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The Keckley Report

The Winners and Losers in US Healthcare thru 2025: What to Expect

By September 26, 2022March 1st, 2023No Comments

With 6 weeks to the mid-term election, one thing is certain: healthcare issues will be prominent in campaign rhetoric but the reality is not much will change until after 2024. Economic conditions, Congressional dysfunction and effective advocacy efforts by trade groups representing hospitals, drug and device manufacturers, and health insurers will limit major reforms.

Policy changes will be dependent on the composition of Congress, control of the White House and global economic recovery. Therefore, looking ahead to 2025, the realities are these:

·        Barring a major foreign conflict with Russia or China, the domestic economy will be the dominant issue. The rate of inflation will drop but remain high, unemployment will increase, wage pressures will accelerate for employers, the housing bubble will end (per S&P, 60% of households will be priced out of the housing market by 2025) and consumer household spending will be stretched including out of pocket spending for healthcare. Notably, the tightening of the fed’s monetary policy via interest rate increases will increase interest costs in every sector of consumer lending and household debt, including medical debt.

·        Federal health policy will not change: The official “Public Health Emergency” recognizing the end of the Covid-19 pandemic will add 2-4 million to the ranks of the uninsured. Elements of the Inflation Reduction Act (passed August 16) restricting drug pricing will be delayed pending court challenges. Notably, the impact of IRA on drug prices is likely negligible with the potential of direct negotiation between Medicare and drugmakers a caveat. Additional post-PHE funding for hospitals will not be accessible. States will implement abortion policies as Congress debates a national law. Compliance with federal price transparency Executive Orders by health insurers and hospitals will increase slightly and the Medicare funding shortfall (2028) will spark heightened attention to hospital waste, fraud, abuse, business practices, profit, ownership et al.

·        Private equity and strategic investors will enjoy market advantages. US healthcare is dependent on private capital. Healthcare’s private and strategic investors are pivoting toward business models that lower costs, improve consumer experiences, lower workforce dependency and integrate proprietary data in decision-making. While scale is an advantage, investors are keen to seize on consumer discontent with hospitals, health insurers and drug companies by offering disruptive alternatives to the status quo for employers and consumers. Notably, Special Purpose Acquisition Company (SPAC) deals in healthcare will struggle as traditional targets are fewer and risks higher for novel business models. Thus, traditional powerhouses in healthcare private equity (i.e., Goldman, Apollo, Welsh Carson, et al) and large cap disruptors (i.e., Walmart, Optum, CVS) will gain market advantage at the expense of weaker players—especially now as valuations for most acquisition targets are declining.    

My take:

Given these, the winners and losers in the $4.3 trillion U.S. health industry between now and 2025 are likely these:

Big Winners:

·        Drug Manufacturers: The Inflation Reduction Act and other proposed changes to drug development, distribution and prescribing will do little to retard the sector. Transparency regulations will have incremental impact on drug prices. And scrutiny of PBM business practices will deflect criticism of drug prices.

·        National Health Insurers that Control Primary Care Gatekeeping at Scale: Humana, UnitedHealth, CVS-Aetna and others are advantaged in offering retail primary care featuring mental, physical and dental health services to targeted populations (employers, Medicaid managed care, Medicare Advantage). Unnecessary hospital, specialist and “low value” diagnostic testing are targets.

·        Regional Integrated Health Systems: Organizations that integrate a captive professional services organization (physical and behavioral health, dentistry, mid-levels) and health insurance programs customized plans to consumers, employers and seniors at scale via digital connectivity. Notably, acute and long-term care services are cost centers in these models.

Big Losers

·        Small Insurance Companies: Razor-thin operating margins, growing competition and state regulations impede the near-term profitability of these businesses forcing many to raise capital in down rounds or be acquired by a strategic buyer. Scale is key to insurance plan operations: few are able to operate profitably as enrollee expectations and premium pressures intensify.

·        Academic Medicine: Academic medicine’s three in one model (teaching, research, patient care) faces growing competition for industry-sponsored research funding and competition in price sensitive acute services offered in non-academic settings. Total cost of care and patient experience differentiation will be major near-term challenges to AMCs.

