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The Keckley Report

The Health System needs a Heart Transplant

By July 17, 2023No Comments

Last week, labor issues took center stage:

  • In the UK, 46,000 physicians walked out on the National Health Service citing poor working conditions and patient safety concerns as concerns. Nurses in England and Wales walked out earlier this year with similar complaints.
  • The 160,000-member SAG-AFTRA union, which represents TV and movie actors went on strike for higher wages and residuals, joining screenwriters who walked out in May.

And labor unions representing workers at Detroit’s Big 3 automakers, Amazon and UPS are threatening work-stoppages as talks with negotiators appear stalled.

It’s a time when workforce activism is peaking, and hourly workers in hospitals, long-term care facilities and in home care are targets of organizing efforts by unions. For example, Service Employees International Union (SEIU) strikes in New York, Oregon, New Jersey and NC this year have disrupted operations and more are predicted.

In an industry as big and prominent as healthcare, hourly workers including nurses, techs, business office and patient support services are vital to its performance. Those in skilled professions that require licenses are buffered by shortages: that’s the case with nurses, physical therapists and others. But not as much for non-skilled positions where cost-cutting has heightened labor-management tensions. And this comes as most hospitals have recovered to pre-pandemic financial health and CEO compensation in not-for-profit systems has become a lightening rod for industry critics like Arnold Ventures, West Health and Lown Institute among others.

My take:

I am in Seattle today attending the American Hospital Association Leadership Summit. Exhibitors are selling workforce recruitment, compensation, productivity and outsourcing solutions and plenary speakers are promising generative AI will replace the need for most. But platform solutions and AI-enabled workforce re-engineering will not be effective until boards and senior management teams undergo heart transplants.

The heart of healthcare has been damaged by years of putting financial issues—solvency, liquidity, margin et al above all else. It’s understandable, but the steady diet of financial over-indulgence has damaged the heart of the industry. In local health industry councils, making money is what matters most. Doing well by doing good is platitudinal and easily dismissed. It’s not ironic that trust and confidence in the U.S. system has eroded to an all-time low. It’s no surprise that large hospital systems are now thought of as big businesses alongside other suspect institutions like Congress and media. It’s no surprise the 17 million hourly workers in our system think their leaders put finances above their needs for living wages, safe working conditions and access to affordable healthcare.

The heart of healthcare is about health and wellbeing of individuals, households and communities: that’s why so many workers seek to be a part. But many leaders pay disproportionate attention to margin and too little on the culture and wellbeing of their workforce..So, the pre-op regimen for the transplant procedure should start with 3 diagnostics:

  • Is executive compensation directly linked to the culture of the organization and workforce health and wellbeing as a vital element? In many settings, it’s not, and even in not-for-profit organizations, it’s only a small fraction.
  • Is the board adequately prepared to assist their management team’s workforce modernization and wellbeing strategies by being independently informed? Most aren’t.
  • And is the CEO approachable and accessible to his/her hourly workforce for meaningful interaction and relationships?

Hourly workers are the beating heart of the healthcare industry: they don’t have star power, they don’t have a voice, and they don’t feel they’re seen or heard. As the system transitions to AI-powered workforce solutions in bigger organizations, the heartbeat is irregular. It needs attention.


PS Last week, I  participated in the Hospital Association of Oregon annual meeting at Sunriver Resort where CEO Becky Hultberg summoned her colleagues to play an “infinite game” a la leadership guru Simon Sinek’s 2019 paradigm that contrasts playing a finite game vs. infinite game:

Finite games, like football or chess, have known players, fixed rules and a clear endpoint. The winners and losers are easily identified. Infinite games have no defined endpoint. There are no winners or losers—only ahead and behind. Hultberg reminded her leaders that Sinek’s 5 principles are a roadmap for infinite game leadership of Oregon’s health environment: 1-Advance a just cause, 2-Build trusting teams, 3-Study the worthy rival, 4-Prepare for Existential Flexibility and 5-Courage to Lead.

