Of late, private equity investors in healthcare services have faced intense criticism that their business practices have compromised patient safety and raised costs for consumers. March 5, the FTC, DOJ and HHS announced the launch of an investigation into the inner workings of PE in healthcare. It comes on the heels of U.S. Senate investigations in their Finance, HELP and Budget Committees to explore legislative levers they might pull to address their growing concerns about affordability, competition and accountability in the industry.
PE funds don’t welcome the spotlight. Their business model lends to misinformation and disinformation: company takeovers by new owners are rarely treated as good news unless the circumstance under prior ownership was dire. Even then, attention shifts quickly to the fairness of the PE business model playbook: acquire the asset on favorable terms, replace management, reduce operating costs, grow and the sell in 5-7 years at a profit using debt to finance the deal along the way. In exchange, the PE fund’s General Partner gets an annual management fee of 2% plus 20% of the value they create when they sell the company or take it public, and favorable tax treatment (carried interest) on their gain.
Concern about PE in healthcare services comes at a particularly delicate time: hospitals. nursing homes, outpatient care, medical practices, clinics et al) are still feeling the after-effects of the pandemic, proposed reimbursement bumps by Medicare for hospitals and physicians do not offset medical inflation and the Change Healthcare cybersecurity breach February 21 has created cash flow issues for all.
Concern about PE ownership was high already. Innovations funded through PE-backed organizations have been drowned out by the steady drip of peer reviewed and industry-sponsored studies a causal relationship between PE ownership decreased quality and patient safety and increased prices and worker discontent. Nonetheless, PE-owns 4% of hospitals (among 36% that are investor-owned, 13% of medical practices and 6% of nursing homes today and they’re increasing in all cohorts of health services.
Here are the facts:
Private equity enjoys significant influence in public policy including healthcare. Direct lobbying activity by PE funds in Congress and state legislatures is well-funded and effective, especially by the It is increasingly 20 global fund sponsors that control 46% of assets under management. Cash on hand and fund-raising by PE are strong and healthcare remains an important but non-exclusive target of PE investing.
2023 was a down year for PE, 2024 will be strong: the IPO market and sponsor- to sponsor transactions dipped, and deal values shrank. Even with interest rates remaining high, returns exceeded overall growth in the stock market for deals consummated. At the same time, PE raised $1.2 trillion last year and has $2.6 trillion of dry powder to invest. Healthcare services will be a target as PE deal activity increases in 2024.
In U.S. healthcare, PE investments are significant and increasing. Technology-enabled services that lower unit costs and AI-based solutions that enable standardization and workforce efficiency will garner higher valuations and greater PE interest than traditional services. Valuations will recover from record 2023 lows and dry powder will be deployed for roll-ups despite antitrust concerns and government investigations. Congress will investigate the impact on PE on patient safety, prices and competition and, in tandem with FTC and DOJ issue guidance: compliance will be mandated and financial penalties added. But displacement of PE in health services is unlikely.
Some notable data:
- Private equity funds have $2.49 trillion of cash on hand to invest—up 7% from 2022. They raised $1.2 trillion globally in 2023. 26% of its global dry powder is more than 4 years old—undeployed.
- Private equity groups globally are sitting on a record 28,000 unsold companies worth more than $3tn. 40% of the companies waiting to be sold are at least four years old. Last year, the combined value of companies that the industry sold privately or on public markets fell 44% and the value of companies sold to other buyout groups fell 47%.
- Private equity investments in almost every sector in healthcare are significant, and until lately, increasing. Last year, deals were down 16.2% (from 940 to 788) cutting across every sector. In some sectors, like physician services, PE deals were tuck-in’s to their previous platform investments increasing from 75 deals in 2012 to 484 deals in 2021.
- PE investments in US healthcare exceeded $1 trillion in the last 10 years. Investments in healthcare services i.e. acute, long-term, ambulatory and physician services– have been less profitable to investors than PE investments in technology, devices and therapeutics (based on the ratio of Enterprise Value to EBITDA) but exceed equity-market returns overall.
- Peer reviewed studies have shown causal relationships between private equity ownership of hospitals, nursing homes and medical practices with lower operating costs, higher staff turnover, high prices and higher profits.
My take:
Like it or not, private equity investment in healthcare is here to stay. The likelihood of higher taxes paid by employers and individuals to fund the health system is nil. The majority (69%) of the public think it wasteful and inefficient (See Polling below). The majority believe it puts its profits above all else. The majority think it needs major change. That’s not new, but it’s felt more intensely and more widely than ever. That means accommodation for private capital, including private equity, is not a major concern to voters: the prices they pay matters more than who owns the organization.
Tighter regulation of private equity, including more rights given to the Limited Partners who invest in the PE funds and limitations on public officials who become fund advisors, are likely. Bad actors will be vilified by regulators and elected officials. Media scrutiny of specific PE funds and their GPs will intensify as PE public reporting regulations commence. And investments made by not-for-profit multi-hospital systems and independent hospitals will be critical elements in upcoming Congressional and regulatory policy setting about their community benefit accountability and tax exemptions.