·        Community Hospitals in Difficult Markets: Smaller hospitals in markets with declining/dormant population growth, a dominant health insurer and privately-funded primary care alternatives for employers and consumers face an uphill battle. Invariably, their Boards are alert to the challenges but short-sighted in evaluating strategic options.

·        Safety Net Hospitals: Their plight is worrisome as public funding (Medicare, Medicaid) shrinks and demand swells.

Too Soon to Know:

·        Blue Cross Plans: Can certain of the 35 Blues continue to operate monopolies in markets that impede competition? How will court challenges to pacts between BC plans impact competition between BC plans?

·        Care Management Solution Providers focused on Value: Will constraints on “business partners” in the CMS value agenda enable the solution providers to invest their capital with a reasonable ROC expectation? How much control should they exercise?

·        Telehealth: The jury’s out on the value-proposition of telehealth outside success in mental health therapy and certain chronic conditions. Legislative support is dependent on a solid ROI demonstrating widespread access and reduced spending: both are not widely accepted. And notable volatility (i.e., Teladoc et al) in post-pandemic valuations heighten investor concern.

·        Assisted Living: The sector is seen as an adjunct to Medicare and senior health and likely to face increased regulatory scrutiny.

In each sector/grouping above, objective strategic planning and Board education are requisites. Regrettably, many plans are ill-informed by flawed or incomplete data and the direction set by CEOs with Boards ill-prepared to fulfill their fiduciary role.

In U.S. healthcare, there will be winners and losers in the next 3 years. Some are prepared; most aren’t. And bail-outs are unlikely.


PS Yesterday at sundown marked Rosh Hashanah, the Jewish New Year. Rosh Hashanah means “head of the year” in Hebrew, and it’s one of the holiest days of the year for Jews around the world. Happy New Year!

Wednesday, President Biden convenes a White House conference focusing on ending hunger and improving nutrition across the nation. The event will be the first White House conference on food insecurity in more than 50 years. Per the USDA, 89.8% (118.5 million) of U.S. households where food secure throughout 2021–unchanged from 89.5% in 2020. However, food insecurity in households with children is higher (12.5%) impacting 5 million school-age kids.



CDC Report: Covid 19 decreasing: Per the CDC’s latest Weekly Review tracking Covid issued Friday:

·        Cases: As of Sept. 21, the nation’s seven-day case average was 54,186, a 10.6% decrease from the previous week’s average and the ninth week of decline and the lowest daily case rate seen since late April.

·        Hospitalizations: The seven-day hospitalization average for Sept. 14-20 was 3,971, a 9.9%decrease from the previous week’s average. 

·        Deaths: The current seven-day death average is 347, down 12.2% from the previous week’s average.

·        Vaccinations: As of Sept. 21, 263.4 (79.5%) million people have received at least one dose and 225 million people (67.8%) of the population, have received both doses. 


Study: Admissions to drug treatment facilities fell during the pandemic as substance use disorders and overdose deaths rose. To examine the surge in drug overdose deaths, RAND researchers quantified changes in national substance abuse disorder (SUD) treatment before (2017-2019) and during (2020) the COVID-19 pandemic. Findings:

Before 2020, the number of treatment admissions per 10,000 remained relatively stable. However, in 2020, the number of treatment admissions decreased from 65.9 per 10 000 in 2019 to 50.4 per 10 000 in 2020, a relative reduction of 23.5%.

Cantor et al Analysis of Substance Use Disorder Treatment Admissions in the US by Sex and Race and Ethnicity Before and During the COVID-19 Pandemic JAMA Netw Open. 2022;5(9):e2232795. doi:10.1001/jamanetworkopen.2022.32795

Private Equity

Funeral homes target of PE: sound familiar?: From Kaiser Health News last week: “Private equity firms are investing in health care from cradle to grave, and in that latter category quite literally. A small but growing percentage of the funeral home industry — and the broader death care market — is being gobbled up by private equity-backed firms attracted by high profit margins, predictable income, and the eventual deaths of tens of millions of baby boomers…

According to industry officials, about 19,000 funeral homes make up the $23 billion industry in the U.S., at least 80% of which remain privately owned and operated — mostly mom and pop businesses, with a few regional chains thrown in. The remaining 20%, or about 3,800 homes, are owned by funeral home chains, and private equity-backed firms own about 1,000 of those…

Many investors are banking on a significant uptick in demand for death care services in the coming years as 73 million baby boomers, the oldest of whom will be in their late 70s, continue to age.

