Author Archives: henrykotula

Has U.S. Healthcare reached its Tipping Point?

Posted on by • Posted in Affordability, Cost Management, Dept of Justice (DOJ), Disruption, Disruptive Technology, Federal Trade Commission, Federal Trade Commission (FTC), Health Insurance Industry, Health Policy, Health System, Healthcare Industry, Healthcare Reform, High Drug Prices, Inflation, Innovation, Innovative Care Models, Integrated Delivery System, Meaningful, Price Transparency, Private Equity, Tipping Point, Transformation, Transformational Change • Leave a comment
Has U.S. Healthcare reached its Tipping Point?

Last week was significant for healthcare:

  • Tuesday, the, FTC, and DOJ announced creation of a task force focused on tackling “unfair and illegal pricing” in healthcare. The same day, HHS joined FTC and DOJ regulators in launching an investigation with the DOJ and FTC probing private equity’ investments in healthcare expressing concern these deals may generate profits for corporate investors at the expense of patients’ health, workers’ safety and affordable care.
  • Thursday’s State of the Union address by President Biden (SOTU) and the Republican response by Alabama Senator Katey Britt put the spotlight on women’s reproductive health, drug prices and healthcare affordability.
  • Friday, the Senate passed a $468 billion spending bill (75-22) that had passed in the House Wednesday (339-85) averting a government shutdown. The bill postpones an $8 billion reduction in Medicaid disproportionate share hospital payments for a year, allocates $4.27 billion to federally qualified health centers through the end of the year and rolls back a significant portion of a Medicare physician pay cut that kicked in on Jan. 1. Next, Congress must pass appropriations for HHS and other agencies before the March 22 shutdown.
  • And all week, the cyberattack on Optum’s Change Healthcare discovered February 21 hovered as hospitals, clinics, pharmacies and others scrambled to manage gaps in transaction processing. Notably, the American Hospital Association and others have amplified criticism of UnitedHealth Group’s handling of the disruption, having, bought Change for $13 billion in October, 2022 after a lengthy Department of Justice anti-trust review. This week, UHG indicates partial service of CH support will be restored. Stay tuned.

Just another week for healthcare: Congressional infighting about healthcare spending. Regulator announcements of new rules to stimulate competition and protect consumers in the healthcare market.  Lobbying by leading trade groups to protect funding and disable threats from rivals. And so on.

At the macro level, it’s understandable: healthcare is an attractive market, especially in its services sectors. Since the pandemic, prices for services (i.e. physicians, hospitals et al) have steadily increased and remain elevated despite the pressures of transparency mandates and insurer pushback. By contrast, prices for most products (drugs, disposables, technologies et al) have followed the broader market pricing trends where prices for some escalated fast and then dipped.

While some branded prescription medicines are exceptions, it is health services that have driven the majority of health cost inflation since the pandemic.

UnitedHealth Group’s financial success is illustrative: 

it’s big, high profile and vertically integrated across all major services sectors. In its year end 2023 financial report (January 12, 2024) it reported revenues of $371.6 Billion (up 15% Year-Over-Year), earnings from operations up 14%, cash flows from operations of $29.1 Billion (1.3x Net Income), medical care ratio at 83.2% up from 82% last year, net earnings of $23.86/share and adjusted net earnings of $25.12/share and guidance its 2024 revenues of $400-403 billion. They buy products using their scale and scope leverage to  pay less for services they don’t own less and products needed to support them. It’s a big business in a buyer’s market and that’s unsettling to many.

Big business is not new to healthcare:

it’s been dominant in every sector but of late more a focus of unflattering regulator and media attention. Coupled with growing public discontent about the system’s effectiveness and affordability, it seems it’s near a tipping point.

David Johnson, one of the most thoughtful analysts of the health industry, reminded his readers last week that the current state of affairs in U.S. healthcare is not new citing the January 1970 Fortune cover story “Our Ailing Medical System”

 “American medicine, the pride of the nation for many years, stands now on the brink of chaos. To be sure, our medical practitioners have their great moments of drama and triumph. But much of U.S. medical care, particularly the everyday business of preventing and treating routine illnesses, is inferior in quality, wastefully dispensed, and inequitably financed…

Whether poor or not, most Americans are badly served by the obsolete, overstrained medical system that has grown up around them helter-skelter. … The time has come for radical change.”

