Category Archives: Affordability

State Protections Against Medical Debt: A Look at Policies Across the U.S.

Posted on by • Posted in Affordability, Bankruptcy, Community Benefit, Consumer Financial Protection Bureau, Fair Credit Reporting Act, Federal Debt Collection Practices Act, Federal Trade Commission (FTC), Health System, High Deductible Health Plans, Hospital, Hospital Industry, Medical Debt, Medical Debt Financing, Rev Cycle Management, Revenue Cycle, Underinsured, Uninsured • Leave a comment
https://www.commonwealthfund.org/publications/fund-reports/2023/sep/state-protections-medical-debt-policies-across-us?utm_campaign=Controlling%20Health%20Care%20Costs&utm_medium=email&_hsmi=273390498&_hsenc=p2ANqtz-_GvewDO7oUUI_AgyC_0aCCFmHn7qQI24sUA2ruC6txDzqbNNsdcT7PB3NE2MhyB0fKRsLKiG4w9EzXla4ZCPrhs-B27A&utm_source=alert

Abstract

  • Issue: Medical debt negatively affects many Americans, especially people of color, women, and low-income families. Federal and state governments have set some standards to protect patients from medical debt.
  • Goal: To evaluate the current landscape of medical debt protections at the federal and state levels and identify where they fall short.
  • Methods: Analysis of federal and state laws, as well as discussions with state experts in medical debt law and policy. We focus on laws and regulations governing hospitals and debt collectors.
  • Key Findings and Conclusion: Federal medical debt protection standards are vague and rarely enforced. Patient protections at the state level help address key gaps in federal protections. Twenty states have their own financial assistance standards, and 27 have community benefit standards. However, the strength of these standards varies widely. Relatively few states regulate billing and collections practices or limit the legal remedies available to creditors. Only five states have reporting requirements that are robust enough to identify noncompliance with state law and trends of discriminatory practices. Future patient protections could improve access to financial assistance, ensure that nonprofit hospitals are earning their tax exemption, and limit aggressive billing and collections practices.

Introduction

Medical debt, or personal debt incurred from unpaid medical bills, is a leading cause of bankruptcy in the United States. As many as 40 percent of U.S. adults, or about 100 million people, are currently in debt because of medical or dental bills. This debt can take many forms, including:

  • past-due payments directly owed to a health care provider
  • ongoing payment plans
  • money owed to a bank or collections agency that has been assigned or sold the medical debt
  • credit card debt from medical bills
  • money borrowed from family or friends to pay for medical bills.

This report discusses findings from our review of federal and state laws that regulate hospitals and debt collectors to protect patients from medical debt and its negative consequences. First, we briefly discuss the impact and causes of medical debt. Then, we present federal medical debt protections and discuss gaps in standards as well as enforcement. Then, we provide an overview of what states are doing to:

  • strengthen requirements for financial assistance and community benefits
  • regulate hospitals’ and debt collectors’ billing and collections activities
  • limit home liens, foreclosures, and wage garnishment
  • develop reporting systems to ensure all hospitals are adhering to standards and not disproportionately targeting people of color and low-income communities.

(See the appendix for an overview of medical debt protections in all 50 states and the District of Columbia.)

Impact of Medical Debt

More than half of people in medical and dental debt owe less than $2,500, but because most Americans cannot cover even minor emergency expenses, this debt disrupts their lives in serious ways. Fear of incurring medical debt also deters many Americans from seeking medical care. About 60 percent of adults who have incurred medical debt say they have had to cut back on basic necessities like food or clothing, and more than half the adults from low-income households (less than $40,000) report that they have used up their savings to pay for their medical debt.

A significant amount of medical debt is either sold or assigned to third-party debt-collecting agencies, who often engage in aggressive efforts to collect on the debt, creating stress for patients. Both hospitals and debt collectors have won judgments against patients, allowing them to take money directly from a patient’s paycheck or place liens on a patient’s home. In some cases, patients have also lost their homes. Medical debt can also have a negative impact on a patient’s credit score.

Key Terms Related to Medical Debt

  • Financial assistance policy: A hospital’s policy to provide free or discounted care to certain eligible patients. Eligibility for financial assistance can depend on income, insurance status, and/or residency status. A hospital may be required by law to have a financial assistance policy, or it may choose to implement one voluntarily. Financial assistance is frequently referred to as “charity care.”
  • Bad debt: Patient bills that a hospital has tried to collect on and failed. Typically, hospitals are not supposed to pursue collections for bills that qualify for financial assistance or charity care, so bad debt refers to debt owed by patients ineligible for financial assistance.
  • Community benefit requirements: Nonprofit hospitals are required by federal law and some state laws to provide community benefits, such as financial assistance and other investments targeting community need, in exchange for a tax exemption.
  • Debt collectors or collections agencies: Entities whose business model primarily relies on collecting unpaid debt. They can either collect on behalf of a hospital (while the hospital still technically holds the debt) or buy the debt from a hospital.
  • Sale of medical debt: Hospitals sometimes sell the debt patients owe them to third-party debt buyers, who can be aggressive in seeking repayment of the debt.
  • Creditor: A party that is owed the medical debt and often wants to collect on the medical debt. This can be a hospital, a debt collector acting on behalf of a hospital, or a third-party debt buyer.
  • Debtor: A patient who owes medical debt over unpaid medical bills.
  • Wage garnishment: The ability of a creditor to get a court order that would allow them to deduct a portion of a debtor-patient’s paycheck before it reaches the patient. Federal law limits how much can be withheld from a debtor’s paycheck, and some states exceed this federal protection.
  • Placing a lien: A legal claim that a creditor can place on a patient’s home, prohibiting the patient from selling, transferring, or refinancing their home without first paying off the creditor. Most states require creditors to get a court order before placing a lien on a home.
  • Foreclosure or forced sale: A creditor can repossess and sell a patient’s home to pay off their medical debt. Often, creditors are required to obtain a court order to do so.

Perhaps what is most troubling is that the burden of medical debt is not borne equally: Black and Hispanic/Latino adults and women are much more likely to incur medical debt. Black adults also tend to be sued more often as a result. Uninsured patients, those from low-income households, adults with disabilities, and young families with children are all at a heightened risk of being saddled with medical debt.

Causes of Medical Debt

Most people — 72 percent, according to one estimate — attribute their medical debt to bills from acute care, such as a single hospital stay or treatment for an accident. Nearly 30 percent of adults who owe medical debt owe it entirely for hospital bills.

Although uninsured patients are more likely to owe medical debt than insured patients, having insurance does not fully shield patients from medical debt and all its consequences. More than 40 percent of insured adults report incurring medical debt, likely because they either had a gap in their coverage or were enrolled in insurance with inadequate coverage. High deductibles and cost sharing can leave many exposed to unexpected medical expenses.

The problem of medical debt is further exacerbated by hospitals charging increasingly high prices for medical care and failing to provide adequate financial assistance to uninsured and underinsured patients with low income.

Key Findings

Federal Medical Debt Protections Have Many Gaps

At the federal level, the tax code, enforced by the Internal Revenue Service (IRS), requires nonprofit hospitals to broadly address medical debt. However, these requirements do not extend to for-profit hospitals (which make up about a quarter of U.S. hospitals) and have other limitations.

Further, the IRS does not have a strong track record of enforcing these requirements. In the past 10 years, the IRS has not revoked any hospital’s nonprofit status for noncompliance with these standards.

The Consumer Financial Protection Bureau and the Federal Trade Commission have additional oversight authority over credit reporting and debt collectors. The Fair Credit Reporting Act regulates credit reporting agencies and those that provide information to them (debt collectors and hospitals). Consumers have the right to dispute any incomplete or inaccurate information and remove any outdated, negative information. In some cases, patients can directly sue hospitals or debt collectors for inaccurately reporting medical debt to credit reporting agencies. In addition, the Federal Debt Collection Practices Act limits how aggressive debt collectors can be by restricting the ways and times in which they can contact debtors, requiring certain disclosures and notifications, and prohibiting unfair or deceptive practices. Patients can directly sue debt collectors in violation of the law. This law, however, does not limit or prohibit the use of certain legal remedies, like wage garnishment or foreclosure, to collect on a debt.

Many states have taken steps to fill the gaps in federal standards. Within a state, several agencies may play a role in enforcing medical debt protections. Generally speaking:

  • state departments of health are the primary regulators of hospitals and set standards for them
  • state departments of taxation are responsible for ensuring nonprofit hospitals are earning their exemption from state taxes
  • state attorneys general protect consumers from unfair and deceptive business practices by hospitals and debt collectors.

Fewer Than Half of States Exceed Federal Requirements for Financial Assistance, Protections Vary Widely

Federal law requires nonprofit hospitals to establish and publicize a written financial assistance policy, but these standards leave out for-profit hospitals and lack any minimum eligibility requirements. As the primary regulators of hospitals, states have the ability to fill these gaps and require hospitals to provide financial assistance to low-income residents. Twenty states require hospitals to provide financial assistance and set certain minimum standards that exceed the federal standard.

