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The Keckley Report

The Escalating, Ironic Tension between Insurers and Hospitals

By January 9, 2023March 1st, 2023No Comments

Blistering attacks on hospitals were a staple in media coverage in 2022. Comparatively, health insurers escaped unscathed.

There was isolated coverage about the insurtech financial challenges (i.e., Oscar, Bright Health, Clover) and occasional reporting when hospitals failed to reach agreement on a payer contract (i.e. Le Bonheur Memphis and Blue Cross TN last week). Otherwise, news about insurer M&A activity was a steady stream for financial journalists.

Flying under radar was mounting tension between hospitals and insurers. It has its roots in deeply-rooted beliefs about the health system and the roles each should play:

  • Hospitals believe delivering necessary health services to communities is their role. Patients delegate clinical decisions to the nurses, doctors and caregivers that hospitals provide.
  • Insurers believe hospitals play an essential role in delivering services to patients. Their role is to “audit” the performance of hospitals and other providers to enhance the cost-effectiveness and clinical efficacy of services provided.

It’s an 80-year-old construct but in recent years, boundaries between the two have been breached: more than 200 hospitals now own all or part of a captive insurance plan and every national insurer operates clinics with employed clinicians and ancillary services. Both recognize their markets are changing and demand for their core businesses is shrinking (insurance risk, inpatient care). And ironically, the trends impacting the two are almost identical:

  • Increased dependence on clinical and financial data to operate effectively and comply with regulatory requirements.
  • Increased clinical focus on social determinants of health, self-care, chronic conditions, end of life services et al.
  • Increased negative impact of drug costs and workforce shortages on operating margins.
  • Increased consolidation with bigger players getting bigger.
  • Increasing administrative costs and decreasing operating margins.
  • Increased price transparency compliance risks.
  • Increased regulator scrutiny of not-for-profit/tax exempt qualifications.
  • Increased attention to branding and member/patient experience management to differentiate against competitors.
  • Increased sophistication in target marketing to facilitate growth.
  • Increased competition from technology-enabled, private equity funded upstarts.
  • Increased regulatory compliance risk environment at local, state and federal levels.
  • And decreased public trust and confidence: Polling by Gallup since August 2022 is illuminating:
    • 47% of the public has a favorable opinion of the U.S. health system vs. 40% % with a negative view: in 2020, 51% were positive and 31% were negative.
    • 72% to 78% of U.S. adults across all income groups assign D or F grades to the U.S. health system.
    • 32% of US adults are “cost insecure” about their healthcare needs and 7% (18 million) are “cost desperate”:92% of these are “not very” or “not at all” confident that they will have the funds to pay for treatment as they age. Additionally, 94% of cost desperate Americans report that healthcare prices are a daily source of stress.
    • 79% favor federal limits on health insurance premiums and 76% favor federal caps on hospital prices.

Looking ahead

The near-term tension between hospitals and insurers will continue as affordability and transparency concerns mount. In tandem, government efforts to shift incentives to value-based payment models will expand as large employers and national plans implement more aggressive risk sharing agreements. The roles of the two sectors will converge in response to market demand. In anticipation, Deloitte, among others, merged its payer and provider practices to prepare its clients for the change.

Long-term, the healthcare landscape will feature fully integrated regional systems of health (RSOH) that provide delivery and insurance services to designated populations on a pre-paid, full risk basis. Politics and economic conditions will determine how fast, but the direction seems clear.

Thus, it’s ironic that the destination for most insurers and hospitals is the same. A few will be able to “stay in their swim lanes” but only if market conditions allow. The rest will compete as part of a RSOH whose ancestry is akin to their own, or with disruptors who began the journey as an outsider sans intramural tensions


PS: In Speaker McCarthy’s acceptance speech having won the House Majority Leader gavel on the 15th ballot at 1:13 am Saturday, he iterated priorities for the House in the 118th Congress that begins its work at 5 pm today. That list was wide ranging—from abortion to border control and Chinese aggression. But noticeably missing was healthcare—no mention of costs, equitable access and quality, the usual targets of political criticism.