The public’s major concern about its healthcare industry is affordability. To the extent PE-backed solutions offer lower-cost, higher-value alternatives on a playing field that’s level with respect to equitable access and demand-management, they will be at the table.
To the extent PE-backed solutions cherry-pick the system’s low-hanging fruit at the expense of patient safety and affordability sans any regulatory restriction, they’ll breed public discontent from those they choose to ignore.
So, the reality is this: PE’s focus is generating profits for its GP and their LPs. Doing business in a socially responsible way is a fund’s prerogative. Some do it better than others.
PE is part of healthcare’s solution to its poorly structured, perpetually inadequate and mal-distributed funding. But creating a level playing field through meaningful regulatory reform is necessary first.
Paul
PS Among the stickier issues facing hospitals is site-neutral payments. Hospitals oppose the proposal reasoning the overhead structure for their outpatient services (HOPD) include indirect & direct costs for services provided those unable to pay i.e. emergency services. Proponents of the change argue that what’s done is the key, not where it’s done, and uniform pricing is common sense. Leavitt Partners has advanced a compromise: a Unified Ambulatory Payment System for HOPDs, ASCs and physician clinics that would be applied to 66 services starting January 2026. In an important twist, projected saving from the policy change would be used to support rural and community hospitals hardest hit by a site-neutral payment policy. It’s worth considering. Microsoft Word – Future Vision of Reform 3.18.24 Final (leavittpartners.com)
Resources
Q4 2023 Healthcare Services Report | PitchBook
AAI-UCB-EG_Private-Equity-I-Physician-Practice-Report_FINAL.pdf (antitrustinstitute.org)
Moody’s – credit ratings, research, and data for global capital markets (moodys.com)
Research: What Happens When Private Equity Firms Buy Hospitals? (hbr.org)
The 2024 Outlook for Private Equity in US Health Carpetbag
Global Private Equity Report 2024 | Bain & Company
Dealmaking slowdown leaves private equity with record unsold assets (ft.com)
Private Equity Issue Brief – AHIP
Sections in today’s Report
- Quotables: Private equity in healthcare, Industry
- Care Management
- Health Economy
- Hospitals
- Insurers
- Polls
- Public Health
Quotables: Private Equity in Healthcare
Re: FTC, DOJ, HHS Investigation: “Private equity firms and other corporate owners are increasingly involved in health care system transactions, and, at times, those transactions may lead to a maximizing of profits at the expense of quality care. The cross-government inquiry seeks to understand how certain health care market transactions may increase consolidation and generate profits for firms while threatening patients’ health, workers’ safety, quality of care, and affordable health care for patients and taxpayers.”
The industry still raised an impressive $1.2 trillion in fresh capital in 2023, and the buyout category attracted $448 billion. Federal Trade Commission, the Department of Justice and the Department of Health and Human Services Launch Cross-Government Inquiry on Impact of Corporate Greed in Health Care | Federal Trade Commission (ftc.gov) March 5, 2024
Re: 2023 PE fund performance: “The year 2023 was one of portent. Deal value fell by 37%. Exit value slid by almost half. Fund-raising dropped across private capital, and 38% fewer buyout funds closed. Interestingly, dollar commitments in buyouts surged as a number of high-performing funds came to market. But it was truly a year of haves and have-nots. Just 20 funds accounted for more than half of all buyout capital raised. The word for this market is stalled. The culprit was the sharp and rapid increase in central bank rates, which caused general partners to hit the pause button. The good news? Interest rates appear to have stabilized. Record dry powder is stacked and ready for deployment. Nearly half of all global buyout companies have been held for at least four years. In short, the conditions appear to be shifting in favor of hitting the go button. We will see what 2024 brings.”
Global Private Equity Report 2024 | Bain & Company
Re: private investments in healthcare: “Good old American capitalism is getting a hard look under the healthcare regulatory microscope. And none too soon, in some eyes.
For your next doctor’s appointment, odds are nearly 3-to-1 that the physician who sees you is a corporate employee. And regulators and legislators far and wide are saying that this ratio may be harmful to your health.
Corporate control of U.S. healthcare has reached such proportions that three federal agencies announced on March 5 a cross-government investigation into the mushrooming role of corporate and private-equity (PE) investment in the industry.
States are also getting in on the oversight action…The disparities are driving Indiana legislators to join those in nine other states in requiring healthcare entities and PE firms to give advance notice to state officials prior to any acquisition or merger. If the legislation passes, the Hoosier State will become the first red state to join its all-blue predecessors in enacting similar mandates: New York, Oregon, California, Massachusetts, Minnesota, Nevada, Connecticut, Illinois, and Washington…
One study found that PE acquisitions of physician practices increased sixfold in a decade. Another reported that in one of eight metropolitan areas nationwide, a single PE firm owns more than half of market share for certain specialties.”
