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The Keckley Report

Systemness in Healthcare: Pipedream or Possible?

By March 7, 2022March 1st, 2023No Comments

Systemness in Healthcare: Pipedream or Possible?

Since February 26, the U.S. public’s attention has shifted from the pandemic to the Russian Federation’s invasion of Ukraine and its potential fallout on world order, oil prices and inflation. In that period, we’ve gotten good news about the U.S. job market’s strong 3-month recovery and frightening news about how higher prices have wiped out wage gains for most working-class households.

More than 38 million viewed the President’s much anticipated State of the Union Address last Tuesday. It touched on all these starting with the Ukraine and ending with a broad range of domestic issues including the opioid epidemic, nursing home quality, veterans’ health, access to mental health, drug prices, cancer treatment and others. In between, the President called out health workers on the front line of the pandemic and touted his new 96-page plan featuring the “test to treat” program” program that allows people to get tested for the coronavirus at a retail pharmacy before heading home with an anti-viral treatment. Notably, the American Medical Association said the move was directionally sound but strategically flawed because they believe “test to treat” should be administered by primary care physicians, not in retail pharmacy clinics.

While the Biden team seems keen to attend to healthcare’s pressing issues—pandemic preparedness, workforce resilience, opioid addiction, affordability and others—progress has been incremental at best. To do so risks political capital on the Left with those who favor a Do-Over altogether and the Right comfortable avoiding health reforms altogether. Both sides acknowledge the system’s lack of sustainability and neither seems willing to calibrate beyond the next election cycle. Outside the pandemic, radical incrementalism is masguerading as innovation.

Since 2007, the concept of “systemness” in healthcare has drawn attention as a framework for needed true innovation. Systemness is defined as  “the state, quality, or condition of a complex system, that is, of a set of interconnected elements that behave as, or appear to be, a whole, exhibiting behavior distinct from the behavior of the parts.” It is essential, complex, fragmented, inefficient, unsustainable, and change-averse. Systemness is needed in healthcare now more than ever.

The Kaiser Permanente Institute for Health Policy lists 7 characteristics of systemness when applied to U.S. healthcare: governance, strong physician leadership, organizational culture, clear & shared aims, accountability & transparency, patient-centeredness and teams. That’s good start (presuming accountability includes bona fide affordability) but what’s missing is scale and scope of services upon which these characteristics can be applied to a better system of health. It would bridge glacial divides between payers and providers, private and public health, physical and behavioral medicine and prevention and treatment.

·        Scale in healthcare is both relative (size relative to direct competitors) and absolute (the scale necessary to negotiate the best prices for labor, supplies i.e. buying power). Given the strength of investments in healthcare and entry barriers, scale in excess of $5 billion seems a modest starting point, but substantially more is likely necessary. Keeping in mind that capital will likely be sourced from private investors like the big public PE firms who expect to make a profit—Blackstone, Apollo Global Management, Ares Management, The Carlyle Group and KKR whose median IRR was 19.4% last year, and large-cap disruptors like Amazon, CVS, UnitedHealth and other system builders want a piece of the pie, scale in a new context of market definitions, scope of practice restrictions, consolidation and competition need fresh thinking.

·        Scope is the range of products and services offered. The lack of integration of mental health, dentistry, nursing home and senior health, wellbeing management, nutrition and insurance products and programs alongside hospitals, clinics and medical practices reflects our patchwork approach to systemness in which needs are unmet, capital is wasted and profits made by opportunists. Systemness will manage consumer relationships across a spectrum or traditional and non-traditional health and insurance services—they’re not patients.

Each week, I try to distill Industry and Policy Insight news items (below) necessary to system-wide view of U.S. healthcare. They illustrate the wide range of challenges and opportunities afforded by this vital industry. But no challenge is bigger to its future than transitioning from a sectarian protectionism to a system that’s seamless and sustainable. Hopefully, it’s not a pipedream.


PS: This Friday, the federal government’s temporary funding measure is set to expire. The bill signed into law by President Joe Biden extended funding until March 11. Lawmakers are working to lock in a broader full-year spending package, but opted for a short-term funding extension last month because they said they needed more time to hammer out the details. Stay tuned.

Industry Insights

Study: SNF Value-based Purchasing Program results: In this cross-sectional study of 14, 959 skilled nursing facilities, only 0.7% of facilities that performed poorly at baseline were able to improve readmission rates enough to avoid a financial penalty. “This study suggests that the SNF VBP program did not offer a viable path for nearly all low-performing SNFs to avoid financial penalties through improved readmission rates.”

