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The Keckley Report

Post Pandemic, Affordability Looms as the Big Challenge in Healthcare- This Time, it’s Different

By June 8, 2021March 1st, 2023No Comments

Pre-pandemic, polls showed healthcare costs were a major concern to U.S. consumers. Post-pandemic, indications are it will re-surface as the industry’s biggest challenge, particularly affordability. But this time, consumers are likely to act differently on their concerns.

In the decade prior to the pandemic 2010-2019, GDP growth in the U.S. averaged 2.1% and the average annual Consumer Price Index (CPI) for all items increase was 1.8%. In the same period, annual health expenditures increased 4%, the Healthcare Inflation Index (costs for goods and services) increased 5.3% and household out of pocket payments for healthcare increased 3.1%/year.

The 2020 pandemic hit the U.S. economy hard: 9 million lost their jobs, unemployment grew to 8.1%, labor force participation fell to 61.7%–its lowest since 1976– and 74% of small businesses were impaired. The GDP declined 3.5% and the CPI for all items increased a modest 1.4%. But healthcare fared better: the CPI increased 1.7% for physicians and 3% for hospitals as total healthcare spending grew 4.6% during the pandemic.

And looking ahead to 2030, a similar trend is projected: the Fed forecast is for GDP growth is 4.2% for 2021, 3.2% for 2022 and 2.4-2.8% for the balance of the decade. By contrast, annual health spending is projected to increase 5.4% and out of pocket costs for consumers 4% per year.

These Data Point to 2 Sobering Conclusions: Healthcare Spending is Growing Faster than the Economy Overall, and Consumer Out of Pocket Payments are Playing a Bigger Role.

But out of pocket obligations hit lower-and-middle income households hardest. Polls show:

  • Most consumers think the ‘system’ is paying inadequate attention to affordability.(Gallup, Kaiser Family Foundation)

  • Most consumers don’t understand their medical bills and believe hospitals, physicians, insurers and drug manufacturers are complicit in their confusion. (PatientCo, Commonwealth Fund)

  • Experiences with the health system status quo, particularly costs and affordability, are negative: net promoter scores for hospitals and health insurers lag other service industries lending to growing support for “Medicare for All” in younger, urban and educated voter cohorts. (i.e. Retently, NerdWallet and others)

The pre-pandemic response of the healthcare industry to growing concern about costs and affordability was empathic but incremental: every major trade organization representing the industry’s incumbents opined to affordability as a shared concern of their members. All were quick to blame over-regulation, over-utilization of unnecessary services, labor costs and the high costs of specialized drugs, modern facilities and expensive technologies as root causes. Most offered cost estimation tools to their customers/patients, and all lobbied against price transparency as a solution arguing out-of-pocket payments matter more to consumers. But consumers care about both.


Essentially, at a national level, affordability has been addressed through the Affordable Care Act (ACA) and IRS Tax Code.

  • This month, the Supreme Court will issue its ruling in California v. Texas where the focus is the constitutionality of the individual mandate and its severability from the Affordable Care Act (ACA). The notion of healthcare affordability is central to the law’s provisions allowing uninsured citizens to access private coverage through state healthcare marketplaces. Though the ACA attempted to tie affordability to employee out-of-pocket obligations in private coverage (9.5% of adjusted gross income lowered to 8.5% in the Biden health policy agenda), it failed to address affordability equitably in the decade since passage because health costs escalation drove premiums higher for everyone.

  • The IRS tax exemption for medical costs is helpful to middle income taxpayers but relatively worthless to others. And the employer tax exclusion is beneficial to businesses that provide health benefits but encourages employers to shift costs to employees directly vis a vis premiums and out of pocket obligations (co-pays, deductibles, HSAs et al).

Precious little has been done in state and local government to address affordability. States like Maryland created a successful hospital-payment system that rationalizes revenues, and several states have tested price transparency tools to equip consumers to buy hospital services intelligently.

