Category Archives: Cost Reduction

Obama And Trump’s First 100 Days Of Healthcare Policy: A Comparison

Posted on by • Posted in 2026 Mid Term Election Issues, 2028 Election Issues, ACA, Cost Reduction, Cost Shifting, Employee Layoffs, Health Insurance Coverage Adequacy, Health Policy, Healthcare Reform, Planned Parenthood, Underinsured, Uninsured, US Agency for International Development (AID), World Health Organization (WHO) • Leave a comment

https://www.forbes.com/sites/robertpearl/2025/04/27/obama-and-trumps-first-100-days-of-healthcare-policy-a-comparison/

In chaos theory, there’s a concept known as the butterfly effect—the idea that a seemingly small action, occurring at just the right moment, can trigger ripple effects that grow across time and space. A butterfly flaps its wings in Brazil, the saying goes, and a tornado forms weeks later in Texas.

Presidential decisions can carry the same weight, especially those made in the first 100 days of a new administration. Time and again, these early choices unleash far-reaching consequences that reshape a nation.

As Donald Trump wraps up the opening stretch of his second term, his healthcare-focused executive actions underscore the consequentiality of this early window. And when compared with Barack Obama’s approach in 2009 (the last time a president pursued major healthcare reforms right out of the gate), the contrast becomes even more striking.

Two presidents. Two defining moments. And one fundamental question that both men had to answer in the first 100 days: Where should healthcare reform begin — by expanding coverage, improving quality or cutting costs?

Crisis, Control And A Key Healthcare Choice

The idea that a president’s first 100 days matter dates back to Franklin D. Roosevelt. In 1933, during the depths of the Great Depression, FDR passed a wave of New Deal reforms that redefined the role of government in American life.

Ever since, the opening months of a new presidency have served as both proving ground and preview. They reveal how a president intends to govern and what he values most.

For both presidents Obama and Trump, their answer to the healthcare question — where to begin? — would shape what followed. Obama chose to expand coverage. Trump has chosen to cut costs. Those decisions set them on opposing paths. And with every subsequent policy decision, the gap between their contrasting approaches only grows.

’09 Obama: Health Coverage And Congressional Action

In the quiet calculus of early governance, President Obama concluded that without health insurance coverage, access to high-quality medical care would remain out of reach for tens of millions of Americans.

Confronting a system that left 60 million uninsured, he believed that expanding access to coverage was a vital first step — not only to improve individual health outcomes, but to create a healthier nation that ultimately would require less medical care (and spending) overall.

That belief was grounded in lived experience: his mother’s battle with cancer and the insurance disputes that followed, as well as his years as a community organizer working with families who couldn’t afford medical care.

He also understood that only Congressional legislation — rather than executive action — would make those gains durable. So, in his first 100 days, he pursued a strategy grounded in consensus-building. He convened healthcare stakeholders, hosted public healthcare summits, expanded the Children’s Health Insurance Program (CHIP) and proposed a federal budget that included a $634 billion “down payment” on healthcare reform.

’25 Trump: Cost Cutting And Executive Control

Donald Trump didn’t ease into his second term. He charged in, pen in hand. His priorities for the country were clear: cut taxes, impose tariffs and reduce federal spending.

For Trump, speed was of the essence. So, he bypassed Congress in favor of executive orders, downsizing healthcare agencies and dismantling regulatory oversight wherever possible.

At the center of Trump’s domestic agenda is an ambitious income tax overhaul, dubbed the “big beautiful bill.” But passing it will require support from fiscal conservatives in his own party. To offset the steep drop in tax revenue, Trump has signaled a willingness to slash federal spending, starting with healthcare programs.

What Comes Next: Mapping Health Policy Consequences

Presidents make thousands of decisions over the course of a four-year term, but those made in the first few months typically matter most. Both Obama and Trump had to decide whether to prioritize expanding coverage or cutting costs, and that choice would shape the steps that follow.

For Obama, the consequences of his choice were sweeping. His early focus on increasing health insurance coverage laid the foundation for the Affordable Care Act, the most ambitious healthcare reform since Medicare and Medicaid in the 1960s. The ACA provided affordable insurance to more than 30 million Americans, offered subsidies to low- and middle-income families, cut the uninsured rate in half and guaranteed protections for those with preexisting conditions. The law survived political opposition, legal challenges and subsequent presidencies.

However, those gains came at a price. Annual U.S. healthcare spending more than doubled — from $2.6 trillion in 2010 to over $5.2 trillion today — without significant improvements in life expectancy or care quality.

Trump’s early decisions are reshaping healthcare, too, but in ways that reflect a very different set of priorities and a sharply contrasting vision for the federal government’s role.

1. Cost-Driven Actions: Reducing Government Healthcare Spending

Guided by a business-oriented focus on cost containment, Trump has sought to reduce the federal government’s role in healthcare through sweeping budget and staffing changes. Among the most significant:

  • Agency layoffs: The Department of Health and Human Services has initiated mass layoffs across the CDC, NIH and FDA, reducing staff capacity by 20,000 and cutting critical programs, including HIV research grants and initiatives targeting autism, chronic disease, teen pregnancy and substance abuse.
  • ACA support rollbacks: The administration slashed funding for ACA navigators and rescinded extended enrollment periods, making it more difficult for individuals (especially low-income Americans) to obtain coverage.
  • Planned Parenthood and family planning cuts: Freezing Title X funds has reduced access to reproductive healthcare in multiple states.
  • Medicaid at risk: A proposed $880 billion reduction over 10 years could eliminate expanded Medicaid coverage in many states. Additional moves (like work requirements or application hurdles) would likely reduce enrollment further.

2. Cultural And Executive Power Moves: Redefining Government’s Role In Health

While cutting costs has been the central goal, many of Trump’s actions reflect a broader ideological stance. He’s using executive authority to reshape the values, norms and institutions that have defined American healthcare. These include:

  • Withdrawal from the World Health Organization (WHO): The administration formally ended U.S. participation, citing concerns about funding and governance.
  • Restructuring USAID’s health portfolio: Multiple contracts and programs related to maternal health, infectious disease prevention and international public health have been ended or scaled back.
  • Policy changes on federal language and research topics: Executive directives have modified how agencies are allowed to address topics related to gender and sexuality, leading to the removal of LGBTQ+ content from health resources and websites.
  • Reorganization of DEI programs: Diversity, equity and inclusion initiatives have been rolled back or eliminated across several federal departments.

The Likely Consequences Of Trump’s First 100 Days

President Trump’s early actions reveal two defining trends: cutting government healthcare spending and reshaping federal priorities through executive authority. Both are already changing how care is accessed, funded and delivered. And both are likely to produce lasting consequences.

The most immediate impact will come from efforts to reduce healthcare spending. Cuts to Medicaid, ACA enrollment support and family planning programs are expected to lower insurance enrollment, particularly among low-income families, young adults and people with chronic illness.

As coverage declines, care becomes harder to access and more expensive when it’s needed. The results: delayed diagnoses, avoidable complications and rising levels of uncompensated care.

His second set of actions — including reduced investment in federal science agencies — will slow drug development and weaken the infrastructure needed to respond to future public health threats.

Meanwhile, a more constrained and domestically focused healthcare agenda is likely to diminish trust in federal health agencies, limit access to culturally competent care and produce a loss of global leadership in health innovation.

The U.S. Constitution gives presidents broad power to chart the nation’s course. And the decisions made in their first 100 days shape the trajectory of an entire presidency.

One president decided to prioritize coverage, while a second chose cost-cutting. And like the flap of a butterfly’s wings, these early actions generate ripples — expanding in size over time and radically altering American healthcare, for better or worse.

U.S. Healthcare in 2025 and Beyond: Three Major Predictions

Posted on by • Posted in Consumer Price Index (CPI), Cost Management, Cost Reduction, Future, Future State, Inflation, Market Outlook, Market Trends, Private Equity, Value Based Care Model, Value Creation, Value Journey, Value Proposition • Leave a comment
U.S. Healthcare in 2025 and Beyond: Three Major Predictions

With days before voters decide the composition of the 119th U.S. Congress and the next White House occupant, the immediate future for U.S. healthcare is both predictable and problematic:

It’s predictable that…

1-States will be the epicenter for healthcare legislation and regulation; federal initiatives will be substantially fewer.