Burke et al “Skilled Nursing Facility Performance and Readmission Rates Under Value-Based Purchasing”JAMA Netw Open. February 28, 2022;5(2):e220721. doi:10.1001/jamanetworkopen.2022.0721

Study: hospital prices unrelated to outcomes: Being admitted to a hospital with two standard deviations higher prices raises spending by 52% and lowers mortality by 1% (35%). However, the
relationship between higher prices and lower mortality is only present at hospitals in less
concentrated markets. Receiving care from an expensive hospital in a concentrated market
increases spending but has no detectable effect on mortality

DO HIGHER-PRICED HOSPITALS DELIVER HIGHER-QUALITY CARE? National Bureau of Economic Research February 2022 www,

Primary care burnout results in $969 million in excess annual spending: Mayo researchers analyzed the financial impact of primary care physician burnout and turnover using American Medical Association Masterfile data October 12, 2017, and March 15, 2018. (Primary care was defined as family medicine, general internal medicine, general pediatrics, geriatrics, general medicine, general preventive medicine, and obstetrics/gynecology). Key assumptions in the www, model: 25% of physicians intending to leave their current position in the next 24 months will do so and the average PC practice has 196 Medicare patients. Findings:

·        Medicare beneficiaries spend an additional $189 the first year after losing a PCP because of increased use of specialty, urgent, and emergency care.

·        The first year after leaving practice, the excess health care expenditures per PCP total $86,336.

·        11,339 PCPs are expected to leave their current practice each year.

·        Turnover of PCPs results in approximately $979 million in excess health care expenditures for public and private payers annually, with $260 million attributable to PCP burnout-related turnover.

Sinsky et al “Health Care Expenditures Attributable to Primary Care Physician Overall and Burnout-Related Turnover: A Cross-sectional Analysis” Mayo Clinic Proceedings February 26, 2022 rights and content

Study: relationship between hospital prices and mortality rates: Being admitted to a hospital with two standard deviations higher prices raises spending by 52% and lowers mortality by 1% (35%). However, the relationship between higher prices and lower mortality is only present at hospitals in less
concentrated markets. Receiving care from an expensive hospital in a concentrated market
increases spending but has no detectable effect on mortality.

DO HIGHER-PRICED HOSPITALS DELIVER HIGHER-QUALITY CARE? National Bureau of Economic Research February 2022

Kaufman Hall: January was bad month for hospital finances: Per Kaufman Hall’s latest National Hospital Flash Report for January, hospital margins, outpatient volumes, and revenues all dropped while expenses rose:

·        Actual hospital margins dropped into the negative numbers, with the median Kaufman Hall Operating Margin Index at -3.68% for the month, not including Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. With the federal aid, it was -3.3%.

·        The median change in Operating Margin (without CARES) dropped 71.3% from December to January due to persistent expense increases and abrupt volume shifts. Year-over-year, the median change in Operating Margin was down 23.7%, not including CARES. With CARES, the median change in Operating Margin declined 80.7% month-over-month and 23.8% year-over-year.

·        Total Expense per Adjusted Discharge jumped 11.6% from December to January, largely driven by a 14.6% month-over-month increase in Labor Expense per Adjusted Discharge. Non-Labor Expense per Adjusted Discharge rose 7.8% month-over-month in January.

 The National Hospital Flash Report Kaufman Hall February 2022

Private equity-managed anesthesia practices raise prices 16-18%: Researchers Columbia-Cornell analyzed 2,255,933 claims from privately insured patients covered by 3 national insurers who received anesthesia services in hospital outpatient departments and ambulatory surgery centers from 2012 to 2017. Findings:

·        Allowed amounts and unit prices increased by 16.5% and 18.7%, respectively, when facilities contracted with a Practice Management Company (PMC) relative to non-PMC facilities. Larger increases were found if the PMC received private equity investment.

·        In subsample analyses, PMCs without PE investment increased allowed amounts by 12.9% (+$89.88; 95% CI, $42.07 to $137.69; P < .001), while PE-backed PMCs (representing half of the PMCs in the sample) increased allowed amounts by 26.0% ($187.06; 95% CI, $133.59 to $240.52; P < .001). Similar price increases were observed for unit prices.

Forgia et al “Association of Physician Management Companies and Private Equity Investment With Commercial Health Care Prices Paid to Anesthesia Practitioners”JAMA Intern Med. February 28, 2022. doi:10.1001/jamainternmed.2022.0004 https://jamanetwork.comdoi:10.1001/jamainternmed.2022.0004

Cerner acquisition by Oracle raises questions: Per the KLAS report, the planned $28.3 billion Cerner acquisition by Oracle, announced late in December, has raised two concerns among users of the company’s information systems: is the management team capable/experienced enough to execute on a growth plan and what are the synergies with Oracle.