All but three of these 20 states extend their financial assistance requirements to for-profit hospitals. Of these 20 states, four states — Connecticut, Georgia, Nevada, and New York — apply their financial assistance requirements only to certain types of hospitals.

Policies also vary among the 31 states that do not have statutory or regulatory financial assistance requirements for hospitals. For example, the Minnesota attorney general has an agreement in place with nearly every hospital in the state to adhere to certain patient protections, though it falls short of requiring hospitals to provide financial assistance. Massachusetts operates a state-run financial assistance program partly funded through hospital assessments. Other states use far less prescriptive mechanisms to try to ensure that patients have access to financial assistance, such as placing the onus of treating low-income patients on individual counties or requiring hospitals to have a plan for treating low-income and/or uninsured patients without setting any specific requirements.

Enforcement of state financial assistance standards.

The only way to enforce the federal financial assistance requirement is to threaten a hospital’s nonprofit status, and the IRS has been reluctant to use this authority. Among the 20 states that have their own state financial assistance standards, 10 require compliance as a condition of licensure or as a legal mandate. These mandates are often coupled with administrative penalties, but some states have established additional consequences. For example, Maine allows patients to sue noncompliant hospitals.

Six states make compliance with their financial assistance standards a condition of receiving funding from the state. Two other states use their certificate-of-need process (which requires hospitals to seek the state’s approval before establishing new facilities or expanding an existing facility’s services) to impose their financial assistance mandates.

Setting eligibility requirements for financial assistance.

The federal financial assistance standard sets no minimum eligibility requirements for hospitals to follow. However, the 20 states with financial assistance standards define which residents are eligible for aid.

One way for states to ensure that financial assistance is available to those most in need is to prevent hospitals from discriminating against undocumented immigrants. Four states explicitly prohibit such discrimination in statute and regulation. Most states, however, are less explicit. Thirteen states define eligibility broadly, basing it most frequently on income, insurance status, and state residency. However, it is unclear how hospitals are interpreting this requirement when it comes to patients’ immigration status. In contrast, three states explicitly exclude undocumented immigrants from eligibility.

States also vary widely in terms of which income brackets are eligible for financial assistance and how much financial assistance they may receive.

At least three of the 20 states with financial assistance standards allow certain patients with heavy out-of-pocket medical expenses from catastrophic illness or prior medical debt to access financial assistance. Many states also require hospitals to consider a patient’s insurance status when making financial assistance determinations. At least six states make financial assistance available for uninsured patients only, while at least eight others also make financial assistance available to underinsured patients.

Standardizing the application process.

Cumbersome applications can discourage many patients from applying for financial assistance. Five states have developed a uniform application form, while three others have set minimum standards for financial assistance applications. Eleven states require hospitals to give patients the right to appeal a denial of financial assistance.

States Split in Requiring Nonprofit Hospitals to Invest in Community Benefits

Federal and state policymakers also can require nonprofit hospitals to invest in community benefits in return for tax exemptions. Federal law requires nonprofit hospitals to produce a community health needs assessment every three years and have an implementation strategy. Almost all states exempt nonprofit hospitals from a host of state taxes, including income, property, and/or sales taxes. However, only 27 impose community benefit requirements on nonprofit hospitals.

Community benefits frequently include financial assistance but also investments that address issues like lack of access to food and housing. In the long run, these investments can reduce medical debt burden by improving population health and the financial stability of a community. Most states that require nonprofit hospitals to provide community benefits allow nonprofit hospitals to choose how they invest their community benefit dollars. This hands-off approach has given rise to concerns about the lack of transparency in community benefit spending as well as questions about whether hospitals are investing this money in ways that are most helpful to the community, such as in providing financial assistance.

Applicability of community benefit standards.

Nineteen states impose community benefit requirements on all nonprofit hospitals in the state, but three states further limit these requirements to hospitals of a certain size. At least six states have extended these requirements to for-profit hospitals as well. Of these six, the District of Columbia, South Carolina, and Virginia have incorporated community benefit requirements into their certificate-of-need laws instead of their tax laws. As a result, any hospital seeking to expand in these states becomes subject to their community benefit requirement.

Interaction between financial assistance and community benefits.

The federal standard allows nonprofit hospitals to report financial assistance as part of their community benefit spending. Most states with community benefit requirements also allow hospitals to do this. However, only seven states require hospitals to provide financial assistance to satisfy their community benefit obligations.

Setting quantitative standards for community benefit spending.

Only seven states set minimum spending thresholds that hospitals must meet or exceed to satisfy state community benefit standards. For example, Illinois and Utah require nonprofit hospitals’ community benefit contributions to equal what their property tax liability would have been. Unique among states, Pennsylvania gives taxing districts the right to sue nonprofit hospitals for not holding up their end of the bargain, which has proven to be a strong enforcement mechanism.

Fewer Than Half the States Exceed Federal Standards for Billing and Collections

Hospital billing and collections practices can significantly increase the burden of medical debt on patients. However, the current federal standard does not regulate these practices beyond imposing waiting periods and prior notification requirements for certain extraordinary collections actions (ECAs), such as garnishing wages or selling the debt to a third party.

Requiring hospitals to provide payment plans.

Federal standards do not require hospitals to make payment plans available. However, a few states do require hospitals to offer payment plans, particularly for low-income and/or uninsured patients. For example, Colorado requires hospitals to provide a payment plan and limit monthly payments to 4 percent of a patient’s monthly gross income and to discharge the debt once the patient has made 36 payments.

Limiting interest on medical debt.

Federal law does not limit the amount of interest that can be charged on medical debt. However, eight states have laws prohibiting or limiting interest for medical debt. Some states like Arizona have set a ceiling for interest on all medical debt. Others like Connecticut further prohibit charging interest to patients who are at or below 250 percent of the federal poverty level and are ineligible for public insurance programs.

Though many states do not have specific laws prohibiting or limiting interest that hospitals or debt collectors can charge on medical debt, all states do have usury laws, which limit the amount of interest than can be charged on any oral or written agreement. Usury limits are set state-by-state and can range anywhere from 5 percent to more than 20 percent, but most limits fall well below the average interest rate for a credit card (around 24%). At least one state, Minnesota, has sued a health system for charging interest rates on medical debt that exceeded the allowed limit in the state’s usury laws.

Interactions between hospitals, third-party debt collectors, and patients.

Unlike hospitals, debt collectors do not have a relationship with patients and can be more aggressive when collecting on the debt. Federal law neither limits when a hospital can send a bill to collections, nor does it require hospitals to oversee the debt collectors it uses. Most states (37) also do not regulate when a hospital can send a bill to collections, although some states have developed more protective approaches.

For example, Connecticut prohibits hospitals from sending the bills of certain low-income patients to collections, and Illinois requires hospitals to offer a reasonable payment plan first. Additionally, five states require hospitals to oversee their debt collectors.

Sale of medical debt to third-party debt buyers.

Hospitals sometimes sell old unpaid debt to third-party debt buyers for pennies on the dollar. Debt buyers can be aggressive in their efforts to collect, and sometimes even try to collect on debt that was never owed. Federal law considers the sale of medical debt an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements before initiating the sale. Most states (44) do not exceed this federal standard.

Only three states prohibit the sale of medical debt. Two other states — California and Colorado — regulate debt buyers instead. For example, California prohibits debt buyers from charging interest or fees, and Colorado prohibits them from foreclosing on a patient’s home.

Reporting medical debt to credit reporting agencies.

Federal law considers reporting medical debt to a credit reporting agency to be an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements beforehand. Most states (41) do not exceed this federal standard.

Of the 10 states that do go beyond the federal standard, a few like Minnesota fully prohibit hospitals from reporting medical debt. Most others require hospitals, debt collectors, and/or debt buyers to wait a certain amount of time before reporting the debt to credit agencies (Exhibit 8). Two states directly regulate credit agencies: Colorado prohibits them from reporting on any medical debt under $726,200, while Maine requires them to wait at least 180 days from the date of first delinquency before reporting that debt.

States Vary Widely on Patient Protections from Medical Debt Lawsuits

Federal law considers initiating legal action to collect on unpaid medical bills to be an extraordinary collections action and also limits how much of a debtor’s paycheck can be garnished to pay a debt.

In most states, hospitals and debt buyers can sue patients to collect on unpaid medical bills. Three states limit when hospitals and/or collections agencies can initiate legal action. Illinois prohibits lawsuits against uninsured patients who demonstrate an inability to pay. Minnesota prohibits hospitals from giving “blanket approval” to collections agencies to pursue legal action, and Idaho prohibits the initiation of lawsuits until 90 days after the insurer adjudicates the claim, all appeals are exhausted, and the patient receives notice of the outstanding balance.

Liens and foreclosures.

Most states (32) do not limit hospitals, collections agencies, or debt buyers from placing a lien or foreclosing on a patient’s home to recover on unpaid medical bills. However, almost all states provide a homestead exemption, which protects some equity in a debtor’s home from being seized by creditors during bankruptcy. The amount of homestead exemption available to debtors varies from state to state, ranging from just $5,000 to the entire value of the home. Seven states have unlimited homestead exemptions, allowing debtors to fully shield their primary homes from creditors during bankruptcy. Additionally, Louisiana offers an unlimited homestead exemption for certain uninsured, low-income patients with at least $10,000 in medical bills.

