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The Keckley Report

The Uneven Playing Field for Hospitals

By November 21, 2022March 1st, 2023No Comments

The financial reports and deals announced last week (below) illustrate the prevalence of mixed messaging about hospitals in the market:

Financial results:

·       Mayo announced $157M Q3 2022 income on $4.12 billion revenue. Its operative expenses increased 7.1% (9.5% YTD) and contract expenses increased 47%.

·       Providence recorded a cumulative $1.1 billion operating loss during the first three quarters of this year as staffing shortages and weak market conditions. Providence reported a net operating loss of $164 million for the third quarter, compared with $424 million in the second quarter.

·       Common Spirit on Tuesday reported a $397 million net loss in the first quarter of its fiscal year 2023, compared with a $269 million gain a year ago.

Mergers, Affiliations and Partnerships:

·       The 67 hospital, 6-state Advocate-Aurora-Atrium mega-deal got a go-ahead from the Illinois Health Facilities and Services Review Board and now awaits regulatory approvals from the FTC and North Carolina Attorney General Josh Stein.

·       Private equity powerhouse General Catalyst announced the addition of 10 additional multi-hospital systems to its digital-health ecosystem venture that includes 5 founding partners (Nashville-based HCA Healthcare, Jefferson Health, Philadelphia, Salt Lake City-based Intermountain Health; York, Pennsylvania-based WellSpan Health and London-based Guy’s and St Thomas’ NHS Foundation Trust).

·       Sanford Health (Sioux Falls, SD) and Fairview Health Services (Minneapolis MN) signed a letter of intent to form a $14 billion, 58 hospital health system.

Bigger brands like these understandably get more attention and adverse scrutiny. Case in point: last week’s blistering investigative report based on the Wall Street Journal’ review of IRS tax filings and payment policy postings by 3100 not-for-profit hospitals postings: “Nonprofit hospitals must have financial-assistance policies for needy patients, under federal requirements tied to an estimated $60 billion in annual tax breaks. Some make getting aid hard, delay checking eligibility and press for payments that aren’t refunded.” The story featured several big name systems prominently as violators of the policy.  

Whether deserved or not; whether applicable to all, some or a few; it’s hard not to conclude that many high-profile hospitals are taking shots in the court of public opinion. Some are profitable, some aren’t. Some are expanding, some are shrinking. All share adverse market conditions and each is responding differently:

·       Shift from inpatient care: Demand for inpatient services has declined 30% since 2000, despite the aging of the population. Those requiring inpatient care are sicker, their treatment costs (fixed and direct) are more costly and inpatient operating margins (profit) are evaporating. Understandably, investor interest is stronger elsewhere: among publicly traded companies (a surrogate for investor interest), acute care PE values stand at 13.2x, alternate site (23.7Xx), benefits management (24.2x), outsourced clinical services (28.5x) and so on.

·       Flawed payment system: 7 investor-owned health insurers and Medicare determine the financial viability for hospital services. Government appropriations, payroll taxes, insurance premiums paid and out of pocket payments are sources of these funds, but 10% of the population gets a free ride; 5% account for 50% of spending which involves intense inpatient care and incentives are tied to volume, not value. Fewer and fewer are paying commercial rates, more and more are frustrated but fresh approaches to hospital funding is lacking.

·       Concentration in the hospital supply and payment chain: The supply chain for hospitals is concentrated: 7 national health insurers control the private and Medicare advantage markets, 3 drug distributors control drug channels, 3 EHR companies control the electronic medical record market and so on. The direct costs for drugs, technologies and reimbursement schemes used to pay hospitals are highly concentrated. These price increases are more than what most hospitals can pass through.

·       Consumer receptivity to hospital alternatives: The embrace by consumers of convenient care, transparent pricing and technology enabled self-care are game-changers for hospitals. But most operate with inadequate understanding of consumerism and their Boards are complicit. Anecdotes about “the patient experience” and net-promoter-scores (NPS) are an incomplete picture: consumers want affordable, predictable and accessible hospital care based on their unique preferences and values. Hospitals fall short. Others do it better.  

