Nearly 50% of U.S. adults report struggling to keep up with the cost of healthcare, with four in ten ringing in the new year with medical debt. Medical debt is a major burden that often forces people to delay–and sometimes forgo–access to care. Not only do outstanding medical bills undermine health, but they also represent the most common type of collections, with estimates ranging anywhere from $81 to $140 billion.
With problematic hospital practices gaining national media attention – including rejecting appointments for patients with outstanding medical bills and going so far as to sue such patients – the issue of medical debt is front and center for many Americans.
A glimpse into the state of hospital billing practices
Hospital watchdogs have started collecting valuable data on hospital billing practices to inform patients about these practices and potentially put pressure on hospitals to improve.
In an effort to capture the varied nature of hospital billing and collection practices, the Lown Institute is building a database of financial assistance policies and billing and collection practices across 2,500 hospitals with the support of Arnold Ventures. Initial results are expected to be available in mid-2024 with a full report issued in 2025.
Also interested in evaluating the current state of hospital’s financial practices, in 2021, the Leapfrog Group added questions to their hospital survey around billing and collections. Researchers from the Leapfrog Group, Northwestern University Feinberg School of Medicine, and Johns Hopkins University School of Medicine published a recent analysis of this data in JAMAwhere they found that many hospitals are still falling short when it comes to billing ethics. Although the data set of 2,270 hospitals was not nationally representative, it provides an interesting glimpse into the billing practices of some U.S. hospitals.
Here are the key takeaways:
754 hospitals (33.2%) reported that they “take legal action against patients for late payment or insufficient payment of a medical bill.” Rural hospitals were 38% more likely than urban hospitals to take legal action against patients.
1,020 (44.9%) hospitals did not routinely send patients itemized bills within 30 days of final claims adjudication or date of service for patients without insurance.
125 (5.5%) hospitals did not provide access to billing representatives capable of investigating billing errors, offering price adjustment, and establishing payment plans.
Ultimately, only 38% of surveyed hospitals reported meeting all three proposed billing quality standards. Interestingly, hospitals with worse Leapfrog safety grades were less likely to meet all three billing standards compared to hospitals with better grades. It’s not clear what’s behind this pattern, but it could be an issue of capacity (hospitals with more resources and staff have an easier time abiding by safety protocol and billing standards), or potentially profiteering (hospitals more concerned with making money may be both understaffing hospitals and suing patients).
So, how can we encourage better billing practices and reduce harm caused by medical debt?
The JAMA study authors recommend standardizing measurement and reporting of hospital billing practices to “increase accountability, reduce variation in billing practices, and reduce barriers in access to care in the US.”
Some states are taking these recommendations to the policy-level, working to make healthcare more affordable for patients. To date, eight states limit medical debt interest and two states restrict credit reporting of medical debt. Current policy proposals on the docket include New York’s Senate Bill S5909B, which seeks to ban hospitals from suing patients making less than 400% of the federal poverty level (FPL).
This research is important to not only provide further insight into how hospitals financially support, or undermine, their patients, but also inform policy efforts to improve healthcare affordability and hospital accountability moving forward.
By the end of this week, we’ll know a lot more about the economic trajectory for U.S. healthcare in 2024: it may cause indigestion.
Digesting deal announcements and industry prognostics from last week’s 42nd JPM conference in San Francisco. Notably, with the exceptions of promising conditions for weight loss drugs, artificial intelligence and biotech IPOs, the outlook is cautionary for providers and inviting for insurers and retail health. Expanded conflicts in Ukraine and Gaza loom as threats. The U.S. trade relationship with China and its growing tension with Taiwan poses an immediate threat to the U.S. healthcare supply chain for raw materials in drugs, OTC products, disposables. U.S. public opinion about its institutions is arguably shaped in part in social media: TikTok is owned by Chinese internet tech company ByteDance and operates in 150 countries. The 16 not for profit health system presentations at JPM sounded a chorus in unison: ‘our core business—hospital care– is not sustainable. We need deals with private capital to stay afloat.’ By contrast, national insurers and retailers sang a different tune: ‘the market is receptive to our products and services that are cheaper, better and more easily accessed through digital platforms. The status quo is outdated’.
Digesting results from today’s Iowa GOP Caucus which serves as a gatekeeper for Presidential candidate wannabes. In the run-up to Campaign 2024, polls show voters interested in abortion rights and affordability. But specific health system reforms have not surfaced to date in this election cycle and understandably: per the November 2023 Keckley Poll, 76% of U.S. adults agree that “Most politicians avoid healthcare issues because solutions are complicated and they fear losing votes” vs. 6% who disagree. Thus, the Iowa results might narrow the President contestant pool, but it will do little to clarify U.S. health policies in 2025 and beyond.
Digesting takeaways from the World Economic Forum (WEF) in Davos. The annual confab draws world leaders and big-name consultancies and bankers who want to rub elbows with them. It’s notable that the WEF pre-conference Global Risk Survey indicated growing concern about a looming “global catastrophe” and its agenda includes sessions on women’s health, misinformation and artificial intelligence—all central to healthcare’s future. The world is small: 8 billion inhabitants in 195 countries. There’s growing global attention to healthcare and recognition that the integration of social services (nutrition, housing, transportation, et al) and elimination of structural barriers that limit access are necessary to the effectiveness of their systems. The U.S. lacks both though it’s the world’s most expensive system. Thus, U.S.-based solutions to enhance clinical efficacy for specialty care are accessible to global markets at prices significantly lower than what U.S. taxpayers pay because their government’s refuse to pay U.S. rates.
Digesting where Congress lands this week on the fiscal 2024 budget. A deal was reached tentatively yesterday on a short-term funding bill that would avert a partial government shutdown this Friday. The $1.6 trillion continuing resolution funds the government through March 1 and March 8 and includes $886B for defense and $704B for other total discretionary programs. While payments for social security and Medicare are not impacted, most other federal health programs are impacted and therefore caught in the Congressional crossfire between budget hawks wary of the ballooning federal deficit ($34 trillion) and progressives who think the federal government spends too much on the ‘have’s’ and not enough, including health and social services, on its ‘have not’s.’ And this deal is TENTATIVE!
