Pennsylvania state Sen. Tim Kearney has raised concerns about the lack of transparency and details around the planned sale of Upland, Pa.-based Crozer Health and has called on the state attorney general to step in and conduct a thorough analysis of the deal, the Daily Times reported Aug. 22.
Earlier this month, Los Angeles-based Prospect Medical Holdings and CHA Partners signed a letter of intent for CHA to acquire Crozer. The proposed deal would involve transitioning Crozer’s four hospitals back to nonprofit status.
“Prospect’s proposed sale of Crozer to CHA Partners LLC exemplifies the need for state oversight of hospital sales, as both entities appear to have histories of burning public partners despite demanding hefty subsidies,” Mr. Kearney said in a statement shared with Becker’s.
Unlike many other states, Pennsylvania’s Attorney General lacks statutory authority to deeply evaluate these deals, according to Mr. Kearney.
“While the AG’s legal settlement with Prospect gives them some oversight of this deal, the legislature needs to provide the AG with greater authority to protect hospitals and the communities that depend on them,” he said. “If the choice is CHA or closure, then we need some assurances that they will be a responsible organization and not just a profiteering speculator.”
Prospect, a for-profit company, plans to sell nine of its 16 hospitals in Pennsylvania, Rhode Island and Connecticut and is also being investigated by the Justice Department for alleged violations of the False Claims Act. A spokesperson for Prospect told Becker’s the system will continue to cooperate with the investigation, but feels that the allegations have no merit.
CHA did not respond to Becker’s request for comment.
Other senior executives also cashed out as the company faced a $1.6 billion threat that wreaked havoc throughout the health care system.
On February 21, the same day that a ransomware attack began to wreak havoc throughout UnitedHealth Group and the U.S. health care system, five of UnitedHealth’s C-suite executives, including CEO Andrew Witty and the company’s chief legal officer, sold $17.7 million worth of their stock in the company. Witty alone accounted for $5.6 million of those sales.
The company’s stock has not recovered since the ransomware attack and has underperformed the S&P 500 index of major stocks by 8% during that time. In the two weeks following the ransomware attack, the company’s stock slid by 10.4%, wiping out more than $46 billion in market cap and greatly reducing the value of shares held by non-insiders. The slide continued for several weeks. On the day Witty and the other executives sold their shares, the stock price closed at $521.97. By April 12, it had fallen to $439.20.
“He (Witty) sold the shares on the same day that he learned of the ransomware attack,” said Richard Painter, a professor at the University of Minnesota School of Law who is also the vice chair of Citizens for Responsibility and Ethics in Washington. “That’s not good. For the SEC to prove a civil case of insider trading they just have to prove that it’s more probable than not that executives acted on inside information. CEOs have got to be a heck of a lot more careful.
You’re the CEO of a company, you should not be buying or selling the stock right in the middle of a material event like a ransomware attack. You’re asking for trouble. You’re going to end up with an SEC investigation. If that goes badly you could end up with a DOJ investigation.”
How much UnitedHealth’s C-suite executives sold in company stock on February 21, 2024:
Brian Thompson, the CEO of UHG’s insurance arm, sold $1.5 million on the same day. John Rex, then the CFO and now the CFO and president, sold $4.4 million, as did Dirk McMahon, now the former president. Chief Legal Officer Rupert Bondy, who would likely have to have signed off on the sales, sold $750,000.
HEALTH CARE un-covered is the first media outlet to report these disclosures.
The ransomware attack was caused at least in part by negligence on UnitedHealth’s part, Witty admitted at the Finance Committee hearing. He acknowledged that the company had failed to use multi-factor authentication — requiring more than just a password to access information — to secure its data. The cyberattack exposed the personal health information of as much as a third of Americans’ health information.
“This incident and the harm that it caused was, like so many other security breaches, completely preventable and the direct result of corporate negligence,”
Sen. Ron Wyden (D-Ore.) wrote to federal regulators on May 30. “UHG has publicly confirmed that the hackers gained their initial foothold by logging into a remote access server that was not protected with multi-factor authentication (MFA). MFA is an industry-standard cyber defense that protects against hackers who have guessed or stolen a valid username and password for a system.”
UnitedHealth exploited the crisis created by its own negligence to further entrench its position as the largest employer of doctors in the country,acquiring medical practices that were unable to pay their bills due at least in part to the chaos created by the ransomware attack. The American Medical Association is considering legal action against the company for the attack, with a proposal for its House of Delegates conference beginning June 8 stating that “Optum is the largest employer of physicians and has acquired practices when the ransomware disruption made those practices unable to survive without acquisition… Even the practices that survive will have ongoing damages including but not limited to denials related to giving therapy when it was impossible to obtain prior authorization, from using lines of credit and having to pay interest, from having billing departments and others work overtime to submit claims, to losing key employees from inability to make payroll.”
Other well-timed insider stock transactions
In April, Bloomberg reported that in the lead up to the disclosure of an FTC investigation into UnitedHealth’s monopolistic practices, other UnitedHealth insiders, including Chairman Stephen Hemsley, had sold $102 million worth of their shares.
News of that investigation and the stock sales led Sen. Elizabeth Warren (D-Mass.) and other lawmakers to call for an SEC investigation into the trading.
The disclosures revealed here, however, are potentially more incriminating: the executives sold the stock the same day the company became aware of the devastating ransomware attack. When Witty was supposed to be all hands on deck strategizing how to protect health care providers and millions of patients, he spent at least part of his day taking action to preserve his net worth.
