As hospital leaders convene in Seattle this weekend for the American Hospital Association Leadership Summit, their future is uncertain.
Last week’s court decision in favor of hospitals shortchanged by the 340B drug program and 1st half 2023 improvement in operating margins notwithstanding, the deck is stacked against hospitals—some more than others. And they’re not alone: nursing homes and physician practices face the same storm clouds:
- Decreased reimbursement from government payers (Medicare and Medicaid) coupled with heightened tension with national health insurers seeking bigger discounts and direct control of hospital patient care.
- Persistent medical-inflation driving costs for facilities, supplies, wages, technologies, prescription drugs and professional services (legal, accounting, marketing, et al) higher than reimbursement increases by payers.
- Increased competition across the delivery spectrum from strategic aggregators, private equity and health insurers diversifying into outpatient, physician services et al.
- Increased discontent and burnout among doctors, nurses and care teams who feel unappreciated, underpaid and overworked.
- Escalating media criticism of not-for-profit hospitals/health system profitability, debt collection policies, lack of price transparency, consolidation, executive compensation, charity care, community benefits and more.
- Declining trust in the system across the board.
Most hospitals soldier on: they’re aware of these and responding as best they can. But most are necessarily focused only on the near-term: bed needs, workforce recruitment and staffing, procurement costs for drugs and supplies and so on. Some operate in markets less problematic than others, but the trends hold true directionally in every one of America’s 290 HRR markets.
Planning for the long-term is paralyzed by the tyranny of the urgent: survival and sustainability in 2023 and making guarded bets about 2024 dominate today’s plans. That’s reality. Though the healthcare pie is forecast to get bigger, it’s being carved up by upstarts pursuing profitable niches and mega-players with deep pockets and a take-no-prisoners approach to their growth strategies. The result is an industry nearing meltdown.
Each traditional sector thinks it’s moral virtue more honorable than others. Each blames the other for avoidable waste and inaction in weeding out its bad actors. Each is pays lip service to “value-based care” and “system transformation” while doubling-down on making sure changes are incremental and painless for the near-term. And each believes the long-term destination of the system will be different than the past but no two agree on what that is.
Hospitals control 31% of the spend directly and as much as 43% with their employed physicians included. So, they’re a logical focus of attention from outsiders. Whether not for profit, public or investor owned, all are thought to be expensive and non-transparent and increasingly many are seen as ‘Big Business’ with excessive profits. Complaints about heavy-handed insurer reimbursement and price-gauging by drug companies fall on death ears in most communities. That’s why most are focused on near-term survival and few have the luxury or tools to plan for the future. As a start, answers to the questions below in the 3-5 (mid-term) and 8–10-year (long-term) time frames is imperative for every hospital leadership team and Board:
- Is the status quo sustainable? With annual spending projected to increase at 5.4%/year through 2031– well above population and economic growth rates overall– will employers remain content to pay 224% of Medicare rates to produce profits for hospitals, doctors, drug and device makers and insurers? Will they continue to pass these costs through to their customers and employees while protecting their tax exemptions or will alternative strategies prompt activism? Might employers drive system transformation by addressing affordability, effectiveness, consumer self-care and systemness et al. with impunity toward discomfort created for insiders? Or, might voters reject the status quo in subsequent state/federal elections in favor of alternatives with promised improvement? And who will the winners and losers be?
- Are social determinants a core strategy or distraction? 70% of costs in the health system are directly attributable to social needs unmet—food insecurity. loneliness et al. But in most communities, programs addressing SDOH and public health programs that serve less-privileged populations are step-children to better funded hospitals and retail services targeted to populations that can afford them. Is the destination incremental bridges built between local providers and public health programs to satisfy vocal special interest groups OR comprehensive integration of SDOH in every domain of operation? Private investors are wading into SDOH if they’re attached to a risk-based insurance programs like Medicare Advantage and others, but sparingly in other settings. Does the future necessitate re-definition of “community benefits” or new regulations prompting providers, drug companies and payers to fair-share performance. Is the future modest improvement in the “Health or Human Services” status quo OR is system of “Health and Social Services” that’s fully integrated? And might interoperability and connectivity in the entire population become “true north” for tech giants and EHR juggernauts seeking to evade anti-trust constraint and demonstrate their commitment to the greater good? There’s no debate that SDOH is central to community health and wellbeing but in most communities, it’s more talk than walk. Yesterday, SDOH was about risk factors; today, it’s about low-income populations who lack insurance; tomorrow, it’s everyone.
