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The Keckley Report

Three Healthcare Reports, One Conclusion: Consumers are Paying More Proportionately for their Healthcare

By December 19, 2022March 1st, 2023No Comments

This week, bipartisan negotiators in Congress will present a framework for government spending into next year hoping to keep the government operating. Their deliberation comes on the heels of the release last week of 3 closely watched reports that frame healthcare’s role in the U.S. economy.

Last Tuesday, the Bureau of Labor Statistics released its latest Consumer Price Index. Highlights:

  • The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in November on a seasonally adjusted basis, after increasing 0.4% in October. Over the last 12 months, the all items index increased 7.1% before seasonal adjustment.
  • The index for all items less food and energy rose 0.2% in November, after rising 0.3% in October. The indexes for shelter, communication, recreation, motor vehicle insurance, education, and apparel were among those that increased over the month. Indexes which declined in November include the used cars and trucks, medical care, and airline fares indexes.
  • The shelter index was the dominant factor in the monthly increase in the index for all items less food and energy; other components were a mix of increases and declines. The index for recreation rose 0.5% in November, following a 0.7% increase in the previous month. The motor vehicle insurance index increased 0.9%in November, the personal care index rose 0.7%, and the education index rose 0.3 percent over the month. In contrast, the medical care index fell 0.5% in November, as it did in October. The index for hospital and related services decreased 0.3% over the month, and the index for prescription drugs declined 0.2%. The index for physicians’ services was unchanged in November. For the last 12 months, medical care services were up 4.4% trailing other major categories: Food (7.1%), Energy (13.1%) and Services (6.8%) but more than commodies (3.7%).

Last Wednesday, the Centers for Medicare and Medicaid Services (CMS) annual health spending report for 2021. Highlights:

  • Healthcare spending slowed in 2021 increasing 2.7% to $4.3 trillion vs. a 10.3% jump in 2020 which included $193.1 billion in Provider Relief Fund (PRF)payments to providers. As a result, healthcare spending in 2021 constituted 18.3% of the nation’s gross domestic product, down from 19.7% in 2020.
  • Federal spending for public health activity, including vaccine development and health facility preparedness funding, decreased to 33.3% ($78.8 billion), from 36.8% ($135.8 billion) in 2020.
  • Hospital spending, which amounted to $1.3 trillion and 31% of overall health care spending, rose 4.4%, compared with 6.2% in 2020.
  • Physician and clinical spending, which amounted to $864.6 billion and 20% of overall healthcare spending, rose 5.6%, compared with 6.6% in 2020.
  • Prescription drug spending, which totaled $378 billion and 9% of overall healthcare spending, rose 7.8%, compared with 3.7% in 2020.
  • Nursing home expenditures dropped from $196.9 billion in 2020 to $181.3 billion in 2021.
  • Spending on government public health activities also decreased from $238.3 billion in 2020 to $187.6 billion in 2021.
  • Medicare spending totaled $900.8 billion, or 21% of U.S. healthcare spending. Spending increased 8.4%, compared with 3.6% in 2020. Medicare enrollment growth slowed to 1.7%, down from 2.1%.
  • Medicaid expenditures accounted for 17% of overall spending, at $734 billion. Medicaid spending grew 9.2% in 2021, similar to 2020. Medicaid enrollment increased by 11.2%–the largest growth since 2015.
  • Private employers’ spending on healthcare rose 6.5% after decreasing by 2.9% in 2020. Most of that increase was attributed to a 6.5% increase in private health insurance premiums in 2021 after a 3% decline in 2020.
  • Patients’ out-of-pocket spending increased by 10.4% in 2021—the fastest rate of growth since 1985—after a 2.6% decrease in 2020.The number of uninsured people dropped for a second consecutive year, from 31.2 million in 2020 to 28.5 million in 2021.
  • Thursday, Altarum released its latest  Health Sector Economic Indicators Report providing insights for October and November 2022 spending. Highlights:
  • National health spending in October 2022 grew by 2.1%, year over year. The small growth rate was driven by a large decline in government support to public health activities accounting for 17.2% of the GDP.
  • Nominal GDP in October 2022 was 7.3% higher than in October 2021 as GDP growth continues to outpace health spending growth.
  • Economywide price growth slowed in November as overall CPI inflation fell from 7.7% to 7.1% and PPI price growth fell to 7.4%.
  • The Health Care Price Index increased by 2.7% year over year in November, down from 2.9% in October. Among major health care categories, prices for dental care (6.4%), nursing home care (4.3%), and hospital services (3.1%) were the fastest growing, while physician services (0.3%) and prescription drug (1.9%) price growth were the slowest growing categories.
  • Year-over-year growth in hospital prices paid by private insurance (4.8%) remain above Medicare hospital price growth (1.7%), although private price growth has slowed somewhat from the peak in August (5.5%).
  • After peaking at 7.4% growth year over year in July, health care wages grew by 5.4% in October, nearer to economy-wide wage growth of 4.9%. Wage growth fell to 7.0% in nursing and residential care compared to a peak of 11.0% in March 2022, while hospital wage growth ticked up slightly to 6.1% and ambulatory care wage growth was up slightly to 4.6%, both still down from recent peaks of 8.5% and 5.8%, respectively.

