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The Keckley Report

The Four Issues that will Impact Healthcare Services Providers and Insurers Most in the Last Half of 2023 and First Half of 2024

By July 24, 2023No Comments

As first half 2023 financial results are reported and many prepare for a busy last half, strategic planning for healthcare services providers and insurers point to 4 issues requiring attention in every boardroom and C suite:

Private equity maturity wall: The last half of 2023 (and into 2024) is a buyer’s market for global PE investments in healthcare services: 40% of PE investments in hospitals, medical groups and insurtech will hit their maturity wall in the next 12 months. Valuations of companies in these portfolios are below their targeted range; limited partner’ investing in PE funds is down 28% from pre-pandemic peak while fund raising by large, publicly traded, global funds dominate fund raising lifting PE dry powder to a record $3.7 trillion going into the last half of 2023. In the U.S. healthcare services market, conditions favor well-capitalized big players—global private equity funds and large cap aggregators (i.e., Optum, CVS, Goldman Sachs, Blackstone et al) who have $1 trillion to invest in deals that enhance their platforms. Deals done via special purpose acquisition corporations (SPACS) and smaller PE funds in physicians, hospitals, ambulatory services and others are especially vulnerable. (see Bain and Pitchbook citations below). Addressing the growing role of large-cap PE and strategic investors as partners, collaborators, competitors or disruptors is table stakes for most organizations recognizing they have the wind at their backs.

Consolidation muscle by DOJ and FTC: Healthcare is in the crosshair of the FTC and DOJ, especially hospitals and health insurers.  Hospital markets have become increasingly concentrated: only 12% of the 306 Hospital Referral Regions is considered unconcentrated vs. 23% in 2008. In the 384 insurance markets, 23% are unconcentrated, down from 35% in 2020. Wages for healthcare workers are lower, prices for consumers are higher and choices fewer in concentrated markets prompting stricter guidelines announced last week by the oversight agencies. Big hospitals and big insurers are vulnerable to intensified scrutiny. (See Regulatory Action section below).

Defamatory attacks on nonprofit health systems: In the past 3 years, private, not-for-profit multi-hospital systems have been targeted for excess profits, inadequate charity care and executive compensation.  Labor unions (i.e., SEIU) and privately funded foundations (i.e., West, Arnold Venture, Lown Institute) have joined national health insurers in claims that NFP systems are price gaugers undeserving of the federal, state and local tax exemptions they enjoy. It comes at a time when faith in the U.S. health system is at a modern-day low (Gallup), healthcare access and affordability concerns among consumers are growing and hospital price transparency still lagging (36% are fully compliant with the 2021 Executive Order). Notably, over the last 20 years, NFP hospitals have become less dominant as a share of all hospitals (61% in 2002 vs. 58% last year) while investor-owned hospitals have shown dramatic growth (from 15% in 2002 to 24% last year). Thus, the majority of local NFP hospitals have joined systems creating prominent brands and market dominance in most regions. But polling indicates many of these brands is more closely associated with “big business” than “not-for-profit health” so they’re soft targets for critics. It is likely unflattering attention to large, NFP systems will increase in the next 12 months prompting state and federal regulatory actions and erosion of public support.  (See New England Journal citation in Quotables below)

Campaign 2024 healthcare rhetoric: Republican candidates will claim healthcare is not affordable and blame Democrats. Democrats will counter that the Affordable Care Act’s expanded coverage and the Biden administration’s attack on drug prices (vis a vis the Inflation Reduction Act) illustrate their active attention to healthcare in contrast to the GOP’s less specific posturing. Campaigns in both parties will call for increased regulation of hospitals, prescription drug manufacturers, health insurers and PBMs. All will cast the health industry as a cesspool for greed and corruption, decry its performance on equitable access, affordability, price transparency and improvements in the public’s health and herald its frontline workers (nurses, physicians et al) as innocent victims of a system run amuck.

To date, 16 candidates (12 R, 3 D, 1 I) have announced they’re candidates for the White House while campaigns for state and local office are also ramping up in 46 states where local, state and national elections are synced. Healthcare will figure prominently in all. In campaign season, healthcare is especially vulnerable to misinformation and hyper-attention to its bad actors. Until November 5, 2024, that’s reality.

My take:

These issues frame the near-term context for strategic planning in every sector of U.S. healthcare. They do not define the long-term destination of the system nor roles key sectors and organizations will play. That’s unknown.