EDITOR’S NOTE:
This is not the first time UnitedHealth executives have engaged in questionable or illegal stock transactions. In 2007, former CEO William McGuire agreed to a record $468 million settlement with the SEC after it was learned that for more than a decade he had engaged in a scheme to inflate the value of his holdings in the company and, consequently, his net worth.
An SEC investigation that year found that over a 12-year period, “McGuire repeatedly caused the company to grant undisclosed, in-the-money stock options to himself and other UnitedHealth officers and employees without recording in the company’s books and disclosing to shareholders material amounts of compensation expenses as required by applicable accounting rules.” In other words, he was back-dating his stock options.
As the SEC explained:
[F]rom at least 1994 through 2005, McGuire looked back over a window of time and picked grant dates for UnitedHealth options that coincided with dates of historically low quarterly closing prices for the company’s common stock, resulting in grants of in-the-money options.
According to the complaint, McGuire signed and approved backdated documents falsely indicating that the options had actually been granted on these earlier dates when UnitedHealth’s stock price was at or near these low points.
These inaccurate documents caused the company to understate compensation expenses for stock options, and were routinely provided to the company’s external auditors in connection with their audits and reviews of UnitedHealth’s financial statements.
Since filing for bankruptcy Monday, Steward Health Care revealed it’s carrying more than $1 billion in debt and said its entire hospital portfolio is for sale.
Eleven minutes later, Steward employees had an email waiting from their CEO, Ralph de la Torre. The CEO told his staff that industrywide economic headwinds and delays in Steward’s planned asset sales had forced the physician-owned health network to initiate restructuring proceedings.
“It is incumbent on all of us to ensure that this process has no impact on the quality care our patients, their families, and our communities can continue to receive at our hospitals,” de la Torre wrote in an email viewed by Healthcare Dive. “To the vast majority of you, operations will either not be different or improve.”
“To be clear, this is a restructuring under chapter 11; it is not a closure and it is not a liquidation,” he wrote.
The email was the first time employees had heard directly from Steward leadership about the company’s financial distress — though rumorsanduncertainty about the operatorhad been festering for weeks, according to Marlishia Aho, regional communications director for the union 1199SEIU United Healthcare Workers East.
Leading up to Monday’s filing, state and federal lawmakers were increasingly worried about how a bankruptcy at the largest physician-led hospital operator in the country would impact access to care.
Regulators in Massachusetts — where Steward operates eight hospitals — held closed-door strategy sessions to map out contingency in case of a bankruptcy, and workers staged rallies to protest possible hospital closures.
Steward provides care for more than 2 million patients each year across 31 hospitals and 400 facility locations, according to bankruptcy filings. The company also employs nearly 30,000 employees across its eight-state portfolio, including 4,500 primary and specialty care physicians.
Steward’s first-day bankruptcy motions shed light on the operator’s future — and outlines its strategy for paying down its massive debt by selling assets. Here are the biggest takeaways.
Steward’s sprawling debt
Steward has earned a reputation for being cagey about its finances — to the dismayof Massachusetts Gov. Maura Healey, who accused the company of operating in a “black box” in a letter to its CEO earlier this year.
The operator has refused to file routine finances with Massachusetts regulators for years, citing a need to protect confidential business data. Even as the company shutteredhospitals this winter, regulators said Steward still dragged its feet on providing financial data, frustrating policymakers’ efforts to build out contingency plans.
“One of the good things about bankruptcy is that Steward and its CEO … will no longer be able to lie,” said Healey during a press conference Monday morning. “Transparency is really important here, and that’s why you know we’re looking forward to seeing what is in the various documents … We need clarity about debts and liabilities.”
In a slew of first-day motions, Steward now revealed it owes around $1.2 billion in total loan debts and about $6.6 billion in long-term lease payments.
Steward owes north of $600 million to 30 of its largest lenders, which include UnitedHealth-owned Change Healthcare, Philips North America LLC, Medline Industries, AYA Healthcare and Cerner.
The healthcare operator owes $289.8 million in unpaid compensation obligations, including $68 million to its own workers in unpaid employee salaries, $105.6 million in payments for physician services and $47.7 million owed to staffing agencies.
It also has approximately $979.4 million outstanding in trade obligations, of which approximately 70% are over 120 days past due.
Though Steward had a consortium of six private lenders financing its asset-based loans this year, now only one lender is listed in bankruptcy filings as funding its debtor-in-possession financing: its landlord, Medical Properties Trust.
The change in vendors is notable, according to Laura Coordes, professor of law at the Sandra Day O’Connor College of Law at Arizona State University.
“Something went on to get these other lenders to drop out,” she said.
The landlord may be opting to fund Steward during bankruptcy proceedings in hopes of getting its own money back more expediently, according to Coordes.
Steward is MPT’s largest tenant and the healthcare network will owe MPT at least $6.9 billion in debt and lease obligations by 2041, according to the filings.
During Tuesday morning’s first day hearing a representative for Steward told Judge Chris Lopez that all of Steward’s 31 hospitals are for sale. But to receive the $225 million from MPT, Steward has to hit aggressive sales milestones. It must host an auction for all non-Florida hospitals by June 28 and all Florida properties by July 30.
Since February, MPT executives have said there is strong interest from buyers in taking over Steward leases. However, Steward has yet to sell a hospital.