At a federal level, new initiatives will be limited: continued attention to hospital and insurer consolidation, drug prices and the role of PBMs, Medicare Advantage business practices and a short-term fix to physician payments are likely but little more. The Affordable Care Act will be modified slightly to address marketplace coverage and subsidies and CMSs Center for Medicare and Medicaid Innovation (CMMI) will test new alternative payment models even as doubt about their value mounts. But “BIG FEDERAL LAWS” impacting the U.S. health system are unlikely.

But in states, activity will explode:  for example…

  • In this cycle, 10 states will decide their abortion policies joining 17 others that have already enacted new policies.
  • 3 will vote on marijuana legalization joining 24 states that have passed laws.
  • 24 states have already passed Prescription Drug Pricing legislation and 4 are considering commissions to set limits.
  • 40 have expanded their Medicaid programs
  • 35 states and Washington, D.C., operate CON programs; in 12 states, CONs have been repealed.
  • 14 have legislation governing mental health access.
  • 5 have passed or are developing commissions to control health costs.
  • And so on.

Given partisan dysfunction in Congress and the surprising lack of attention to healthcare in Campaign 2024 (other than abortion coverage), the center of attention in 2025-2026 will be states. In addition to the list above, attention in states will address protections for artificial intelligence utilization, access to and pricing for weight loss medications, tax exemptions for not-for-profit health systems, telehealth access, conditions for private equity ownership in health services, constraints on contract pharmacies, implementation of site neutral payments, new 340B accountability requirements and much more. In many of these efforts, state legislatures and/or Governors will go beyond federal guidance setting the stage for court challenges, and the flavor of these efforts will align with a state’s partisan majorities: as of September 30th, 2024, Republicans controlled 54.85% of all state legislative seats nationally, while Democrats held 44.19%. Republicans held a majority in 56 chambers, and Democrats held the majority in 41 chambers. In 2024, 27 states are led by GOP governors and 23 by Dems and 11 face voters November 5.  And going into the election, 22 states are considered red, 21 are considered blue and 7 are tagged as purple.

The U.S. Constitution affirms Federalism as the structure for U.S. governance: it pledges the pursuit of “life, liberty and the pursuit of happiness” as its purpose but leaves the lion’s share of responsibilities to states to figure out how. Healthcare may be federalism’s greatest test.

2-Large employers will take direct action to control their health costs.

Per the Kaiser Family Foundation’s most recent employer survey, employer health costs are expected to increase 7% this year for the second year in a row. Willis Towers Watson, predicts a 6.4% increase this year on the heels of a 6% bump last year. The Business Group on Health, which represents large self-insured employers, forecasts an 8% increase in 2025 following a 7% increase last year. All well-above inflation, ages and consumer prices this year.

Employers know they pay 254% of Medicare rates (RAND) and they’re frustrated. They believe their concerns about costs, affordability and spending are not taken seriously by hospitals, physicians, insurers and drug companies. They see lackluster results from federal price transparency mandates and believe the CMS’ value agenda anchored by accountable care organizations are not achieving needed results. Small-and-midsize employers are dropping benefits altogether if they think they can. For large employers, it’s a different story. Keeping health benefits is necessary to attract and keep talent, but costs are increasingly prohibitive against macro-pressures of workforce availability, cybersecurity threats, heightened supply-chain and logistics regulatory scrutiny and shareholder activism.

Maintaining employee health benefits while absorbing hyper-inflationary drug prices, insurance premiums and hospital services is their challenge. The old playbook—cost sharing with employees, narrow networks of providers, onsite/near site primary care clinics et al—is not working to keep up with the industry’s propensity to drive higher prices through consolidation.

In 2025, they will carefully test a new playbook while mindful of inherent risks. They will use reference pricing, narrow specialty specific networks, technology-enabled self-care and employee gainsharing to address health costs head on while adjusting employee wages. Federal and state advocacy about Medicare and Medicaid funding, insurer and hospital consolidation and drug pricing will intensify. And some big names in corporate America will step into a national debate about healthcare affordability and accountability.

Employers are fed up with the status quo. They don’t buy the blame game between hospitals, insurers and drug companies. And they don’t think their voice has been heard.

3-Private equity and strategic investors will capitalize on healthcare market conditions. 

The plans set forth by the two major party candidates feature populist themes including protections for women’s health and abortion services, maintenance/expansion of the Affordable Care Act and prescription drug price controls. But the substance of their plans focus on consumer prices and inflation: each promises new spending likely to add to the national deficit:

  • Per the Non-Partisan Committee for a Responsible Federal Budget, over the next 10 years, the Trump plan would add $7.5 trillion to the deficit; the Harris plan would add $3.5 trillion.
  • Per the Wharton School at the University of Pennsylvania, Harris’ proposals would add $1.2 trillion to the national deficits over 10 years and Trump’s proposals would add $5.8 trillion over the same period

Per the Congressional Budget Office, federal budget deficit for FY2024 which ended September 30 will be $1.8 trillion– $139 billion more than FT 2023. Revenues increased by an estimated $479 billion (or 11 percent). Revenues in all major categories, but notably individual income taxes, were greater than they were in fiscal year 2023. Outlays rose by an estimated $617 billion (or 10 percent). The largest increase in outlays was for education ($308 billion). Net outlays for interest on the public debt rose by $240 billion to total $950 billion.

The federal government spent $6.75 trillion in 2024, a 10% increase from the prior year. Spending on Social Security (22% of total spending) and healthcare programs (28.5% of total spending) also increased substantially. The U.S. debt as of Friday was $37.77 trillion, or $106 thousand per citizen.

The non-partisan Congressional Budget Office (CBO) reports that federal debt held by the public averaged 48.3 % of GDP for the half century ending in 2023– far above its historic average. It projects next year’s national debt will hit 100% for the first time since the US military build-up in the second world war. And it forecast the debt reaching 122.4% in 2034 potentially pushing interest payments from 13% of total spending this year to 20% or more.

Adding debt is increasingly cumbersome for national lawmakers despite campaign promises, and healthcare is rivaled by education, climate and national defense in seeking funding through taxes and appropriations. Thus, opportunities for private investors in healthcare will increase dramatically in 2025 and 2026. After all, it’s a growth industry ripe for fresh solutions that improve affordability and cost reduction at scale.

Combined, these three predictions foretell a U.S. healthcare system that faces a significant pressure to demonstrate value.

They require every healthcare organization to assess long-term strategies in the likely context of reduced funding, increased regulation and heightened attention to prices and affordability. This is problematic for insiders accustomed to incrementalism that’s protected them from unwelcome changes for 3 decades.  

Announcements last week by Walgreens and CVS about changes to their strategies going forward reflect the industry’s new normal: change is constant, success is not. In 2025, regardless of the election outcome, healthcare will be a major focus for lawmakers, regulators, employers and consumers.  

Walmart Health’s Demise is Emblematic of the Nation’s Primary Care Conundrum

Posted on by • Posted in Cost Management, Cost Reduction, Health Insurance Industry, Health System, Primary Care, Primary Care Delivery Model, Primary Care Strategy, Private Equity, Retail Clinic, Retail Healthcare, Walmart, Whole-Person Health • Leave a comment
Walmart Health’s Demise is Emblematic of the Nation’s Primary Care Conundrum

Walmart’s announcement on April 30 that it was pulling the plug on Walmart Health stunned the healthcare ecosystem. [1] Few saw it coming.

Launched amid much fanfare in 2019, Walmart Health has operated 51 health centers in five states, with a robust virtual care platform. Walmart’s news release noted that “the challenging reimbursement environment and escalating operating costs create a lack of profitability that make the care business unsustainable for us at this time.” Despite its legendary supply-chain capabilities, expansive market presence and sizable consumer demand for affordable primary care services, Walmart couldn’t make its business model work in healthcare.