·       Encroachment by opportunistic competitors focused on alternative sites for care: General acute care hospitals are ill-prepared to compete with private equity-backed carve outs and strategic disruptors (Amazon, CVS, Optum et al) with deep pockets who bring a retail vision for the health system’s value proposition. Per Pitchbook, in 2021, PE invested $206 billion in 1400 acquisitions “to reshape health care in America”. Private equity will invest $100 bill in healthcare delivery next year: inpatient investments will be rare. Consider, of 601 PE deals in 2021 by the 25 most active investment funds in healthcare services, only 3 were hospital deals. No surprise.

My take:

That hospitals have become frequent targets of negative journalism is no surprise: the sector controls more than half of $4.2 health spending which includes 4900 hospitals, 341,200 employed physicians, 130 captive health insurance companies and much more. With the possible exception of rural hospitals, the rest (children’s, safety net, veterans, academic medical centers et al) are considered big businesses and, therefore, fair game for critics.

While managing internal and external communications requires more attention and resources, the bigger issue is the competitive landscape for hospitals.

The playing field for hospitals is not level. Though criticism for lack of transparency and opaque pricing is warranted and the delineation between tax-exempt and investor-owned is vague, new regulatory requirements are necessary to level the field with disruptors, insurers and private equity players who provide services opportunistically. The private market is keen to compete for hospital services for which profits for investors are achievable and disinterested in all else.

And the regulatory framework governing the system is increasingly obsolete: For example, the FTC threshold for review of consolidated markets is $101 million which puts hospital consolidation is the crosshairs of regulators. Meanwhile, consolidation of physicians has outpaced hospital employment 2:1 since January 2020–a 39.4% increase (143,000). And for physicians, these new employment options feature wider latitude in compensating their work through partnerships, stock-options and performance incentives compared to hospitals. And tying inpatient hospital funding to payroll taxes makes no sense as healthcare access is decreasingly tethered to employer coverage.

The issues facing hospitals are complicated. Messaging effectively is part of the solution. The hospital yesterday is not the hospital of tomorrow though hospital leaders, physicians and trustees are prone to reminisence.

Leveling the field is a start, but competing on value against all-comers is the end-game. Some hospitals are prepared; most aren’t.



The future of US healthcare: What’s next for the industry post-COVID-19 July 2022

Fred Schulte “Sick profits: Private equity’s stealthy takeover of health care in multiple cities, specialties” Kaiser Health News November 14, 2022

Hospitals Often Don’t Help Needy Patients, Even Those Who Qualify Wall Street Journal November 17, 2022

COVID-19’s Impact on Acquisitions of Physician Practices and Physician Employment 2019-2021 Avalere April 2022

Pitchbook Q3 November 14, 2022

ROW Associates 11/18/2022

US health systems: Diversify to thrive November 15, 2022


“It has been a bad year for public markets. At the time of writing, the S&P 500 is down by just over 18% year-to-date, while Europe Stoxx 600 is down by just over 12%. Yet it is harder to say how PE has fared. Fundraising and dealmaking have cooled off, but in both cases, this still only really reflects a return to activity pre-2021: US PE deal value hit $1.2 trillion that year—64% higher than the previous record—while fundraising topped $301 billion, just shy of 2019’s record.”

The Weekend Pitch Pitchbook November 20, 2022

While PE investment in these established provider categories is still going strong, PE firms have become more sophisticated healthcare services investors—not only entering new provider categories but also seeking out opportunities wherein scale and capital availability provide second-order advantages
in improving patient care and returns. Nowhere is this more apparent than in value-based care, which requires care coordination, data analytics capabilities, finesse in payer negotiations, and sheer scale far beyond what most independent provider groups can achieve. The industry’s push toward value-based care has also spurred greater PE experimentation with building multispecialty medical practices and taking on population health management for communities with higher Medicare and Medicaid spend.

