Skip to main content
The Keckley Report

The Short Game: 3 Issues that will Frame Biden Administration Health Priorities through 2022

By April 12, 2021March 1st, 2023No Comments

Last week, President Biden submitted his proposed FY 2022 budget for discretionary spending in the Federal Government’s 15 departments: healthcare figures prominently in the $1.52 trillion package. Notably, the Department of Health and Human Services $131.7 billion budget request is 23.5% above its FY 2021 allocation (higher than every other department) and the Veterans Administration budget of $113.1 billion is 8.2% above its FY 2021 budget.

This budget comes at a precarious time for the U.S. healthcare industry:

  • The pandemic is NOT in the rear-view mirror as a fourth surge from variants creates angst. Its long-term impact on our frontline workers is unknown.

  • Consumer spending remains 12% below pre-pandemic levels with forecasts for full recovery not until next year.

  • Federal debt is soaring: the federal debt is $28.2 trillion and growing. That’s $85,000 per capita and $244,000 per taxpayer. Reducing the federal debt means spending less for Medicare and Medicaid: both are transitioning to managed care models that reward primary care gatekeeping, care coordination and appropriate use of specialty and post-acute care.

  • Last weekend, Federal Reserve Chairman Jerome Powell promised no hike in interest rates for 2021, essentially assuring investors in healthcare and other sectors that inflation is being adequately managed under current monetary policy, which implies continued appreciation in the equity markets.

Collectively, these mean healthcare will be in the economic spotlight. For the industry’s traditional players—its hospitals, physicians, health insurers and large employers—the issues are not new. The triple aim—improved quality, increased access, and lower costs- are old hat.

What’s new is the combination of the new administration, the post-pandemic economy and the accessibility of private investment in healthcare vis a vis private equity, venture capital, SPACs and strategic investors, including Big Tech anxious to carve out their pieces of an attractive pie.

Take- for example- healthcare private equity disclosed activity: 2020 North America deal count fell slightly compared to 2019, as did total and average deal value, and providers continued to lead the way with more than half of the activity in terms of volume. What used to be a space dominated by large deals making up the majority of aggregate deal value in any given year fell precipitously in 2020 (around 43% in the aggregate globally, notably in Europe and North America ). And with regard to 2020 activity, the first half of the year was transactionally quiet, but there was a significant uptick in the second half. If you were to look at healthcare private equity as the proxy for industry sentiment, traditional strategies continue to be deployed, although emerging models are gaining momentum. For example, the provider space continues to favor a buy and build strategy- whether that be through traditional PPM specialty targets, or through its mutations like behavioral health. And medicare advantage models continue to garner attention from investors. Even when you remove the impact of pandemic related deal deferrals as well as deal takeaways from the likes of M&A, SPACs and others, PE has generally benefited from COVID induced/distressed asset discounts.

But they are not the only ones interested in the space that stand to benefit. We know there are at least 60 Special Purpose Acquisition Corporations (SPACs aka “blank check companies”) that are poised for 2021 acquisitions in healthcare insurance and delivery. And we can’t leave out Microsoft’s honorable mention with their announcement today that they are acquiring Nuance Communications for $16B- a play to capitalize on demand for healthcare software.

These are just a few examples of activity across various investor platforms, but it is especially meaningful within the context of record dry powder, combined with current monetary policy. That said, the new administration has not caused investors to meaningfully pivot away from traditional strategies and they likely won’t- the financing platforms and underlying models are simply evolving.

As for the Biden team, their focus is elsewhere and more near term: the next 12-18 months. With a thin margin of Democrats in Congress and mid-term elections next year, they’ll necessarily focus on programs that are popular with voters that also advance its long-term agenda for healthcare. Based on its actions and staff appointments in the administration’s first 82 days, three areas will likely get their immediate attention:

Medicare’s Alternative Payment Models

After 9 years and 55 pilot programs, only 4 have been approved for national rollout. Promised savings for Medicare spending never materialized for many, but improvement in care coordination has been promising. Signal: Watch for delays, changes to participation and performance measures, added emphasis on consumer experience and inclusion and increased financial risks for participants.

The Public Option and Premium Subsidies

The public option is a proposal to create a government-run health insurance agency that would compete with other private health insurance companies. It is indirectly advanced is in the American Rescue Plan Act (infrastructure bill) pending before Congress now that increases insurance tax credits (Advanced Premium Tax Credits (APTCs) temporarily limiting what that people pay for their coverage to 8.5% of their income. Signal: Watch the legislative process in states like Colorado, Connecticut, Washington and others to create their own public options, the mechanisms whereby they set their premiums and how private insurer premiums are impacted.