And in the industry, the same is true. In most communities, health insurers display righteous indignation about rising health costs and provider culpability discounting underlying causes while deflecting from their escalating administrative costs. Hospitals and physicians play the victim card and drug makers disguise their price gauging with clever discounts, rebates and illusive investments in clinical research. No wonder the U.S. system’s per capita healthcare spending is 91% higher than the high-income countries of the world and 202% higher than the average of OECD countries but ranks 42ndfor longevity and 24th for population health indicators like heart disease, infant mortality and others.

Healthcare affordability looms as a major threat to the health system. Design flaws that institutionalize the firewall between delivery and financing of health services seems a logical starting point. That’s why organizations like Geisinger, Intermountain, Kaiser, Marshfield, Presbyterian and others that operate large-scale delivery services (hospitals, physicians, ancillaries, post-acute care) in tandem with their health insurance plans (individual, employer, government) are advantaged in solving the affordability challenges in their communities. They’re not there yet but they have a head start.

Let’s stop talking about affordability and do something. Coming out of the pandemic, consumers face escalating costs for their basic necessities (housing, food, transportation) which consume 62% of the average household’s spending and more than 80% of those with lower income. They’re not keen to spend the rest for their healthcare.



The Economics Daily; Bureau of Labor Statistics

2021 State of the Patient Financial Experience Report; PatientCo

World Bank Open Data

National Health Expenditures US, CMS

“What Health-Care Affordability Crisis?”; April 23, 2021; National Review

Wray et al “Access to Care, Cost of Care, and Satisfaction With Care Among Adults With Private and Public Health Insurance in the US”; June 1, 2021; JAMA Network

Consumer Expenditure Survey, U.S. Bureau of Labor Statistics

“KFF Health Tracking Poll – May 2021: Prescription Drug Prices Top Public’s Health Care Priorities”; June 3, 2021; Kaiser Family Foundation

“The Fastest Growing U.S. States Have the Worst Healthcare”; June 2, 2021; Harvard Business Review

“COVID-19 Reshaping Healthcare Attitudes in America”; Harris Poll


Fast Facts: Vaccinations

  • 12 states have given 70% of residents at least one vaccine dose. “Others, especially red states, are falling behind”.

  • As of 6 a.m. EDT June 5, 138,112,702 Americans had been fully vaccinated, or 41.6% of the country’s population.


Medical Economics: Physician Financial Distress Doubles in Pandemic

  • Per Medical Economics 92nd Physician Report based on data from the first quarter, 2021:

  • Compared to a year ago, physicians say things are “better than a year ago” (11% in 2020 vs. 23% in 2019) vs. worse than a year ago (46% in 2020 vs. 22% in 2019).

“2021 Physician Report: How practices are faring financially”; June 3, 2021; Medical Economics Journal


Study: Patients Concerns about Affordability Major Consideration in Use of Physicians and Hospitals Post Covid

According to the PatientCo 2021 State of the Patient Financial Experience Report, which surveyed more than 3,116 patients across the United States released last week:

  • 45% of patients would need financial assistance for bills that exceed $500; 66% would need it for bills that exceed $1,000.

  • 85% of patients with household incomes greater than $175,000 are less likely to defer care when flexible payment options are available.

  • More than half of patients say their medical bills are confusing, and most patients have struggled to understand their medical bills and what they owed and education.

  • 34% of patients said they have never received a pre-visit cost estimate.

  • 72% of patients think their healthcare provider should consider affordability in making treatment recommendations.

  • 80% of patients would be less likely to defer care when affordable payment options are available.

  • 26% of patients didn’t get financial assistance to help pay a medical bill they couldn’t afford.

  • The No. 1 reason patients are loyal to their provider is because they’re in-network (60%) vs. quality of care (38%) and location (38%).

