Reality Check: Is Private Equity Ownership of Hospitals the Problem?

Last week, the Senate Budget Committee released a 171-page staff report about private equity (PE) ownership of hospitals—its second in two years. This report focused on Apollo Global Management’s ownership of Brentwood, Tennessee-based Lifepoint Health, which runs the Ottumwa Regional Health Center in Iowa, and Leonard Green’s ownership of Los Angeles-based Prospect Medical, which has two Rhode Island hospitals in its portfolio.

The year-long investigation concluded: “In sum, the findings of the investigation call into question the compatibility of private equity’s profit-driven model with the essential role hospitals play in public health. This report serves as a call to action for greater oversight, transparency, and reforms to ensure that PE-driven financial strategies in healthcare do not come at the expense of patient well-being or the sustainability of critical hospital services. The American public deserves more when it comes to healthcare.” Both Apollo and LGP disputed the report’s negative findings.

The Senate investigation follows a series of recent peer-reviewed studies that have shown quantified a negative association between private equity ownership and hospital patient outcomes. A 2023 Harvard study, for instance, found “…private equity acquisition was associated with a 25.4% increase in hospital-acquired conditions, which was driven by falls and central line–associated bloodstream infections…Patients also had 27% more falls and 38% more bloodstream infections caused by central lines… All of these results were calculated while taking into account changes, trends, and patterns over the same period of time at peer hospitals not owned by private equity to isolate the differences that were due to the change in ownership. “

And last week, a new study published in JAMA showed patient experiences in private equity-owned hospitals decreased after PE acquisition. The findings:

“The percentage of patients rating hospitals as a 9 or 10, on a scale of 0 to 10, decreased at private equity–acquired hospitals (65.0% before acquisition and 65.2% after acquisition) when compared with control hospitals (66.2% to 69.2%) during the post-acquisition period relative to the preacquisition period with a difference-in-differences estimate of −2.4 percentage points. In addition, the percentage of patients who would definitely recommend the hospital also decreased at private equity–acquired hospitals (66.9% before acquisition and 65.5% after acquisition) compared with control hospitals (68.2% to 69.3%) with a difference-in-difference estimate of −2.1 percentage points. For both of these global measures of patient experience, the difference between private equity–acquired and control hospitals increased over time and was largest in year 3 after acquisition for each measure, respectively) …”

In context, private equity ownership of hospitals is a small part of acute care representing only 8% of all community hospitals (460).  And the significant majority were smaller and in financial distress operating independently with survival a major concern.Data from the peer reviewed literature coupled with media reporting about PE acquisitions (including Steward Health and others) point to four themes:

• After PE acquisition, operating changes are significant and immediate. Staffing, procurement, revenue cycle management and payer contracts are immediate foci. Discontent among physicians and nurses is anticipated and efforts to mitigate addressed. In most cases, PE takeover of a hospital results in slight decreases in patient care quality and patient satisfaction over time but immediate decreases in operating costs and increases in leverage (debt obligations).
• PE sponsors are opportunists: The long-term impact of PE ownership on patient care (access, clinical outcomes) and community benefit is unknown since sponsorships rarely last longer than 7 years. In most cases, PE acquired hospitals become part of a multi-hospital system or are acquired by another PE sponsor, so data about long-term results are not available. If 2023 and 2024 trends continue, 40-70 PE-owned hospitals will change hands this year.
• Profits benefit investors ahead of others: PE sponsors ((GP and LPs) and a few hospital executives profit considerably more than their communities and hospital stakeholders (physicians, employees), when the hospitals are acquired by PE. The major mechanisms whereby owners and investors benefit include sale-lease back arrangements for real estate, financial relationships with vendors, lenders and consultancies and profit sharing from change of control/liquidity events (PE usually receives 2-3 times more than other stakeholder groups).
• Boards are made aware of terms & conditions. Boards of PE-acquired hospitals approve the hospital’s acquisition. Terms and conditions in Asset Purchase Agreements including how quality and safety will be measured, how operating margins will be achieved, how additional debt (leverage) will be sourced & and deployed and how profits will be shared when a change of ownership occurs are discussed. In every transaction, Boards are encouraged to obtain outside counsel and consider all strategic options independently. The opinion of the hospital CEO, and views of retained legal counsel and consultants weigh heavily in the Board’s decision, and most directors are supportive of the change of ownership…though unsure about many elements of the deal.

Attention to PE ownership of hospitals by the Senate Budget Committee is notable because it’s Bipartisan and part of a larger effort in Congress to rein in hospitals.  It’s understandable: hospitals account for 31% total healthcare spending—the biggest piece. Concern about healthcare affordability is increasing and trust in the U.S. system is sinking. Per Gallup, NORC, Pew and KFF polls, the majority of Americans are dissatisfied with the medical system and believe profit incentives are more important to insurers and hospitals than patient care.