Johnson added: “The healthcare industry, however, cannot fight gravity forever. Consumerism, technological advances and pro-market regulatory reforms are so powerful and coming so fast that status-quo healthcare cannot forestall their ascendance. Properly harnessed, these disruptive forces have the collective power necessary for U.S. healthcare to finally achieve the 1970 Fortune magazine goal of delivering “good care to every American with little increase in cost.”

He’s right.

I believe the U.S. health system as we know it has reached its tipping point. The big-name organizations in every sector see it and have nominal contingency plans in place; the smaller players are buying time until the shoe drops. But I am worried.

I am worried the system’s future is in the hands of hyper-partisanship by both parties seeking political advantage in election cycles over meaningful creation of a health system that functions for the greater good.

I am worried that the industry’s aversion to price transparency, meaningful discussion about affordability and consistency in defining quality, safety and value will precipitate short-term gamesmanship for reputational advantage and nullify systemness and interoperability requisite to its transformation.

I am worried that understandably frustrated employers will drop employee health benefits to force the system to needed accountability.

I am worried that the growing armies of under-served and dissatisfied populations will revolt.

I am worried that its workforce is ill-prepared for a future that’s technology-enabled and consumer centric.

I am worried that the industry’s most prominent trade groups are concentrating more on “warfare” against their rivals and less about the long-term future of the system.

I am worried that transformational change is all talk.

It’s time to start an adult conversation about the future of the system. The starting point: acknowledging that it’s not about bad people; it’s about systemic flaws in its design and functioning. Fixing it requires balancing lag indicators about its use, costs and demand with assumptions about innovations that hold promise to shift its trajectory long-term. It requires employers to actively participate: in 2009-2010, Big Business mistakenly chose to sit out deliberations about the Affordable Care Act. And it requires independent, visionary facilitation free from bias and input beyond the DC talking heads that have dominated reform thought leadership for 6 decades.

Or, collectively, we can watch events like last week’s roll by and witness the emergence of a large public utility serving most and a smaller private option for those that afford it. Or something worse.

P.S. Today, thousands will make the pilgrimage to Orlando for HIMSS24 kicking off with a keynote by Robert Garrett, CEO of Hackensack Meridian Health tomorrow about ‘transformational change’ and closing Friday with a keynote by Nick Saban, legendary Alabama football coach on leadership. In between, the meeting’s 24 premier supporters and hundreds of exhibitors will push their latest solutions to prospects and customers keenly aware healthcare’s future is not a repeat of its past primarily due to technology. Information-driven healthcare is dependent on technologies that enable cost-effective, customized evidence-based care that’s readily accessible to individuals where and when they want it and with whom.

And many will be anticipating HCA Mission Health’s (Asheville NC) Plan of Action response due to CMS this Wednesday addressing deficiencies in 6 areas including CMS Deficiency 482.12 “which ensures that hospitals have a responsible governing body overseeing critical aspects of patient care and medical staff appointments.” Interest is high outside the region as the nation’s largest investor-owned system was put in “immediate jeopardy” of losing its Medicare participation status last year at Mission. FYI: HCA reported operating income of $7.7 billion (11.8% operating margin) on revenues of $65 billion in 2023.

Quote of the Day: On True Leadership

Posted on by • Posted in Character, Compassion, Confidence, Courage, Integrity, Leadership, Leadership Character, Leadership Competence, Leadership Culture, Leadership Ethics, Leadership Integrity, Leadership Intent, Leadership Listens, Leadership Presence, Leadership Respect, Leadership Values, Leadership Vision, Thought Leaders, Thought of the Day • Leave a comment

February Jobs Report-U.S. Hiring Remains Strong

Posted on by • Posted in Economic Indicators, Economic Stimulus, Economy, Job Growth, Job Market, Labor Force Participation Rates, Labor Market, Labor Market Participation Rate, Unemployment, US Jobs Report • Leave a comment

The labor market showed resiliency in February, adding 275,000 jobs, a sign that economic growth is still solid.

