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The Keckley Report

One System; Two Divergent Views

By January 8, 2024No Comments

Healthcare is big business. That’s why JP Morgan Chase is hosting its 42nd Healthcare Conference in San Francisco starting today– the same week Congress reconvenes in DC with the business of healthcare on its agenda as well. The predispositions of the two toward the health industry could not be more different.

Context: the U.S. Health System in the Global Economy
Though the U.S. population is only 4% of the world total, our spending for healthcare products and services represents 45% of global healthcare market. Healthcare is 17.4% of U.S. GDP vs. an average of 9.6% for the economies in the 37 other high-income economies of the world. It is the U.S.’ biggest private employer (17.2 million) accounting for 24% of total U.S. job growth last year (BLS). And it’s a growth industry: annual health spending growth is forecast to exceed 4%/year for the foreseeable future and almost 5% globally—well above inflation and GDP growth. That’s why private investments in healthcare have averaged at least 15% of total private investing for 20+ years. That’s why the industry’s stability is central to the economy of the world.

The developed health systems of the world have much in common: each has three major sets of players:

  • Service Providers: organizations/entities that provide hands-on services to individuals in need (hospitals, physicians, long-term care facilities, public health programs/facilities, alternative health providers, clinics, et al). In developed systems of the world, 50-60% of spending is in these sectors.
  • Innovators: organizations/entities that develop products and services used by service providers to prevent/treat health problems: drug and device manufacturers, HIT, retail health, self-diagnostics, OTC products et al. In developed systems of the world, 20-30% is spend in these.
  • Administrators, Watchdogs & Regulators: Organizations that influence and establish regulations, oversee funding and adjudicate relationships between service providers and innovators that operate in their systems: elected officials including Congress, regulators, government agencies, trade groups, think tanks et al. In the developed systems of the world, administration, which includes insurance, involves 5-10% of its spending (though it is close to 20% in the U.S. system due to the fragmentation of our insurance programs).

In the developed systems of the world, including the U.S., the role individual consumers play is secondary to the roles health professionals play in diagnosing and treating health problems. Governments (provincial/federal) play bigger roles in budgeting and funding their systems and consumer out-of-pocket spending as a percentage of total health spending is higher than the U.S. All developed and developing health systems of the world include similar sectors and all vary in how their governments regulate interactions between them. All fund their systems through a combination of taxes and out-of-pocket payments by consumers. All depend on private capital to fund innovators and some service providers. And all are heavily regulated. In essence, that makes the U.S. system unique  are (1) the higher unit costs and prices for prescription drugs and specialty services, (2) higher administrative overhead costs, (3) higher prevalence of social health issues involving substance abuse, mental health, gun violence, obesity, et al (4) the lack of integration of our social services/public health and health delivery in communities and (5) lack of a central planning process linked to caps on spending, standardization of care based on evidence et al.

So, despite difference in structure and spending, developed systems of the world, like the U.S. look similar:

The Current Climate for the U.S. Health Industry
The global market for healthcare is attractive to investors and innovators; it is less attractive to most service providers since their business models are less scalable. Both innovator and service provider sectors require capital to expand and grow but their sources vary: innovators are primarily funded by private investors vs. service providers who depend more on public funding.  Both are impacted by the monetary policies, laws and political realities in the markets where they operate and both are pivoting to post-pandemic new normalcy. But the outlook of investors in the current climate is dramatically different than the predisposition of the U.S. Congress toward healthcare:

  • Healthcare innovators and their investors are cautiously optimistic about the future. The dramatic turnaround in the biotech market in 4Q last year coupled with investor enthusiasm for generative AI and weight loss drugs and lower interest rates for debt buoy optimism about prospects at home and abroad. The FDA approved 57 new drugs last year—the most since 2018. Big tech is partnering with established payers and providers to democratize science, enable self-care and increase therapeutic efficacy. That’s why innovators garner the lion’s share of attention at JPM. Their strategies are longer-term focused: affordability, generative AI, cost-reduction, alternative channels, self-care et al are central themes and the welcoming roles of disruptors hardwired in investment bets. That’s the JPM climate in San Franciso.
  • By contrast, service providers, especially the hospital and long-term care sectors, are worried. In DC, Congress is focused on low-hanging fruit where bipartisan support is strongest and political risks lowest i.e.: price transparency, funding cuts, waste reduction, consumer protections, heightened scrutiny of fraud and (thru the FTC and DOJ) constraints on horizontal consolidation to protect competition. And Congress’ efforts to rein in private equity investments to protect consumer choice wins votes and worries investors. Thus, strategies in most service provider sectors are defensive and transactional; longer-term bets are dependent on partnerships with private equity and corporate partners. That’s the crowd trying to change Congress’ mind about cuts and constraints.