Hospitals recognize their trust challenge.  Building/restoring trust is prominent in the new American Hospital Association (AHA) 2025-2025 Strategic Plan and its 44-page Environmental Scan (though neither includes trust comparisons by hospital ownership status). In response, AHA and its collaborators assert…

• Hospitals are complex organizations that play a uniquely important role in the health system: they’re the safety nets for communities, major employers for millions and fiduciaries responsible for overall population health and well-being.
• Hospital costs are the result of unnecessary regulation, supply chain inflation and labor over which they have minimal control.
• Hospitals are under-paid by corporate insurers and government payers and un-fairly maligned by muckrakers like Arnold Ventures, West Health and others.
• Hospitals are under-appreciated by lawmakers, communities and patients.

They’ve advanced these assertions in ad campaigns targeting consumers and lawmakers and successfully managed growing concerns in Congress, state legislatures and communities about…

1. Direct investments by not-for-profit health systems in private equity funds and venture capital.
2. Inadequate provision of charity care.
3. Justification for tax exemptions based on community benefit contributions by not-for-profit hospitals.
4. Excessive executive compensation and administrative costs.
5. Inappropriate use of facility fees.
6. Suboptimal price transparency.
7. Harmful effects of hospital consolidation on consumers.

And others.

My take:

PE ownership is not the issue: how hospitals operate, how hospital services are designed and delivered to address clinical innovation and whole person care, and how they’re funded as many shift from traditional hospital to integrated systems of health.

Private equity funding is firmly integrated in every sector of the U.S. economy. Acute care is no exception.

And every PE sponsor is different: all focus first and foremost on generating profit for their limited partners including many hospitals that have invested, and some are more aggressive than others. In every hospital ownership category, there are bad apples including PE owned hospitals.

Thus, regulations to mitigate the negative effects of PE ownership should get more attention alongside continued policy modernization in the 7 issues above.

PE ownership of hospitals is here to stay. But that’s not the issue.

Paul

PS: Corporatization in U.S. healthcare is a growing concern. UnitedHealth Group (UHG) is the poster-child. This Thursday, UHG will report its earnings as the JPM Summit in San Francisco ends and healthcare business resumes. Given its dominance in insurance, prominence in shaping public and lawmaker opinion about the health system, the murder of a key executive December 4 and incoming administration next week, it will be closely watched. UHG’s stock is trading at $520.69 as markets open today—well-below its $630.73 high in November.

Resources

Changes in Patient Care Experience After Private Equity Acquisition of US Hospitals | Health Care Quality | JAMA | JAMA Network January 9, 2025

Changes in Hospital Adverse Events and Patient Outcomes Associated with Private Equity Acquisition JAMA December 26, 2023 AMA. 2023;330(24):2365-2375. doi:10.1001/jama.2023.23147

PESP Private Equity Hospital Tracker https://pestakeholder.org/private-equity-hospital-tracker/#hospital_tracker

National Hospital Flash Report: November 2024 Data January 9, 2025 https://www.kaufmanhall.com/insights/research-report/national-hospital-flash-report-november-2024-data

Fast Facts on Hospitals 2024 https://www.aha.org/system/files/media/file/2024/01/fast-facts-on-us-hospitals-2024-20240112.pdf

Environmental Scan 2025 AHA-BE Smith https://www.aha.org/system/files/media/file/2024/11/Environmental-Scan-2025

Senate Report Blasts Private Equity Ownership in Health Facilities “The American public deserves more when it comes to healthcare” Joyce Frieden,  MedPage Today January 8, 2025;

U.S. Senate Budget Committee https://www.budget.senate.gov/imo/media/doc/profits_over_patients_the_harmful_effects_of_private_equity_on_the_ushealthcaresystem1.pdf

American Hospital Association 2025-2027 Strategic Plan www.aha.org

 

Sections in this Report

• Quotables
• Economy
• Governance
• Hospitals
• Insurers
• Investors
• Prescription Drugs

 

Quotables

StatNews on JPM: “The annual J.P. Morgan Healthcare Conference starts next week, and the circumstances surrounding the event are difficult to ignore.

JPM25 will come a little more than a month after UnitedHealthcare CEO Brian Thompson was killed in New York City, before UnitedHealth Group’s own investor conference, underscoring outrage over the profit motivations within the health care system. Those same profit motivations will continue to be highlighted in stage presentations, cocktail hours, and closed-door meetings in and around San Francisco….

Sixteen nonprofit hospital systems will be presenting this year, and those 16 combine for roughly $266 billion of estimated revenue in 2024, or roughly 17% of the entire hospital industry. Five health insurers also will be there (Cigna, Centene, Alignment, Clover, and Oscar; CVS Health and Humana surprisingly won’t; UnitedHealth never formally presents), along with various other providers (Acadia and Fresenius) and patient billing companies (Waystar and Ensemble).

Hospitals will likely talk up more of their “revenue diversification.” Insurers will likely explain how they hiked premiums a lot this year to account for the jump in medical claims. Deal-making under a business-friendly Trump administration will be top of mind. And that likely pushes people’s grievances with health care back to a familiar spot: as lip service to be paid, not problems to be fixed.”

What to watch for at JPM25 Bob Herman Stat Health Care Inc. January 6, 2025 www.statnews.com

Site Neutral Payments: “A hallmark of health policy is that even simple fixes are hard to implement. To illustrate, it has taken years of legislative battles for the US House of Representatives to pass the Lower Costs, More Transparency bill, which aims to equalize Medicare drug payments to outpatient medical facilities regardless of ownership—a move toward so-called site-neutral payment policies. Despite the overwhelming bipartisan vote in the House (the bill passed with 320 votes to 71) and the US Congressional Budget Office’s estimate that site-neutral drug payments would save more than $3.7 billion over 10 years, the bill’s enactment by the US Senate remains uncertain because of aggressive lobbying from hospital interests….