Experts have told Healthcare Dive they’re skeptical other operators would take on Steward’s leases at MPT’s current rental rates.
“Given the unaffordability of the leases and given that it hasn’t worked in the past, I do think that really material rent concessions are going to be needed to get this done,” said Rob Simone, sector head of real estate investment trusts at analyst firm Hedgeye.
Steward also signed a letter of intent to sell its physician group, Stewardship Health, to UnitedHealth. Although the deal was first announced in March, regulators have not yet begun reviewing the deal, according to David Seltz, executive director of the Massachusetts Health Policy Commission. Seltz said missing paperwork is delaying the review.
The Stewardship deal is not tied to further funding. A representative from UnitedHealth declined to comment on the pending deal and whether the bankruptcy proceeding would impact the sale.
Future of Steward
Employees have received conflicting messages about the future of Steward hospitals.
On one hand, both de la Torre and Massachusetts officials said Monday that Steward hospitals would remain open this week. However, Healey also emphasized that she wants Steward out of the state.
“Ultimately, [bankruptcy] is a step toward our goal of getting Steward out of Massachusetts,” Healey said during a press conference Monday.
Some Steward facilities may wind down during the bankruptcy proceedings, said Massachusetts Attorney General Andrea Campbell. Her office will oversee that process closely, and Steward will be required to provide licensing and notice obligations.
A healthcare worker at Steward’s Nashoba Valley Hospital told Healthcare Dive Monday she’s particularly concerned about the fate of her facility, which she says serves 14 communities but is small compared to some other hospitals in Steward’s portfolio. She doesn’t want regulators to forget about Nashoba.
“What I’m hoping for is that our state representatives and our local representatives really push to keep the hospital open,” she said. “But my concern is we get overlooked.”
State officials said they would continue monitoring Steward facilities to ensure quality care and push for the appointment of a patient care ombudsman to represent the interests of patients and employees during bankruptcy proceedings. Officials have already launched a website to offer resources about the bankruptcy process.
Still, employees are unsure of the path forward.
The Nashoba Valley Hospital employee told Healthcare Dive they’re conflicted about whether to stay at the hospital they’ve worked at for years or try to find a new position while they can.
“I’ve used the hospital since I moved out here. I’ve been living out in this area for like 25 years … I’ve brought my mother to this hospital,” the worker said. “It’s my hospital. It’s not just where I work. It’s what I use, and it’s vitally important to the community.”
Two newly published investigative reports, by the intrepid reporters at STAT News and The American Prospect, pull the curtains back a little more on the astonishing number of recent acquisitions UnitedHealth has made as it moves deeper and deeper into health care delivery, enabling it to grab ever-increasing chunks of our premium and tax dollars to reward its shareholders.
That’s a strategic move that allows the company to steer more seniors to facilities it owns, boosting revenues it gets from the government and padding its bottom line.
The bigger a company gets, the less it has to disclose about the acquisitions it makes in any easily obtainable way. That’s because publicly-traded companies are only required to immediately inform investors of individual deals that are “material to earnings.”
A material amount, as Investopedia explains, “can signify any sum or figure worth mentioning, as in account balances, financial statements, shareholder reports, or conference calls. If something is not a material amount, it is considered too insignificant or trivial to mention.”
UnitedHealth’s long string of acquisitions in recent years has catapulted the company to the #5 spot on the Fortune 500 list of American companies, based on revenue. Only Walmart, Exxon Mobile, Amazon and Apple are bigger.
That rapid growth means that fewer and fewer of UnitedHealth’s acquisitions reach the threshold of requiring prominent disclosure to shareholders.
It was only through a close review of UnitedHealth’s latest annual report to investors and other financial documents that STAT was able to see what the company hides from most of us. As Herman noted:
UnitedHealth Group is so big that it doesn’t have to publicly announce a vast majority of its acquisitions. But a STAT analysis of company financial documents shows the health care conglomerate quietly acquired dozens of outpatient facilities in 2023, with a particular focus on surgery centers.
And it’s not adding random surgery centers, either. There seems to be an explicit strategy: Many of UnitedHealth’s new centers sit in geographic areas where the company is the biggest Medicare Advantage player, based on the latest insurance market share data. That overlap reinforces how UnitedHealth is looking to funnel more of its insurance members toward providers that it owns, with the overarching goal of capturing more profit.
As an example, STAT said it stumbled upon an entry–”buried within UnitedHealth’s annual report”–that revealed the company’s previously undisclosed December acquisition of National Cardiovascular Partners, which operates 21 cardiac cath and vascular labs. Not coincidentally, NCP’s facilities are “in places like Phoenix and large metro areas in Texas where UnitedHealth has the biggest MA market share.”
Tkacik wrote that last Thursday, UnitedHealthcare applied for an emergency exemption that would fast-track its takeover of a medical practice in Corvallis, Oregon, which is facing the prospect of closing its doors because of the financial crunch caused by the hack. As Tkacik explained, the hack interrupted the flow of information from Change Healthcare’s claims processing systems that enables physicians, hospitals, and other health care providers to get paid.
Perversely, UnitedHealth is telling Oregon regulators that the best solution is to allow the company’s proposed acquisition of the medical practice to go forward.
Tkacik reported that:
Although the specific reason for the exemption request is redacted from the publicly posted version of the application, a clinic insider says the “emergency” is the same one that has plunged thousands of other health providers across the nation into a terrifying cash crunch…
The situation underscores the perverse state of affairs in which UnitedHealth, which comprises some 2,642 separate companies that collectively raked in $371.6 billion last year, has arguably profited from the desperation that the hacking of its Change computer systems in late February has inflicted upon the health care system.