Cerner Flash Insights 2022 KLAS Reports Cerner Flash Insights 2022 February 10, 2022

McKinsey: Care at Home will shift 25% of Medicare spending by 2025: Up to $265 billion worth of care services (25% of total cost of care) for Medicare fee-for-service and Medicare Advantage beneficiaries could shift to the home by 2025 per McKinsey. Venture funding for digital health companies was a record-breaking $29.1 billion in 2021. Comparatively, there was $14.9 billion invested in 2020 and $8.2 billion invested in 2019. (McKinsey’s Consumer Health Insights survey from June 2021 found that 16 percent of respondents aged 65 and older said that they are more likely now than they were before the pandemic to receive home health services), and some have conditions that could be treated at home at a substantially lower cost.

“From facility to home: How healthcare could shift by 2025” McKinsey  February 1, 2022

The American Hospital Association calls workforce issue a national emergency: In a letter submitted to the House Energy and Commerce Committee last Tuesday, AHA said the workforce challenges “are a national emergency that demand immediate attention from all levels of government and workable solutions.” The association urged lawmakers to implement recruitment policies to revitalize and diversify the healthcare workforce including lifting the cap on Medicare-funded physician residencies; increasing support for nursing schools and faculty; providing scholarships and loan forgiveness; fast-tracking visas for international healthcare workers; investigating reports of anticompetitive behavior from travel nurse staffing agencies; and providing more funding and flexibility to address mental health needs of healthcare workers. 

American Hospital Association March 1, 2022

Insulin prices in US 10X OECD countries: The average gross manufacturer price for a standard unit of insulin in 2018 was more than ten times the price in a sample of 32 foreign countries: $98.70 in the U.S., compared with $8.81 in the 32 non-U.S. OECD countries for which we have prescription drug data. The U.S. prices for the mix of insulin used in the U.S. were 8.1 times prices paid in all non-U.S. OECD countries combined. Note: Civica Rx, a nonprofit founded to lower the cost of medicine, plans to launch cheaper versions of widely prescribed brands of insulin. Civica’s insulins would cost no more than $30 a vial, or $55 for a box of five pen cartridges, for people with or without insurance. The products will be available in early 2024, the company said, while a manufacturing facility is completed and regulatory approvals are obtained.
“Comparing Insulin Prices in the U.S. to Other Countries” HHS September 23, 2020

 Policy Insights

February Jobs Report shows inflationary pressures: U.S. wage growth slowed slightly in February but remained near historically high levels, adding to inflationary pressures when consumer prices were also rising rapidly. Findings:

·        Employers added 678,000 jobs and the unemployment rate fell to 3.8%.

·        Healthcare companies added an estimated 63,500 jobs–up from 17,500 in the first month of 2022. Over the past year, the healthcare sector gained 219,800 jobs, although the industry is still down by 306,000 positions, about 1.9%, from its pre-pandemic level.

·        Private-sector average hourly earnings rose a seasonally adjusted 5.1% in February from the previous year—down from 5.5% gain in January, Four of the past five months have seen annual wage gains exceed 5% vs. an average of 3.2% a year in the two years to February 2020.

John Cassidy “A Strong Jobs Report Shows How the U.S. Economy Has Learned to Live with the Coronavirus” New Yorker March 4, 2022

Morning consult: a fourth of households lack ability to pay all of their household expenses: Based on Morning Consult Economic Intelligence that covers 11,000 daily economic surveys across the 15 largest global economies for February 2022:

·        Consumer Confidence is at ICS 86.3. +03–. Up .3 pts from January  

·        Expenses were more than income* for 18.6% of households– up 3% since January

·        Financial vulnerability (unable to pay basic expenses for a full month using just savings) 25.3% -%–down 3.7% since February.

·        51% of U.S. adults faced limited grocery supply in February, up from 47% in January 2022

·        The share of adults who said their household expenses totaled more than their monthly income grew for a second straight month in January, jumping to a series high of 18.6%
After jumping up to a series high of 29.0 % in January, the share of Americans who lack savings to cover their basic expenses for a full month settled back to 25.3% in February

“Ukraine Conflict Adds to Inflation Woes” Morning Consult March 2022

SOTU Highlight: Administration Announces Improvements in Nursing Home Care: In President Biden’s State of the Union (SOTU) address last Tuesday, changes to nursing home quality was a focus: “As Wall Street firms take over more nursing homes, quality in those homes has gone down, and costs have gone up. That ends on my watch. Medicare is going to set higher standards for nursing homes and make sure your loved ones get the care they deserve.” Specifically, four areas will get attention under CMS’ oversight:

  • Establishing a minimum staffing requirement.