- How should the health system of the future be funded? The current system of funding is a mess: In 2021, the federal government and households accounted for the largest shares of national health spending (34 % and 27%, respectively), followed by private businesses (17%), state and local governments (15%), and other private revenues (7%). It will spend $4.66 trillion, employ 19 million and impact every citizen (and non-citizen) directly. But 4 of 10 households have unpaid medical bills. Big employers in certain industries provide rich benefits while half of small businesses provide none. Medicare depends on employer payroll taxes for the lion’s share of its Part A (Hospital) funding exposing the “trust fund” to a shortfall in 2028 and insolvency fears…and so on. Increased public funding via taxes is problematic and debt is more costly as interest rates go up and the municipal bond market tightens. Voters and private employers don’t seem inclined to pay higher taxes for healthcare–:is it worth $13,998 per capita today? $20,426 in 2031? Will high-cost inpatient care and specialty drugs become regulated public utilities in which access and pricing is tightly controlled and directly funded by government? Will private investors and strategic aggregators be required to take invest in community benefits to offset the disproportionate costs borne by hospitals, public health clinics and others? Is there a better formula for funding U.S. healthcare? Other systems of the world spend more on social services and preventive health and less on specialty care. They spend a third less and get comparable if not better outcomes though each is stretched to deal with medical inflation. And in most, government funding is higher, private funding lower and privileged populations have access to private services they pay for directly. Where do we start, and who demands the question be answered?
- How will innovations in therapeutics and information technology change how individuals engage with the system? Artificial intelligence will directly impact 60% of the traditional health delivery workforce, negating jobs for many/most. Non-allopathic therapies, technology-enabled self-care, precision medicines, non-invasive and minimally invasive surgical techniques are changing change how care is delivered, by whom and where. Thus, lag indicators based on visits, procedures, admissions and volume are increasingly useless. How will demand be defined in the future? Who will own the data and how will it be accessed? And how will the rights of patients (consumers) be protected in courts and in communities? In the future, information-driven healthcare will be much more than encounter data from medical records and claims-based analyses from payers. It will be sourced globally, housed centrally and accessed by innovators and consumers to know more about their health now and next. Within 10 years, generative AI coupled with therapeutic innovation will fundamentally change roles, payments and performance measurement in every domain of healthcare. Proficiency in leveraging the two will anchor system reputations and facilitate significant market share shifts to high value, high outcome, lower cost alternatives…whether local or not.
- How will regulators and court decisions enact fair competition, consumer choices and antitrust protections? The current political environment is united around reforms that encourage price transparency and affordability. FTC and DOJ leaders are aligned on healthcare oversight with a decided bent toward heightened enforcement and tighter scrutiny of proposed deals (both vertical and horizontal integration). But their leaders’ terms are subject to political appointments and elections: that’s an unknown. And while recent rulings of the conservative leaning Supreme Court are problematic to many in healthcare, their rulings are perhaps more predictable than policies, rules and regulations directly impacted by election results.
For hospital leaders gathering in Seattle this week, and in local board meetings nationwide, necessary attention is being given the near-term issues all face. But longer-term issues lurk: the future does not appear a modernized version of the past for anyone in U.S. healthcare, especially hospitals. And among hospitals, fundamental precepts—like tax exemptions for “not-for-profit” hospitals, community benefits and charity care in exchange for tax exemption, EMTALA et al. regulations that require access without pre-condition are among many that will re-surface as the long-term view of the health system is re-considered.
To that end, the questions above deserve urgent discussion in every hospital board room and C suite. Trade-offs aren’t clear, potential future state hospital scenarios are not discreet and winners and losers unknown. But a fact-driven process recognizing a widening array of players with deep pockets and fresh approaches is necessary.