My take:
The cumulative effect of these events in economic indigestion for the entire U.S. economy and especially for those of us who work in its healthcare industry. So, for the balance of 2024, the realities for U.S. healthcare are these:
Public support for the health system is eroding. Trust and confidence in the U.S. health system is low. No sector in U.S. healthcare is immune though some (community hospitals, public health programs, independent physicians) are more favorably viewed than others. Confidence in government agencies (CDC, FDA, CMS) is fractured due to misinformation and disinformation. ‘Not-for-profit’ designation is a meaningful distinction to some but secondary to characteristics more readily understood and valued.
Federal policies toward healthcare are increasingly antagonistic. They’re popular and in most cases, bipartisan. Federal policies that expand price transparency (drugs, hospitals, health insurance), constrain on consolidation (horizontal) and private equity investing, expose/reduce conflicts of interest, address workforce resilience (compensation, work-rules) and protect consumers will be prominent. Beyond these, court actions and budgetary negotiations will define/refine federal health policies. Notably, the rumored DOJ antitrust action against Apple will be a closely watched barometer as will the government’s attention toward Microsoft given its leading role in ChatGPT and AI platform Copilot et al.
The big players enjoy advantages over smaller players. It’s a buyer’s market for them. The corporatization of U.S. healthcare has rewarded big operators in each sector and punished smaller, independent operators. More regulation, higher operating costs, escalating administrative complexity and shifting demand require capital that’s increasingly unaffordable/inaccessible to less credit-worthy players. In 2024, in every sector, bigger fish will eat the smaller as readily-accessible private capital is deployed to welcoming sellers. But mechanisms whereby ‘independents’ are protected and growing disparity in how care is financed and delivered will be a prominent concern to policymakers.
Regrettably, an off-the-shelf Pepto-Bismol is not available to the U.S. system. It is complex, fragmented, inequitable and expensive, but also profitable for many who benefit from the status quo.
So, the conclusion that can be deduced from the four events this week is this: economic indigestion in U.S. healthcare will persist this year and beyond because there is no political will nor industry appetite to fix it. Darwinism aka ‘survival of the fittest’ is its destiny unless….???
A new perspective on how technology, transformation efforts, and other changes have affected payers, health systems, healthcare services and technology, and pharmacy services.
The acute strain from labor shortages, inflation, and endemic COVID-19 on the healthcare industry’s financial health in 2022 is easing. Much of the improvement is the result of transformation efforts undertaken over the last year or two by healthcare delivery players, with healthcare payers acting more recently. Even so, health-system margins are lagging behind their financial performance relative to prepandemic levels. Skilled nursing and long-term-care profit pools continue to weaken. Eligibility redeterminations in a strong employment economy have hurt payers’ financial performance in the Medicaid segment. But Medicare Advantage and individual segment economics have held up well for payers.
As we look to 2027, the growth of the managed care duals population (individuals who qualify for both Medicaid and Medicare) presents one of the most substantial opportunities for payers. On the healthcare delivery side, financial performance will continue to rebound as transformation efforts, M&A, and revenue diversification bear fruit. Powered by adoption of technology, healthcare services and technology (HST) businesses, particularly those that offer measurable near-term improvements for their customers, will continue to grow, as will pharmacy services players, especially those with a focus on specialty pharmacy.
Below, we provide a perspective on how these changes have affected payers, health systems, healthcare services and technology, and pharmacy services, and what to expect in 2024 and beyond.
The fastest growth in healthcare may occur in several segments
We estimate that healthcare profit pools will grow at a 7 percent CAGR, from $583 billion in 2022 to $819 billion in 2027. Profit pools continued under pressure in 2023 due to high inflation rates and labor shortages; however, we expect a recovery beginning in 2024, spurred by margin and cost optimization and reimbursement-rate increases.
Several segments can expect higher growth in profit pools:
Within payer, Medicare Advantage, spurred by the rapid increase in the duals population; the group business, due to recovery of margins post-COVID-19 pandemic; and individual
Within health systems, outpatient care settings such as physician offices and ambulatory surgery centers, driven by site-of-care shifts
Within HST, the software and platforms businesses (for example, patient engagement and clinical decision support)
Within pharmacy services, with specialty pharmacy continuing to experience rapid growth
On the other hand, some segments will continue to see slow growth, including general acute care and post-acute care within health systems, and Medicaid within payers (Exhibit 1).
Several factors will likely influence shifts in profit pools. Two of these are:
Change in payer mix. Enrollment in Medicare Advantage, and particularly the duals population, will continue to grow. Medicare Advantage enrollment has grown historically by 9 percent annually from 2019 to 2022; however, we estimate the growth rate will reduce to 5 percent annually from 2022 to 2027, in line with the latest Centers for Medicare & Medicaid Services (CMS) enrollment data.1 Finally, the duals population enrolled in managed care is estimated to grow at more than a 9 percent CAGR from 2022 through 2027.
We also estimate commercial segment profit pools to rebound as EBITDA margins likely return to historical averages by 2027. Growth is likely to be partially offset by enrollment changes in the segment, prompted by a shift from fully insured to self-insured businesses that could accelerate as employers seek to cut costs if the economy slows. Individual segment profit pools are estimated to expand at a 27 percent CAGR from 2022 to 2027 as enrollment rises, propelled by enhanced subsidies, Medicaid redeterminations, and other potential favorable factors (for example, employer conversions through the Individual Coverage Health Reimbursement Arrangement offered by the Affordable Care Act); EBITDA margins are estimated to improve from 2 percent in 2022 to 5 to 7 percent in 2027. On the other hand, Medicaid enrollment could decline by about ten million lives over the next five years based on our estimates, given recent legislation allowing states to begin eligibility redeterminations (which were paused during the federal public health emergency declared at the start of the COVID-19 pandemic2).
Accelerating value-based care (VBC). Based on our estimates, 90 million lives will be in VBC models by 2027, from 43 million in 2022. This expansion will be fueled by an increase in commercial VBC adoption, greater penetration of Medicare Advantage, and the Medicare Shared Savings Program (MSSP) model in Medicare fee-for-service. Also, substantial growth is expected in the specialty VBC model, where penetration in areas like orthopedics and nephrology could more than double in the next five years.
VBC models are undergoing changes as CMS updates its risk adjustment methodology and as models continue to expand beyond primary care to other specialties (for example, nephrology, oncology, and orthopedics). We expect established models that offer improvements in cost and quality to continue to thrive. The transformation of VBC business models in response to pressures from the current changes could likely deliver outsized improvement in cost and quality outcomes. The penetration of VBC business models is likely to lead to shifts in health delivery profit pools, from acute-care settings to other sites of care such as ambulatory surgical centers, physician offices, and home settings.