  • What’s known for sure is that AI will modify up to 70% of the tasks in health delivery and financing and disrupt its workforce.
  • Black Swans like the pandemic will prompt attention to gaps in service delivery and inequities in access.
  • People will be sick, injured, die and be born.
  • And the economics of healthcare will force uncomfortable discussions about its value and performance.

In the U.S. system, attention to regulatory issues is a necessary investment by organizations in every state and at the federal level. Details about these efforts is readily accessible on websites for each organization’s trade group. They’re the rule changes, laws and administrative actions to which all are attentive. They’re today’s issues.

Less attention is given the long-term. That focus is often more academic than practical—much the same as Robert Oppenheimer’s early musings about the future of nuclear fusion. But the Manhattan Project produced two bombs (Little Boy and Fat Man) that detonated above the Japanese cities of Hiroshima and Nagasaki in 1945, triggering the end of World War II.

The four issues above should be treated as near and present dangers to the U.S. health system requiring attention in every organization. But responses to these do not define the future of the U.S. system. That’s the Manhattan Project that’s urgently needed in our system.


Resources in addition to citations that follow:

  • Federal Trade Commission, US Department of Justice,
  • Gallup


NEJM Perspective: Nonprofit hospital tax exemption needs attention to protect against abuse: There are insufficient data to compare the amount of community benefit provided by individual nonprofit hospitals with the subsidies they receive. To close this information gap, the IRS could revise Schedule H of Form 990 to require nonprofit hospitals to report on forgone federal, state, and local taxes (broken out separately); savings associated with using tax-exempt bonds; gross profits from the 340B program, if applicable; and charitable contributions received by the hospital, with standardized reporting for each of these elements…

Disclosure might not be sufficient to catalyze changes in hospital behavior, but we believe greater visibility is a prerequisite for policy action…

Many nonprofit hospitals face substantial fiscal challenges, so heavy-handed policies — such as eliminating tax-exempt status across the board — are likely to be counterproductive. But allowing nonprofit hospitals to shirk their obligations has its own costs, which are borne by patients, their families, and the community. Mandating increased financial transparency would give stakeholders and policymakers the flexibility to understand, design, and test approaches to encourage nonprofit hospitals to provide meaningful community benefit and to move away from the current open-ended subsidies tied to ownership status. The alternative is to continue playing Whac-A-Mole with the many nonprofit hospitals that don’t provide sufficient community benefit.

Do Nonprofit Hospitals Deserve Their Tax Exemption? N Engl J Med July 20, 20232023; 389:196-197
DOI: 10.1056/NEJMp2303245

Re: brain health and social determinants: “Neuroscience is experiencing a renaissance. Not before time. Disorders of the brain are a growing worry. Twelve mental-health conditions affect about 970m people around the world according to the Global Burden of Disease Project: more than one in ten of the population…In an ideal world science would be coming to the rescue… progress has been much slower than in treatments for the heart or cancer.

As hopes rise for tackling this final frontier of biomedicine, it is worth remembering that the secrets to a healthy brain are not only going to come from a pill or psychotherapist’s couch. The health of the brain is influenced by what goes on outside it, such as nutrition, exercise, the abuse of alcohol, education, social connections and pollution. Of particular relevance these days is air pollution—which could have a negative influence on brain health at both the beginning and the end of life. None of this should be surprising: the health of the brain is tied to the health and the well-being of the body that it sits in. Efforts to ensure better brain health are an investment that will keep paying dividends for individuals, and for societies, for decades to come.”

“How to keep the brain healthy” The Economist July 22, 2023

Re: household emergency savings: “Individuals in the first income quartile are almost twice as likely to have less than 7 days’ worth of spending in liquid balances relative to those in the top income quartile. Even though cash buffers have been falling from their peak in 2021, the share of individuals with under 7 days’ worth of spending in cash-like accounts in our data remained modestly below pre-pandemic standards through the first quarter of this year. We do not view these metrics as precise indicators of the share of individuals facing financial distress; as noted earlier, these figures almost certainly underestimate disparities, due to the greater share of high-income individuals that have other stores of liquid wealth not captured in these data. “

Household Cash Buffer Management from the Great Recession through COVID-19 JP Morgan Institute July 2023 /