Perhaps that’s because it’s complicated and tricky: politicians make points on healthcare with voters by steering clear of specifics. Perhaps it’s because it’s easier to criticize the system than find solutions. Common ground is hard to find when partisan filters discourage meaningful discussion. That’s true for Republicans and Democrats, and for insurers and hospitals.

Stay tuned.

Sections Today: Key New Items from the Past Week

  • Quotable
  • Health Insurance
  • Hospitals
  • Physicians
  • Prescription Drugs
  • Public Health
  • Regulation
  • Investing
  • Polling


“We’ve missed a critical opportunity to have a real conversation on the care of the nation’s 6,100 hospitals and the financial realities they face…It isn’t true that nonprofit healthcare systems make access decisions based solely on insurance and income…. The conversation on how to provide the best care to everyone, especially those most in need, is too important not to be done right. We owe that to our hospitals and the millions of caregivers who sustain them.”

Rick Pollack CEO, American Hospital Association “Financial Math Doesn’t Add Up for Hospitals” Wall Street Journal January 2, 2023

“…this year’s performance is just one blip in an otherwise long stretch of financial prosperity for hospitals. Media outlets, members of Congress, and other watchdogs have for years criticized not-for-profit health systems that rake in huge profit while arguably not doing enough to justify their tax-exempt status. As those health systems continue to consolidate and wield their negotiating leverage with insurers, they’ll continue to face pressure to do more to help their communities, such as by providing free and discounted care to low-income patients.”

Bob Herman, Tara Bannow “3 trends to watch in hospitals and health insurance in 2023” StatNews January 3, 2023

” Workers are demanding transparency, meaning, attention and connection like never before. They want to know what you are doing beyond making a product or money. Many expect their companies or bosses to behave like idealistic politicians, taking public stands or action on every social debate. They want evidence of heart and humanity.

Jim Vandehei Axios Finish Line January 5, 2023

“Primary care has evolved from family doctors visiting patients by horse and buggy, to professional physician groups, to integration into larger health systems. Now, corporate investors are moving aggressively into this field, drawn by financial opportunities created by the shift to value-based care, with major ramifications for the decades ahead. It is critical that neither the historical creed of medicine nor patients’ trust in primary care physicians be sacrificed along the way.”

Shah et al Corporate Investors in Primary Care — Profits, Progress, and Pitfalls NEJM January 7, 2023

“…Sanders’ well-chronicled antagonism toward lobbyists has some concerned they’ll be unable to blunt criticism of their clients’ profits or corporate executive salaries. They are anxious Sanders might seek to revive policies like importing drugs from Canada and other nations, an idea loathed by drugmakers…Lobbyists also worry they’ll struggle to get traction on any push to make changes to a drug discount program involving pharmaceutical companies and hospitals or revisit association health plans after a Trump-era rule around them was voided.”

Megan Wilson Health care lobbyists are bracing for Chair Bernie Sanders January 3, 2023 Politico

Health Insurance

Blues create specialty drug contracting venture: Last week, 24 of the 34 Blue Cross Blue Shield plans announced formation of a medication contracting organization, Synergie Medication Collective. In addition to the BCBSA, investors in the venture include Elevance Health (owns 14 BCBS affiliates), Evio Pharmacy Solutions, Prime Therapeutics and multiple independent Blue Cross Blue Shield companies: BCBS Arizona, Arkansas, South Carolina, Vermont, Idaho, Kansas City, CareFirst BCBS (Maryland, Virginia), Primera BCBS (Washington, Alaska), and Wellmark BCBS (Iowa, South Dakota).

