Category Archives: Cost Structure

Healthcare CFOs explore M&A, automation and service line cuts in 2024

Posted on by • Posted in Artificial Intelligence, Artificial Intelligence Generative, CFO, Cost Management, Cost Structure, Cybersecurity, Data Breaches, Days Cash on Hand, Financial Performance, Financial Pressure, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Market Consolidation, Market Trends, Mergers & Acquisitions, Operating Income, Operating Margin, Operating Margin Drivers, Operating Metrics, Operating Performance, Service Line Profitability, Service Line Rationalization • Leave a comment
https://www.cfodive.com/news/healthcare-cfos-automation-service-line-cuts-bdo-usa/706153/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202024-02-01%20CFO%20Dive%20%5Bissue:58721%5D&utm_term=CFO%20Dive

Companies grappling with liquidity concerns are looking to cut costs and streamline operations, according to a new survey.

Dive Brief:

  • Over three-quarters of healthcare chief financial officers expect to see profitability increases in 2024, according to a recent survey from advisory firm BDO USA. However, to become profitable, many organizations say they will have to reduce investments in underperforming service lines, or pursue mergers and acquisitions.
  • More than 40% of respondents said they will decrease investments in primary care and behavioral health services in 2024, citing disruptions from retail players. They will shift funds to home care, ambulatory services and telehealth that provide higher returns, according to the report.
  • Nearly three-quarters of healthcare CFOs plan to pursue some type of M&A deal in the year ahead, despite possible regulatory threats.

Dive Insight:

Though inflationary pressures have eased since the height of the COVID-19 pandemic, healthcare CFOs remain cognizant of managing costs amid liquidity concerns, according to the report.

The firm polled 100 healthcare CFOs serving hospitals, medical groups, outpatient services, academic centers and home health providers with revenues from $250 million to $3 billion or more in October 2023.

Just over a third of organizations surveyed carried more than 60 days of cash on hand. In comparison, a recent analysis from KFF found that financially strong health systems carried at least 150 days of cash on hand in 2022.

Liquidity is a concern for CFOs given high rates of bond and loan covenant violations over the past year. More than half of organizations violated such agreements in 2023, while 41% are concerned they will in 2024, according to the report. 

To remain solvent, 44% of CFOs expect to have more strategic conversations about their economic resiliency in 2024, exploring external partnerships, options for service line adjustments and investments in workforce and technology optimization.

The majority of CFOs surveyed are interested in pursuing external partnerships, despite increased regulatory roadblocks, including recent merger guidance that increased oversight into nontraditional tie-ups. Last week, the FTC filed its first healthcare suit of the year to block the acquisition of two North Carolina-based Community Health Systems hospitals by Novant Health, warning the deal could reduce competition in the region.

Healthcare CFOs explore tie-ups in 2024

Types of deals that CFOs are exploring, as of Oct. 2023.

https://datawrapper.dwcdn.net/aiFBJ/1

Most organizations are interested in exploring sales, according to the report. Financially struggling organizations are among the most likely to consider deals. Nearly one in three organizations that violated their bond or loan covenants in 2023 are planning a carve-out or divestiture this year. Organizations with less than 30 days of cash on hand are also likely to consider carve-outs.

Organizations will also turn to automation to cut costs. Ninety-eight percent of organizations surveyed had piloted generative AI tools in a bid to alleviate resource and cost constraints, according to the consultancy. 

“Healthcare leaders believe AI will be essential to helping clinicians operate at the top of their licenses, focusing their time on patient care and interaction over administrative or repetitive tasks,” authors wrote. Nearly one in three CFOs plan to leverage automation and AI in the next 12 months.

However, CFOs are keeping an eye on the risks. As more data flows through their organizations, they are increasingly concerned about cybersecurity. More than half of executives surveyed said data breaches are a bigger risk in 2024 compared to 2023.

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.

Health systems risk being reduced to their core

Posted on by • Posted in Competition, Competition on Price, Core Business, Core Competencies, Core Services, Cost Management, Cost Structure, Cost Variation, Cost-Effective, Disruption, Financial Stewardship, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Operating Income, Operating Margin, Operating Margin Drivers, Operating Performance, Strategic Alignment, Strategic Imperative, Strategic Leadership, Strategy, Strategy and Transformation, Streamlining Operations • Leave a comment

https://mailchi.mp/9b1afd2b4afb/the-weekly-gist-december-1-2023?e=d1e747d2d8

This week’s graphic features our assessment of the many emerging competitive challenges to traditional health systems.