2021 State of the Patient Financial Experience Report; PatientCo

Study: Public Medicare, Medicaid Outperform Commercial Coverage on Costs, Access, Satisfaction Compared to Private Insurance

Researchers compared individual experiences related to access to care, costs of care, and reported satisfaction with care among the 5 major forms of health insurance coverage (private employer–sponsored insurance, private individually purchased insurance, Medicare, Medicaid, and Veterans Health Administration or military coverage) in the US using data from the 2016-2018 Behavioral Risk Factor Surveillance System on 149,290 individuals residing in 17 states and the District of Columbia, representing the experiences of more than 61 million US adults. Highlights:

  • Compared with those covered by Medicare, individuals with employer-sponsored insurance were less likely to report having a personal physician and more likely to report instability in insurance coverage, difficulty seeing a physician because of costs, not taking medication because of costs and having medical debt.

  • Compared with those covered by Medicare, individuals with employer-sponsored insurance were less satisfied with their care.

  • Compared with individuals covered by Medicaid, those with employer-sponsored insurance were more likely to report having medical debt and less likely to report difficulty seeing a physician because of costs and not taking medications because of costs.

  • No difference in satisfaction with care was found between individuals with employer-sponsored private health insurance and those with Medicaid coverage.

“In this survey study, individuals with private insurance were more likely to report poor access to care, higher costs of care, and less satisfaction with care compared with individuals covered by publicly sponsored insurance programs. These findings suggest that public health insurance options may provide more cost-effective care than private options.”

Wray et al “Access to Care, Cost of Care, and Satisfaction With Care Among Adults With Private and Public Health Insurance in the US”; June 1, 2021; JAMA Network

Sg2 forecast: Return to Normal Utilization Expected by 2022 Except for Emergency Room Visits

According to Vizient subsidiary Sg2 ’s Impact of Change report released last week, “there will be some permanent changes post-pandemic, including sustained shift to virtual, and emergency department (ED) volumes remaining below 2019 levels. In addition, rising acuity and chronic disease burden, trends which were occurring prior to the pandemic, will place increasing demands on the health care workforce and across the system of care.. inpatient volumes will recover to their pre-COVID-19 levels by 2022 and then plateau. By 2029, hospital emergency departments (ED) will see 4.8 million fewer patient visits annually than in 2019 (roughly a 5% decline) as low acuity ED visits shift to urgent care clinics, physician offices and other locations. At the same time, Americans will spend 12.5 million more days in the hospital (9% increase) driven by a rise in chronic diseases, an older population that requires more care and new innovations increasing the number of treatable conditions” Other Highlights:

  • Inpatient discharge volumes overall will decline by 1% by 2029, while outpatient volumes will increase by 19%, and ambulatory surgical centers will see growth of 25% over the same time period.

  • Physicians’ offices and clinics will also see growth of 18% by 2029.

  • Emergency department volumes will increase by 5% overall, but less urgent visits will decline by 15%.

  • Visits for COVID-19 related diseases will also be factors for ED growth, including for conditions that are newly being linked like chronic kidney disease, asthma, acute respiratory failure and cardiovascular diseases. Visits for infectious disease and burns and wounds will decrease by more than a quarter.

  • Skilled nursing facility volumes will decrease by 5% by 2029, and home care will increase by 15%.

“Sg2 Impact of Change Forecast Predicts Enormous Disruption in Health Care Provider Landscape by 2029”; June 4, 2021; Sg2

Kaufman Hall: Hospital Finances Improve in 2021

Median changes from January thru April 2021 per Kaufman Hall’s analysis of 900 hospitals’ finances: “Hospital margins remained relatively thin. Not including federal CARES funding, the median Kaufman Hall hospital Operating Margin Index2 was 2.4% in April. With the funding, it was 3.3%. The median Operating EBITDA Margin was 7.1% without CARES and 8.1% with CARES.” Key data for the 4 months:

  • Operating margin without CARES funding: + 8.6%

  • Operating margin with CARES funding: +6.9%

  • VOLUME Adjusted discharges: +6%

  • OR minutes: +26%

  • ED visits: -7%

  • Gross inpatient revenue: +11%

  • Gross outpatient revenue: +20%

  • Total expenses per adjusted discharge: -2%

“National Hospital Flash Report Summary: May 2021”; KaufmanHall

Hahnemann Case Study in Private Equity Gone Amuck?