Just two weeks earlier with much less fanfare, and in stark contrast to Walmart, the big health insurer Elevance announced it was doubling-down on primary care. On April 15, Elevance issued a news release detailing a new strategic partnership with the private-equity firm Clayton, Dubilier & Rice (CD&R) to “accelerate innovation in primary care delivery, enhance the healthcare experience and improve health outcomes.” [2]

What gives? Why is Elevance expanding its primary care footprint when the retail behemoth Walmart believes investing in primary care is unprofitable? The answer lies at the heart of the debate over the future of U.S. healthcare. As a nation, the United States overinvests in healthcare delivery while underinvesting in preventive care and health promotion.

Enlightened healthcare companies, like Elevance, are attacking this imbalance aggressively.

Elevance isn’t alone. Other large health insurers — including UnitedHealthcare, CVS/Aetna and Humana — and some large health systems (e.g., AdventHealth, Corewell Health and Intermountain Healthcare) are investing in primary care services to support what I refer to as 3D-WPH, shorthand for “democratized and decentralized distribution of whole-person health.”

3D-WPH is the disruptive innovation that is rewiring U.S. healthcare to improve outcomes, lower costs, personalize care delivery and promote community wellbeing. It is an unstoppable force.

Transactional Versus Integrated Primary Care

Across multiple retail product and service categories — including groceries, clothing, electronics, financial services, generic drugs and vision care — Walmart applies ruthless efficiency management to increase consumer selection and lower prices. Consistent with the company’s mission of helping its customers to “save money and live better,”

Walmart Health provided routine, standalone primary care services at low, transparent prices. Despite scale and superior logistics, Walmart could not deliver these routine care services profitably.

Here’s the problem with applying Walmart’s retailing expertise to healthcare:

While exceptional primary care services are rarely profitable in their own right, they can reduce total care costs by limiting the need for subsequent acute care services. Preventive care works. Companies that invest in primary care can benefit by reducing total cost of care.

Unfortunately, few providers and payers practice this integrated approach to care delivery. Most providers rely on their primary care networks to refer patients for profitable specialty care services. Most payers use their primary care networks to deny access to these same specialty care services.

This competition between using primary care networks as referral and denial machines dramatically increases the intermediary costs of U.S. healthcare delivery. Patients get lost as these titanic payer-provider battles unfold, even as costs continue to rise, and health status continues to decline.

Whole-Person Health Works

A growing number of payers and providers, however, are recalibrating their business models to lower total care costs by integrating primary care services into a whole-person health delivery model.

In its news release, Elevance described its strategic partnership with CD&R as follows:

The strategic partnership’s advanced primary care models take a whole-health approach to address the physical, social and behavioral health of every person. The foundation of the new advanced primary care offering will be stronger patient-provider relationships supported by data-driven insights, care coordination and referral management, and integrated health coaching. It will also leverage realigned incentives through value-based care agreements that enable care providers, assist individuals in leading healthier lives, and make care more affordable.

“We know that when primary care providers are resourced and empowered, they guide consumers through some of life’s most vulnerable moments, while helping people to take control of their own health,” said Bryony Winn, president of health solutions at Elevance Health, in the news release. “By bringing a new model of advanced primary care to markets across the country, our partnership with CD&R will create a win-win for consumers and care providers alike.”

Whole health personalizes and integrates care delivery. I would suggest that transactional and fragmented primary care service provision cannot compete with 3D-WPH.

For all its strengths, Walmart Health is not positioned to advance whole-person health. Primary care service provision without connection to whole-person health is a recipe for financial disaster. Walmart Health’s demise confirms this market reality.

Moreover, whole-person health is not rocket science. The Veterans Health Administration (VA) has practiced 3D-WPH for more than 15 years. [3] It achieves better outcomes at two-thirds the per capita cost of Medicare with a much sicker population. [4]

Countries with nationalized health systems practice whole-person health expansively. With one-third the per capita income and one-fifth the per capita healthcare expenditure, Portugal has a life expectancy that is more than five years longer than it is in the United States. [5] Portugal achieves better population health metrics than the United States by operating community health networks throughout the country that combine primary care and public health services.

The VA, Portugal and numerous other organizations and countries prove the thesis that investing in primary care lowers total care costs and improves health outcomes. The evidence supporting this thesis is both compelling and incontrovertible.

Solving Healthcare’s Primary Care Conundrum

Economists refer to a circumstance when individuals overuse scarce public goods as a tragedy of the commons.

Public grazing fields highlight the challenge posed by such a circumstance. [6] It is in the financial interest of individual ranchers to overgraze their herd on a public grazing field. Overgrazing by all, however, would obliterate the grazing field, which is against the public’s interest.

Societies address these “tragedies” by establishing and enforcing rules to govern public goods.

U.S. healthcare, however, reverses this type of economic tragedy. Advanced primary care services represent a public good. All acknowledge the benefits and societal returns, yet few providers and payers invest in advanced primary care services. Providers don’t invest because it leads to lower treatment volumes. Payers don’t invest because primary care’s higher costs trigger higher premiums, prompting their members to switch plans.

We can’t solve the primary care conundrum until we enable both providers and payers to benefit from investments in advanced primary care services. Fragmented, transactional medicine, even when delivered efficiently, is not cost-effective. Walmart Health discovered this economic reality the hard way and exited the business.

By contrast, Elevance is reorganizing itself to overcome healthcare’s reverse tragedy of the commons. They are betting that offering advanced primary care services within integrated delivery networks will both lower costs and improve health outcomes. Healthcare’s future belongs to the companies, like Elevance, that are striving to solve the industry’s primary care conundrum.

The Healthcare Economy: Three Key Takeaways that Frame Public and Private Sector Response

Posted on by • Posted in American Hospital Association (AHA), Congressional Budget Office (CBO), Consumer Price Index (CPI), Cost Management, Cost Reduction, Forecast, Health Policy, Health System, Healthcare Industry, Healthcare Market, Healthcare Price Index, Healthcare Reform, High Cost Therapies, High Deductible Health Plans, High Drug Prices, High Premiums, Highly Specialized Drugs, Hospital, Hospital Industry, Market Outlook, Market Trends, Out of Network, Out of Pocket Expenses, Prescription Drugs, Value-Based Contracting, Value-Based Healthcare • Leave a comment
The Healthcare Economy: Three Key Takeaways that Frame Public and Private Sector Response

Last week, 2 important economic reports were released that provide a retrospective and prospective assessment of the U.S. health economy:

The CBO National Health Expenditure Forecast to 2032: 

“Health care spending growth is expected to outpace that of the gross domestic product (GDP) during the coming decade, resulting in a health share of GDP that reaches 19.7% by 2032 (up from 17.3% in 2022). National health expenditures are projected to have grown 7.5% in 2023, when the COVID-19 public health emergency ended. This reflects broad increases in the use of health care, which is associated with an estimated 93.1% of the population being insured that year… During 2027–32, personal health care price inflation and growth in the use of health care services and goods contribute to projected health spending that grows at a faster rate than the rest of the economy.”

The Congressional Budget Office forecast that from 2024 to 2032:

  • National Health Expenditures will increase 52.6%: $5.048 trillion (17.6% of GDP) to $7,705 trillion (19.7% of GDP) based on average annual growth of: +5.2% in 2024 increasing to +5.6% in 2032
  • NHE/Capita will increase 45.6%: from $15,054 in 2024 to $21,927 in 2032
  • Physician services spending will increase 51.2%: from $1006.5 trillion (19.9% of NHE) to $1522.1 trillion (19.7% of total NHE)
  • Hospital spending will increase 51.6%: from $1559.6 trillion (30.9% of total NHE) in 2024 to $2366.3 trillion (30.7% of total NHE) in 2032.
  • Prescription drug spending will increase 57.1%: from 463.6 billion (9.2% of total NHE) to 728.5 billion (9.4% of total NHE)
  • The net cost of insurance will increase 62.9%: from 328.2 billion (6.5% of total NHE) to 534.7 billion (6.9% of total NHE).
  • The U.S. Population will increase 4.9%: from 334.9 million in 2024 to 351.4 million in 2032.