The big question facing JPM attendees this week and in Congress over the next few months is the same: is the U.S. healthcare system status quo sustainable given the needs in other areas at home and abroad? Investors and organizations at JPM think the answer is no and are making bets with their money on “better, faster, cheaper” at home and abroad. Congress agrees, but the political risks associated with transformative changes at home are too many and too complex for their majority.

For healthcare investors and operators, the distance between San Fran and DC is further and more treacherous than the 2808 miles on the map. The JPM crowd sees a global healthcare future that welcomes change and needs capital; Congress sees a domestic money pit that’s too dicey to handle head-on–two views that are wildly divergent.


Re: biotech investing: “From Halloween until the end of 2023 — nine weeks — the closely followed XBI biotech stock index went from being down 23% to being up 8%. The incredible snap-back rally was triggered by the Federal Reserve’s decision to keep interest rates steady, and then signal that multiple rate cuts could be coming in 2024. A spree of biotech acquisitions by Big Pharma announced at the same time bolstered the dramatic shift in sentiment.”
Burning questions for the 2024 JPM Healthcare Conference (

Re: private equity hospital ownership: “Private equity acquisition was associated with increased hospital-acquired adverse events, including falls and central line–associated bloodstream infections, along with a larger but less statistically precise increase in surgical site infections. Shifts in patient mix toward younger and fewer dually eligible beneficiaries admitted and increased transfers to other hospitals may explain the small decrease in in-hospital mortality at private equity hospitals relative to the control hospitals, which was no longer evident 30 days after discharge. These findings heighten concerns about the implications of private equity on health care delivery.”
Kannan et al “Changes in Hospital Adverse Events and Patient Outcomes Associated with Private Equity Acquisition” JAMA December 26, 2023;330(24):2365-2375. doi:10.1001/jama.2023.23147

Re: NFP hospital outlook: “In separate calls yesterday with subscribers, Fitch Ratings and S&P Global Ratings both maintained a gloomy outlook for the not-for-profit hospital sector in 2024. S&P reported the highest proportion of negative outlooks in a decade, affecting 24% of the sector. This pessimism was underscored by 51 credit rating downgrades in 2023, the most significant in five years. Fitch reported a credit downgrade-to-upgrade ratio of 3:1 — alarmingly close to the ratio seen during the 2008 financial crisis — calling it a “make or break” year and highlighting the sector’s struggles, particularly among smaller hospitals with annual revenues under $500 million. Factors contributing to these negative outlooks included escalating labor costs, low reimbursement rates and slow recovery of cash flow.” AHA Today

Re: IPO, PE,VC markets in 2024: “Despite a somewhat resilient US economy, the IPO drought persists with just $28.2 billion in public listing value achieved through Q3 2023 compared with the $511.9 billion raised through the first three quarters of 2021. This lack of exits has contributed to a massive liquidity crunch in the venture ecosystem, and many are hoping for an IPO comeback in 2024 to relieve pressure. • Within the VC ecosystem, some verticals are facing more pressure than others due to the massive amounts of capital that have been injected into the space… Ultimately, the VC firms and their LPs who have invested in these startups are increasingly in need of a return given the massive amount of value created in these verticals, meaning the prospect of a reopened IPO window in 2024 is extremely appealing.

Our data, along with anecdotal evidence and narratives within the broader market, have shown that fundraising has been more difficult and time-consuming for startups over the last 18 to 24 months. Indeed, capital is no longer falling out of the sky as it once was in 2021, meaning the slowdown in capital supply we have been observing inherently puts pressure on many startups to pursue an exit, in many cases via IPO. For all active late-stage and venture-growth-stage SaaS startups, the period since their last VC stands at an average of 27.3 months and a median of 20.6 months.

