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The Keckley Report

The Healthcare Value Agenda 3.0: What to Expect in 2022 and Beyond

By February 14, 2022March 1st, 2023No Comments

The value agenda in U.S. healthcare is transitioning to version 3.0. While the aim of replacing fee-for-service incentives remains the same, the next version will be decidedly different.

Value Agenda 1.0 circa 2013-2017 was a product of the Affordable Care Act which re-packaged legacy Medicare pay-for-performance pilots as alternative payment models. For example, the physician group demonstration program circa 2005 was re-introduced as the Medicare Shared Savings Program aka accountable care organizations.

Value Agenda 2.0 circa 2018-2021 was a product of a change in the White House: the Trump administration’s team in HHS, CMS and CMMI promoted expansion of the value agenda through new alternative models and executive orders requiring price transparency for drugs, hospitals and insurers. The current debate about CMS’ the Direct Contracting model illustrates the perpetual tension between proponents of risk-sharing arrangements with Medicare and antagonists who think them easily gamed by experienced operators.

Despite tweaks to alternative payment programs and input by high profile collectives like the Healthcare Action Network, National Association of Accountable Care Organizations and others, the value agenda 1.0 and 2.0 have had mixed results. Quality improvements have been achieved, but savings for the Medicare program have fallen far short of original projections. Annual spending increases slowed from 5.1% in 2014 when most of the alternative payment programs started to 4.3% in 2019 before the pandemic.

The pandemic has changed the context for the Value Agenda: spending increased 9.7% in 2020 to $4.1 trillion. In 2021, a new administration stepped in and the economy was in turmoil. This month, deaths due to the pandemic hit 900,000, public anxiety about health and wellbeing has spiked and health insurers and notable hospital systems are reporting record earnings.

So, the Value Agenda 3.0 in 2022 and beyond is markedly different than before. It is unlikely to be built on a Medicare-for-All policy framework: the public’s appetite today for a federal takeover of the health system is low but regulations that stiffen compliance in business practices are inevitable as public support grows i.e., workforce disparities, board independence, executive compensation, transparent pricing and many others. It is pressure from employers and consumers who are fed up that will spark the most significant changes in Value Agenda 3.0. In my view, the foundational changes from 1.0 and 2.0 versions are four:

·        Defining value: The concept of value in healthcare is not readily understood. As a result, each sector defines it differently while claiming its calculus more virtuous than the next. As Michael Porter wrote in 2010 “In health care, stakeholders have myriad, often conflicting goals, including access to services, profitability, high quality, cost containment, safety, convenience, patient-centeredness, and satisfaction. Lack of clarity about goals has led to divergent approaches, gaming of the system, and slow progress in performance improvement. Achieving high value for patients must become the overarching goal of health care delivery, with value defined as the health outcomes achieved per dollar spent.” In the Value Agenda 3.0, value will be more precisely defined and directly linked to lower costs for individuals and families.

·        Attention to unit prices: In tandem with precision in defining value, transparency about underlying costs and their relationship to unit prices will be a critical basis for purchases by individuals, employers and government payers. The underlying granular costs for a day in the hospital, a diagnostic test in an outpatient facility, a visit to a specialist, a prescription drug or an emergency room encounter and the prices and mark-up calculus will be readily accessible to purchasers. Opaque costs and willful non-adherence to pricing regulations will be significantly reduced by public pressure in Value Agenda 3.0.  

·        Inclusive of working age populations: Value Agenda 1.0 and 2.0 focused on savings to Medicare to extend its solvency long-term. In October, CMS unveiled a goal to bring all Medicare beneficiaries into value-based care by 2030 but it’s not enough. The health status of working age populations in private coverage, Medicaid and those lacking coverage, is eroding. More than 70% have a chronic condition and all are anxious about affordability. Thus, in Value Agenda 3.0, large employers, private insurers and consumers will pursue their own value-paths prompting CMS to align its Medicare strategy with private sector efforts. In the process, CMS’ value agenda will be integrated with private payers and more aggressive about cost reductions.