These reports come as the U.S. economy is fragile: inflation remains problematic, wage increases lag inflation, GDP growth is expected to be flat and some economist expect a mild recession in 2023.

And they come at a difficult time for healthcare: media attention to profitability in healthcare is spiking: recent targets include Providence, Bon Securs, Ascension, Moderna and Pfizer among others. Pandemic relief for providers is limited and as many as 15 million could lose marketplace/Medicaid insurance coverage as the Pandemic Health Emergency officially ends next year. Private equity-backed ventures in healthcare face a reckoning: per Moody’s, defaults are up and concern about sustainability is mounting. And consumers face mounting household debt and limited funds to pay their medical bills.

My take:

These reports lead to one conclusion: consumers are paying more proportionately for their healthcare. Last year, their out-of-pocket spending for healthcare grew faster (+10.4%) increased more than any other funding sources. In household budgets, they rival widely-reported food and energy spikes but drew less attention.  And it reflects an industry-wide transfer of costs to consumers prompting big policy questions:

  • Should regulators impose caps on out-of-pocket spending for healthcare beyond prescription drug spending limits for seniors?
  • Should affordability be defined consistently across all sectors and settings of healthcare?
  • How does price transparency in healthcare impact affordability and consumer behaviors?
  • As annual healthcare spending levels return to pre-pandemic growth of 4.1%/year, and as the economy recovers, how will low-cost options be adopted by consumers? Are there “no frills” opportunities in healthcare?

And many others.

These are not new questions but they’re timely for healthcare. 2023 may be the year U.S. healthcare begins a transformative transition from a B2B (business to business) model that treats patients who have little control over choices and costs associated with their care to a B2C (business to consumer) model in which individuals are directly and forcefully engaged in their care.

Happy Hanukkah and Merry Christmas!

Paul

Resources

Consumer Price Index Summary Bureau of Labor Statistics December 13, 2022 https://www.bls.gov

Martin et al National Health Care Spending In 2021: Decline In Federal Spending Outweighs Greater Use Of Health Care Health Affairs December 14, 2022 www.healthaffairs.org

December 2022 Health Sector Economic Indicators Briefs Altarum December 15, 2022 https://altarum.org

America’s inflation fever may be breaking at last The Economist December 13, 2022https://www.economist.com/finance-and-economics/2022

Quotable

“I just don’t think anyone knows whether we’re going to have recession or not — and if we do, whether it’s going to be a deep one or not. It’s just…It’s not knowable.” Jerome Powell, chair of the Federal Reserve

“With added complexities coming from state governments and the federal government on regulations and bureaucracy, and the need for technology and data administration, this is an effort to say: How do we allow smaller organizations that that truly are linked to their communities to have the wherewithal to operationally stay in the game, and be a viable option for members and for regulators and state governments?” CEO Eric Hunter on merher of NFP plans SCAN, CareOregon plan to merge into the HealthRight Group Modern Healthcare December 14, 2022 www.modernhealthcare.com/insurance/scan-group-careoregon-merger-healthright-group?utm_source=modern-healthcare

