Fifty-four percent of CFOs say that their CEOs are asking them to focus on cost reduction while 40 percent indicate that their CEOs want them honing in on strategy and transformation, according to Deloitte’s “CFO Signals Survey 2Q 2023.”
More than one-quarter of CFOs in the survey reported that their CEOs are asking them to focus on working capital efficiency and risk management while over one-third of CFOs said their CEOs want them focused on strategy and transformation, performance management, revenue growth, investment and capital/financing.
Since 2010, Deloitte has surveyed leading CFOs representing some of North America’s largest companies to provide insight into the business environment, company priorities and expectations, finance priorities and CFOs’ priorities.
Participating CFOs represent diversified, large companies, with 81 percent of respondents reporting revenue in excess of $1 billion. Twenty-three percent are from companies with more than $10 billion in annual revenue, according to Deloitte.
Forget “repeal and replace,” an oft-repeated Republican rallying cry against the Affordable Care Act.
House Republicans have advanced a package of bills that could reduce health insurance costs for certain businesses and consumers, partly by rolling back some consumer protections. Rather than outright repeal, however, the subtler effort could allow more employers to bypass the landmark health insurance overhaul’s basic benefits requirements and most state standards.
At the same time, the Biden administration seeks to undo some of the previous administration’s health insurance rules, proposing to retighten regulations for short-term plans.
Health policy experts aren’t surprised. Most of the GOP policy ideas have long drawn Republican support, have raised concern from Democrats about reduced consumer protections, and could fall under the theme: Everything old is new again.
Association Health Plans. Self-insurance. Giving workers money to buy their own individual coverage instead of offering a group plan. These are the buzzwords and, ultimately, revolve around one issue, said Joseph Antos, a senior fellow at the American Enterprise Institute, a Washington, D.C.-based think tank.
“The real problem is the rising cost of health care. Always has been,” he said. And that problem, he added, is larger than the proposed solutions.
“It’s not clear that this kind of an approach would substantially help very many people,” Antos said.
The latest round of rules and legislation comes as the ACA — passed in 2010 — is now cemented in the system. More than 16 million people enrolled in their own plans this year, and millions more are getting coverage through expanded Medicaid in all but 10 states, leading to an all-time-low uninsured rate.
But even with enhanced subsidies for ACA health plans, initially approved in the American Rescue Plan and extended through 2025 by the Inflation Reduction Act, some people still struggle to afford deductibles or other costs, and employers — especially small ones — have long wrestled with rising insurance costs and the ability to offer coverage at all.
So, what is on the table in Washington? First, a caveat: Little is likely to happen in an election year.
While the Biden administration’s proposed regulations on short-term plans are likely to go into effect, either this year or early next, the GOP’s House-passed legislation — dubbed the CHOICE Arrangement Act, for Custom Health Option and Individual Care Expense — is unlikely to win favor in the Democratic-controlled Senate. If Republicans were to retake the Senate and White House, though, it illustrates the health policy direction they could take.
Here are the broad issues on the radar:
From the President’s Desk: Limits on Short-Term Policies
These types of plans have been sold for decades, often as a stopgap measure for people between jobs.
They can be far less expensive than more traditional coverage because short-term plans vary widely and “run the gamut from comprehensive policies to fairly minimal policies,” said Louise Norris, an insurance broker who regularly writes about health policy.
The plans don’t have to cover all the benefits required of ACA plans, for example, and can bar coverage for preexisting medical conditions, can set annual or lifetime limits, and often don’t include maternity care or prescription drugs. Despite notices warning of such policies’ limitations, consumers may not realize what isn’t covered until they try to use the plan.
Concerned that people would choose this option instead of more comprehensive and more expensive insurance offered through the ACA, President Barack Obama’s administration set rules limiting the policy terms to three months.
President Donald Trump’s administration loosened those rules, allowing plans to again be sold as 364-day policies, and adding the ability for insurers to renew them for up to three years. Now President Joe Biden, whose representatives have called such plans “junk insurance,” proposes reining those in again, restricting policies to four months, at most.
The Biden proposal cites estimates from the Congressional Budget Office and the Joint Committee on Taxation that about 1.5 million people are enrolled in such plans.
Michael Cannon, director of health policy studies at the Cato Institute, a Washington, D.C.-based libertarian think tank, decried the proposed rule in an opinion piece published by The Hill. He wrote that the Biden proposal removes an important lower-cost alternative and could leave some consumers facing “sky-high medical bills for up to one year” if their policies expire between open enrollment periods for ACA plans.