  • Reducing resident room crowding.

  • Strengthening the Skilled Nursing Facility Value-Based Purchasing (SNF VBP) program.

  • Improving safeguards against unnecessary treatments and medications.

Additionally, CMS will also take actions to improve nursing home transparency, including creating a database of nursing home owners and operators; collecting and reporting “more robust” data on corporate ownership and operations; improving the Nursing Home Care Compare website and more closely examining the role of private equity in nursing homes. The White House is asking Congress to allocate $500 million to increase the number and frequency of health and safety inspections at nursing homes; expanding financial penalties and other sanctions for poor-performing homes; and expanding CMS’s enforcement authority at the ownership level, especially when it comes to chain nursing home ownership.

SOTU: Mental health: Per the CDC survey conducted in January and February, 31.5% of U.S. adults reported anxiety or depression symptoms– highest among people aged 18-39, females, transgender people, gay, lesbian and bisexual people, and individuals with disabilities. In his State of the Union Address, he noted 5 changes to mental health policy he’ll pursue:

·        Renewed commitment to mental health parity. require insurers to cover three visits a year without cost-sharing.

·        Better integration of behavioral and physical health. Biden will propose doubling the budget for programs that link primary care and behavioral health.

·        Bolstering the mental health workforce.

·        Increased telehealth accessibility.

·        Continued focus on youth mental health.

 “2022 State of the Union Address” March 2, 2022

CFPB Report: $88 billion medical debt added in 2021: The Consumer Financial Protection Bureau (CFPB) released a report last Tuesday estimated $88 billion was added on consumer credit reports as of June 2021 bringing total medical debt to $140 billion. Other findings:

  • About 20% of US households reported having medical debt, and data on that debt appeared on 43 million credit reports.

  • Most medical debts on credit reports are under $500 each, but many people have multiple.

  • Overdue medical debt is more prevalent among individuals of color and is more common in the Southern US regions, where Medicaid coverage hasn’t been expanded.

  • As of 2021, medical debt was the most common debt collection type on credit reports.

“CFPB Estimates $88 Billion in Medical Bills on Credit Reports” CFPB March 1, 2022

 Atlanta Fed Report: Young workers seeing wage gains: Median hourly wages for workers age 16 to 24 were 10.6% higher in January than a year earlier exceeding the 4% overall gain for all workers and the highest in the past 25 years, according to Atlanta Federal Reserve Bank data. By comparison, consumer prices rose 7.5% in January from a year earlier, the Labor Department reported. Related findings:

·        In 2020, the last full year with available data, 48% of all workers making the federal minimum wage of $7.25 an hour or less were under 25 years old.

·        The U.S. population today age 16 to 24 (Gen Z)—is 3% smaller than it was 10 years ago.

·        In 2021, there were 2.7 workers paying into Social Security for every beneficiary. By 2035, there will be 2.3 covered workers per beneficiary, according to the Social Security Administration.

“Young Workers Rake In Biggest Wage Gains in Tight Labor Market” Wall Street Journal Feb. 28, 2022

CDC: 43% of the nation’s population (140 million) had COVID-19:

·        Infection rate estimates are much higher for children and younger adults. The study found 58% of children age 11 or younger have antibodies from natural infection, along with the same share among ages 12-17.

·        Just under half of adults 49 and younger have been infected. The rate decreases to 37% for people 50-64 years and 23% among Americans 65 or older.

·        At least half of the population in 14 states have had COVID-19, with Wisconsin reporting 56% of its population at one point infected and 50%+ in Georgia, Iowa, Illinois, Ohio, Wyoming, Texas, Indiana, Mississippi, Nebraska, Michigan, New Jersey, Tennessee and Louisiana. Vermont has the lowest estimated infection rate with 18% followed by Hawaii, Maine, Oregon, Washington, New Hampshire, Virginia and Massachusetts.


CMS replaces Direct Contracting models with ACO REACH: On February 24, CMS announced suspension of its Direct Contracting Global and Professional Models December 31, 2022 and immediate termination of Geographic Direct Contracting Model replacing them with a new equity-based alternative payment model called ACO REACH (Accountable Care Organization Realizing Equity, Access, and Community Health). Notable changes from predecessor models:

·        Each participation organization must require must implement a “robust health equity plan” to identify underserved communities and implement initiatives to measurably reduce health disparities within their beneficiary populations.