Ten states prohibit or set limits on liens or foreclosures for medical debt. For example, New York and Maryland fully prohibit both liens and foreclosures because of medical debt, while California and New Mexico only prohibit them for certain low-income populations.

Wage garnishment.

Under federal law, the amount of wages garnished weekly may not exceed the lesser of: 25 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage. Twenty-one states exceed the federal ceiling for wage garnishment. Only a few states go further to prohibit wage garnishment for all or some patients. For example, New York fully prohibits wage garnishment to recover on medical debt for all patients, yet California only extends this protection for certain low-income populations. While New Hampshire does not prohibit wage garnishment, it requires the creditor to keep going back to court every pay period to garnish wages, which significantly limits creditors’ ability to garnish wages in practice.

Many States Have Hospital Reporting Requirements, But Few Are Robust

Federal law requires all nonprofit hospitals to submit an annual tax form including total dollar amounts spent on financial assistance and written off as bad debt. However, these reporting requirements do not extend to for-profit hospitals and lack granularity. States, as the primary regulators of hospitals, would likely benefit from more robust data collection processes to better understand the impact of medical debt and guide their oversight and enforcement efforts.

Currently, 32 states collect some of the following:

  • financial data, including the total dollar amounts spent on financial assistance and/or bad debt
  • financial assistance program data, including the numbers of applications received, approved, denied, and appealed
  • demographic data on the populations most affected by medical debt
  • information on the number of lawsuits and types of judgments sought by hospitals against patients.

Fifteen states explicitly require hospitals to report total dollar amounts spent on financial assistance and/or bad debt, while 11 states also require hospitals to report certain data related to their financial assistance programs. Most of these 11 states limit the data they collect to the numbers of applications received, approved, denied, and appealed. However, a handful of them go further and ask hospitals to report on the amount of financial assistance provided per patient, number of financial assistance applicants approved and denied by zip code, number of payment plans created and completed, and number of accounts sent to collections.

Five states require hospitals to further break down their financial assistance data by race, ethnicity, gender, and/or preferred or primary language. For example, Maryland requires hospitals to break down the following data by race, ethnicity, and gender: the bills hospitals write off as bad debt and the number of patients against whom the hospital or the debt collector has filed a lawsuit.

Only Oregon asks hospitals to report on the number of patient accounts they refer for collections and extraordinary collections actions.

Discussion and Policy Implications

In 2022, the federal government announced administrative measures targeting the medical debt problem, which included launching a study of hospital billing practices and prohibiting federal government lenders from considering medical debt when making decisions on loan and mortgage applications. Although these measures will help some, only federal legislation and enhanced oversight will likely address current gaps in federal standards.

States can also fill the gaps in federal patient protections by improving access to financial assistance, ensuring that nonprofit hospitals are earning their tax exemption, and protecting patients against aggressive billing and collections practices. States also can leverage underutilized usury laws to protect their residents from medical debt.

Finding the most effective ways to enforce these standards at the state level could also protect patients. Absent oversight and enforcement, patients from underserved communities continue to face harm from medical debt, even when states require hospitals to provide financial assistance and prohibit them from engaging in aggressive collections practices. Bolstering reporting requirements alone would not likely ensure compliance, but states could protect patients by strengthening their penalties, providing patients with the right to sue noncompliant hospitals, and devoting funding to increase oversight by state agency officials.

To develop a comprehensive medical debt protection framework, states could also bring together state agencies like their departments of health, insurance, and taxation, as well as their state attorney general’s office. Creating an interagency office dedicated to medical debt protection would allow for greater efficiency and help the state build expertise to take on the well-resourced debt collection and hospital industries.

Still, these measures only address the symptoms of the bigger problem: the unaffordability of health care in the United States. Federal and state policymakers who want to have a meaningful impact on the medical debt problem could consider the protections discussed in this report as part of a broader plan to reduce health care costs and improve coverage.

American healthcare: The good, bad, ugly, future

Posted on by • Posted in ACA, Access & Quality of Healthcare, Affordability, Clinical Research, Cost Management, Dept of Health and Human Services (HHS), Health Inequity, Health Policy, Inflation Reduction Act, Maternal Care, Medicaid Expansion, Medicaid Redeterminations, Medicare Drug Price Negotiation, Medicare Prescription Drug Price Negotiation Act, Mental Health, Mortality, Quality of Care, Underinsured, Uninsured, Vaccine, Vaccine Booster, Vaccine Development, Vaccine Distribution, Vaccine Efficacy, Weight Loss Drugs • Leave a comment

https://www.linkedin.com/pulse/american-healthcare-good-bad-ugly-future-robert-pearl-m-d-/

Albert Einstein determined that time is relative. And when it comes to healthcare, five years can be both a long and a short amount of time.

In August 2018, I launched the Fixing Healthcare podcast. At the time, the medium felt like the perfect auditory companion to the books and articles I’d been writing. By bringing on world-renowned guests and engaging in difficult but meaningful discussions, I hoped the show would have a positive impact on American medicine. After five years and 100 episodes, now is an opportune time to look back and examine how healthcare has improved and in what ways American medicine has become more problematic.

Here’s a look at the good, the bad and the ugly since episode one of Fixing Healthcare:

The Good

Drug breakthroughs and government actions headline medicine’s biggest wins over the past five years.

Vaccines

Arguably the most massive (and controversial) healthcare triumph over the past five years was the introduction of vaccines, which proved successful beyond any reasonable expectation.

At first, health experts expressed doubts that Pfizer, Moderna and others could create a safe and effective Covid-19 vaccine with messenger RNA (mRNA) technology. After all, no one had succeeded in more than two decades of trying.

Thanks in part to Operation Warp Speed, the government-funded springboard for research, our nation produced multiple vaccines within less than a year. Previously, the quickest vaccine took four years to develop (mumps). All others required a minimum of five years.

The vaccines were pivotal in ending the coronavirus pandemic, and their success has opened the door to other life-saving drugs, including those that might prevent or fight cancer. And, of course, our world is now better prepared for when the next viral pandemic strikes.

Weight-Loss Drugs

Originally designed to help patients manage Type 2 diabetes, drugs like Ozempic have been helping people reverse obesity—a condition closely correlated with diabetes, heart disease and cancer.

For decades, America’s $150 billion a year diet industry has failed to curb the nation’s continued weight gain. So too have calls for increased exercise and proper nutrition, including restrictions on sugary sodas and fast foods.

In contrast, these GLP-1 medications are highly effective. They help overweight and obese people lose 15 to 25 pounds on average with side effects that are manageable for nearly all users.

The biggest stumbling block to their widespread use is the drug’s exorbitant price (upwards of $16,000 for a year’s supply).

Drug-Pricing Laws

With the Inflation Reduction Act of 2022, Congress took meaningful action to lower drug prices, a move the CBO estimates would reduce the federal deficit by $237 billion over 10 years.

It’s a good start. Americans today pay twice as much for the same medications as people in Europe largely because of Congressional legislation passed in 2003.

That law, the Medicare Prescription Drug Price Negotiation Act, made it illegal for  Health and Human Services (HHS) to negotiate drug prices with manufacturers—even for the individuals publicly insured through Medicare and Medicaid.

Now, under provisions of the new Inflation Reduction Act, the government will be able to negotiate the prices of 10 widely prescribed medications based on how much Medicare’s Part D program spends. The lineup is expected to include prescription treatments for arthritis, cancer, asthma and cardiovascular disease. Unfortunately, the program won’t take effect until 2026. And as of now, several legal challenges from both drug manufacturers and the U.S. Chamber of Commerce are pending.

The Bad

Spiking costs, ongoing racial inequalities and millions of Americans without health insurance make up three disappointing healthcare failures of the past five years.

Cost And Quality 

The U.S. spends nearly twice as much on healthcare per citizen as other countries, yet our nation lags 10 of the wealthiest countries in medical performance and clinical outcomes. As a result, Americans die younger and experience more complications from chronic diseases than people in peer nations.

As prices climb ever-higher, at least half of Americans can’t afford to pay their out-of-pocket medical bills, which remain the leading cause of U.S. bankruptcy. And with rising insurance premiums alongside growing out-of-pocket expenses, more people are delaying their medical care and rationing their medications, including life-essential drugs like insulin. This creates a vicious cycle that will likely prolong today’s healthcare problems well into the future.

Health Disparities

Inequalities in American medicine persist along racial lines—despite action-oriented words from health officials that date back decades.

Today, patients in minority populations receive unequal and inequitable medical treatment when compared to white patients. That’s true even when adjusting for differences in geography, insurance status and socioeconomics.

Racism in medical care has been well-documented throughout history. But the early days of the Covid-19 pandemic provided several recent and deadly examples. From testing to treatment, Black and Latino patients received both poorer quality and less medical care, doubling and even tripling their chances of dying from the disease.

The problems can be observed across the medical spectrum. Studies show Black women are still less likely to be offered breast reconstruction after mastectomy than white women. Research also finds that Black patients are 40% less likely to receive pain medication after surgery. Although technology could have helped to mitigate health disparities, our nation’s unwillingness to acknowledge the severity of the problem has made the problem worse.