BCBS companies form medication contracting group to target high specialty drug costs


Kaufman Hall: slight hospital performance improvement in November: Per KF’s latest National Hospital Flash Report:

  • Hospitals experienced improved margins in November, up 12% from the previous month. The median Kaufman Hall Year-To-Date Operating Margin Index reflecting actual margins was -0.2% in November.
  • A decrease in volume and shorter lengths of stay contributed to a 1% decrease in total expenses in November. Labor expenses, a significant driver of healthcare costs, also decreased by 2% in November.
  • Hospital outpatient revenue increased 10% year-over-year, while inpatient revenue was flat over the same time period.

National Hospital Flash Report Kaufman Hall January 4, 2023

Report: workforce turnover up:: Per the 2022 NSI National Health Care Retention & RN Staffing Report covering hospital staff turnover in 2021:

  • The average hospital lost $7.1 million in 2021 to higher turnover rates.
  • The average hospital lost $5.2 to $9 million on RN turnover yearly based on. average turnover cost for a staff RN   up 15% from 2020.
  • The average hospital can save $262,300 per year for each percentage point it drops its RN turnover rate. For every 20 travel RNs eliminated, a hospital can save $4.2 million on average.
  • In the past 5 years, the average hospital turned over 100.5% of its workforce including 95.7 % of its RN workforce.
  • New RN hires: 31.0% left within a year accounting for 27.7% of all RN separations.

2022 NSI National Health Care Retention & RN Staffing Report

Study: AMCs price transparency lagging: In this cross-sectional analysis of 153 academic hospitals, compliance with the price transparency mandate was low, and there were large variations in the price of procedures among hospitals. There were also significant differences in the price of 5 urologic procedures by insurance class (Medicare, Medicaid, commercial insurance, and cash price), with the cash price being the lowest reported at 16% of hospitals.

Gul et al Large Variations in the Prices of Urologic Procedures at Academic Medical Centers 1 Year After Implementation of the Price Transparency Final Rule JAMA Network Open January 5, 2023;6(1):e2249581. doi:10.1001/jamanetworkopen.2022.49581


Study: Primary care-specialist co-training improves patient experience: In this study of specialty referrals for 8655 patients, patients reported substantially better specialist care than other patients of the same primary care physician (PCP) referred to the same specialty if the consulting specialist trained with the PCP. Co-training was not only associated with a more friendly and concerned manner but also clearer explanations, greater engagement in shared decision-making, and changes in prescribing by specialists.

Pany et al Physician-Peer Relationships and Patient Experiences with Specialist Care JAMA Intern Medicine. January 3, 2023. doi:10.1001/jamainternmed.2022.6007

Study: patient messaging increased with coding support: During the pandemic, patient messaging increased by more than 50%, requiring a substantial amount of uncompensated clinician time. With the option to bill for a subset of messages, health care organizations began implementing workflows to bill qualifying patient messages as e-visits. “This study found an association between implementation of clinician-initiated billing and an increase in e-visits, but adoption was low. “

Holmgren et al Association Between Billing Patient Portal Messages as e-Visits and Patient Messaging Volume JAMA. Published online January 6, 2023. doi:10.1001/jama.2022.24710

Prescription Drugs

Opioid prescribing after surgery: In this cross-sectional study of national claims data for 628,197 surgical procedures involving 581,387 adults and children covered by Optum, one-fifth of perioperative opioid prescriptions and one-quarter of refill prescriptions were written by APCs. Perioperative opioid prescriptions written by APCs had higher total dosages compared with those written by surgeons.

Priest et al Comparison of Opioids Prescribed by Advanced Practice Clinicians vs Surgeons After Surgical Procedures in the USJAMA Network Open January 3,.2023;6(1):e2249378. doi:10.1001/jamanetworkopen.2022.49378

Study: IRA rebate would have saved $3.7 billion: The drug pricing reforms in the Inflation Reduction Act (IRA) of 2022 include a provision requiring that prescription drug manufacturers pay rebates to Medicare if they raise prices faster than inflation. From 2007 to 2018, net drug prices outpaced inflation by 4.5% per year. Researchers analyzed the potential savings from this new policy, simulating its application to Medicare Part B if the rebates had been in effect from 2018 to 2020. Findings:

