The U.S. health system has experienced three major shifts since the pandemic that set the stage for its future:
- From trust to distrust: Every poll has chronicled the decline in trust and confidence in government: Congress, the Presidency, the FDA and CDC and even the Supreme Court are at all-time lows. Thus, lawmaking about healthcare is met with unusual hostility.
- From big to bigger: The market has consistently rewarded large cap operators, giving advantage to national and global operators in health insurance, information technology and retail health. In response, horizontal consolidation via mergers and acquisitions has enabled hospitals, medical practices, law firms and consultancies to get bigger, attracting increased attention from regulators. Access to private capital and investor confidence is a major differentiator for major players in each sector.
- From regulatory tailwinds to headwinds: in the last 3 years, regulators have forced insurers, hospitals and drug companies to disclose prices and change business practices deemed harmful to fair competition and consumer choice. Incumbent-unfriendly scrutiny has increased at both the state and federal levels including notable bipartisan support for industry-opposed legislation. It will continue as healthcare favor appears to have run its course.
Some consider these adverse; others opportunistic; all consider them profound. All concede the long-term destination of the U.S. health system is unknown. Against this backdrop, 2024 is about safe bets. These 10 themes will be on the agenda for every organization operating in the $4.5 trillion U.S. healthcare market:
- Not for profit health: “Not-for-profit” designation is significant in healthcare and increasingly a magnet for unwelcome attention. Not-for-profit hospitals, especially large, diversified multi-hospital systems, will face increased requirements to justify their tax exemptions. Special attention will be directed at non-operating income activities involving partnerships with private equity and incentives used in compensating leaders. Justification for profits will take center stage in 2024 with growing antipathy toward organizations deemed to put profit above all else.
- Insurer coverage and business practices: State and federal regulators will impose regulatory constraints on insurer business practices that lend to consumer and small-business affordability issues.
- Workforce wellbeing: The pandemic hangover, sustained impact of inflation on consumer prices, increased visibility of executive compensation and heightened public support for the rank-and-file workers and means wellbeing issues must be significant in 2024.
- Board effectiveness: The composition, preparedness, compensation and independent judgement of Boards will attract media scrutiny; not-for-profit boards will get special attention in light of 2023 revelations in higher education.
- Employer-sponsored health benefits: The cost-effectiveness of employee health benefits coverage will prompt some industries and large, self-insured companies to pursue alternative strategies for attracting and maintaining a productive workforce. Direct contracting, on-site and virtual care will be key elements.
- Physician independence: With 20% of physicians in private equity-backed groups, and 50% in hospital employed settings, ‘corporatization’ will encounter stiff resistance from physicians increasingly motivated to activism believing their voices are unheard.
- Data driven healthcare: The health industry’s drive toward interoperability and transparency will will force policy changes around data (codes) and platform ownership, intellectual property boundaries, liability et al. Experience-based healthcare will be forcibly constrained by data-driven changes to processes and insights.
- Consolidation: The DOJ and FTC will expand their activism against vertical and horizontal consolidation that result in higher costs for consumers. Retrospective analyses of prior deals to square promises and actual results will be necessary.
- Public health: State and federal funding for public health programs that integrate with community-based health providers will be prioritized. The inadequacy of public health funding versus the relative adequacy of healthcare’s more lucrative services will be the centerpiece for health reforms.
- ACO 2.0: In Campaign 2024, abortion and the Affordable Care Act will be vote-getters for candidates favoring/opposing current policies. Calls to “Fix and Repair” the Affordable Care Act will take center stage as voters’ seek affordability and access remedies.
Every Board and C suite in U.S. healthcare will face these issues in 2024.
Paul
PS: The Keckley Report is not be published 12/25 but return 1/2/25. Please enjoy your Holiday downtime keeping in mind that many of our frontline caregivers will be at work.
Quotables
Re: governance: “They are lawyers, bank executives and donors. They run the nation’s most prestigious universities in their spare time. And, amid a national debate over antisemitism and free speech on college campuses, they are on the hot seat…
Private universities are governed by boards of trustees, often composed of dozens of prominent alumni and donors appointed by other trustees or, in some cases, elected by graduates or current students. These boards meet a few times a year, set a broad vision for the university, and appoint and review the president.
Board members are volunteers, meet only occasionally, and often are asked to vote on complex issues with limited information. That can leave them heavily reliant on the management they are supposed to be overseeing.
The difficulty of board oversight isn’t unique to universities; many of the same issues also crop up in other nonprofit organizations, as well as corporations and K-12 schools.”