Re: FQHC safety net:  “As of July 11, 195 rural hospitals have shuttered inpatient units or closed their doors altogether in the United States since 2005. Hundreds of others, like the one in Gallup, have cut services. Meanwhile, from 2006 to 2018, the combined number of Federally Qualified Health Centers and Rural Health Centers — outpatient clinics that receive federal funding to operate in medically underserved areas — increased by roughly 50%, according to a 2021 study from the University of North Carolina-Chapel Hill. By 2019, 20% of rural residents accessed care at such community health centers…

Unlike rural hospitals, which are increasingly being purchased by private equity firms and prioritizing lucrative specialties to increase profits, these health centers must offer primary care regardless of patients’ ability to pay and be overseen by a board made up primarily of patients. But while clinics provide important primary care services, researchers note that they struggle to fill the gaps in specialty and emergency care left by hospital closures.”

Doctors Created a Primary Care Clinic as Their Former Hospital Struggled KFF July 21, 2023

Re: diagnostic error: “Diagnostic errors cause substantial preventable harms worldwide, but rigorous estimates for total burden are lacking….Annual US incidence was 6.0 M vascular events, 6.2 M infections and 1.5 M cancers… 15 dangerous diseases accounted for 50.7% of total serious harms and the top 5 (stroke, sepsis, pneumonia, venous thromboembolism and lung cancer) accounted for 38.7%…An estimated 795 000 Americans become permanently disabled or die annually across care settings because dangerous diseases are misdiagnosed. Just 15 diseases account for about half of all serious harms, so the problem may be more tractable than previously imagined.”

Burden of serious harms from diagnostic error in the USA BMJ July 17, 2023

Re: 340B reform: “Safety-net hospitals have long relied on a patchwork of financial subsidies to support their mission of caring for any patient regardless of their ability to pay. Although several public policies are intended to support this mission, the centerpiece is the Medicaid disproportionate share hospital (DSH) payment program, which began in 1981 and was built around the understanding that a small subset of hospitals provides the majority of uncompensated care and that state and federal governments should help these institutions bear those costs.

Despite its intentions, the DSH payment program has often been subject to gaming in ways that have detracted from its goals of supporting the safety net…

Effective targeting of DSH payments, which now total more than $20 billion annually, is not just important for bookkeeping. Prior work has shown that when DSH payments reach the hospitals that need them the most, inpatient outcomes improve…

Reforming Medicaid DSH policy is politically complicated given the intertwined interests of state and federal legislators, hospital systems, medical groups, and advocacy organizations… Better targeting of DSH funds to hospitals and other organizations serving substantive roles in the safety net thus represents a key opportunity for states and the federal government to invest in their financial viability and thereby improve health equity in the US.”

“Realigning Reality with Intent in Funding Safety-Net Hospitals” JAMA Health Forum July 21. 2023;4(7):e232000. doi:10.1001/jamahealthforum.2023.2000

Re: investing, LBOs: “The rust is coming off the gears of private equity’s LBO machine. Leveraged buyouts accounted for 40% of US PE deals in 2008, but PE’s bread-and-butter transaction type has given way to alternative strategies like add-on acquisitions and growth-equity deals. By 2022, it had fallen to 19% of total deal count. But a rebound in bank lending in the second half of 2023, paired with a momentary pause in rising interest rates, recent valuation corrections and heaps of dry powder, could offer a glimmer of hope for PE’s hallmark deal type.”

Pitchbook July 23, 2023

Re: dynamics of PE market: “Public markets have rebounded strongly in 2023 with the S&P 500 jumping 16% in the first half and the tech-heavy Nasdaq shooting ahead by 32%. The IPO window has opened a crack, allowing several private equity-backed companies to file offerings. Inflation is moderating in most major economies (with the exception of the UK), and banks are cleaning up their balance sheets. Major lenders have managed to unload more than half of the “hung” leveraged buyout debt they committed to before the economy went sideways.

With the clock ticking on a record $3.7 trillion in dry powder ($1.1 trillion in buyout funds), alternative asset managers have ample incentive to get moving after four quarters of relative inactivity. They also face growing pressure to free up the massive glut of unexited portfolio companies jamming the fund-raising flywheel.