An estimated half of all health care transactions are processed or somehow otherwise touched by Change, a rollup of dozens of health care technology firms that provide 137 software applications that have been affected by the outage.
Tkacid added that “Every dollar in revenue that has disappeared from hospitals, medical practices, and pharmacies in the aftermath of the outage corresponds to an extra dollar sitting in the coffers of the nation’s health insurers, so UnitedHealth, which pays out roughly $662 million in medical claims each day, is presumably sitting on a mountain of unexpected cash.”
If you’re a U.S. health industry watcher, it would appear the $4.5 trillion system is under fire at every corner.
Pressures to lower costs, increase accessibility and affordability to all populations, disclose prices and demonstrate value are hitting every sector. Complicating matters, state and federal legislators are challenging ‘business as usual’ seeking ways to spend tax dollars more wisely with surprisingly strong bipartisan support on many issues. No sector faces these challenges more intensely than hospitals.
In 2022 (the latest year for NHE data from CMS), hospitals accounted for 30.4% of total spending ($1.35 trillion. While total healthcare spending increased 4.1% that year, hospital spending was up 2.2%–less than physician services (+2.7%), prescription drugs (+8.4%), private insurance (+5.9%) and the overall inflation rate (+6.5%) and only slightly less than the overall economy (GDP +1.9%). Operating margins were negative (-.3%) because operating costs increased more than revenues (+7.7% vs. 6.5%) creating deficits for most. Hardest hit: the safety net, rural hospitals and those that operate in markets with challenging economic conditions.
In 2023, the hospital outlook improved. Pre-Covid utilization levels were restored. Workforce tensions eased somewhat. And many not-for-profits and investor-owned operators who had invested their cash flows in equities saw their non-operating income hit record levels as the S&P 500 gained 26.29% for the year.
In 2024, the S&P is up 5.15% YTD but most hospital operators are uncertain about the future, even some that appear to have weathered the pandemic storm better than others. A sense of frustration and despair is felt widely across the sector, especially in critical access, rural, safety net, public and small community hospitals where long-term survival is in question.
The cynicism felt by hospitals is rooted in four conflicts in which many believe hospitals are losing ground:
Hospitals vs. Insurers:
Insurers believe hospitals are inefficient and wasteful, and their business models afford them the role of deciding how much they’ll pay hospitals and when based on data they keep private. They change their rules annually to meet their financial needs. Longer-term contracts are out of the question. They have the upper hand on hospitals.
Hospitals take financial risks for facilities, technologies, workforce and therapies necessary to care. Their direct costs are driven by inflationary pressures in their wage and supply chains outside their control and indirect costs from regulatory compliance and administrative overhead, Demand is soaring. Hospital balance sheets are eroding while insurers are doubling down on hospital reimbursement cuts to offset shortfalls they anticipate from Medicare Advantage. Their finances and long-term sustainability are primarily controlled by insurers. They have minimal latitude to modify workforces, technology and clinical practices annually in response to insurer requirements.
Hospitals vs. the Drug Procurement Establishment:
Drug manufacturers enjoy patent protections and regulatory apparatus that discourage competition and enable near-total price elasticity. They operate thru a labyrinth of manufacturers, wholesalers, distributors and dispensers in which their therapies gain market access through monopolies created to fend-off competition. They protect themselves in the U.S. market through well-funded advocacy and tight relationships with middlemen (GPOs, PBMs) and it’s understandable: the global market for prescription drugs is worth $1.6 trillion, the US represents 27% but only 4% of the world population.
And ownership of the 3 major PBMs that control 80% of drug benefits by insurers assures the drug establishment will be protected.
Prescription drugs are the third biggest expense in hospitals after payroll and med/surg supplies. They’re a major source of unexpected out-of-pocket cost to patients and unanticipated costs to hospitals, especially cancer therapies. And hospitals (other than academic hospitals that do applied research) are relegated to customers though every patient uses their products.
Prescription drug cost escalation is a threat to the solvency and affordability of hospital care in every community.
Hospitals vs. the FTC, DOJ and State Officials:
Hospital consolidation has been a staple in hospital sustainability and growth strategies. It’s a major focus of regulator attention. Horizontal consolidation has enabled hospitals to share operating costs thru shared services and concentrate clinical programs for better outcomes. Vertical consolidation has enabled hospitals to diversify as a hedge against declining inpatient demand: today, 200+ sponsor health insurance plans, 60% employ physicians directly and the majority offer long-term, senior care and/or post-acute services. But regulators like the FTC think hospital consolidation has been harmful to consumers and third-party data has shown promised cost-savings to consumers are not realized.
Federal regulators are also scrutinizing the tax exemptions afforded not-for-profit hospitals, their investment strategies, the roles of private equity in hospital prices and quality and executive compensation among other concerns. And in many states, elected officials are building their statewide campaigns around reining in “out of control” hospitals and so on.
Bottom line: Hospitals are prime targets for regulators.