I am half-way through reading The Infinite Game: it’s a worthwhile reflection about leadership attributes necessary to the future—the ability to think long-term, the willingness to find common ground, the need to work with not against adversaries and so on.

Ironically, it was Sinek’s first book, Start with Why (2009) that put his name on the map.  His premise was “People don’t buy what you do; they buy why you do it.” The stressful times ahead in healthcare require leaders willing to play the infinite game.


Re: tax exempt hospitals: “The school system appealed Pottstown Hospital’s new nonprofit status, and earlier this year a state court struck down the facility’s property tax break. It cited the “eye-popping” compensation for multiple Tower Health executives as contrary to how Pennsylvania law defines a charity

The court decision, which Tower Health is appealing, stunned the nonprofit hospital industry, which includes roughly 3,000 nongovernment tax-exempt hospitals nationwide…

The Pottstown case reflects the growing scrutiny of how much the nation’s nonprofit hospitals spend — and on what — to justify billions in state and federal tax breaks. In exchange for these savings, hospitals are supposed to provide community benefits, like care for those who can’t afford it and free health screenings.

More than a dozen states have considered or passed legislation to better define charity care, to increase transparency about the benefits hospitals provide, or, in some cases, to set minimum financial thresholds for charitable help to their communities.”

The growing interest in how tax-exempt hospitals operate — from lawmakers, the public, and the media — has coincided with a stubborn increase in consumers’ medical debt. KFF Health News reported last year that more than 100 million Americans are saddled with medical bills they can’t pay, and has documented aggressive bill-collection practices by hospitals, many of them nonprofits…

For-profit hospitals don’t receive tax exemptions and aren’t legally obligated to provide community benefit. In 2018, for every $100 of expenses incurred, nonprofit hospitals in aggregate spent $2.30 on charity care, as compared with $3.80 spent by for-profit hospitals. And in 2019, nonprofit and for-profit hospitals had similar Medicaid shortfalls as a share of total expenses.

These data suggest that many nonprofit hospitals don’t provide enough charity care or have a substantial enough Medicaid shortfall (relative to for-profit hospitals) to justify their favorable tax treatment. What’s more, current subsidies are poorly targeted because exemptions from property and income tax are worth more to financially successful nonprofit hospitals located in high-income areas than to less financially successful nonprofit hospitals in lower-income areas and aren’t related to the amount of community benefit that hospitals provide.

Ge Bai, Ph.D., C.P.A., Sunjay Letchuman, B.B.A., and David A. Hyman, M.D., J.D. “Do Nonprofit Hospitals Deserve Their Tax Exemption?” NEJM July 15, 2023

Re: value-based enablers: “At present, VBC enablers report that they usually do not compete directly for partnerships. However, we believe competition will significantly increase within the next three years or so. Consolidation among enablers is also likely, though not imminent, while customer acquisition costs remain low.

Enablers differentiate themselves along three different axes: target partner profile, target payer type, and degree of control. In this note, we profile six VC- and PE-backed enablers—Aledade, Equality Health, Pearl, UpStream, Vytalize, and Wellvana—and five publicly traded ones—agilon, ApolloMed, CareMax, P3 Health Partners, and Privia.”

INDUSTRY RESEARCH: The Value-Based Care Enabler Landscape Pitchbook July 11, 2023

Re: AI tools replacing customer satisfaction surveys: “As more healthcare organizations prioritize and embrace a customer-centered care model, they’ve recognized the critical need to listen to — and really hear — their healthcare customers. Improving the quality of care requires accurate measurement and analysis of patient experiences. But while most organizations rely on Net Promoter Scores (NPS) and Customer Satisfaction Scores (CSAT), these patient surveys miss valuable customer information and insights.

Healthcare providers have turned to conversational intelligence (CI) to gain a more comprehensive understanding of customer experience (CX). These tools make it easier to collect and analyze vast sums of data. In an industry where delivering positive CX is vital, the best insights on meeting customer expectations come from the customers themselves in the form of conversations, not patient surveys. And the best way to obtain, analyze and gain insights from conversations?”

