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The Keckley Report

Has U.S. Healthcare Reached its Tipping Point?

By April 3, 2023No Comments

At a meeting with hospital system CEOs last Wednesday, one asked: “has healthcare reached the tipping point?”  I replied ‘not yet but it’s getting close.’

I iterated factors that make these times uniquely difficult in every sector:

  • An uncertain economy that’s unlikely to fully recover until next year.
  • The growth of Medicaid and Medicare coverage that shifts their financial shortfall to employers and taxpayers who are fed up and pushing back.
  • A vicious political environment that rewards partisan brinksmanship and focus-group tested soundbites to manipulate voters on complex issues in healthcare.
  • The growing domination of Big Business in each sector that have used acquisitions + corporatization to their advantage.
  • The widening role of private equity in funding non-conventional solutions that disrupt the status quo (and the uncertain future for many of these).
  • The federal courts system that’s increasingly the arbiter over access, fairness, quality and freedoms in healthcare.
  • The lingering impact of the pandemic.
  • And growing public disgust and distrust as the system’s altruism and good will is undermined by pervasive concern for profit.

Unprecedented! But events like those last week prompt hitting the pause button: not everyone pays attention to healthcare like many of us. The slaughter of 6 innocents in Nashville hit close to home: it’s about guns, mental health and life and death. The appeal of tech-giants to press the pause button on Generative AI for at least 6 months was sobering. The ravage of tornados that left thousands insecure without food, housing or hope seemed unfair. Mounting tensions with Russia and complex negotiations with China that reminded us that the U.S. competes in a global economy.  And President Trump’s court appearance tomorrow will stoke doubt about our justice system at a time when it’s role in healthcare and society is expanding.

I am a healthcare guy. I am prone to see the world through the lens of the U.S. health industry and keen to understand its trends, tipping points and future. There’s plenty to watch: this week will be no exception. The punch list is familiar:

  • Medicaid coverage: Many will be watching the fallout of from state redetermination requirements for Medicaid coverage starting as soon as this week with disenrollment in Arizona, Arkansas, Idaho, New Hampshire and South Dakota.
  • Medicare Advantage: Health insurers will be modifying their Medicare Advantage strategies to adapt to CMS’ risk adjustment and Value-based Insurance Design modifications announced last week.
  • Prescription drug prices: PBMs and drug companies will face growing skepticism as Senate and House committees continue investigations about price gauging and collusion. Hospitals will be making adjustments to higher operating losses as states cut their Medicaid rolls.
  • Technology: The 7500 VIVA attendees will be doing follow-up to secure entrées for their technologies and solutions among prospective buyers.
  • Physicians: And physicians will intensify campaigns against insurers and hospitals now seen as adversaries while lobbying Congress for more money and greater income opportunities i.e., physician-owned hospitals.
  • Hospitals: On the offense against site-neutral payments, physician owned hospitals, drug prices and inadequate reimbursement from health insurers.

All will soldier on but the food fights in healthcare and broader headwinds facing the industry suggest a tipping point might be near.

I am not a fatalist: the future for healthcare is brighter than its past, but not for everyone. Strategies predicated on protecting the past are obsolete. Strategies that consider consumers incapable of active participation in the delivery and financing of their care are archaic. Strategies that depend on unbridled consolidation and opaque pricing are naïve. And strategies that limit market access for non-traditional players are artifacts of the gilded age gone by when each sector protected its own against infidels outside.

These times call for two changes in every board room and C Suite in of every organization in healthcare:

Broader vision: Understanding healthcare’s future in the broader context of American society, democracy and capitalism: Beltway insiders and academics prognosticate based on lag indicators that are decreasingly valid for forecasting. Media pundits on healthcare fail to report context and underpinnings. Management teams are operating under short-term financial incentives lacking longer-term applicability. Consultants are telling C suites what they want to hear. And boards are being mis-educated about trends of consequence that matter. Understanding the future and building response scenarios is out of sight and out of mind to insiders more comfortable being victims than creators of the new normal.

Board leadership: Equipping boards to make tough decisions: Governance in healthcare is not taken seriously unless an organization’s investors are unhappy, margins are shrinking or disgruntled employees create a stir. Few have a systematic process for looking at healthcare 10 years out and beyond their business. Every Board must refresh its thinking about what tomorrow in healthcare will be and adjust. It’s easier for board to approve plans for the near-term than invest for the long-term: that’s why outsiders today will be tomorrow’s primary incumbents.