Healthcare Docket, from MedCity News & Above the Law (breakingmedia.com)
Re: private equity in medical practice consolidation (Modern Healthcare): “As more physicians leave their private practices behind, tension is growing over their choice of potential partners — particularly private equity, which is increasingly drawing federal and state scrutiny.
Fewer physicians — only 46.7% in 2022 compared with 60.1% in 2012 — work in practices wholly owned by doctors amid struggles to manage reimbursement cuts, regulation and rising expenses. As a result, more physicians are joining health systems, private equity-backed management services organizations and insurers. That trend has spurred research, lobbying groups, regulation and legislation on physician employment models…
Colorado is among at least 13 states seeking to increase oversight of healthcare transactions. California and Oregon have or are considering passing bills that would target private equity investment in healthcare.”
Private equity’s role divides physicians, lobbying groups | Modern Healthcare
Re: private equity controversies: “Private equity” is a term we’ve all heard but which, if we’re honest, few of us understand. The basic idea is simple: Private equity firms make their money by buying companies, transforming them and selling them — hopefully for a profit. But what sounds simple often leads to disaster.
Companies bought by private equity firms are far more likely to go bankrupt than companies that aren’t. Over the last decade, private equity firms were responsible for nearly 600,000 job losses in the retail sector alone. In nursing homes, where the firms have been particularly active, private equity ownership is responsible for an estimated — and astounding — 20,000 premature deaths over a 12-year period, according to a recent working paper from the National Bureau of Economic Research. Similar tales of woe abound in mobile homes, prison health care, emergency medicine, ambulances, apartment buildings and elsewhere. Yet private equity and its leaders continue to prosper, and executives of the top firms are billionaires many times over.
Why do private equity firms succeed when the companies they buy so often fail? In part, it’s because firms are generally insulated from the consequences of their actions, and benefit from hard-fought tax benefits that allow many of their executives to often pay lower rates than you and I do. Together, this means that firms enjoy disproportionate benefits when their plans succeed, and suffer fewer consequences when they fail
Re: Patient safety and private equity: “The number of private equity firms in health care has exploded in recent years, spending hundreds of billions of dollars to buy physician practices, hospitals, laboratories and nursing homes. It’s a trend that should have everyone’s attention, from politicians to patients, because it can significantly increase costs, reduce access and even threaten patient safety…
First, private-equity-managed providers become more “efficient,” with fewer employees and more streamlined processes. Efficiency is not necessarily a bad thing; a lot of health-care organizations are run poorly. But what often follows is more aggressive billing and more requirements for patients to get tests done and the like, driving up health-care costs…
Private equity is as much of a symptom of the health-care industry’s woes as it is a cause. There are other bad actors as well, including large health systems and others who are buying up physician practices and driving up prices. Lots of hospitals are failing to attend to patient safety, even without the involvement of private equity. So, a ban, while attractive, would likely not solve the problem.
Instead, we need a three-pronged approach: First, we need more robust enforcement of antitrust rules to make market consolidation and monopoly pricing less attractive. This would reduce the incentive of private equity firms to buy up these practices and save consumers money.
Second, regulators — particularly Medicare — need to provide a lot more oversight over private equity acquisitions and similar purchases of health-care practices. This should include making sure these transactions don’t raise prices or affect quality of care.
Finally, we need real action on patient safety.
Ashish Jha is dean of the School of Public Health at Brown University and was covid-19 response coordinator in the Biden White House.
Opinion | Private equity firms are gnawing away at U.S. health care – The Washington Post January 10, 2024
Re: private equity role in methadone treatment: Private equity firms have acquired stakes in nearly one third of all methadone clinics in recent years, gaining outsize control of the U.S. addiction treatment industry even as the country’s opioid epidemic has developed into a full-fledged public health crisis…
Private equity’s surging interest in the methadone treatment industry adds a new layer to the fraught and fast-shifting debate over access to addiction medications. While a broad coalition of patients, lawmakers and some doctor groups are calling for methadone access that bypasses clinics, the providers are pushing back forcefully, citing safety concerns. Critics say it’s actually about their bottom lines.
In 21 states, at least 50% of all methadone clinics are owned either by private equity firms or by Acadia Healthcare, founded by a private equity group. In some states, 100% of the clinic options are owned by private equity or Acadia, according to a first-of-its-kind analysis of the national clinic landscape.
Private equity moves into the methadone clinic monopoly – STAT (statnews.com)
Re: shareholder concerns about secondary market offerings by private equity (Financial Times): “The Institutional Limited Partners Association, an industry body that represents professional private equity investors, is working on draft recommendations to obtain more disclosure about when they (i.e. Net Asset Value Financing) are used and their risks. The problems buyout groups are having with selling assets are leading to a divergence in fortunes when they try to raise new money from investors. “It was truly a year of haves and have-nots,” the Bain report said. Just 20 funds accounted for more than half of the $448bn raised by private equity, with investors concentrating on firms with records of returning cash to their backers.”