  • A total of 93 Part B drugs accounted for $94 billion in spending from 2018 to 2020 or 86% of $109 billion Part B drug spending. From the benchmark quarter to the fourth quarter of 2020, prices increased by a median of 9% above the 8% cumulative inflation rate for the period. From 2018 to 2020, 70 drugs (75%) had at least 1 quarter in which average sales price growth outpaced inflation.
  • Estimated rebate savings were $3.7 billion, which was 3% of Part B drug spending from 2018 to 202 . Savings were greatest among drugs for rare diseases ($3.1 billion), biologics ($3.0 billion), and cancer drugs ($1.5 billion).

Egilman et al Estimated Medicare Part B Savings from Inflationary Rebates JAMA January 3,.2023;329(1):89-92. doi:10.1001/jama.2022.20189

Public Health

Over-spending, lax oversight in Covid testing: OIG: As the COVID-19 pandemic continues to churn, Medicare spending on testing for the virus continued to increase in 2022 and is outpacing the two prior years. Through Oct. 31, Medicare had spent $2 billion on COVID-19 tests in 2022, an amount that will surpass last year’s total as claims are filed. That compares to $2 billion for all of 2021 and $1.5 billion in 2020, a recent analysis by the Department of Health and Human Services’ Office of Inspector General shows.

Fraud and overspending are contributing to the increases, experts say, because federal money for COVID-19 testing is not subject to some of the same financial and regulatory constraints as other tests covered by Medicare, the government insurance program for people 65 and older and the disabled.

Medicare Keeps Spending More on COVID-19 Testing. Fraud and Overspending Are Partly Why ProPublica December 30, 2022

Survey: Young adults most likely to use marijuana: More than 52 million people used marijuana in 2021, according to the latest National Survey on Drug Use and Health released last Wednesday, with young adults accounting for the highest share of users.m13% of people over the age of 12 reported past-month marijuana use, totaling about 35.4 million individuals, according to the report. About 20 percent of those users reporting vaping marijuana, after a new question added to the 2021 survey specifically asked respondents about vaping.

2021 National Survey of Drug Use and Health (NSDUH) Releases


2022 Year end assessments:

PitchBook: “The narrative around VC last year was about as far from that of 2021 as could be imagined. 2021 was characterized by excess; 2022 by layoffs, falling capital availability, a closed IPO market, and general worry and uncertainty. The US VC market had an incredible run since the global financial crisis, but “growth at all costs” looks to be over. Public markets have quickly shifted away from placing a high premium on revenue growth as the leading performance metric, highlighting how VC-backed companies must shift their strategies from fueling growth at unsustainable levels to building solid business foundations. “

  • The DeSPAC Index declined 68.9% in 2022.
  • The VC-backed IPO Index ended the year down 61.3%.
  • The PE-backed IPO Index fell 44.9%.


  • Health care M&A deal value dropped off significantly last year to $328.8 million, down nearly 35% from $504.9 million in 2021.
  • In 2022, there were 4,523 health care deals, down about 25% from 6,070 deals in 2021.
  • Health care providers and services accounted for $60.6 million of dealmaking activity last year, down 11.6% from about $68.6 million in 2021.

Wall Street Journal:

  • In a year of stock market turmoil, healthcare investors flocked to boring but steady. Health care deals are set to surge in 2023, at least in the pharma sector” likely deal makers include J&J, Pfizer and Merck.

Fierce Healthcare:

  • “Market conditions are ripe for a new wave of digital health consolidation driven, in some part, by a more challenging funding environment, startup valuation declines and an unfriendly IPO market. With VC funding drying up compared to the heyday of 2021, M&A offers the opportunity for companies to expand their product offerings, keep shared service costs down and offer liquidity to impatient investors….