So, is U.S healthcare near its tipping point? I don’t know for sure, but it seems clear  the tipping point is nearer than at any point in its history. It’s time for fresh thinking and new players.


PS: Last week’s “Quotables” are unusually rich, especially in the context of the Tipping Point question. They’re below. Please take time to read them and reflect. Thanks for reading!


Re: Covenant School shooting: “Hopeless disagreement’ has become reductive.  Our state is in a dark place right now. We’ve been horrified and appalled by the murder of six peoplethree of them elementary school children — in a Christian school in Nashville on Monday.

Democrats take it as an article of faith that an assault weapon ban is the only sane response. Republicans believe deeply in the importance of preserving the right of people to possess firearms. It becomes quickly clear that there is hopeless disagreement on strategies surrounding assault rifles. And so, we’re reduced to offering “our thoughts and prayers,” but nothing else, to victims and their families

Our first hope is of course that out of this tragedy will come ways to better protect our children and schools. But we have a second hope as well — that if we handle it wisely and show some successes, our response could become an inflection point where America starts to relearn how to talk with one another and solve problems.

Gov. Bill Haslam was the 49th Governor of Tennessee and former mayor of Knoxville. Gov. Phil Bredesen was the 48th Governor of Tennessee and former mayor of Nashville.  Tennessean Voices  April 2, 2023

Re: Medicare Advantage savings claims: “The Medicare Advantage industry’s explanation of its success is grounded in claims about MA’s ability to deliver Medicare Part A and B benefits for much less than TM. These savings are, in theory, the basis for the rebates, the incremental revenue CMS pays to plans that fund the improved benefits and lower premiums as compared to TM, which in turn help attract members to MA plans. Indeed, the Medicare Payment Advisory Commission (MedPAC) reports that MA bids average 85 percent of the FFS cost.  Because these bids include approximately 15 percent for administrative costs and profits, they imply that Plan medical cost savings must be in the range of 25 to 30 percent versus the Medicare FFS cost benchmark bidding target.

However, a close examination of the bid process reveals that most of these savings are artifacts of the process and not due to better or more efficient care. They result from including “induced utilization costs” from Medicare supplemental insurance, legislated increases in the benchmarks, and risk score gaming. The inflation of benchmarks and risk score gaming, not better care, finance the rebates that drive MA market success. To paraphrase Barry Switzer , MA was born on third base and thinks it hit a home run.”

Richard Gilfillan, Donald M. Berwick  Born on Third Base: Medicare Advantage Thrives on Subsidies, Not Better Care Health March 27, 2023

 Re: Vaccine Pricing: “On May 11, the U.S. public health emergency (PHE) for COVID-19 will end and with it, many Americans will no longer have access to free, government-sponsored COVID vaccines.

Under the Public Health Service (PHS) Act , the U.S. government purchased and distributed COVID-19 vaccines for free to its populace, regardless of insurance or citizenship status. The U.S. has spent more than $23.5 billion  on purchasing 1.2 billion vaccine doses from Moderna and Pfizer (at a weighted average of $20.69 per dose) since they were deployed. This is on top of the initial government investment (through taxpayer dollars) for the development of the COVID vaccines of between $18 and $23 billion… So, despite global inequities in COVID vaccine distribution and significant investment from the U.S. government, these companies appear to again be throwing altruism out the window.,”

Michael Daignault, MDw is an emergency physician at Providence Saint Joseph Medical Center in Burbank, California. Monica Gandhi, MD, MPH is a professor of medicine in the school of medicine at University of California San Francisco Moderna’s Steep COVID Vaccine Price: Corporate Greed or Capitalism? MedPage March 30, 2023

Re: Senate Finance Committee Hearing on PBMs:” Pharmacy benefit managers had a strong case for themselves back in the 1980s and 1990s. The original goal was to use their access to limited data to negotiate lower drug prices on behalf of their clients – insurance companies and employers. When prescription drug coverage came to Medicare with Part D in the 2000s, PBMs shifted into overdrive with a larger market and more sophisticated drugs.