Beyond inflation and high labor costs, health systems are struggling because competitors—ranging from vertically integrated payers to PE-backed physician groups—are effectively stripping away profitable services and moving them to lower-cost care sites. The tandem forces of technological advancement, policy changes, and capital investment have unlocked the ability of disruptors to enter market segments once considered safely within health system control. 

While health systems’ most-exposed services, like telemedicine and primary care, were never key revenue sources (although they are key referral drivers), there are now more competitors than ever providing diagnostics and ambulatory surgery, which health systems have relied on to maintain their margins. 

Moving forward, traditional systems run the risk of being “crammed down” into a smaller portfolio of (largely unprofitable) services: the emergency department, intensive care unit, and labor and delivery. 

Health systems cannot support their operations by solely providing these core services, yet this is the future many will face if they don’t emulate the strategies of disruptors by embracing the site-of-care shift, prioritizing high-margin procedures, rethinking care delivery within the hospital, and implementing lower-cost care models that enable them to compete on price.

Management of Labor in Trying Financial Circumstances

Posted on by • Posted in Cost Management, Cost Reduction, Cost Structure, Employee Layoffs, Labor Spend Management, Leadership, Leadership Implementation, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Reduction in Force • Leave a comment

https://www.kaufmanhall.com/insights/thoughts-ken-kaufman/comments-current-management-issues-healthcare-c-suite-management

Peter Drucker, the hall of fame management guru, once famously said that the hardest business organization to run in America was a hospital. If that comment was true so many years ago, imagine what Drucker would have to say about the difficulty of hospital management right now.

Hospital financial performance suffered significantly in 2022 and recovery during 2023 has been quite slow. This trend suggests the question, “What steps are hospital C-suites taking to recover pre-Covid financial stability?”

Erik Swanson manages all analyses for our monthly Kaufman Hall Flash Report and he and I speculated that an industry-wide hospital recovery could not be achieved without reductions in force across the hospital ecosystem.

Some research on our part determined that no official organization tracks hospital layoffs over time but we wondered if we could use our Flash Report data, which is provided to us by Syntellis Performance Solutions, to reach an informed conclusion.

What we were able to do was prepare three types of charts, as follows:

The first chart measures net employee percentage change by month. This chart shows whether overall hospital employment is increasing or decreasing over time and by how much.

The second chart attempts to establish the median turnover for hospitals over an annual period and then measure the deviation from that turnover rate. A greater deviation from what might be termed “normal turnover” suggests that an increasing number of hospitals are using reductions in force to more quickly reduce the cost of doing business.

The third chart shows average FTEs per occupied bed on a comparative basis looking at month-to-month and year-to-year statistics.

The first chart, Net Employee Percentage Change by Month, begins at January 1, 2018, and continues to March 1, 2023 (Figure 1). Overall additions to hospital employment remained generally positive through January 1, 2020. Overall hospital employment then went generally negative from March 2020 (the onset of Covid restrictions) to March 2022. The reductions in hospital employees during this period were likely the result of the “great resignation” during the worst of the Covid pandemic. But then, from July 2022 to March 2023, overall hospital employees demonstrated by the Flash Report dropped dramatically with an overall 2% decrease at the March 2023 date. This statistic suggests more than simply increased hospital turnover, but rather a formal layoff process initiated across many hospital organizations, along with aggressive management of contract labor.

Figure 1: Net Employee Percentage Change by Month

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Figure 1: Net Employee Percentage Change by Month


The second chart demonstrates the deviation from expected turnover at levels of 2x, 3x, 4x, and 5x by number of hospitals (Figure 2). No matter which measure you examine, the deviation of employees from expected turnover spiked significantly in April 2023 and even more so in May 2023. This again suggests the aggressive management of labor costs that likely could not occur without the intentional reduction of actual positions and/or the cost of these positions. 