The Bureau of Labor Statistics CPI Report for May 2024 and Last 12 Months (May 2023-May2024): 

“The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in May on a seasonally adjusted basis, after rising 0.3% in April… Over the last 12 months, the all-items index increased 3.3% before seasonal adjustment. More than offsetting a decline in gasoline, the index for shelter rose in May, up 0.4% for the fourth consecutive month. The index for food increased 0.1% in May. … The index for all items less food and energy rose 0.2% in May, after rising 0.3 % the preceding month… The all-items index rose 3.3% for the 12 months ending May, a smaller increase than the 3.4% increase for the 12 months ending April. The all items less food and energy index rose 3.4 % over the last 12 months. The energy index increased 3.7%for the 12 months ending May. The food index increased 2.1%over the last year.

Medical care services, which represents 6.5% of the overall CPI, increased 3.1%–lower than the overall CPI. Key elements included in this category reflect wide variance: hospital and OTC prices exceeded the overall CPI while insurance, prescription drugs and physician services were lower.

  • Physicians’ services CPI (1.8% of total impact): LTM: +1.4%
  • Hospital services CPI (1.0% of total impact): LTM: +7.3%
  • Prescription drugs (.9% of total impact) LTM +2.4%
  • Over the Counter Products (.4% of total impact) LTM 5.9%
  • Health insurance (.6% of total) LTM -7.7%

Other categories of greater impact on the overall CPI than medical services are Shelter (36.1%), Commodities (18.6%), Food (13.4%), Energy (7.0%) and Transportation (6.5%).

Three key takeaways from these reports:

  • The health economy is big and getting bigger. But it’s less obvious to consumers in the prices they experience than to employers, state and federal government who fund the majority of its spending. Notably, OTC products are an exception: they’re a direct OOP expense for most consumers. To consumers, especially renters and young adults hoping to purchase homes, the escalating costs of housing have considerably more impact than health prices today but directly impact on their ability to afford coverage and services. Per Redfin, mortgage rates will hover at 6-7% through next year and rents will increase 10% or more.
  • Proportionate to National Health Expenditure growth, spending for hospitals and physician services will remain at current levels while spending for prescription drugs and health insurance will increase. That’s certain to increase attention to price controls and heighten tension between insurers and providers.
  • There’s scant evidence the value agenda aka value-based purchases, alternative payment models et al has lowered spending nor considered significant in forecasts.

The health economy is expanding above the overall rates of population growth, overall inflation and the U.S. economy. GDP.  Its long-term sustainability is in question unless monetary policies enable other industries to grow proportionately and/or taxpayers agree to pay more for its services. These data confirm its unit costs and prices are problematic.

As Campaign 2024 heats up with the economy as its key issue, promises to contain health spending, impose price controls, limit consolidation and increase competition will be prominent.

Public sector actions

will likely feature state initiatives to lower cost and spend taxpayer money more effectively.

Private sector actions

will center on employer and insurer initiatives to increase out of pocket payments for enrollees and reduce their choices of providers.

Thus, these reports paint a cautionary picture for the health economy going forward. Each sector will feel cost-containment pressure and each will claim it is responding appropriately. Some actually will.

PS: The issue of tax exemptions for not-for-profit hospitals reared itself again last week.

The Committee for a Responsible Federal Budget—a conservative leaning think tank—issued a report arguing the exemption needs to be ended or cut.  In response,

the American Hospital Association issued a testy reply claiming the report’s math misleading and motivation ill-conceived.

This issue is not going away: it requires objective analysis, fresh thinking and new voices.  For a recap, see the Hospital Section below.

Nurse practitioners fueling primary care workforce growth

Posted on by • Posted in Advanced Practice Providers (APP), Cost Management, Cost Reduction, Health System, Hospital, Hospital Industry, Labor Spend Management, Nurse Practitioners, Primary Care, Primary Care Delivery Model, Primary Care Strategy, Team-Based Care, Team-Based Care Models • Leave a comment

https://mailchi.mp/fc76f0b48924/gist-weekly-march-1-2024?e=d1e747d2d8

In this week’s graphic, we highlight how the primary care provider workforce has evolved over the past decade in both the pursuit of team-based care models and value-based care, as well as in response to rising labor costs and physician shortages.

In 2010, physicians made up more than 70 percent of the primary care workforce. But over the next 12 years, the number of primary care providers nearly doubled, largely driven by immense growth of nurse practitioners in the workforce. 

As of 2022, more than half of primary care providers were advanced practice providers (APPs), who continue to have a strong job outlook across the next decade (especially nurse practitioners).This shift has been beneficial to many provider organizations.

In a study from the Mayo Clinic, the return on investment was positive across a variety of APP practice models, especially in procedural-based specialties but across both independent practice models and full care team models as well. 

APPs also receive similar patient experience scores as their physician counterparts. 

Continued integration of APPs in team-based care models remains a key strategy for health systems seeking to improve access while lowering costs, especially in primary care.

Walgreens’ VillageMD exits the Florida market

Posted on by • Posted in Cost Reduction, Disruption, Innovation, Investor Expectations, Operating Margin, Operating Metrics, Operating Performance, Patience, Primary Care, Private Equity, Walgreens, Walk-in Clinics • Leave a comment

https://mailchi.mp/f9bf1e547241/gist-weekly-february-23-2024?e=d1e747d2d8

Walgreens announced this week that it will be shutting down all of its Florida-based VillageMD primary care clinics. Fourteen clinics in the Sunshine State have already closed, with the remaining 38 expected to follow by March 15.

This move comes in the wake of a $1B cost-cutting initiative announced by Walgreens executives last fall, which included plans to shutter at least 60 VillageMD clinics across five markets in 2024.

Last month VillageMD exited the Indiana market, where it was operating a dozen clinics.

Despite downsizing its primary-care footprint, Walgreens says it remains committed to its expansion into the healthcare delivery sector, having invested $5.2B in VillageMD in 2021 and purchased Summit Health-CityMD for $9B through VillageMD in 2023. 

The Gist: Having made significant investments in provider assets, Walgreens now faces the difficult task of creating an integrated and sustainable healthcare delivery model, which takes time. 

Unlike long-established healthcare providers who feel more loyal to serving their local communities, nontraditional healthcare providers like Walgreens can more easily pick and choose markets based on profitability.

While this move is disruptive to VillageMD patients in Florida and the other markets it’s exiting, Walgreens seems to be answering to its investors, who have been dissatisfied with its recent earnings.

JPM 2024 just wrapped. Here are the key insights

Posted on by • Posted in Artificial Intelligence Generative, Cost Management, Cost Reduction, Denial, Denial Management, Denial Rates, Digital Health, Disruption, Financial Distress, Financial Instability, Financial Performance, Financial Pressure, Financial Strength, Financial Transparency, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Independence, Labor Spend Management, Medicare Advantage, Operating Margin, Operating Margin Drivers, Operating Metrics, Pharmacy Benefits Management, Quality Measures, Quality of Care, Workforce Retention, Workforce Shortages • Leave a comment

https://www.advisory.com/daily-briefing/2024/01/23/jpm-takeaways-ec#accordion-718cb981ab-item-4ec6d1b6a3

Earlier this month, leaders from more than 400 organizations descended on San Francisco for J.P. Morgan‘s 42nd annual healthcare conference to discuss some of the biggest issues in healthcare today. Here’s how Advisory Board experts are thinking about Modern Healthcare’s 10 biggest takeaways — and our top resources for each insight.

How we’re thinking about the top 10 takeaways from JPM’s annual healthcare conference 

Following the conference, Modern Healthcare  provided a breakdown of the top-of-mind issues attendees discussed.  

Here’s how our experts are thinking about the top 10 takeaways from the conference — and the resources they recommend for each insight.  

1. Ambulatory care provides a growth opportunity for some health systems

By Elizabeth Orr, Vidal Seegobin, and Paul Trigonoplos

At the conference, many health system leaders said they are evaluating growth opportunities for outpatient services. 

However, results from our Strategic Planner’s Survey suggest only the biggest systems are investing in building new ambulatory facilities. That data, alongside the high cost of borrowing and the trifurcation of credit that Fitch is predicting, suggests that only a select group of health systems are currently poised to leverage ambulatory care as a growth opportunity.  