The real fight comes down to defining “short-term,” said John McDonough, a professor of public health practice at the Harvard T.H. Chan School of Public Health in Boston, who worked on the original ACA legislation.
Progressives and Democrats support the view that “short-term” should end after four months and “then people go into an ACA plan or Medicaid,” he said. “Republicans and conservatives would like this to be an alternative permanent coverage model for folks, some of whom legitimately know what they are getting and are willing to roll the dice.”
Association Health Plans, Self-Insurance, and Other Workplace Issues
Meanwhile, the House-passed CHOICE Arrangement Act, among other things, would allow more self-employed people and businesses to band together to buy Association Health Plans, which are essentially large group plans purchased by multiple employers.
These can be less expensive because they don’t have to meet all ACA requirements, such as covering a specified set of benefits that includes hospitalization, prescription drugs, and mental health care. Historically, some also have had solvency issues and state regulators have investigated claims of false advertising by certain association plans.
Another piece of the legislation would help more small employers self-insure, which also allows them to bypass many ACA requirements and most state insurance rules.
Both proposals represent a “chipping away at the foundation edges of the ACA structure,” said McDonough.
The package also codifies Trump-era regulations allowing employers to provide workers with tax-free contributions to shop for their own insurance, so long as it is an ACA-qualified plan, a benefit known as an individual coverage Health Reimbursement Account.
The CHOICE Arrangement Act “will go a long way toward reducing insurance costs for employers, ensuring that workers continue to have access to high-quality, affordable health care,” said Rep. Tom Cole (R-Okla.) in prepared remarks as the bill went before the House Committee on Rules in June.
Giving workers a set amount of money to buy their own coverage allows employees to choose what works best for them, supporters say. Critics warn that many workers may be unprepared to shop and that the effort by some employers might prove discriminatory.
”Firms may find strategies to shift sicker workers to HRAs, even with guardrails in the legislation meant to prevent this,” according to a blog post from the Center on Budget and Policy Priorities.
Not so, said Robin Paoli, executive director of the HRA Council, a nonprofit advocacy organization whose members include insurers, employers, and other organizations that support such individual accounts.
Employers have some discretion in choosing which groups of employees are offered such accounts, often based on geography, but cannot create a group made up solely of “people over 65, or a class of sick people,” said Paoli. “The rules absolutely prohibit discrimination based on age or health condition.”
The other two ideas — associations and the self-insured proposal — have drawn opposition from the National Association of Insurance Commissioners, which wrote to House leaders that the package “threatens the authority of states to protect consumers and markets” because it affects the ability of states to regulate such plans.
Current law allows businesses in the same industry to band together to buy coverage, essentially creating a larger pool that then can, theoretically, wield more negotiating clout and get better rates.
The House legislation would make changes to allow more self-employed people and businesses that aren’t in the same industry to do the same.
Some policy experts said expanding access to association plans and self-insurance to smaller businesses might adversely affect some workers by drawing healthier people out of the overall market for small-group insurance and potentially raising premiums for those who remain.
“The big picture of what these bills do is allow [employers and] insurance companies to get out from under the ACA standards and protections and offer cheaper insurance to younger and healthier employee groups,” said Sabrina Corlette, a researcher and the co-director of the Center on Health Insurance Reforms at Georgetown University.
But attorney Christopher Condeluci, who worked with GOP lawmakers in drafting the legislation, takes a different view. The entire GOP package, he said, represents “improvements to the status quo” that are needed because small businesses and individuals are confronting “health costs continuing to rise” and “out-of-pocket costs continuing to increase.”
Value-based healthcare, the holy grail of American medicine, has three parts: excellent clinical quality, convenient access and affordability for all.
And as with the holy grail of medieval legend, the quest for value-based care has been filled with failure.
In the 20th century, U.S. medical groups and hospital systems could—at best—achieve two elements of value-based care, but always at the sacrifice of the third. Until recently, American medicine lacked the clinical knowhow, technology and operational excellence to accomplish all three, simultaneously. We now have the tools. The only thing missing is “system-ness.”
What Is System-ness?
System-ness is the effective and efficient coordination of healthcare’s many parts: outpatient and inpatient, primary and specialty care, financing and care delivery, prevention and treatment.
By bringing these disparate pieces together within a well-functioning system, healthcare providers have the opportunity to maximize clinical outcomes, weed out waste, lower overall costs and provide greater levels of convenience and access.
Who Are The Search Parties?
In the future, system-ness will be the variable that determines whether healthcare transformation is led by (a) incumbent health systems like Kaiser Permanente and Geisinger Health or (b) the retail giants like Amazon, CVS and Walmart. The latter group has become an ever-growing threat in the healthcare arms race, quickly amassing their own (though still modest) systems of care through billion-dollar acquisitions.