In recent years, it’s increasingly apparent that PBMs are using their data, market power, and know-how to keep prices high and pad their profits instead of sharing the benefits of the prices they negotiate with consumers and the Medicare program. I believe this is an industry that is going in the wrong direction, and that’s having a big impact on the prices Americans are paying at the pharmacy counter.”

Opening statement by Finance Chair Rob Wyden on its March 30, 2023 hearing on PBMs Wyden Hearing Statement at Finance Committee Hearing on Pharmacy Benefit Managers and the Prescription Drug Supply Chain March 30, 2023

Re: Innovation: “Healthcare is at an inflection point, with opportunities for sector veterans, up-and-comers, and yes, outsiders, to leave an indelible mark and build a better mousetrap. For the patient, it doesn’t matter if those advancements come from health systems, insurance companies or the so-called disruptors being nervously watched by more entrenched organizations.

Unless there are some really groundbreaking developments in healthcare, none of us will be here 100 years from now. But I hope there are some “wow” moments for the members of future generations who stop to read plaques in state capitol hallways.”

Mary Ellen Podmolik, Editor Modern Healthcare April 3, 2023

Re: AI, ChatGPT et al: “Should we develop nonhuman minds that might eventually outnumber, outsmart, obsolete and replace us? Should we risk loss of control of our civilization? We call on all AI labs to immediately pause for at least 6 months the training of AI systems more powerful than GPT-4.”

Elon Musk, Steve Wozniak, Andrew Yang et al “Pause Giant AI Experiments: An Open Letter”  Future of Life Institute

HCA CEO at VIVE: “There’s a little bit of a notion that for-profit healthcare and high-quality care are incompatible. We see it just the opposite…We see significant opportunities for us to leverage that status to benefit our patients. And our whole agenda, from our technology agenda to our workforce development agenda to our care transformation agenda, is geared toward improving patient care.”

Sam Hazen, CEO HCA speaking at VIVE in Nashville March 29, 2023

Re: Investors get regulator attention: “The Biden Administration has made several pronouncements of its stance against what it calls Wall Street’s “takeover” of health care. In accordance with this policy, anti-fraud and abuse government enforcers are becoming increasingly hostile to PE. Enforcers are looking beyond target companies to include the companies that invest in and manage them. In the last three years, PE firms have paid millions of dollars to settle government allegations that they knew of the allegedly improper practices of companies they backed… Despite their laudable contributions to innovation, efficiency, and influx of cash investment into the health care sector, PE firms do not always get a good rap, and we anticipate the unflattering buzz surrounding PE in health care continuing in 2023. …Investors should seek to appreciate the complex regulatory scheme, including fraud and abuse, antitrust, and corporate practice of medicine risks, and the priorities and philosophies of enforcers, so that they can take proactive steps to manage risk.”

Growing Scrutiny of Private Equity in Health Care Foley and Lardner March 30, 2023

Consumers, Spending

Study: Out of pocket spending in pediatrics: In this US national cross-sectional study of 183 ,780 non–birth-related pediatric hospitalizations from 2017 through 2019, out-of-pocket spending per hospitalization averaged $1313 and exceeded $3000 for 1 in 7 hospitalizations. Out-of-pocket spending was higher when hospitalizations occurred in quarter 1 of the year, were for children without chronic conditions, and were covered by plans with high deductibles and inpatient coinsurance requirements.

Carlton et al Out-of-Pocket Spending for Non–Birth-Related Hospitalizations of Privately Insured US Children, 2017 to 2019 JAMA Pediatrics March 27, 2023. doi:10.1001/jamapediatrics.2023.0130

Study: Retail clinic use up, others down: Per the Sixth Annual FAIR Health Report:

  • Telehealth Utilization Declined 76% Nationally from 2020 to 2021
  • Retail Clinic Utilization Increased 51%Nationally from 2020 to 2021,
  • From 2020 to 2021, utilization increased 14% in urgent care centers, while decreasing 7% in ASCs and 15% in ERs.
  • The most common procedure in any office, retail health clinic, or urgent care center was CPT®2 99203, a new patient outpatient visit lasting between 33 and 40 minutes. In urgent care clinics, the cost for that shook out to $240, but in primary care offices, the cost was $226.