Why Today’s Patient Surveys Are Not Working for Healthcare July 13, 2023

Re: New York Times’ special report on: NHS crisis: NYT journalist Mark Sandler spent 3 months analyzing the National Health Service. Excerpts:

“As it turns 75 this month, the N.H.S., a proud symbol of Britain’s welfare state, is in the deepest crisis of its history: flooded by aging, enfeebled patients; starved of investment in equipment and facilities; and understaffed by doctors and nurses, many of whom are so burned out that they are either joining strikes or leaving for jobs abroad…

More than 7.4 million people in England are waiting for medical procedures, everything from hip replacements to cancer surgery. That is up from 4.1 million before the coronavirus pandemic began in 2020…

The fate of the N.H.S. matters beyond Britain. Spiraling health care costs are bleeding public finances in almost every country, regardless of their political systems….”

A National Treasure, Tarnished: Can Britain Fix Its Health Service? New York Times July 16, 2023

Re: NHS tension, increased role of PE: “It has been an eventful week for Britain’s National Health Service, the socialized-medicine program marking its 75th birthday at perhaps its darkest hour. On Thursday, around 46,000 doctors staged the latest in a series of walkouts over pay and working conditions, once again putting a spotlight on a service that is chronically understaffed and underfunded…

Public spending for the NHS—which comes via tax revenue and national insurance contributions—has been on the rise in recent years. NHS England’s figures put its 2023-2024 spending at about £157 billion ($205.7 billion), an increase of 1.5% from the previous year. Even so, the service remains chronically underfunded and short-staffed, facing ever-greater pressure from an aging population and the increasing prevalence of chronic diseases. The result is an NHS increasingly dependent on third-party providers from the private sector, some of which are PE-backed.

PE investment in the nation’s healthcare system has consistently risen every year since 2016 in both deal count and total capital, reaching £15.4 billion across 155 deals… While the deal pace has slowed down this year, there has still been £7.7 billion invested across 51 deals so far. “

UK weighs PE’s risks and cures for an ailing system Pitchbook July 14, 2023

Re: Private equity investment environment in 2023: The first half of 2023 has played out in similar fashion to the back half of 2022 for US PE on many fronts. The industry continues to battle through a stubbornly high interest-rate environment that makes the cost of borrowing and servicing floating-rate debt prohibitively expensive for deals that would otherwise get done… As a result, fundraising continues to be more difficult and is tracking 15%-25% below 2022’s first half, although other strategies such as venture and real assets have fallen more precipitously.

US PE dealmaking delivered another mixed quarter in Q2 with deal count slightly up and value declining by 15.8% from Q1. Dealmaking has declined in four of the last six quarters and has yet to stabilize. Since peaking in Q4 2021, quarterly volumes are now down 24.0% by deal count and 49.2% by deal value. Deal count is still solidly ahead of pre-COVID levels by 56.3% but only marginally so by dollar value. Prices paid on PE buyouts are in full correction mode. Using enterprise value (EV) to EBITDA as a metric, multiples remained in a tight band of between 11.5x and 12.4x in the four years ending 2022 before collapsing by 18.5% this year. The median EV to EBITDA multiple now stands at 10.5x for the 12 months ended Q2 2023, down from 12.1x in 2022. EV to revenue multiples tell a similar story… Likewise, revenue multiples are a better= benchmark for financials where EBITDA is not necessarily relevant. The median EV to revenue multiple on PE buyouts now stands at 2.0x on a trailing 12-month basis, down from 2.2x at the beginning of the year.

Healthcare PE deal activity continues to lag other sectors, defying the common narrative of the industry’s counter cyclicality. As of the end of Q2, 14.4% of US PE deals YTD have been in healthcare, down 1.8 percentage points from the five- year average….