·        Increased accountability for private capital: Innovations in value-focused care delivery and financing have been sparked by record investing in healthcare by private equity and venture funds. Digital health, primary care gatekeeping, telemental health, specialty carve-outs, insure-techs are among sectors targeted by opportunistic investors seeking profits for their shareholders. Not surprisingly, Congress is concerned about “ill-gotten gain” in healthcare launching investigations about stock ownership and business practices that have heretofore not drawn major attention. In Value Agenda 3.0, regulatory approvals, SEC disclosure requirements and potentially longer hold periods for investments will be added. The significance of private investing will not diminish, but terms and conditions to achieve shareholder (limited partner) returns and reward general partners will change dramatically.

There’s little doubt healthcare is pivoting from its experiments with value-based purchasing in Value Agenda 1.0 and 2.0 to systemic hardwiring of regulations, operating models and capital sourcing that’s geared toward the sustainability of a public-private health system operating in an endemic. That’s what ahead in Value Agenda 3.0.

Stay tuned.


“What Is Value in Health Care?” Michael E. Porter New England Journal of Medicine December 8, 2010

Industry Insight

Study: volume remains primary driver of physician compensation: This cross-sectional mixed-methods study of 31 physician organizations affiliated with 22 US health systems found that volume was a component of primary care and specialist compensation for most POs (83.9% and 93.3%, respectively), representing a substantial portion of compensation when included (mean, 68.2% and 73.7%, respectively). While most primary care and specialist compensation arrangements included performance-based incentives, they averaged less than 10% of compensation.

Reid et al “Physician Compensation Arrangements and Financial Performance Incentives in US Health Systems”JAMA Health Forum. January 28, 2022;3(1):e214634. doi:10.1001/jamahealthforum.2021.4634

Consumer sentiment drops: The University of Michigan’s Consumer Sentiment Index dropped to 61.7 from 67.2 in a preliminary February reading– the lowest since October 2011 and down 15.1 points from levels seen one year ago. Inflation fears also worsened through the first weeks of February: adults now expect inflation to trend at 5% over the next year, up from January’s reading of 4.9% and expect prices to climb at an annual rate of 3.1% over the next five to 10 years, well above the Fed’s target of 2% inflation.

Surveys of Consumers, University of Michigan www.

Drug Makers report $14 Billion In Sales Of COVID-19 Treatments In 2021: Full-year sales were Eli Lilly & Co.’s monoclonal antibodies ($2.2 billion), Gilead Sciences Inc.’s COVID-19 antiviral Veklury ($5.5 billion), Merck & Co. Inc.’s molnupiravir (nearly $1 billion), and Regeneron Pharmaceuticals Inc.’s monoclonals ($5.8 billion).

Four drug makers raked in $14 billion in sales of COVID-19 treatments in 2021. How will they do this year? Market Watch February 7, 2021

Study: branded drug prices up in 2022: In January 2022, there was a net (combined increases and decreases) of 852 brand products that took a price increase–down 9% from the 936 observed in 2021. That said, the number of brand price increases in January 2022 was higher than the number taken in 2020 (n=761) and 2019 (n=772).

“Examining the first month of 2022 brand drug price increases” 46Brooklyn February 7, 2022

Amazon Care expands clinic, virtual investments: Tuesday, Amazon announced it will open brick-and-mortar health clinics in 20 major U.S. markets this year and expand its virtual offerings nationwide.

“Amazon Care announces nationwide expansion of health clinics” STAT News Feb. 8,

Study: 3 PBMs control 79% of market: According to data from Health Industries Research Companies for PBM activity in 2020, of 29 pharmacy benefit managers, 3 controlled 79% of the market: CVS 34%, Express Scripts: 24%and OptumRx (UnitedHealth): 21%. 26 others control the remaining 21%.