Healthcare Services Report 3rd Quarter 2022


Leapfrog: hospital safety score unchanged in spring 2022: Tuesday, the Leapfrog Group released its latest safety report for 2,800 general acute care hospitals. Results: 

·       20.3% got higher safety scores in spring 2022 than a year before and 22.4% received lower grades. The majority—57.2%—rated the same in 2021 and 2022.

·       North Carolina had the highest share of hospitals earning “A” grades at 59.8%. Virginia and Utah followed closely behind, with 59.2% and 55.6% of hospitals at “A” levels respectively.

·       30% of hospitals earned an “A,” 28% a “B,” 36% a “C,” 6% a “D,” and 1% an “F.”

Leapfrog Group Releases New Hospital Safety Grades, Marking 10th Anniversary November 16, 2022

Study: reduction in readmissions attributable to reclassifications, not effectiveness in care management: In this cohort study including 8,944 295 hospitalizations, fully accounting for observation stays as both index hospital discharges and readmissions more than halved the apparent decrease in 30-day readmissions (−1.48 vs −0.66 percentage points). In addition, an association of the program with lower readmission rates identified when only inpatient hospitalizations were considered was not found.

“The findings of this study suggest that the reduction of readmissions associated with the implementation of the HRRP was smaller than originally reported. More than half of the decrease in readmissions for target conditions appears to be attributable to the reclassification of inpatient admission to observation stays.”

Accounting for the Growth of Observation Stays in the Assessment of Medicare’s Hospital Readmissions Sabbatini et al Reduction Program JAMA Network Open November 17. 2022;5(11):e2242587. doi:10.1001/jamanetworkopen.2022.42587

AHA survey: insurer relationships deteriorating: Com Based on its member survey of 304 respondents representing 772 hospitals in 47 states between December 2021 and February 2022:

·       95% of hospitals and health systems report increases in staff time spent seeking prior authorization approval.

·       84% report the cost of complying with insurer policies is increasing vs. 0% who say it’s decreasing.

·       62%% of prior authorization denials and 50% of initial claims denials that are appealed are ultimately overturned.

·       78% of hospitals and health systems report that their experience with commercial insurers is getting worse vs. 1% who say it’s getting better.

·       35% of hospitals and health systems report $50 million or more in foregone payments as a result of denied claims once appeals have been exhausted.

AHA, November 2022


Study: Trilliant examines pre and post pandemic utilization:

• In comparison to pre-pandemic utilization, men and women have returned to care at different
rates and in different settings, with men disproportionately using urgent care (+71.6%) and
women returning to care in non-hospital outpatient settings at a higher volume (+11.8%).
• Consumers in competitive and moderately concentrated markets tend to visit a greater
number of provider brands — 4.57 and 4.43 respectively — than those in highly concentrated
markets (4.14 provider brands).

“Factors including fear, high deductibles, lack of provider loyalty, and consumer
preferences contribute to post-pandemic variations in care.”

Individuals are Consumers and How They Navigate the Health System Varies Trilliant Health November 20, 2022

Study: Cancer screening slow to recover post-pandemic: Analysts studied patterns in breast, cervical, and colorectal cancer screening and diagnosis before and after the pandemic using the Trilliant Health all-payer claims and encounters database, which includes inpatient, outpatient, and prescription drug claims from all 50 states and the District of Columbia.

·       For breast cancer, the median (IQR) quarterly rate of prepandemic screening mammography was 8216 (8116-8407) per 100 000 beneficiaries, which declined to 4951 in quarter (Q) 2 of 2020—a 40% decrease. Screening mammography rebounded to prepandemic levels by Q3 and Q4 of 2020 but declined to a median (IQR) rate of 7374 (7127-7577) per 100 000 beneficiaries in 2021, with quarterly deficits ranging from 6% to 17%.