Hospitals vs. Congress:
Influential members in key House and Senate Committees are now investigating regulatory changes that could protect rural and safety net hospitals while cutting payments to the rest. In key Committees (Senate HELP and Finance, House Energy and Commerce, Budget), hospitals are a target. Example: The Lower Cost, More Transparency Act passed in the the House December 11, 2023. It includes price transparency requirements for hospitals and PBMs, site-neutral payments, additional funding for rural and community health among more. The American Hospital Association objected noting “The AHA supports the elimination of the Medicaid disproportionate share hospital (DSH) reductions for two years. However, hospitals and health systems strongly oppose efforts to include permanent site-neutral payment cuts in this bill. In addition, the AHA has concerns about the added regulatory burdens on hospitals and health systems from the sections to codify the Hospital Price Transparency Rule and to establish unique identifiers for off-campus hospital outpatient departments (HOPDs).” Nonetheless, hospitals appear to be fighting an uphill battle in Congress.
Hospitals have other problems:
Threats from retail health mega-companies are disruptive. The public’s trust in hospitals has been fractured. Lenders are becoming more cautious in their term sheets. And the hospital workforce—especially its doctors and nurses—is disgruntled. But the four conflicts above seem most important to the future for hospitals.
However, conflict resolution on these is problematic because opinions about hospitals inside and outside the sector are strongly held and remedy proposals vary widely across hospital tribes—not-for profits, investor-owned, public, safety nets, rural, specialty and others.
Nonetheless, conflict resolution on these issues must be pursued if hospitals are to be effective, affordable and accessible contributors and/or hubs for community health systems in the future. The risks of inaction for society, the communities served and the 5.48 million (NAICS Bureau of Labor 622) employed in the sector cannot be overstated. The likelihood they can be resolved without the addition of new voices and fresh solutions is unlikely.
PS: In the sections that follow, citations illustrate the gist of today’s major message: hospitals are under attack—some deserved, some not. It’s a tough business climate for all of them requiring fresh ideas from a broad set of stakeholders.
PS If you’ve been following the travails of Mission Hospital, Asheville NC—its sale to HCA Healthcare in 2019 under a cloud of suspicion and now its “immediate jeopardy” warning from CMS alleging safety and quality concerns—accountability falls squarely on its Board of Directors. I read the asset purchase agreement between HCA and Mission: it sets forth the principles of operating post-acquisition but does not specify measurable ways patient safety, outcomes, staffing levels and program quality will be defined. It does not appear HCA is in violation with the terms of the APA, but irreparable damage has been done and the community has lost confidence in the new Mission to operate in its best interest. Sadly, evidence shows the process was flawed, disclosures by key parties were incomplete and the hospital’s Board is sworn to secrecy preventing a full investigation.
The lessons are 2 for every hospital:
Boards must be prepared vis a vis education, objective data and independent counsel to carry out their fiduciary responsibility to their communities and key stakeholders. And the business of running hospitals is complex, easily prone to over-simplification and misinformation but highly important and visible in communities where they operate.
Business relationships, price transparency, board performance, executive compensation et al can no longer to treated as private arrangements.
The physician-led healthcare network formed to save hospitals from financial distress. Now, hospitals in its own portfolio need bailing out after years of alleged mismanagement.
Steward Health Care formed over a decade ago when a private equity firm and a CEO looking to disrupt a regional healthcare environment teamed up to save six Boston-based hospitals from the brink of financial collapse. Since that time, Steward has expanded from a handful of facilities to become the largest physician-led for-profit healthcare network in the country, operating 33 community hospitals in eight states, according to its own corporate site.
However, Steward has also found itself once again on the precipice of failure.
Steward’s ongoing issues in Massachusetts have played out in regional media outlets in recent weeks. Massachusetts Gov. Maura Healey warned there would be no bailout for Steward in an interview on WBUR’s Radio Boston.
The Massachusetts Department of Public Health said it is investigating concerns raised about Steward facilities and began conducting daily site inspections at some Steward sites to ensure patient safety beginning Jan. 31.
However, the tide may have begun to change. Steward executives said on Feb. 2 they had secured a deal to stabilize operations and keep Massachusetts hospitals open — for now. Steward will receive bridge financing under the deal and consider transferring ownership of one or more hospitals to other companies, a Steward spokesperson confirmed to Healthcare Dive on Feb. 7.
While politicians welcomed the news, some say Steward’s long term outlook in the state is uncertain. Other politicians sought answers for how a prominent system could seemingly implode overnight.
“I am cautiously optimistic at this point that [Steward] will be able to remain open, because it’s really critical they do,” said Brockton City Councilor Phil Griffin. “But they owe a lot of people a lot of money, so we’ll see.”
However, the business model wasn’t immediately a financial success. Steward didn’t turn a profit between 2011 and 2014, according to a 2015 monitoring report from the Massachusetts attorney general. Instead, Steward’s debt increased from $326 million in 2011 to $413 million at the end of the 2014 fiscal year, while total liabilities ballooned to $1.4 billion in the same period as Steward engaged in real estate sale and leaseback plays.
Under the 2010 deal, Steward agreed to assume Caritas’ debt and carry out $400 million in capital expenditures over four years to upgrade the hospitals’ infrastructure. However, that capital expenditure could come in part from financial engineering, such as monetizing Steward’s own assets, according to Zirui Song, associate professor of health care policy and medicine at the Harvard Medical School who has studied private equity’s impact on healthcare since 2019.
Cerberus did not contribute equity into Steward after making its initial investment of $245.9 million, according to the December 2015 monitoring report. Meanwhile, according to reporting at the time, de la Torre wanted to expand Steward. Steward was on its own to raise funds.