Dealmaking slowdown leaves private equity with record unsold assets (ft.com)
Re: fundraising by PE: “Competition for capital has never been more intense. Private capital’s breakneck growth over the past decade has led to a highly diverse industry with $14.5 trillion in assets under management. Yet it’s become clear in recent years that there isn’t enough capital to go around. As of January 2024, approximately 14,500 funds across the industry were on the road seeking $3.2 trillion in capital.: Private fund-raising contracted in 2023 with the notable exceptions of buyout funds and secondaries More than $5B 32% 18% 2023 vs. 2022 2023 vs. 5-yr. avg. $500B Figure 20: While far fewer buyout funds closed in 2023, the ones that did skewed larger, driving average fund size to its highest level in a decade. Average size of buyout funds closed globally ($M) 22 Global Private Equity Report 2024 only $1 closed for every $2.40 targeted, marking the worst supply/demand imbalance in more than a decade. Surveys suggest that LPs remain committed to private equity, both short term and long term but as a practical matter, increasing allocations will come down to cash flows. LPs have been cash flow negative for four out of the last five years, as unexited assets began to pile up and DPI lagged.”
bain_report_global-private-equity-report-2024.pdf
Re: attractiveness of healthcare to PE investors: “Several factors have driven private equity’s attraction to health care in recent years. One has been the low cost of capital resulting from low interest rates, which has spurred an influx of investors seeking to earn a piece of the $4 trillion health care economy.
A second factor has been the increasing commercialization of health care, which has made it more acceptable for private investors to treat health care — traditionally a nonprofit sector — like other markets. In fact, some nonprofit health care organizations have begun to look more and more like their for-profit brethren. Nonprofits have sought near-monopoly power in local markets through widespread mergers and acquisitions, which have enabled them to raise prices sharply. Compensation for nonprofit executives has also skyrocketed, as have their organizations’ capital reserves.”
Private Equity’s Role in Health Care | Commonwealth Fund
Quotables: Industry
Re: Executive compensation in NFP hospitals: “The relationship between the public charity provided by not-for-profit health systems and tax-exempt status is being examined by the media and state and federal legislators. In October 2023, the Senate Health, Education, Labor, and Pensions Committee issued a report citing limited charity care provided by not-for-profit hospitals relative to organizational revenues and CEO compensation.3 As another example, the state court in Pennsylvania has challenged real-estate tax exemptions.4
While the Boards of not-for-profit health systems have long overseen executive compensation consistent with accepted best practices and governance standards, continued scrutiny may present greater risks for how executive compensation practices are perceived. Executive compensation practices deemed unreasonable or unfair may raise compliance concerns, increase reputational risk and influence consumer preferences, exacerbate workforce tensions, be leveraged by unions in organizing efforts and contract negotiations, and motivate elected officials and regulators to influence broader health care policy.”
Examining the Implications of Increasing Executive Pay Scrutiny – SullivanCotter
Re: price transparency (Trilliant): “While CMS’s Transparency in Coverage initiative was intended to help consumers make more informed, price-conscious decisions, health plan price transparency is arguably more meaningful to employers, revealing the vast intra-market disparity in rates for identical health care services and providing pricing leverage they have never known they had. Price transparency leads to discovery of a “market price,” which leads to reduction in price spreads, forcing once-dominant business models and brands to adapt or go bankrupt.
The American Hospital Association was forced to use the Danish concrete case as the foundation of its opposition to price transparency because there are not any good examples in U.S. history of universal price increases following price transparency. In fact, the opposite usually happens. The deregulation of the airline industry paved the way for discount airlines like Southwest Airlines and businesses like Priceline and Kayak. Likewise, the development of the Internet browser allowed Kelley Blue Book to become the most visited automotive site on the Internet in 1995, radically changing the nature of automobile sales. More recently, the advent of trading stocks in decimals paved the way for E-Trade and Robinhood.
Price transparency has bipartisan support in Washington, D.C., and, in March 2024, several bills in Congress seek to codify and expand upon CMS’s Transparency in Coverage initiative. Providers that ignore the implications of price transparency are either naïve or foolish.
To date, most stakeholders’ curiosity about price transparency has been disappointingly sophomoric, focused on what other stakeholders are paying or getting paid. In fairness, the punishment for Sherman Act violations – a fine of up to $1M and a sentence of up to 10 years in Federal prison – has historically been a strong deterrent to price discovery. Health economy stakeholders must adapt to the radical new world of health plan price transparency in which employers can, and will, require providers and health insurers to defend their negotiated rates in every market for every product or service.