Paul
Keehan et al National Health Expenditure Projections, 2022–31: Growth To Stabilize Once The COVID-19 Public Health Emergency Ends Health Affairs June 14, 2023 www.healthaffairs.org/doi/full/10.1377/hlthaff.2023.00403
Quotable
Re: health system comparisons: “In this survey study using self-reported data from 22 402 participants across 11 countries, the mean number of geographic health disparities across 10 indicators and 3 domains (health status and socioeconomic risk factors, affordability of care, access to care) was 1.9, although there was wide variation among the nations. The US had significant geographic health disparities in 5 indicators, the most of any country, while Canada, Norway, and the Netherlands had no significant geographic health disparities. These results suggest that health policy makers in the US should look to Canada, Norway, and the Netherlands to improve geographic-based health equity.”
MacKinnon et al “Mapping Health Disparities in 11 High-Income Nations” JAMA Network Open. 2023;6(7):e2322310. doi:10.1001/jamanetworkopen.2023.22310
Re: value-based care implementation in health systems: “In evaluating value-based care transition as an investing theme, investors must hold two realities in tension. First, many, if not most, health systems in the US must ultimately make a value-based care transition if they are to survive. Healthcare cost inflation and population aging have made the fee-for-service paradigm unsustainable; payers and/or regulators will force costs out of the system, gradually shortening the financial lifeline on which most systems rely. Second, it is a herculean task for a health system to move significant portions of its patient population into value-based care… This means that progress will be piecemeal, driven by leadership teams with high conviction as well as by M&A and enabler networks. We believe investors should be confident in the value-based care transition but cautious in estimating how long it will take.”
Rebecca Springer “Industry Research: Anatomy of a Population Health Program: Pitchbook Lessons in value-based care from Lehigh Valley Health Network” Pitchbook July 3, 2023 https://files.pitchbook.com
Re: AI regulatory framework: “China has forbidden AI-generated images that impersonate people without their consent, and the European Union has proposed sweeping AI rules (which, like the EU’s data rules, may reverberate globally). But America’s reactive, incremental approach to making regulation up as its industries develop has kept it in the lead since the Industrial Revolution, and seems particularly suited to such a rapidly evolving, disruptive technology. Maybe AI and America’s lawmakers, in the end, can help each other grow up.”
AI is making Washington smarter The Economist June 29, 2023www.economist.com/united-states/2023/06/29/ai-is-making-washington-smarter?
Re: corporate “greedflation”: “The “greedflation” thesis is in part a reaction against another common explanation for inflation: that it is driven by fast-growing wages. Central bankers live in fear of wage-price spirals… Yet to argue that companies must therefore be to blame is to confuse cause and effect. In America the profit margins of non-financial corporations surged after vast fiscal stimulus during the pandemic, which amounted to more than 25% of GDP and included three rounds of cheques sent directly to most households. The infusion of cash into the economy—which the Federal Reserve chose not to offset with higher interest rates—set off a consumer-spending boom that overwhelmed the world’s covid-strained supply chains, disrupting other economies. With too much cash chasing too few goods, it was inevitable that companies would make more money. Then, after Russia invaded Ukraine, companies producing energy or food also found themselves selling into a shortage. Their prices and profits shot up.
The right lesson to draw from the past two years is not that companies have got greedier, but that workers suffer when policymakers let inflation run out of control. All the more reason, in short, to care about price stability in the first place.”
“Greedflation” is a nonsense idea” The Economist July 6th 2023 https://www.economist.com/leaders/2023/07/06/greedflation-is-a-nonsense-idea
Re: Healthcare M&A in 2023: “Overall, the global healthcare M&A market is expected to remain active in 2023, but with some slowdown from the record-breaking levels seen in 2022. The key trends that are expected to shape the market in 2023 include increased focus on digital health, growth of the life sciences sector, consolidation of the healthcare industry, and increased regulatory scrutiny.”
Big Tech Big Health M&A: Potential mega deals in 2023 or 2024? Andreessen Horowitz July 3, 2023 www.healthcare.digital/single-post/big-tech-big-health-m-a-potential-mega-deals-in-2023-or-2024
Re: Distressed hospitals: “The nation’s wealthiest hospitals largely emerged from the pandemic strained but still financially sound. Institutions now in trouble with lenders are more often solo hospital operators or small systems that entered the pandemic with less in reserves.”