Uninsurance

Although there are now more than 90 million Americans enrolled in Medicaid, there are still 30 million people without any health insurance. This disturbing reality comes a full decade after the passage of the Affordable Care Act.

On Capitol Hill, there is no plan in place to reduce the number of uninsured.

Moreover, many states are looking to significantly rollback their Medicaid enrollment in the post-Covid era. Kaiser Family Foundation estimates that between 8 million and 24 million people will lose Medicaid coverage during the unwinding of the continuous enrollment provisions implemented during the pandemic. Without coverage, people have a harder time obtaining the preventive services they need and, as a result, they suffer more chronic diseases and die younger.

The Ugly

An overall decrease in longevity, along with higher maternal mortality and a worsening mental-health crisis, comprise the greatest failures of U.S. healthcare over the past five years.

Life Expectancy

Despite radical advances in medical science over the past five years, American life expectancy is back to where it was at the turn of the 20th century, according to CDC data.

Alongside environmental and social factors are a number of medical causes for the nation’s dip in longevity. Research demonstrated that many of the 1 million-plus Covid-19 deaths were preventable. So, too, was the nation’s rise in opioid deaths and teen suicides.

Regardless of exact causation, Americans are living two years less on average than when we started the Fixing Healthcare podcast five years ago.

Maternal Mortality

Compared to peer nations, the United States is the only country with a growing rate of mothers dying from childbirth. The U.S. experiences 17.4 maternal deaths per 100,000 live births. In contrast, Norway is at 1.8 and the Netherlands at 3.0.

The risk of dying during delivery or in the post-partum period is dramatically higher for Black women in the United States. Even when controlling for economic factors, Black mothers still suffer twice as many deaths from childbirth as white women.

And with growing restrictions on a woman’s right to choose, the maternal mortality rate will likely continue to rise in the United States going forward.

Mental Health

Finally, the mental health of our country is in decline with rates of anxiety, depression and suicide on the rise.

These problems were bad prior to Covid-19, but years of isolation and social distancing only aggravated the problem. Suicide is now a leading cause of death for teenagers. Now, more than 1 in every 1,000 youths take their own lives each year. The newest data show that suicides across the U.S. have reached an all-time high and now exceed homicides.

Even with the expanded use of telemedicine, mental health in our nation is likely to become worse as Americans struggle to access and afford the services they require.

The Future

In looking at the three lists, I’m reminded of a baseball slugger who can occasionally hit awe-inspiring home runs but strikes out most of the time. The crowd may love the big hitter and celebrate the long ball, but in both baseball and healthcare, failing at the basics consistently results in more losses than wins.

Over the past five years, American medicine has produced a losing record. New drugs and surgical breakthroughs have made headlines, but the deeper, more systemic failures of American healthcare have rarely penetrated the news cycle.

If our nation wants to make the next five years better and healthier than the last five, elected officials and healthcare leaders will need to make major improvements. The steps required to do so will be the focus of my next article.

Payers declare War on Corporate Hospitals: Context is Key

Posted on by • Posted in Access & Quality of Healthcare, Advocacy, Affordability, Corporate War, Health Insurance Industry, Health Policy, Health System, High Deductible Health Plans, High Premiums, Hospital, Hospital Industry, Market Consolidation, Market Power, Monopoly, Monopoly Behavior • Leave a comment
Payers declare War on Corporate Hospitals: Context is Key

Last week, six notable associations representing health insurers and large employers announced Better Solutions for Healthcare (BSH): “An advocacy organization dedicated to bringing together employers, consumers, and taxpayers to educate lawmakers on the rising cost of healthcare and provide ideas on how we can work together to find better solutions that lower healthcare costs for ALL Americans.”

BSH, which represents 492 large employers, 34 Blue Cross plans, 139 insurers and 42 business coalitions, blames hospitals asserting that “over the last ten years alone, the cost of providing employee coverage has increased 47% with hospitals serving as the number one driver of healthcare costs.”

Its members, AHIP, the Blue Cross Blue Shield Association, the Business Group on Health, Public Sector Health Care Roundtable, National Alliance of Healthcare Purchaser Coalitions and the American Benefits Council, pledge to…

  • Promote hospital competition
  • Enforce Federal Price Transparency Laws for Hospital Charges
  • Rein in Hospital Price Mark-ups
  • Insure Honest Billing Practices

And, of particular significance, BSH calls out “the growing practice of corporate hospitals establishing local monopolies and leveraging their market dominance to charge patients more…With hospital consolidation driving down competition, there’s no pressure for hospitals to bring costs back within reach for employees, retirees and their families…prices at monopoly hospitals are 12% higher than in markets with four or more competitors.”

The BSH leadership team is led by DC-based healthcare policy veterans with notable lobbying chops: Adam “Buck” Buckalew, a former Sen. Lamar Alexander (R-TN) staffer who worked on the Health Education, Labor and Pensions (HELP) committee and is credited with successfully spearheading the No Surprises Act legislation that took effect in January 2022, and Kathryn Spangler, another former HELP staffer under former Sen. Mike Enzi (R-WY) who most recently served as Senior Policy Advisor at the American Benefits Council.

It’s a line in the sand for hospitals, especially large not-for-profit systems that are on the defensive due to mounting criticism. 

Examples from last week: Atrium and Caremont were singled in NC by the state Treasurer for their debt collection practices based on a Duke study that got wide media coverage. Allina’s dispute with 550 of its primary care providers seeking union representation based on their concerns about patient safety. Jefferson Health was called out for missteps under its prior administration’s “growth at all costs” agenda and the $35 million 2021 compensation for Common Spirit’s CEO received notice in industry coverage.

My take:

BSH represents an important alignment of health insurers with large employers who have shouldered a disproportionate share of health costs for years through the prices imposed for the hospitals, prescriptions and services their employees and dependents use.

Though it’s too early to predict how BSH vs. Corporate Hospitals will play out, especially in a divided Congress and with 2024 elections in 14 months, it’s important to inject a fair and balanced context for this contest as the article of war are unsealed:

  • Health insurers and hospitals share the blame for high health costs along with prescription drug manufacturers and others. The U.S. system feasts on opaque pricing, regulated monopolies and supply-induced demand. Studies show unit costs for hospitals along with prescription drug costs bear primary responsibility for two-thirds of health cost increases in recent years—the result of increased demand and medical inflation. But insurers are complicit: benefits design strategies that pre-empt preventive health and add administrative costs are parts of the problem.
  • Corporatization of the U.S. system cuts across every sector: Healthcare’s version of Moneyball is decidedly tilted toward bigger is better: in healthcare, that’s no exception. 3 of the top 10 in the Fortune 100 are healthcare (CVS-Aetna, United, McKesson)) and HCA (#66) is the only provider on the list. The U.S. healthcare industry is the largest private employer in the U.S. economy: how BSH addresses healthcare’s biggest employers which include its hospitals will be worth watching. And Big Pharma companies pose an immediate challenge: just last week, HHS called out the U.S. Chamber of Commerce for siding with Big Pharma against implementation of drug price controls in the Inflation Reduction Act—popular with voters but not so much in Big Pharma Board rooms.
  • The focus will be on Federal health policies. BSH represents insurers and employers that operate across state lines–so do the majority of major health systems. Thus, federal rules, regulations, administrative actions, executive orders, and court decisions will be center-stage in the BSH v. corporate hospitals war. Revised national policies around Medicare and federal programs including military and Veterans’ health, pricing, equitable access, affordability, consolidation, monopolies, data ownership, ERISA and tax exemptions, patent protections and more might emerge from the conflict. As consolidation gets attention, the differing definitions of “markets” will require attention: technology has enabled insurers and providers to operate outside traditional geographic constraints, so what’s next? And, complicating matters, federalization of healthcare will immediately impact states as referenda tackle price controls, drug pricing, Medicaid coverage and abortion rights—hot buttons for voters and state officials.
  • Boards of directors in each healthcare organization will be exposed to greater scrutiny for their actions: CEO compensation, growth strategies, M&A deals, member/enrollee/patient experience oversight, culture and more are under the direct oversight of Boards but most deflect accountability for major decisions that pose harm. Balancing shareholder interests against the greater good is no small feat, especially in a private health system which depends on private capital for its innovations.

8.6% of the U.S. population is uninsured, 41% of Americans have outstanding medical debt, and the majority believe health costs are excessive and the U.S. system is heading in the wrong direction.

Compared to other modern systems in the world, ours is the most expensive for its health services, least invested in social determinants that directly impact 70% of its costs and worst for the % of our population that recently skipped needed medical care (39.0% (vs. next closest Australia 21.2%), skipped dental care (36.2% vs. next closest Australia 31.7%) and had serious problems/ were unable to pay medical bills (22.4% next closest France 10.1%). Thus, it’s a system in which costs, prices and affordability appear afterthoughts.

Who will win BSH vs. Corporate Hospitals? It might appear a winner-take all showdown between lobbyists for BSH and hospital hired guns but that’s shortsighted. Both will pull out the stops to win favor with elected officials but both face growing pushback in Congress and state legislatures where “corporatization” seems more about a blame game than long-term solution.