Health Industries Research

Big six investor-owned insurers post profits for 2021: UnitedHealth Group was the most profitable payer in 2021 with $17.3 billion in earnings on $287.6 revenues followed by CVS Health ($7.9 billion earnings, $292.1 billion revenues), Anthem ($6.1 billion earnings, $138.6 billion revenue), Cigna ($1.1 billion earnings, $45.7 billion revenue), Centene ($1.3 billion earnings, $126 billion revenue) and Humana $2.9 earnings, $83.1 revenue). FYI–Integrated system Kaiser reported $8.1 billion earnings on $93.1 billion revenue.

“UnitedHealth was 2021’s most profitable payer. Here’s a look at what its competitors earned” Feb 11, 2022

Signify Caravan acquisition to focus on value agenda: Signify Health has acquired accountable care organization builder Caravan Health in for $250 million–$190 million in cash and $60 million in Signify stock (which went public last year). Caravan offers population health management expertise, while Signify brings specialty care and care transition knowledge to the table. As of the end of 2020, Signify had contracts with 26 of the top 50 Medicare Advantage plans. Caravan reports support for Medicare Shared Savings Program with 300 independent health systems and 26,000 clinicians to achieve meaningful results through value-based care.

Signify Health scoops up Caravan Health for $250M to form largest network of at-risk providers Feb 11, 2022

Study: Comp for Not for Profit Hospital CEOs:  Background: A 2021 report from the Economic Research Institute (ERI) found that the average annual CEO pay in most nonprofit industries was between $100,000 and $200,000 in 2018. The two exceptions were university CEOs, who were paid an average of $350,000, and hospital CEOs, who were paid on average $600,000. According to the Economic Policy Institute, average realized compensation of US CEOs, adjusted for inflation, grew by 105.0% from 2009 to 2019, while typical worker compensation increased by just 7.6%. Similarly, from 2005 to 2015, the average compensation of major nonprofit hospital CEOs rose by 93%, from $1.6 million to $3.1 million, while average hospital worker wages increased by a mere 8% in that decade.Using data from the Lown Institute to examine CEO compensation in not-for-profit hospitals, researchers found:

·        Hospital executive compensation finds that higher compensation is strongly associated with the number of beds, at a rate of an additional $550 in salary per bed. As hospital size increases, increase in CEO compensation tends to exceed that of worker pay for larger hospitals, giving them a higher pay equity ratio.

·        Urban location and teaching status are associated with higher executive hourly compensation compared to general worker wages.

Saini et al “Nonprofit Hospital CEO Compensation: How Much Is Enough?” Health Affairs February 10, 2022 10.1377/forefront.20220208.925255

Anthem expanding virtual care: Anthem is expanding its virtual primary care offering to commercial enrollees in 11 states– Colorado, Connecticut, Georgia, Indiana, Kentucky, Missouri, Nevada, New York, Ohio, Virginia and Wisconsin, the company said. Eligible members can access a virtual care team that will conduct an initial health check-in and then craft a personalized care plan enabled through Anthem’s Sydney Health app.


Bain: M&A, Valuations up in 2021: Healthcare M&A volume was up 16% in 2021, and value rose by 44% after last year’s steep decline. Across the five sectors, deal value totaled $440 billion in 2021, with multiples at an all-time high. Other findings:

·        The median healthcare deal fetched 20 times forward-looking enterprise value (EV)/EBITDA in 2021, a full five turns higher than in 2019, the last time that volumes were as high.

·        The number of transactions aimed at adding a new capability have risen dramatically from 11% of healthcare deals among the top 250 largest transactions across industries in 2017 to 18% in 2021.

·        Pharma continues to be the healthcare sector with the largest M&A transaction value and volume. After experiencing declining volumes and values during the early months of the pandemic, pharmaceutical companies saw big gains for both in 2021.

·        Payer transaction volume fell about 30% after increasing from 2019 to 2020. Those deals that did occur in 2021 tended to focus on adding scale and platforms, or diversifying offerings to different member populations.