Figure 2: Number of Hospitals with Deviations from Expected Turnover at 2x, 3x, 4x, and 5x the Median

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Figure 2: Number of Hospitals with Deviations from Expected Turnover at 2x, 3x, 4x, and 5x the Median


The last chart provides a remarkable set of observations (Figure 3). FTEs per adjusted occupied bed (AOB) declined by 8.3% between June 2023 and July 2023. The year-over-year variation for July 2023 was a decline of 11.01%. Our data further reveals that the FTE per AOB statistic has declined in five of the past six months on a month-over-month basis.

Figure 3: Median Change in FTEs per Adjusted Occupied Bed by Month

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Figure 3: Median Change in FTEs per Adjusted Occupied Bed by Month


The conclusion here is that the return of the hospital industry to pre-Covid financial results has been no walk in the park. 2022 was, of course, a dismal financial year for the hospital industry. And while 2023 has shown improvement, the usual management steps to recovery have been only moderately effective. The data and analysis above demonstrate that C-suites across America are moving to stronger measures to assure the financial survivability and competitiveness of their organizations.

There is no revenue solve here, or at least not in the current environment: costs must come down and they must come down materially. From the sense and the trend of the data it would seem that hospital executive teams get the joke.

Is there a silver lining for the systems who had the highest contract labor use?

Posted on by • Posted in Cost Management, Cost Reduction, Cost Structure, Cost-Effective, Flexibility, Health System, Hospital, Hospital Industry, Labor Cost Structure, Labor Shortages, Labor Spend Management, Labor Temporary, Nurse Agency Staffing, Nurse Travelers, Nurses Compensation, Silver Lining • Leave a comment

https://mailchi.mp/d0e838f6648b/the-weekly-gist-september-8-2023?e=d1e747d2d8

Across the hospital industry, heavy reliance on contract labor in 2021 and 2022 caused a significant challenge for profitability.

However, a chief financial officer recently posited that his system’s large contract labor load has had unexpected benefits.

“Other hospitals [in our market] thought we were crazy to keep staffing with high contract rates until recently,” he shared. “But by keeping the agency nurses around a little longer, we were able to avert raising base salaries quite as much, and are in a better place today now that the labor market has softened.” It’s a story we’ve heard several times now.

While market rates for nursing and other clinical labor have undoubtedly been rebased, salary increases are sticky—it’s hard to adjust wages downward when the labor market loosens. 

Systems who were able to avert large wage increases by increasing bonuses and other non-salary benefits, or forestalled permanent hiring at higher salaries by extending contract labor, now find themselves with more flexibility and potentially lower staffing costs in the long-term.

Companies lean into ‘quiet cutting’

Posted on by • Posted in Cost Management, Cost Reduction, Cost Structure, Labor Reassignment, Labor Spend Management, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Quiet Cutting, Talent Management • Leave a comment
https://www.beckershospitalreview.com/workforce/companies-lean-into-quiet-cutting.html?origin=BHRE&utm_source=BHRE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Companies are avoiding hard layoffs but still cutting jobs by reassigning employees to different roles — a trend dubbed “quiet cutting,” The Wall Street Journal reported Aug. 27. 

From August 2022 to August 2023, mentions of “reassignment” or similar phrasing during company earnings calls more than tripled, according to data from financial research platform Alphasense. Companies that have embraced large-scale reassignments include Adidas, IBM, Adobe and Salesforce. In healthcare, at least 20 health systems have announced changes to executive ranks and leadership teams this year. 

“Reassigning is definitely a huge part of the dynamic right now,” Andy Challenger, senior vice president at executive coaching firm Challenger, Gray & Christmas told the Journal. 

Reassignments can be a strategic way for companies to cut costs by placing top talent — that they previously spent significant amounts of money on to recruit — in new roles that are better suited to help them meet future organizational goals. In many cases, reassignments could be a way for companies to avoid letting people go. On the other hand, it could be a soft nudge to get employees to quit, executive coaches and advisers told the Journal. 

“They could be putting you out to pasture,” said Roberta Matuson, executive coach and adviser on human resources matters to businesses such as General Motors and Microsoft.

For employees to gauge whether a reassignment is a genuine move to avoid letting them go or a subtle push out the door, experts said they should consider whether the reassigned role is far below the pay and experience level of their original job, and whether the reassignment requires a big move when their employer knows relocation is not a realistic option, according to the Journal.  