“Drama at Harvard, Penn Puts Spotlight on University Board Oversight”
Re: professionalism in journalism: “A journalism that starts out assuming it knows the answers can be far less valuable to the reader than a journalism that starts out with a humbling awareness that it knows nothing… The new newsroom ideology seems idealistic, yet it has grown from cynical roots in academia: from the idea that there is no such thing as objective truth; that there is only narrative, and that therefore whoever controls the narrative – whoever gets to tell the version of the story that the public hears – has the whip hand. What matters, in other words, is not truth and ideas in themselves, but the power to determine both in the public mind. “
“When the NY Times Lost its Way”, The Economist December 14, 2023 https://www.economist.com/1843/2023/12/14/when-the-new-york-times-lost-its-way
Re: journalistic bias: “Our analysis of over 600,000 pieces of written and television journalism shows that the language of the mainstream American media has drifted away from the political centre, towards the Democratic Party’s preferred terminology and topics. That could lower the media’s credibility among conservatives.
Disruption powers fragmentation. The American media have passed through narrowcast ages and broadcast ages…
Today, however, the smartphone has caused fragmentation and American media are back in a narrowcast age. As much of the advertising revenue that once paid for reporters has flowed to Google and Meta, this has created new business models…
Why does this matter? Although most Americans do not regularly read a newspaper or watch cable news, elites matter in democracies. When different political camps exist in separate information universes, they tend to demonize each other…”
Can you have a healthy democracy without a common set of facts? America’s presidential election is a test of that proposition The Economist December 14, 2023 https://www.economist.com/leaders/2023/12/14/can-you-have-a-healthy-democracy-without-a-common-set-of-facts
Re: Medicare Advantage market decline: “UnitedHealth’s disappointing outlook and the Humana sale talks intensify concerns that the Medicare Advantage business isn’t what it once was.
The popularity of private Medicare plans has been a huge driver of profits for insurance companies in recent years. There are signs the gold rush isn’t quite what it once was.
Investors have been worried all year as the Biden administration phases in a new system that insurers say will reduce federal payments to Medicare Advantage plans. Developments last week at the top two insurers in the Medicare business, raised more questions.
The most immediate red flag came from the industry leader, UnitedHealth. During an investor day last week, it predicted its Medicare Advantage enrollment would grow by 450,000 to 550,000 seniors in 2024. That translates to around 5% growth next year, a significant slowdown from the 11% it grew so far this year, according to TD Cowen analyst Gary Taylor.”
“The Medicare Gold Rush Is Slowing Down” WSJ December 6, 2023 https://www.wsj.com/health/healthcare/the-medicare-gold-rush-is-slowing-down
Re: medical school debt: “According to the Association of American Medical Colleges (AAMC), median medical school debt among the class of 2021 was $200,000, not including debt from an undergraduate education. Nearly half of medical school graduates have at least $150,000 in school debt, and about 15% have more than $300,000.
Like the cost of an undergraduate education, medical school tuition is daunting. In fact, the average cost (tuition, fees, and health insurance) for medical students to attend a public institution in their home state was $38,947 during the 2021-2022 school year. Private institution costs totaled more than $61,000 during that academic year.
The soaring cost of medical school education has become a pressing issue not only for aspiring physicians, but also for patients…Because it is causing some capable and compassionate individuals to think investment in medical school is not worth it — even if they believe medicine, is their calling. This feeling is compounded by the fact that the average first-year medical resident earns just $60,000 a year. While the annual tuition at a top law or business program is about the same as medical school, graduates of those institutions are able to launch their careers sooner and they often command salaries well into the six figures from the start…Already, more than 75% of medical students come from families that were in the top 40% in terms of U.S. household income. A diverse physician workforce is crucial to addressing healthcare disparities and ensuring all patients receive culturally competent care. Over time, high medical school costs will exacerbate existing disparities in access to healthcare.”
Adam Brown “Would You Take Out a $200k Loan with No Real Returns for a Decade?” Med Page December 11, 2023 https://www.medpagetoday.com/opinion/prescriptionsforabrokensystem
Polling
Morning Consult: swing state survey: “The economy and health care are the only two issues of those surveyed that at least 6 in 10 voters in each swing state deem “very” important in deciding who to vote for in the November 2024 presidential election. Trump has a clear lead with swing-state voters when it comes to the economy — a higher share of voters in each of the swing states say they trust Trump on this issue more than Biden. The picture is more mixed for health care. Though all differences fall within each state’s margin of error, in five of the seven swing states, Biden has a slight edge over Trump on this issue (+1 point in Arizona, +7 in Michigan, +3 in Nevada, +4 in Pennsylvania and +4 in Wisconsin). Trump has the edge in the remaining two (+1 in Georgia and +5 in North Carolina).”Morning Consult Morning Consult | Bloomberg News Partnership Survey: Biden’s and Trump’s Ballot Performance as of Early December 2023 December 14, 2023 https://pro.morningconsult.com/articles/2024-swing-states-survey-key-issues-ballot-performance-december-2023
Prescription drugs
Study: drug price increases in 2022: The Institute for Clinical and Economic Review (ICER) identified the 250 best-selling drugs based on their U.S. revenue and analyzed wholesale prices that exceeded the consumer price index plus 2%. Conclusions:
- Drugmakers substantially raised prices on 8 widely used medicines without any new clinical evidence to justify the increases, leading patients and health insurers in the U.S. to spend an additional $1.2 billion
- The drug for which spending increased the most due to a price increase was Humira, which is used to treat rheumatoid arthritis, plaque psoriasis, and other disorders. AbbVie raised the wholesale price by 7.1%. The net price — after rebates and discounts — rose by 1.9%.