“Even in the face of real efforts by both Amazon and Apple, we are doubling down on our 2022 evergreen prediction that “Big Tech will continue to be terrible at health care. We see no evidence that Amazon Care, One Medical’s services, or Apple’s hardware will change the outcomes or cost curves significantly and are as bearish as ever about the prospects of Google, Microsoft, Salesforce, and new entrant Oracle succeeding in health care.” Venrock partners  Bob Kocher, Bryan Roberts “A frozen capital market and an insurance premium shock: 10 health care predictions for 2023 from top investors”  Forbes December 14, 2022  https://fortune.com/2022/12/14/frozen-apital-market-insurance-premium-shock-10-health-care-predictions-2023-top-investors

Capital Markets

Moody’s: Healthcare companies’ default risk steadily rising, with most owned by private equity: Capital structures of the healthcare companies rated B3 negative or lower will become “unsustainable” as they contend with higher financing costs and find it increasingly difficult to find willing lenders to refinance, Moody’s analysts wrote. Highlights of the report:

  • Among 193 rated North American-based healthcare companies, 34, or nearly 18%, were rated B3 negative or lower as of Nov. 30, up from nine, or about 4%, of rated healthcare companies as of Dec. 31, 2015. About 80% of North American healthcare companies are now speculative grade, as compared to around 73% in 2015 and 71% in 2010.
  • Credit stress is rising in healthcare, which has long been considered a defensive sector for credit investors. The ratings of 24 North American healthcare companies have been downgraded to B3 negative or lower, representing a “material deterioration” in the sector’s credit quality, write Moody’s analysts.
  • Healthcare companies now represent approximately 16% of the 207 companies on Moody’s Investors Service B3 Negative and Lower List (B3N List) as of Nov. 30.
  • The 34 healthcare companies on the B3N List have nearly $65 billion of outstanding debt, an increase of 57% compared to March 2020 at the onset of the pandemic and more than double the nearly $33 billion in debt outstanding in January 2019.
  • Moody’s analysts noted that private equity activity in the sector contributed to the uptick in companies on the lower end of the ratings scale. Nearly 90% of the North American healthcare issuers on the B3N List are controlled by private equity, reflecting “aggressive financial policies, high leverage and debt structures predominantly funded with floating-rate loans,” analysts wrote.

Many Americans view the economy as a major healthcare concern: Moody’s  December 15, 2022 www.moodys.com

Care Management

Study: surgery delay after Covid harmful: In this cohort study of 3997 adult patients, increasing time from COVID-19 diagnosis to surgery was associated with a decreasing rate of a composite outcome of major cardiovascular events. “This study suggests that delaying surgery after COVID-19 infection was associated with decreasing postoperative cardiovascular morbidity and should be a factor in shared decision-making between clinicians and patients.”

December 14, 2022Bryant et al Association of Time to Surgery After COVID-19 Infection With Risk of Postoperative Cardiovascular Morbidity JAMA Network Open. December 14, 2022;5(12):e2246922. doi:10.1001/jamanetworkopen.2022.46922

Study: Maternal death rate higher in states with restrictions on abortion:  U of CO researchers found maternal death rates in 2020 were 62% higher in states that ban or restrict abortion than in states where the procedure is still accessible.

Women of reproductive age in restrictive states have less access to affordable health plans and less access to maternity health care providers. These states had a 32% lower ratio of OB-GYNs to births and a 59% lower ratio of certified midwives to births. A nationwide federal abortion ban could make the maternal death rate increase by 24%. 26 states and Washington, D.C. have expanded their Medicaid postpartum coverage from 60 days to one year.