Meanwhile, many funeral home owner-operators are reaching retirement age and have no one in the family willing to take over. A 2021 survey by the National Funeral Directors Association found that 27% of owners planned to sell their business or retire within five years.

The desire to sell, combined with the investment money pouring into the field, has driven prices for funeral homes to new heights. Before private equity turned its eye to funeral homes, they were selling for three to five times their annual revenue. “Now I’m hearing seven to nine,” said Barbara Kemmis, executive director of the Cremation Association of North America, a trade group for the cremation industry…

Only 1 in 5 consumers visit more than one funeral home to obtain a price list, according to a 2022 survey commissioned by the Consumer Federation of America. And online comparisons are virtually impossible — a study by the federation and the Funeral Consumers Alliance found that just 18% of the funeral homes they sampled listed their prices on their websites. As a result, families generally lean heavily on the expertise of a single funeral director, who has a motive to sell them the most expensive options. So, consumers can be pushed into buying packages for open-casket funerals that include embalming and other services that drive up the cost and may be unnecessary.

Cremation rates nationally have been steadily climbing over the past two decades, with nearly 58% of families now choosing cremation over casket burials. Foundation Partners expects that rate to hit 70% by 2030.

Private equity investment has the potential to go one of two directions: It’s either going to entrench status quo and drive price, or the purpose of the investment is going to be disruption,” Haneman said. And disruption promises the possibility of bringing more affordable processes to market.”

Death Is Anything but a Dying Business as Private Equity Cashes In KHN September 22,

Venture Capital

Pitchbook: early stage companies reducing costs to avoid down round financing: “Our Q2 2022 US VC Valuations Report noted that fewer than 6% of completed financings in 2022 have been at valuations lower than what the company previously raised. This is the lowest figure in our dataset and is opposite of what many would expect. Before re-entering the equity market, many companies instead look to extend their current runway. One method of runway extension is via layoffs. As of early September, more than 80,000 tech employees have been laid off globally in 2022, a vast majority of those in June, July, and August.”

Down Rounds, Impacts, and Exit Opportunities Pitchbook September 22, 2022


Kaufman Hall: majority of hospitals will have operating loss in 2022: Per KF’s August Flash Report for Hospitals: total hospital employment in the U.S. reached 5.2 million workers –below its pre-pandemic peak. 53% of hospitals are projected to lose money this year, slightly more than last year and 2020, the first year of the pandemic. Just a third of hospitals lost money on an operating basis in 2019.

Related: St. Louis-based Ascension, whose 143 Catholic hospitals make it the third largest U.S. hospital system, recently announced it lost $879 million in day-to-day operations on $29.0 billion in patient revenue for the fiscal year that ended on June 30, 2022 vs. $676 million gain from operations on $27.2 billion in revenue the previous fiscal year.

Related: CommonSpirit Health reported a $1.85 billion net loss for fiscal 2022 and closed out the year with a -3.8% operating margin, the Catholic not-for-profit health system disclosed last Thursday.

The Chicago-based company’s performance during the fiscal year that ended June 30 compares to a $5.19 billion net gain during the prior 12-month period. Operating expenses were up 9% to $35.2 billion and revenue rose 2% to $33.9 billion. CommonSpirit cited elevated labor costs, higher prices due to inflation, lower patient volumes and reimbursements that didn’t keep pace with expenses as challenges. The end of federal COVID-19 relief was another factor: CommonSpirit received $1.6 billion in CARES Act grants as of June 30, most of which were awarded in 2020 and 2021

The Current State of Hospital Finances: Fall 2022 Update Kaufman Hall

AHA: AHA calls on Congress for rural hospital support: Highlights of AHA report:

·        Between 2010 and 2021, 136 rural hospitals have closed, according to the UNC Cecil G. Sheps Center: 19 of these closures occurred in 2020, the most of any year in the past decade. More than half of the hospitals that have been closed were independent.