·       For cervical cancer, the median (IQR) quarterly rate of prepandemic screening was 5602 (5462-5851) per 100 000 beneficiaries. The rate of cervical cancer screening fell to 3563 in Q2 of 2020—a 36% decline. By Q3 of 2020, cervical cancer screening rebounded toward the prepandemic median, then progressively declined from 4853 in Q4 of 2020 to 4246 in Q4 of 2021. Colorectal cancer screening decreased from a prepandemic median (IQR) of 3162 (3126-3202) per 100 000 beneficiaries to 1746 in Q2 of 2020—a 45% difference.

·       From Q3 of 2020 to Q4 of 2021, quarterly colorectal cancer screening ranged from 2590 to 2861 per 100 000 beneficiaries, 82% to 90% of the prepandemic median. Consistent with the reported reductions in cancer screening, prevalence rates declined by 6.0% to 7.1% between 2019 and 2020 and an additional 4.8% to 6.1% between 2020 and 2021.

Oaks et al Rates of Routine Cancer Screening and Diagnosis Before vs After the COVID-19 Pandemic JAMA Oncology November 17, 2022. doi:10.1001/jamaoncol.2022.5481

Home births  increase 12% during pandemic: Home births increased from an absolute 1.26% of total births in 2020 to 1.41% in 2021, representing an increase of 6,000 births, reported Elizabeth Gregory, MPH, of the National Center for Health Statistics in Hyattsville, Maryland, and colleagues in the National Vital Statistics Report.

Changes in Home Births by Race and Hispanic Origin and State of Residence of Mother: United States CDC November 17, 2022


Study: Industry payments to APNs, physicians significant: In this cross-sectional study of industry payments to physicians and APCs in the US, 232 000 APCs collectively received $121 million in non-research payments from industry in 2021; over the same period, 411,739 physicians received $1.8 billion. The average number of payments per individual was similar for APCs and physicians, and nurse practitioners and physician assistants in states with the least restrictive scope-of-practice laws were paid more than those in the most restrictive states.

The most common payments to APCs included food and beverage ($69 million [57.6%]), compensation for services other than consulting ($32 million [26.4%]), and consulting fees ($8 million [6.6%]). Advanced practice clinicians in states with the most restrictive scope-of-practice laws received 15.9% lower total value of payments than those in the least restrictive states. Physician assistants received 7.6% (P = .005) higher value and 18.1%. greater number of payments than nurse practitioners.

Singh et al Evaluation of Industry Payments to US Advanced Practice Clinicians in 2021 JAMA Network Open November 18, 2022;5(11):e2242869. doi:10.1001/jamanetworkopen.2022.42869

Survey: physician income: The Physicians Foundation surveyed 1,501 physicians from Sept. 28 to Oct. 7 releasing findings last week. Findings:

·       28% reported a drop in income in the last year vs.25% who saw an increase.

·       29% reduced staff vs. 15% increased staff.

The Physicians Foundation 2022 Physician Survey: Part 3 November 15, 2022

AMA House of Delegates pass resolution protecting physicians from state abortion restrictions legal jeopardy: In the wake of the Supreme Court’s June decision to overturn Roe v. Wade, the American Medical Association (AMA) House of Delegates Monday voted on a resolution to work against all policies or laws that exact punishment against clinicians or their patients in the event a woman loses a pregnancy as a result of medically necessary care, such as treatment for cancer.

The AMA’s approval — to oppose “criminalization of, or civil penalties for,” care that results in pregnancy termination — came after a 45-minute debate during which speakers told stories of women being arrested and imprisoned after miscarriages or stillbirths, and physicians finding themselves in legal jeopardy. Dozens of speakers tweaked, clarified, debated, and amended the language for precision.

AMA Votes to Oppose Punishing Doctors When Necessary Care Results in Fetal Death Medpage November 15, 2022

Study: Internet key to provider access: findings from Kyruus survey of 1000 consumers who had used the internet for medical information/care in the past 2 years:

·       61% use the internet is the primary source for seeking medical care and 80% of consumers used 2 or more online resources.