Hospitals have disclosed some kind of repayment difficulty for more than $10 billion in municipal bonds in the past 12 months, according to Municipal Market Analytics. Overall, about $12 billion in hospital bonds is impaired—nearly 4% of all hospital muni debt outstanding. That is the most in the past 15 years, including during the 2008-09 financial crisis…”
Heather Gillers, Melanie Evan Some Hospitals That Spent Big on Nurses During Pandemic Are Now Short on Cash Wall Street Journal July 5, 2023
Re: for-profit nurse training programs: “Driven by the fundamentals of supply and demand, for-profit universities have expanded their footprint into nursing schools over the last two decades…
From 2007 to 2016, the number of for-profit nursing schools grew five-fold, from 60 to 301, and from 1.7% of all nurse programs to 14.2%. In addition, the number of graduates of these programs increased 14-fold, according to a 2019 study published in the Journal of Nursing Regulation (JNR).There are currently 326 such programs…
U.S. nursing schools turned away 91,938 qualified applicants from baccalaureate and graduate programs in 2021, according to the American Association of Colleges of Nursing (AACN)opens in a new tab or window, citing “an insufficient number of faculty, clinical sites, classroom space, clinical preceptors, and budget constraints.” Experienced nurses can earn at least 50% more at the bedside than in the classroom, Spetz said, so filling faculty positions continues to be a challenge.”
Shannon Firth “What’s the Matter with For-Profit Nursing Programs?” MedPage July 3, 2023 www.medpagetoday.com/special-reports/exclusives
Re: senior care in the home: “The home is going to be the center point … with some obvious exceptions, you probably won’t have heart surgery performed in my living room…The Program of All-Inclusive Care for the Elderly (PACE) is ultimate senior care model…. It’s the only thing in health care that I know makes people live longer, reliably. It keeps people in their homes and the model pays attention to the needs people have as they get older.” Among PACE members, there’s a 24% lower hospitalization rate compared to dually eligible beneficiaries who receive their care in nursing homes.
I think we are looking at a pre-lift off category. It’s a whole different rubric when you think about keeping people at home, but having all the things that they need from a hospital perspective there, so I’m interested in watching that category.”
Joyce Famakinwa “Former CMS Administrator Andy Slavitt Considers PACE The ‘Ultimate’ Senior Care Model Homecare News July 5, 2023
Re: AI in healthcare: “Historically, new technology has often been extremely beneficial for patients and clinicians. The entire clinical enterprise is built on the ability of clinicians to harness data and devices to improve patients’ health. Hopefully, this will be true about AI as well, with economic benefits to boot. But making this happen will require conscious effort and planning; it cannot be left to chance.”
David Cutler “What Artificial Intelligence Means for Health Care” JAMA Health Forum July 6, 2023;4(7):e232652. doi:10.1001/jamahealthforum.2023.2652
Polling
Polling: Pride in America continues slide: Per the Gallup poll conducted June 1-22, 2023 among 1013 U.S. adults:
- 67% are extremely or very proud to be American (High: 91% in 2004, Low: 63% in 2020)
- 60% of Republicans, 33% of independents, 29% of Democrats extremely proud
- 39% are extremely proud to be American (High:70% in 2023, Low: 38% in 2022)
Megan Brenan “Extreme Pride in Being American Remains Near Record Low” Gallup June 29, 2023 https://news.gallup.com/poll/507980/extreme-pride-american-remains-near-record-low
Public Health
CDC: Covid update:
- 5% carry antibodies from at least one prior infection vs. 48.8% the CDC estimated at the beginning of the year or the 57.7% last April.
- 7% of Americans 16 and older have some form of protection.
- 6% of people ages 65 and older have had at least one prior infection. Young adults between the ages of 16 and 29 had the largest percentage of prior infections, coming in at 87.1%.
CDC www.cdc.gov
Regulators
HHS announces healthcare workforce initiative: Friday, Department of Health and Human Services (HHS) Secretary Xavier Becerra announced his proposal of $2.7 billion Health Workforce Initiative for the Health Resources and Services Administration’s (HRSA). It’s targeted to workforce training, scholarship, loan repayment and well-being programs.
