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The Keckley Report

Wave Two Value-based Care: The Five Market Shifts that will Reset the Payment Environment for Providers

By February 6, 2023March 1st, 2023No Comments

Wave One of the Value Based Care environment was marginally effective: CMS’ alternative payment models showed promise but savings to Medicare fell short of expectations per MedPAC. Medicare Advantage enrollment grew but plan sponsors were overpaid by Medicare. Hospital avoidable readmissions and complications efforts have been successful but  the pandemic economy decapitated hospital resources necessary to compete in the value-based environment. Wave One is a mixed bag.

Wave Two (2023-2025) will be significantly more effective in lowering health spending for five reasons:

  • Unit cost increases for prescription drug, specialty and hospital care will prompt commercial payers and large employers to exact lower prices and require risk-sharing with medical groups and hospitals.
  • Tighter regulatory oversight and lower payments by CMS to Medicare Advantage plans will lower their profit margins and strengthen relative market share for large sponsors at the expense of newer, smaller plans. The scalability of Medicare Advantage infrastructure will separate its winners and losers.
  • The public’s opinion of the health system will erode as affordability becomes its major concern. The distinction between not-for-profit and for-profit care delivery will be subordinate to prices and total costs of care. The 2024 election cycle will elevate attention to profitability, equity and lack of transparency and draw attention to fraud and abuse.
  • Large employers and commercial insurers will accelerate coverage and benefit-design changes targeting the working age population that widen distinctions between Medicare and commercial coverage. Closed networks, carve-outs for specialty services, reference pricing, capitated payments and primary care gatekeeping will be standard fare in private coverage and the pricing differential to Medicare rates will dramatically less.
  • The partisan impasse in Congress and resource constraints in some states will limit appropriations to Medicare, Medicaid. In tandem, the numbers of uninsured will increase as the PHE ends May 11 as the economy becomes the major issue in Campaign 2024.

These combine for a “new normal” in which prospects for big payers (United, Humana, et al) and big disruptors (CVS, Walgreens et al) improve and care delivery providers (hospitals, physicians, post-acute, public health providers) diminish. The fallout will be notable:

  • The “advantage” of Medicare Advantage plans will shift from supplemental benefits to network access and lower enrollee premiums.
  • The integration of behavioral health with physical medicine will center around primary care services offered in clinics operated by large employers, health systems and insurers. Dental care, nutrition and restrictive formularies will be core services in these models.
  • Physician roll-ups funded through SPACs will be undone as relationships with physicians and investors sour.
  • The hourly workforce in health delivery will become activists in workplace conditions and pay disputes. The widening gap in executive compensation and hourly pay will be a flash-point for every organization.
  • Alternative payment model participation will be fewer, mandatory and require downside financial risk.
  • Public trust in the system will continue to erode: discontent with drug manufacturers, hospitals and insurers will spark state/local referenda on price controls and business operations transparency.
  • And others.

My take:

The Wave Two Value Agenda in U.S. healthcare will impact every player and be messy. The backdrop of the 2024 Campaign cycle and post-pandemic economy mean impetus will shift from resource-constrained Medicare to the private sector as both offer significant but distinct opportunities for lower spending. And the revolution of generative AI assures shortcomings of the system—diagnostic error, administrative waste, fraud—will be widely exposed.

Ironically, the concept of value applied to the U.S. healthcare industry remains indefinite and abstract. Each sector affirms its own value proposition and calculus for measuring its return on invested capital. A by-product of the Wave Two Value Agenda will be proposals to hardwire valid and reliable measurement of the health system’s value in public policies and private sector participation.  It’s long overdue.


PS: President Biden will deliver his State of the Union address tomorrow night followed by rebuttal by Arkansas Governor Sarah Sanders. Neither is expected to spotlight healthcare…sadly.


Quotable: My Favorites from the Last Week

“The grip of financial self-interest in US health care is becoming a stranglehold, with dangerous and pervasive consequences. No sector of US health care is immune from the immoderate pursuit of profit, neither drug companies, nor insurers, nor hospitals, nor investors, nor physician practices.: January 30, 2023 Don Berwick Salve Lucrum: The Existential Threat of Greed in US Health Care JAMA. January 30, 2023. doi:10.1001/jama.2023.0846

“If I had to describe the state of digital health in 2022 in one word, it would be “retreat.” Let me explain. After seeing a record high of $59.7B in funding in 2021, digital health funding dropped 57% year-over-year (YoY). Deals declined to a 5-year low of 2,112. With just $3.6B across 366 deals, Q4’22 saw a 5-year quarterly low in investor activity.” State of Digital Health 2022 Report CB Insights January 24, 2023

