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The Keckley Report

8 Reasons Hospitals must Re-think their Future

By April 15, 2024No Comments

Today is the federal income Tax Day. In 43 states, it’s in addition to their own income tax requirements. Last year, the federal government took in $4.6 trillion and spent $6.2 trillion including $1.9 trillion for its health programs. Overall, 2023 federal revenue decreased 15.5% and spending was down 8.4% from 2022 and the deficit increased to $33.2 trillion. Healthcare spending exceeded social security ($1.351 trillion) and defense spending ($828 billion) and is the federal economy’s biggest expense.

Along with the fragile geopolitical landscape involving relationships with China, Russia and Middle East, federal spending and the economy frame the context for U.S. domestic policies which include its health system. That’s the big picture.

Today also marks the second day of the American Hospital Association annual meeting in DC. The backdrop for this year’s meeting is unusually harsh for its members:

Increased government oversight: Five committees of Congress and three federal agencies (FTC, DOJ, HHS) are investigating competition and business practices in hospitals, with special attention to the roles of private equity ownership, debt collection policies, price transparency compliance, tax exemptions, workforce diversity, consumer prices and more.

Medicare payment shortfall: CMS just issued (last week) its IPPS rate adjustment for 2025: a 2.6% bump that falls short of medical inflation and is certain to exacerbate wage pressures in the hospital workforce. Per a Bank of American analysis last week, “it appears healthcare payrolls remain below pre-pandemic trend” with hospitals and nursing homes lagging ambulatory sectors in recovering.”

Persistent negative media coverage: The financial challenges for Mission (Asheville), Steward (Massachusetts) and others have been attributed to mismanagement and greed by their corporate owners and reports from independent watchdogs (Lown, West Health, Arnold Ventures, Patient Rights Advocate) about hospital tax exemptions, patient safety, community benefits, executive compensation and charity care have amplified unflattering media attention to hospitals.

Physicians discontent: 59% of physicians in the U.S. are employed by hospitals; 18% by private equity-backed investors and the rest are “independent”. All are worried about their income. All think hospitals are wasteful and inefficient. Most think hospital employment is the lesser of evils threatening the future of their profession. And those in private equity-backed settings hope regulators leave them alone so they can survive. As America’s Physician Group CEO Susan Dentzer observed: “we knew we’re always going to need hospitals; but they don’t have to look or operate the way they do now. And they don’t have to be predicated on a revenue model based on people getting more elective surgeries than they actually need. We don’t have to run the system that way; we do run the healthcare system that way currently.”

The Value Agenda in limbo: Since the Affordable Care Act (2010), the CMS Center for Innovation has sponsored and ultimately disabled all but 6 of its 54+ alternative payment programs. As it turns out, those that have performed best were driven by physician organizations sans hospital control. Last week’s release of “Creating a Sustainable Future for Value-Based Care: A Playbook of Voluntary Best Practices for VBC Payment Arrangements.” By the American Medical Association, the National Association of ACOs (NAACOs) and AHIP, the trade group representing America’s health insurance payers is illustrative. Noticeably not included: the American Hospital Association because value-pursuers think for hospitals it’s all talk.

National insurers hostility:  Large, corporate insurers have intensified reimbursement pressure on hospitals while successfully strengthening their collective grip on the U.S. health insurance sector. 5 insurers control 50% of the U.S. health insurance market: 4 are investor owned. By contrast, the 5 largest hospital systems control 17% of the hospital market: 1 is investor-owned. And bumpy insurer earnings post-pandemic has prompted robust price increases: in 2022 (the last year for complete data and first year post pandemic), medical inflation was 4.0%, hospital prices went up 2.2% but insurer prices increased 5.9%.

Costly capital: The U.S. economy is in a tricky place: inflation is stuck above 3%, consumer prices are stable and employment is strong. Thus, the Fed is not likely to drop interest rates making hospital debt more costly for hospitals—especially problematic for public, safety net and rural hospitals. The hospital business is capital intense: it needs $$ for technologies, facilities and clinical innovations that treat medical demand. For those dependent on federal funding (i.e. Medicare), it’s unrealistic to think its funding from taxpayers will be adequate.  Ditto state and local governments. For those that are credit worthy, capital is accessible from private investors and lenders. For at least half, it’s problematic and for all it’s certain to be more expensive.