·       93% are extremely or very interested in using digital self-service for pre-appointment tasks.

·       95% of consumers consider some kind of cost information and 68% say they would be more likely to book medical appointments when they have visibility into the expected cost of care.

PK note: the sample for this study—all medical-care users of the internet—limits the projectability of the findings to broader populations.

The Many Digital Doors of Patient Access and Engagement Kyruus’ Sixth Annual Patient Access Journey Report Kyruus

Amazon Launches Amazon Clinic: Monday’s announcement indicated the Clinic’ s services will focus on treatable conditions leveraging Medication management, its telehealth capabilities and all-cash payment model: Consumers will pay around $30-$40 per consultation depending on the state and prices could vary beyond that. It’s notable that Amazon is charging for the consultation given that some competitors (Ro and Hims) seem to provide it for free..

Blake Madden Amazon Clinic: What Amazon’s Direct-to-Consumer Launch Means for Hims, Ro, and Healthcare Workweek November 17, 2022

Campaign 2022

Survey: Election integrity in 2022:  Per Morning Consult’s November 10-13 polling of voters, 52% of GOP voters and 89% of Dem voters said that the 2022 midterm elections were “free and fair” and conducted with integrity.

Despite the GOP’s Underperformance, Its Voters Increasingly See the Midterm Elections as ‘Free and Fair Morning Consult November 15, 2022

KFF: Abortion Boosted Democratic Candidates in Midterm Election: Per KFF’s supplemental questions on the Associated Press VoteCast survey of midterm voters:

·       38% voters said that the Supreme Court decision ending the constitutional right to an abortion had a major impact on their decision about whether to vote in this year’s election. The share citing the decision as a major motivator was highest among Black women under age 50 (61%), Hispanic women under age 50 (58%), those who voted for Democratic Congressional candidates (56%), first-time voters (54%), voters under age 30 (53%), and those who said they were angry about the Supreme Court’s abortion decision (55%).

·       Nationally, nearly half (47%) of all voters say the Court’s decision had a major impact on which candidates they supported in this election, including almost two-thirds (64%) of those who voted for Democratic House candidates.

How The Supreme Court’s Dobbs Decision Played In 2022 Midterm Election: KFF/AP VoteCast Analysis KFF November 11, 2022


Morning Consult: ’s Consumer financial wellbeing slipped in November: The financial well-being score of the average U.S. adult has dropped to 48.74 from 50.19 in the last 12 months. Consumers’ financial well-being has been falling since June. Related findings: 

·       34% % said giving a gift for a special occasion would put a strain on their finances, compared with 28% who said the same last October. 

·       4 in 10 say their finances always or often control their life, compared to 32% last year. 

·       Those earning $100,000 or more have a financial-wellbeing score of 57.64 this month, a 3.79 drop from last October. Nearly half said they could handle a major surprise bill vs.60% in September

Financial Well-Being Continues to Drop, with High-Income Consumers Even Feeling a Pinch Morning Consult November 15, 2022

Beryl Institute/Ipsos survey: Patient experience at modern low:  Per the tenth PX Pulse, a survey comparing consumer experiences from December 2019 through the third quarter of 2022:

·       Quality of healthcare hit its lowest percentage to date, with just 40% of respondents rating the quality of their healthcare as “Good” or “Very good,” down 6 points from March of this year.

·       Having affordable insurance options, out-of-pocket costs and the cost of prescription drugs were the top three most important issues to respondents.

·       Consumers’ perception of experience slipped to an all-time low at 64% reflecting it as “Very good” or “Good,” a 4-point drop from Q4 2021.

·       68% of respondents say trust has declined in the last two years with the top reason being the healthcare system acts out of self-interest.