Each side will use heavy artillery to advance their positions discredit the other. And unless the special interests that bolster efforts by payers are hospitals are subordinated to the needs of the population and greater good, it’s not  the war to end all healthcare wars. That war is on the horizon.

Is AI suffering from the “cost disease” it’s supposed to cure? 

Posted on by • Posted in Affordability, Artificial Intelligence, Baumol's Cost Disease, Cost Disease, Cost-Effective, Electronic Health Record (EHR) • Leave a comment

https://mailchi.mp/edda78bd2a5a/the-weekly-gist-june-23-2023?e=d1e747d2d8

An in-depth piece co-published this week in New York Magazine chronicles the Kafkaesque working environment of artificial intelligence (AI) annotators, whose “unprecedented feat[s] of tedious and repetitive behavior” have enabled the AI boom. AI learns by training on massive, meticulously labeled datasets, but that training is not some high-tech, futuristic process.

Instead, AI companies of all kinds have secretively hired a vast, global web of millions of low-wage laborers—mostly in the global south—to annotate these large datasets according to precise, convoluted rules sets (one worker reported marking all the knees and elbows in pictures of crowds for 36 hours straight!). AI optimists predict this phase of labor-intensive annotation will pass once the bots advance to the point of automating the annotating process, but most use cases remain far from this goal. Turns out the AI systems are pretty poor students as well: for example, the models need to be explicitly taught the difference between a shirt, and the reflection of a shirt in a mirror, and a shirt on a hangar, and a shirt on a chair, and on and on. 

The Gist: If AI needs to be trained by thousands of low-skilled, low-wage workers to identify an elbow, how many doctors will it take to train the algorithms to accurately diagnose a CT scan as cancerous? Thanks to electronic health records, some of this annotation work has been built into the images, but the sensitivity and high price of patient data make it harder to assemble datasets large enough to power the training. 

While some remain hopeful that AI has the potential to eventually cure healthcare of Baumol’s cost disease, the path to that point will be paved by significant, tedious manual labor hours performed behind the scenes—adding substantial additional cost and slowing the advent of the long-predicted future of ubiquitous, super-intelligent bots.

Senate Finance Hearing on Hospital Consolidation: Political Theatre or Something More?

Posted on by • Posted in Affordability, Antitrust, Cost Management, Cost Structure, Cost-Effective, Health System, Horizontal Consolidation, Horizontal Integration, Horizontal Merger, Horizontal Mergers, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Trends, Mergers & Acquisitions, Monopoly, Monopoly Behavior, Physician Compensation, Public Opinion, Public Perception, Quality of Care, Vertical Consolidation, Vertical Integration, Vertical Merger, Vertical Mergers • Leave a comment
Senate Finance Hearing on Hospital Consolidation: Political Theatre or Something More?

Last Thursday, the Senate Finance Committee heard testimony from experts who offered damning testimony about hospital consolidation (excerpts below).  Committee Chair Ron Wyden (D-OR) gaveled the session to order with this commentary:

“I’d like to talk about health care costs and quality. Advocates for proposed mergers often say they will bring lower health costs due to increased efficiency. Time after time, it’s simply not proven to be the case. When hospitals merge, prices go up, not down. When insurers merge, premiums go up, not down. And quality of care is not any better with this higher cost. “

Ranking Member Mike Crapo (R-ID) offered a more conciliatory assessment in his opening statement: “In exploring and addressing these problems, we have the opportunity to build on our efforts to improve medication access and affordability by taking a broader look at the health care system through a similarly bipartisan, consensus-based lens…We need to examine the drivers of consolidation, as well as its effects on care quality and costs, both for patients and taxpayers. We also need to develop focused, bipartisan and bicameral solutions that reduce out-of-pocket spending while protecting access to lifesaving services.”

Congress’ concern about consolidation in healthcare is broad-based. Pharmacy benefits managers and health insurers face similar scrutiny. Drug price control referenda have passed in several states and a federal cap was included in the Inflation Reduction Act.

The reality is this: the entire U.S. health system is on trial in the court of public opinion for ‘careless disregard for affordability’. And hospitals are seen as part of the problem justifying consolidation as a defense mechanism.

What followed in this 3-hour hearing was testimony from 3 experts critical of hospital consolidation, a Colorado community hospital CEO who opined to competition with big hospital systems and a Peterson Foundation spokesperson who offered that data access and transparency are necessary to mitigate consolidation’s downside impact.

None of their testimony was surprising. Nor were questions from the 25 members of the committee. It’s a narrative that played out in House Energy and Commerce and Ways and Means Committee hearings last month. It’s likely to continue.

Often, Congressional Hearings on healthcare issues amount to little more than political theatre. In this one, four key themes emerged:

  1. Consolidation among hospitals has adversely impacted quality of care and affordability of healthcare. Prices have gone up without commensurate improvements in quality harming consumers.
  2. Larger organizations use horizontal and vertical integration to strengthen their positions relative to smaller competitors. Physician employment by hospitals is concerning. Rural and safety net hospitals are impaired most.
  3. Anti-trust efforts, price transparency mandates, data sharing and value-based programs have not been as effective as anticipated.
  4. Physicians are victims of consolidation and corporatization in U.S. healthcare. They’re paid less because others are paid more.

While committee members varied widely in the intensity of their animosity toward hospitals, a consensus emerged that the hospital status quo is not working for voters and consumers.

My take:

Consolidation is part of everyday life. Last Tuesday’s bombshell announcement of the merger of the PGA Tour and the Saudi Arabia’s Public Investment Fund caught the golfing world by surprise. Anti-trust issues and monopolistic behaviors are noticed by voters and lawmakers. Hospital consolidation is no exception festering suspicions among lawmakers and voters that the public’s good is ill-served. And studies showing that charity care among not-for-profit hospitals is lower than for-profit confuse and complicate.

As I listened to the hearing, I had questions…

  • Were all relevant perspectives presented?
  • Was the information provided by witnesses and cited in Committee member questioning accurate?
  • Will meaningful action result?

But having testified before Congressional Committees, I find myself dismissive of most hearings which seem heavy on political staging but light on meaningful insight. Many are little more than political theatre. Hospital consolidation seems different. There seems to be growing consensus that it’s harmful to some and costly to all.

Sadly, this hearing is the latest evidence that the good will built by hospital heroics in the pandemic is now forgotten. It’s clear hospital consolidation is an issue that faces strong and increased headwinds with evidence mounting—accurate or not– showing more harm than good.

Minnesota passes path to public option

Posted on by • Posted in Affordability, Center for Medicare and Medicaid Services (CMS), Health Insurance Coverage Adequacy, Health Policy, Health System, Hospital, Hospital Industry, Medicaid Section 1115 Waiver, Medicare Waiver, Operating Margin, Public Option • Leave a comment

https://mailchi.mp/3ed7bdd7f54b/the-weekly-gist-june-2-2023?e=d1e747d2d8

Last week the Minnesota legislature passed a bill to initiate the creation of a public option health insurance plan available to state residents of all incomes. The bill funds an actuarial analysis of the policy and requires the state to apply for a Centers for Medicare and Medicaid Services (CMS) waiver to begin implementation by 2027. The public option plan will build upon MinnesotaCare, a state health plan currently covering residents with incomes below 200 percent of the federal poverty line. 

The Gist: Minnesota joins Washington, Colorado, and Nevada as the fourth state to authorize a public option health plan. But unlike these other three states, whose public option programs rely on private payers to manage risk and administration with tighter price controls, Minnesota intends to create a “true” public option in which the government competes directly with private payers. 

Analysis funded by a hospital and insurance trade group found that a public option could reduce Minnesota hospital revenues by more than $2B over 10 years, while only lowering the uninsured rate by half a percentage point.

Though Minnesota lawmakers were more concerned with lowering healthcare spending and improving health insurance affordability for state residents, the success of the program will depend in part on how it negotiates with providers, who justifiably fear a worsening payer mix that further threatens margins. 

Academic Medicine: Where Privilege Compounds Organizational Dysfunction

Posted on by • Posted in Academic Medical Center, Affordability, Competition, Consumerism, Health System, Hospital, Hospital Industry, Medical Education, Quality of Care, Specialty Care, Tax Exempt Status, Value Proposition, Value-Based Healthcare • Leave a comment
Academic Medicine: Where Privilege Compounds Organizational Dysfunction

Academic medicine combines healthcare with higher education, the two sectors of the American economy that have exhibited outsized cost growth during the past 50 years. The result is a stunning disconnection between the business practices of academic medical centers (AMCs) and the supply-demand dynamics reshaping healthcare delivery.

Market, technological and regulatory forces are pushing the healthcare industry to deliver higher-value care that generates better outcomes at lower costs. A parallel movement is shifting resources out of specialty and acute care services into primary, preventive, behavioral health and chronic disease care services. In the process, care delivery is decentralizing and becoming more consumer-centric.