Although both the incumbents and new entrants will struggle to implement value-based care on a national scale, the victor stands to earn hundreds of billions of dollars in added revenue and tens of billions in profits.
To better understand the power of system-ness, and the challenges all organizations will face in providing it, here are three examples of value-based-care solutions implemented successfully by Kaiser Permanente.
1. Preventing Problems, Managing Disease
Research demonstrates that preventive medicine and early intervention reduce heart attacks, strokes and cancer. Yet our nation falls far short in these areas when compared to its global peers.
One example is hypertension, the leading cause of strokes and a major contributor to heart attacks. With help from doctors, nearly all patients can keep high blood pressure under control. Yet, nationally, hypertension is controlled only 60% of the time.
We see similarly poor rates of performance when it comes to prevention and screening for cancers of the colon, breast and lung.
Undoing these troubling trends requires system-ness. In Kaiser Permanente, 90% of patients had their blood pressure controlled and were screened for cancer. Getting there required a comprehensive electronic health record, a willingness for every doctor (regardless of specialty) to focus on prevention, leadership that communicated the value of prevention and a salary structure that rewarded group excellence.
2. Continuous Care, Without Interruption
Most doctors’ offices are open Monday to Friday during normal business hours—only one-fourth of the time that a medical problem might occur.
At night and on weekends, patients have no choice but to visit ERs. There, they often wait hours for care, surrounded by people with communicable diseases. Their non-emergent problems generate bills 12-times higher than if they’d waited to be seen in a doctor’s office.
There’s a better way. In large-enough medical groups, hundreds of clinicians can provide round-the-clock care on a rotating, virtual basis—using video to assess patients and make evidence-based recommendations.
This approach, pioneered by physicians in the Mid-Atlantic Permanente Medical group, solved the patient’s problem immediately 70% of the time without a trip to the ER and, for the other 30%, enabled coordination of medical care with the ER staff.
3. Specialized Medicine, Immediate Attention
When a primary care physician needs added expertise (from a dermatologist, urologist or orthopedist), it’s usually the responsibility of the patient to make their own specialty appointments, check with insurance for coverage and provide their medical records.
This takes hours or days to coordinate and can delay care by weeks, resulting in avoidable complications.
But in a well-structured system, there’s no need to wait. Using telehealth tools at Kaiser Permanente, primary care doctors can connect instantly with dozens of different specialists—often while the patient is still in the exam room. Once connected, the specialist evaluates the patient and provides immediate expertise.
This way, care is not only faster and less expensive, but also better coordinated. Data from within Kaiser Permanente show that these virtual consultations resolve the patient’s problem 40% of the time without having to schedule another appointment. For the other 60%, the diagnostic process can begin immediately.
The Foundations For System-ness
Few organizations in the U.S. can or do offer these system-based improvements. Doing so requires skilled physician leadership, a shift in the financial model and a willingness to accept risk.
In fact, most organizations across the U.S. that claim to operate “value-based” systems actually rely on doctors who are scattered across the community, disconnected from each other and paid on the basis of volume (fee-for-service) rather than value (capitation).
As a result, patient care is fragmented and uncoordinated, leading to repeated tests and ineffective treatments, thus increasing medical costs and compromising medical outcomes.
Value-based care (superior quality, access and affordability) requires teams of clinicians working together as one—all paid on a capitated basis.
Without capitation, dermatologists will insist on seeing every patient in their office where they can bill insurance five-times more than with a tele-dermatology visit. And gastroenterology specialists will insist that all patients have colonoscopy rather than recommending low-risk patients do a safe, convenient, at-home colon cancer screening (called a fecal immunochemical test or “FIT”) at 5% of the cost.
In these cases, individual doctors don’t consciously make care inconvenient for patients. Rather, it is the only choice they have when working in a fee-for-service payment model. Ultimately, system-ness is best achieved when health systems are integrated, prepaid, tech-enabled and physician-led.
Amazon, CVS, Walmart Know About Systems
These three companies are global leaders in “system-ness,” at least in retail. Combined, they have a market cap of $1.88 trillion, employ 3.4 million Americans and are looking to take a slice of U.S. healthcare’s $4.3 trillion annual expenditures.
Already, they manage complex order-entry and fulfillment systems. They use technology to streamline everything from customer service to supply-chain management. They are led through a clear and effective reporting structure.
In terms of competing for healthcare’s holy grail, these are huge competitive advantages compared to today’s uncoordinated, individualized, leaderless healthcare industry.