Campaign 2024 spotlight: In Campaign 2024, healthcare affordability is an issue to likely voters. It is noticeably missing among the priorities in the hospital-backed Coalition to Strengthen America’s Healthcare advocacy platform though 8 states have already created “affordability” boards to enact policies to protect consumers from medical debts, surprise hospital bills and more.

Understandably, hospitals argue they’re victims. They depend on AHA, its state associations, and its alliances with FAH, CHA, AEH and other like-minded collaborators to fight against policies that erode their finances i.e. 340B program participation, site-neutral payments and others. They rightfully assert that their 7/24/365 availability is uniquely qualifying for the greater good, but it’s not enough. These battles are fought with energy and resolve, but they do not win the war facing hospitals.

AHA spent more than $30 million last year to influence federal legislation but it’s an uphill battle. 70% of the U.S. population think the health system is flawed and in need of transformative change. Hospitals are its biggest player (30% of total spending), among its most visible and vulnerable to market change.

Some think hospitals can hunker down and weather the storm of these 8 challenges; others think transformative change is needed and many aren’t sure. And all recognize that the future is not a repeat of the past.

For hospitals, including those in DC this week, playing victim is not a strategy. A vision about the future of the health system that’s accessible, affordable and effective and a comprehensive plan inclusive of structural changes and funding is needed. Hospitals should play a leading, but not exclusive, role in this urgently needed effort.

Lacking this, hospitals will be public utilities in a system of health designed and implemented by others.



Private equity in health care gets increased attention from Congress (

Playbook-Voluntary-Best-Practices-for-VBC-Payment-Arrangements_041024.pdf (

Health Care Inflation in the United States (1948-2024) (

APG’s Susan Dentzer: the Value-Based World Is Steaming Ahead—But Could Use More Policy and Payment Support (Think, Medicare Advantage) | Healthcare Innovation (

Consumer Spending Data & Trends – Consumer Checkpoint (

National Health Expenditure (NHE) Fact Sheet | Guidance Portal (

Physicians Advocacy Institute > PAI Research > PAI-Avalere Study on Physician Employment-Practice Ownership Trends 2019-2023

Coalition to Strengthen America’s Healthcare | Protecting 24/7 Hospital Care (


  • Quotables
  • Economy
  • Hospitals
  • Insurers
  • Physicians
  • Workforce


Re: growing attention to private equity in healthcare: “Headline-seeking politicians continue to place misguided blame on our industry instead of pursuing sound policymaking to address systemic challenges head-on.”

American Investment Council

Re: Healthcare SPACs: “For policymakers, allowing private investments in health care entities (coupled with transparency-related requirements) need not mean condoning subsequent activities that could lead to increased prices or put patients at risk. After litigation involving SPACs and concerns among public investors, the SEC recently adopted rules requiring SPAC sponsors to share detailed financial information, ensure that financial projections are reasonable, and disclose conflicts of interest. SPAC sponsors have aimed to allay investors’ concerns by offering more favorable financial terms or taking on additional debt.

These developments suggest that, despite some slowdown in SPAC activity since 2021, SPACs will most likely endure and could attract more investors into health care. One report suggested that health care may be a more sustainable sector for SPACs than other industries; deals with targets in the health care sector accounted for the second highest number of reverse merger transactions in the United States in the first 9 months of 2022.

The effects of SPACs on ownership of health care entities, prices, and clinical outcomes require monitoring. Institutions and members of the public could increasingly hold financial interests in SPACs by means of personal investments in public equities, mutual funds, pension plans, and retirement accounts. Policymakers and regulators, in turn, are confronted with both increasing health care corporatization and an emerging need to identify potentially undesirable SPAC activity.