According to a Coller Capital survey, 87% of LPs see healthcare as an attractive sector for investment over the next two years, but healthcare specialist GPs will not be well positioned to take advantage of this sentiment if they cannot realize their current portfolios. In 2022, the primary story in healthcare was cost inflation—principally labor, but also materials for some contract manufacturing platforms. We are finally seeing signs that the labor situation in healthcare services is stabilizing, albeit incrementally. “

Halfway Home: Pitchbbook Q2 2023

Re: increase in Congressional oversight of healthcare increasing: “Congress is taking a closer look at business practices in the health care sector and considering bipartisan reforms in light of increasing consolidation and its perceived effects on patient access and affordability. Various congressional proposals would impose new disclosure requirements on a range of health care entities related to ownership by certain private equity funds, venture capital firms and other asset managers, and (ii) would create new non-compliance penalties. Expect this transparency requirement to follow a natural progression in the medium-term into comparative health care outcomes analysis and potential long-term policy changes based on that analysis….it is clear that there is bipartisan, bicameral interest in a range of health care issues related to consolidation, transparency and ownership of health care entities, including private equity, growth equity and venture capital funds in the health care sector.

Akin Gump Strauss Hauer & Feld LLP “From Private Equity Ownership to PBMs and Drug Pricing: Congress Scrutinizes the Health Care Industry” Akin July 11, 2023

Re: Medicare Advantage: “The Medicare ecosystem is facing a series of simultaneous challenges, disruptions, and opportunities that add up to one certainty: this market will look meaningfully different in the years ahead. Medicare Advantage (MA) is projected to be the line of business that drives the most profit for payers in 2026, even while headwinds are emerging in the Medicare program. The Centers for Medicare & Medicaid Services (CMS) is projecting the Medicare trust fund will run out of money in 2031, although investors continue to pour billions into acquisitions of payers, care delivery partners, and related healthcare services and technology providers across the Medicare value chain. Additionally, market penetration of Medicare Advantage (MA) remains hugely variable nationwide, with only about 12% of beneficiaries in MA plans in some states but about 60%in others. Meaningful disruptions—in demographics, regulations, and member preferences—compound the uncertainty, making it difficult for payers and other Medicare participants to chart a path forward. By making transformational moves in the near term, payers can improve their ability to compete in the years to come. “

Sweeping changes to Medicare Advantage: How payers could respond McKinsey July 11, 2023


KFF survey: satisfaction with health insurance: In response to question: “Based on all of your experiences with your current health insurance, please grade its overall performance.”

Main insurance coverage Excellent Good Fair Poor
ESI 33% 47% 18% 2%
Marketplace 20% 52% 23% 4%
Medicare 50% 41% 8% 1%
Medicaid 36% 46% 15% 2%
Physical health status        
Excellent/Very good/Good 37% 47% 14% 2%
Fair/Poor 26% 42% 26% 5%

KFF Survey of Consumer Experiences with Health Insurance, June 15, 2023

AHA Polling: Attitudes toward health insurers: Per the American Hospital Association sponsored poll of 1502 adults, 500 nurses and 500 physicians conducted between December 2022 and April 2023:

  • 62% of consumers say have had medical care delayed because of their insurance provider in the last two years: 43% say their health has gotten worse as a result.
  • 83% want their health care provider to determine what care they receive, not their insurance company.
  • 54% say they have difficulty affording insurance costs and premiums.
  • 84% of nurses say insurance administrative policies delay patient care, 74% say it reduces the quality of care and 63% say it interferes with a patient being transferred to the right care setting: 56% saying their job satisfaction
  • 84% of physicians said these policies make it difficult to operate a solo practice. has decreased 80% of physicians said insurance practices and policies affect their ability to practice medicine.

Note: Actual wording of questions asked and sampling methodology not available

American Hospital Association


PE physician acquisition: The Arnold Ventures funded study examined PE acquisition of medical practices between 2012 and 2021. Conclusions:

“We find that private equity (PE) firms have been increasingly acquiring physician practices across a number of physician specialties since 2012, increasing from 75 deals in 2012 to 484 deals in 2021, or more than six-fold increase in only 10 years.