The U.S. Maternal Health Divide: The Limited Maternal Health Services and Worse Outcomes of States Proposing New Abortion Restrictions Commonwealth Fund December 14 2022 www.commonwealthfund.org/publications/issue-briefs/2022/dec/us-maternal-health-divide-limited-services-worse-outcomes

Study: Cancer screening detects 14.1% of cancers: Only 1 in 7 cancers in the U.S. are diagnosed after the patient had a recommended screening test, while most cases are discovered when symptoms arise or through other medical care, according to research from NORC at the University of Chicago. Highlights:

  • Survival rates are four times higher when cancer is detected in earlier stages, compared with late-stage detection.
  • The incidence and screening rates vary widely: 61% of breast cancers are detected by screening, while just 3% of lung cancers are.
  • 57% of all diagnosed cancers currently do not have a recommended screening test.
  • States with the highest percentages of cancers detected by screenings include Arizona (16.8%), New Mexico (16.6%) and Florida (16.2%). Arkansas and Louisiana had among the lowest, both at 12%.

NORC https://cancerdetection.norc.org/?utm_source=newsletter

Systematic Review: Misdiagnosis in ED significant: “We identified 19,127 citations and included 279 studies. The top 15 clinical conditions associated with serious misdiagnosis-related harms (accounting for 68% [95% CI 66 to 71] of serious harms) were (1) stroke, (2) myocardial infarction, (3) aortic aneurysm and dissection, (4) spinal cord compression and injury, (5) venous thromboembolism, (6/7 – tie) meningitis and encephalitis, (6/7 – tie) sepsis, (8) lung cancer, (9) traumatic brain injury and traumatic intracranial hemorrhage, (10) arterial thromboembolism, (11) spinal and intracranial abscess, (12) cardiac arrhythmia, (13) pneumonia, (14) gastrointestinal perforation and rupture, and (15) intestinal obstruction…. With 130 million U.S. ED visits, estimated rates for diagnostic error (5.7%), misdiagnosis-related harms (2.0%), and serious misdiagnosis-related harms (0.3%) could translate to more than 7 million errors, 2.5 million harms, and 350,000 patients suffering potentially preventable permanent disability or death.”

Diagnostic Errors in the Emergency Department: A Systematic Review  Systematic Review AHRQ  Dec 15, 2022 https://effectivehealthcare.ahrq.gov

Health Insurance

CMS proposed rule changes to health insurance exchange, Medicare Advantage: The Centers for Medicare and Medicaid Services aims to reduce the number of non-standard policies offered on the health insurance exchanges. The proposed rule would require participating health insurers to comply with state and federal network adequacy standards and would review their contracts with substance use disorder treatment centers and mental health facilities to ensure there are providers available to members. CMS would require insurers to promote their coverage of substance use disorder and mental treatments by organizing providers into separate categories and instructing insurers to include at least 35% of the providers in any given market in their networks.

In a separate proposed rule, CMS would increase oversight of Medicare Advantage plans to better align them with traditional Medicare, address access gaps in behavioral health services and further streamline prior authorization processes along with protections to ensure post-acute care coverage.

CMS www.cms.gov

Payers CMS’ Transparency in Coverage rule takes effect Jan. 1: Starting in 2023, payers must provide an internet-based price comparison tool that allows members to receive an estimate of their cost-sharing responsibility for a specific item or service from a specific provider or providers for 500 items and services. Price comparison tools must include all services, including prescription drugs, by 2024.Payers not in compliance could face fines of up to $100 per day for each violation and for each individual affected by the violation. According to AHIP, nearly 94% of commercial insurers were already providing their members with online care cost estimator tools as of July.

CMS www.cms.gov/healthplan-price-transparency/resources

Value-Based Care

CMMI Report: Alternative payment models have had mixed results: The Center for Medicare & Medicaid Innovation (CMMI) has launched more than 50 alternative payment and care delivery model tests, with 33 models now or still operational, according to CMMI’s sixth report to Congress on its progress.

In the two-year period covering the report, CMMI reports that operational model tests have included over 314,000 healthcare providers and/or plans alone that have impacted the medical care of more than 41.5 million Medicare and Medicaid beneficiaries, as well as commercially-insured individuals.