·        ACO chosen, providers must have at least a 75% controlling interest vs.25% previously.

·        ACO REACH will require downside risk: 50% or 100%, associated with partial or global capitation. Three types of groups may participate: Standard ACOs with Medicare experience, New Entrant ACOs to allow for new but less-experienced players (like GPDC), and High Needs Population ACOs to ensure groups caring for smaller but more complex populations are included.

·        New risk-adjustment requirements to protect against coding manipulation: a “zero-sum environment” that caps risk score growth at +/- 3% while locking in average scores.

Related: Tuesday, the National Association of ACOs (NAACOS) today announced the formation of the ACO REACH Coalition, a new coalition dedicated to promoting shared learning and advocating on behalf of providers in this new Medicare value-based payment model.

NAACOS Launches ACO REACH Coalition: Work Will Help the Provider Community Understand and Prepare for New Innovation Center Model

Analysis: Skilled Nursing Facility Value-based Purchasing Program results: In this cross-sectional study of 14, 959 skilled nursing facilities, only 0.7% of facilities that performed poorly at baseline were able to improve readmission rates enough to avoid a financial penalty. “This study suggests that the SNF VBP program did not offer a viable path for nearly all low-performing SNFs to avoid financial penalties through improved readmission rates.”

Burke et al “Skilled Nursing Facility Performance and Readmission Rates Under Value-Based Purchasing ”JAMA Netw Open. February 28, 2022;5(2):e220721. doi:10.1001/jamanetworkopen.2022.0721

Cancer cases increased 26% from 2010-2019: Nearly 24 million new cancer cases—about 17 million when excluding nonmelanoma skin cancer—and 10 million cancer deaths occurred in 2019. Between 2010 and 2019, new cancer cases increased 26.3%, cancer deaths increased 20.9%, and disability-adjusted life-years (DALYs) estimated to be due to cancer increased 16%.

“Global Cancer Burden Grew From 2010 to 2019” JAMA. March 1, 2022;327(9):804. doi:10.1001/jama.2022.2188

Surgeon General calls out Covid-19 disinformation sources: President Biden’s Surgeon General Dr. Vivek Murthy has formally called on tech companies to provide information on sources and the scale of COVID-19 misinformation, Murthy’s request pertains to social networks, search engines, crowdsourced platforms, e-commerce and instant messaging companies.

“US Surgeon General orders tech companies to reveal sources of COVID-19 misinformation” Yahoo Finance March 4, 2022

KFF analysis: Combined Federal and State Spending on Medicaid Home and Community-Based Services (HCBS) Totaled $116 billion in FY 2020 with wide variability across states: The new analysis, based on KFF’s 19th survey of state officials administering Medicaid HCBS programs in all 50 states and DC, finds that most enrollees receive home and community-based services that are optional coverage choices made by state Medicaid programs, usually in the form of waivers or optional state plan benefits. That results in substantial variation in HCBS eligibility, spending and benefits across states. Notably:

·        Spending on HCBS accounted for 59% of total Medicaid long-term services and supports spending in FY 2019, the most recent year for which data is available.

·        Spending data shows that among waiver target populations, annual per person costs for people with intellectual and developmental disabilities ($48,900) were much higher than per person costs for seniors and adults with physical disabilities ($17,600).

·        States vary in scope of services provided as well as reimbursement for providers. The average provider reimbursement rate for home health agency services is $118.82 per visit, based on analysis of the survey data provided by 20 states. The; the average provider reimbursement rate paid to personal care agencies is $23.09 per hour in 22 of 37 states reporting this data.

Medicaid Home & Community-Based Services: People Served and Spending During COVID-19 KFF March 4, 2022

Confusion about medication for immune compromised: Biden administration has insisted it will continue protecting the more than 7 million Americans with weakened immune systems who remain vulnerable to Covid. Evusheld was developed by AstraZeneca with financial support from the federal government and is administered in two consecutive injections.

It has purchased 1.7 million doses — enough to fully treat 850,000 people — and had nearly 650,000 doses ready for distribution to the states as of this past week but only 370,000 doses have been ordered by the states, and fewer than a quarter of those have been used. Adding to the confusion are revised Food and Drug Administration guidelines for Evusheld, released last month, that called for doubling the initial recommended dose after data showed the drug may be less effective against certain variants.

“High Demand for Drug to Prevent Covid in the Vulnerable, Yet Doses Go Unused” New York Times March 6, 2022