·        The impact of Covid-19’s associated margin pressures on providers led to declines in M&A volume in 2020. Provider M&A transaction volumes and values both recovered in 2021, exceeding pre-pandemic levels. Likewise, transactions with financial sponsors in the sector increased as well, with a 43% increase vs. 2020.

McKinsey: Gen Z stressed out: Per McKinsey, one in four Gen Z respondents (25%) reported feeling emotionally distressed, almost double the levels reported by millennial and Gen X respondents (13% each), and more than triple the levels reported by baby boomer respondents (8%). Gen Z respondents were also two to three times more likely than other generations to report thinking about, planning, or attempting suicide in the 12-month period spanning late 2019 to late 2020.

McKinsey “Addressing the unprecedented behavioral-health challenges facing Generation Z” January 14, 2022

Regulatory/Policy Insight

Resignation of White House science advisor consequential to Biden agenda: The resignation of controversial White House science advisor Eric Landor is a major blow to the Biden administration’s broader scientific agenda. Key posts are not filled (The National Institutes of Health, FDA) and HHS Secretary Xavier Becerra faces criticism about his lack of leadership in the pandemic response. Lander was the first White House science adviser to sit in the president’s Cabinet; the first from a life sciences background; and the first to create an entire wing of OSTP devoted to biology, medicine, and human health

Eric Lander resigns — potentially imperiling the rest of Biden’s scientific agenda STAT News February 7, 2022

YouGov Poll: top issues to voters: Those rating these issues “very important”:

·        Jobs and the economy: 69%

·        Healthcare: 65%

·        National security: 61%

·        Crime: 60%

·       Education: 59%

The Economist/YouGov Poll January 22 – 25, 2022
Morning Consult: 64% think US heading in wrong direction: Per Morning Consult’s latest poll of 6400 US adults conducted February 7, 2022:

“Now, generally speaking, would you say that things in the country are going in the right direction, or have they pretty seriously gotten off on the wrong track?” 66% wrong track vs. 34% right direction

Is the United States Heading in the Right Direction? Morning Consult February 7, 2022

Bipartisan Commission: Opioid epidemic cost $1 trillion: Last Tuesday, the Bipartisan Commission on Combating Synthetic Opioid Trafficking released a report that shows the cost of the opioid epidemic in the United States to be $1 trillion/year. Previously, a White House Council of Economic Advisers assessment reported the cost at $700 billion three years ago. The 148-page report also documents the faults in current U.S. strategy and recommends a number of tactics to better address the epidemic.

Per the CDC, from April 2019-April 2020, young people ages 15 to 24 saw the largest percentage increase in drug overdose deaths, at 49%.

Saint-Maurice et al “Estimated Number of Deaths Prevented Through Increased Physical Activity Among US Adults” JAMA Intern Med January 24, 2022. doi:10.1001/jamainternmed.2021.7755

Fed: household debt up $1 trillion in 2021: Americans took on more new debt in 2021 than in any year since before the 2008-09 financial crisis. Total household debt rose by $1.02 trillion last year, boosted by higher balances on home and auto loans, the Federal Reserve Bank of New York said Tuesday. It was the largest increase since a $1.06 trillion jump in 2007. Total consumer debt now sits at around $15.6 trillion, compared with $14.6 trillion a year earlier.

“U.S. Households Took On $1 Trillion in New Debt in 2021”

CDC: life Thursday, the CDC’s National Center for Health Statistics released life expectancy data for 2019: Mississippi had the country’s lowest life expectancy, at 74.4 years, which was significantly below the national average of 78.8. Hawaii, meanwhile, had the highest: 80.9 years.


SEC proposes new rules for private equity: Last week, U.S. Security and Exchange Commission proposed new transparency rules requiring covered funds to provide LPs with a quarterly statement that includes a “detailed accounting” of all fees and expenses paid by the fund during the period. It also would need to include compensation paid by portfolio companies to the general partner or any related parties, provide an annual financial statement audit, obtain a fairness opinion when seeking to execute a GP-led secondary transaction and disclose cybersecurity breaches.