·        The majority (74%) of rural closures happened in states where Medicaid expansion was not in place or had been in place for less than a year.

·        Rural hospitals face significant staffing shortages. Only 10% of physicians in the United States practice in rural areas despite rural populations accounting for 14% of the population. Nearly 70% of the primary care Health Professional Shortage Areas (HPSAs) are located in rural or partially rural areas. 

“The AHA continues to support policies that would help address these challenges, including: 1. Extending the MDH program (Rural Hospital Support Act, S.4009, and Assistance for Rural Community Hospitals Act, H.R.8747). 2. Extending the LVA program (Rural Hospital Support Act, S.4009, and Assistance for Rural Community Hospitals Act, H.R.8747).”

Rural Hospital Closures Threaten Access American Hospital Association September 2022

Mayo study: tele-diagnostic accuracy high: In this study of 2393 patients who underwent a video telemedicine consultation followed by an in-person outpatient visit for the same clinical problem in the same specialty within a 90-day window, the provisional diagnosis established over video telemedicine visit matched the in-person reference standard diagnosis in 86.9% of cases. Related findings:

·        Diagnostic concordance by International Statistical Classification of Diseases and Related Health Problems, Tenth Revision chapter ranged from 64.7% for diseases of the ear and mastoid process to 96.8%for neoplasms.

·        Diagnostic concordance by medical specialty ranged from 77.3% for otorhinolaryngology to 96.0% for psychiatry.

·        Specialty care was found to be significantly more likely than primary care to result in video telemedicine diagnoses concordant with a subsequent in-person visit.

·        New patient cases presenting to primary care via telemedicine had a significantly lower diagnostic match between telemedicine and in-person visits compared with patient cases presenting first by video telemedicine to specialty clinics.

Demaerschalk et al Assessment of Clinician Diagnostic Concordance With Video Telemedicine in the Integrated Multispecialty Practice at Mayo Clinic During the Beginning of COVID-19 Pandemic From March to June 2020 JAMA Network Open. 2022;5(9):e2229958. doi:10.1001/jamanetworkopen.2022.29958

NY Times investigation: hospital rev cycle aggressive: “More than half the nation’s roughly 5,000 hospitals are nonprofits like Providence. They enjoy lucrative tax exemptions; Providence avoids more than $1 billion a year in taxes. In exchange, the Internal Revenue Service requires them to provide services, such as free care for the poor, that benefit the communities in which they operate.

But in recent decades, many of the hospitals have become virtually indistinguishable from for-profit companies, adopting an unrelenting focus on the bottom line and straying from their traditional charitable missions.”

The report notes that Providence paid McKinsey at least $45 million in 2019 for its assistance in developing its revenue collection program, Rev Up. 

They Were Entitled to Free Care. Hospitals Hounded Them to Pay.NY Times September 24, 2022 business/nonprofit-hospitals-poor-patients.


Aya Healthcare: nurse open positions hit 203,000: Per the report, demand for travel nurses dropped 42% from January to July this year. According to a report from McKinsey & Co., the United States may see a shortage of up to 450,000 registered nurses within three years barring aggressive action by health care providers and the government to recruit new people.

The nation could see an alarming nurse shortage by 2025 NBC September 23, 2022

Study: workforce emotional exhaustion (EE) increased in pandemic: In this 3-year survey study with an overall sample of 107,122 responses from US health care workers before (2019) and twice during (2020 and 2021-2022) the COVID-19 pandemic, increases were reported in assessments of emotional exhaustion in oneself and in one’s colleagues overall and for every role; nurses reported increases each year, but physicians reported decreases in 2020 followed by sharp increases in 2021. Exhaustion score clustering in work settings was suggestive of a social contagion effect of exhaustion. Specifics:

From September 2019 to September 2021 through January 2022, overall % EE increased from 31.8% to 40.4% with a proportional increase in %EE of 26.9%. Physicians had a decrease in %EE from 31.8% in 2019 to 28.3% in 2020 but an increase during the second year of the pandemic to 37.8%. Nurses had an increase in %EE during the pandemic’s first year, from 40.6% in 2019 to 46.5% in 2020 and increasing again during the second year of the pandemic to 49.2%. All other roles showed a similar pattern to nurses but at lower levels.