HHS July 6, 2023 /www.hhs.gov/about/news/2023/07/06/new-hhs-initiative-aims-strengthen-nations-health-workforce.
FDA approves first Alzheimer’s drug: Leqembi received accelerated approval in January based on evidence that it clears amyloid plaque buildups in the brain that are associated with Alzheimer’s disease. It costs $26,500 annually before insurance coverage.
FDA www.fda.gov
Value-based care
Deloitte: ACO denied unqualified as a 501C4: “In a Memorandum Opinion filed May 16, 2023, the Tax Court upheld an Internal Revenue Service (“IRS”) determination denying request for tax-exempt status as a social welfare organization under section 501(c)(4) to an accountable care organization (“ACO”). it was noted that 18% of the patients whose care was coordinated by the ACO as of November 2019 were beneficiaries participating in the ACO through the Medicare Shared Savings Program (MSSP) administered by the Centers for Medicare & Medicaid Services (CMS) and 82% of patients were covered by private insurance companies…The IRS initially concluded, and the Tax Court upheld, that the ACO does not qualify as an organization described under section 501(c)(4) because the ACO failed to show how the activities it conducts under its non-MSSP contracts serve the public. Instead, it was determined that the ACO primarily benefits the insurance companies and healthcare providers that the ACO contracts with. As such, the ACO is not considered by the IRS nor Tax Courts to operate exclusively for the promotion of social welfare under section 501(c)(4).
Tax-Exempt Status under IRC Section 501(c)(4) Denied to Accountable Care Organization Tax News & Views: Health Care Edition – July 2023
Prescription drugs
Re: white bagging: “Health insurers and medical providers are battling over who should supply high-cost infusion drugs for patients, with the tussle over profits now spilling into (21) statehouses across the country…
The issue is that some insurers are bypassing hospital pharmacies and physician offices and instead sending more complex drugs through third-party pharmacies… That shifts who gets to buy and bill for these complex medications, including pricey chemotherapy drugs…
At the heart of the tension is an often-litigated federal program that allows certain hospitals and the clinics they own to purchase drugs at deep discounts. The 340B program, named for a section of the law that created it, allows hospitals to buy certain drugs for much less — sometimes for a total cost of a single penny — than what they are later paid for those drugs. Hospitals are not required to pass along 340B savings to patients…”
Samantha Liss “Patients Squeezed in Fight Over Who Gets to Bill for Pricey Infusion Drugs” July 5, 2023 https://kffhealthnews.org/news/author/samantha-liss/
Study: Hospital Outpatient department drug prices: findings in the Employee Benefit Research Institute study include:
- As of February 2023, there are 29 biosimilars on the market competing against 11 innovator biologics• Among the 9 innovator biologics with available biosimilars as of October 2022, most of the biosimilars were launched in the U.S. in 2019 and 2020.
- “Allowed charges for biosimilars were higher in HOPDs than in POs. However, the markups for biosimilars were lower than the markups for innovator biologics. Biosimilar markups in HOPDs averaged 87% in 2019 and 101% in 2020. In 2022, HOPD markups ranged from 59% – 141%.
New Research Finds That Hospital Markups on Biologic Medicines Roughly Double Costs and Limit Potential Savings From Biosimilar Competition – Workers and Employers Seeing Higher Costs as a Result EBRI July 5, 2023 www.ebri.org –
Hospitals
FAH study: penalties in hospital value-based payment programs out of hospital control, need change: Researchers analyzed the correlation between financial penalties for the Hospital Readmissions Reduction Program, the Hospital Value-Based Purchasing Program, and the Hospital-Acquired Condition Reduction Program and their financial impact on hospitals.
“We found statistically significant positive relationships between hospital penalties and several factors that affect hospital performance but that hospitals cannot control—namely, medical complexity (as measured by Hierarchical Condition Categories scores), uncompensated care, and the portion of hospital catchment area populations who live alone. Moreover, these environmental conditions can be worse for hospitals that operate in areas with historically underserved populations. This suggests that the CMS programs might not adequately account for health equity factors at the community level. Refinements to these programs (including an explicit incorporation of patient and community health equity risk factors) and continued monitoring will help ensure that the programs work as intended in a fair and equitable fashion.
