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The Keckley Report

Not for Profit Health Systems are Soft Targets: Here’s Why

By March 27, 2023No Comments

Large, not-for-profit hospitals/health systems are getting a disproportionate share of unflattering attention these days. Last week was no exception: Here’s a smattering of their coverage:

Approximate Savings from Lowering Indiana Not-for-Profit Commercial Hospital Facility Prices to 260% of Medicare March 20, 2023

Jiang et al “Factors Associated with Hospital Commercial Negotiated Price for Magnetic Resonance Imaging of Brain” JAMA Network Open March 21. 2023;6(3):e233875. doi:10.1001/jamanetworkopen.2023.3875

Not-for-profit benefits top charity care levels for hospitals: report Bond Buyer March 22, 2023

What’s Behind Losses At Large Nonprofit Health Systems? Health Affairs March 24, 2023

Whaley et al What’s Behind Losses At Large Nonprofit Health Systems? Health Affairs March 24, 2023 10.1377/forefront.20230322.44474

A Pa. hospital’s revoked property tax exemption is a ‘warning shot’ to other nonprofits, expert says KYW Radio Philadelphia March 24, 2023

These hospitals are ‘not for profit’ but very wealthy — should the state get more of their cash? News Sentinel March 26, 2023

These come on the heals of the Medicare Advisory Commission’s (MedPAC) March 2023 Report to Congress advising that all but safety-net hospitals are in reasonably good shape financially (contrary to industry assertions) and increased lawmaker scrutiny of “ill-gotten gains” in healthcare i.e., Moderna’s vaccine windfall, Medicare Advantage overpayments and employer activism about hospital price-gauging in several states.

Like every sector in healthcare, hospitals enter budget battles with good stories to tell about cost-reductions and progress in price transparency compliance. But in the current political and economic environment, large, not-for-profit hospitals and health systems seem to be targets of more adverse coverage than others as illustrated above. Like many NFP institutions in society (higher education, organized religion, government), erosion of trust is palpable. Not-for-profit hospitals and health systems are no exception.

The themes emerging from last week’s coverage are familiar:

  • ‘Not-for-profit hospitals/health systems, do not provide value commensurate with the tax exemptions they get.’
  • ‘Not for profit hospitals & health systems take advantage of their markets and regulations to create strong brands and generate big profits.’.
  • ‘Not for profit hospitals & health systems charge more than investor-owned hospitals: the victims are employers and consumers who pay higher-than-necessary prices for their services.’
  • ‘NFP operators invest in risky ventures: when the capital market slumps, they are ill-prepared to manage. Risky investments, not workforce and supply chain issues, are the root causes of NFP financial stress. They’re misleading the public purposely.’
  • ‘Executives in NFP systems are overpaid and patient collection policies are more aggressive than for-profits. NFP boards are ineffective.’

The stimulants for this negative attention are equally familiar:

  • Proprietary studies by think tanks, trade associations, labor unions and consultancies designed to “prove a point” for/against not-for-profit hospitals/health systems.
  • Government reports about hospital spending, waste, fraud, workforce issues, patient safety, concentration and compliance with transparency rules.
  • Aggressive national/local reporting by journalists inclined to discount NFP messaging.
  • Public opinion polls about declining trust in the system and growing concern about price transparency, affordability and equitable access.
  • Politicians who use soundbites and dog whistles about NFP hospitals to draw attention to themselves.

The cumulative effect of these is confusion, frustration and distrust of not-for-profit hospitals and health systems. Most believe not-for-profit hospitals/health systems do not own the moral high ground they affirm to regulators and their communities (though religiously-affiliated systems have an edge). Most are unaware that more than half of all hospitals (54%) are not-for-profit and distinctions between safety net, rural, DSH, teaching and other forms of NFP ownership are non-specific to their performance.

What’s clear to the majority is that hospitals are expensive and essential. They’re soft targets representing 31.1% of the health system’s total spend ($4.3 trillion in 2021) increasing 4.9% annually in the last decade while inflation and GDP growth were less. So why are not-for-profit systems bearing the brunt of hospital criticism?