Popular intuition is that site-dependent payments are a loophole of federal payment policy, one that exhibits the politicization of health care, the financial returns to lobbying, and the inherent inefficiency of government insurance. However, recent research has found that private insurers also pay site-dependent facility fees, forcing a reconsideration of the origins and persistence of how we pay for health care…

Why would nongovernment health insurers, which are capable of directly negotiating with hospitals and surgical centers, agree to site-dependent payments? The American Hospital Association justifies these payments as a consequence of the complex needs of hospital-bound patients and the cost of higher regulatory and safety standards… This is the least happy story because the explanation reveals a hardwired dysfunction in payment strategies that rewards costly operations, disincentivizes cost containment, and relies on ossified institutions that seem to be incapable of changing.

All of these explanations reflect a supply-side perspective that accepts prices and market performance as an inevitable consequence of market structure. They presume that purchasers of health care are already doing their best….

Recent evidence, in fact, illustrates that the nation’s largest purchasers of health care—employers that purchase health insurance on behalf of employees (collectively, 178 million people or 54% of the US population and >80% of the privately insured)—are not exercising their preferences, intelligence, and purchasing power as much as rational models would estimate…”

The Curious Persistence of Site-Dependent Payments JAMA Health Forum November 1, 2024;5(11): e243616. doi:10.1001/jamahealthforum.2024.3616

Paragon on Value of Health Insurance:” For decades, health policy in the United States has focused on expanding health insurance coverage at enormous cost to taxpayers. Policymakers assumed that coverage would increase access to care, which would improve health. In fact, there is little evidence that expanded government health insurance programs improve most people’s health….

Most studies claiming a health benefit for insurance are observational. They may show a correlation between insurance and health outcomes, but they do not establish causation. Observational studies are prone to bias and confounding by unobserved differences between the insured and the uninsured. Evidence from randomized, controlled experiments that avoid these problems indicates that insurance produces little, if any, health benefits. The primary benefits of insurance are to improve people’s sense of well-being, mental health, and financial security.

Life expectancy gains in the United States have stagnated and mortality rates for the major medical causes of death have continued to rise even as public insurance coverage has expanded. Congress is considering extending those coverage programs. The evidence strongly indicates that this would not be a cost-effective strategy for improving Americans’ health.

Instead of continuing to pursue costly expansions of public health insurance and subsidies to insurers that do little to improve health, policymakers should focus on more effective initiatives such as promoting healthy behaviors and increasing medical innovation.”

Paragon Institute https://paragoninstitute.org/public-health/what-matters-for-health-insurance-is-less-important-than-you-think/

Ageism: “If Margaritaville’s residents are representative of their age cohort, there will be a lot more to the toga parties than fancy dress. Whereas young people in rich countries these days are addicted to their phones, more anxious than previous generations and far less likely than them to use mind-altering substances or to party recklessly, their grandparents belong to a generation that experimented with sex, drugs and rock’n’roll. As they reach older age, they are not giving up their old habits… In the past, revolutionary and reckless youth worried politicians. These days the oldest strain public services, wreak havoc on national politics and account for a growing share of social problems. Elderly revellers are numerous: the number of people over 65 is growing across the rich world. In Britain they are more than a fifth of the population. And they want to have fun. In a way, those over the age of 55 but under the age of 75—roughly speaking, the baby-boomers and some of what is referred to as “Generation X”—are the new problem generation.”

Why people over the age of 55 are the new problem generation The Economist January 2, 2025

Payer-provider integration: “In contrast to the enforcement history and the extensive legal and economic literature on competitive effects of horizontal transactions, vertical transactions lack this body of evidence and policy template. Vertical mergers will likely represent the next wave of health care consolidation, but the relatively few Agency enforcement actions provide only limited guidance on some of the nuances of vertical healthcare transactions… Vertical transactions are often more complex in scope and possible implications. Our proposed framework provides the Agencies with additional points of reference to use in evaluating payer-provider transactions under existing guidelines, as well as further context on the landscape for providers. Competition benefits consumers in both the payer and provider marketplaces, and many of the procompetitive benefits possible with payer-provider mergers can have a significant positive impact on overall consumer welfare and healthcare at-large. As Medicare and Medicaid program policy is driving vertical integration, it will be important to validate the competitive effects of payer-provider mergers.”

A Framework for Evaluating Vertical Integration Among Payers and Providers Kevin Hahm, Brian Miller  https://www.americanbar.org/content/dam/aba/publications/antitrust/magazine/2024/vol-39-issue-1/framework-evaluating-vertical-integration.pdf

 

Economy

Healthcare stock performance in 2024: “The election jitters exacerbated what had already been a tough period for the industry. In 2023, healthcare underperformed the S&P 500 by about 22% so many believed that 2024 would be a bounce-back year. Instead, history repeated itself, with yet another 20% underperformance for healthcare…

The market bearishness is partly due to financial fundamentals. At a time when the U.S. economy is on solid footing and tech companies are riding high on the AI frenzy, most healthcare subsectors seem to be caught in a negative earnings-revision cycle… But the bottom line is that in a red-hot market, healthcare simply isn’t where investors want to be. Since the start of 2023, Goldman data shows healthcare with the second-biggest outflows among S&P 500 sector ETFs, behind energy.