Payers: Government segments are expected to be 65 percent larger than commercial segments by 2027
In 2022, overall payer profit pools were $60 billion. Looking ahead, we estimate EBITDA to grow to $78 billion by 2027, a 5 percent CAGR, as the market recovers and approaches historical trends. Drivers are likely to be margin recovery of the commercial segment, inflation-driven incremental premium rate rises, and increased participation in managed care by the duals population. This is likely to be partially offset by margin compression in Medicare Advantage due to regulatory pressures (for example, risk adjustment, decline in the Stars bonus, and technical updates) and membership decline in Medicaid resulting from the expiration of the public health emergency.
We estimate increased labor costs and administrative expenses to reduce payer EBITDA by about 60 basis points in 2023. In addition, health systems are likely to push for reimbursement rate increases (up to about 350 to 400 basis-point incremental rate increases from 2023 to 2027 for the commercial segment and about 200 to 250 basis points for the government segment), according to McKinsey analysis and interviews with external experts.3
Our estimates also suggest that the mix of payer profit pools is likely to shift further toward the government segment (Exhibit 2). Overall, the profit pools for this segment are estimated to be about 65 percent greater than the commercial segment by 2027 ($36 billion compared with $21 billion). This shift would be a result of increasing Medicare Advantage penetration, estimated to reach 52 percent in 2027, and likely continued growth in the duals segment, expanding EBITDA from $7 billion in 2022 to $12 billion in 2027.
Profit pools for the commercial segment declined from $18 billion in 2019 to $15 billion in 2022. We now estimate the commercial segment’s EBITDA margins to regain historical levels by 2027, and profit pools to reach $21 billion, growing at a 7 percent CAGR from 2022 to 2027. Within this segment, a shift from fully insured to self-insured businesses could accelerate in the event of an economic slowdown, which prompts employers to pay greater attention to costs. The fully insured group enrollment could drop from 50 million in 2022 to 46 million in 2027, while the self-insured segment could increase from 108 million to 113 million during the same period.
Health systems: Transformation efforts help accelerate EBITDA recovery
In 2023, health-system profit pools continued to face substantial pressure due to inflation and labor shortages. Estimated growth was less than 5 percent from 2022 to 2023, remaining below prepandemic levels. Health systems have undertaken major transformation and cost containment efforts, particularly within the labor force, helping EBITDA margins recover by up to 100 basis points; some of this recovery was also volume-driven.
Looking ahead, we estimate an 11 percent CAGR from 2023 to 2027, or total EBITDA of $366 billion by 2027 (Exhibit 3). This reflects a rebound from below the long-term historical average in 2023, spurred by transformation efforts and potentially higher reimbursement rates. We anticipate that health systems will likely seek reimbursement increases in the high single digits or higher upon contract renewals (or more than 300 basis points above previous levels) in response to cost inflation in recent years.
Measures to tackle rising costs include improving labor productivity and the application of technological innovation across both administration and care delivery workflows (for example, further process standardization and outsourcing, increased use of digital care, and early adoption of AI within administrative workflows such as revenue cycle management). Despite these measures, 2027 industry EBITDA margins are estimated to be 50 to 100 basis points lower than in 2019, unless there is material acceleration in performance transformation efforts.
There are some meaningful exceptions to this overall outlook for health systems. Although post-acute-care profit pools could be severely affected by labor shortages (particularly nurses), other sites of care might grow (for example, non-acute and outpatient sites such as physician offices and ambulatory surgery centers). We expect accelerated adoption of VBC to drive growth.
HST profit pools will grow in technology-based segments
HST is estimated to be the fastest-growing sector in healthcare. In 2021, we estimated HST profit pools to be $51 billion. In 2022, according to our estimates, the HST profit pool shrank to $49 billion, reflecting a contracting market, wage inflation pressure, and the drag of fixed-technology investment that had not yet fulfilled its potential. Looking ahead, we estimate a 12 percent CAGR in 2022–27 due to the long-term underlying growth trend and rebound from the pandemic-related decline (Exhibit 4). With the continuing technology adoption in healthcare, the greatest acceleration is likely to happen in software and platforms as well as data and analytics, with 15 percent and 22 percent CAGRs, respectively.
In 2023, we observed an initial recovery in the HST market, supported by lower HST wage pressure and continued adoption of technology by payers and health systems searching for ways to become more efficient (for example, through automation and outsourcing).
Three factors account for the anticipated recovery and growth in HST.First, we expect continued demand from payers and health systems searching to improve efficiency, address labor challenges, and implement new technologies (for example, generative AI). Second, payers and health systems are likely to accept vendor price increases for solutions delivering measurable improvements. Third, we expect HST companies to make operational changes that will improve HST efficiency through better technology deployment and automation across services.
Pharmacy services will continue to grow
The pharmacy market has undergone major changes in recent years, including the impact of the COVID-19 pandemic, the establishment of partnerships across the value chain, and an evolving regulatory environment. Total pharmacy dispensing revenue continues to increase, growing by 9 percent to $550 billion in 2022,4 with projections of a 5 percent CAGR, reaching $700 billion in 2027.5Specialty pharmacy is one of the fastest growing subsegments within pharmacy services and accounts for 40 percent of prescription revenue6; this subsegment is expected to reach nearly 50 percent of prescription revenue in 2027 (Exhibit 5). We attribute its 8 percent CAGR in revenue growth to increases in utilization and pricing as well as the continued expansion of pipeline therapies (for example, cell and gene therapies and oncology and rare disease therapies) and expect that the revenue growth will be partially offset by reimbursement pressures, specialty generics, and increased adoption of biosimilars. Specialty pharmacy dispensers are also facing an evolving landscape with increased manufacturer contract pharmacy pressures related to the 340B Drug Pricing Program. With restrictions related to size and location of contract pharmacies that covered entities can use, the specialty pharmacy subsegment has seen accelerated investment in hospital-owned pharmacies.
Retail and mail pharmacies continue to face margin pressure and a contraction of profit pools due to reimbursement pressure, labor shortages, inflation, and a plateauing of generic dispensing rates.7Many chains have recently announced8 efforts to rationalize store footprints while continuing to augment additional services, including the provision of healthcare services.