Fair Health 6th Annual Report March 30, 2023

Study: Individual market cost variation: In this cross-sectional study including 1.3 million enrollees, large variation in health spending and out-of-pocket costs by metal tier were observed. Individual risk was associated with enrollment in plans with higher actuarial value; however, many enrollees in low-value plans were classified as high risk and faced substantial out-of-pocket costs.

Treasure et al Plan Selection, Enrollee Risk, and Health Spending on the Patient Protection and Affordable Care Act Individual Marketplaces, 20 JAMA Network Open. 2023;6(3):e234529. doi:10.1001/jamanetworkopen.2023.4529


Commerce Department: Core inflation up less than expected, GDP growth slowing: Last Thursday, the Commerce Department reported that the Personal Consumption Expenditure index (PCE) rose 0.3% in February, excluding the volatile food and energy components– lower than the 0.4% Wall Street consensus and down from 0.5% in January. On an annualized basis, this so-called “core PCE” measure — the Holy Grail of inflation numbers for the Fed — rose 4.6% in February, down a touch from 4.7% in January. Other highlights:

  • Real gross domestic product(GDP) increased at an annual rate of 2.6% in the fourth quarter of 2022 vs.3.2 percent in 3Q.
  • Within private services-producing industries, the leading contributors to the increase were professional, scientific, and technical services; retail trade; health care and social assistance; and information. Notable offsets include decreases in finance and insurance as well as real estate and rental and leasing

Gross Domestic Product, Fourth Quarter and Year 2022 (Third Estimate), GDP by Industry, and Corporate Profits US Department of Commerce March 30, 2023


Kaufman Hall: Hospital operating margins thin but improved, especially in biggest hospitals: ‘Hospital margins were -1.1% in February, down slightly compared to the -0.8% in January, according to the Kaufman Hall research. This is the eighth consecutive month where the variation in month-to-month margins has fallen, relative to the last three years.’

Notably, bigger hospitals 500-beds + are faring better than smaller hospitals: operating margins are up 41% in the last 12 months, discharges were up 7%, patient days +5%, net operating revenue is up 10%, bad debt and charity care as a % of total revenue is down 10%, total expense is up 6% (labor +1%, drugs +8%, supply expense +10%)

PK Note: Kaufman Hall data is extrapolated from its proprietary database of 900 hospitals and does not include non-operating income.

National Hospital Flash Report March 2023

Report: Hospital CEO Turnover increasing: The number of CEO changes at U.S. companies surged 49% from the 112 in January to 167 last month. February’s total is up 11% from the 151 CEOs who left their posts in the same month one year prior,

Hospitals experienced 18 CEO exits in February 2023, according to a new Challenger, Gray & Christmas, Inc. report. Year to date, 41 hospital CEOs have made role changes, the report found. This is a 58% increase year over year, where only 26 hospital CEOs made exits during the first two months of 2022.

February 2023 CEO Turnover Report: Exits Surge to 167, Highest Since January 2020 Challenger, Christmas and Gray March 29, 2023

Re: Rural hospital closure in MS “Rural hospitals are struggling all over the nation because of population declines, soaring labor costs and a long-term shift toward outpatient care. But those problems have been magnified by a political choice in Mississippi and nine other states, all with Republican-controlled legislatures.

They have spurned the federal government’s offer to shoulder almost all the cost of expanding Medicaid coverage for the poor. And that has heaped added costs on hospitals because they cannot legally turn away patients, insured or not.”

Note: Last week, North Carolina became the 40th state to expand its Medicaid program.

Sharon LaFraniere New York Times March 28, 2023 /

Public Opinion

Study: patient access to test results: To assess patient and caregiver attitudes and preferences related to receiving immediately released test results through an online patient portal, researchers surveyed.8,139 patients in 4 academic medical centers. Results:

96% of patients preferred receiving immediately released test results online even if their health care practitioner had not yet reviewed the result. A subset of respondents experienced increased worry after receiving abnormal results.

“This multisite survey study of patient attitudes and preferences toward receiving immediately released test results via a patient portal, most respondents preferred to receive test results via the patient portal despite viewing results prior to discussion with a health care professional. This preference persisted among patients with nonnormal results.”

Steitz et al Perspectives of Patients About Immediate Access to Test Results Through an Online Patient Portal JAMA Network Open March 20. 2023;6(3):e233572. doi:10.1001/jamanetworkopen.2023.3572

Poll: Confidence in Higher Ed eroding: 56% of Americans think earning a four-year degree is a bad bet compared with 42% who retain faith in the credential.