- 1 of 3 Medicare Part B drugs that underwent large increases in list prices in 2021 lacked adequate supporting new evidence, directly raising annual out-of-pocket expenses for Medicare patients by up to $684 per year. The medicine was Nplate, a bone marrow stimulant from Amgen, which boosted the list price by 6.8%. ICER found that led to an extra $17 million in spending.
Rind DM, Agboola F, Nikitin D, McKenna A, Nhan E, Seidner M, Pearson SD. Unsupported Price Increase Report: Unsupported Price Increases Occurring in 2022. December 11, 2023. https://icer.org/wp-content/uploads/2023/12/UPI_2023_Report_121123.pdf.
Employers
Employer health spending in 2021: “Healthcare spending by private businesses continues to grow more rapidly than total national health expenditures. In 2021, spending by employer-sponsored plans ($1.07T) accounted for 25% of all U.S. health expenditures, while self-funded plans ($694.7B) accounted for 16% of total healthcare spending. “
The Compass Trilliant Health December 10, 2023 www.trillianthealth.com
Hospitals
Study: hospital pricing: “Using commercial claims from the Health Care Cost Institute (HCCI) and hospital data from the Healthcare Cost Report Information System (HCRIS) from 2017 to 2019, we compared in-network prices (inpatient or outpatient facility plus physician fees) for common services offered by quaternary and nonquaternary hospitals… Chosen for their high frequency and relative homogeneity, we defined common services as uncomplicated inpatient admissions for hip replacement, knee replacement, pneumonia, and diabetes, as well as outpatient lower joint magnetic resonance imaging, pulmonary spirometry, screening colonoscopy, and screening mammography.” Findings:
“Within the same geographic market, quaternary hospitals negotiated higher commercial prices than nonquaternary hospitals for several common inpatient admissions and outpatient studies… Whether price premiums for common services performed by quaternary hospitals cross-subsidize specialized services, enable other valuable activities, or deliver meaningful quality benefits remain questions for future study. Yet to the extent that price premiums reflect market power and bargaining leverage against insurers derived from offering quaternary services, additional regulation and/or policies that promote competition may be appropriate.”
Yan et al “Prices for Common Services at Quaternary vs Nonquaternary Hospitals” JAMA November 16, 2023. doi:10.1001/jama.2023.17249
Fitch: Non-profit hospital outlook: “One major ratings firm, Moody’s Investors Service, has upgraded its outlook for nonprofit hospitals to stable from negative, pointing to factors like moderating labor costs and higher reimbursements from insurers. For the roughly 300 nonprofit providers it tracks, the worst seems to be over. But serious challenges remain, and not everyone is ready to call a turnaround.
Both Fitch Ratings and S&P Global Ratings held to their negative outlooks, saying improving revenues aren’t making up for higher costs, and both expect downgrades to continue to outpace upgrades. About a third of hospitals expect covenant challenges this year, according to consultant Kaufman Hall, compared with about a quarter currently. And the gap between weaker and stronger performers is widening, industry watchers say.
Moody’s even thought twice before changing its outlook. “We had that debate ourselves,” assistant vice president-analyst Matt Cahill said. “Things are looking better than they were, but we’re still not out of the woods yet.”
Investors are feeling more bullish on the sector, too, as returns — which had trailed the broader muni market — have bounced back amid a rebound in all of US fixed income.”
“Hospitals Creeping Toward Recovery Grapple With ‘Out of Control’ Costs” Bloomberg December 13, 2023 https://finance.yahoo.com/news/hospitals-creeping-toward-recovery-grapple
Health Insurers
Cigna-Humana deal off: Last week, Cigna called off its plans to acquire Humana in a $140B merger. Cigna then announced a $10B stock buyback plan to assuage shareholders, who reacted negatively to the rumored deal, dropping the company’s stock price by nearly 10%. Cigna’s Express Scripts PBM and Humana’s own PBM make up two of the four largest.