Normally, this is when a savvy investor might note that if the economy hits the skids, healthcare could offer a safe haven…  But even the industry’s traditional defensive appeal has faded. Since the election, “the constant barrage of regulatory, political, clinical, and competitive dynamics prevents greater protection as it relates to stock volatility…. The good news is 2025 may not be much worse…

Zooming out, the political pressure will wax and wane, but it won’t totally go away simply because U.S. healthcare expenditure is so high. Health spending in the U.S. has exploded from about 5% of gross domestic product 50 years ago to roughly 17% to 18% today, a number that is significantly higher than other rich nations. While high, that ratio has been relatively stagnant for the past 15 years—apart from a spike during the pandemic—suggesting political and fiscal realities won’t allow the industry to outgrow the economy forever. “

Healthcare Stocks Are Down and Out. Opportunities Abound. Wall Street Journal January 6, 2025 Wall Street Journal January https://www.wsj.com/finance/stocks/healthcare-stocks-are-down-and-out-opportunities-abound-

Bain: Global PE: “Global healthcare private equity (PE) soared in 2024 to an estimated $115 billion, reaching the second-highest deal value total on record…. North America continues to be the largest market, representing 65% of global deal value…

In North America, derivative services boosted provider deals, but in Asia-Pacific, provider investments focused on hospital chains, clinics (both multi- and single-specialty), and senior living. Other notable investments in healthcare IT targeted core systems of record and revenue cycle management within the provider space…

After declining in 2023, healthcare IT dealmaking rebounded in 2024 due to several factors. First, providers, facing financial pressures and shifting reimbursement models, are investing in core systems to boost efficiency. In response, PE firms are increasingly investing in assets supporting workflow improvements, such as TPG’s acquisition of Surescripts, an electronic prescription network…”

Healthcare Private Equity Market 2024: Year in Review and Outlook Bain Capital January 9, 2025 https://www.bain.com/insights/year-in-review-and-outlook-global-healthcare-private-equity-report-2025/

Pitchbook: Benchmarks for private investment for the LTM through September, 2024 vs. S&P: IRRs for all private capital (+ 6.85%), private equity (+9.34%), venture capital (-1.88%), real estate (-3.48%), real assets (+7.57%), private debt (+9.53%), fund of funds (+2.38%), secondaries (+4.97%).

Pooled IRR returns vs. S&P 500 Index return: 2023; +13.44% vs. +26.14%, 2022: +10.84% vs. +9.18%, 2021: +9.67% vs. +11.56%, 2020:+15.30% vs. +15.39%, 2019: +17.04% vs. +15.22%.

Pitchbook Benchmarks January 9, 2025 https://pitchbook.com/news/reports/q2-2024-pitchbook-benchmarks-with-preliminary-q3-2024-data?

BLS Labor Report: U.S. Job Growth Employers finished the year with a burst of hiring, adding 256,000 jobs in December. The unemployment rate ticked down to 4.1%. Total nonfarm payroll employment rose by 256,000 in December. Employment trended up in health care, government, and social assistance. Retail trade added jobs in December, following a job loss in November. Payroll employment rose by 2.2 million in 2024 (an average monthly gain of 186,000), less than the increase of 3.0 million in 2023 (an average monthly gain of 251,000).

Health care added 46,000 jobs in December, with gains in home health care services (+15,000), nursing and residential care facilities (+14,000), and hospitals (+12,000). Health care added an average of 57,000 jobs per month in 2024, the same as the average monthly gain in 2023.

Employment Situation Summary – 2024 M13 Results

WSJ on BLS Jobs Report: “The U.S. labor market has found its footing, a relief to households and businesses but a growing cause for concern in financial markets.

The U.S. economy added 256,000 jobs in December and the unemployment rate edged down to 4.1%, the Labor Department said Friday. Last month’s gain in nonfarm payrolls was the biggest since March and well above the 155,000 jobs that economists had expected, according to a Wall Street Journal survey. The unemployment rate was also better than the expected 4.2%.

Friday’s jobs report was the latest sign that the U.S. labor market has recovered from its midyear stumble and might even be gaining steam. As such, it shuts the door on an interest-rate cut at the Federal Reserve’s next meeting, which is Jan. 28-29. It also reduces the chances of a cut at the Fed’s subsequent meeting in March.

“The labor market definitely cooled throughout 2024, and the concern was that it was cooling too fast,” said Blerina Uruçi, chief U.S. economist at T. Rowe Price. “I don’t think that concern is valid anymore.”