Systems with limited capital will be well served by considering other ways to reach patients outside the hospital through virtual care, a better digital front door, and partnerships. The efficiency of outpatient operations and how they connect through the care continuum will affect the ROI on ambulatory investments. Buying or building ambulatory facilities does not guarantee dramatic revenue growth, and gaining ambulatory market share does not always yield improved margins.

While physician groups, together with management service organizations, are very good at optimizing care environments to generate margins (and thereby profit), most health systems use ambulatory surgery center development as a defensive market share tactic to keep patients within their system.  

This approach leaves margins on the table and doesn’t solve the growth problem in the long term. Each of these ambulatory investments would do well to be evaluated on both their individual profitability and share of wallet. 

On January 24 and 25, Advisory Board will convene experts from across the healthcare ecosystem to inventory the predominant growth strategies pursued by major players, explore considerations for specialty care and ambulatory network development, understand volume and site-of-care shifts, and more. Register here to join us for the Redefining Growth Virtual Summit.  

Also, check out our resources to help you plan for shifts in patient utilization:  

2. Rebounding patient volumes further strain capacity

By Jordan Peterson, Eliza Dailey, and Allyson Paiewonsky 

Many health system leaders noted that both inpatient and outpatient volumes have surpassed pre-pandemic levels, placing further strain on workforces.  

The rebound in patient volumes, coupled with an overstretched workforce, underscores the need to invest in technology to extend clinician reach, while at the same time doubling down on operational efficiency to help with things like patient access and scheduling. 

For leaders looking to leverage technology and boost operational efficiency, we have a number of resources that can help:  

3. Health systems aren’t specific on AI strategies

By Paul Trigonoplos and John League

According to Modern Healthcare, nearly all health systems discussed artificial intelligence (AI) at the conference, but few offered detailed implementation plans and expectations.

Over the past year, a big part of the work for Advisory Board’s digital health and health systems research teams has been to help members reframe the fear of missing out (FOMO) that many care delivery organizations have about AI.  

We think AI can and will solve problems in healthcare. Every organization should at least be observing AI innovations. But we don’t believe that “the lack of detail on healthcare AI applications may signal that health systems aren’t ready to embrace the relatively untested and unregulated technology,” as Modern Healthcare reported. 

The real challenge for many care delivery organizations is dealing with the pace of change — not readiness to embrace or accept it. They aren’t used to having to react to anything as fast-moving as AI’s recent evolution. If their focus for now is on low-hanging fruit, that’s completely understandable. It’s also much more important for these organizations to spend time now linking AI to their strategic goals and building out their governance structures than it is to be first in line with new applications.  

Check out our top resources for health systems working to implement AI: 

4. Digital health companies tout AI capabilities

By Ty Aderhold and John League

Digital health companies like Teladoc, R1 RCM, Veradigm, and Talkspace all spoke out about their use of generative AI. 

This does not surprise us at all. In fact, we would be more surprised if digital health companies were not touting their AI capabilities. Generative AI’s flexibility and ease of use make it an accessible addition to nearly any technology solution.  

However, that alone does not necessarily make the solution more valuable or useful. In fact, many organizations would do well to consider how they want to apply new AI solutions and compare those solutions to the ones that they would have used in October 2022 — before ChatGPT’s newest incarnation was unveiled. It may be that other forms of AI, predictive analytics, or robotic process automation are as effective at a better cost.  

Again, we believe that AI can and will solve problems in healthcare. We just don’t think it will solve every problem in healthcare, or that every solution benefits from its inclusion.  

Check out our top resources on generative AI: 

5. Health systems speak out on denials

By Mallory Kirby

During the conference, providers criticized insurers for the rate of denials, Modern Healthcare reports. 

Denials — along with other utilization management techniques like prior authorization — continue to build tension between payers and providers, with payers emphasizing their importance for ensuring cost effective, appropriate care and providers overwhelmed by both the administrative burden and the impact of denials on their finances. 

  Many health plans have announced major moves to reduce prior authorizations and CMS recently announced plans to move forward with regulations to streamline the prior authorization process. However, these efforts haven’t significantly impacted providers yet.  

In fact, most providers report no decrease in denials or overall administrative burden. A new report found that claims denials increased by 11.99% in the first three quarters of 2023, following similar double digit increases in 2021 and 2022. 

  Our team is actively researching the root cause of this discrepancy and reasons for the noted increase in denials. Stay tuned for more on improving denials performance — and the broader payer-provider relationship — in upcoming 2024 Advisory Board research. 

For now, check out this case study to see how Baptist Health achieved a 0.65% denial write-off rate.  

6. Insurers are prioritizing Star Ratings and risk adjustment changes

By Mallory Kirby

Various insurers and providers spoke about “the fallout from star ratings and risk adjustment changes.”

2023 presented organizations focused on MA with significant headwinds. While many insurers prioritized MA growth in recent years, leaders have increased their emphasis on quality and operational excellence to ensure financial sustainability.

  With an eye on these headwinds, it makes sense that insurers are upping their game to manage Star Ratings and risk adjustment. While MA growth felt like the priority in years past, this focus on operational excellence to ensure financial sustainability has become a priority.   

We’ve already seen litigation from health plans contesting the regulatory changes that impact the bottom line for many MA plans. But with more changes on the horizon — including the introduction of the Health Equity Index as a reward factor for Stars and phasing in of the new Risk Adjustment Data Validation model — plans must prioritize long-term sustainability.  

Check out our latest MA research for strategies on MA coding accuracy and Star Ratings:  

7. PBMs brace for policy changes

By Chloe Bakst and Rachael Peroutky 

Pharmacy benefit manager (PBM) leaders discussed the ways they are preparing for potential congressional action, including “updating their pricing models and diversifying their revenue streams.”

Healthcare leaders should be prepared for Congress to move forward with PBM regulation in 2024. A final bill will likely include federal reporting requirements, spread pricing bans, and preferred pricing restrictions for PBMs with their own specialty pharmacy. In the short term, these regulations will likely apply to Medicare and Medicaid population benefits only, and not the commercial market. 

Congress isn’t the only entity calling for change. Several states passed bills in the last year targeting PBM transparency and pricing structures. The Federal Trade Commission‘s ongoing investigation into select PBMs looks at some of the same practices Congress aims to regulate. PBM commercial clients are also applying pressure. In 2023, Blue Cross Blue Shield of California‘s (BSC) decided to outsource tasks historically performed by their PBM partner. A statement from BSC indicated the change was in part due to a desire for less complexity and more transparency. 

Here’s what this means for PBMs: 

Transparency is a must

The level of scrutiny on transparency will force the hand of PBMs. They will have to comply with federal and state policy change and likely give something to their commercial partners to stay competitive. We’re already seeing this unfold across some of the largest PBMs. Recently, CVS Caremarkand Express Scripts launched transparent reimbursement and pricing models for participating in-network pharmacies and plan sponsors. 

While transparency requirements will be a headache for larger PBMs, they might be a real threat to smaller companies. Some small PBMs highlight transparency as their main value add. As the larger PBMs focus more on transparency, smaller PBMs who rely on transparent offerings to differentiate themselves in a crowded market may lose their main competitive edge. 

PBMs will have to try new strategies to boost revenue

PBM practice of guiding prescriptions to their own specialty pharmacy or those providing more competitive pricing is a key strategy for revenue. Stricter regulations on spread pricing and patient steerage will prompt PBMs to look for additional revenue levers.   

PBMs are already getting started — with Express Scripts reporting they will cut reimbursement for wholesale brand name drugs by about 10% in 2024. Other PBMs are trying to diversify their business opportunities. For example, CVS Caremark’s has offered a new TrueCost model to their clients for an additional fee. The model determines drug prices based on the net cost of drugs and clearly defined fee structures. We’re also watching growing interest in cross-benefit utilization management programs for specialty drugs.  These offerings look across both medical and pharmacy benefits to ensure that the most cost-effective drug is prescribed for patients. 

Check out some of our top resources on PBMs:  

To learn more about some of the recent industry disruptions, check out:   

8. Healthcare disruptors forge on

 By John League

At the conference, retailers such as CVS, Walgreens, and Amazon doubled down on their healthcare services strategies.