AMCs Double Down

Counter to these trends, academic medicine is doubling down on high-cost, centralized, specialty-focused care delivery. Privilege has its price. Several AMCs — including Mass General Brigham, IU Health, UCSF, Ohio State and UPMC — are undertaking multibillion-dollar expansions of their existing campuses. Collectively, AMCs expect American society to fund their continued growth and profitability irrespective of cost, effectiveness and contribution to health status.

Despite being tax-exempt and having access to a large pool of free labor (residents), AMCs charge the highest treatment prices in most markets. [1] Archaic formulas allocate residency “slots” and lucrative Graduate Medical Education payments (over $20 billion annually) disproportionately into specialty care and more-established AMCs. Given their cushy funding arrangements, it’s no wonder AMCs fight vigorously to maintain an out-of-date status quo.

Legacy practices from the early 1900s still dominate medical education, medical research and clinical care. Like tenured faculty, academic physicians manage their practices with little interference. Clinical deans rule their departments with a free hand. With few exceptions, interdisciplinary coordination is an oxymoron. The result is fragmented care delivery that tolerates duplication, medical error and poor patient service.

Irresistible consumerism confronts immovable institutional inertia. As exhibited by substantial operating losses at many AMCs, their foundations are beginning to crack. [2]

Medicine’s Rise from Poverty to Prosperity 

In his 1984 Pulitzer Prize-winning work, Paul Starr chronicles the social transformation of American medicine during the 19th and 20th centuries. Prior to the 1900s, doctors had low social status. Most care took place in the home. Pay was low. The profession lacked professional standards. There were too many quacks. Most doctors lived hand-to-mouth.

As the century turned, several cultural, economic, scientific and legal developments converged to elevate the profession’s status in American society. Stricter licensing reduced the supply of physicians and closed most existing medical schools. Legislation and legal rulings restricted corporate ownership of medical practices and enshrined physicians’ operating autonomy. Scientific breakthroughs gave medicine more healing power.

Through the decades that followed, the American Medical Association and state medical societies frustrated external attempts to control medical delivery externally and institute national health insurance. They insisted on fee-for-service payment and the absolute right of patients to choose their doctors. These are causal factors underlying healthcare’s skyrocketing cost increases, growing from 5% of the U.S. gross domestic product (GDP) in 1960 to over 18% in 2021.

Academic and community-based physicians have always had a tenuous relationship. Status and prestige accompany academic affiliations. Academic practices require referrals from community physicians but rarely consult with them on treatment protocols. For their part, community physicians marvel at the lack of market awareness exhibited by academic practices. They have tolerated one another to perpetuate collective physician control over healthcare operations.

Incomes and prestige for both community and academic physicians rose as the medical profession limited practitioner supply, established payment guidelines, encouraged specialization, controlled service delivery and socialized capital investment. One hundred years later, the business of healthcare still exhibits these characteristics. Gleaming new medical centers testify to the profession’s success in socializing capital investment and maintaining autonomy over hospital operations.

Entrenched beliefs and behaviors explain why most hospitals, despite their high construction costs, are largely deserted after 4 p.m. and on weekends. They explain the maldistribution of facilities and practitioners. They explain the overdevelopment of specialty care. They explain the underinvestment in preventive care, mental health services and public health.

Value-Focused Backlash Portends Reckoning

These beliefs and behaviors are contributing to AMC’s current economic dislocation. Dependent upon public subsidies and premium treatment payments to maintain financial sustainability, high-cost AMCs are particularly vulnerable to value-based competitors.

The marketplace is attacking inefficient clinical care with tech-savvy, consumer-friendly business models. Care delivery is decentralizing even as many AMCs invest more heavily in campus-based medicine. A market-based reckoning confronts academic medicine.

A visit up north illustrates the general unwillingness of academic physicians to accept market realities and their continued insistence on maintaining full control over the academic medical enterprise. It’s like watching a train wreck occur in slow motion.

Minnesota Madness

After experiencing severe economic distress, the University of Minnesota sold its University of Minnesota Medical Center (UMMC) to Fairview Health in 1997. Fairview currently operates UMMC in partnership with the University of Minnesota Physicians (UMP) under the banner of M Health Fairview.

In September 2022, Sanford Health and Fairview Health signed a letter of intent to merge. The new combined company would bear the Sanford name with its headquarters in Sioux Falls, South Dakota. Despite the opportunity to double its catchment area for specialty referrals, the University and UMP oppose the merger with Sanford. They fear out-of-state ownership could compromise the integrity of UMMC’s operations.

Fairview wants the Sanford merger to help it address massive operating losses resulting, in part, from its contractual arrangements with UMP. Negotiations between the parties have become acrimonious. Amid the turmoil, the University and UMP announced in January 2023 their intention to acquire UMMC from Fairview and build a new state-of-the-art medical center on the University’s Minneapolis campus.

The University has named this proposal “MPact Health Care Innovation.” It calls for the Minnesota state legislature to fund the multibillion-dollar cost of acquiring, building and operating the new medical enterprise. Typical of academic medical practices, UMP expects external sources to pony up the funding to support their high-cost centralized business model while they continue to call the shots.

The arrogance and obliviousness of the University’s proposal is staggering. Minnesota struggles with rising rates of chronic disease and inequitable healthcare access for low-income urban and rural communities. The idea that a massive governmental investment in academic medicine will “bridge the past and future for a healthier Minnesota” as the MPact tagline proclaims is ludicrous.

Out of Touch

Like the rest of the country, Minnesota is experiencing declining life expectancy. Despite spending more than double the average per-capita healthcare cost of other wealthy countries, the United States scores among the worst in health status measures. Spending more on high-end academic medicine won’t change these dismal health outcomes. Spending more on preventive care, health promotion and social determinants of health could.

The real gem in the University of Minnesota’s medical enterprise is its medical school. It has trained 70% of the state’s physicians. It ranks third and fourth nationally in primary care and family medicine. It is advancing a progressive approach to interdisciplinary and multi-professional care.

If the Minnesota state legislature really wants to advance health in Minnesota, it should expand funding for the University’s aligned health schools and community-based programs without funding the acquisition and expansion of the University’s clinical facilities.

No Privilege Without Performance

Our nation must stop enabling academic medicine’s excesses. Funding AMCs’ insatiable appetite for facilities and specialized care delivery is counterproductive. It is time for academic medicine to embrace preventive health, holistic care delivery and affordable care access.

Privilege comes with responsibility. AMCs that resist the pivot to value-based care and healthier communities deserve to lose market relevance.

America has the means to create a healthier society. It requires shifting resources out of healthcare into public health. We must have the will to make community-based health networks a reality. It starts by saying no to needless expansion of acute care facilities.

Headwinds facing Not for Profit Hospital Systems are Mounting: What’s Next?

Posted on by • Posted in Affordability, Board, Community Benefit, Financial Distress, Financial Performance, Financial Stewardship, Financial Transparency, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Leadership, Leadership Vision, Market Consolidation, Market Power, Market Trends, Price Transparency, Strategic Change, Tax Exempt Status • Leave a comment
Headwinds facing Not for Profit Hospital Systems are Mounting: What’s Next? (Corrected Edition)

Correction: An earlier version incorrectly referenced a Texas deal between Houston Methodist and Baylor Scott and White.  News about deals is sensitive and unnecessarily disruptive to reputable organizations like these. I sourced this news from a reputable deal advisor: it was inaccurate. My apology!

Congressional Republicans and the White House spared Main Street USA the pain of defaulting on the national debt last week. No surprise.

Also not surprising: another not-for-profit-mega deal was announced:

  • St. Louis, MO-based BJC HealthCare and Kansas City, MO-based Saint Luke’s Health System announced their plan to form a $9.5B revenue, 28-hospital system with facilities in Missouri, Kansas, and Illinois.

This follows recent announcements by four other NFP systems seeking the benefits of larger scale:

  • Gundersen Health System & Bellin Health (Nov 2022): 11 hospitals, combined ’22 revenue of $2.425B
  • Froedtert Health & ThedaCare (Apr 2023 LOI): 18 hospitals, combined ’22 revenues of $4.6B

And all these moves are happening in an increasingly dicey environment for large, not-for-profit hospital system operators:

  • Increased negative media attention to not-for-profit business practices that, to critics, appear inconsistent with a “NFP” organization’s mission and an inadequate trade for tax exemptions each receives.
  • Decreased demand for inpatient services—the core business for most NFP hospital operations. Though respected sources (Strata, Kaufman Hall, Deloitte, IBIS et al) disagree somewhat on the magnitude and pace of the decline, all forecast decreased demand for traditional hospital inpatient services even after accounting for an increasingly aging population, a declining birthrate, higher acuity in certain inpatient populations (i.e. behavioral health, ortho-neuro et al) and hospital-at-home services.
  • Increased hostility between national insurers and hospitals over price transparency and operating costs.
  • Increased employer, regulator and consumer concern about the inadequacy of hospital responsiveness to affordability in healthcare.
  • And heightened antitrust scrutiny by the FTC which has targeted hospital consolidation as a root cause of higher health costs and fewer choices for consumers. This view is shared by the majorities of both parties in the House of Representatives.