“To date, just six model tests have delivered statistically significant savings, net of any incentive or operational payments, CMMI reports. Further, only two of those six models have shown significant improvements in quality and four have met the criteria to be eligible for expansion.” The 6 are:

  • Pioneer ACO Model
  • ACO Investment Model (AIM)
  • Medicare Prior Authorization Model: RSNAT Model:
  • Home Health Value-Based Purchasing (HHVBP) Model (HHVBP):
  • Medicare Care Choices Model (MCCM)
  • Maryland All-Payer (MDAPM) Model

2022 Report to Congress CMMI https://innovation.cms.gov/data-and-reports/2022

Study: PCPs disadvantaged in MIPS program: In this cross-sectional observational study of 80, 46 primary care physicians, MIPS scores were inconsistently related to performance on process and outcome measures, and physicians caring for more medically complex and socially vulnerable patients were more likely to receive low MIPS scores, even when they delivered relatively high-quality care.

Note: physicians participating in MIPS pay to play. Researchers citing previous studies note that in 2017, it cost PCPs more than $1.3 billion to comply with MIPS rules. In 2019, physician practices spent more than $12,000 per PCP to participate in the program.

Bond et al Association Between Individual Primary Care Physician Merit-based Incentive Payment System Score and Measures of Process and Patient Outcomes JAMA. December 6, 2022;328(21):2136-2146. doi:10.1001/jama.2022.20619

Hospitals

NYT Investigative team spotlights Ascension business practices, profitability: “Ascension, one of the country’s largest health systems, spent years cutting jobs, leaving it flat-footed when the pandemic hit…Both hospitals are owned by one of the country’s largest health systems, Ascension. It spent years reducing its staffing levels in an effort to improve profitability, even though the chain is a nonprofit organization with nearly $18 billion of cash reserves…Because of its nonprofit status, Ascension avoids more than $1 billion a year in federal, state and local taxes, according to the Lown Institute, a health care think tank. Until the pandemic, Ascension was consistently profitable, earning hundreds of millions a year. The past year was a rare exception: Because of the stock market downturn and soaring labor costs, Ascension lost $1.8 billion.”

Rebecca Robbins, Katie Thomas, Jessica Silver-Greenberg How a Sprawling Hospital Chain Ignited Its Own Staffing Crisis New York Times December 15, 2022 www.nytimes.com/2022/12/15/business/hospital-staffing-ascension

Prescription Drugs

Report: Drug price increases slowing: Per the report by SSR:

  • Brand-name drugmakers increased their wholesale prices by 4.8% in the third quarter this year, up slightly from 4.2% a year earlier and 4.9% in the previous quarter. But when accounting for inflation, wholesale prices fell by 3.1%, and inflationary pressures are likely to push wholesale prices still higher.
  • Net prices that health plans paid for medicines — after subtracting rebates, discounts, and fees — dropped by 0.3%. But after considering inflation, net prices actually fell 8.2%, compared with 7.9% in this year’s second quarter.
  • Overall, 90% of medicines experienced declines in wholesale prices in real terms, up from 77% in the third quarter in 2021, although this was down from 94% in this year’s second quarter. Meanwhile, the so-called gross-to-net bubble — which measures the gap between gross sales at list prices and net prices after rebates – was 48.9%, up 1.9% from a year ago and the largest such increase seen by the analysts

SSR Health http://www.ssrhealth.com/

Public Opinion

WSJ poll: voter pessimism in 2023: The Wall Street Journal poll of 1,500 registered voters conducted December 3-7, 2022 found opinions about the overall direction of the country and overall direction of the economy correlate closely and have changed little over the past year: % right direction vs. wrong direction:

  • Country: 24% vs. 60% (December 2022) vs. 27% vs. 63% (November 2021)
  • Economy:25% vs. 65% (December 2022) vs. 30% vs. 59% (November 2021)
  • 52% think the economy will get worse in 2023 vs. 25% who think it will get better.

Americans Expect Worsening U.S. Economy in 2023, WSJ Poll Finds Wall Street Journal December 16, 2022 www.wsj.com/articles/americans-pessimistic-about-prospects-for-the-economy-in-2023-wsj-poll-finds