; December 6, 2021; Partnership for America’s Health Care Future

Study: In Person Care Preferred Over Televisits unless Out of Pocket Costs Significantly Higher

RAND surveyed 2080 adults in its American Life Panel between March 8 and 19, 2021. Findings:

  • Most participants (66.5%) preferred at least some video visits in the future, but when faced with a choice between an in-person or a video visit for a health care encounter that could be conducted either way, more than half of respondents (53.0%) preferred an in-person visit.

  • Among those who initially preferred an in-person visit when out-of-pocket costs were not a factor, 49.8% still preferred in-person care and 23.5% switched to a video visit when confronted with higher relative costs for in-person care. In contrast, among those who initially preferred a video visit, only 18.9% still preferred a video visit and 61.7% switched to in-person visit when confronted with higher relative costs for video visits.

Predmore et al “Assessment of Patient Preferences for Telehealth in Post–COVID-19 Pandemic Health Care”; December 1, 2021; JAMA Network Open

CVS Health Presents Strategy for Consumer Health Experience while Driving Profitable Growth

At its investor day Thursday, CVS Health CEO Karen Lynch laid out plans:

Updating 2021 Adjusted EPS Guidance to at least $8.00; initiating 2022 Guidance for Adjusted EPS of $8.10 – $8.30 and GAAP EPS of $7.04 – $7.24. Returning capital to shareholders through 10% dividend raise and $10 billion share repurchase program.

  • Advancing primary care delivery capabilities by guiding consumers across the care continuum to sites and to providers that meet their needs and expand risk-based arrangements and value-based care.

  • Optimizing the retail portfolio to serve as community health destinations by pivoting the store footprint to focus on advanced primary care centers, enhanced HealthHUB locations and traditional CVS Pharmacy stores.

  • Launching new all-payer health products and services, the commercialization of analytics and insights, and establishing all-payer and provider enablement services.

  • Driving a digital-first, technology-forward approach that will expand the company’s reach and engagement with its more than 35 million online members.

  • Enhancing omnichannel health services to meet the needs of consumers when and where they want them, including at home, virtually and in the community.

Integrated members were associated with a sustained 3 – 6% decrease in per member per month medical costs over a three-year period. Members who filled prescriptions at CVS Pharmacy locations were associated with 6% higher adherence across important chronic conditions, including congestive heart disease, diabetes, and hypertension, and demonstrated at least a 40% higher level of engagement in supportive care management programs in 2020

CVS Health Investor Day 2021; December 9, 2021; CVS Health

Study: ACO Risk Coding, not CAHPS Risks Associated with Higher Payments

Researchers compared risk scores from two different measurement approaches: one uses diagnoses coded on claims based on CMS’ Hierarchical Condition Categories (HCC), and the other uses self-reported, survey-based health data from the Consumer Assessment of Healthcare Providers and Systems (CAHPS). During 2013–16 HCC-based risk scores grew faster than CAHPS-based risk scores (2.1% versus 0.3% annually) and the gap in HCC- and CAHPS-based risk score growth varied widely across ACOs. “The average gap in risk score growth appears to be the result primarily of HCC coding practices rather than poor performance of the CAHPS model, suggesting that coding practices (not necessarily driven by ACO contracts) may account for most of the observed risk score growth for ACO beneficiaries.”

Chernow et al “Coding-Driven Changes In Measured Risk In Accountable Care Organizations”; December 2021; Health Affairs

Study: 25% Pay Gap between Male and Female Physicians

Women may now equal or outnumber men in medical school classes, but their lifetime earnings as doctors still fall far short of parity. A persistent 25% pay gap between female and male physicians adds up to $2 million over a medical career, a new analysis in Health Affairs calculates, after accounting for specialty, hours, location, and experience.

Whaley et al “Female Physicians Earn An Estimated $2 Million Less Than Male Physicians Over A Simulated 40-Year Career”; December 2021; Health Affairs

Rock Health: Venture Funding in 2021 Double 2020 Level

Healthcare investors have funded startups to the tune of $21.3 billion across 541 deals in the first nine months of 2021, almost double the total amount invested in 2020, which also broke records. Investors have shattered all kinds of private funding records in 2021, from the total amount raised to the sheer number of deals inked

“Q3 2021 Digital Health Funding: To $20B and Beyond!”; October 4, 2021; Rock Health


Study: States Rarely Challenge Hospital Consolidation

States can challenge proposed hospital mergers by using antitrust laws to prevent anticompetitive harms. During the period 2010–19, 862 hospital mergers were proposed, but only 42 (4.9%) were challenged by states, including 35 by states without federal involvement, of which 25 (71.4%) originated in the 8 states with the most robust merger review authority. The 25 challenges resulted in 2 mergers being blocked; 3 being abandoned; and 20 being approved with conditions, including 7 with competitive-impact conditions.

Hospital market concentration and prices increased at similar rates in these 8 states versus other states, potentially because most challenges allowed mergers to proceed with conditions that did not adequately address competitive concerns.

Fulton et al “States’ Merger Review Authority Is Associated With States Challenging Hospital Mergers, But Prices Continue To Increase”; December 2021; Health Affairs

Study: Critical Access Hospital Finances, Staffing, Quality Score in Medicaid Expansion States not Significantly Better

Researchers found that critical access hospitals in Medicaid expansion states did not have statistically significant post-expansion increases in operating margins relative to hospitals in non-expansion states nor statistically significant differential improvement on either staffing measures (physicians and registered nurses per 1,000 patient days) or quality measures (percentage-point changes in readmissions and mortality within thirty days of admission for pneumonia or heart failure).

Chatterjee et al “Medicaid Expansion Alone Not Associated With Improved Finances, Staffing, Or Quality At Critical Access Hospitals”; December 2021; Health Affairs

Mathematica Study: Small Savings in 6th year of Independence at Home Demonstration Project

The sixth year of the demonstration known as Independence at Home reduced total Medicare expenditures by an estimated 1% per beneficiary per month in 2019, according to research published by Mathematica last week. Earlier Mathematica evaluations of the program through its fourth year found that savings weren’t statistically significant. Though year five in 2018 did result in lower costs, those were driven by a single site that left the program after that year. Congress created the Independence at Home demonstration through the Affordable Care Act and extended it in 2015 and 2018. The demonstration currently runs through 2023.

“Evaluation of the Independence at Home Demonstration: An Examination of the First Six Years”; November 30, 2021; Mathematica

Study: Hospital at Home Implemented in 186 Hospitals in 33 States

The Acute Hospital Care at Home (AHCaH) initiative, launched in November 2020, allowed Medicare-certified hospitals to treat patients with inpatient-level care at home. As of October 27, 2021, 186 hospitals across 33 states have implemented AHCaH and have treated 1,878 patients. As of October 27, 2021, 1,877 patients have been admitted using the waiver. Of these, 1,233 have had only Medicare FFS insurance, 427 have had traditional non-managed care Medicaid insurance, and 218 have had both (dual eligible)

Clarke et al “Acute Hospital Care at Home: The CMS Waiver Experience”; December 7, 2021; NEJM

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