As retailers vie to bring their system knowhow to American medicine, they are acquiring the pieces needed to compete with the healthcare incumbents. They’ve spent tens of billions of dollars on medical groups that are committed to value-based care (One Medical, Oak Street Health, etc.). They’ve also spent massive sums on home-health companies (Signify) and on pharmacies (PillPak), along with expanding their in-store, at-home and online care options. Many of these care-delivery subsidiaries are focused on Medicare Advantage, the capitated half of Medicare where financial success is dependent on high quality medical care provided at lower cost.
What’s more, all these retailers have a national presence with brick-and mortar facilities in nearly every community in the country—a leg up on nearly every existing health system.
Who Will Win—And Why?
Trying to pick the victor in the battle to transform American medicine at this point is like selecting the winner of a heavy-weight championship boxing match after three evenly matched rounds. Intangibles like stamina, courage and willingness to absorb pain have yet to be tested.
In The Innovator’s Dilemma, the late Clayton Christensen examined historical battles between incumbent organizations and new entrants. After analyzing dozens of industries, he concluded new entrants routinely become the victors because the incumbents move too slowly and fail to embrace the need for major change.
And from that perspective, if I had to wager, I’d put my money on the retail giants.
But there’s an even more worrisome potential outcome: neither those inside nor outside of healthcare will make the necessary investments or accept the risk of leading systemic change. As a result, the movement toward value-based healthcare will stall and die.
In that context, purchasers of healthcare (businesses, the government and patients) will encounter a difficult reality: over the next eight years, medical costs will nearly double, creating an unaffordable and unsustainable scenario. As a result, our nation will likely experience reduced medical coverage, increased rationing, ever-longer delays for care and a growth in health disparities.
If that day arrives, our country will regret its inaction.
In behavioral economics, the sunk cost fallacy describes the tendency to carry on with a project or investment past the point where cold logic would suggest it is not working out. Given human nature, the existence of the sunk cost fallacy is not surprising. The more resources—time, money, emotions—we devote to an effort, the more we want it to succeed, especially when the cause is an important one.
Under normal circumstances, the sunk cost fallacy might qualify as an interesting but not especially important economic theory. But at the moment, given that 2022 will likely be the worst financial year for hospitals since 2008 and given that the hospital revenue/expense relationship seems to be entirely broken, there is little that is theoretical about the sunk cost fallacy. Instead, the sunk cost fallacy becomes one of the most important action ideas in the hospital industry’s absolutely necessary financial recovery.
Historically, cases of the sunk cost fallacy can be relatively easy to spot. However, in real time, cases can be hard to identify and even harder to act on. For hospital organizations that are subsidizing underperforming assets, identifying and acting on these cases is now essential to the financial health of most hospital enterprises.
For example, perhaps the asset that isunderperforming is a hospital acquired by a health system. (Although this same concept could apply to a service line or a related service such as a skilled nursing facility, ambulatory surgery center, or imaging center.) The costs associated with integrating an acquired hospital into a health system are typically significant. And chances are, if the hospital was struggling prior to the acquisition, the purchaser made substantial capital investments to improve the performance.
As time goes on, if the financial performance of the entity in question continues to fall short, hospital executives may be reluctant to divest the asset because of their heavy investment in it.
This understandable tendency can lead the acquiring organization to throw good money after bad. After all, even when an asset is underperforming, it can’t be allowed to deteriorate. In the case of hospitals, that’s not just a matter of keeping weeds from sprouting in the parking lot. The health system often winds up supporting an underperforming hospital with both working capital and physical capital, which compounds the losses.
And the costs don’t stop there, because other assets in the system are supporting the underperforming asset. This de facto cross-subsidy has been commonplace in hospital organizations for decades. Such a cross subsidy was probably never sustainable, but it is even less so in the current challenging financial environment.
This is a transformative period in American healthcare, when hospital organizations are faced with the need to fundamentally reinvent themselves both financially and clinically. The opportunity costs of supporting assets that don’t have an appropriate return are uniquely high in such an environment. This is true whether the underperforming asset is a hospital in a smaller system, multiple hospitals in a larger system, or a service line within a hospital.
The money that is being funneled off to support underperforming assets may be better directed, for example, toward realigning the organization’s portfolio away from inpatient care and toward growth strategies. In some cases, the resources may be needed for more immediate purposes, such as improving cash flow to support mission priorities and avoiding downgrades of the organization’s credit rating.