Such deals are typically short-sighted, Song explained. When hospitals sell their property, they voluntarily forfeit their most valuable assets and tend to be saddled with high rent payments.
Healthcare Dive spoke with four workers across Steward’s portfolio who said Steward’s emphasis on the bottom line negatively impacted the company’s operations for years.
Terra Ciurro worked in the emergency department at Steward Health Care-owned Odessa Regional Medical Center in January 2022 as a travel nurse. She recalled researching Steward and being attracted to the fact the company was physician owned.
“I remember thinking, ‘That’s all I need to know. Surely, doctors will have their heart in the right place,’” Ciurro said. “But yeah — that’s not the experience I had at all.”
The emergency department was “shabby, rundown and ill-equipped,” and management didn’t fix broken equipment that could have been hazardous, she said. Nine weeks into her 13-week contract and three hours before Ciurro was scheduled to work, Ciurro said her staffing agency called to cut her contract unceremoniously short. Steward hadn’t paid its bills in six months, and the agency was pulling its nurses, she said she was told.
In Massachusetts, Katie Murphy, president of the Massachusetts Nurses Association, which represents more than 3,000 registered nurses and healthcare professionals who work in eight Steward hospitals, said there were “signals” that Steward facilities had been on the brink of collapse for “well over a year.”
Steward hospitals are often “significantly” short staffed and lack supplies from the basics, like dressings, to advanced operating room equipment, said Murphy. While most hospitals in the region got a handle on staffing and supply shortages in the aftermath of the COVID pandemic, at Steward hospitals shortages “continued to accelerate,” Murphy said.
A review of Steward’s finances by BDO USA, a tax and advisory firm contracted last summer by the health system itself to demonstrate it was solvent enough to construct a new hospital in Massachusetts, showed Steward had a liquidity problem. The health system had few reserves on hand last year to pay down its debts owed to vendors, possibly contributing to the shortages. The operator carried only 10.2 days of cash on hand in 2023. In comparison, most healthy nonprofit hospital systems carried 150 days of cash on hand or more in 2022, according to KFF.
One former finance employee, who worked for Steward beginning around 2018, said that the books were routinely left unbalanced during her tenure. Each month, she made a list of outstanding bills to determine who must be paid and who “we can get away with holding off” and paying later.
Food, pharmaceuticals and staff were always paid, while all other vendors were placed on an “escalation list,” she said. Her team prioritized paying vendors that had placed Steward on a credit hold.
The worker permanently soured on Steward when she said operating room staff had to “make do” without a piece of a crash cart — which is used in the event of a heart attack, stroke or trauma.
She stopped referring friends to Steward facilities, telling them “Don’t go — if you can go anywhere else, don’t go [to Steward], because there’s no telling if they’ll have the supplies needed to treat you.”
Away from regulatory review
Massachusetts officials maintain that it hasn’t been easy to see what was happening inside Steward.
Steward is legally required to submit financial data to the MA Center for Health Information and Analysis (CHIA) and to the Massachusetts Registration of Provider Organizations Program (MA-RPO Program), according to a spokesperson from the Health Policy Commission, which analyzes the reported data. Under the latter requirement, Steward is supposed to provide “a comprehensive financial statement, including information on parent entities and corporate affiliates as applicable.”
However, Steward fought the requirements. During Stuart Altman’s tenure as the chair of the Commission from 2012 to 2022, Altman told Healthcare Dive that the for-profit never submitted documents, despite CHIA levying fines against Steward for non-compliance. Steward even sued CHIA and HPC for relief against the reporting obligations.
Steward is currently appealing a superior court decision and order from June 2023 that required it to comply with the financial reporting requirements and produce audited financial reports that cover the full health system, Mickey O’Neill, communications director for the HPC told Healthcare Dive. As of Feb. 6, Steward’s non-compliance remained ongoing, O’Neill said.
Without direct insight into Steward’s finances, the state was operating at a disadvantage, said John McDonough, professor of the practice of public health at The Harvard T.H. Chan School of Public Health. He added that some regulators saw a crisis coming generally, “but the timing was hard to predict.”
Altman gives his team even more of a pass for not spotting the Steward problem.
“There was no indication while I was there that Steward was in deep trouble,” Altman said. Although Steward was the only hospital system that failed to report financial data to the HPC, that alone had not raised red flags for him. “[CEO] Ralph [de la Torre] was just a very contrarian guy. He didn’t do a lot of things.”
Song and his co-author, Sneha Kannan, a clinical research fellow at Harvard Medical School, are hopeful that in the future, regulatory agencies can make better use of the data they collect annually to track changes in healthcare performance over time. They can potentially identify problem operators before they become crises.
“State legislators, even national legislators, are not in the habit of comparing hospitals’ performances on [quality] measures to themselves over time — they compare to hospitals’ regional partners,” Kannan said. “Legislators, Medicare, [and] CMS has access to that information.”
However, although there’s interest from regulators in scrutinizing healthcare quality more closely — particularly when private equity gets involved — a streamlined approach to analyzing such data is still a “ways off,” according to the pair. For now, all parties interviewed for this piece agreed that the best way to avoid being caught off guard by a failing system was to know how such implosions could occur.
“If there’s a lesson from [Steward],” McDonough ventured, “it is that the entire state health system and state government need to be much more wary of all for-profits.”
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:
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.
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:
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-benefitutilization 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.
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:
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.