Typically, disruptors do not get into care delivery because they think it will be easy. Disruptors get into care delivery because they look at what is currently available and it looks so hard — hard to access, hard to understand, and hard to pay for.  

Many established players still view so-called disruptors as problematic, but we believe that most tech companies that move into healthcare are doing what they usually do — they look at incumbent approaches that make it hard for customers and stakeholders to access, understand, and pay for care, and see opportunities to use technology and innovative business models in an attempt to target these pain points.

CVS, Walgreens, and Amazon are pursuing strategies that are intended to make it more convenient for specific populations to get care. If those efforts aren’t clearly profitable, that does not mean that they will fail or that they won’t pressure legacy players to make changes to their own strategies. Other organizations don’t have to copy these disruptors (which is good because most can’t), but they must acknowledge why patient-consumers are attracted to these offerings.  

For more information on how disruptors are impacting healthcare, check out these resources:  

9. Financial pressures remain for many health systems

By Vidal Seegobin and Marisa Nives

Health systems are recovering from the worst financial year in recent history. While most large health systems presenting at the conference saw their finances improve in 2023, labor challenges and reimbursement pressures remain.  

We would be remiss to say that hospitals aren’t working hard to improve their finances. In fact, operating margins in November 2023 broke 2%. But margins below 3% remain a challenge for long-term financial sustainability.  

One of the more concerning trends is that margin growth is not tracking with a large rebound in volumes. There are number of culprits: elevated cost structures, increased patient complexity, and a reimbursement structure shifting towards government payers.  

For many systems, this means they need to return to mastering the basics: Managing costs, workforce retention, and improving quality of care. While these efforts will help bridge the margin gap, the decoupling of volumes and margins means that growth for health systems can’t center on simply getting bigger to expand volumes.

Maximizing efficiency, improving access, and bending the cost curve will be the main pillars for growth and sustainability in 2024.  

 To learn more about what health system strategists are prioritizing in 2024, read our recent survey findings.  

Also, check out our resources on external partnerships and cost-saving strategies:  

10. MA utilization is still high

By Max Hakanson and Mallory Kirby  

During the conference, MA insurers reported seeing a spike in utilization driven by increased doctor’s visits and elective surgeries.  

These increased medical expenses are putting more pressure on MA insurers’ margins, which are already facing headwinds due to CMS changes in MA risk-adjustment and Star Ratings calculations. 

However, this increased utilization isn’t all bad news for insurers. Part of the increased utilization among seniors can be attributed to more preventive care, such as an uptick in RSV vaccinations.  

In UnitedHealth Group‘s* Q4 earnings call, CFO John Rex noted that, “Interest in getting the shot, especially among the senior population, got some people into the doctor’s office when they hadn’t visited in a while,” which led to primary care physicians addressing other care needs. As seniors are referred to specialty care to address these needs, plans need to have strategies in place to better manage their specialist spend.   

To learn how organizations are bringing better value to specialist care in MA, check out our market insight on three strategies to align specialists to value in MA. (Kacik et al., Modern Healthcare, 1/12)

*Advisory Board is a subsidiary of UnitedHealth Group. All Advisory Board research, expert perspectives, and recommendations remain independent. 

What to expect in US healthcare in 2024 and beyond

Posted on by • Posted in ACA, Cost Management, Cost Reduction, Health Insurance Industry, Health Policy, Inflation Reduction Act, Labor Spend Management, Market Consolidation, Market Outlook, Market Trends, Medicaid, Medicaid Eligibility, Medicare 340B Drug Discount Program, Medicare Advantage, Operating Income, Operating Margin, Operating Margin Drivers, Pharmaceutical Industry, Transformational Change, Value Based Care Model, Value-Based Contracting, Value-Based Healthcare • Leave a comment
https://www.mckinsey.com/industries/healthcare/our-insights/what-to-expect-in-us-healthcare-in-2024-and-beyond?stcr=FEFACC03D40F492EBD8401B5DCEEB6C3&cid=other-eml-alt-mip-mck&hlkid=2d8461c861f644cdb13cae55b6af9283&hctky=9502524&hdpid=edd3998f-a0c6-45fa-86c6-b0cd71574e4d

A new perspective on how technology, transformation efforts, and other changes have affected payers, health systems, healthcare services and technology, and pharmacy services.

The acute strain from labor shortages, inflation, and endemic COVID-19 on the healthcare industry’s financial health in 2022 is easing. Much of the improvement is the result of transformation efforts undertaken over the last year or two by healthcare delivery players, with healthcare payers acting more recently. Even so, health-system margins are lagging behind their financial performance relative to prepandemic levels. Skilled nursing and long-term-care profit pools continue to weaken. Eligibility redeterminations in a strong employment economy have hurt payers’ financial performance in the Medicaid segment. But Medicare Advantage and individual segment economics have held up well for payers.

As we look to 2027, the growth of the managed care duals population (individuals who qualify for both Medicaid and Medicare) presents one of the most substantial opportunities for payers. On the healthcare delivery side, financial performance will continue to rebound as transformation efforts, M&A, and revenue diversification bear fruit. Powered by adoption of technology, healthcare services and technology (HST) businesses, particularly those that offer measurable near-term improvements for their customers, will continue to grow, as will pharmacy services players, especially those with a focus on specialty pharmacy.

Below, we provide a perspective on how these changes have affected payers, health systems, healthcare services and technology, and pharmacy services, and what to expect in 2024 and beyond.

The fastest growth in healthcare may occur in several segments

We estimate that healthcare profit pools will grow at a 7 percent CAGR, from $583 billion in 2022 to $819 billion in 2027. Profit pools continued under pressure in 2023 due to high inflation rates and labor shortages; however, we expect a recovery beginning in 2024, spurred by margin and cost optimization and reimbursement-rate increases.

Several segments can expect higher growth in profit pools:

  • Within payer, Medicare Advantage, spurred by the rapid increase in the duals population; the group business, due to recovery of margins post-COVID-19 pandemic; and individual
  • Within health systems, outpatient care settings such as physician offices and ambulatory surgery centers, driven by site-of-care shifts
  • Within HST, the software and platforms businesses (for example, patient engagement and clinical decision support)
  • Within pharmacy services, with specialty pharmacy continuing to experience rapid growth

On the other hand, some segments will continue to see slow growth, including general acute care and post-acute care within health systems, and Medicaid within payers (Exhibit 1).

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex1-v4.svgz?cq=50&cpy=Center
Exhibit 1

Several factors will likely influence shifts in profit pools. Two of these are:

Change in payer mix. Enrollment in Medicare Advantage, and particularly the duals population, will continue to grow. Medicare Advantage enrollment has grown historically by 9 percent annually from 2019 to 2022; however, we estimate the growth rate will reduce to 5 percent annually from 2022 to 2027, in line with the latest Centers for Medicare & Medicaid Services (CMS) enrollment data.1 Finally, the duals population enrolled in managed care is estimated to grow at more than a 9 percent CAGR from 2022 through 2027.

We also estimate commercial segment profit pools to rebound as EBITDA margins likely return to historical averages by 2027. Growth is likely to be partially offset by enrollment changes in the segment, prompted by a shift from fully insured to self-insured businesses that could accelerate as employers seek to cut costs if the economy slows. Individual segment profit pools are estimated to expand at a 27 percent CAGR from 2022 to 2027 as enrollment rises, propelled by enhanced subsidies, Medicaid redeterminations, and other potential favorable factors (for example, employer conversions through the Individual Coverage Health Reimbursement Arrangement offered by the Affordable Care Act); EBITDA margins are estimated to improve from 2 percent in 2022 to 5 to 7 percent in 2027. On the other hand, Medicaid enrollment could decline by about ten million lives over the next five years based on our estimates, given recent legislation allowing states to begin eligibility redeterminations (which were paused during the federal public health emergency declared at the start of the COVID-19 pandemic2).