Hiring Blew Past Expectations With 256,000 Jobs Added in December ttps://www.wsj.com/economy/jobs/jobs-report-december-2024-unemployment-economy-c8031ef9?mod=itp_wsj,djemITP_h

NYT on BLS Jobs Report: “Employers stuck the landing in 2024, finishing the year with a bounce of hiring after a quarter filled with disruption. The economy added 256,000 jobs in December, seasonally adjusted, the Labor Department reported on Friday. It was a better-than-expected number amid a labor market that has been slowly cooling for two years. The unemployment rate edged down to 4.1%.

Although it’s too early to call it a trend, the strong result — unclouded by the strikes and storms of previous months — may signal renewed vigor after months of caution among both workers and businesses.

• Wages still strong: Average hourly earnings rose 0.3%over the month, in line with expectations, amounting to a 3.9% gain since last year.
• Growth powered by the usual suspects: Health care, government, social assistance, and leisure and hospitality were the main drivers of the strong showing. But retail returned from what had been a largely flat year in the sector, adding 43,000 jobs.
• Labor force participation recedes: The share of people between the ages of 25 and 54 who were either working or looking for work edged down to 83.4%, and is now half a point lower than the 83.9% it reached earlier last year. The drop was led entirely by men; the participation rate for prime-age women rose.
• Analysts blown away: “American exceptionalism is the primary takeaway from one of the more remarkable years in labor market dynamics over the past half a century,” wrote Joe Brusuelas, chief economist at the accounting and consulting firm RSM. “It is hard to say anything negative about the details of this report,” added Thomas Simons, chief U.S. economist at the investment banking firm Jefferies.

U.S. Job Growth Ends the Year Strong NYT January 10, 2025

Poll: Global Priorities Survey Results: “CFR’s Preventive Priorities Survey (PPS) polls hundreds of foreign policy experts every year to assess thirty ongoing or potential violent conflicts and their likely impact on U.S. interests. Highlights:

• “This year could be the most dangerous in the PPS’s seventeen-year history: experts predict that more contingencies have both a high likelihood of occurring and high impact on U.S. interests than ever before. Wars in Gaza and Ukraine, confrontations in the West Bank and at the U.S.-Mexico Border, and hostilities between Iran and Israel were of the greatest concern.
• Deteriorating security conditions in the Middle East top this year’s list, followed by threats to the American homeland (domestic political violence, cyberattacks, and a security crisis at the southern border), Russian aggression in Ukraine and eastern Europe, and Chinese provocation in the Taiwan Strait and the South China Sea.
• Severe humanitarian crises in Haiti, Sudan, Somalia, and elsewhere rose in the rankings of this year’s survey relative to previous years.”

Conflicts to Watch in 2025 Council on Foreign Relations January 2025

Altarum: December 2024 Health Sector Economic Indicators:

• “Health spending grew by 7.5% in 2023. We have incorporated these estimates into this spending brief. In October 2024, national health spending grew by 7.6%, year over year, and represents 18.1% of GDP. Nominal GDP in October 2024 was 5.1% higher than in October 2023, growing 2.5 percentage points more slowly than health spending. Personal health care spending growth in October was 7.8%, year over year, with utilization growth continuing to outpace price growth.  Growth among major spending categories continued to be highest for home health care, at 11.1%, year over year. Spending growth for hospital care grew the slowest, at 6.8%.
• Economy-wide inflation overtakes health care price increases: The overall Health Care Price Index (HCPI) increased by 2.6% year over year in November, down 0.1 percentage points from last month’s revised value. Economy-wide inflation rose, with year-over-year growth in the overall Consumer Price Index (CPI) increasing by 0.1% to 2.7% and growth in the Producer Price Index (PPI) increasing 0.4% to 3.0%.  This is the first time both indices have surpassed the health care price index since February 2023. Among the major health care categories, prices for dental care (3.9%), and hospitals (3.1%) were the fastest growing, while prescription drugs were the slowest (0.7%).
• Utilization: Home health care utilization increased 9.6% year over year.  While this was the fastest-growing category this month (as it has been since August of 2023), it is now sitting below its 3-, 6-, and 12-month moving averages. This category was followed by physician and clinical services (7.1%), nursing care (5.9%), dental services (5.9%), and prescription drugs (also 5.9%), while hospital care and trailed the other categories at 3.6%.
• Nominal health care wage growth in October 2024 was 3.5% year over year, with growth rates of 3.6% in ambulatory health care services, 3.5% in nursing and residential care facilities, and 3.7% in hospitals.”

Altarum December 2024 Health Indicators https://altarum.org/news-and-insights/december-2024-health-sector-economic-indicators-briefs https://altarum.org/news-and-insights/december-2024-health-sector-economic-indicators-briefs

 

Governance

Conference Board Survey on DEI: “Corporate diversity efforts are quickly falling out of fashion, especially as President-elect Trump heads back to the White House.

Zoom in: Anti-DEI proposals typically ask public firms to scrutinize their DEI policies to see if they pose legal, financial or reputation risks.

• There were 13 anti-DEI proposals at Russell 3000 firms last year, per research provided to Axios by the Conference Board.
• The number of anti-DEI proposals is still a fraction of the pro-DEI proposals, but has more than tripled since 2020.
• The companies targeted were biggies like Alphabet, Apple, Coca-Cola, Starbucks and Boeing, which dismantled its DEI department last year.