Corporate Medicine 2.0 — Special Purpose Acquisition Companies in the United States | New England Journal of Medicine (

Re: hospital posturing as result of Change Healthcare cybersecurity breach:: The Change Healthcare fiasco has had  widespread ramifications for hospitals and physicians across the country in recent weeks, but it’s also had an unexpected upside — providing leverage for hospital trade groups to argue that the crisis has caused their members financial distress on Capitol Hill.

Several industry lobbyists told me that the crisis was another talking point that the hospital industry used to argue that now wasn’t the time to pass policies the industry didn’t like, including equalizing payments between hospital outpatient departments and physician offices, known as site-neutral payments. The overall push was successful, as Congress couldn’t come to agreement on a larger health care package, and punted the issue to December.

That being said, there were definitely other factors that led to the demise of the package — but when lawmakers are hearing panic from major employers in their districts, it doesn’t create an ideal environment for a successful site-neutral policy push.”

Rachel Cohrs Stat DC Diagnosis April 11, 2024

Re: tax exempt hospitals: “As diligent taxpayers breathe a sigh of relief that the hassle of filing their tax forms is over for another year, the Internal Revenue Service continues to let most U.S. hospitals pay nothing in federal taxes. It’s time for Congress to take a hard look at the IRS’s hand in health care…. The agency uses a vague “community benefit” standard to liberally grant tax-exempt status to so-called nonprofit hospitals even as many of them are financially taking advantage of sick Americans with inflated medical bills…Instead of scolding Americans who sign up for direct primary care or want to eat healthier foods, the IRS should hold hospitals accountable for the taxes they should be paying.”

Nonprofit hospitals posting a profit should lose tax exempt status – STAT (

Re: Healthcare IPOs: “Health care firms accounted for nearly 18% of all newly publicly listed companies in the United States between 2014 and 2020, according to the Federal Reserve… Increasingly, health care companies are instead going public by merging with a SPAC — a “shell company” that is usually involved in few or no business activities (e.g., production or service delivery).

According to PitchBook, between 2012 and 2021, the number of SPACs in all industries combined increased from 36 to 1080, and the total capital raised by SPACs grew from $969 million to $195 billion per year. SPACs are increasingly used in health care, including in the pharmaceutical, health technology, and digital health sectors. In 2021, a total of 107 SPACs listing health care companies — including health care delivery companies — as their intended target went public, raising a total of $23 billion.”

Corporate Medicine 2.0 — Special Purpose Acquisition Companies in the United States | New England Journal of Medicine (

Re: Optum potential acquisition of Steward physicians: “The company (UnitedHealth Group) has amassed a bevy of vertically-integrated companies across all segments of the health care system, including owning the nation’s third largest pharmacy benefit manager, the largest claims processor, a revenue cycle management company, chart review companies, a bank, and numerous home health care facilities…But of particular concern in this case is UnitedHealth’s physician group, Optum, which employs or maintains affiliations with 10% of all physicians in the United States.”

Massachusetts representatives and Senators letter to the FTC and Justice Department Friday re:  Steward’s closure of 9 hospitals across the state and proposed acquisition of Steward physicians by Optum:

Re: household medical debt: “Among the many things that infuriate me about the U.S. healthcare system, health systems sending their patients to collections – or even suing them – is pretty high on the list (especially when they are “non-profit” and./or faith-based organizations, which we should expect to behave better).

There’s no doubt medical debt in the U.S. is a huge problem. Studies have found that more than 100 million people have medical debt, many of whom don’t think they’ll ever be able to pay it off. Kaiser Family Foundation estimates Americans owe some $220b in medical debt, with 3 million people owing more than $10,000. It’s oft cited that medical debts are the leading cause of bankruptcy, although it’s quite not clear that is actually true.

So, you’d think that helping pay off that debt would be a good thing. But it turns out, it’s not that simple.

new study from the National Bureau of Economic Research (NBER) by Raymond Kluender, et. alia, found that, whoops, paying off people’s medical debt didn’t improve their credit score or financial distress, made them less likely to pay future medical bills, and didn’t improve their mental health.