In response, Boards and management in these organizations assert…

  • Health Insurers—especially investor-owned national plans—enjoy unfettered access to capital to fund opportunistic encroachment into the delivery of care vis a vis employment of physicians, expansion of outpatient services and more.
  • Private equity funds enjoy unfettered opportunities to invest for short-term profits for their limited partners while planning exits from local communities in 6 years or less.
  • The payment system for hospitals is fundamentally flawed: it allows for underpayments by Medicaid and Medicare to be offset by secret deals between health insurers and hospitals. It perpetuates firewalls between social services and care delivery systems, physical and behavioral health and others despite evidence of value otherwise. It requires hospitals to be the social safety net in every community regardless of local, state or federal funding to offset these costs.

These reactions are understandable. But self-reflection is also necessary. To those outside the hospital world, lack of hospital price transparency is an excuse. Every hospital bill is a surprise medical bill. Supporting the community safety net is an insignificant but manageable obligation for those with tax exemption status.  Advocacy efforts to protect against 340B cuts and site-neutral payment policies are about grabbing/keeping extra revenue for the hospital. What is means to be a “not-for-profit” anything in healthcare is misleading since moneyball is what all seem to play. And short of government-run hospitals, many think price controls might be the answer.

My take:

The headwinds facing large not-for-profit hospitals systems are strong. They cannot be countered by contrarian messaging alone.

What’s next for most is a new wave of operating cost reductions even as pre-pandemic volumes are restored because the future is not a repeat of the past. Being bigger without operating smarter and differently is a recipe for failure.

What’s necessary is a reset for the entire US health system in which not-for-profit systems play a vital role. That discussion should be led by leaders of the largest NFP systems with the full endorsements of their boards and support of large employers, physicians and public health leaders in their communities.

Everything must be on the table: funding, community benefits, tax exemption, executive compensation, governance, administrative costs, affordability, social services, coverage et al. And mechanisms for inaction and delays disallowed.

It’s a unique opportunity for not-for-profit hospitals. It can’t wait.

What Kaiser’s Acquisition Of Geisinger Means For Us All

Posted on by • Posted in Affordability, Branding, Capitation, Consumerism, Fee for Service Reimbursement, Health System, Hospital, Hospital Industry, Kaiser Permanente, Market Consolidation, Market Share, Market Trends, Mergers & Acquisitions, Quality of Care, Strategy, Value Proposition, Value-Based Contracting, Value-Based Healthcare • Leave a comment
https://www.linkedin.com/pulse/what-kaisers-acquisition-geisinger-means-us-all-robert-pearl-m-d-/?midToken=AQHcpzuK5TbmJA&midSig=2-ilkxCzFoFWM1&trk=eml-email_series_follow_newsletter_01-newsletter_content_preview-0-readmore_button_&trkEmail=eml-email_series_follow_newsletter_01-newsletter_content_preview-0-readmore_button_-null-fll5j~libnyob8~rg-null-null&eid=fll5j-libnyob8-rg

Healthcare’s most recent billion-dollar deal took the industry by surprise, leaving medical experts and hospital leaders grappling to comprehend its implications.

In case you missed it, California-based Kaiser Foundation Health Plan and Hospitals, which make up the insurance and facilities half of Kaiser Permanente, announced the acquisition of Geisinger, a Pennsylvania-based health system once acknowledged by President Obama for delivering “high-quality care.”

Upon regulatory approval, Geisinger will become the first organization to join Risant Health, Kaiser Foundation’s newly created $5 billion subsidiary. According to Kaiser, the aim is to build “a portfolio of likeminded, nonprofit, value-oriented, community-based health systems anchored in their respective communities.” 

Having spent 18 years as CEO of The Permanente Medical Group, the half of Kaiser Permanente responsible for the delivery of medical care, I took great interest in the announcement. And I wasn’t alone. My phone rang off the hook for weeks with calls from reporters, policy experts and healthcare executives.

After hundreds of conversations, here are the three most common questions I received about the acquisition—and the implications for doctors, insurers, health-system competitors and patients all over the country.

Question 1: Why did Kaiser acquire Geisinger?

Most callers wanted to know about Kaiser’s motivation, figuring there must’ve been more to the acquisition than the press release indicated. Although I don’t have inside information, I believe they were right. Here’s why:

Kaiser Permanente has a long and ongoing reputation for delivering nation-leading care. The organization has consistently earned the highest quality and patient-satisfaction rankings from the National Committee for Quality Assurance (NCQA), Leapfrog Group, JD Power and Medicare.

And yet, despite a 78-year history, dozens of hospitals and 13 million members across eight states, Kaiser Permanente is still considered a coastal—not national—health system. It maintains a huge market share in California and a strong presence in the Mid-Atlantic states, yet the organization has failed repeatedly to replicate that success in other geographies.

With that context, I see two compelling reasons why the Kaiser Foundation Health Plan and Hospitals wish to become a national brand:

  1. Influence. Elected officials and regulatory bodies often turn to healthcare’s biggest players to set legislative agendas and carve out national policy. At that table, there are a limited number of seats. By shedding its reputation as a “local” health system, Kaiser could earn one.
  2. Survival. In recent years, companies like Amazon, CVS and Walmart have been scooping up organizations that provide primary care, telehealth, home health and specialty care services. These “retail giants” are spending up to $13 billion per acquisition. And they’re consuming already-successful healthcare companies like One Medical, Oak Street Health, Signify, Pill Pack and many others. Like an army preparing for war, these corporate behemoths are amassing the components needed to battle the traditional healthcare incumbents and ultimately oust them entirely.

The Geisinger deal expands Kaiser’s footprint, adding 600,000 patients, 10 hospitals and 100 specialty and primary care clinics. These assets lend gravitas, even though Geisinger also comes with a 2022 operating loss of $239 million.

The lesson to draw from this first question is clear: size matters. The days of solo physicians and stand-alone hospitals are over. Nostalgia for medicine’s folksy, home-spun past is understandable but futile. To survive, healthcare players must get bigger quickly or team up with someone who can. That insight leads to the next question and lesson.

Question 2: How much value will Kaiser give Geisinger?

Almost everyone I’ve spoken with understands Kaiser’s desire for greater national influence, but they’re less sure how this deal will affect Geisinger Health.

Geisinger’s Pennsylvania-based hospitals and clinics have been locked in territorial battles for years with surrounding health systems. More recently, the pandemic, combined with staffing shortages and national inflation, have challenged Geisinger’s clinical performance and eroded its bottom line.

Assuming Kaiser plans to invest roughly $1 billion in each of the four to five health systems it’s planning to acquire, that surge in cash inflow will provide Geisinger with temporary financial safety. But the bigger question is how will Kaiser improve Geisinger’s value-proposition enough to grow its market share?

In public comments, Kaiser leaders spoke of the acquisition as an opportunity for Risant to “improve the health of millions of people by increasing access to value-based care and coverage, and raising the bar for value-based approaches that prioritize patient quality outcomes.”

Many of the experts I spoke with understand Kaiser’s value intent. But they question how Kaiser can could deliver on that promise since The Permanente Medical Group (TPMG) wasn’t involved in the deal.

If, hypothetically, Kaiser and Permanente leaders were to strike a deal to collaborate in the future, TPMG’s physician leaders could bring tremendous knowledge, experience and expertise to the table. Otherwise, I agree with those who’ve expressed doubt that Kaiser, alone, will be able to significantly improve Geisinger’s clinical performance.

Health plans and insurance companies play an important role in financing medical care. They possess rich data on performance and can offer incentives that boost access to higher-quality care. But insurers don’t work directly with individual doctors to coordinate medical care or advance clinical solutions on behalf of patients. And without strong physician leadership, the pace of positive change slows to a crawl. As a example, research conducted within The Permanente Medical Group found that it takes only three years to turn a proven clinical advance into standard practice—that’s nearly six times faster than the national average.

For decades, the secret sauce for Kaiser Permanente has been the cohesive success of its three parts: Kaiser Health Plan, Kaiser Foundation Hospitals and The Permanente Medical Group.

And KP’s results speak for themselves:

  • 90% control of hypertension for members (compared to 60% for the rest of the country)
  • 30% fewer deaths from heart attack and stroke (compared to the rest of the country)
  • 20% fewer deaths from colon cancer

The big lesson: insurance, by itself, doesn’t drive major improvements in medicine. It must be a combined effort between forward-looking insurers and innovative, high-performing clinicians.

But there’s another takeaway here for doctors everywhere: now is the time to join forces with other clinicians in your community. Together, you can collaborate to improve clinical quality. You can augment access and make care more affordable for patients. Simultaneously, this is the time for the insurers and the retail giants to figure out which medical groups can deliver the best care and make the best partners. Neither side will flourish alone. And this leads to a third question and lesson.

Question 3: Will the deal work?

Almost all of my conversations ended with this query. I say it’s too early to tell. But as I look years down the road, one part of the deal, in particular, gives me doubt.

Today, Geisinger uses a hybrid reimbursement model—blending both “value-based” care payments with traditional “fee-for-service” insurance plans. In addition to offering its own coverage, it contracts with a variety of other insurance companies. Rarely have I seen this scattered approach succeed.