Pricing Strategies | Trilliant Health Field Guide
Re: Gen Z: “The generation that is now young will eventually grow up, get jobs, form relationships and have children. If the past is any guide, its members will proceed to write articles and books that find fault with young people. In the 1930s the young were seen as threats to public order; in the 1980s they were growing up too fast. Today they are growing up too slowly and are miserable. What judgment awaits a generation not yet born? “
How worried should people be about Generation Z? (economist.com)
Re: Impact of Change’s Cyber Security Incident per Fitch Ratings: ”The cybersecurity incident at Change Healthcare, Inc., a subsidiary of UnitedHealth Group (Issuer Default Rating: A/Stable), could negatively affect the credit profiles of smaller healthcare providers, pharmacies and other companies that rely on Change for working capital-related services…
We believe any credit implications are likely to be limited to smaller companies due to their limited financial flexibility to withstand even temporary cash flow disruptions. These companies tend to be rated in the ‘CCC’ or low-to-mid ‘B’ categories, indicating very low margins of safety.
The incident has disrupted multiple systems and services at the intersection of care delivery and payment, including scheduling, medical reviews (i.e. pre-authorization), and submitting and paying claims. Fitch believes customers’ cashflows could be affected, including lower volumes given scheduling challenges, higher denials if care was provided without pre-authorization, and slower conversion of accounts receivable to cash due to delays in submitting claims
Change’s Cyber Security Incident May Affect Smaller Healthcare Issuers (fitchratings.com)
Care Management
SCOTUS hearing on abortion pill approval by FDA: Tomorrow, the Justices will hear arguments in FDA V. ALLIANCE FOR HIPPOCRATIC MEDICINE 23-236) DANCO LABORATORIES, L.L.C. V. ALLIANCE FOR HIPPOCRATIC MEDICINE whether to roll back the availability of the abortion pill mifepristone which was first approved by the FDA in 2000. “At issue in Tuesday’s case is whether the Food and Drug Administration acted reasonably in adopting rules that have made it easier to obtain mifepristone since 2016. As a legal matter, that is fundamentally different from the Dobbs case, which discarded the 1973 court’s view in Roe that a woman’s control over pregnancy before fetal viability could be inferred from broad constitutional guarantees protecting individual liberty. By withdrawing the right to an abortion, the court left states to restrict the procedure or not as they see fit.” Its decision is expected in July.
Related: Abortion and infant mortality rates have become the focus of a debate in public health about whether the CDC’s methodology for calculating U.S. infant mortality rates including abortion data is accurate. “As with the Covid pandemic, experts are using bad data to drive a political agenda. A new study this month in the American Journal of Obstetrics and Gynecology shows that oft-cited U.S. maternal-mortality statistics are inflated owing to discrepancies in how pregnancy deaths are recorded.”
Abortion-Pill Case Puts Supreme Court Back in the Hot Seat – WSJ
Abortion and America’s Phony ‘Pregnancy Crisis’ – WSJ
Study: Use of telemedicine in 2022: Researchers analyzed characteristics associated with telemedicine use and telemedicine mode and describe telemedicine visit experiences by telemedicine mode based on data from the 2022 Health Information National Trends Survey. Findings:
“In this cross-sectional study of 5437 US adults with health care visits in 2022, 43% used telemedicine (70% video visits; 30% audio-only visits). Patients who used telemedicine were more likely to have more health care needs while video telemedicine visits were less likely among older patients and those without internet; no differences were observed by education, race and ethnicity, or income…These findings support continuing this care delivery approach as an option valued by patients. Differences were not observed by most common measures of socioeconomic status. Continued monitoring of telemedicine use is needed to ensure equitable access to health care innovations.”
Study: LLMs in clinical AI: Large language models (LLMs), a form of generative AI (artificial intelligence), are progressively showing a sophisticated ability to understand and generate language. Within healthcare, the prospective applications of an increasing number of sophisticated LLMs offer promise to improve the monitoring and triaging of patients, medical education of students and patients, streamlining of medical documentation, and automation of administrative tasks. Alongside the substantial opportunities associated with emerging generative AI, the recognition and minimization of potential risks are important,56 including mitigating risks from plausible but incorrect or misleading generations (e.g., “AI hallucinations”) and the risks of generative AI being deliberately misused.
Notably, LLMs that lack adequate guardrails and safety measures (i.e., safeguards) may facilitate malicious actors to generate and propagate highly convincing health disinformation—that is, the intentional dissemination of misleading narratives about health topics for ill intent. The public health implications of such capabilities are profound when considering that more than 70% of individuals utilize the internet as their first source for health information, and studies indicate that false information spreads up to six times faster online than factual content. Moreover, unchecked dissemination of health disinformation can lead to widespread confusion, fear, discrimination, stigmatization, and the rejection of evidence-based treatments within the community. The World Health Organization recognizes health disinformation as a critical threat to public health, as exemplified by the estimation that as of September 2022, more than 200 000 covid-19 related deaths in the US could have been averted had public health recommendations been followed
Womble Bond Dickinson Update on State, Federal Cannibas Legalization: “As we enter another election year, cannabis legalization is sure to be a hot button issue at both the state and federal levels. A Gallup poll from November 2023 showed that public support for legalizing marijuana reached a record high of 70%, including majority support across party lines. Let’s look back and see how 2023’s progress positioned cannabis legalization as we enter the 2024 election cycle.