Sexton et al Emotional Exhaustion Among US Health Care Workers Before and During the COVID-19 Pandemic, 2019-2021 JAMA Network Open September 21, 2022;5(9):e2232748. doi:10.1001/jamanetworkopen.2022.32748


Fed: unemployment will increase in 2023: The Federal Open Market Committee members met last Wednesday updating their prior forecast. Highlights: 

·        The unemployment rate will increase to 3.8% by the end of the year and 4.4% next year through 2024–up slightly from the 3.7% in the prior forecast.

·        The jump in unemployment from July’s low of 3.5% to next year’s projection of 4.4% equates to 1.5 million more Americans unemployed.

The Fed just confirmed that its self-induced ‘growth recession’ could put more than a million Americans out of work Business Insider September 23, 2022

Altarum: inflation problematic to healthcare financial performance: Per the latest Altarum Health Sector Economic Indicators report:

  • Economy-wide inflation continues to outpace national health spending growth, health care price inflation increases for the fourth straight month, and health care job growth continues across all major settings of care.

  • July, August indicators: National health spending in July 2022 grew by 4.4%, year over year; in the absence of federal government support in 2021 and 2022, it would have grown by 5.1%, reflecting a decline in federal support.

  • The Health Care Price Index (HCPI) increased by 2.9% year over year in August, up slightly from 2.8% growth in July. August’s growth is nearly a full percentage point higher than it was four months ago in April. Private payer price growth continues to be a driving factor—private prices for health services increased 3.9% year over year in August, while Medicaid prices increased by 3.7%, and Medicare prices dropped by 0.6%.

  • Economywide price growth slowed in August, as overall CPI inflation fell to 8.3%. Services CPI growth (excluding health care) increased 7.0% year over year, while commodities inflation slipped marginally to 10.5%.

  • Among the major health care categories, physician and clinical services prices increased the least in August (0.4%), while dental care (4.7%) and prescription drug prices (3.2%) increased the fastest.

Altarum Institute

Long Term Care

Congress investigates for-profit nursing homes: The Congressional Select Subcommittee on the Coronavirus Crisis, chaired by Rep. James Clyburn, held a hearing last Wednesday to examine the impact of Covid-19 in nursing homes.

The scheduled hearing was coupled with a report issued the same day, which specifically took to task several large nursing home chains including Genesis HealthCare, Life Care Centers of America, the Ensign Group (Nasdaq: ENSG), SavaSeniorCare and Consulate Health Care.

David Grabowski, professor of health care policy at Harvard Medical School testified that ‘there have been over 1.2 million COVID cases among residents leading to roughly 172,000 Covid-related. and 2,600 nursing home staff fatalities.

Nursing Home Industry Takes National Stage Again as House Hearing Skewers For-Profit Ownership Skilled Nursing News September 21, 2022

Related: per the Senior Housing National Report for the second half of 2022 published by Marcus & Millichap:

“While investors returned to senior living transactions in 2022, that momentum tapered off somewhat in the second half of the year thanks to rising interest rates and cost inflation for senior living operators. Now, they are approaching deals with caution as the sector “remains a mixed bag, with some investors aggressively pursuing deals, while others take a wait-and-see approach,” according to the report.

All the while, IL, AL and memory care operators pushed their resident fees higher in 2022, with an average annual increase eclipsing 4.5%. While that represents “the fastest annual gain in more than a decade,” resident rate growth didn’t keep up with cost inflation — in particular, labor, the report’s authors wrote…At the same time, the combination of a labor shortage and nationwide inflation is driving up costs and hampering new development. In fact, the number of units under construction in 2Q2022 is lower than at any point since 2015.”

Senior Housing News September 23, 2022

Prescription Drugs

SSR Report: drug prices down in 2Q: Brand-name drugmakers increased their wholesale prices by 4.9% in the second quarter this year, up slightly from 4.4% a year earlier. But when accounting for inflation, wholesale prices fell by 3.7%, and inflationary pressures are likely to push wholesale prices still higher.