Simply put: many NFP systems act more like Big Business than shepherds of community health. In fact, 4 of the top 10 multi-hospital system operators is investor owned: HCA (184), CHS (84), LifePoint (84), Tenet (65). In addition, 3 others are in the top 50: Ardent (30), UHS (26), Quorum (22). So, corporatization of hospital care using private capital and public markets for growth is firmly entrenched in the sector exposing not-for-profit operators to competition that’s better funded and more nimble.  And, per industry studies, not-for-profits tend to stay in markets longer and operate unprofitable services more frequently than their investor-owned competitors. But does this matter to insurers, community leaders, legislators, employers, hospital employees and physicians? Some but not much.

My take:

There are no easy answers for not-for-profit hospitals/heath systems. The issue is about more than messaging and PR. It’s about more than Medicare reimbursement (7.5% below cost), protecting programs like 340B, keeping tax exemptions and maintaining barriers against physician-owned hospitals. The issue is NOT about operating income vs. investment income: in every business, both are essential and in each, economic cycles impact gains/losses. Each of these is important but only band-aids on an open wound in U.S. healthcare.

Near-term (the next 2 years), opportunities for not-for-profit hospitals involve administrative simplification to reduce costs and improve the efficiencies and effectiveness of the workforce. Clinical documentation using ChatGPT/Bard-like tools can have a massive positive impact—that’s just a start. Advocacy, public education and Board preparedness require bigger investments of time and resources. But that’s true for every hospital, regardless of ownership. These are table stakes to stay afloat.

The longer-term issue for NFPs is bigger: it’s about defining the future of the U.S. health system in 2030 and beyond—the roles to be played and resources necessary for it to skate to where the puck is going. It’s about defining the role played by private employers and whether they’ll pay 220% more than Medicare pays to keep providers and insurers solvent. It’s about how underserved and unhealthy people are managed. It’s about defining systemness in healthcare and standardizing processes. It’s about defining sources of funding and optimal use of resources. Not-for-profit systems should drive these discussions in the communities they serve and at a national level.

MedPAC’s 17 member Commission will play a vital role, but equally important to this design process are inputs from employers, consumers and thought leaders who bring fresh insight. Until then, not-for-profit health systems will be soft targets for unflattering media because protecting the status quo is paramount to insiders who benefit from its dysfunction. Incrementalism defined as innovation is a recipe for failure.

It’s time to begin a discussion about the future of the U.S. health system—all of it, not just high-profile sectors like not-for-profit hospitals/health systems who are currently its soft target.


P.S. Several of my references in this post are unpacked in the items below. Take time to consider these views/findings and let me know your thoughts. Key questions: is the future of U.S. healthcare in 2030 and after a repeat of its past, or something else? Will ‘not-for-profit’ designation matter? Will hospitals be public utilities? Will disruptors create newer, better, cheaper systems of health? In my travels, it’s clear hospitals and health systems see headwinds; only a few are planning beyond.

Quotable from Last Week

Re: transparency: “Longstanding information asymmetry between the providers of healthcare services – physicians, clinics, surgery centers, hospitals – and health insurers has made financial forecasting difficult and value-based care theoretical. Historically, this information asymmetry has been not only endorsed but also enforced by the Federal government, with the Sherman Act forbidding disclosure of negotiated rates for healthcare services, among other things. CMS’s Transparency in Coverage initiative for health plan price transparency changes all of that.

Health plan price transparency is starkly different from hospital price transparency, with its paltry mix of “standard charges” for 70 CMS-designated “shoppable services” and 230 hospital-selected items from chargemasters with more than 40,000 items. In contrast, health plan price transparency includes all covered items and services between the plan or issuer and in-network providers.”

Hal Andrews CEO Trilliant Health March 24, 2023

Re: Moderna vaccine pricing: Senate HELP Chairman Bernie Sanders (I-VT) March 21, 2023 in testimony by Moderna CEO Stéphane Bancel about the company’s announced plan to increase its price for its vaccines from $26.36/dose to $110 to $130 per dose.

Sanders: “Here is the thank you the taxpayers of this country received from Moderna for that huge investment: They are thanking the taxpayers of America by proposing to quadruple the price.”