FDA Accelerated Drug Approvals

The FDA has the authority to approve certain drugs not completely vetted for their efficacy and effectiveness (Phase 4) via its emergency authorization process. But the FDA’s power to authorize market access to drugs based on surrogate endpoints also assures wide latitude for their manufacturers to price these drugs at eye-popping levels. Signal: Watch for Congress to intensify its oversight of drug manufacturer business practices around pricing, aggressive patent protections, pay-to-delay competitive strategies, drug advertising, prescriber incentives and others. Though formidable, the drug manufacturers appear to be a soft target for legislation.

This trio of issues have one thing in common: none requires significant additional federal funding which make them an easier sell to voters as mid-term elections near. But they’re just a start.

The bigger structural issues—like consolidation and monopolization of the industry, the role of the federal government in health insurance, the affordability and accessibility of the system to under-served populations, interoperability and others– are still on the radar but don’t expect new/major changes right now. The Biden administration’s focused on its short game.



“Biden seeks huge funding increases for education, health care and environmental protection in first budget request to Congress”; April 9, 2021; Washington Post

“CBO: The Public Option Could Lead To Premium Increases, Fewer Choices & Less Access”; April 8, 2021; Partnership for America’s Health Care Future

“A Public Option for Health Insurance in the Nongroup Marketplaces: Key Design Considerations and Implications”; April 2021; Congressional Budget Office

“Accelerated Approval Program” U.S. Food and Drug Administration

“Global Healthcare Private Equity and M&A Report 2021” Bain and Company


CDC: Suicides in fell 6% in 2020

The number of U.S. suicides fell 6% to below 45,000 in 2020 amid the coronavirus pandemic–the largest annual decline in at least four decades. U.S. suicides steadily increased from the early 2000s to 2018, when the national suicide rate hit its highest level since 1941. The rate fell slightly in 2019. Experts credited increased mental health screenings and other suicide prevention efforts.
Centers for Disease Control and Prevention

Altarum: 2.2% Decline in Health Spending Offset by 2.6% Price Increases during Covid

Per Altarum’s March economic indicators report:

  • Spending on personal health care (PHC) from September 2020 through February 2021 averaged nearly 0.5% below the same period the year before and an annualized reduction of 2.2% representing an annualized reduction of $338 billion.

  • Price increases offset a significant portion of revenue losses: Overall health care price growth remained high in February at 2.6%, matching the year over year rate observed in January. February marked the eighth time in the last twelve months where health care price growth has exceeded 2.5%.

“How Should We Interpret the COVID-Related Reduction in Health Spending?” Health Sector Economic Indicators”; April 5, 2021; Altarum

Morning Consult: Consumer finances below pre-pandemic

Per Morning Consult’s Index of Consumer Confidence based on the results of 2.6 million interviews conducted Jan 1, 2020-March 31, 2021.

  • The share of consumers who report being less well-off financially is still 11.8% higher now than it was prior to the pandemic across all 50 states.

  • From a regional perspective, consumers in the Northeast are the closest to where they were prior to the onset of the pandemic, while those in the South are the furthest.

  • Consumers living in many states that were heavily dependent on tourism prior to the pandemic are the furthest from financial recovery.

“After 3rd Stimulus, Consumers Across U.S. Feel More Financially Secure but Still Far From a Full Recovery”; April 7, 2021; Morning Consult

KFF: Majority of Frontline Healthcare Workers’ Emotional Health Hurt by Pandemic

Per the KFF/The Washington Post national survey of 1327 frontline healthcare workers conducted February 11-March 27, 2021 found:

  • 56% of frontline health care workers say the crisis is taking a toll on their mental health, including about 3 in 10 who either received mental health services or thought they needed them directly as a result of the pandemic.

  • 62% say that worry and stress related to the pandemic has negatively affected their mental health.

  • 4 in 10 frontline say the pandemic has negatively impacted their physical health (49%), and their relationships with family members (42%) and coworkers (41%).

“KFF/The Washington Post Frontline Health Care Workers Survey”; April 6,2021; Kaiser Family Foundation


Boston Globe Board Calls for ban on Hospital CEO Participation on Public Company Boards

The Boston Globe Editorial Board investigation found 5 of the 7 CEOs and presidents of Boston’s major teaching hospitals serve on the boards of publicly traded companies and only 8 chiefs of the 120 largest teaching hospitals, children’s hospitals, and cancer centers outside of Boston serving on the boards of publicly traded companies. In yesterday’s Editorial: “The city’s health care goliaths should bar presidents and CEOs from serving on the boards of drug and health care companies.”

Editorial Board “Boston’s hospitals should put patient trust first”; April 11,2021; Boston Globe

Study: Charity Care Levels Vary by Hospital Ownership Status

Prior research found nonprofit hospitals spent $2.3 of every $100 in total expenses incurred on charity care– less than government ($4.1) or for-profit ($3.8) hospitals. Researchers studied 2018 Medicare Hospital Cost Reports Worksheet S-10, column 3, line 23, and for 4,682 general acute care hospitals (1,026 government, 2,721 nonprofit, and 935 for-profit). Highlights:

  • In 2018 the 1,024 government hospitals (82,540 total beds), 2,709 nonprofit hospitals (383,548 total beds), and 930 for-profit hospitals (102,861 total beds) provided $6.9 billion, $16.0 billion, and $4.1 billion in charity care, respectively.