If the economy is slowing down, nobody told the labor market.

Employers added 275,000 jobs in February, the Labor Department reported Friday, in another month that exceeded expectations.

It was the third straight month of gains above 200,000, and the 38th consecutive month of growth — fresh evidence that after surging back from the pandemic shutdowns, America’s jobs engine still has plenty of steam.

“We’ve been expecting a slowdown in the labor market, a more material loosening in conditions, but we’re just not seeing that,” said Rubeela Farooqi, chief economist at High Frequency Economics.

The previous two months, December and January, were revised down by a combined 167,000 jobs, reflecting the higher degree of statistical volatility in the winter months. That does not disrupt a picture of consistent robust increases, which now looks slightly smoother..

At the same time, the unemployment rate, based on a survey of households, increased to a two-year high of 3.9 percent, from 3.7 percent in January. A more expansive measure of slack labor market conditions, which includes people working part time who would rather work full time, has been steadily rising and now stands at 7.3 percent.

The unemployment rate was driven by people losing or leaving jobs as well as those entering the labor force to look for work. The labor force participation rate for people in their prime working years — ages 25 to 54 — jumped back up to 83.5 percent, matching a level from last year that was the highest since the early 2000s.

Average hourly earnings rose by 4.3 percent over the year, although the pace of increases has been fading.

“We’ve recently seen gains in real wages, and that’s encouraged people to re-enter the labor market, and that’s a good development for workers,” said Kory Kantenga, a senior economist at the job search website LinkedIn. As wage growth slows, he said, the likelihood that more people will start looking for work falls.

As late as last fall, economists were predicting much more modest employment increases, with hiring concentrated in a few industries. But while some pandemic-inflated industries have shed jobs, expected downturns in sectors like construction haven’t materialized. Rising wages, attractive benefits and more flexible work schedules have drawn millions of workers off the sidelines.

Elevated levels of immigration have also added to the labor supply. According to an analysis by the Brookings Institution, the influx has approximately doubled the number of jobs that the economy could add per month in 2024 without putting upward pressure on inflation, to between 160,000 and 200,000.

Health care and government again led the payroll gains in February, while construction continued its steady increase. Retail and transportation and warehousing, which have been flat to negative in recent months, picked up.

No major industries lost a substantial number of jobs. Credit intermediation continued its downward slide — that sector, which mostly includes commercial banking, has lost about 123,000 jobs since early 2021.

That doesn’t mean the employment landscape looks rosy to everyone. Employee confidence, as measured by the company rating website Glassdoor, has been falling steadily as layoffs by tech and media companies have grabbed headlines. That’s especially true in white-collar professions like human resources and consulting, while those in professions that require working in person — such as health care, construction and manufacturing — are more upbeat.

“It is a two-track labor market,” said Aaron Terrazas, Glassdoor’s chief economist, noting that job searches are taking longer for people with graduate degrees. “For skilled workers in risk-intensive industries, anyone who’s been laid off is having a hard time finding new jobs, whereas if you’re a blue-collar or frontline service worker, it’s still competitive.”

The last few months have been studded with strong economic data, leading analysts surveyed by the National Association for Business Economics to raise their forecasts for gross domestic product and lower their expectations for the trajectory of unemployment. It’s occurred even as inflation has eased, leading the Federal Reserve to telegraph its plans for interest rate cuts sometime this year, which has raised growth expectations further.

Mervin Jebaraj, director of the Center for Business and Economic Research at the University of Arkansas, helped tabulate the survey responses. He said the mood was buoyed partly by fading trepidation over federal government shutdowns and draconian budget cuts, after several close calls since the fall. And he sees no obvious reason for the recovery to end soon.

“Once it starts going, it keeps going,” Mr. Jebaraj said. “You had this external stimulus with all the trillions of dollars of government spending, Now it’s sort of self-sustaining, even though the money’s gone.”