Over the past year, there has also been increased attention to broad-population drugs such as GLP-1s (indicated for diabetes and obesity). The number of patients meeting clinical eligibility criteria for these drugs is among the largest of any new drug class in the past 20 to 30 years. The increased focus on these drugs has amplified conversations about care and coverage decisions, including considerations around demonstrated adherence to therapy, utilization management measures, and prescriber access points (for example, digital and telehealth services). As we look ahead, patient affordability, cost containment, and predictability of spending will likely remain key themes in the sector.The Inflation Reduction Act is poised to change the Medicare prescription Part D benefit, with a focus on reducing beneficiary out-of-pocket spending, negotiating prices for select drugs, and incentivizing better management of high-cost drugs. These changes, coupled with increased attention to broad-population drugs and the potential of high-cost therapies (such as cell and gene therapies), have set the stage for a shift in care and financing models.
The US healthcare industry faced demanding conditions in 2023, including continuing high inflation rates, labor shortages, and endemic COVID-19. However, the industry has adapted. We expect accelerated improvement efforts to help the industry address its challenges in 2024 and beyond, leading to an eventual return to historical-average profit margins.
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.
The U.S. health system has experienced three major shifts since the pandemic that set the stage for its future:
From trust to distrust: Every poll has chronicled the decline in trust and confidence in government: Congress, the Presidency, the FDA and CDC and even the Supreme Court are at all-time lows. Thus, lawmaking about healthcare is met with unusual hostility.
From big to bigger: The market has consistently rewarded large cap operators, giving advantage to national and global operators in health insurance, information technology and retail health. In response, horizontal consolidation via mergers and acquisitions has enabled hospitals, medical practices, law firms and consultancies to get bigger, attracting increased attention from regulators. Access to private capital and investor confidence is a major differentiator for major players in each sector.
From regulatory tailwinds to headwinds: in the last 3 years, regulators have forced insurers, hospitals and drug companies to disclose prices and change business practices deemed harmful to fair competition and consumer choice. Incumbent-unfriendly scrutiny has increased at both the state and federal levels including notable bipartisan support for industry-opposed legislation. It will continue as healthcare favor appears to have run its course.
Some consider these adverse; others opportunistic; all consider them profound. All concede the long-term destination of the U.S. health system is unknown. Against this backdrop, 2024 is about safe bets.
These 10 themes will be on the agenda for every organization operating in the $4.5 trillion U.S. healthcare market:
Not for profit health: “Not-for-profit” designation is significant in healthcare and increasingly a magnet for unwelcome attention. Not-for-profit hospitals, especially large, diversified multi-hospital systems, will face increased requirements to justify their tax exemptions. Special attention will be directed at non-operating income activities involving partnerships with private equity and incentives used in compensating leaders. Justification for profits will take center stage in 2024 with growing antipathy toward organizations deemed to put profit above all else.
Insurer coverage and business practices: State and federal regulators will impose regulatory constraints on insurer business practices that lend to consumer and small-business affordability issues.
Workforce wellbeing: The pandemic hangover, sustained impact of inflation on consumer prices, increased visibility of executive compensation and heightened public support for the rank-and-file workers and means wellbeing issues must be significant in 2024.
Board effectiveness: The composition, preparedness, compensation and independent judgement of Boards will attract media scrutiny; not-for-profit boards will get special attention in light of 2023 revelations in higher education.
Employer-sponsored health benefits: The cost-effectiveness of employee health benefits coverage will prompt some industries and large, self-insured companies to pursue alternative strategies for attracting and maintaining a productive workforce. Direct contracting, on-site and virtual care will be key elements.
Physician independence: With 20% of physicians in private equity-backed groups, and 50% in hospital employed settings, ‘corporatization’ will encounter stiff resistance from physicians increasingly motivated to activism believing their voices are unheard.
Data driven healthcare: The health industry’s drive toward interoperability and transparency will will force policy changes around data (codes) and platform ownership, intellectual property boundaries, liability et al. Experience-based healthcare will be forcibly constrained by data-driven changes to processes and insights.
Consolidation: The DOJ and FTC will expand their activism against vertical and horizontal consolidation that result in higher costs for consumers. Retrospective analyses of prior deals to square promises and actual results will be necessary.
Public health: State and federal funding for public health programs that integrate with community-based health providers will be prioritized. The inadequacy of public health funding versus the relative adequacy of healthcare’s more lucrative services will be the centerpiece for health reforms.
ACO 2.0: In Campaign 2024, abortion and the Affordable Care Act will be vote-getters for candidates favoring/opposing current policies. Calls to “Fix and Repair” the Affordable Care Act will take center stage as voters’ seek affordability and access remedies.
Every Board and C suite in U.S. healthcare will face these issues in 2024.
This discussion was recorded on November 16, 2023. This transcript has been edited for clarity.
Robert D. Glatter, MD: Welcome. I’m Dr Robert Glatter, medical advisor for Medscape Emergency Medicine. Joining me today is Dr Brian Miller, a hospitalist with Johns Hopkins University School of Medicine and a health policy expert, to discuss the current and renewed interest in physician-owned hospitals.
Welcome, Dr Miller. It’s a pleasure to have you join me today.
Brian J. Miller, MD, MBA, MPH: Thank you for having me.
History and Controversies Surrounding Physician-Owned Hospitals
Miller: Thank you. I should note that my views are my own and don’t represent those of Hopkins or the American Enterprise Institute, where I’m a nonresident fellow nor the Medicare Payment Advisory Commission, of which I’m a Commissioner.
The story about physician-owned hospitals is an interesting one. Hospitals turned into health systems in the 1980s and 1990s, and physicians started to shift purely from an independent model into a more organized group practice or employed model. Physicians realized that they wanted an alternative operating arrangement. You want a choice of how you practice and what your employment is. And as community hospitals started to buy physicians and also establish their own physician groups de novo, physicians opened physician-owned hospitals.
Physician-owned hospitals fell into a couple of buckets. One is what we call community hospitals, or what the antitrust lawyers would call general acute care hospitals: those offering emergency room (ER) services, labor and delivery, primary care, general surgery — the whole regular gamut, except that some of the owners were physicians.
The other half of the marketplace ended up being specialty hospitals: those built around a specific medical specialty and series of procedures and chronic care. For example, cardiac hospitals often do CABG, TAVR, maybe abdominal aortic aneurysm (triple A) repairs, and they have cardiology clinics, cath labs, a cardiac intensive care unit (ICU), ER, etc. There were also orthopedic surgical specialty hospitals, which were sort of like an ambulatory surgery center (ASC) plus several beds. Then there were general surgical specialty hospitals. At one point, there were some women’s health–focused specialty hospitals.