  • The median charity-care-to-expense ratio of government hospitals (0.9%) –significantly less than that of nonprofit hospitals (1.5%) and for-profit hospitals (1.4%).

Note: The American Hospital Association has challenged the veracity of this study arguing uncompensated care provided by hospitals above charity care levels should also be considered.
Bai et al “Analysis Suggests Government and Nonprofit Hospitals’ Charity Care Is Not Aligned With Their Favorable Tax Treatment”; April 2021; Health Affairs

Study: Surprise Medical Bills Lucrative for ED Physicians

Researchers analyzed Medical Expenditure Panel Survey data to measure how much privately insured emergency patients paid when they likely received a surprise bill and how much physicians received in these situations.

  • 4.9% of ED visits resulted in a surprise medical bill.

  • Physicians collected 65% of the charged amount for surprise bills compared with 52% of non-surprise cases.

  • Patients who received a surprise out-of-network bill for emergency care paid physician services paid more than 10 times as much as other emergency patients paid, on average.

Biener et al “Emergency Physicians Recover A Higher Share Of Charges From Out-Of-Network Care Than From In-Network Care”; April 2021; Health Affairs

Moody’s: Not-for-profit Hospital Finances Down, Outlook Negative

NFP hospital profitability declined in 2020 despite expense mitigation strategies per a preliminary analysis by Moody’s Investor Service:

  • The median operating margin for hospitals and health systems was 0.5% — down from 2.4% in FY19.

  • Median operating cash-flow margin was 6.7%, down from 8.4%.

  • CARES Act funding comprised between 14% and 100% of operating cash flow, with a median of 43%.

  • Median operating expenses increased 4.7%, compared with 3% revenue growth.

  • Median unrestricted cash and investments rose by 27.5% due to external support (e.g., Medicare advance payments, payroll tax relief) and internal approaches (e.g., deferral of capital spending).

  • Leverage metrics were mixed, with higher debt-to-cash flow (a ratio of 3.3, compared with 2.9 over the previous four years) and lower maximum annual debt service coverage (4.1, down from 4.6) but also improved cash-to-debt metrics (200%, up from 177%).

Moody’s maintained a negative outlook for the NFP healthcare sector this year.
Moody’s Investor Service

Study: Device Makers Inducements for Physicians more than Drug Companies

This study used 2014–17 data from the Centers for Medicare and Medicaid Services (CMS) Open Payments website focused on examination of the correlation between industry payments to physicians and Medicare billing. Finding: The medical device industry gave doctors consulting fees, lunches, lodging, and other incentive payments worth $904 million between 2014 and 2017— more than $80 million more than the pharmaceutical industry payments to physicians over the same time period.

“Medical Device Firm Payments to Physicians exceed What Drug Companies Pay Physicians, Target Surgical Specialists”; April 2021; Health Affairs

Transformation Task Force Report: Health Spending Increases Slowed in Last Decade

National Health Expenditure (NHE) growth slowed both in terms of average annual increases and as a proportion of gross domestic product between 2000 and 2020 per a new report from the Health Care Transformation Task Force (HCTTF).

  • The first decade of the 2000’s saw NHE as a percentage of GDP increase 4.1 % while the period from 2010 through 2020 saw an increase of 0.6%.

  • Over the same decades, average annual per capita NHE growth decreased by 2%from 5.7% to 3.7 %. These slower growth trends were also reflected in the ten-year NHE projections updated annually by the Centers for Medicare and Medicaid Services Office of the Actuary (OACT).

Note: HCTTF is a DC-based advocacy organization that “works to advance the transition from volume to value” on behalf of its 38 member organizations.
“Getting Warmer: Health Expenditure Trends and Health System Reform”; April 6, 2021; Healthcare Transformation Task Force

Study: Out of Pocket Payments Increased Slightly after the ACA

Out of pocket payment data from the National Health Expenditures (NHE) Accounts from 2000 to 2018 were analyzed including deductibles, coinsurance, and health and flexible savings accounts and by individuals who are uninsured. Highlights:

  • From 2000 to 2018, total OOP per capita health expenses increased from $1028 to $1148. The average annual growth rate (AAGR) of OOP spending significantly decreased following the ACA 0.2% vs 1.0%.

  • Total per capita health expenditures increased from $6649 to $10,627 from 2000 to 2018, with a pre-ACA AAGR of 3.4% and post-ACA AAGR of 1.9%.

  • Mean OOP spending increased for physician services from pre-ACA to post-ACA periods (0.5%) to 0.8% but decreased for other components of health care cost.

Suresh et al “Trends in Out-of-Pocket Healthcare Expenses Before and After Passage of the Patient Protection and Affordable Care Act”; April 9, 2021; JAMA Network