Accelerating value-based care (VBC). Based on our estimates, 90 million lives will be in VBC models by 2027, from 43 million in 2022. This expansion will be fueled by an increase in commercial VBC adoption, greater penetration of Medicare Advantage, and the Medicare Shared Savings Program (MSSP) model in Medicare fee-for-service. Also, substantial growth is expected in the specialty VBC model, where penetration in areas like orthopedics and nephrology could more than double in the next five years.

VBC models are undergoing changes as CMS updates its risk adjustment methodology and as models continue to expand beyond primary care to other specialties (for example, nephrology, oncology, and orthopedics). We expect established models that offer improvements in cost and quality to continue to thrive. The transformation of VBC business models in response to pressures from the current changes could likely deliver outsized improvement in cost and quality outcomes. The penetration of VBC business models is likely to lead to shifts in health delivery profit pools, from acute-care settings to other sites of care such as ambulatory surgical centers, physician offices, and home settings.

Payers: Government segments are expected to be 65 percent larger than commercial segments by 2027

In 2022, overall payer profit pools were $60 billion. Looking ahead, we estimate EBITDA to grow to $78 billion by 2027, a 5 percent CAGR, as the market recovers and approaches historical trends. Drivers are likely to be margin recovery of the commercial segment, inflation-driven incremental premium rate rises, and increased participation in managed care by the duals population. This is likely to be partially offset by margin compression in Medicare Advantage due to regulatory pressures (for example, risk adjustment, decline in the Stars bonus, and technical updates) and membership decline in Medicaid resulting from the expiration of the public health emergency.

We estimate increased labor costs and administrative expenses to reduce payer EBITDA by about 60 basis points in 2023. In addition, health systems are likely to push for reimbursement rate increases (up to about 350 to 400 basis-point incremental rate increases from 2023 to 2027 for the commercial segment and about 200 to 250 basis points for the government segment), according to McKinsey analysis and interviews with external experts.3

Our estimates also suggest that the mix of payer profit pools is likely to shift further toward the government segment (Exhibit 2). Overall, the profit pools for this segment are estimated to be about 65 percent greater than the commercial segment by 2027 ($36 billion compared with $21 billion). This shift would be a result of increasing Medicare Advantage penetration, estimated to reach 52 percent in 2027, and likely continued growth in the duals segment, expanding EBITDA from $7 billion in 2022 to $12 billion in 2027.

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex2-v3.svgz?cq=50&cpy=Center
Exhibit 2

Profit pools for the commercial segment declined from $18 billion in 2019 to $15 billion in 2022. We now estimate the commercial segment’s EBITDA margins to regain historical levels by 2027, and profit pools to reach $21 billion, growing at a 7 percent CAGR from 2022 to 2027. Within this segment, a shift from fully insured to self-insured businesses could accelerate in the event of an economic slowdown, which prompts employers to pay greater attention to costs. The fully insured group enrollment could drop from 50 million in 2022 to 46 million in 2027, while the self-insured segment could increase from 108 million to 113 million during the same period.

Health systems: Transformation efforts help accelerate EBITDA recovery

In 2023, health-system profit pools continued to face substantial pressure due to inflation and labor shortages. Estimated growth was less than 5 percent from 2022 to 2023, remaining below prepandemic levels. Health systems have undertaken major transformation and cost containment efforts, particularly within the labor force, helping EBITDA margins recover by up to 100 basis points; some of this recovery was also volume-driven.

Looking ahead, we estimate an 11 percent CAGR from 2023 to 2027, or total EBITDA of $366 billion by 2027 (Exhibit 3). This reflects a rebound from below the long-term historical average in 2023, spurred by transformation efforts and potentially higher reimbursement rates. We anticipate that health systems will likely seek reimbursement increases in the high single digits or higher upon contract renewals (or more than 300 basis points above previous levels) in response to cost inflation in recent years.

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex3-v4.svgz?cq=50&cpy=Center
Exhibit 3

Measures to tackle rising costs include improving labor productivity and the application of technological innovation across both administration and care delivery workflows (for example, further process standardization and outsourcing, increased use of digital care, and early adoption of AI within administrative workflows such as revenue cycle management). Despite these measures, 2027 industry EBITDA margins are estimated to be 50 to 100 basis points lower than in 2019, unless there is material acceleration in performance transformation efforts.

There are some meaningful exceptions to this overall outlook for health systems. Although post-acute-care profit pools could be severely affected by labor shortages (particularly nurses), other sites of care might grow (for example, non-acute and outpatient sites such as physician offices and ambulatory surgery centers). We expect accelerated adoption of VBC to drive growth.

HST profit pools will grow in technology-based segments

HST is estimated to be the fastest-growing sector in healthcare. In 2021, we estimated HST profit pools to be $51 billion. In 2022, according to our estimates, the HST profit pool shrank to $49 billion, reflecting a contracting market, wage inflation pressure, and the drag of fixed-technology investment that had not yet fulfilled its potential. Looking ahead, we estimate a 12 percent CAGR in 2022–27 due to the long-term underlying growth trend and rebound from the pandemic-related decline (Exhibit 4). With the continuing technology adoption in healthcare, the greatest acceleration is likely to happen in software and platforms as well as data and analytics, with 15 percent and 22 percent CAGRs, respectively.

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex4a-v4.svgz?cq=50&cpy=Center
Exhibit 4

In 2023, we observed an initial recovery in the HST market, supported by lower HST wage pressure and continued adoption of technology by payers and health systems searching for ways to become more efficient (for example, through automation and outsourcing).

Three factors account for the anticipated recovery and growth in HST. First, we expect continued demand from payers and health systems searching to improve efficiency, address labor challenges, and implement new technologies (for example, generative AI). Second, payers and health systems are likely to accept vendor price increases for solutions delivering measurable improvements. Third, we expect HST companies to make operational changes that will improve HST efficiency through better technology deployment and automation across services.

Pharmacy services will continue to grow

The pharmacy market has undergone major changes in recent years, including the impact of the COVID-19 pandemic, the establishment of partnerships across the value chain, and an evolving regulatory environment. Total pharmacy dispensing revenue continues to increase, growing by 9 percent to $550 billion in 2022,4 with projections of a 5 percent CAGR, reaching $700 billion in 2027.5 Specialty pharmacy is one of the fastest growing subsegments within pharmacy services and accounts for 40 percent of prescription revenue6; this subsegment is expected to reach nearly 50 percent of prescription revenue in 2027 (Exhibit 5). We attribute its 8 percent CAGR in revenue growth to increases in utilization and pricing as well as the continued expansion of pipeline therapies (for example, cell and gene therapies and oncology and rare disease therapies) and expect that the revenue growth will be partially offset by reimbursement pressures, specialty generics, and increased adoption of biosimilars. Specialty pharmacy dispensers are also facing an evolving landscape with increased manufacturer contract pharmacy pressures related to the 340B Drug Pricing Program. With restrictions related to size and location of contract pharmacies that covered entities can use, the specialty pharmacy subsegment has seen accelerated investment in hospital-owned pharmacies.

https://www.mckinsey.com/~/media/mckinsey/industries/healthcare%20systems%20and%20services/our%20insights/what%20to%20expect%20in%20us%20healthcare%20in%202024%20and%20beyond/svgz-what-to-expect-2024-ex5-v3.svgz?cq=50&cpy=Center
Exhibit 5

Retail and mail pharmacies continue to face margin pressure and a contraction of profit pools due to reimbursement pressure, labor shortages, inflation, and a plateauing of generic dispensing rates.7 Many chains have recently announced8 efforts to rationalize store footprints while continuing to augment additional services, including the provision of healthcare services.

Over the past year, there has also been increased attention to broad-population drugs such as GLP-1s (indicated for diabetes and obesity). The number of patients meeting clinical eligibility criteria for these drugs is among the largest of any new drug class in the past 20 to 30 years. The increased focus on these drugs has amplified conversations about care and coverage decisions, including considerations around demonstrated adherence to therapy, utilization management measures, and prescriber access points (for example, digital and telehealth services). As we look ahead, patient affordability, cost containment, and predictability of spending will likely remain key themes in the sector. The Inflation Reduction Act is poised to change the Medicare prescription Part D benefit, with a focus on reducing beneficiary out-of-pocket spending, negotiating prices for select drugs, and incentivizing better management of high-cost drugs. These changes, coupled with increased attention to broad-population drugs and the potential of high-cost therapies (such as cell and gene therapies), have set the stage for a shift in care and financing models.