Correction: An earlier version incorrectly referenced a Texas deal between Houston Methodist and Baylor Scott and White. News about deals is sensitive and unnecessarily disruptive to reputable organizations like these. I sourced this news from a reputable deal advisor: it was inaccurate. My apology!
Congressional Republicans and the White House spared Main Street USA the pain of defaulting on the national debt last week. No surprise.
Also not surprising: another not-for-profit-mega deal was announced:
St. Louis, MO-based BJC HealthCare and Kansas City, MO-based Saint Luke’s Health System announced their plan to form a $9.5B revenue, 28-hospital system with facilities in Missouri, Kansas, and Illinois.
This follows recent announcements by four other NFP systems seeking the benefits of larger scale:
Gundersen Health System & Bellin Health (Nov 2022): 11 hospitals, combined ’22 revenue of $2.425B
Froedtert Health & ThedaCare (Apr 2023 LOI): 18 hospitals, combined ’22 revenues of $4.6B
And all these moves are happening in an increasingly dicey environment for large, not-for-profit hospital system operators:
Increased negative media attention to not-for-profit business practices that, to critics, appear inconsistent with a “NFP” organization’s mission and an inadequate trade for tax exemptions each receives.
Decreased demand for inpatient services—the core business for most NFP hospital operations. Though respected sources (Strata, Kaufman Hall, Deloitte, IBIS et al) disagree somewhat on the magnitude and pace of the decline, all forecast decreased demand for traditional hospital inpatient services even after accounting for an increasingly aging population, a declining birthrate, higher acuity in certain inpatient populations (i.e. behavioral health, ortho-neuro et al) and hospital-at-home services.
Increased hostility between national insurers and hospitals over price transparency and operating costs.
Increased employer, regulator and consumer concern about the inadequacy of hospital responsiveness to affordability in healthcare.
And heightened antitrust scrutiny by the FTC which has targeted hospital consolidation as a root cause of higher health costs and fewer choices for consumers. This view is shared by the majorities of both parties in the House of Representatives.
In response, Boards and management in these organizations assert…
Health Insurers—especially investor-owned national plans—enjoy unfettered access to capital to fund opportunistic encroachment into the delivery of care vis a vis employment of physicians, expansion of outpatient services and more.
Private equity funds enjoy unfettered opportunities to invest for short-term profits for their limited partners while planning exits from local communities in 6 years or less.
The payment system for hospitals is fundamentally flawed: it allows for underpayments by Medicaid and Medicare to be offset by secret deals between health insurers and hospitals. It perpetuates firewalls between social services and care delivery systems, physical and behavioral health and others despite evidence of value otherwise. It requires hospitals to be the social safety net in every community regardless of local, state or federal funding to offset these costs.
These reactions are understandable. But self-reflection is also necessary. To those outside the hospital world, lack of hospital price transparency is an excuse. Every hospital bill is a surprise medical bill. Supporting the community safety net is an insignificant but manageable obligation for those with tax exemption status. Advocacy efforts to protect against 340B cuts and site-neutral payment policies are about grabbing/keeping extra revenue for the hospital. What is means to be a “not-for-profit” anything in healthcare is misleading since moneyball is what all seem to play. And short of government-run hospitals, many think price controls might be the answer.
My take:
The headwinds facing large not-for-profit hospitals systems are strong. They cannot be countered by contrarian messaging alone.
What’s next for most is a new wave of operating cost reductions even as pre-pandemic volumes are restored because the future is not a repeat of the past. Being bigger without operating smarter and differently is a recipe for failure.
What’s necessary is a reset for the entire US health system in which not-for-profit systems play a vital role. That discussion should be led by leaders of the largest NFP systems with the full endorsements of their boards and support of large employers, physicians and public health leaders in their communities.
Everything must be on the table: funding, community benefits, tax exemption, executive compensation, governance, administrative costs, affordability, social services, coverage et al. And mechanisms for inaction and delays disallowed.
It’s a unique opportunity for not-for-profit hospitals. It can’t wait.
Last week, California’s legislature passed a bill establishing the Distressed Hospital Loan Program, which will dole out $150M in interest-free emergency loans to struggling nonprofit hospitals in the state which meet specific eligibility criteria, including operating in an underserved area and serving a large share of Medicaid beneficiaries. A combination of state agencies will establish a specific methodology for selection, but hospitals that are part of a health system with more than two separately licensed hospital facilities will be ineligible.
Hospitals receiving loans must provide a plan for how they will use the loans to achieve financial sustainability, and must pay back the money within six years.
The Gist: With twenty percent of the state’s hospitals at risk of shuttering, California lawmakers are hoping to provide the most vulnerable hospitals an alternative to either closure or consolidation, an example other states may follow. But unlike the Paycheck Protection Program loans that shored up businesses through the pandemic’s initial disruption, the outlook for small, struggling, independent hospitals isn’t expected to improve in coming years, even if the economy recovers.
Whether these loans provide lifelines or merely serve as Band-Aids on an untenable situation will depend on whether recipient hospitals can use them to restructure their operating models to absorb increased labor costs amid stagnating volumes and commercial reimbursement.
If these loans aren’t used for transformation, they will only delay the inevitable: more closures, and more mergers to find shelter in scale.
With input from stakeholders across the industry, Modern Healthcare outlines six challenges health care is likely to face in 2023—and what leaders can do about them.
1. Financial difficulties
In 2023, health systems will likely continue to face financial difficulties due to ongoing staffing problems, reduced patient volumes, and rising inflation.