Context: “We define the patient experience as the sum of all interactions, shaped by an organization’s culture, that influence patient perceptions across the continuum of care. We believe human experience is grounded in the experiences of patients and families, members of the healthcare workforce and the communities they serve.”

 Beryl Institute Consumer Perspectives on Quality of Healthcare Slides to All-Time Low November 10, 2022


Study: US Covid mortality higher than developed countries other than in high-vaccination rate states:  Penn researchers compared COVID-19 and excess all-cause mortality in the US, the 10 most- and least-vaccinated states, and 20 peer Organization for Economic Co-operation and Development (OECD) countries during the Delta and winter Omicron waves.

“These findings highlight that the US continued to lag peer countries in COVID-19 and excess all-cause mortality, albeit with lower mortality in highly vaccinated states.”

Bilinski et al COVID-19 and Excess All-Cause Mortality in the US and 20 Comparison Countries, June 2021-March 2022 JAMA November 18, 2022. doi:10.1001/jama.2022.21795

CVS Pharmacists to diagnose, prescribe PaxlovidLast Tuesday, CVS announced its pharmacists at more than 9,000 CVS Pharmacy locations can clinically assess COVID-19 positive patients and, if eligible, prescribe Paxlovid, an oral antiviral treatment.

Pharmacists can assess eligible COVID-19 positive patients and prescribe oral antiviral medication at most locations CVS November 15, 2022

CDC COVID-19 vaccination coverage among children aged <5 years is low: Findings:

·       4% of children aged 6 months–4 years had received ≥1 doses of COVID-19 vaccine based on interviews conducted during July 2022;

·       59% were unvaccinated, but the parent was open to vaccinating their child

·       37% were unvaccinated and the parent was reluctant to vaccinate.

·       Among parents open to vaccination, 25% reported receiving a provider recommendation, and 57% were confident of the vaccine’s safety; confidence of vaccine safety varied by race or ethnicity and household income.

Santibanez TA, Zhou T, Black CL, et al. Sociodemographic Variation in Early Uptake of COVID-19 Vaccine and Parental Intent and Attitudes Toward Vaccination of Children Aged 6 Months–4 Years — United States, July 1–29, 2022. MMWR Morb Mortal Wkly Rep 2022;71:1479–1484. DOI:

Study: Covid prevalence associated with NFL game attendance: “In this cross-sectional study of NFL games attended by a total 1.3 million fans, the presence of large numbers of fans at NFL games was associated with increases in the incidence of COVID-19 cases both in the counties in which these venues were located and contiguous counties. Specifically, NFL games that had 20 000 fans in attendance had 2.23 times the rate of spikes in COVID-19, but NFL games with fewer than 5000 fans in attendance did not generate any spikes.”

Kurland et al Association of National Football League Fan Attendance With County-Level COVID-19 Incidence in the 2020-2021 Season JAMA Network Open  November 18 2022;5(11):e2240132. doi:10.1001/jamanetworkopen.2022.40132

Health spending

Altarum’s November Health Sector Economic Indicators (HSEI) highlights:

·       National health spending in September 2022 grew by 4.4%, year over year. accounting for 17.4% of GDP, essentially identical to the August 2022 value and the lowest since June 2015.

·       Nominal GDP in September 2022 was 8.9% higher than in September 2021 as GDP growth continues to outpace health spending growth.

·       The health spending share of GDP has declined from a recent high of 18.5% of GDP in December 2021, largely because of high economy-wide inflation.

·       The economy added 261,000 jobs in October, similar to August and September gains. The unemployment rate rose slightly to 3.7%. Healthcare added 52,600 jobs.

·       Wage growth fell across all three major health care settings: residential care wages grew at 7.7% vs. peak of 11% in March 2022, hospital wages grew by 5.8% vs. peak of 8.5% in June, and ambulatory care wages grew by 4.6% vs. peak of 5.8% in July.

Altarum’s November Health Sector Economic Indicators (HSEI) November 18, 2022