Rachel Cohrs Stéphane Bancel, Bernie Sanders spar over what Moderna owes the federal government StatNews March 22, 2023

Re: marketing to consumers in healthcare: “Consumers increasingly expect transparent, predictable, and mobile-friendly experiences, but most healthcare organizations have failed to keep up. Although healthcare providers have more options for how to spend limited marketing budgets, many have chosen to stick with the familiar traditional- and digital-marketing channels—such as billboards and ads on television, on the radio, and in magazines—and with a one-size-fits-all digital presence. “

Marketing in healthcare: Improving the consumer experience McKinsey March 15, 2023

Re: role of private equity in healthcare: “…the value of the portfolio companies owned by private equity leveraged buyout funds was more than $2.6 trillion in 2021– more than half of those investments were in the U.S. Private equity in health care has increased more than 10 times between 2004 and 2021, when investments topped $150 billion.” (Sabrina T. Howell, PhD, associate professor of finance at New York University Stern School of Business)

“Research on acute care hospitals has shown that hospitals acquired by private equity firms had become more efficient. There’s not widespread financial instability after the PE acquisition. On average, these hospitals actually improve their financial performance after being acquired by a PE fund, and they do that by both reducing costs and increasing revenue…It is common for these hospitals to shift their focus to more lucrative inpatient services, and they are quicker to adopt technology-intensive services, which can be more profitable. (Ryan McDevitt, PhD, professor of economics at Duke University)

Excerpt from a panel discussion at the University of Pennsylvania’s Leonard Davis Institute of Health Economics, Private equity in health care continues to grow Healio March 20, 2023

Re: early stage investing: “Looking through mid-March of this year, investors are becoming even more discerning.  Dealmaking is continuing to trend downward, and startups are taking longer between rounds.”

SVB’s challenges will accelerate valuation down rounds, startup mortality, and layoffs CB Insights March 22, 2023

Re: healthcare outlook: “The industry does not have a demand problem. Demand for health care, notwithstanding all the disruptions we’ve seen these past few years due to the pandemic, remains solid and resilient, reflecting aging populations, health needs, and technological improvements. While the costs and availability of personnel (especially nurses) will remain a long-term problem for the industry, we expect wage inflation to moderate from 2022 levels but not return to pre-pandemic levels.”

S&P March 21, 2023

Re: sustainable funding for healthcare: “If one wants to shift costs out of government to private parties, the best way to do so is through taxation. We should be open to a progressive increase in the amount that beneficiaries contribute to Medicare or other progressive means of financing the program such as using the net investment income tax proposal of President Biden.

Where policy is especially needed is not to shift costs but to cut wasteful spending. Administrative costs are one such area. As I and others have written, the government can do a lot to spur administrative cost savings.9 Reducing low-value care is a second area.10 Moving more dollars into value-based payment, combined with similar actions in the private sector, can incentivize better and cheaper care. Other policies such as targets for spending growth1 or freeing up the health care workforce to practice more efficiently11 are also areas where true cost savings can occur.

Health care programs are not sacrosanct. But at the same time, we do not need urgent action. Rather, we should push for policies that make health care better for patients and taxpayers.”

David Cutler March 23, 2023. doi:10.1001/jamahealthforum.2023.0930

Re: regulation of consolidation: “Over the past 30 years, health care consolidation has gone largely unchecked by federal and state antitrust enforcers, which has resulted in higher prices, stagnant quality of care, and limited access to care for patients. Similarly, consolidation has contributed to the availability of fewer employment options, limited wage growth, longer hours, and staff shortages for health care providers. Antitrust law is designed to prevent such harms, but its failure to evolve alongside the health care industry has led to pervasive consolidation, which now necessitates regulation in some markets to address market-power abuses that competitive forces can no longer govern…

Although mergers are often justified with promises of improved quality or patient access, evidence supporting these claims is lacking. Clinical integration as envisioned in accountable care organizations, for example, requires substantial oversight, training, and investment that goes well beyond the financial integration involved in most mergers. Most studies have found either no changes or a reduction in quality after provider mergers. Consolidation can also limit access to care; post-merger facility closures, reductions in charity care, and elimination of abortion and other reproductive health services have often occurred.

Consolidation among insurers also affects health care prices and quality. Insurers with market power can increase premiums above competitive levels by exercising monopoly power or can push provider payments below competitive levels by exercising monopsony power. Lower premiums are commonly found in areas with more insurers, whereas in the absence of competition, insurers that obtain price concessions from providers may not pass savings on to consumers.4 Some evidence suggests, however, that moderate amounts of insurer consolidation may be associated with improved patient experience, since providers in such markets have an incentive to compete on quality.

Given the health care industry’s growing complexity, future oversight could involve a combination of more responsive antitrust enforcement and creative regulatory interventions. Combining competitive and regulatory forces may offer the only hope for controlling health care prices, restoring high-quality care, protecting health care workers, and preserving and expanding access to care.”