2023 State Developments: Last year saw continued growth in the legalization of cannabis at the state level. Kentucky’s General Assembly legalized medical cannabis for Kentuckians beginning on January 1, 2025. In doing so, Kentucky became the 40th state to legalize medical cannabis…In November, Ohio voters passed (57%-43%) a citizen-initiated statute legalizing adult-use cannabis. Ohio became the 24th state to legalize cannabis for adult use. With legalization in Ohio, more than half of Americans now live in a state with legal cannabis. More than half of Americans now live in a state with legal cannabis….
At the federal level, cannabis reform efforts now span several proposals in Congress and multiple executive branch actions. Congress, once again, failed to pass meaningful reform legislation, but we continue to see increasing legislation (nearly 20 bills in 2023) introduced that would reform the cannabis industry.
We continue to see increasing legislation (nearly 20 bills in 2023) introduced that would reform the cannabis industry. “
Study: Medication Abortions: Use of medication abortion in the formal US health care system has risen substantially from 53% of all abortions in 2020 to 63% in 2023. Highlights:
The study found that, in 2023, there were an estimated 1,026,690 abortions in the formal US health care system and a rate of 15.7 abortions per 1,000 women of reproductive age. This represents a 10% increase in the number of abortions from 2020 and is the highest number and rate of abortions measured in the United States in more than a decade.
“This increase was close to universal—almost every state without a total abortion ban saw an increase over 2020 totals in the number of abortions provided. The 10% increase at the national level in many ways understates the degree to which health systems, providers and support networks have had to scale up care in certain states: States without total bans experienced a 25% increase in abortions in 2023 compared with 2020. The sharpest increases were seen in states bordering ban states, where abortions increased by 37% from 2020 to 2023. “
Health Economy
McKinsey: company valuations: “Healthcare companies with a strong technology component are valued, on average, at 17.1 times earnings, compared with 14.9 times average across the industry, with lower multiples for companies without strong technological components; for example, pharmaceuticals average 15.1 times and healthcare providers average 11.4 times (Exhibit 1).1 In recent years, well-managed healthcare tech companies have performed even better, with some exits at 23 to 25 times EBITDA.”
Private equity opportunities in healthcare tech | McKinsey
Congress passes spending bill avoiding shutdown: Early Saturday by a 74-24 vote, the Senate approval to a $1.2 trillion spending bill to fund more than half of the government averting a shutdown. It followed House approval (286-134) of a package that funds the government through the end of the fiscal year, Sept. 30, six months behind schedule.
Per the Washington Post: “The 1,012-page bill allocates $116.8 billion for the Department of Health and Human Services. When earmarks are factored in, the total spending level for the agency represents an increase of $955 million over fiscal 2023, according to a summary from House Democrats.
Both parties touted health policy victories in the package. Here a snapshot:
Republicans highlighted provisions that claw back billions in unspent coronavirus emergency response dollars, along with a bump in funding for initiatives combating illicit fentanyl and opioids.
Democrats celebrated modest increases in funding for cancer and Alzheimer’s research, while saying they blocked 10 GOP-backed riders that would have limited reproductive care.”
Congress Passes Spending Bill in Wee Hours to Fend Off Shutdown – The New York Times (nytimes.com)
Senate set to grill UnitedHealth over Change Healthcare crisis (msn.com)
Altarum March 2024 Health Sector Economic Indicators: Highlights:
With January GDP decline, health spending grew faster than GDP
- In January 2024, national health spending grew by 6.0% since January 2023 and represented 17.4% of GDP.
- Nominal GDP in January 2024 was 5.1% higher than in January 2023, growing more than 0.8 percentage points more slowly than health spending.
- Personal health care spending growth in January was 7.0%, year over year. As in past months, utilization growth contributed more than growth in prices to this rate, but the relative contribution of prices increased noticeably in January.
- Among major spending categories, year-over-year spending on physician and clinical services grew fastest in January, at 8.5%. Spending on dental services increased the least, at 4.0%.
Health care price growth continues to lag behind utilization increases
- The overall Health Care Price Index (HCPI) increased by 3.2% year over year in February, increasing slightly from the revised growth rate of 3.1% a month prior (up from 2.9%).
- Economywide inflation remained moderate in February, with year-over-year growth in the Consumer Price Index (CPI) increasing slightly to 3.2% and growth in the Producer Price Index (PPI) increasing to 1.6%.