PE firms are amassing high market shares in local physician practice markets. At the local level, we find that individual PE firms are acquiring competitively significant shares of physician practice markets. In particular, in 28% of metropolitan statistical areas (MSAs), a single PE firm has more than 30% market share by full-time-equivalent physicians, and in 13% of MSAs, the single PE firm market share exceeds 50%.PE acquisitions are associated with price and expenditure increases.

Price increases associated with PE acquisitions are exceptionally high where a PE firm controls a competitively significant share of the local market. When we focus our analysis on markets where a single PE firm controls more than 30% of the market, we find further elevated prices associated with PE acquisitions in each of the 3 specialties with statistically significant results, for gastroenterology (18%), obstetrics and gynecology (16%), and dermatology (13%).

Changes to Hart-Scott-Rodino (HSR) requirements, reimbursement policies, and tax policies are needed. At a minimum, federal antitrust reporting requirements must be adapted to modern business models, including PE, to ensure regulators have the information they need to evaluate the competition impacts of these deals. The FTC has recently begun that process, which we applaud. HSR changes alone, however, are not enough, and we also recommend changes to Medicare reimbursement policy and tax policies that are driving consolidation and PE opportunism.”


Study: physician turnover: Researchers analyzed whether turnover has changed over time and whether it is higher for certain types of physicians or practice settings. Results:

“The annual rate of turnover increased from 5.3% to 7.2% between 2010 and 2014, was stable through 2017, and increased modestly in 2018 to 7.6%. Most of the increase from 2010 to 2014 came from physicians who stopped practicing increasing from 1.6% to 3.1%; physicians moving increased modestly from 3.7% to 4.2%. Modest but statistically significant differences existed across rurality, physician sex, specialty, and patient characteristics. “

Bond et al “Physician Turnover in the United States” Annals of Internal Medicine July 11, 2023

AMA Report: Medical practices are getting larger, less independent: From AMA’s Physician Practice Benchmark Surveys from 2012 to 2022: Excerpts:

  • “Physicians are less likely to own practices. Nearly 47% of physicians worked in private practices in 2022, compared with 60.1% in 2012. Last year, 9.6% of physicians worked as hospital employees or contractors, up from 5.6%. More than 31% worked at practices at least partially owned by a hospital or health system, compared with 23.4%. a decade ago…
  • Payer relationships are driving the shift to hospital-owned practices. About 80% of respondents said the need to negotiate better payment rates was a big reason behind selling their practices to a hospital or health system. Other frequently cited reasons were the need for support on regulatory and administrative requirements (71.4% of respondents) and the opportunity to access costly resources (69%).
  • Practices are getting larger and shifting toward multispecialty care. Last year, 18.3% of physicians worked at practices with 50 or more doctors, up substantially from 12.2% a decade ago.
  • In 2022, 4.5% of physicians worked with private equity-owned groups, up slightly from 4.4% in 2020, when the AMA added that category to the survey. “Private equity investments in general began years ago in areas such as urgent care and dermatology, but have since expanded into other high-level specialty services like cardiology or neurology.”

American Medical Association

Health Insurers

UHG 2Q 2023 earnings report: Friday, UnitedHealth Group announced its earnings for the second quarter 2023.

  • Revenues of $92.9 Billion Grew 16% Year-Over-Year
  • Earnings from Operations Grew 13%
  • Cash Flows from Operations were $11.0 Billion
  • Earnings were $5.82 Per Share, Adjusted Earnings $6.14 Per Share

UnitedHealth Group Reports Second Quarter 2023 Results July 14, 2023


Kaufman Hall: 2Q M&A transactions: Per KH, there were 20 announced M&A transactions in the second quarter– the highest number seen since the first quarter of 2020.

The average size of the selling party as measured by annual revenue remained high by historical standards at $664 million– down from the record-breaking 2022 year-end average of $852 million, reflecting the impact of a higher total number of announced transactions in the quarter.