The hospital industry, of course, as you can understand, didn’t exactly like this. They had a series of concerns about what we would historically call cherry-picking or lemon-dropping of patients. They were worried that physician-owned facilities didn’t want to serve public payer patients, and there was a whole series of reports and investigations.
Around the time the Affordable Care Act passed, the hospital industry had many concerns about physician-owned specialty hospitals, and there was a moratorium as part of the 2003 Medicare Modernization Act. As part of the bargaining over the hospital industry support for the Affordable Care Act, they traded their support for, among other things, their number one priority, which is a statutory prohibition on new or expanded physician-owned hospitals from participating in Medicare. That included both physician-owned community hospitals and physician-owned specialty hospitals.
Glatter: I guess the main interest is that, when physicians have an ownership or a stake in the hospital, this is what the Stark laws obviously were aimed at. That was part of the impetus to prevent physicians from referring patients where they had an ownership stake. Certainly, hospitals can be owned by attorneys and nonprofit organizations, and certainly, ASCs can be owned by physicians. There is an ongoing issue in terms of physicians not being able to have an ownership stake. In terms of equity ownership, we know that certain other models allow this, but basically, it sounds like this is an issue with Medicare. That seems to be the crux of it, correct?
Miller: Yes. I would also add that it’s interesting when we look at other professions. When we look at lawyers, nonlawyers are actually not allowed to own an equity stake in a law practice. In many other professions, you either have corporate ownership or professional ownership, or the alternative is you have only professional ownership.I would say the hospital industry is one of the few areas where professional ownership not only is not allowed, but also is statutorily prohibited functionally through the Medicare program.
Unveiling the Dynamics of Hospital Ownership
Glatter: A recent study done by two PhDs looked at 2019 data on 20 of the most expensive diagnosis-related groups (DRGs). It examined the cost savings, and we’re talking over $1 billion in expenditures when you look at the data from general acute care hospitals vs physician-owned hospitals. This is what appears to me to be a key driver of the push to loosen restrictions on physician-owned hospitals. Isn’t that correct?
Miller: I would say that’s one of many components. There’s more history to this issue. I remember sitting at a think tank talking to someone several years ago about hospital consolidation as an issue. We went through the usual levers that us policy wonks go through. We talked about antitrust enforcement, certificate of need, rising hospital costs from consolidation, lower quality (or at least no quality gains, as shown by a New England Journal of Medicine study), and decrements in patient experience that result from the diseconomies of scale. They sort of pooh-poohed many of the policy ideas. They basically said that there was no hope for hospital consolidation as an issue.
Well, what about physician ownership? I started with my research team to comb through the literature and found a variety of studies — some of which were sort of entertaining, because they’d do things like study physician-owned specialty hospitals, nonprofit-owned specialty hospitals, and for-profit specialty hospitals and compare them with nonprofit or for-profit community hospitals, and then say physician-owned hospitals that were specialty were bad.
They mixed ownership and service markets right there in so many ways, I’m not sure where to start. My team did a systematic review of around 30 years of research, looking at the evidence base in this space. We found a couple of things.
We found that physician-owned community hospitals did not have a cost or quality difference, meaning that there was no definitive evidence that the physician-owned community hospitals were cheaper based on historical evidence, which was very old. That means there’s not specific harm from them. When you permit market entry for community hospitals, that promotes competition, which results in lower prices and higher quality.
Then we also looked at the specialty hospital markets — surgical specialty hospitals, orthopedic surgical specialty hospitals, and cardiac hospitals. We noted for cardiac hospitals, there wasn’t clear evidence about cost savings, but there was definitive evidence of higher quality, from things like 30-day mortality for significant procedures like treatment of acute MI, triple A repair, stuff like that.
For orthopedic surgical specialty hospitals, we noted lower costs and higher quality, which again fits with operationally what we would know. If you have a facility that’s doing 20 total hips a day, you’re creating a focused factory. Just like if you think about it for interventional cardiology, your boards have a minimum number of procedures that you have to do to stay certified because we know about the volume-quality relationship.
Then we looked at general surgical specialty hospitals. There wasn’t enough evidence to make a conclusive thought about costs, and there was a clear trend toward higher quality. I would say this recent study is important, but there is a whole bunch of other literature out there, too.
Exploring the Scope of Emergency Care in Physician-Owned Hospitals
One thing I want to bring up — and this is an important issue — is that the risk for patients has been talked about by the American Hospital Association and the Federation of American Hospitals, in terms of limited or no emergency services at such physician-owned hospitals and having to call 911 when patients need emergent care or stabilization. That’s been the rebuttal, along with an Office of Inspector General (OIG) report from 2008. Almost, I guess, three quarters of the patients that needed emergent care got this at publicly funded hospitals.
Miller: I’m familiar with the argument about emergency care. If you actually go and look at it, it differs by specialty market. Physician-owned community hospitals have ERs because that’s how they get their business. If you are running a hospital medicine floor, a general surgical specialty floor, you have a labor delivery unit, a primary care clinic, and a cardiology clinic. You have all the things that all the other hospitals have. The physician-owned community hospitals almost uniformly have an ER.
When you look at the physician-owned specialty hospitals, it’s a little more granular. If you look at the cardiac hospitals, they have ERs. They also have cardiac ICUs, operating rooms, etc. The area where the hospital industry had concerns — which I think is valid to point out — is that physician-owned orthopedic surgical specialty hospitals don’t have ERs. But this makes sense because of what that hospital functionally is: a factory for whatever the scope of procedures is, be it joint replacements or shoulder arthroscopy. The orthopedic surgical specialty hospital is like an ASC plus several hospital beds. Many of those did not have ERs because clinically it didn’t make sense.
What’s interesting, though, is that the hospital industry also operates specialty hospitals. If you go into many of the large systems, they have cardiac specialty hospitals and cancer specialty hospitals. I would say that some of them have ERs, as they appropriately should, and some of those specialty hospitals do not. They might have a community hospital down the street that’s part of that health system that has an ER, but some of the specialty hospitals don’t necessarily have a dedicated ER.
I agree, that’s a valid concern. I would say, though, the question is, what are the scope of services in that hospital? Is an ER required? Community hospitals should have ERs. It makes sense also for a cardiac hospital to have one. If you’re running a total joint replacement factory, it might not make clinical sense.