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.

Charlie Munger Said Healthcare Providers Artificially Prolong Death To Make More Money

Posted on by • Posted in Cost Management, Cost Reduction, Cost Structure, Fee for Service Reimbursement, Health Insurance Coverage Adequacy, Health Policy, Healthcare Reform, High Deductible Health Plans, Immoral, Inefficiency, Medical Debt, Out of Pocket Expenses, Underinsured, Uninsured • Leave a comment

https://finance.yahoo.com/news/charlie-munger-said-healthcare-providers-190014911.html

Billionaire investor Charlie Munger has been vocal in expressing his concerns about U.S. healthcare, stating that it is “shot through with rampant waste” and has become “immoral.”

Munger says there are substantial problems that need to be addressed, including the presence of unnecessary costs and inefficiencies that plague the medical field.

Drawing a vivid analogy at a Daily Journal Annual Meeting, Munger compared the experience of a dying old person in many American hospitals to that of a carcass on the plains of Africa. He painted a bleak picture, describing how vultures, jackals, hyenas and other scavengers swarm around the helpless creature.

In an attempt to address these issues, Berkshire Hathaway, Amazon.com Inc., and JPMorgan Chase joined forces to establish Haven Healthcare a venture that despite their combined efforts failed to achieve its objectives.

Some startups have seen success where they failed. iRemedy, for example, is a startup using artificial intelligence (AI) technology, that offers a solution to the healthcare system’s challenges through its large procurement marketplace. Its platform streamlines the supply chain, enabling faster and more affordable access to lifesaving supplies for doctors, hospitals and healthcare providers.

Munger, vice chairman of Berkshire Hathaway Inc., criticized the high costs and inefficiencies in medical care as both expensive and wrong. In a CNBC interview, he went on to claim that some medical providers artificially prolong death to increase their profits.

With over 35 years of experience as board chairman of Good Samaritan Hospital in Los Angeles, Munger expressed his belief that certain healthcare practices are absurd.

“A lot of the medical care we do deliver is wrong — so expensive and wrong. It’s ridiculous,” he said in a “Squawk Box” interview.

In 2018, Munger predicted that when Democrats gain control of all three branches of government, there will be a push for a single-payer healthcare system. He highlighted the need for a complete change forced by the government because of the severity of the issues in the current system. He suggested that a universal healthcare system with an opt-out option would be a reasonable solution.

Warren Buffett, Munger’s longtime investing partner, shares similar concerns regarding healthcare spending, referring to it as a “tapeworm on the economic system.” Buffett believes the private sector can make substantial contributions to cost-reduction efforts.

A recent investigation conducted by Kaiser Health News-NPR shed light on the alarming reality of medical debt in the United States. The study reveals that over 100 million Americans are burdened with medical debt, placing a significant financial strain on their lives. Further analysis of the data reveals that approximately one-fourth of American adults carrying this debt owe more than $5,000.

What makes this issue even more concerning is the fact that it is not primarily driven by a lack of insurance coverage. Contrary to popular belief, the majority of people grappling with medical debt are not uninsured. Instead, it is the problem of being underinsured that is prevalent.

Many people have health insurance plans that do not offer sufficient coverage, leaving them vulnerable to high out-of-pocket expenses and accumulating medical debt.

In ‘American Hospitals’ Pride Comes Before the Fall

Posted on by • Posted in Administrative Burden, Cost Management, Cost Reduction, Cost Structure, Customer Service, Deferred Healthcare, Health Insurance Coverage Adequacy, Health Policy, Health System, Healthcare Reform, High Prices, Hospital, Hospital Industry, Innovation, Medical Debt, Medical Ethics, Outcomes, Quality of Care, Right Size, Underinsured, Uninsured, Unnecessary Care • Leave a comment
In ‘American Hospitals’ Pride Comes Before the Fall

The film “American Hospitals: Healing a Broken System” premiered in Washington, D.C., on March 29. This documentary exposes the inconvenient truths embedded within the U.S. healthcare system. Here is a dirty dozen of them:

  1. Over half of hospital care is unnecessary, either wasteful or for preventable acute conditions.
  2. Administrative costs account for 15-25% of total healthcare expenditures.
  3. U.S. per-capita healthcare spending is more than twice the average cost of the world’s 12 wealthiest countries.
  4. Medical debt is a causal factor in two-thirds of all personal bankruptcies.
  5. American adults fear medical bills more than contracting a serious disease. Nearly 40% of Americans — a record — delayed necessary medical care because of cost in 2022.
  6. Low-income urban and rural communities lack access to basic healthcare services.
  7. The financial benefits of tax exemption for hospitals are far greater than the cost of the charitable care they provide.
  8. Medical error is unacceptably high.
  9. Hospitals are largely unaccountable for poor clinical outcomes.
  10. The cost of commercially insured care is multiples higher than the cost of government-insured care for identical procedures.
  11. Customer service at hospitals is dreadful.
  12. Frontline clinicians are overburdened and leaving the profession in droves.

Healthcare still operates the same way it has for the last one hundred years — delivering hierarchical, fragmented, hospital-centric, disease-centric, physician-centric “sick” care. Accordingly, healthcare business models optimize revenue generation and profitability rather than health outcomes. These factors explain, in part, why U.S. life expectancy has declined four of the five years and maternal deaths are higher today than a generation ago.

It’s hard to imagine that the devil itself could create a more inhumane, ineffective, costly and change-resistant system. Hospitals consume more and more societal resources to maintain an inadequate status quo. They’re a major part of America’s healthcare problem, certainly not its solution. Even so, hospitals have largely avoided scrutiny and the public’s wrath. Until now.

“American Hospitals” is now playing in theaters throughout the nation. It chronicles the pervasive and chronic dysfunction plaguing America’s hospitals. It portrays the devastating emotional, financial and physical toll that hospitals impose on both consumers and caregivers.

Despite its critical lens, “American Hospitals” is not a diatribe against hospitals. Its contributors include some of healthcare’s most prominent and respected industry leaders, including Donald Berwick, Elizabeth Rosenthal, Shannon Brownlee and Stephen Klasko. The film explores payment and regulatory reforms that would deliver higher-value care. It profiles Maryland’s all-payer system as an example of how constructive reforms can constrain healthcare spending and direct resources into more effective, community-based care.

The United States already spends more than enough on healthcare. It doesn’t need to spend more. It needs to spend more wisely. The system must downsize its acute and specialty care footprint and invest more in primary care, behavioral health, chronic disease management and health promotion. It’s really that simple.

My only critique of “American Hospitals” is many of its contributors expect too much from hospitals. They want them to simultaneously improve their care delivery and advance the health of their communities. This is wishful thinking. Health and healthcare are fundamentally different businesses. Rather than pivoting to population health, hospitals must focus all their efforts on delivering the right care at the right time, place and price.

If hospitals can deliver appropriate care more affordably, this will free up enormous resources for society to invest in health promotion and aligned social-care services. In this brave new world, right-sized hospitals deliver only necessary care within healthier, happier and more productive communities.

All Americans deserve access to affordable health insurance that covers necessary healthcare services without bankrupting them and/or the country. Let me restate the obvious. This requires less healthcare spending and more investments in health-creating activities. Less healthcare and more health is the type of transformative reform that the country could rally behind.

At issue is whether America’s hospitals will constructively participate in downsizing and reconfiguring the nation’s healthcare system. If they do so, they can reinvent themselves from the inside out and control their destinies.

Historically, hospitals have preferred to use their political and financial leverage to protect their privileged position rather than advance the nation’s well-being. Like Satan in Milton’s “Paradise Lost,” they have preferred to reign in hell rather than serve in heaven.

Pride comes before the fall. Woe to those hospitals that fight the nation’s natural evolution toward value-based care and healthier communities. They will experience a customer-led revolution from outside in and lose market relevance. Only by admitting and addressing their structural flaws can hospitals truly serve the American people.

What Hospital Systems Can Take Away From Ford’s Strategic Overhaul

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What Hospital Systems Can Take Away From Ford’s Strategic Overhaul

On today’s episode of Gist Healthcare Daily, Kaufman Hall co-founder and Chair Ken Kaufman joins the podcast to discuss his recent blog that examines Ford Motor Company’s decision to stop producing internal-combustion sedans, and talk about whether there are parallels for health system leaders to ponder about whether their traditional strategies are beginning to age out.