“SEC Chair Gensler Signals Increased SEC Scrutiny of Private Funds” December 16, 2021

 CPI up .6% in January: The Consumer Price Index rose 7.5% in the year through January, according to data out last Thursday surpassing the median estimate of 7.3% and marking the strongest inflation since February 1982.

Bureau of Labor Statistics

Study: Hospice use associated with lower costs: Total health care expenditures were lower for those who used hospice compared with propensity score weighted non-hospice control participants for the last 3 days of life ($2,813 lower); last week of life ($6,806 lower); last 2 weeks of life ($8,785 lower); last month of life ($11,747 lower); and last 3 months of life ($10,908 lower). Family out-of-pocket expenditures were lower for hospice enrollees in the last 3 days of life ($71); last week of life ($216); last 2 weeks of life ($265); and last month of life ($670) compared with those who did not use hospice. Health care savings were associated with reductions in inpatient care.

Aldridge et al “Association Between Hospice Enrollment and Total Health Care Costs for Insurers and Families, 2002-2018” JAMA Health Forum. February 11, 2022;3(2):e215104. doi:10.1001/jamahealthforum.2021.5104

Study: volume is primary basis for physician comp: This cross-sectional mixed-methods study of 31 physician organizations affiliated with 22 US health systems found that volume was a component of primary care and specialist compensation for most POs (83.9% and 93.3%, respectively), representing a substantial portion of compensation when included (mean, 68.2% and 73.7%, respectively). While most primary care and specialist compensation arrangements included performance-based incentives, they averaged less than 10% of compensation.

Reid” Physician Compensation Arrangements and Financial Performance Incentives in US Health Systems “JAMA Health Forum January 28, 2022;3(1): e214634. doi:10.1001/jamahealthforum.2021.4634

Price transparency compliance low for hospitals: An analysis of 1,000 U.S. hospitals found that only 14.3% were complying with federal price transparency rules and about 38% of hospitals posted a “sufficient amount of negotiated rates” on their websites. The analysis follows a report in July 2021 that showed only 5.6% of 500 random hospitals were in compliance with the rules that were introduced at the start of 2021.”The largest hospital systems are effectively ignoring the law with no consequences,” the 61-page report said, noting that only two hospitals of 361 at three of the largest hospital systems were in compliance. The report said only two of 361 combined hospitals at three of the largest hospitals systems — HCA Healthcare, Common Spirit Health and Ascension — were estimated to be in compliance with the federal standard.

“Only 14% of hospitals comply with federal price transparency rules, advocacy group finds” Feb. 11, 2022

CDC: Physician recommendation drives vaccination: CDC analyzed data among adults aged ≥18 years from the National Immunization Survey-Adult COVID Module (NIS-ACM) from May to September 2021. Findings:

·        41% of the adults surveyed between late August and late September 2021 had received a clinician’s recommendation to get vaccinated against COVID-19. That’s up from the nearly 35% who reported 4 months earlier that a health professional had advised them to get vaccinated

·        Provider recommendation for COVID-19 vaccination among adults increased from 34.6%, during April 22–May 29, to 40.5%, during August 29–September 25, 2021.

·        Adults who reported a provider recommendation for COVID-19 vaccination were more likely to have received ≥1 dose of a COVID-19 vaccine (77.6%) than were those who did not receive a recommendation (61.9%).

·        Report of a provider recommendation was associated with concern about COVID-19, belief that COVID-19 vaccines are important to protect oneself, belief that COVID-19 vaccination was very or completely safe, and perception that many or all of their family and friends had received COVID-19 vaccination.

“Report of Health Care Provider Recommendation for COVID-19 Vaccination Among Adults, by Recipient COVID-19 Vaccination Status and Attitudes — United States, April–September 2021” Weekly / December 17, 2021 / 70(50);1723–1730