Glatter: The patients who are treated at that hospital, if they do have emergent conditions, need to have board-certified emergency physicians treating them, in my view because I’m an ER physician. Having surgeons that are not emergency physicians staff a department at a specialty orthopedic hospital or, say, a cancer hospital is not acceptable from my standpoint. That’s my opinion and recommendation, coming from emergency medicine.
Miller: I would say that anesthesiologists are actually highly qualified in critical care. The question is about clinical decompensation; if you’re doing a procedure, you have an anesthesiologist right there who is capable of critical care. The function of the ER is to either serve as a window into the hospital for patient volume or to serve as a referral for emergent complaints.
Glatter: An anesthesiologist — I’ll take issue with that — does not have the training of an emergency physician in terms of scope of practice.
Miller: My anesthesiology colleagues would probably disagree for managing an emergency during an operating room case.
Glatter: Fair enough, but I think in the general sense. The other issue is that, in terms of emergent responses to patients that decompensate, when you have to transfer a patient, that violates Medicare requirements. How is that even a valid issue or argument if you’re going to have to transfer a patient from your specialty hospital? That happens. Again, I know that you’re saying these hospitals are completely independent and can function, stabilize patients, and treat emergencies, but that’s not the reality across the country, in my opinion.
Miller: I don’t think that’s the case for the physician-owned specialty cardiac hospitals, for starters. Many of those have ICUs in addition to operating rooms as a matter of routine in addition to ERs. I don’t think that’s the case for physician-owned community hospitals, which have ERs, ICUs, medicine floors, and surgical floors. Physician-owned community hospitals are around half the market. Of that remaining market, a significant percentage are cardiac hospitals. If you’re taking an issue with orthopedic surgical specialty hospitals, that’s a clinical operational question that can and should be answered.
I’d also posit that the nonprofit and for-profit hospital industries also operate specialty hospitals. Any of these questions, we shouldn’t just be asking about physician-owned facilities; we should be asking about them across ownership types, because we’re talking about scope of service and quality and safety. The ownership in that case doesn’t matter. The broader question is, are orthopedic surgical specialty hospitals owned by physicians, tax-exempt hospitals, or tax-paying hospitals? Is that a valid clinical business model? Is it safe? Does it meet Medicare conditions of participation? I would say that’s what that question is, because other ownership models do operate those facilities.
Glatter: You make some valid points, and I do agree on some of them. I think that, ultimately, these models of care, and certainly cost and quality, are issues. Again, it goes back to being able, in my opinion, to provide emergent care, which seems to me a very important issue.
Miller: I agree that providing emergent care is an issue. It’s an issue in any site of care. The hospital industry posits that all hospital outpatient departments (HOPDs) have emergent care. I can tell you, having worked in HOPDs (I’ve trained in them during residency), the response if something emergent happens is to either call 911 or wheel the patient down to the ER in a wheelchair or stretcher. I think that these hospital claims about emergency care coverage —these are important questions, but we should be asking them across all clinical settings and say what is the appropriate scope of care provided? What is the appropriate level of acuity and ability to provide emergent or critical care? That’s an important question regardless of ownership model across the entire industry.
Deeper Dive Into Data on Physician-Owned Hospitals
Glatter: We need to really focus on that. I’ll agree with you on that.
There was a March 2023 report from Dobson | DaVanzo. It showed that physician-owned hospitals had lower Medicaid, dual-eligible, and uncompensated care and charity care discharges than full-service acute care hospitals. Physician-owned hospitals had less than half the proportion of Medicaid discharges compared with non–physician-owned hospitals. They were also less likely to care for dual-eligible patients overall compared with non–physician-owned hospitals.
In addition, when COVID hit, the physician-owned hospitals overall — and again, there may be exceptions — were not equipped to handle these patient surges in the acute setting of a public health emergency. There was a hospital in Texas that did pivot that I’m aware of — Renaissance Hospital, which ramped up a long-term care facility to become a COVID hospital — but I think that’s the exception. I think this report raises some valid concerns; I’ll let you rebut that.
Miller: A couple of things. One, I am not aware that there’s any clear market evidence or a systematic study that shows that physician-owned hospitals had trouble responding to COVID. I don’t think that assertion has been proven. The study was funded by the hospital industry. First of all, it was not a peer-reviewed study; it was funded by an industry that paid a consulting firm. It doesn’t mean that we still shouldn’t read it, but that brings bias into question. The joke in Washington is, pick your favorite statistician or economist, and they can say what you want and have a battle of economists and statisticians.
For example, in that study, they didn’t include the entire ownership universe of physician-owned hospitals. If we go to the peer-reviewed literature, there’s a great 2015 BMJ paper showing that the Medicaid payer mix is actually the same between physician-owned hospitals vs not. The mix of patients by ethnicity — for example, think about African American patients — was the same. I would be more inclined to believe the peer-reviewed literature in BMJ as opposed to an industry-funded study that was not peer-reviewed and not independent and has methodological questions.
Glatter: Those data are 8 years old, so I’d like to see more recent data. It would be interesting, just as a follow-up to that, to see where the needle has moved — if it has, for that matter — in terms of Medicaid patients that you’re referring to.
Miller: I tend to be skeptical of all industry research, regardless of who published it, because they have an economic incentive. If they’re selecting certain age groups or excluding certain hospitals, that makes you wonder about the validity of the study. Your job as an industry-funded researcher is that, essentially, you’re being paid to look for an answer. It’s not necessarily an honest evaluation of the data.
Glatter: I want to bring up another point about the Hospital Readmissions Reduction Program (HRRP) and the data on how physician-owned hospitals compared with acute care hospitals that are non–physician-owned and have you comment on that. The Dobson | DaVanzo study called into question that physician-owned hospitals treat fewer patients who are dual-eligible, which we know.
Miller: I don’t think we do know that.
Glatter: There are data that point to that, again, looking at the studies.
Miller: I’m saying that’s a single study funded by industry as opposed to an independent, academic, peer-reviewed literature paper. That would be like saying, during the debate of the Inflation Reduction Act (IRA), that you should read the pharmaceutical industries research but take any of it at pure face value as factual. Yes, we should read it. Yes, we should evaluate it on its own merits. I think, again, appropriately, you need to be concerned when people have an economic incentive.