Women and older Americans are driving the decline in confidence. People over the age of 65 with faith in college declined to 44% from 56% in 2017. Confidence among women fell to 44% from 54%, according to the poll.

Skepticism is strongest among people ages 18-34, and people with college degrees are among those whose opinions have soured the most, portending a profound shift for higher education in the years ahead.

Americans Are Losing Faith in College Education, WSJ-NORC Poll Finds March 31, 2023

Social Determinants

Study: food insecurity impact: In this cohort study using data from 3037 community-dwelling Medicare beneficiaries 65 years and older followed for 7 years, Results:

“Over 7 years, 12.1% experienced food insecurity at least once. Food insecurity was associated with a faster decline in executive function in a fully adjusted model.” severe cases of food insecurity may induce even higher levels of stress and adverse health impacts, making older adults more susceptible to cognitive decline at an accelerated pace.

Kim et al Food Insecurity and Cognitive Trajectories in Community-Dwelling Medicare Beneficiaries 65 Years and Older JAMA Network Open March 24, 2023. 2023;6(3):e234674. doi:10.1001/jamanetworkopen.2023.4674

Regulation, Oversight

CMS issues Medicare Advantage final rule, extends VBID model: Friday, CMS provided guidance on closely watched programs:

Medicare Advantage: CMS announced it will phase in its MA risk adjustment changes over three years vs. 2024 implementation previously proposed.

  • Medicare Advantage will see a 3.32%/enrollee net increase in revenue from the program in 2024, higher than the 1% projected in a notice. The base rate will decline 1.12%, excluding how insurers code for members’ health conditions.
  • CMS will eliminate more than 2,200 risk codes it contends are most responsible for upcoding. Additionally, it will consolidate codes associated with certain medical conditions, such as diabetes and depression, and only retain those that reliably predict future spending.
  • Medicare Advantage insurers generated an estimated $17 billion in overpayments in 2021 per MedPAC. CMS announced last month it would recoup $4.7 billion over 10 years from Medicare Advantage insurers the agency concluded were overpaid. CMS also reduced the benchmark payment Medicare Advantage insurers receive by ending payment for indirect medical education expenses.

Value-Based Insurance Design (VBID):CMS announced that the Medicare Advantage VBID Model will be extended through 2030. Under this Model, participating MA plans may provide patients with tailored supplemental benefits like lower costs for prescription drugs; grocery assistance to help ensure their nutrition needs are met; transportation services to make sure they can attend appointments; and support managing chronic health conditions. The model will also introduce changes intended to more fully address the health-related social needs of patients, advance health equity, and improve care coordination for patients with serious illness. For 2023, there are 52 participants.

CMS News Releases March23, 30, 2023

CVS-Oak Street clears antitrust waiting period: Oak Street Health disclosed on Thursday that the antitrust waiting period for its planned sale to CVS Health has expired. CVS and Oak Street filed the required notification forms under the Hart-Scott-Rodino Act with the Department of Justice and Federal Trade Commission on Feb. 24. The disclosure means the $10.6 billion deal has cleared one regulatory hurdle — companies can’t consummate mergers until the HSR waiting period expires — but regulators could still challenge the acquisition on antitrust grounds in the future

CVS-Oak Street deal clears regulatory hurdle as antitrust waiting period expires Healthcare DIVE March 30, 2023

Tx Court ruling throws preventive health in limbo for plans: A ruling last Thursday by Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas creates uncertainty for insurers, consumers and state officials. The ruling:  health plans nationwide are not obligated to fully cover preventive health services such as cancer and HIV and preventive measures graded A/B by the U.S. Preventive Services Task Force. Two Christian businesses and several individuals sued the federal government in 2020 arguing that the mandate violates their religious freedom and the U.S. Constitution.

The Preventive Services Task Force is made up of 16 volunteers who are doctors, nurses, public health experts and other medical professionals. They are appointed by the director of the Agency for Healthcare Research and Quality.

Caroline Hudson “Healthcare industry in limbo after federal preventive care ruling” Modern Healthcare March 31, 2023www.modernhealthcare.comMedicare Advantage Value-Based Insurance Design Model CMS March 23, www.cms/innovation