Regulatory Advisories


  • Dem Senators Warren, Markey, Brown, Sanders and Murphy wrote a letter to Wells Fargo and Synchrony Financial officials challenging the “lure” of their medical credit card programs sold to reduce consumer debt. “Patients – often under duress because of concerns about their medical care – are being pushed into and then locked into medical credit cards despite the availability of alternative payment options that might be more beneficial and offer lower interest rates.” The letter information from the lenders by Jan. 12.


  • Second Alzheimer’s drug approved: The FDA granted accelerated approval to Eisai and Biogen’s lecanemab. Pricing it at $26,500 — below Aduhelm but sabove what ICER would consider cost-effective. 45 drugs were cleared for use in 2022, a third is shaping up to be blockbusters.
  • FDA authorizes abortion pill access through retail pharmacies: For the first time, retail pharmacies, from corner drugstores to major chains like CVS and Walgreens, will be allowed to offer abortion pills in the United States under a regulatory change made Tuesday by the Food and Drug Administration. The action could significantly expand access to abortion through medication. Under the new F.D.A. rules, patients will still need a prescription from a certified health care provider, but any pharmacy that agrees to accept those prescriptions and abide by certain other criteria can dispense the pills in its stores and by mail order.


  • OIG report: Part B drug price reporting: The December report by the Office of the Inspector General concluded: “Because of invalid or missing ASP (average sales price) data, CMS could not calculate an ASP-based payment amount for 8% of drug codes at least once between 2016 and 2020…In total, we found that 24% of drug codes were missing ASP data for one or more specific drugs within that code in at least one quarter between 2016 and 2020. In addition, CMS reported that late ASP data submissions from manufacturers substantially hindered its ability to conduct effective oversight.
  • Supplemental coverage for Medicaid MCOs: CMS’ guidance allows Medicaid agencies to pay for nonclinical services such as housing, nutrition and transportation that would reduce health costs by preventing adverse health events. States must determine such services are appropriate and a cost-effective substitute for medical care. It requires such substitutes, known as in-lieu-of services, be written into managed care contracts and considered when determining payment to private insurers. Managed care organizations that spend at least 1.5% on alternative benefits must pre-emptively report to federal regulators how they determined the coverage would result in the savings. States must also report to federal regulators how the coverage affected patient care and healthcare costs after it was implemented.
  • CMS analysis of primary care model:  CMS hired Mathematica to assess the first-year performance of its Primary Care First (PCF) Model. Key findings 1-Participation was lower than expected: When the model launched in 2021, 846 practices were participating, representing more than 4,000 practitioners and just over 500,000 attributed Medicare FFS beneficiaries—far short of the 8,000 practices that CMS anticipated would participate.2-Physicians prefer higher payment alternatives: … the general sentiment was that PCF payments were adequate if not higher than expected.


  • Department December jobs report: employment increased by 223,000: In December; 4.5 million for the year.
  • Unemployment rate fell from 3.7% to 3.5%, matching a 50-year low,


  • Non-compete agreements: The Federal Trade Commission proposed a rule last Thursday that would ban U.S. employers from imposing noncompete clauses on workers making it easier for people to switch jobs and increase competition for labor. The proposed rule would prevent employers from imposing contract clauses that prohibit their employees from joining a competitor, typically for a period of time, after they leave the company.


Poll: household finances top priority in 2023: Per the poll conducted December 1-5, 2022 Associated Press-NORC Center for Public Affairs Research re: legislative priorities in 2023:

  • 37% put personal financial issues as a pressing matter for 2023, with both Republicans and Democrats responding similarly 11% considered abortion to be a top priority, down from 16% in June.
  • 18% of Democrats said they considered abortion a priority, down from 23% in June vs. 5% of Republicans compared to 9% in June.
  • 17% of Americans said they considered health care reform a priority, which is higher than the 6% who thought so in June, but down from 18% in December 2o21.
  • 5% thought COVID-19 should be a priority, which is unchanged from June and sharply lower than the 33% who thought so at the same time in December 2021.