Escalating global conflicts as well as the persistent economic tensions between the US and China could escalate into more substantial issues with repercussions for the US stock market. On the domestic front, policymakers in Washington have reached an agreement on another budget extension, averting a government shutdown for now. However, the need for further action is evident, as a more comprehensive resolution will be required by January 2024. These geopolitical and policy dynamics create an environment where uncertainties, along with their potential market impacts, demand attention. Among various repercussions, they are likely to influence the nature of a much-anticipated IPO comeback in 2024”
“Vertical Opportunities in a Reopened IPO Window” Pitchbook January 4, 2024

Re: healthcare investing in 2024: “Within North America, announced deal values came in around $29 billion, with biopharma accounting for 25% of deal activity and 54% of deal value. Activity in provider businesses (historically a large share of US deals) slowed as those businesses experienced inflationary and labor market pressures. Nonetheless, a number of provider deals closed across specialties such as oncology, orthopedics, and cardiology with the opportunity to drive ancillary expansions relatively insulated from broader healthcare and macroeconomic pressures…

Sponsors faced a challenging fund-raising environment in 2023, at a time when overall exit volume was decreasing and competition for fresh capital was increasing. In line with the overall PE markets, sponsor exits in healthcare declined in 2023, setting up PE funds for a conflict in 2024 between prolonging holding periods and the desire among limited partners for liquidity…Healthcare PE has outperformed other sectors across multiple market cycles and recessionary periods; however, the reasons for this resilience have varied from cycle to cycle…No two cycles are the same, but there are reasons for optimism about the future of healthcare investing…

Healthcare information technology (HCIT) sits at the intersection between the steady resilience of the healthcare sector to recession and the high returns of the software and broader IT sector. The result: an attractive upside potential with lower downside risk.”
Global Healthcare Private Equity Report 2024 Bain Capital

Re: VC deals in 4Q 2023: “Continued market uncertainty and investor hesitation drove quarterly venture deal count to a 7-year low in Q4’23. The US was hit particularly hard by the slowdown, watching quarterly deal count drop to a 10-year low (2,182 deals). If there is a bright spot, it is that investors are also shifting their investments increasingly early-stage, with roughly 2 of 3 deals being early-stage. Of course, this means mid- and later-stage deals were harder to come by.”
CB Insights January 4, 2024

Re: primary care shortage: “U.S. life expectancy, which used to be closely tied to a nation’s wealth, peaked in 2014 at 78.9 years and had fallen to as low as 76.4 in 2021, according to the Centers for Disease Control and Prevention, returning to the levels of the mid-1990s. A 2019 study published in JAMA Internal Medicine found that every 10 additional primary care physicians per 100,000 people was associated with a 51.5-day increase in life expectancy.Meanwhile, the field of primary care is attracting fewer medical students, in part because family doctors are paid far less than specialists.”
HHS falls short in plan to revitalize nation’s primary care, experts say – The Washington Post December 29, 2023

Re: Diet and mortality: “TOLL OF A ‘TYPICAL AMERICAN’ DIET: If you’re eating like a typical American, you’re probably going to die prematurely. This year more than 678,000 Americans will die from diseases or conditions associated with what they eat. These include common conditions such as high blood pressure, high blood sugar (type 2 diabetes), and high cholesterol. Collectively, we’ll spend more than four trillion dollars on health care, 20 percent on diseases linked to unhealthy diet choices, according to one study. It’s been estimated that we lose at least 13 years by eating a typical U.S. diet.

This may not come as a shock when you consider that each year the average American consumes a total 264 pounds of beef, veal, pork, and chicken; 123 pounds of sugar and caloric sweeteners, including some 39 gallons of soda pop; 16 gallons of milk; and more than 40 pounds of cheese, some of which tops our annual 46 slices of pizza. Seventy percent of our calories come from processed foods, containing thousands of artificial food additives, many of them known to cause cancer.”
Dan Buettner “This American diet could add 10 years to your life” National Geographic December 22, 2022

Re: ADHD link to technology: “Rates of adult ADHD have jumped in the last two decades. Researchers are exploring whether 24/7 use of technology may be contributing.
More adults than ever before are struggling with attention-deficit/hyperactivity disorder, or ADHD. One big suspect: technology is taxing their brains.While nearly 10% of children are diagnosed with the disorder, recent meta-analysis of numerous studies show that nearly 6.8% of adults have ADHD—up from 4.4% in 2003.“That’s about 366 million adults worldwide currently living with ADHD, which is roughly the population of the U.S.,” says Russell Ramsay, co-founder of the Penn Adult ADHD Treatment and Research program for the Perelman School of Medicine at the University of Pennsylvania.
DaryL Austin “Why are so many adults just now being diagnosed with ADHD?” January 5, 2023