- Among the major health care categories, prices for dental care (4.9%), nursing home care (4.2%), and hospital care (3.6%) were the fastest growing, while prescription drug price growth was the slowest in February (0.3%).
- Our implicit measure of health care utilization growth fell slightly to 3.9% year over year in January, but continued to drive spending increases as it remained above overall health care price growth.
- Prescription drugs (7.7%) and physician and clinical services (6.6%) were the fastest growing utilization categories, while use of dental care (-0.8%) declined and increases in nursing home care utilization were also small (1.4%).
March 2024 Health Sector Economic Indicators Briefs | Altarum
Housing market: Economic data suggest that consumers are withstanding high rates and inflation. The number of foreclosures each year is far below where it was in the financial crisis.
But there are reasons for caution. Lenders are filing more so-called foreclosure starts—like notices of default—than they were a year or two ago. More people are taking early withdrawals from their 401(k)s to avoid losing their homes. ..
Auction.com, an online marketplace for distressed properties, estimates that between 2021 and 2023, some 654,000 U.S. homeowners were far behind on their mortgage when their house got sold. More than half sold when they were in pre-foreclosure. Those borrowers often sold to individual investors—for less than their home’s market value.
Surge in Home Prices Draws Eager House Flippers – WSJ
Hospitals
Leavitt Partners Compromise Framework to achieve site neutral payments: The LP proposal would be implemented starting in 2026 for 66 designated services:
- A new unified ambulatory payment system (UAPS) for common, non-complex outpatient services
- Targeted reinvestment in the needs of rural, safety net, and other community hospitals
- A new common reimbursement language for services provided in both inpatient and outpatient settings for a future unified payment system
- A new unified post-acute care payment system (UPAC) for a limited number of services performed in skilled nursing facilities (SNFs) and inpatient rehabilitation hospitals (IRFs)
Microsoft Word – Future Vision of Reform 3.18.24 Final (leavittpartners.com)
Premier study: claims denial cost: Hospitals and health systems spend an estimated $19.7 billion a year managing denied claims for care, a new report shows.
Premier, a group purchasing and consulting organization that works with thousands of providers, polled 516 hospitals that offered their 2022 claims data. Nearly 15% of claims, on average, were denied at a cost of close to $44 a claim, excluding related clinical labor expenses, the survey found. Insurers process roughly 3 billion claims a year, according to research from the Council for Affordable Quality Healthcare cited in the report.
Claim denials cost hospitals $20 billion in 2022: Premier report | Modern Healthcare
Study: PET Scan utilization trends: In 2023 compared with 2022, the total volume of PET scans increased 10.2% year over year, according to IMV’s 2024 PET Market Summary Report based on responses from 503 radiology/departmental administrators and clinicians. Highlights:
- 74% of PET scans in 2023 used the radiopharmaceutical F-18 FDG-PET followed by Pularify (9%) rubidium (6%), gallium-68 (3%), copper-64 (2%) and F-18 sodium fluoride, Amyvid, and Axumin each accounting for 1%.
- In 2023, 38% of PET scanners were operated by the PET department, 28% by nuclear medicine, 24% by radiology/imaging, 5% by radiation oncology, and 2% by molecular imaging.
- By site type, 45% to 46% of hospitals with 200 beds or more operate their PET systems from a nuclear medicine department, while 49% to 54% of independent and hospital-owned sites operate theirs from a PET department.
Premier study: MA denials: Highlights of Premier poll of 516 acute hospitals:
- Providers spent nearly $20 billion in 2022 pursuing delays and denials across all payer types, yet those efforts are substantially more costly on average when dealing with private plans. Just over half of the total comes from denied claims that are eventually paid out, meaning that about $10.6 billion is “wasted arguing over claims that should have been paid at the time of submission,” Premier wrote.
- 15% of all claims submitted to private payers for reimbursement are initially denied: an average of 3.2% of all claims denied included those that were preapproved via the prior authorization process. Specifically, 15.7% of MA claims and 13.9% of commercial claims were initially denied, as were 15.1% of Managed Medicaid (which also includes non-private plans) claims. Medicaid claims were most frequently received an initial denial (16.7%), while Medicare claims were least frequent (8.4%), Premier found.
Premier | Trend Alert: Private Payers Retain Profits by Refusing or… (premierinc.com)
Insurers
UnitedHealth, Amedisys deal under more scrutiny: Oregon regulators will open a review into UnitedHealth Group’s proposed acquisition of Amedisys, after a preliminary report found the deal could hurt competition in the state’s markets.
In June 2023, UnitedHealth Group offered to purchase home health provider Amedisys for $3.3 billion. The proposed deal is facing an antitrust review from the Justice Department.