If nothing else, the new study should remind us that our health system is best at putting band-aids on problems rather than solving them. The problems we should be addressing include: why are so many charges so high, why aren’t people better protected against them, and why don’t more Americans have enough resources to pay their bills, especially unpredictable ones like from health care services?”

Health Care’s Debt Problem – The Health Care Blog

Re: Medicare Advantage cut: “A modest cut to the base Medicare Advantage payment rate next year may compel health insurance companies to carry out threats to scale back benefits, hike premiums and reduce provider payments.

Last week, the Centers for Medicare and Medicaid Services finalized a 0.16% cut to the benchmark Medicare Advantage rate, which excludes risk adjustment payments, in 2025. It was the second consecutive year the agency reduced payments and the first time since 2018 that it didn’t offer a higher rate in the final rule than it proposed.

The largest health insurance companies accumulated $1.1 trillion in combined revenue last year, a five-year high, Fitch Ratings reported Monday. Their debt-to-adjusted operating income ratio declined slightly as operating and investment income grew, according to Fitch Ratings.”

Medicare Advantage benefit cuts possible following rate reduction | Modern Healthcare

Re: impact of Change Healthcare cyberattacks on not-for-profit hospitals:” A recent S&P Global Ratings article highlights that not-for-profit acute-care providers continue to manage risks from the Change Healthcare cyber-attack. Providers are actively implementing workarounds to manage cash flow and liquidity risk.

According to S&P, the credit impact could vary across the rating spectrum “depending on credit specifics such as liquidity and reserves, ability to put workarounds in place, and the time it takes for Change Healthcare’s systems to be operational”.

Moody’s released its U.S. not-for-profit healthcare preliminary medians for fiscal 2023. Early data shows operating performance in fiscal 2023 stabilized as labor costs eased. Moody’s expects operations “will continue to improve incrementally in 2024 and 2025 but will continue to vary across the sector as changing labor and revenue trends impact systems differently depending on size and market”.

Fitch Ratings released its U.S. not-for-profit healthcare preliminary medians for fiscal 2023. Fitch notes the relationship between revenues and expenses remains a structural problem for the sector as revenues are largely fixed while expenses are highly variable. Fitch expects a slight uptick in final fiscal 2023 results and another in 2024, and that the sector may be on the cusp of a return to a “stable” outlook.

Fifth Third Capital Markets Update: Not for Profit Acute Sector April 8, 2024

Re: system transformation by disruptors: “Any standalone, siloed efforts taken by CMS or other players will face considerable industry resistance… the pushback against site-neutral payments is a prime example of just how misaligned the incentives have been under the FFS model. Unable to envision a realistic, more comprehensive alternative to a broken system, industry stalwarts cling to the old methods – and everyone suffers.

While the healthcare system continues to rely on outdated practices, outside players such as Amazon and CVS are responding to consumers’ calls for change. They are moving into the healthcare space without the baggage of old assumptions and models, instead applying their proven business practices and strategies to benefit them and their patients. While the healthcare industry continues to sit back and despair its many problems, retail disruptors are acting.”

The Healthcare Industry Shows Signs of Change. Too Little Too Late? (


Federal health programs: In 2023, the federal government spent $1.9 trillion (17.7%) of its $6.16 trillion total outlays for healthcare services: Medicare (848B), Fed payments to states for Medicaid & CHIP (634B), Military Health (56B), Veterans Health (135B), Public Health (100B) & Medical Assistance (83B) (does not include $125 for SNAP).

National Health Expenditure (NHE) Fact Sheet | Guidance Portal (

Bureau of Labor Statistics March CPI report: Last Tuesday the BLS reported a 0.4% increase in the March 2024 Consumer Price Index. And an overall LTM inflation rate of 3.5% vs 3.2% in February. The Core CPI, which does not include food and energy prices, was unchanged at 3.8%–the lowest since 2021. US stocks down: the Dow closed 422 points lower, the S&P 500 lost 1% and the Nasdaq Composite fell by 1%. Prices rose in pretty much every major category last month, with gas and housing costs playing a major role..