The US healthcare industry faced demanding conditions in 2023, including continuing high inflation rates, labor shortages, and endemic COVID-19. However, the industry has adapted. We expect accelerated improvement efforts to help the industry address its challenges in 2024 and beyond, leading to an eventual return to historical-average profit margins.

One System; Two Divergent Views

Posted on by • Posted in Cost Management, Cost Reduction, Cost Structure, Divergence, Health Policy, Health System, Hospital, Hospital Industry, Innovation, Innovative Care Models, Investing, Investment, Investments, Leadership Vision, Lobbyist, Pharmaceutical Industry, Pharmacy Benefits Management, Political Inaction, Politics, Private Equity, Regulation • Leave a comment
One System; Two Divergent Views

Healthcare is big business. That’s why JP Morgan Chase is hosting its 42nd Healthcare Conference in San Francisco starting today– the same week Congress reconvenes in DC with the business of healthcare on its agenda as well. The predispositions of the two toward the health industry could not be more different.

Context: the U.S. Health System in the Global Economy


Though the U.S. population is only 4% of the world total, our spending for healthcare products and services represents 45% of global healthcare market. Healthcare is 17.4% of U.S. GDP vs. an average of 9.6% for the economies in the 37 other high-income economies of the world. It is the U.S.’ biggest private employer (17.2 million) accounting for 24% of total U.S. job growth last year (BLS). And it’s a growth industry: annual health spending growth is forecast to exceed 4%/year for the foreseeable future and almost 5% globally—well above inflation and GDP growth. That’s why private investments in healthcare have averaged at least 15% of total private investing for 20+ years. That’s why the industry’s stability is central to the economy of the world.

The developed health systems of the world have much in common: each has three major sets of players:

  • Service Providers: organizations/entities that provide hands-on services to individuals in need (hospitals, physicians, long-term care facilities, public health programs/facilities, alternative health providers, clinics, et al). In developed systems of the world, 50-60% of spending is in these sectors.
  • Innovators: organizations/entities that develop products and services used by service providers to prevent/treat health problems: drug and device manufacturers, HIT, retail health, self-diagnostics, OTC products et al. In developed systems of the world, 20-30% is spend in these.
  • Administrators, Watchdogs & Regulators: Organizations that influence and establish regulations, oversee funding and adjudicate relationships between service providers and innovators that operate in their systems: elected officials including Congress, regulators, government agencies, trade groups, think tanks et al. In the developed systems of the world, administration, which includes insurance, involves 5-10% of its spending (though it is close to 20% in the U.S. system due to the fragmentation of our insurance programs).

In the developed systems of the world, including the U.S., the role individual consumers play is secondary to the roles health professionals play in diagnosing and treating health problems. Governments (provincial/federal) play bigger roles in budgeting and funding their systems and consumer out-of-pocket spending as a percentage of total health spending is higher than the U.S. All developed and developing health systems of the world include similar sectors and all vary in how their governments regulate interactions between them. All fund their systems through a combination of taxes and out-of-pocket payments by consumers. All depend on private capital to fund innovators and some service providers. And all are heavily regulated. 

In essence, that makes the U.S. system unique  are (1) the higher unit costs and prices for prescription drugs and specialty services, (2) higher administrative overhead costs, (3) higher prevalence of social health issues involving substance abuse, mental health, gun violence, obesity, et al (4) the lack of integration of our social services/public health and health delivery in communities and (5) lack of a central planning process linked to caps on spending, standardization of care based on evidence et al.

So, despite difference in structure and spending, developed systems of the world, like the U.S. look similar:

The Current Climate for the U.S. Health Industry


The global market for healthcare is attractive to investors and innovators; it is less attractive to most service providers since their business models are less scalable. Both innovator and service provider sectors require capital to expand and grow but their sources vary: innovators are primarily funded by private investors vs. service providers who depend more on public funding.  Both are impacted by the monetary policies, laws and political realities in the markets where they operate and both are pivoting to post-pandemic new normalcy. But the outlook of investors in the current climate is dramatically different than the predisposition of the U.S. Congress toward healthcare:

  • Healthcare innovators and their investors are cautiously optimistic about the future. The dramatic turnaround in the biotech market in 4Q last year coupled with investor enthusiasm for generative AI and weight loss drugs and lower interest rates for debt buoy optimism about prospects at home and abroad. The FDA approved 57 new drugs last year—the most since 2018. Big tech is partnering with established payers and providers to democratize science, enable self-care and increase therapeutic efficacy. That’s why innovators garner the lion’s share of attention at JPM. Their strategies are longer-term focused: affordability, generative AI, cost-reduction, alternative channels, self-care et al are central themes and the welcoming roles of disruptors hardwired in investment bets. That’s the JPM climate in San Franciso.
  • By contrast, service providers, especially the hospital and long-term care sectors, are worried. In DC, Congress is focused on low-hanging fruit where bipartisan support is strongest and political risks lowest i.e.: price transparency, funding cuts, waste reduction, consumer protections, heightened scrutiny of fraud and (thru the FTC and DOJ) constraints on horizontal consolidation to protect competition. And Congress’ efforts to rein in private equity investments to protect consumer choice wins votes and worries investors. Thus, strategies in most service provider sectors are defensive and transactional; longer-term bets are dependent on partnerships with private equity and corporate partners. That’s the crowd trying to change Congress’ mind about cuts and constraints.

The big question facing JPM attendees this week and in Congress over the next few months is the same: is the U.S. healthcare system status quo sustainable given the needs in other areas at home and abroad? 

Investors and organizations at JPM think the answer is no and are making bets with their money on “better, faster, cheaper” at home and abroad. Congress agrees, but the political risks associated with transformative changes at home are too many and too complex for their majority.

For healthcare investors and operators, the distance between San Fran and DC is further and more treacherous than the 2808 miles on the map. 

The JPM crowd sees a global healthcare future that welcomes change and needs capital; Congress sees a domestic money pit that’s too dicey to handle head-on–two views that are wildly divergent.

Sweeping health reform takes a back seat for this election cycle

Posted on by • Posted in 2024 Election Issues, Cost Management, Cost Reduction, Health Policy, Health System, Healthcare Reform, Hospital, Hospital Industry, Medicare for All, Medicare Site Neutral Payment, Physician Compensation • Leave a comment

https://mailchi.mp/79ecc69aca80/the-weekly-gist-december-15-2023?e=d1e747d2d8

After a presentation this week, a senior physician from the audience of our member health systems reached out to discuss a well-trod topic, the future of health reform legislation. But his question led to a more forward-looking concern: 

“You talked very little about politics, even though we have an election coming up next year. Are you anticipating that Medicare for All will come up again? And what would the impact be on doctors?” 

As we’ve discussed before, we think it’s unlikely that sweeping health reform legislation like Medicare for All (M4A) would make its way through Congress, even if Democrats sweep the 2024 elections—and it’s far too early for health systems to dedicate energy to a M4A strategy.

Healthcare is not shaping up to be a campaign priority for either party, and given the levels of partisan division and expectations that slim majorities will continue, passing significant reform would be highly unlikely. 

Although there is bipartisan consensus around a limited set of issues like increasing transparency and limiting the power of PBMs, greater impact in the near term will come from regulatory, rather than legislative, action. 

For instance, health systems are much more exposed by the push toward site-neutral payments. How large is the potential hit? One mid-sized regional health system we work with estimated they stand to lose nearly $80M of annual revenue if site-neutral payments are fully implemented—catastrophic to their already slim system margins.

Preparing for this inevitable payment change or the long-term possibility of M4A both require the same strategy: serious and relentless focus on cost reduction.

This still leaves a giant elephant in the room: the long-term impact on the physician enterprise. 

As referral-based economics continue to erode, health systems will find it increasingly difficult to maintain current physician salaries, further driving the need to move beyond fee-for-service toward a health system economic model based on total cost of care and consumer value, while building physician compensation around those shared goals.