The underlying principle is straightforward:
When a hospital supports too many low-performing assets, the capital allocation process becomes inefficient. Directing working capital and capital capacity toward assets that are dilutive to long-term financial success means that assets that are historically or potentially accretive don’t receive the resources they need to grow and thrive. The underlying principle is a clear lose-lose.
In the highly challenging current environment, it is especially important for boards and management to recognize the sunk cost fallacy and determine the right size of their hospital organizations—both clinically and financially.
Some leadership teams may determine that their organizations are too big, or too big in the wrong places, and need to be smaller in order to maximize clinical and balance-sheet strength. Other leadership teams may determine that their organizations are not large enough to compete effectively in their fast-changing markets or in a fast-changing economy.
Organizational scale is a strategy that must be carefully managed. A properly sized organization maximizes its chances of financial success in this very difficult inflationary period. Such an organization invests consistently in its best performing assets and reduces cross-subsidies to services and products that have outlived their opportunity for clinical or financial success.
Executives may see academic economic theory as arcane and not especially relevant. However, we have clearly entered a financial moment when paying attention to the sunk cost fallacy will be central to maintaining, or recovering, the financial, clinical, and mission strength of America’s hospitals.
In an era of significant medical debt, rising healthcare costs and delayed treatments, our current healthcare system is ripe for solutions that alleviate the burden of paying patient bills.
Enter embedded finance. While not a new concept by any stretch – it has long existed in retail – fintechs and traditional banks are determined to give patients more options and a fundamentally better experience in the way they pay for healthcare services. In doing so, a financially strained domestic healthcare system stands to benefit from increased cash flow, improved health equity and optimized patient engagement.
Simply put, embedded finance is the integration of financial services – such as payment, lending, banking and insurance features – into another company’s normal service or products. We have all undoubtedly come across these offerings in our daily lives as consumers. Think private label credit cards with retail chains or airlines, digital wallet purchase options at the Amazon checkout, a buynow-pay-later (BNPL) plan from Affirm or Klarna, or insurance obtained from a car rental.
The goal of embedded finance:
is to improve a user’s experience by accessing financial services without leaving a brand’s platform. By layering application programming interface (API)-driven fintech or banking capabilities on top of a website or mobile app for, say, a hospital patient portal, the bundled solution allows the user to stay on one website or application to complete a financial transaction. Doing so removes friction in the experience and delivers a breadth of contextual information that a provider or payer can use to prompt further action on the patient’s medical journey.
The implications for embedded finance in healthcare are vast and benefit every stakeholder across the revenue cycle value chain:
Patients: Flexibility and convenience to better structure and plan bill payment while receiving greater access to financial options and additional services that improve the care experience such as reminders and health tracking
Providers: Faster and higher rates of collections coupled with ongoing patient dialogue that cements loyalty, affords clinicians the opportunity to suggest customized treatment options, and improves revenue composition and potential valuation
Payers: More efficient claims processing cycle, automated processes and improved data security
The burden of patient bills and increasing medical costs are not new to our system. Yet there has been a confluence of fundamental changes that make embedded finance particularly attractive in healthcare going forward, including increased smartphone usage and Internet penetration, COVID19 adoption of fintech products across healthcare settings, rising inflation rates that reduce a patient’s ability to pay and the adoption of mobile-based apps among younger, digitally native consumers and lower income patients.
These tailwinds support a massive addressable market as healthcare is expected to comprise approximately 23% of a U.S. embedded finance industry set to exceed $230 billion by 2025, or a 10x increase from $23 billion in 2020.
Significant attention and capital investment are accelerating the rise of embedded finance in healthcare.
Punctuated by attractive elements at the intersection of technology, financial services and healthcare sectors, nimble fintech companies and large financial institutions alike are competing for market presence. For example, pioneering healthcare-focused fintech PayZen closed $220 million in fresh capital in late 20223, while banks such as Wells Fargo and Synchrony have launched the popular medical-focused credit cards Health Advantage and CareCredit, respectively. Cain Brothers’ parent company, KeyBank, has also advanced an embedded strategy to provide healthcare digital innovation at scale and enhance patient experiences by acquiring XUP Payments in 2021. The resulting U.S. landscape for healthcare embedded finance is one that is evolving rapidly and that we are monitoring closely for investment and eventual M&A consolidation.
With expanding options around the type of medical care received and where it is received, we expect the financial tools at a patient’s disposal to garner significant attention in the years to come.
Embedded finance is a leading solution positioned to improve health equity and the financial well-being of millions of patients across the U.S., as well as fuel sector growth. Just as we’re accustomed now to buying pretty much anything with a few clicks, so too will embedded finance become a ubiquitous part of the healthcare landscape.
HENRY KOTULA 