According to Tina Wheeler, U.S. health care leader at Deloitte, hospitals can expect wage growth to continue to increase even as they try to contain labor costs. They can also expect expenses, including for supplies and pharmaceuticals, to remain elevated.
Health systems are also no longer able to rely on federal Covid-19 relief funding to offset some of these rising costs. Cuts to Medicare reimbursement rates could also negatively impact revenue.
“You’re going to have all these forces that are counterproductive that you’re going to have to navigate,” Wheeler said.
In addition, Erik Swanson, SVP of data and analytics at Kaufman Hall, said the continued shift to outpatient care will likely affect hospitals’ profit margins.
“The reality is … those sites of care in many cases tend to be lower-cost ways of delivering care, so ultimately it could be beneficial to health systems as a whole, but only for those systems that are able to offer those services and have that footprint,” he said.
2. Health system mergers
Although hospital transactions have slowed in the last few years, market watchers say mergers are expected to rebound as health systems aim to spread their growing expenses over larger organizations and increase their bargaining leverage with insurers.
“There is going to be some organizational soul-searching for some health systems that might force them to affiliate, even though they prefer not to,” said Patrick Cross, a partner at Faegre Drinker Biddle & Reath. “Health systems are soliciting partners, not because they are on the verge of bankruptcy, but because they are looking at their crystal ball and not seeing an easy road ahead.”
Financial challenges may also lead more physician practices to join health systems, private-equity groups, larger practices, or insurance companies.
“Many independent physicians are really struggling with their ability to maintain their independence,” said Joshua Kaye, chair of U.S. health care practice at DLA Piper. “There will be a fair amount of deal activity. The question will be more about the size and specialty of the practices that will be part of the next consolidation wave.”
3. Recruiting and retaining staff
According to data from Fitch Ratings, health care job openings reached an all-time high of 9.2% in September 2022—more than double the average rate of 4.2% between 2010 and 2019. With this trend likely to continue, organizations will need to find effective ways to recruit and retain workers.
Currently, some organizations are upgrading their processes and technology to hire people more quickly. They are also creating service-level agreements between recruiting and hiring teams to ensure interviews are scheduled within 48 hours or decisions are made within 24 hours.
Eric Burch, executive principal of operations and workforce services at Vizient, also predicted that there will be a continued need for contract labors, so health systems will need to consider travel nurses in their staffing plans.
“It’s really important to approach contract labor vendors as a strategic partner,” Burch said. “So when you need the staff, it’s a partnership and they’re able to help you get to your goals, versus suddenly reaching out to them and they don’t know your needs when you’re in crisis.”
When it comes to retention, Tochi Iroku-Malize, president of the American Academy of Family Physicians (AAFP), said health systems are adequately compensated for their work and have enough staff to alleviate potential burnout.
AAFP also supports legislation to streamline prior authorization in the Medicare Advantage program and avoid additional cuts to Medicare payments, which will help physicians provide care to patients with less stress.
4. Payer-provider contract disputes
A potential recession, along with the ensuing job cuts that typically follow, would limit insurers’ commercial business, which is their most profitable product line. Instead, many people who lose their jobs will likely sign up for Medicaid plans, which is much less profitable.
Because of increased labor, supply, and infrastructure costs, Brad Ellis, senior director at Fitch Ratings, said providers could pressure insurers into increasing the amount they pay for services. This will lead insurers to passing these increased costs onto members’ premiums.
Currently, Ellis said insurers are keeping an eye on how legislators finalize rules to implement the No Surprise Act’s independent resolution process. Regulators will also begin issuing fines for payers who are not in compliance with the law’s price transparency requirement.
5. Investment in digital health
Much like 2022, investment in digital health is likely to remain strong but subdued in 2023.
“You’ll continue to see layoffs, and startup funding is going to be hard to come by,” said Russell Glass, CEO of Headspace Health.
However, investors and health care leaders say they expect a strong market for digital health technology, such as tools for revenue cycle management and hospital-at-home programs.
According to Julian Pham, founding and managing partner at Third Culture Capital, he expects corporations such as CVS Health to continue to invest in health tech companies and for there to be more digital health mergers and acquisitions overall.
In addition, he predicted that investors, pharmaceutical companies, and insurers will show more interest in digital therapeutics, which are software applications prescribed by clinicians.
“As a physician, I’ve always dreamed of a future where I could prescribe an app,” Pham said. “Is it the right time? Time will tell. A lot needs to happen in digital therapeutics and it’s going to be hard.”
6. Health equity efforts
This year, CMS will continue rolling out new health equity initiatives and quality measurements for providers and insurers who serve marketplace, Medicare, and Medicaid beneficiaries. Some new quality measures include maternal health, opioid related adverse events, and social need/risk factor screenings.
CMS, the Joint Commission, and the National Committee for Quality Assurance are also partnering together to establish standards for health equity and data collection.
In addition, HHS is slated to restore a rule under the Affordable Care Act that prohibits discrimination based on a person’s gender identity or sexual orientation. According to experts, this rule may conflict with recently passed state laws that ban gender-affirming care for minors.
“It’s something that’s going to bear out in the courts and will likely lack clarity. We’ll see differences in what different courts decide,” said Lindsey Dawson, associate director of HIV policy and director of LGBTQ health policy at the Kaiser Family Foundation. “The Supreme Court acknowledged that there was this tension. So it’s an important place to watch and understand better moving forward.”
HENRY KOTULA 