Most healthcare observers understand the inherent flaw in the “fee for service” (FFS) model is also its greatest appeal to providers: the more you do the more you earn. FFS is how nearly all financial transactions take place in America (i.e., provide a service, earn a fee). In medicine, however, this financial model results in frequent over-testing and over-treatment with minimal if any improvement in clinical outcomes, according to researchers.

The “value-based” alternative to FFS involves prepaying for care—a model often referred to as “capitation.” In short, capitation involves a single fee, paid upfront for all the medical care provided to a defined population of patients for one year based on their age and health status. The better an organization at preventing disease and avoiding complications from chronic illness, the greater its success in both clinical quality and affordability.

Within the small world of capitated healthcare payments, there’s an important element that often gets overlooked. It makes a big difference who receives that lump-sum payment.

In the case of Kaiser Permanente, capitated payments are made directly to the medical group and the physicians who are responsible for providing care. In almost every other health system, an insurance company collects capitated payments but then pays the medical providers on a fee-for-service basis. Even though the arrangement is referred to as capitated, the incentives are overwhelmingly tied to the volume of care (not the value of that care).

In a mixed-payment model, doctors and hospitals invariably prioritize the higher paying FFS patients over the capitated ones. When I think about these conflicting incentives, I’m reminded of a prominent medical group in California. It had a main entrance for its fee-for-service patients and a second, smaller one off to the side for capitated patients.

I doubt the time spent with the patient—or the overall care provided—was equal for both groups. When income is based on quantity of care, not quality, clinicians focus more on treating the complications of chronic disease and medical errors rather than preventing them in the first place. Geisinger has walked this tightrope in the past, but as economic pressures mount, I fear doctors will find the two sets of incentives conflicting and difficult to navigate.

The big lesson: as financial pressures mount, the most effective approaches of the past will likely fail in the future. All healthcare organizations will need to make a decision: keep trying to drive volume and prices up through FFS or shift to capitation. Getting caught in the middle is a prescription for failure.

Examining the healthcare acquisitions made by Amazon and CVS, it’s clear these giants have decided to move aggressively toward a model more like Kaiser Permanente’s—one that brings insurance, pharmacy, physicians and sophisticated IT systems under one roof. These companies, along with Walmart, are aggressively marching down a path toward capitation, focusing on Medicare Advantage (the value-based option for Americans 65+) as an entry point.

So far, Geisinger has hedged its bets by maintaining a hybrid revenue stream. I doubt they can do so successfully in the future. That brings us to a final question.

The biggest question remaining  

Over the next decade, hospital systems, insurers and retailers will battle for healthcare supremacy. The most recent Kaiser-Geisinger deal reflects an industry that’s undergoing massive change as health systems face intensifying pressure to remain relevant.  

The most important issue to resolve is whether these shifts will ultimately help or harm patients. I’m optimistic for a positive outcome.

Whether or not the retail giants displace the incumbents, they will redefine what it takes to win. For all their faults, companies like Amazon and Walmart care a lot about meeting the needs of customers—a mindset rarely found in today’s healthcare world. As these companies grow ever larger, they’ll place consumer-oriented demands on doctors and hospitals. This will require care providers to deliver higher quality care at more affordable prices.

The retailers will only do deals with the best of the best. And they’ll kick the underachievers to the curb. They’ll use their sophisticated IT systems to better coordinate and innovate medical care. Insurers, hospitals and doctors who fail to keep up will be left behind.

Over time, patients will find themselves with far more choices and control than they have today. And I’m optimistic that will be good for the health of our nation.

Affordable Care Act 2.0: New Trends and Issues, New Urgency

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Affordable Care Act 2.0: New Trends and Issues, New Urgency

Thursday marks the 13th anniversary of the signing of the Affordable Care Act– perhaps the most consequential healthcare legislation since LBJ’s passage of the Medicare Act in 1965. Except in healthcare circles, it will probably go unnoticed.

World events in the Ukraine and China President Xi Jinping’s visit to Russia will grab more media attention. At home, the ripple effects of Silicon Valley Bank’s bankruptcy and the stability of the banking system will get coverage and former President Trump’s arrest tomorrow will produce juicy soundbites from partisans and commentators. Thus, the birthday of Affordable Care Act, will get scant attention.

That’s regrettable: it offers an important context for navigating the future of the U.S. health system. Having served as an independent facilitator between the White House and private sector interests in 2009-2010, I recall vividly the events leading to its passage and the Supreme Court challenge that affirmed it:

  • The costs and affordability of healthcare and growing concern about the swelling ranks of uninsured were the issues driving its origin. Both political parties and every major trade group agreed on the issues; solving them not so easy.
  • Effective messaging from special interests about the ACA increased awareness of the law and calcified attitudes for or against. Misinformation/disinformation about the “Patient Protection and Affordable Care Act” morphed to a national referendum on insurance coverage and the cost-effectiveness of the ACA’s solution (Medicaid expansion, subsidies and insurance marketplaces). ‘Death panels. government run healthcare and Obamacare’ labels became targets for critics: spending by special interests opposed to the law dwarfed support by 7 to 1. Differences intensified: Emotions ran high. I experienced it firsthand. While maintaining independence and concerns about the law, I received death threats nonetheless. Like religion, the ACA was off-limits to meaningful discussion (especially among the majority who hadn’t read it).
  • And after Scott Brown’s election to the vacant Massachusetts seat held by Ted Kennedy in January, 2010, the administration shifted its support to a more-moderate Senate Finance Committee version of the law that did not include a public option or malpractice reforms in the House version. Late-night lobbying by White House operatives resulted in a House vote in favor of the Senate version with promises ‘it’s only the start’. Through amendments, executive orders, administrative actions and appropriations, it would evolve with the support of the Obama team. It passed along party lines with the CBO offering an optimistic view it would slow health cost escalation by reducing administrative waste, implementation of comparative effectiveness research to align evidence with care, increased insurance coverage, changing incentives for hospitals and physicians and more.

The Affordable Care Act dominated media coverage from August 2009 to March 2010. In the 2010 mid-term election, it was the issue that catapulted Republicans to net gains of 7 in the Senate, 63 in the House and 6 in Governor’s offices. And since, Republicans in Congress have introduced “Repeal and Replace” legislation more than 60 times, failing each time.

Today, public opinion about the ACA has shifted modestly: from 46% FOR and 40% against in 2010 to 55% FOR and 42% against now (KFF). The national uninsured rate has dropped from 15.5% to 8.6% and Medicaid has been expanded in 39 states and DC. Lower costs, increased affordability and quality improvements owing to the ACA have had limited success.

Key elements of the ACA have not lived up to expectations i.e. the Patient Centered Outcome Research Institute, the National Quality Strategy, Title V National Healthcare Workforce Task Force, CMMI’s alternative payment models and achievement of Level 3 interoperability goals vis a vis ONCHIT, CHIME et al. So, as the 2024 political season starts, the ACA will get modest attention by aspirants for federal office because it addressed big problems with blunt instruments. Most recognize it needs to be modernized based on trends and issues relevant to healthcare in 2030 and beyond.

Trends like…

  • Self-diagnostics and treatment by consumers (enabled by ChatGPT et al).
  • Data-driven clinical decision-making.
  • Integration of non-allopathic methodologies.
  • The science of wellbeing.
  • Complete price, cost and error transparency.
  • Employer and individual insurance coverage optimization.
  • And others.

Issues like….

  • The role and social responsibility of private equity in ownership and operation of services in healthcare delivery and financing.
  • The regulatory framework for local hospitals vs. Regional/nation health systems, and between investor-owned and not-for-profit sponsorship.
  • The role and resources for guided self-care management and virtual-care.
  • Innovations in care delivery services to vulnerable populations using technologies and enhanced workforce models.
  • Modernization of regulatory environments and rules of competition for fully integrated health systems, prescription drug manufacturers, health insurers, over-the counter therapies, food as medicine, physician ownership of hospitals, data ownership, tech infomediaries that facilitate clinical decision-making, self-care, professional liability and licensing and many others.
  • Integration of public health and local health systems.
  • The allocation of capital to the highest and best uses in the health system.
  • The sustainability of Medicare and role of Medicare Advantage.
  • The regulatory framework for disruptors”.
  • And many others.

These trends are not-easily monitored nor are the issues clear and actionable. Most are inadequately addressed or completely missed in the ACA.

Complicating matters, the political environment today is more complicated than in 2010 when the ACA became law. The economic environment is more challenging: the pandemic, inflation and economic downturn have taken their toll. Intramural tensions in key sectors have spiked as each fights for control and autonomy i.e. primary care vs. specialty medicine, investor-owned vs. not-for-profit hospitals, retail medicine & virtual vs. office-based services, carve-outs, direct contracting et al . Consolidation has widened capabilities and resources distancing big organizations from others. Today’s media attention to healthcare is more sophisticated. Employers are more frustrated. And the public’s confidence in the health system is at an all-time low.

“ACA 2.0” is necessary to the system’s future but unlikely unless spearheaded by community and business leaders left out of the 1.0 design process. The trends and issues are new and complicated, requiring urgent forward thinking.