Jaime King On Consolidation and Competition — The Trials and Triumphs of Health Care Antitrust Law New England Journal of Medicine March 18, 2023; 388:1057-1060 DOI: 10.1056/NEJMp2201629



MedPAC: ‘Most hospitals OK financially’: Per the MedPAC, report Medicare spending grew by a relatively modest 3.6% in 2020, then by 8.4% in 2021 as patients resumed care; the suspension of a 2% payment sequester and a temporary 3.75% increase to clinician payment rates (unrelated to the pandemic) also contributed to spending growth in 2021. CMS actuaries estimate that Medicare spending grew at a more typical rate in 2022, 7.5%, and project that Medicare spending will grow by about 6-7% per year in 2023 through 2030, resulting in Medicare spending doubling over the next 10 years— rising from $875 billion in 2021 to $1.8 trillion in 2031.Medicare projected spending growth is driven by an increasing number of beneficiaries (projected to expand from 63 million to 78 million over this period as the baby-boom generation continues to age into Medicare) and continued growth in the volume and intensity of services delivered per beneficiary (rather than price increases).

…to keep the HI Trust Fund solvent over the next 25 years, Medicare’s Trustees estimate that the Medicare payroll tax would need to be raised immediately from its current rate of 2.9% to 3.66%, or Part A spending (which covers inpatient hospital stays and post-acute care following those hospital stays) would need to be permanently reduced by 16.9%. Alternatively, some combination of smaller spending reductions and smaller tax increases could be pursued.”

Medicare payroll taxes are used to pay for Part A services and constitute only a portion of total Medicare
spending (36%). The rest of Medicare’s spending is largely funded by beneficiary premiums (which
finance 17% of Medicare spending) and general revenues (44%). As Medicare spending increases, it consumes growing shares of the budgets of Medicare beneficiaries and the federal government.

One of the most powerful ways that the Medicare program can control spending growth is by setting prices. Our annual March reports recommend updates to Medicare payment rates for various types of
providers, which can be positive or negative depending on our assessment of the adequacy of Medicare
payments for each sector.”

MedPAC Report to Congress: Medicare Payment Policy March 2023

USNWR Rankings for Medical Schools: Comparison of factor weightings between research medical schools and primary-care focused programs:

  • Research medical schools: Selectivity/Tests (20%), Faculty resources (10%), Research activity (40%), Reputation: Peers, Residency Directors (30%)
  • Primary-care medical schools: Selectivity (15%), Primary-care production (40%), Reputation: Peers, Residency Directors (30%), Faculty resources (15%)

Melissa Korn The Unraveling of the U.S. News College Rankings The revolt against the survey, started by Yale Law School, was decades in the making WSJ March 21, 2023

Study: MRI prices higher in not-for-profit and government hospitals: Researchers investigated hospital characteristics associated with commercial negotiated prices nationwide and within the same state, hospital referral region, and health system for magnetic resonance imaging (MRI) of brain before and after contrast. Findings:

“Price-disclosing hospitals were larger and more profitable and more likely to be nonprofit, system-affiliated, teaching hospitals, and located in urban areas and more affluent counties than non-disclosing hospitals. They had a higher charge markup, lower proportion of Medicare patients, and higher likelihood of employing clinicians in MRI departments. These hospitals had a commercial price of $2268 (median [IQR], $1900 [$1024-$3197]) and contracted with 16 commercial plans (median [IQR], 11 [6-20] plans) for brain MRI.

After controlling for various factors, nonprofit and government hospital commercial prices for brain MRI were higher than those of for-profit hospitals nationwide and within the same state or region… Rural location, number of contracted insurance plans, and Medicare patient proportion were positively associated with commercial prices nationwide and within the same state, region, or health system “

Jiang et al “Factors Associated with Hospital Commercial Negotiated Price for Magnetic Resonance Imaging of Brain” JAMA Network Open March 21. 2023;6(3):e233875. doi:10.1001/jamanetworkopen.2023.3875


WSJ/NORC Poll March 2023: Based on Interviews with 1019 adults conducted: 03/01-13/2022:

Would you describe the state of the nation’s economy these days as…? Excellent/Good: 20% vs. Not so Good/Poor: 80%

Over the course of the next year, do you think the state of the economy will get better, stay
about the same, or get worse?
Better: 15%, Same: 38%, Worse: 47%

When it comes to getting a four-year college degree, which of the following statements comes closer to worth your point of view? A four-year college education is.worth the cost (42%), not worth the cost (57%) don’t know (1%).