Zoom out: Critics say DEI pushes companies to hire less-qualified candidates. They blame the three-letter acronym for all kinds of things (plane crashes, domestic terrorism, infrastructure collapse).

• Their opposition got a huge boost in 2023, after the Supreme Court overturned affirmative action at the university level.
• After the ruling came down, scrutiny of company programs grew — and some groups began filing lawsuits against corporations for, effectively, discriminating against white people in hiring.
• Of 70 senior executives recently surveyed by the Conference Board, 69% said the ruling negatively affected their DEI efforts.

Anti-DEI shareholder proposals tripled since 2020 Axios January 8, 2025 www.axios.com

NACD on Reputation Risk: “We often speak about reputation risk as we would speak about the weather: it is ever-present and potentially bothersome, but manageable. Today, such complacency would be ill-advised.

• Reputation Risk Can Lead to Sudden Catastrophic Loss
• Reputation Risk Can Be Beyond Board Control and Oversight
• How Did Reputation Risk Invade the Boardroom? Reputation risks are like bankruptcies: they come along gradually, and then all at once.
• Personal Reputation Risk Loss Is Likely. Directors are vulnerable to the collective judgment of fellow board members, investors, and the court of public opinion.
• Directors Appreciate Reputation Insurance Options

Is Reputation Risk Beyond Control and Oversight? NACD January 6, 2025 https://www.nacdonline.org/all-governance/governance-resources/directorship-magazine/online-exclusives/2025/q1-2025/is-reputation-risk-beyond-control-and-oversight/

 

Hospitals

AHA Strategic Plan 2025-2027: The AHA Board approved plan was released last week featuring its four roles (Advocacy and Representation, Thought Leadership, Knowledge Exchange, Agents of Change), 9 operating principles and 18 strategies to implement the plan. Principles: “The health care ecosystem should…

• Provide timely access to the full continuum of health care services.
• Provide coverage and care that is affordable.
• Provide equitable care and achieve equitable outcomes.
• Be safe, high quality, reliable and evidence based.
• Be sustainably staffed with a ready workforce and safe workplaces.
• Be economically viable and appropriately resourced.
• Be innovative, transformative, environmentally conscious and data driven.
• Be committed to coordination and collaboration across all stakeholders.
• Be person-centered and oriented around the individual.

PK Note: This 6-page document references 18 strategies AHA will pursue in execution of the principles above. Of unique significance in the plan: 1- collaboration with the public health community via the Common Health Solution, 2- AHA’s role as a convener of other stakeholders in the system to coordinate services, 3-lack of attention to physician wellbeing & business relationships (hospitals directly employ more than half) 4-lack of reference to “value” and incentive changes. A worthwhile foundation on which AHA can build.

American Hospital Association 2025-2027 Strategic Plan www.aha.org

VMG Leader survey:

• “90% of healthcare leaders expect financial performance to be similar to or better than 2024” based on increased utilization (77%).
• 64% of respondents selected “Mounting physician losses/subsidies” as their most significant challenge with their physician alignment strategy. 01 Strong Financial Performance Indicators

VMG Health – Health System Leader Expectations for 2025.pdf

Building Trust: Trustworthiness, as described by the Association of American Medical Colleges’ Center for Health Justice, is a “necessary precursor to trust that is rooted in honesty and honors lived experience.” It is also key to a successful patient-provider partnership. Trustworthiness is fundamental, humanistic, and earned based on actions taken to address unmet needs.

Yet, today we are faced with a glaring yet major problem: the erosion of trustworthiness in our health system…Based on our research and discussions, we concluded that health systems are trustworthy when they take the following actions described below:

• Implement Or Generate Evidence at The Point of Care
• Address And Correct Power Dynamics That Do Not Put Patients First
• Protect And Value Transparency and Patient Data Discretion and Representation
• Integrate Community-Level Support into Care
• Address Complexities That May Reduce or Restrict Access to Care.”

Health Systems Must Take Action To Achieve Trustworthiness Health Affairs January 10, 2025 https://www.healthaffairs.org/content/forefront/health-systems-must-take-action-achieve-trustworthiness

Hospital price transparency: “Hospitals, CMS and advocacy groups are clashing over how well regulations intended to help patients shop around for health care and drive competition among hospitals are working heading into the Trump administration.

In 2020, then-President Donald Trump’s HHS finalized rules requiring hospitals to make public their negotiated prices with insurers.

Groups like PatientRightsAdvocate.org have argued the Biden administration has rolled back the rules, making them less useful, by allowing hospitals to post algorithms instead of prices.

Compliance has been mixed. An HHS watchdog found that 37 of 100 randomly sampled hospitals didn’t comply with price transparency regulations, and PRA’s estimates found nearly 80 percent of 2,000 hospitals did not comply. The group used a different methodology than CMS, and hospitals have disagreed with PRA’s findings.