Bob Herman “Hot antitrust environment hangs over called-off merger between Cigna and Humana” STAT December 11, 2023 https://www.statnews.com/2023/12/11/cigna-humana-deal-antitrust
AMA analysis: insurance market concentration in 2022 Per the American Medical Association’s annual analysis:
- Among metropolitan statistical areas surveyed last year, 71% were considered highly concentrated for Medicare Advantage, compared with 79% in 2021 and 87% in 2017 A single carrier held at least half of the Medicare Advantage market share in 31% of metropolitan areas in 2022.
- For the commercial health insurance market last year, 73% of areas surveyed lacked a competitive market, down 2 percentage points from 2021. At least one insurer held at least 30% of the commercial market share in 90% of areas, and a single insurer accounted for at least 50% of the market share in nearly half of markets.
- For the health insurance exchanges, 90% of the market was deemed highly concentrated last year, and one carrier held at least half the market share in 67% of areas.
Competition in health care research | American Medical Association (ama-assn.org) December 12, 2023
Regulatory Updates
CMS: National health spending in 2022: CMS released its most recent year-end health spending data last Wednesday. Highlights:
- S. healthcare spending grew 4.1% in 2022 to $4.5 trillion, or 17.3% of the GDP vs. 9.1% in 2021 or 18.2% of the GDP.
- Spending growth in 2022 reflected a slowdown in personal healthcare spending (goods and services) offset by faster growth in non-personal healthcare spending. Non-personal healthcare spending accelerated in 2022, due largely to a turnaround in the net cost of insurance.
- Medicaid spending increased 9.6% in 2022 after growth of 9.4% in 2021 and 9.3% in 2020; Medicare…private health insurance spending increased 5.9% in 2022 after an increase of 6.3% in 2021 and a decline of 0.8% in 2020; Out-of-pocket spending increased 6.6% in 2022 after an 11% increase in 2021.
- Hospital spending increased by 2.2% to $1.4 trillion, representing 30 percent of overall healthcare spending. Hospital care expenditures grew by 2.2% in 2022, lower than the 4.5% growth in 2021. The slower growth was attributed to a decrease in hospital care spending by private payers, Medicare and Medicaid and by a decline in other private revenues
- The number of uninsured people dropped for the third consecutive year, from 28.5 million in 2021 to 26.6 million in 2022. A record-high 92% of people were insured in 2022.
House passes “Lower Costs, More Transparency Act (HR 5378): Last week, the US House of Representatives passed (320-71) the Lower Costs, More Transparency Act of 2023 which requires extensive new disclosures of prices and costs by hospitals, insurers, imaging services, diagnostic laboratories and PBMs and bans PBMs from the practice of spread pricing in Medicaid, requiring them to negotiate with drug companies and be paid an administrative fee. It also delayed by 2-years $8 billion of DSH cuts for each of the next 2 years. Another key part of the bill is an extension of funding for community health centers. The bill would spend $4.4 billion a year to support the Community Health Center Fund through 2025. It also extends the National Health Service Corps through 2025 and funds the Teaching Health Center Graduate Medical Education program through 2030The bill phases in the cuts over four years starting in 2025. The Congressional Budget Office estimated the provision would save the government $3.7 billion over 10 years. A related provision requiring hospitals to assign separate identification numbers for off-site providers would save another $400 million, the CBO found. Next, the Senate version.
FDA approves sickle cell gene therapy treatment: Last week, the Food and Drug Administration (FDA) approved two gene therapy treatments for sickle cell disease, Casgevy and Lyfgenia– the first approved treatment of any kind available to US patients that uses CRISPR’s gene-editing capabilities. The FDA estimates that about 20K Americans with sickle cell disease will be eligible for the therapies, limited to those patients 12 and older who have had episodes of debilitating pain. Both treatments will only be available at a small number of facilities nationwide, priced between $2-3M, and require a patient to endure months of hospitalization as well as intensive chemotherapy.
Labor Department: Consumer prices in November increased from October– 3.1% above their year-earlier level and the smallest gain since April 2021. Core prices, which exclude food and energy items to better track inflation’s trend, rose 0.3% on the month, and were up 4% from a year earlier. That matched October for the smallest year-over-year gain since September 2021.
Housing and Urban Development: Annual homelessness report:
- Homelessnessincreased by 12% nationwide since last year, and it rose across all household types.
- About 653,100 people experienced homelessness on a single night in 2023, according to an annual count done in January–“the highest number of people reported as experiencing homelessness on a single night since reporting began in 2007”
- Black, African and Indigenous people were overrepresented among the population experiencing homelessness, as has been the case in previous years.
- Families with children saw a 16% increase in homelessness.