The LP cash squeeze is evident in the fund-raising malaise that has settled over the industry. The value of global private capital raised in the first six months fell to $517 billion, a 35% decline from the same period a year ago. On an annualized basis, global private capital fund-raising is on trend to drop 28% in terms of value and 43% in terms of funds closed compared with full-year 2022…

Stuck in Place: Private Equity Midyear Report 2023 Bain July 17, 2023


AMA: physician practice ownership continues decline: Per the American Medical Association report:

  • The number of physicians working in private practice decreased by 13.4% from 60.1% in 2012 to 46.7% in 2022
  • Hospital ownership control increased to 40.9% vs. 27% in 2012
  • Private equity ownership/control was 4.5% (2022)
  • 44% of physicians in 2022 were owners (48.6% men vs. 35.7% women) –down from 53.2% in 2012

Recent Changes in Physician Practice Arrangements: Shifts Away from Private Practice and Towards Larger Practice Size Continue Through 2022 AMA Economic and Health Policy Research, July 2023

Study: No Surprises Act impact: “There are two concepts relevant for describing and measuring the degree of competition or market power: consolidation and concentration. Consolidation refers to actions by participants – such as a merger, purchase, or acquisition – that ultimately modify market structure and potentially increase their market power. Concentration refers to the relative size and number of competitors in a market at any given time; concentration is “high” when sales (or purchases) are made by a few competitors. The number of hospital consolidations increased in 2010 relative to the previous decade and has followed a fairly consistent pattern through 2020. As a result, by one measure, the number of hospital markets that were of moderate or low concentration declined by nearly half during these years, from 23% of markets in 2008 to 12% of markets in 2020…

Overall, there was a downward trend in OON claims prior to NSA implementation – the prevalence of professional claims that were OON decreased from 6.0% to 4.7%from 2012 to 2020. In addition, the share of total payments that were OON declined over this period from 9.2% in 2012 to 6.8% in 2020. Most physicians have a very low prevalence of OON bills. Approximately 70% of physicians bill 2 % or fewer of their claims OON. A small share of physician’s accounts for a disproportionate share of OON bills, with just over 5% of physicians who bill the majority of their claims OON. The specialties with the highest rates of OON billing are psychiatry, emergency medicine, pathology, anesthesiology, and pain medicine, each of which, on average, bill over 4% of their claims OON. Another factor in the rate of OON bills is the place of service. Claims from EDs (13%) and ambulatory surgery centers (ASCs) (8 %) are more likely to be billed OON than claims from office visits (4%).

Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health & Human Services. Evaluation of the Impact of the No Surprises Act on Health Care Market Outcomes: Baseline Trends and Framework for Analysis – First Annual Report. July 2023,


Study: Medicare Advantage enrollee risks: In this cross-sectional study of 259 932 clinicians participating in Medicare in 2019, those at the highest quintiles for patients who were dually eligible for Medicare and Medicaid (a proxy measure of social risk) and patients’ hierarchical condition category scores (a proxy measure of clinical risk) were associated with a significantly lower likelihood of being included in MA plan networks and being in network with MA enrollees than those at the lowest such quintiles. “Medicare Advantage (MA) plans are expanding rapidly, now serving 50% of all Medicare enrollees. Little is known about how inclusion rates of physicians in MA plan networks vary by the social and clinical risks of their patients.”

Gong et al “Proportion of Physicians Who Treat Patients With Greater Social and Clinical Risk and Physician Inclusion in Medicare Advantage Networks” JAMA Health Forum July 21, 2023. 2023;4(7):e231991. doi:10.1001/jamahealthforum.2023.1991


Study: hospital price transparency compliance: “Our latest review, conducted two and a half years after the Hospital Price Transparency Rule took effect, analyzed the websites of 2,000 U.S. hospitals and found only 36% of them (721) to be fully compliant with all requirements of the rule. Although the majority of hospitals have posted files, the widescale noncompliance of 64% of hospitals is due to most hospitals’ files being incomplete or not having prices clearly associated with both payer and plan. In this report, 69 of the hospitals reviewed had no usable standard charges file.” In July 2021, 5.6% were fully compliant.

Note: CMS recently released the 2024 OPPS proposed rule, and among the yearly payment rate changes, CMS proposed changes to its price transparency regulations.  In the proposed rule, CMS is requesting that hospitals be required to submit a certificate verifying the accuracy and completeness of data and acknowledge any warning notices it may receive. CMS says it may also decide to post its assessment of hospital compliance and any compliance action taken against a hospital on its website, including notifications sent to hospital leadership, if the proposed rule is finalized.