Re: employers as healthcare purchasers: “One of the lessons I’ve learned in healthcare is that most CEOs don’t know and don’t really want to know where their healthcare benefit dollars are going. In their minds, it’s not part of the core competency of their business. As a result, they waste a shitload of money on less than quality care for their employees and more often than not it’s their sickest and lowest paid employees that subsidize the rebates and deductibles (Sicker employees have to pay up to their deductible, healthy don’t).”
Mark Cuban Co-Founder, Mark Cuban Cost-Plus Drug Company on X January 3, 2024

Regulator Reports, Announcements
FDA (January 5, 2024): The FDA on Friday approved a plan by the state of Florida to allow direct importation to the state of drugs from Canada per Section 804 of the Federal Food, Drug, and Cosmetic Act (FD&C Act. Florida’s obligations under the FDA’s regulations will include, among other things: ensuring supply chain integrity, monitoring and submitting adverse event reports, complying with drug recall procedures and reporting quarterly to the FDA.
FDA Authorizes Florida’s Drug Importation Program | FDA January 5, 2024

FDA drug approvals 2023: “The U.S. Food and Drug Administration approved nearly 50% more novel drugs in 2023 than in 2022, putting it back on pace with historical levels, an improvement analysts and investors said could lead to increased investment in biotech firms. FDA nods for innovative therapies containing an active ingredient or molecule not previously approved, rose to 55 in 2023, up from 37 in 2022 and 51 in 2021. Historical data shows the FDA typically green lights about 45-50 new drugs a year and hit a peak of 59 in 2018.”
Every FDA drug approval from 2023: Full list of approved new drugs – Endpoints News ( January 3, 2024

US Bureau of Labor Statistics Jobs Report Year-end 2023 (January 5, 2023): Highlights:

  • Total nonfarm payroll employment increased by 216,000 in December vs. 173,000 in November, and the unemployment rate was unchanged at 3.7%.
  • Employment continued to trend up in government, health care, social assistance, and construction, while transportation and warehousing lost jobs.
  • There were 653,000 new healthcare jobs in 2023—24% of all new jobs and a 17% increase year-over-year from the 557,000 healthcare jobs created in 2022; healthcare accounted for 17.2 million jobs in 2023, up from 16.6 million jobs at the end of 2022, federal data show.

Employment Situation Summary – 2023 M13 Results (

CMS: Medicaid enrollment: December 28, the Centers for Medicare & Medicaid Services (CMS) reported that enrollment in Medicaid and the Children’s Health Insurance Program (CHIP) was approximately 88.4 million in September 2023, a decrease of 1.6 million from August 2023. Medicare enrollment was 66.5 million, up 134,147 from August 2023, including 32.5 million in Medicare Advantage plans. More than 12 million Medicare-Medicaid dual eligibles are counted in both programs.
CMS Releases Latest Enrollment Figures for Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) December 28, 2023 www,

SCOTUS to hear Idaho abortion case: Last Friday, the Supreme Court said it would hear Idaho’s challenge to federal regulations requiring that Medicare-funded hospitals provide abortions when necessary to stabilize a patient during a medical emergency, and allowed the state to enforce its stricter rule allowing abortions only to prevent a woman’s death under provisions of whether the federal Emergency Medical Treatment and Labor Act, (EMTALA), Oral arguments in the case are expected in April, with a decision likely before July. The case is the second major abortion matter on the court’s docket this term. In December, the Supreme Court said it would review a challenge to federal regulations easing restrictions on the abortion pill mifepristone.
Supreme Court of the United States

Health Economy
Altarum Health Sector Economic Indicators (HSEI); Highlights:

  • National health spending grew by 4.1% in 2022.
  • Year-over-year spending on home health care (13.5%) grew fastest in October, followed by prescription drug spending (12.3%), while spending on hospital care increased the least (6.5%) among major categories.
  • The overall Health Care Price Index (HCPI) increased by 2.9% year over year in November, matching October’s slightly revised growth rate from a month prior.
  • Economywide inflation slowed in November, with year-over-year growth in the Consumer Price Index (CPI) slowing to 3.1% and growth in the Producer Price Index (PPI) falling to 0.9%.
  • Among the major health care categories, prices for dental care (4.4%), home health care (4.3%), and nursing home care (4.0%) grew the fastest, while physician and clinical services (0.4%) price growth was the slowest.