CMS has defended the rules, disputing there’s been a “rollback” and saying its enforcement process has been effective, with more than half of cases closed after a warning and more than 99 percent of hospitals ultimately complying…”

Price Transparency Divides Hospitals https://www.politico.com/newsletters/politico-pulse/2025/01/08/price-transparency-divides-hospitals-cms-00197021

HFM Survey: Hospital CFO Views on Payer-Provider Relations: In response to question: “How would you characterize the changes in your organization’s relationships with payers over the past three years”:

• Mostly positive: 7%
• Somewhat positive: 16%
• No significant changes: 20%
• Somewhat negative: 36%
• Mostly negative: 22%

HFMA, Bridging the Payer-Provider Divide, October 2024

Kaufman Hall: Hospital divestitures Per KF “Health systems divested hospitals at a record pace last year in 2024. Nearly two-thirds of the 72 announced hospital transactions in 2024 involved an organization that was selling facilities— double the percentage in 2023. Much of that activity was linked to the restructuring of Steward Health Care, which in May filed for Chapter 11 bankruptcy protection with plans to sell its entire 31-hospital network.

• 30% of the divested hospitals were in financial distress
• The average annual revenue of the seller involved in financially distressed hospital deals last year was $401 million, up from $138 million in 2023.
• The 72 announced hospital transactions in 2024 were still well below the high of 117 in 2017.

Kaufman Hall www.kaufmanhall.com

Case study: Providence Ventures: Last Tuesday, Renton, Washington-based health system Providence Health (PH) said it will spin off its ventures arm to Allumia Ventures and remain as a limited partner committing $150 million over the next 10 years.

PH reported a $6 billion net loss in 2022, a $596 million loss in 2023 and loss of $155 million for the first nine months of 2024. It is in the midst of a major reorganization led by its new CEO Eric Wexler, who served in senior leadership at PH for 9 years after earlier stents at Tenet and Vanguard Health.

Providence spins out venture capital arm, invests $150M in 3rd fund https://www.allumiaventures.com/news-insights/providence-ventures-spins-out-form-allumia-ventures

 

Insurers

Insurer consolidation: “Over the past few years the health insurance industry has experienced a series of major mergers and acquisitions, further consolidating power into the hands of a few dominant companies — leaving Americans with fewer options.

In 2018, CVS Health (CVS) acquired Aetna. That same year Cigna (CI) bought Express Scripts and in 2023, Kaiser Permanente merged with Geisinger. As of 2023, just four health insurers control a staggering 50% of the market, while six companies account for 30% of all healthcare spending in the United States. While these mergers have boosted profits for these companies, they also, in some cases, raised premiums for consumers.

• UnitedHealth Group – 15%
• Elevance Health — 12%
• CVS Health (Aetna) — 12%
• Cigna — 11%
• Health Care Service Corporation (HCSC) — 7%
• Kaiser Permanente, which merged with Geisinger in 2023, has a market share of 7%
• Centene, BS of California, BCBS of Michigan, BCBS of Florida — 2%

The seven are projected to have an annual medical care ratio of early 86% for 2024.

The 7 biggest health insurance companies that control almost 75% of the market Quartz January 6, 2025 https://qz.com/unitedhealth-cvs-health-insurance-market-share-1851727627?utm_source=Quartz_Daily_Brief_US&utm_medium=email&utm_campaign=2025-01-07

CMS: ACA marketplace enrollment at record high: Last Wednesday, CMS reported that ACA marketplace enrollment reached a 4^th consecutive year record high of 23.6 million including 3.2 million new enrollees, up from 21.4M in 2024. This includes 3.2M people who enrolled in an ACA plan for the first time in 2025. A major factor in enrollment growth has been enhanced subsidies, first passed in 2021 and set to expire at the end of 2025, that The shield most enrollees from experiencing premium increases, which are up an average of 7% this year. Open enrollment continues until Jan. 15 for the 31 states that use HealthCare.gov and most state-based marketplaces for coverage beginning Feb. 1.

CMS www.cms.gov

 

Investors

Pitchbook:AI Investment in 2024 “Investments in AI for emerging healthcare & life sciences innovations remained consistent through the end of 2024, indicating investor confidence in the transformative potential of AI technology across these industries. Deal activity held steady through the period, and the $10.5 billion invested across 511 deals in 2024 was slightly above 2023, according to our latest Emerging Tech Research. The AI applications include disease detection, surgical robotics, drug discovery and clinical documentation. The ultimate success of AI in healthcare will depend on several critical factors including:

• Clinical validation of AI-discovered drugs through rigorous trials
• Navigating complex regulatory landscapes for widespread adoption
• Building trust and confidence in real-world AI applications among providers and patients.”

AI Healthcare & Life Sciences VC Market Snapshot Pitchbook January 6, 2025 www.pitchbook.com

 

Physicians

AAMC: 2024 Matriculant data: The total number of medical school applications declined for the third consecutive year, dropping 1.2% to its lowest level since 2017 to 2018. Women made up 56.8% of 2024-to-2025 applicants.

• The total number of first-time applications increased by 2.3%.
• The total number of Black or African American applicants increased 2.8%.
• The total number of Hispanic or Latino applicants also increased 2.2%.

Total medical school enrollment in 2024 to 2025 was 99,562, up 1.8% from the previous academic year.

• The number of first-year enrollees climbed 0.8%.
• Women matriculants increased 0.2%, marking the smallest increase since 2010 to 2011.
• Nearly 3% of matriculants were older than 30.