Kahn et al CMS Hospital Value-Based Programs: Refinements Are Needed To Reduce Health Disparities And Improve Outcomes July 2023No https://doi.org/10.1377/hlthaff.2022.00844
Study: clinician, nurse burnout associated with patient safety problems: “This cross-sectional multicenter survey study of 15 738 nurses and 5312 physicians found high and widespread burnout among clinicians in hospital practice that was associated with frequent turnover and patient safety concerns. In addition, clinicians lack confidence in management to resolve patient care problems and rated improvements in staffing and work environments as more important to their mental health and well-being than instituting clinician wellness and resilience programs. These findings indicate that enhancing clinician well-being and retention requires deliberate actions by management to improve nurse staffing, work environments, and patient safety culture.”
Aiken et al “Physician and Nurse Well-Being and Preferred Interventions to Address Burnout in Hospital Practice Factors Associated With Turnover, Outcomes, and Patient Safety” JAMA Health Forum July 7, 2023;4(7):e231809. doi:10.1001/jamahealthforum.2023.1809
Physicians
Study: use of telemedicine in primary care: Researchers analyzed telemedicine use by primary care practitioners in MedStar Health, Stanford Health Care, and Intermountain Healthcare systems between March 13, 2020, and December 31, 2021. Findings:
“We found substantial variation in telemedicine provision across physicians…32.5% of physicians in the sample continued to provide relatively high rates of telemedicine amid a general decline in telemedicine use. Previous assessments6 of physician perspectives on telemedicine have found that most intend to continue offering virtual services. However, findings from both our study and a recent survey study3 suggest waning physician use of telemedicine, largely due to the lack of physical examinations. Although our findings may not generalize to other health care systems or specialties outside of primary care, our study highlights a nontrivial share of physicians who do not reflect this decreasing pattern and instead exhibit persistently high rates of telemedicine use, suggesting generous telemedicine provision may be a differentiator for these physicians.”
Apathy et al “Variations in Physician Telemedicine Provision ”JAMA Network Open. July 6, 2023;6(7):e2321955. doi:10.1001/jamanetworkopen.2023.21955
Health insurers
Study: HRSNs high in MA population: Researchers examined the prevalence of Health Related Social Needs (HRSNs) in 2019 among 61,779 enrollees in a large, national MA plan. Findings:
“HRSN burden was unequally distributed across multiple beneficiary characteristics, notably with beneficiaries younger than age 65 more likely than those ages sixty-five and older to report having an HRSN. We also found that some HRSNs were more strongly associated with hospitalizations, emergency department visits, and physician visits than others. These findings suggest the importance of considering the HRSNs of dual- and non-dual-eligible beneficiaries, as well as those of beneficiaries of all ages, when exploring how to address HRSNs in the MA population.”
Peikes et al Burden Of Health-Related Social Needs Among Dual- And Non-Dual-Eligible Medicare Advantage Beneficiaries July 2023https://doi.org/10.1377/hlthaff.2022.01574
Study: psychiatrist networks narrow in MA plans: Researchers studied access to mental health services in Medicare Advantage plans. Findings: “Enrollees are often restricted to providers who participate in a health plan’s network, which may present a barrier to care…. We found that nearly two-thirds of psychiatrist networks in Medicare Advantage were narrow (that is, they contained fewer than 25% of providers in a network’s service area) compared with approximately 40% in Medicaid managed care and Affordable Care Act plan markets. We did not observe similar differences in network breadth for primary care physicians or other physician specialists across markets. Amid efforts to strengthen network adequacy, our findings suggest that psychiatrist networks in Medicare Advantage are particularly narrow, which may disadvantage enrollees as they attempt to obtain mental health services.”
Note: Researchers considered a network narrow if it contained fewer than 25% psychiatrists in a service area. For Medicare Advantage, 64.5% of markets fit that description, compared to 43.1% for managed Medicaid and 39.5% for Affordable Care Act marketplaces.
Zhu et al Markets July 2023No Accesshttps://doi.org/10.1377/hlthaff.2022.01547