CMS says it conducts over 200 comprehensive reviews of hospital price transparency compliance per month, and as of April 2023, CMS has issued more than 730 warning notices and 269 CAP requests. It has also imposed civil monetary penalties on four hospitals for noncompliance.

The Fifth Semi-Annual Hospital Price Transparency Compliance Report Patient Rights July 20, 2023

Lown Institute socially responsible hospitals: Last week, the Lown Institute, a nonpartisan healthcare think tank, released its ranking of more than 3,600 U.S. hospitals based on more than 53 metrics across categories of equity, value of care and patient outcomes. Overall, 54 hospitals achieved honor roll designation, making them the “most socially responsible” hospitals nationwide. More information about the methodology is available here. Notably, Lown defines “fair share spending”

“Spending compares spending on financial assistance and community investment with the estimated value of hospital tax breaks. This year, this metric was reported only for private nonprofit hospitals with IRS data for fiscal year ending 2020 (1773 hospitals included). Hospitals that dedicated at least 5.9% of overall functional expenses to financial assistance and meaningful community investment were considered to have spent their fair share. The 5.9% threshold is based on established research into the valuation of the nonprofit tax exemption.”

Lown Institute Hospitals Index – Lown Institute


KFF: Medicare household spending on healthcare: KFF analyzed data from the Bureau of Labor Statistics Consumer Expenditure Survey (CE) for 2021. Highlights:

  • Medicare households spent 15% of their total spending on health-related expenses in 2021, vs. 7% for non-Medicare households.
  • Medicare households’ total annual spending was $44,686, and $6,557 of that was on healthcare. Non-Medicare households’ total annual spending was $67,769 on average, and $4,598 was on healthcare. Healthcare expenses include insurance premiums, medical services, prescription drugs and medical supplies, according to KFF.
  • About one in three Medicare households spent at least 20% of their total household spending on healthcare expenses in 2021. This is significantly more than non-Medicare households, in which one in 14 spent at least 20% of their total household spending on healthcare expenses. Additionally, three in four Medicare households spent 10% of their total household spending on healthcare, versus a quarter of non-Medicare households.
  • Additional expenses included in consumers’ total spending amounts were housing, food and transportation. For Medicare households, 37% of total spending was on housing, 15% was on food, 13% was on transportation and 21% was on other expenses (like education and clothing). For non-Medicare households, 33% of total spending was on housing, 15% was on food, 17% was on transportation and 28% was on other expenses.

“Healthcare Spending Burden Is Higher for Medicare Households than Non-Medicare Households”  KFF July 20, 2023

JP Morgan: Household finances: Per the JPMorgan Chase Institute July report on household finances: Individuals in the first income quartile are almost twice as likely to have less than 7 days’ worth of spending in liquid balances relative to those in the top income quartile. Even though cash buffers have been falling from their peak in 2021, the share of individuals with under 7 days’ worth of spending in cash-like accounts in our data remained modestly below pre-pandemic standards through the first quarter of this year. We do not view these metrics as precise indicators of the share of individuals facing financial distress; as noted earlier, these figures almost certainly underestimate disparities, due to the greater share of high-income individuals that have other stores of liquid wealth not captured in these data.

Household Cash Buffer Management from the Great Recession through COVID-19 JP Morgan Institute July 2023 /

Regulatory Update

FTC, DOJ propose stronger consolidation requirements: Last week, The Justice Department and the Federal Trade Commission released draft merger guidelines designed to crack down on deals that constrain labor markets and stimulate competition.

The guidelines aim to limit consolidation that would prevent a potential competitor from entering the market, curtail transactions that would reduce incentives for organizations to pay employees’ higher wages, and curb mergers or acquisitions that would allow one company to control multiple products and services along various supply chains. Under the draft guidelines, antitrust agencies would also examine organizations’ cumulative merger and acquisition activity, rather than just the latest transaction, and adjust the concentration threshold that the FTC and DOJ use to measure market competition.

Transactions should be presumed illegal if the merged company’s market share is greater than 30% and there is an Herfindahl-Hirschman Index (HHI ) change of more than 100 and continued scrutiny of “roll-up” transactions involving private equity firms.

Federal Trade Commission, US Department of Justice,