New AAMC Data on Medical School Applicants and Enrollment in 2024 AAMC January 9, 2025 https://www.aamc.org/news/press-releases/new-aamc-data-medical-school-applicants-and-enrollment-2024

Study: Resident preparedness: This retrospective, cross-sectional study used Resident Readiness Survey (RRS) data collected from 29,461 PDs from 2020 through 2023. Findings:

PGY-1 residents who graduated from US medical schools found that 3.2% did not meet the overall expectations of program directors. “However, this percentage varied significantly by specialty category…. (range, 11 of 1482 [0.7%] for transitional year to 235 of 3775 [6.2%] for family medicine).). In multivariable regression, compared with internal medicine, the odds of residents not meeting (vs met or exceeding) expectations were higher for PGY-1 residents in family medicine (adjusted odds ratio [AOR], 2.09 [95% CI, 1.70-2.58]), general surgery (AOR, 2.05 [95% CI, 1.62-2.58]), and obstetrics and gynecology (AOR, 1.64 [95% CI, 1.24-2.15]); in contrast, the odds were lower for PGY-1 residents in other surgical specialties (AOR, 0.60 [95% CI, 0.42-0.84]), other nonsurgical specialties (AOR, 0.61 [95% CI, 0.44-0.85]), and transitional year (AOR, 0.22 [95% CI, 0.12-0.42]) vs internal medicine.”

Program Directors’ Assessments of US Medical Graduates’ Transition to Residency JAMA January 9, 2025 https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2828865?utm_source=silverchair&utm_medium=email&utm_campaign=article_alert-

 

Prescription Drugs

AARP Report: Drug prices: “The analysis in this AARP Public Policy Institute Spotlight report is based on the 25 brand-name drugs with the highest total Medicare Part D spending in 2022 (“top 25 drugs”) that have not yet been selected for Medicare drug price negotiation, as reported in the Medicare Part D Spending by Drug Dashboard. Overall, these top 25 drugs were responsible for nearly $50 billion in total Medicare Part D spending in 2022 and were used by a total of more than seven million Part D enrollees.

The report finds that list prices for the 25 top Medicare Part D drugs not currently selected for Medicare drug price negotiation have increased by an average of 98% (range 0-293%)—or nearly doubled—since they first entered the market. These lifetime price increases often greatly exceeded the corresponding rate of general inflation. “

Prices for Top Medicare Part D Drugs Have Nearly Doubled Since Entering the Market AARP January 9, 2025 https://www.aarp.org/pri/topics/health/prescription-drugs/prices-top-medicare-part-d-drugs-entering-market/

Cowan: Prescription Drug forecast: The investment bank polled 27 health maintenance organizations, pharmacy benefit managers, and hospitals during the fourth quarter of 2024, post-election. This group was responsible for about one-fourth of total U.S. drug spending in 2024 — about $179 billion. The respondents expressed a general consensus that drug prices are likely to continue rising steadily, fueled by a pipeline of high-cost treatments. In 2024, per-unit costs for branded drugs rose by an average of 7%, up from a 5% increase in 2023…

Looking ahead to 2025, Cowen analysts predict that acquisition costs — the actual price paid to a drug maker — for branded drugs will increase by another 7%. Over the following three years, however, price growth is expected to slow, with annual increases averaging around 3%.

“These price hikes come despite federal efforts to rein in costs, including the Inflation Reduction Act (IRA). The IRA, which began capping out-of-pocket costs for patients last year, also allows Medicare to negotiate prices on some of the most expensive drugs.”

New drugs mean higher prices — and a big year for Big Pharma Quartz January 9, 2025https://qz.com/drug-prices-survey-td-cowen-

 

Public Health

Study: Fluoride treatment in child IQ: A systematic review published in JAMA Pediatrics last week found a slight decrease in IQ scores overall as levels of fluoride exposure increase. “Despite differences in exposure and outcome measures and risk of bias across studies, and when using group-level and individual-level exposure estimates, this systematic review and meta-analysis of 74 cross-sectional and prospective cohort studies found significant inverse associations between fluoride exposure and children’s IQ scores.” But the authors acknowledged that many of the papers included in the analysis had a “high risk of bias,” and they said their work was not designed to address the public health implications of water fluoridation in the U.S.

Fluoride Exposure and Children’s IQ Scores a Systematic Review and Meta-Analysis JAMA Network January 6, 2025 JAMA Pediatrics. Published online January 6, 2025. doi:10.1001/jamapediatrics.2024.5542

Economist on youth sobriety: “The trend towards youthful sobriety holds true for much of the rich world. In 2024 illicit drug use among adolescents dropped to historical lows in America, according to a nationwide survey published on December 17th by the University of Michigan. Drinking fell, too. The researchers found that even cannabis use is now declining fast among the young, despite weed having been made legal in almost half of states over the past decade. European surveys show continuing drops in drug and alcohol use too.

Why is youthful excess dying out? There is no single explanation. Children are more closely watched than in the past, and a higher share of young adults are from more abstemious immigrant cultures. Age ID checks at bars are more common; Netflix and Fortnite are cheaper than cider; and dating apps are better than finding love on the sticky floors of a place called “Snobs”. The trend is clear and seems likely to last. It’s their parents who are the problem now.”

Young people are having less fun The Economist January 2, 2025