In a detailed review of Hahnemann’s 18-year ownership by Tenet followed by its acquisition by California-based private equity Paladin Healthcare Capital, New Yorker columnist chronicled the events leading to closure of Philadelphia’s safety net hospital: “The bad actors of private equity are sometimes accused of destroying American health care. But they are more symptoms than disease. The story of Hahnemann is as much about the structural forces that have compromised many American hospitals—stingy public investment, weak regulation, and a blind belief in the wisdom of the market—as it is about the motives of private-equity firms.”

Chris Pomorski “The Death of Hahnemann Hospital: When a private-equity firm bought a Philadelphia institution, the most vulnerable patients bore the cost.”; May 31, 2021; The New Yorker


SCOTUS Ruling on ACA this Month: Partisan Differences Wide

In California v. Texas, the Supreme Court will decide whether a key provision of the Affordable Care Act is constitutional and, if it is not, whether the entire law must fall. That decision is expected this month.
Researchers surveyed 2,158 U.S. adult residents online between April7–16, 2021: The majority of Americans (56%) believe the individual mandate is unconstitutional but most (53% do not think the entire law (ACA) should be thrown out. Partisan affiliation differences are significant however: only 26% of Democrats think the law should be thrown out vs. 67% of Republicans.

Adam Liptak, Alicia Parlapiano “What the Public Thinks About Major Supreme Court Cases This Term” June 1,2021; New York Times

“What Do The American People Think About the 2021 Supreme Court Cases? Results from SCOTUS Poll”, a collaboration between researchers at the Harvard Kennedy School of Government, the Stanford Graduate School of Business, and the University of Texas April 22, 2021; Harvard

Notable News from FDA

  • Alzheimer’s: This week, attention will be on the FDA’s determination about the fate of Biogen’s experimental Alzheimer’s drug aducanumab. Independent physicians, drug researchers and others in the field have urged the FDA to reject the drug, warning the study supporting aducanumab is small, flawed and side effects including brain swelling need further attention. But the company counters that the drug is needed since no new medications for Alzheimer’s have been available to patients for 18 years and their drug is safe. Besides implications for Biogen’s stock price, a denial by the FDA might prompt renewed attention to amyloid focused clinical research.

  • Covid: Friday, the FDA authorized Regeneron’s COVID-19 antibody treatment for injection–an update to the company’s emergency use authorization first issued in November that will make it easier for doctors to administer the treatment to coronavirus patients, since they can now do so by simple injection rather than intravenous infusion.

  • Obesity: Friday, the Food and Drug Administration approved the 2.4 mg dose of semaglutide (brand name Wegovy) as a treatment for chronic obesity. From 1999–2000 through 2017–2018, the prevalence of obesity increased from 30.5% to 42.4%, and the prevalence of severe obesity increased from 4.7% to 9.2%. per the CDC. The per capita health cost for adults who are obese is $1,429 higher than non-obese.


CMMI: Changes Ahead for Value-Based Payment Programs

CMMI Director Liz Fowler told Health Affairs that changes to value-based payment models are likely. Consideration is being given to mandatory participation, changes to risk selection and benchmarking and mechanisms to increase savings for the Medicare program by increasing “meaningful accountability for quality and total cost of care.” The role played by telehealth, virtual care and social determinants in assessing patient risks and integration with local community health organizations.

Robert King “CMMI director: Expect more mandatory value-based care payment models” June 3, 2021; Fierce Healthcare

May Labor Report: Unemployment Drops to 5.8%, Concern Among Employers Increasing

The U.S. Bureau of Labor Statistics reported Friday that employment across all sectors grew by 559,000 jobs in May dropping the unemployment rate 0.3% to 5.8%. The healthcare industry grew by 22,500 jobs—98% in ambulatory sectors. The biggest gains were in leisure and hospitality, which added 292,000 jobs as pandemic-related restrictions continue to lift. Almost two-thirds of that increase was in food services and drinking places. Educational services added 40,700 jobs as in-person learning resumes.

U.S. Bureau of Labor Statistics