“When dollars become scarce for businesses, customers tend to get spooked and profits get squeezed. The companies that make up the S&P 500 are projected to report earnings drop of 5% for the fourth quarter…Profit margins have declined for the sixth straight quarter, and revenue growth is projected to be the slowest since the end of 2020. These desert conditions form what people in corporate finance call “the fraud triangle” — a moment in which a motive or pressure to commit fraud meets with the rationalization and the opportunity.” Insider January 31, 2023“companies-stock-market-chaos-2023

“Nonprofit health system losses are HCA’s gain. We will see empirical evidence of this in 2023 and beyond as these systems shutter capital spend and growth – which HCA will take full advantage of. Based on the dynamics at hand, my anecdotal hypothesis for hospitals in 2023 is that large, nimble systems like HCA will flourish (as always), while nonprofits and smaller health systems will disproportionately struggle in the new environment.” Blake Madden Hospitalology February 3, 2023

“Last year, Americans paid $460 billion for prescription drugs, accounting for 16.7% of all healthcare expenditures. But don’t assume that the large (and ever-rising) price tag for U.S. medications reflects massive improvements in drug efficacy. When the Institute for Clinical and Economic Review (ICER) studied price increases for some of the most expensive drugs, it found 70% of those increases (accounting for $805 million) were unsupported by clinical evidence.” Robert Pearl Pharma Companies: A Conglomerate of Monopolies Forbes January 31, 2023

“As hard as HHS’ Office of the National Coordinator for Health Information Technology tried to paint a rosy picture in its latest annual progress report on hospital interoperability, you can’t argue with the frustrating and disappointing facts. Only 62% of hospitals met ONC’s four-part definition of interoperability in 2021. Those four parts, or domains, are the ability to electronically send, receive, find and integrate patient health information with an EHR system outside of their own organization and do that automatically “without special effort on the part of the user…ONC touted the fact that that percentage is up 51% from 2017, when the percentage of fully interoperable hospitals was 41%. What ONC didn’t say was that percentage was 55% in 2019, the most recent year for which ONC had data. (ONC didn’t publish a report last January with 2020 data because of the pandemic.) So, it took two years for that key interoperability measure to climb just seven percentage points—55% in 2019 to 62% in 2021.” David Burda 4Sight Health February 1, 2023

Re: BLS January jobs report: “The top job gainer was leisure and hospitality with 128,000 new jobs; next was food services and drinking places with 99,000 new jobs. Add in the 30,000 new jobs at retailing establishments, 23,000 new jobs in transportation and warehousing, and 17,000 jobs in nursing and residential care facilities, and you get 57% of all new jobs came in industries where the average pay is well below the national median wage of $54,000 per year. Merrill Goozner Gooz News January More jobs, less health insurance February 3, 2023

“The healthcare services PE landscape closed out 2022 with a declining, but still healthy, level of deal activity. Firms announced or closed an estimated 863 deals in the year, making 2022 easily the second-best year for PE healthcare services dealmaking, after 2021. However, quarterly trends show a steady decline throughout the year, especially in Q4, for which we estimate 158 deals, 26.4% off Q3’s figure. It is important to keep these numbers in perspective: Q4’sdealmaking figure is entirely respectable by 2018-2019 standards. But it is also more than a third less than the average quarterly deal count in 2021. The industry is adjusting to a new normal.”

Q4 2022 Healthcare Services Report Pitchbook February 3, 2023

Population Health

Study: binge drinking in high school associated with continued HID:  In this cohort study of 451 individuals, HID (High Intensity Drinking 10 or more drinks in a row) was initiated, on average, in late high school, and adolescents escalated from first drink to HID in 2 years. Family history of alcohol problems was associated with earlier HID initiation, and earlier HID initiation was associated with greater alcohol consumption, more frequent HID, and symptoms of alcohol use disorder at age 20 years.

  • Of the 451 participants with data eligible for analysis, 62.0% were male (38.0% female). On average, alcohol, binge, and HID were initiated during high school.
  • Mean time of escalation from first drink to first HID was 1.9 years and between first binge and first HID, 0.7 years.
  • Initiating HID by grade 11 (vs later) was associated with higher average weekly alcohol consumption.
  • Escalation from first binge to first HID in the same year (vs ≥1 year) was associated with higher HID frequency at age 20 years.