December 2023 Health Sector Economic Indicator Briefs | Altarum

Study: Hospitalization costs for Covid-19: Researchers   examined the mean cost to provide inpatient care to treat COVID-19 and how it varied through the pandemic waves and by important sociodemographic patient characteristics. using inpatient data from March 1, 2020, to March 31, 2022. Findings:
“The adjusted mean cost of an inpatient stay was $11 275 overall, increasing from $10 394 at the end of March 2020 to $13 072 by the end of March 2022. Patients with specific comorbidities had significantly higher mean costs than their counterparts: those with obesity incurred an additional $2924 in inpatient stay costs, and those with coagulation deficiency incurred an additional $3017 in inpatient stay costs. Stays during which the patient required extracorporeal membrane oxygenation (ECMO) had an adjusted mean cost of $36 484.

Conclusion: In this cross-sectional study, an adjusted mean hospital cost to provide care for patients with COVID-19 increased more than 5 times the rate of medical inflation overall. This appeared to be explained partly by changes in the use of ECMO, which increased over time.”
Kapinos et al “Inpatient Costs of Treating Patients With COVID-19” JAMA Netw Open January 3, 2024;7(1):e2350145. doi:10.1001/jamanetworkopen.2023.50145

Real estate trust announces write-down due to rent delinquencies: Last Thursday, Birmingham AL-based Medical Properties Trust, the country’s largest hospital landlord, said it would record a$350 million write-down due to rental delinquency by its largest tenant, Steward Health Care System.). MPT said Steward was $50 million behind on its rent at year-end and it had agreed to fund a new $60 million loan to Steward to defer portions of rent owed for 2024. It also announced it has hired consultancy Alvarez & Marsal to assist in the workout.

“MPT grew quickly during the years of ultralow interest rates…MPT played a crucial role in private-equity firms’ push into healthcare facilities. It used cheap, plentiful financing to buy more than 400 hospitals, in some cases enriching private-equity firms that sold to MPT at high prices and paid themselves large dividends. Now some of the deals have soured. Hospital chains that are MPT’s tenants, including Steward and Prospect, have closed facilities and cut services, reducing healthcare options in some communities.”
Jonathan Weil “Nation’s Biggest Hospital Landlord Suffers New Losses” WSJ January 5, 2024

Population Health
Study: food insecurity trend: Food insecurity among low-income US adults dropped by nearly 5% during the pandemic but rose by 2022, according to a study today in the Annals of Internal Medicine. The findings were based on results from the 2019, 2021, and 2022 National Health Interview Survey (NHIS), a nationally representative survey from the National Center for Health Statistics; 2020 was excluded due to pandemic-related restrictions on conducting the survey. Adults aged 18 and older were included in the survey, and low-income adults were those with household incomes at or below 200% of the federal poverty limit. (Soucheray, 1/2)
“Study: Food insecurity in US dropped during pandemic” U of Mn January 2, 2024

Study: sugar-sweetened beverages: Researchers analyzed changes in sugar-sweetened beverage (SSB) prices and purchase volume after SSB taxes were implemented in 5 large US cities from 2012-2020. Results:

  • Prices of SSBs increased by an average of 33.1% during the 2 years following tax implementation, corresponding to an average price increase of 1.3¢ per oz and a 92% tax pass-through rate from distributors to consumers.
  • SSB purchases declined in total volume by an average of 33.0% following tax implementation, corresponding to a −1.00 price elasticity of demand.

“The results suggest substantial, consistent declines in SSB purchases across several US cities; insofar as reducing SSB consumption can improve population health, scaling SSB taxes more broadly should be considered.”
Kaplan et al “Evaluation of Changes in Prices and Purchases Following Implementation of Sugar-Sweetened Beverage Taxes Across the US” JAMA Health Forum January 5, 2024;5(1): e234737. doi:10.1001/jamahealthforum.2023.4737