Which of the following best describes your financial situation?

  • My finances are in worse condition than I expected for this stage in my life: 44%
  • My finances are about where I expected them to be for this stage in my life: 39%
  • My finances are in better condition than I expected for this stage in my life: 17%

When it comes to your household’s financial situation, is each of the following a major concern,
minor concern, or not a concern
? Major/minor concerns:

  • Inflation 65% 30% (95%)
  • Health care and prescription drug costs 41%, 40% (81%)
  • Housing 43%, 32% (75%)
  • Student loan debt 17%, 16% (37%)
  • Childcare costs 15%, 15% (30%)

Do you feel confident or not confident that life for our children’s generation will be better than it
has been for us?
Feel confident 21% Do not feel confident 78%

WSJ/NORC Poll March 2023

Per Akasa’s survey of 2026 adults conducted March 9-14, 2023::

  • 64% patients have never challenged a medical bill, but among those who have, 78% reported that most charges were reduced or removed.

March 21, 2023


Study: Physician incentives produce positive results for drug companies: Per the study of industry incentives to encourage use of hyaluronic acid (HA) injections, physicians receiving more than $100 in cash or other forms of remuneration were more than three times as likely to give HA injections under Medicare Part B than those receiving no payments (OR 3.28, 95% CI 2.70-3.98).

The number of injections given was also linked to industry payments. The researchers calculated a rate ratio of 2.15 for giving HA shots among physicians with “high procedural volume,” defined as more than 250 large joint injections annually, among those paid more than $100 versus physicians receiving no industry monies. Researchers noted that Medicare spending on hyaluronic acid exceeded $440 million in 2019 explaining that Medicare Part B reimburses HA injections as the average sales price plus 4.3%.

Uppal N, et al “Association between pharmaceutical industry marketing payments to physicians and intra-articular hyaluronic acid administration to Medicare beneficiaries” JAMA Intern Med 2023; DOI: 10.1001/jamainternmed.2022.7018.


Re: Medicare Advantage: In response to industry pushback against a proposed 2.3% baseline payment cuts to MA plans in 2024 after getting a 5% increase in 2023:  “Given these outsized profits and the long history of corporate profiteering in the MA program, we are requesting information from your company about actions that hurt seniors, as industry groups are claiming, instead of reducing exorbitant salaries or the massive payouts to your shareholders and executives”

Letter from the Senate Democrats Warren to Humana, Centene, UnitedHealthcare, Aetna CVS Health, Molina Health, Elevance Health and Cigna — which collectively account for 70% of the market for Medicare Advantage,

John Wilkerson Key senators blast Medicare Advantage insurers for ‘exorbitant salaries,’ ‘massive payouts’ to execs March 23,

E Health survey of Medicare Advantage, Medicare supplement enrollees: Based on an online survey of 3880 enrollees conducted in February 2023:

  • 89% of Medicare Advantage enrollees said they were satisfied with their coverage vs. 87 % of enrollees in Medicare supplement plans.
  • Medicare supplement enrollees reported higher incomes than their counterparts in Medicare Advantage. Half of Medicare supplement enrollees reported an annual income higher than $50,000, compared to 27% of MA enrollees.
  • Around half of Medicare Advantage enrollees said they could not afford any Medicare coverage with premium costs. Just 12%of Medicare supplement enrollees said they could not afford any monthly premium, and around 6 in 10 said they could afford premiums of $100 per month or more.

The Economics of Medicare Advantage vs Medicare Supplement Enrollment eHealth March 21, 2023


Microsoft’ invests in Nuance: Last week, Nuance Communications, a clinical documentation software company owned by Microsoft, introduced its new application called Dragon Ambient eXperience Express.

The company said this version of Dragon can summarize and enter conversations between clinicians and patients directly into electronic health record systems using OpenAI’s GPT-4 generative AI capabilities.

GPT-4, which was released by OpenAI on March 14, is more advanced than its popular predecessor ChatGPT, said Peter Durlach, Nuance’s chief strategy officer. ChatGPT is available for free online and has been used by more than 100 million people since its launch in early January.