Patrick et al Initiation of and Escalation to High-Intensity Drinking in Young Adults JAMA Pediatrics. January 30, 2023. doi:10.1001/jamapediatrics.2022.5642

Study: Deaths during or just after pregnancy rose in 2020: The analysis of death certificates found the number of deaths during or shortly after pregnancy rose from 2,019 in 2019 to 2,516 in 2020. Deaths from pregnancy complications rose, as did deaths from drugs, car crashes, and homicides. Suicides stayed the same; Covid was listed as the cause of 23 deaths but contributed to 171 other deaths.

There were disparities: Compared with white women, mortality rates were 3-5 times higher among American Indian or Alaska Native women for every cause, including suicide. Black women experienced significantly higher mortality rates across causes, with the highest rates for homicide.

Howard et al. Evaluation of All-Cause and Cause-Specific Mortality by Race and Ethnicity Among Pregnant and Recently Pregnant Women in the US, 2019 to 2020 JAMA Network Open. January 27, 2023;6(1):e2253280. doi:10.1001/jamanetworkopen.2022.53280


White House: PHE ends May 11: The official ending of the PHE will shift control of pricing and coverage of COVID-19 testing and vaccines away from the government and over to states and the private sector. Other changes:

  • Ends flexibility that allows clinicians to prescribe controlled substances to patients they haven’t seen in-person as long as they’ve conducted a telehealth visit.
  • Suspends waivers for nursing homes, home care and community-based services if Congress doesn’t step in i.e. the waiver of a requirement for a three-day inpatient stay prior to a Medicare-covered stay in a skilled nursing facility.


White House to End Covid-19 Emergency Declarations On May 11Bloomberg January 30, 2023


FTC announces fine for data breach: The Federal Trade Commission made history by enforcing the Health Breach Notification Rule for the first time, its power to go after companies that fail to notify consumers about health data breaches, by fining GoodRx $1.5 million for sharing private health information from its users with data brokers and advertising platforms such as Facebook and Google. To one of the commissioners, though, the proposed penalty is chump change.


Prescription drugs

GOP AGs challenge CVS, Walgreens abortion pill policies: Last Wednesday, 20 Republican state attorneys general sent a letter to Walgreens and CVS, telling both companies their plans to distribute abortion pills through the mail are “both unsafe and illegal,” characterizing the administration’s guidance as “bizarre.” The coalition wrote that federal law prohibits anyone from using the mail to send or receive any drug that will “be used or applied for producing abortion,” referring to the Comstock Act of 1873. Last month, the U.S. Department of Justice issued a legal opinion that mailing abortion pills does not violate the Comstock Act and said the U.S. Postal Service is legally allowed to deliver prescription abortion drugs even in states that have curtailed access to abortion.

These 20 States Are Warning Walgreens, CVS Over Abortion Pill Plans Newsweek February 2, 2023

340B pushback by drug makers intensifying: Bayer and EMD Serono became the 20th and 21st pharma companies to challenge 340B discount program: The companies took this step after a U.S. appeals court ruled last week that drugmakers have the right to limit discounts to hospitals that rely on numerous contract pharmacies as they participate in the federal program. The matter is actually not resolved, though, because the same dispute is still being considered in two other appeals courts.

Drugmakers restrict 340B sales after appellate court ruling Modern Healthcare February 2, 2023

Drug prices moderate: Pharmaceutical companies raised list prices of 983 arthritis, cancer and other prescription drugs by an average of 5.6% at the start of this year per 46brooklyn Research.

List prices for U.S. branded drugs increased by an average of 5% from 2018 to the third quarter of 2022, while the sums that pharmaceutical companies were paid fell on average about 1.5%, according to the research firm SSR Health.

The average list-price increase this year is slightly higher than last year, when drugmakers raised prices on medications by an average of 4.96%, according to 46brooklyn.

Most drugmakers kept their price increases at 10% or lower this year to date, though increases for fewer than 10 drugs exceeded that amount.

How Amazon, CVS and Walgreens Are Tapping Into the $4 Trillion Healthcare Market Play video: How Amazon, CVS and Walgreens Are Tapping Into the $4 Trillion Healthcare Market Feb. 2, 2023

Health Insurers, Coverage

CMS: Latest government coverage stats as of October 2022:

Medicare: 65,236,564 people are enrolled in Medicare–an increase of 132,757 since the last report:

  • 35,022,974 are enrolled in Original Medicare. 30,213,590 are enrolled in Medicare Advantage or other health plans. This includes enrollment in Medicare Advantage plans with and without prescription drug coverage.
  • 50,666,744 are enrolled in Medicare Part D. This includes enrollment in stand-alone prescription drug plans as well as Medicare Advantage plans that offer prescription drug coverage.
  • Over 12 million individuals are dually eligible for Medicare and Medicaid, so are counted in the enrollment figures for both programs.