At the same time, net prices that health plans paid for medicines — after subtracting rebates, discounts, and fees — dropped by 0.8%. But after considering inflation, net prices actually fell 7.9% compared with 3.8% in this year’s first quarter. 97% of publicly traded brand-name drug companies experienced declines in wholesale prices in real terms, with 95% of brand-name medicines affected. Meanwhile, the so-called gross-to-net bubble — which measures the gap between gross sales at list prices and net prices after rebates — was 48.5%, up from 46.8% a year ago, and the largest increase seen by the analysts.



Epic market dominance in spotlight: The StatNews investigative team explored the dominance of the Wisconsin-based EHR behemoth: “In the business of selling record-keeping software to hospitals, Epic Systems is breaking away from the pack….The Wisconsin-based company’s contracts now account for nearly half the nation’s hospital beds, and in recent months it has jumped out to a commanding lead over No. 2 Oracle Cerner, taking away dozens of customers. More than 253 million Americans, or 77% of the population, are estimated to now have data in the company’s software.

That runaway success has made Epic — and the ever-growing list of tools it sells or builds for its clients — the easy choice for countless hospitals that keep records in its tightly controlled universe. But the company is now approaching a crucial crossroads. In January, federal rules designed to create a kind of interstate system for health data will finally go into full effect, creating new opportunities for researchers and app developers whose ambitions have been thwarted by Epic’s lock on large hospitals and their IT systems…

For the nation’s largest seller of electronic health records, the moment presents a clear choice: minimal compliance, or meaningful change?”

Casey Ross, Mohana Ravindranath Minimal compliance, or meaningful change? Epic faces a crossroads as new rules put pressure on health data sharing September 20, 2022


USPTF recommends regular anxiety screenings for adults: .The US Preventative Services Task Force, issued draft guidance last week recommending that all adults under age 65 be screened for symptoms of anxiety disorders. The panel made a similar recommendation for children and teenagers earlier this year. COVID accelerated an already widespread mental health crisis, with the prevalence of anxiety and depression increasing by 25% globally during the first year of the pandemic. The panel’s recommendations are not mandatory, but carry strong influence over primary care physician practices. Draft guidance will be finalized in the coming months after a review of public comments.



MGMA survey: medical groups consider dropping Medicare: As regulators consider the 8.42% drop in Medicare payment rates next year resulting from 4.42% reduction in the CMS conversion factor and the 4% statutory Pay-As-You-Go sequester, the MGMA survey of 517 practices suggest many are preparing to limit access to Medicare patients: Findings:

92% of medical group practices reported that the current Medicare rates do not cover the cost of providing care. 58% are considering limiting the number of new Medicare patients; 66% are considering reducing charity care; 58% are considering reducing the number of clinical staff; and 29% are considering closing satellite locations.


Managed Care, Health Insurance

Study: low value services less likely in Medicare Advantage plans: Researchers compared claims for 2.5 million Humana members: Findings:

·        MA beneficiaries receive 9.2% fewer low-value services procedures that provide little to no clinical improvement than traditional Medicare beneficiaries.

·        MA beneficiaries in health maintenance organizations and those in primary care organizations reimbursed within advanced value-based payment models had the lowest rates of low-value care.

Boudreau et al Comparison of Low-Value Services Among Medicare Advantage and Traditional Medicare Beneficiaries JAMA Health Forum September 9, 2022;3(9):e222935. doi:10.1001/jamahealthforum.2022.2935


Willis Watson: employers take on costs, affordability: Key findings in the employer survey by Willis Watson WTW (NASDAQ: WTW):

·        67% plan to prioritize controlling rising healthcare benefit costs over the next three years.

·        U.S. employers project their healthcare costs will jump 6.0% next year compared with an average 5.0% increase they are experiencing this year.

·        Most employers see little relief in sight, as seven in 10 (71%) expect moderate to significant increases over the next three years. Additionally, over half of respondents (54%) expect their costs will be over budget this year.

·        On top of managing costs, 42% cite managing employee affordability as a top priority. To address a higher-cost environment, 52% will implement programs or switch to vendors that will reduce total costs; one in four (24%) will shift costs to employees through higher premium contributions.

U.S. employers double down on controlling healthcare costs, enhancing affordability Willis Watson September 15,