“The medical care index rose 0.5% (1.464, services 6.501 RI) in March after being unchanged in February. The index for hospital services rose 1.0% (1.983) over the month and the index for physicians’ services increased 0.1 % (1.814). The prescription drugs index rose 0.3%in March

Consumer Price Index Summary – 2024 M03 Results (

Health Care Inflation in the United States (1948-2024) (


House Oversight investigation of private equity-backed ED staffing companies: House Oversight and Chair Gary Peters (R-MI) sent letters to 4 ED staffing company CEOs (TeamHealth, Envision Healthcare, US Acute Care Solutions (USACS) and Lifepoint Health).and 3 private equity backers (Blackstone, KKR, and Apollo Global Management) requesting information by April 17 subsequent to a committee hearing May 3.  Based on 40 interviews with physicians and encouragement from the American Academy of Emergency Medicine and Take Medicine Back, the focus will be business operations, staffing decisions, patient care, and safety, and emergency preparedness:

“I am concerned that our nation’s largest emergency medicine staffing companies may be engaging in cost-saving measures at the expense of patient safety and care, which could put our nation’s emergency preparedness at risk…. while many of these issues are not limited to private equity, they are exacerbated by the private equity business model, which hinges on highly leveraged debt, little equity, and the need to obtain outsized returns within a limited time.”

The letters also reference American Physician Partners which filed for bankruptcy last year.

Senator Scrutinizes Physician Staffing Firms and Their Private Equity Owners | MedPage Today

CMS issues IPPS proposed rule: Last week, the Centers for Medicare & Medicaid Services issued a proposed rule that would increase Medicare inpatient prospective payment system rates by  2.6% in fiscal year 2025, compared with FY 2024, for hospitals that are meaningful users of electronic health records and submit quality measure data. The 2.6% net increase reflects a hospital market basket increase of 3.0% offset by a productivity cut of 0.4%. It increases hospital payments by $2.9 billion, plus a proposed $560 million increase in disproportionate share hospital payments and proposed $94 million increase in new medical technology payments


Open Secrets: 2023 Lobbying activity by Hospital Trade Groups: Hospital organizations that spent more than $1,000,000

  • American Hospital Association:  $30,198,230
  • Childrens Hospital Association: $7,140,000
  • HCA: $3,750,000
  • Federation of American Hospitals: $2,523,000
  • Tenet: $2,360,000
  • Greater NY Hosp Association: $2,060,000
  • Advocate Health: $1,187,744
  • America’s Essential Hospitals: $1,760,000
  • Ascension $1,660,000
  • Trinity: $1,646,132
  • Oschner: $1,365,000
  • 340B Health: $1,200,900
  • Appollo Health Management: $1,161,000
  • Northwell Health: $1,040,000
  • UPMC: $1,020,000

Hospitals & Nursing Homes Lobbying • OpenSecrets


Survey: Change Healthcare cyberattack impact: The American Medical Association surveyed 1400 physicians March 26 – April 3, 2024. Findings:

  • 77% experienced service disruptions since Feb. 21 and are still feeling the effects of the cyberattack.
  • 36% have experienced suspension in claim payments, 32% have not been able to submit claims, 39% have not been able to obtain electronic remittance advice and 22% have not been able to verify eligibility for benefits.

Change Healthcare cyberattack impact | AMA (


Study: Factors that Influence Nurses to End Health Care Employment:  In this cross-sectional study of 7887 nurses who were employed in a non–health care job, not currently employed, or retired between 2018-2021, “the top contributing factors for leaving health care employment were planned retirement (39% of nurses), burnout (26%), insufficient staffing (21%), and family obligations (18%). Age distributions of nurses not employed in health care were similar to nurses currently employed in health care.”

Top Factors in Nurses Ending Health Care Employment Between 2018 and 2021 | Health Policy | JAMA Network Open | JAMA Network