The question about the HRRP I’m going to take a little broader, because I think that program is unfair to the industry overall. There are many factors that drive hospital readmission. Whether Mrs Smith went home and ate potato chips and then took her Lasix, that’s very much outside of the hospital industry’s control, and there’s some evidence that the HRRP increases mortality in some patient populations.
In terms of a quality metric, it’s unfair to the industry. I think we took an operating process, internal metric for the hospital industry, turned it into a quality metric, and attached it to a financial bonus, which is an inappropriate policy decision.
Rethinking Ownership Models and Empowering Clinicians
Glatter: I agree with you on that. One thing I do want to bring up is that whether the physician-owned hospitals are subject to many of the quality measures that full-service, acute care hospitals are. That really is, I think, a broader context.
Miller: Fifty-five percent of physician-owned hospitals are full-service community hospitals, so I would say at least half the market is 100% subject to that.
Glatter: If only 50% are, that’s already an issue.
Miller: Cardiac specialty hospitals — which, as I said, nonprofit and for-profit hospital chains also operate — are also subject to the appropriate quality measures, readmissions, etc. Just because we don’t necessarily have the best quality measurement in the system in the country, it doesn’t mean that we shouldn’t allow care specialization. As I’d point out, if we’re concerned about specialty hospitals, the concern shouldn’t just be about physician-owned specialty hospitals; it should be about specialty hospitals by and large. Many health systems run cardiac specialty hospitals, cancer specialty hospitals, and orthopedic specialty hospitals. If we’re going to have a discussion about concerns there, it should be about the entire industry of specialty hospitals.
I think specialty hospitals serve an important role in society, allowing for specialization and exploiting in a positive way the volume-quality relationship. Whether those are owned by a for-profit publicly traded company, a tax-exempt facility, or physicians, I think that is an important way to have innovation and care delivery because frankly, we haven’t had much innovation in care delivery. Much of what we do in terms of how we practice clinically hasn’t really changed in the 50 years since my late father graduated from medical school. We still have rounds, we’re still taking notes, we’re still operating in the same way. Many processes are manual. We don’t have the mass production and mass customization of care that we need.
When you have a focused factory, it allows you to design care in a way that drives up quality, not just for the average patient but also the patients at the tail ends, because you have time to focus on that specific service line and that specific patient population.
Physician-owned community hospitals offer an important opportunity for a different employment model. I remember going to the dermatologist and the dermatologist was depressed, shuffling around the room, sad, and I asked him why. He said he didn’t really like his employer, and I said, “Why don’t you pick another one?” He’s like, “There are only two large health systems I can work for. They all have the same clinical practice environment and functionally the same value.”
Physicians are increasingly burned out. They face monopsony power in who purchases their labor. They have little control. They don’t want to go through five committees, seven administrators, and attend 25 meetings just to change a single small process in clinical operations. If you’re an owner operator, you have a much better ability to do it.
Frankly, when many facilities do well now, when they do well clinically and do well financially, who benefits? The hospital administration and the hospital executives. The doctors aren’t benefiting. The nurses aren’t benefiting. The CNA is not benefiting. The secretary is not benefiting. The custodian is not benefiting. Shouldn’t the workers have a right to own and operate the business and do well when the business does well serving the community? That puts me in the weird space of agreeing with both conservatives and progressives.
Glatter: I agree with you. I think an ownership stake is always attractive. It helps with retention of employed persons. There’s no question that, when they have a stake, when they have skin in the game, they feel more empowered. I will not argue with you about that.
Miller: We don’t have business models where workers have that option in healthcare. Like the National Academy of Medicine said, one of the key drivers of burnout is the externalization of the locus of control over clinical practice, and the current business operating models guarantee an externalization of the locus of control over clinical practice.
If you actually look at the recent American Medical Association (AMA) meeting, there was a resolution to ban the corporate practice of medicine. They wanted to go more toward the legal professions model where only physicians can own and operate care delivery.
Miller: It’s not just doctors. I think nurses want a better lifestyle. The nurses are treated as interchangeable lines on a spreadsheet. The nurses are an integral part of our clinical team. Why don’t we work together as a clinical unit to build a better delivery system? What better way to do that than to have clinicians in charge of it, right?
My favorite bakery that’s about 30 minutes away is owned by a baker. It is not owned by a large tax-exempt corporation. It’s owned by an owner operator who takes pride in their work. I think that is something that the profession would do well to return to. When I was a resident, one of my colleagues was already planning their retirement. That’s how depressed they were.
I went into medicine to actually care for patients. I think that we can make the world a better place for our patients. What that means is not only treating them with drugs and devices, but also creating a delivery system where they don’t have to wander from lobby to lobby in a 200,000 square-foot facility, wait in line for hours on end, get bills 6 months later, and fill out endless paper forms over and over again.
All of these basic processes in healthcare delivery that are broken could have and should have been fixed — and have been fixed in almost every other industry. I had to replace one of my car tires because I had a flat tire. The local tire shop has an app, and it sends me SMS text messages telling me when my appointment is and when my car is ready. We have solved all of these problems in many other businesses.
We have not solved them in healthcare delivery because, one, we have massive monopolies that are raising prices, have lower quality, and deliver a crappy patient experience, and we have also subjugated the clinical worker into a corporate automaton. We are functionally drones. We don’t have the agency and the authority to improve clinical operations anymore. It’s really depressing, and we should have that option again.
I trust my doctor. I trust the nurses that I work with, and I would like them to help make clinical decisions in a financially responsible and a sensible operational manner. We need to empower our workforce in order to do that so we can recapture the value of what it means to be a clinician again.
The current model of corporate employment: massive scale, more administrators, more processes, more emails, more meetings, more PowerPoint decks, more federal subsidies. The hospital industry has choices. It can improve clinical operations. It can show up in Washington and lobby for increased subsidies. It can invest in the market and not pay taxes for the tax-exempt facilities. Obviously, it makes the logical choices as an economic actor to show up, lobby for increased subsidies, and then also invest in the stock market.
Improving clinical operations is hard. It hasn’t happened. The Bureau of Labor Statistics shows that the private community hospital industry has had flat labor productivity growth, on average, for the past 25 years, and for some years it even declined. This is totally atypical across the economy.
We have failed our clinicians, and most importantly, we have failed our patients. I’ve been sick. My relatives have been sick, waiting hours, not able to get appointments, and redoing forms. It’s a total disaster. It’s time and reasonable to try an alternative ownership and operating model. There are obviously problems. The problems can and should be addressed, but it doesn’t mean that we should have a statutory prohibition on professionals owning and operating their own business.