UnitedHealth Group’s health services subsidiary, Optum, owns several home health and hospice providers in Oregon, according to the report. Optum acquired the practices when it bought LHC Group, another home health provider, in 2023. Amedisys also operates multiple practices in Oregon.
UnitedHealth, Amedisys deal under more scrutiny | Becker’s (beckerspayer.com)
Polling
Keckley Poll March 2024: Results from a nationally projectible survey of 805 US adults conducted March 21-23, 2024: Highlights:
The majority of Americans (69%) think the U.S. health system is “fundamentally flawed and needs major change” vs. 9% who disagree. These findings are virtually unchanged in the last 6 months:
| % Agree/Disagree/Unsure | October 2023 | March 2024 |
| “I believe the U.S. health system is fundamentally flawed and needs major change.” | 68/8/24 | 69/9/22 |
Re: The Affordable Care Act:
- 27% agree “the Affordable Care Act has hurt the U.S. healthcare system” vs. 32% who have mixed feelings and 31% who disagree.
- 59% favor “Congressional action to Fix and Repair the ACA” over Repeal and Replace vs. 14% who favor Repeal.
- 53% say they “understand what’s in the ACA” vs. 47% who don’t.
The Keckley Report www.paulkeckley.com
Jarrard: Opinions about private equity in healthcare: Results from survey of 1046 US adults conducted February 23-29, 2024:
How much do you trust each of the following to improve the quality of healthcare, such as the medical care offered by hospitals, clinics and pharmacies?
| Great deal/fair amount | Not much/None | Unsure | |
| Hospitals/Health systems | 69 | 27 | 4 |
| The free market & competition | 56 | 32 | 12 |
| Insurance companies | 44 | 50 | 6 |
| Investors such as venture capital % PE | 35 | 53 | 13 |
| Gov’t lawmakers & regulators | 34 | 60 | 6 |
Please indicate if you agree or disagree with the following statements about private equity’s role in the U.S. healthcare system
| Agree | Disagree | Unsure | |
| When outside investors like private equity buy hospitals or doctors’ practices, the focus shifts from a mission to care for patients to making more money | 67 | 21 | 14 |
| Private equity investment in healthcare is little more than a money grab | 57 | 22 | 22 |
| As long as the care my doctor and medical team provide is good, it doesn’t bother me if the organization they work for is owned by private equity | 56 | 29 | 15 |
Jarrard Inc 2024-National Consumer Survey – PE, Post-Acute.pdf (hubspotusercontent-na1.net)
Rock Health 9th Annual Consumer Adoption Survey: Highlights from RH’ survey of 8,014 U.S. adults Census-matched by gender, age, U.S. region, race/ethnicity, and annual household income. The administered from October 12, 2023 to November 30, 2023:
Virtual care is now a ubiquitous part of the modern healthcare paradigm in 2023, 76% of Survey respondents reported having ever used virtual care (care delivered via video, phone, text, or app), the third consecutive year that virtual care adoption was reported at or near 75%. 83% of the respondents who have used virtual care reported using virtual care within the last 12 months.
24% of Survey respondents reported never having used virtual care. Of those non-user respondents, most simply prefer in-person care to virtual care (56%). Others cited concerns about quality (18%) and lack of awareness (13%), or barriers like cost (5%) and poor internet service (3%).
Consumers are drawn to virtual care’s convenience, but innovators will need to invest in additional value drivers to stay competitive. Survey respondents who reported using virtual care recently (i.e., within the past 12 months) chose virtual options over in-person care for greater convenience (39%), shorter wait times (30%), and the ability to see a specific provider who couldn’t otherwise be seen in person (17%).
Public Health
CDC: U.S. life expectancy up in 2022: Per the March 2024 NCHS data brief:
- S. life expectancyincreased by 1.1 years between 2021 and 2022 from 76.4 to 77.5 years. Life expectancy for males went from 73.5 to 74.8 years, while for females the rise was from 79.3 to 80.2 years.
- The overall age-adjusted death rate during the period decreased by 9.2%, from 879.7 to 798.8 deaths per 100,000 population.
- The increase contrasts with trends seen in earlier years. Overall life expectancy fell by 0.6 years, from 77.0 to 76.4, between 2020 and 2021. From 2019 to 2020 the decline was 1.8 years, so that even with the most recent increase life expectancy remains below pre-pandemic levels.
- The 10 leading causes of death remained the same in 2021 and 2022. Heart diseaseand cancer topped the list in both years, although rates fell for both. The age-adjusted death rate for heart disease in 2022 was 173.8 per 100,000 population, a 3.8% decrease from the 167.2 per 100,000 seen in 2021. For cancer the decrease was about 3%, from 146.6 to 142.3 per 100,000.
NCHS Data Brief, Number 492, December 2023 (cdc.gov)
Gallup World Happiness Index: The US Ranks 23rd in the world overall– the first time in 12 years of the poll it has not been in the top 20. It ranks 62nd worldwide for adults under 30.