The 20 announced transactions for the second quarter were made up of:

  • 8 not-for-profit health systems
  • 4 investor-owned health systems
  • 2 religiously affiliated organizations
  • 4academic/university-affiliated organizations
  • 1 governmental organization
  • 1 academic organization partnering with multiple not-for-profit organizations

Kaufman Hall

Social Determinants, Public Health

Policy Brief: The Relationship between Underemployment and Population Health: Per the Bureau of Labor Statistics’ measure of “part time for economic reasons.” Highlights of policy brief:

  • Underemployment, particularly in the form of working part time involuntarily, spiked to record levels in 2020 (8% of employed individuals), although by 2023 it had receded to its prepandemic level.
  • Underemployment is disproportionately concentrated among workers who are paid hourly, have precarious work schedules or relatively low family incomes, are members of vulnerable demographic groups, and are employed in certain industries such as leisure and health services.
  • Various aspects of mental and physical health and well-being are affected when workers’ actual hours fall short of their desired hours. In particular, psychological distress, depression, and anxiety can increase. However, psychological distress appears to be reversible when a person moves out of underemployment and into full-time or voluntary part-time work.
  • Working part time involuntarily as opposed to voluntarily is associated with reduced self-reported general health and antecedents to it, such as greater work stress, work-life imbalance, and financial insecurity.

Lonnie Golden , Jaeseung Kim  “The Rise And Fall Of Underemployment: Implications For Workers’ Health” July 13, 2023 10.1377/hpb20230602.799370

Major Healthcare Regulatory Round-up July 10-16, 2023

  • CMS CY 2024 physician fee schedule proposed rule: The proposed rule would decrease the conversion factor by 3.34%, to $32.75 in calendar year 2024, as compared to $33.89 in CY 2023. This reflects the expiration of the 2.5% statutory payment increase for CY 2023; a 1.25% statutory payment increase for 2024; a 0.00% conversion factor update under the Medicare Access and CHIP Reauthorization Act; and a -2.17% budget-neutrality adjustment.
  • On Wednesday, the House Education and the Workforce Committee advanced four bills requiring new disclosures from PBMs, health insurance companies and hospitals about healthcare costs. The panel unanimously approved the Transparency in Billing Act of 2023, while all but one member voted to approve the Transparency in Coverage Act of 2023, Health DATA Act of 2023 and Hidden Fee Disclosure Act of 2023.The bills seek to improve price transparency for prescription drugs and medical services. They would also mandate that PBMs and third-party administrators share compensation data with health plan fiduciaries, and that fiduciaries receive cost and quality of care information about health plans.
  • On Wednesday, Wyden, Crapo and Sens. Catherine Cortez Masto (D-Nev.) and Thom Tillis (R-N.C.) debuted the Medicare PBM Accountability Act of 2023, which would require companies to report information such as prices and rebates under Medicare Part D.
  • The House Education & Workforce Committee today voted 39-0 to pass legislation (R. 4509) that would require off-campus hospital outpatient departments to obtain a separate unique health identifier and include it on all claims for services billed to commercial group health plans or their enrollees. The legislation would prohibit the health plan from paying the claim and the hospital from collecting payment from the plan enrollee if the claim excludes the identifier, and impose civil monetary penalties on hospitals that violate the requirement.
  • Hospitals are set to receive a 2.8% increase in Medicare reimbursements for outpatient care in calendar 2024 under a proposed rule the Centers for Medicare and Medicaid Services issued Thursday. The rule also reiterated CMS’ authority under the CY 2020 final rule to monitor and enforce hospital price transparency regulations implemented as part of the Public Health Services Act requiring hospitals to publicly post standard charges for 300 most common services, beginning in 2021. Per CMS’ a website assessment, 70% of hospitals fully met display criteria for posting machine-readable files online, 27% partially met the requirements and 3% failed to post a machine-readable file online. The agency also increased the maximum penalty for noncompliance from $100,000 to $2 million.
  • The Food and Drug Administration today approved the first daily oral contraceptive pill (Opill) for use in the U.S. without a prescription. Approved for prescription use since 1973, HRA Pharma plans to make the drug available over-the-counter instead. FDA said the approval “provides an option for consumers to purchase oral contraceptive medicine without a prescription at drug stores, convenience stores and grocery stores, as well as online.”

Federal Register