Medicaid and Children’s Health Insurance Program (CHIP): 91,342,256 people are enrolled in Medicaid and CHIP–an increase of 462,322 since the last report.

  • 84,374,871 are enrolled in Medicaid
  • 6,967,385 are enrolled in CHIP

2022-2023 Marketplace Open Enrollment: 16.3 million people have selected an Affordable Care Act (ACA) Marketplace health plan nationwide during the 2023 Marketplace Open Enrollment Period (OEP) that ran from November 1, 2022-January 15, 2023 for most Marketplaces–an increase of 1.8 million or a 13% increase, from this time last year.

  • 3.6 million plan selections are from people who are new to the Marketplaces, a 21% increase over last year.
  • 12.7 million people who had active 2022 coverage and made a plan selection for 2023 coverage or were automatically re-enrolled.

Dual eligibles consumer a third of Medicare, Medicaid funds: In 2020, 12.5 million people were enrolled in both Medicare and Medicaid, 73% of whom were eligible for full Medicaid benefits, such as long-term services and supports.

In 2019, Medicare-Medicaid enrollees comprised 17% of the traditional Medicare population and 14% of the total Medicaid population but accounted for a higher share of spending in both programs: 33% of traditional Medicare spending and 32% of Medicaid spending.

Medicaid spending per Medicare-Medicaid enrollee was more than 7-times greater for full-benefit enrollees than for partial-benefit enrollees ($19,811 versus $2,683), because Medicaid only paid for Medicare premiums and in many cases, cost sharing for partial-benefit Medicare-Medicaid enrollees. Average spending for all other Medicaid enrollees (those without Medicare) was $5,387. Most Medicaid enrollees without Medicare are children and adults under age 65, who do not qualify on the basis of disability and are less likely to use costly long-term services and supports covered by Medicaid.

Pena et al Enrollment and Spending Patterns Among Medicare-Medicaid Enrollees (Dual Eligibles) KFF January 31,  2023

CMS opens ACA special enrollment period for those losing Medicaid coverage: The Centers for Medicare and Medicaid Services is opening a special Affordable Care Act enrollment period for beneficiaries losing Medicaid or Children’s Health Insurance Program coverage due to the end of the continuous enrollment requirement.


CMS to penalize Medicare Advantage plans: CThe Biden administration estimated Monday that it could collect as much as $4.7 billion from insurance companies with newer and tougher penalties for submitting improper charges on the taxpayers’ tab for Medicare Advantage care.  The HHS Office of the Inspector General raised red flags about $6.7 billion worth of payments for patients whose diagnoses were not supported by medical records in 2017, for example.



BLS jobs report: Good news, bad news: Good news: January employment was up 517,000 vs.200,000 expected;  bad news: wage gains to 4.4% annually from 4.8 percent in December. Healthcare hiring trends in 4 charts The U.S. added 517,000 jobs in January bringing the unemployment rate to 3.4% — the lowest since 1969. Highlights:

  • Nursing home jobs/per month: 2019v2022: 3374 v 3013
  • Hospital jobs:5191 v 516
  • Ambulatory:7704 v. 8.123
  • Overall healthcare 16269 v 16300

Bureau of Labor Statistics February 3, 2023

Health System Performance

Altarum: Per capita health spending in 2021:

  • Total: $12,600 (100%)
  • Other: $1290 (10%)
  • Nursing Home, Residential: $900 (7%)
  • Prescription Drugs: $1400 (11%)
  • Physicians: $3400 (27%)
  • Hospital: $4100 (33%)


Commonwealth: US remains most expensive with diminishing results: Comparisons of OECD averages to U.S. in 2021:

  • Total spending as % of GDP: 9.6% vs. 17.8% (38% gov’t);
  • Life expectancy: 80.4 vs. 77.0;
  • Avoidable deaths: 225/100,000 vs. 336/100,000

U.S. Health Care from a Global Perspective, 2022: Accelerating Spending, Worsening Outcomes Commonwealth January 31, 2023 Fund

Munira Z. Gunja, Evan D. Gumas, and Reginald D. Williams II, U.S. Health Care from a Global Perspective, 2022: Accelerating Spending, Worsening Outcomes (Commonwealth Fund, Jan. 2023)