Glatter: There was a report that $500 million was saved by limiting or banning or putting a moratorium on physician-owned hospitals by the Congressional Budget Office.
The CBO is not transparent about what its assumptions are or its analysis and methods. As a researcher, we have to publish our information. It has to go through peer review. I want to know what goes into that $500 million figure — what the assumptions are and what the model is. It’s hard to comment without knowing how they came up with it.
Glatter: The points you make are very valid. Physicians and nurses want a better lifestyle.
Miller: It’s not even a better lifestyle. It’s about having a say in how clinical operations work and helping make them better. We want the delivery system to work better. This is an opportunity for us to do so.
Glatter: That translates into technology: obviously, generative artificial intelligence (AI) coming into the forefront, as we know, and changing care delivery models as you’re referring to, which is going to happen. It’s going to be a slow process. I think that the evolution is happening and will happen, as you accurately described.
Miller: The other thing that’s different now vs 20 years ago is that managed care is here, there, and everywhere, as Dr Seuss would say. You have utilization review and prior authorization, which I’ve experienced as a patient and a physician, and boy, is it not a fun process. There’s a large amount of friction that needs to be improved. If we’re worried about induced demand or inappropriate utilization, we have managed care right there to help police bad behavior.
Reforming Healthcare Systems and Restoring Patient-Centric Focus
Glatter: If you were to come up with, say, three bullet points of how we can work our way out of this current morass of where our healthcare systems exist, where do you see the solutions or how can we make and effect change?
Miller: I’d say there are a couple of things. One is, let business models compete fairly on an equal playing field. Let the physician-owned hospital compete with the tax-exempt hospital and the nonprofit hospital. Put them on an equal playing field. We have things like 340B, which favors tax-exempt hospitals. For-profit or tax-paying hospitals are not able to participate in that. That doesn’t make any sense just from a public policy perspective. Tax-paying hospitals and physician-owned hospitals pay taxes on investments, but tax-exempt hospitals don’t. I think, in public policy, we need to equalize the playing field between business models. Let the best business model win.
The other thing we need to do is to encourage the adoption of technology. The physician will eventually be an arbiter of tech-driven or AI-driven tools. In fact, at some point, the standard of care might be to use those tools. Not using those tools would be seen as negligence. If you think about placing a jugular or central venous catheter, to not use ultrasound would be considered insane. Thirty years ago, to use ultrasound would be considered novel. I think technology and AI will get us to that point of helping make care more efficient and more customized.
Those are the two biggest interventions, I would say. Third, every time we have a conversation in public policy, we need to remember what it is to be a patient. The decision should be driven not around any one industry’s profitability, but what it is to be a patient and how we can make that experience less burdensome, less expensive, or in plain English, suck less.
Glatter: Safety net hospitals and critical access hospitals are part of this discussion that, yes, we want everything to, in an ideal world, function more efficiently and effectively, with less cost and less red tape. The safety net of our nation is struggling.
Miller: I 100% agree. The Cook County hospitals of the world are deserving of our support and, frankly, our gratitude. Facilities like that have huge burdens of patients with Medicaid. We also still have millions of uninsured patients. The neighborhoods that they serve are also poorer. I think facilities like that are deserving of public support.
I also think we need to clearly define what those hospitals are. One of the challenges I’ve realized as I waded into this space is that market definitions of what a service market is for a hospital, its specialty type or what a safety net hospital is need to be more clearly defined because those facilities 100% are deserving of our support. We just need to be clear about what they are.
Regarding critical access hospitals, when you practice in a rural area, you have to think differently about care delivery. I’d say many of the rural systems are highly creative in how they structure clinical operations. Before the public health emergency, during the COVID pandemic, when we had a massive change in telehealth, rural hospitals were using — within the very narrow confines — as much telehealth as they could and should.
Rural hospitals also make greater use of nurse practitioners (NPs) and physician assistants (PAs). For many of the specialty services, I remember, your first call was an NP or a PA because the physician was downstairs doing procedures. They’d come up and assess the patient before the procedure, but most of your consult questions were answered by the NP or PA. I’m not saying that’s the model we should use nationwide, but that rural systems are highly innovative and creative; they’re deserving of our time, attention, and support, and frankly, we can learn from them.
Glatter: I want to thank you for your time and your expertise in this area. We’ll see how the congressional hearings affect the industry as a whole, how the needle moves, and whether the ban or moratorium on physician-owned hospitals continues to exist going forward.
Miller: I appreciate you having me. The hospital industry is one of the most important industries for health care. This is a time of inflection, right? We need to go back to the value of what it means to be a clinician and serve patients. Hospitals need to reorient themselves around that core concern. How do we help support clinicians — doctors, nurses, pharmacists, whomever it is — in serving patients? Hospitals have become too corporate, so I think that this is an expected pushback.
Glatter: Again, I want to thank you for your time. This was a very important discussion. Thank you for your expertise.
Robert D. Glatter, MD, is an assistant professor of emergency medicine at Zucker School of Medicine at Hofstra/Northwell in Hempstead, New York. He is a medical advisor for Medscape and hosts the Hot Topics in EM series.
Brian J. Miller, MD, MBA, MPH, is a hospitalist and an assistant professor of medicine at the Johns Hopkins University School of Medicine. He is also a nonresident fellow at the American Enterprise Institute. From 2014 – 2017, Dr Miller worked at four federal regulatory agencies: Federal Trade Commission (FTC), Federal Communications Commission (FCC), Centers for Medicare & Medicaid Services (CMS), and the Food & Drug Administration (FDA).
In the coming year, more than half of Medicare’s 66 million beneficiaries may opt for private Medicare Advantage plans, a development likely to put further strain on an already overstretched healthcare system, according to a report in the New England Journal of Medicine.
The report, written by Gretchen Jacobson and David Blumenthal, raised several questions regarding the ascendancy of MA, its impact on care quality, cost considerations and the broader implications for the healthcare system.
Jacobson, a vice president at the Commonwealth Fund, and Blumenthal, previously the fund’s president, delve into the intricacies of MA, outlining its operational mechanisms, payment structures and performance relative to traditional Medicare.
WHY THIS MATTERS
Medicare Advantage, also known as Medicare Part C, is an alternative to traditional Medicare offered by private insurance companies.
It typically includes additional benefits such as prescription drug coverage, dental, vision and wellness programs, often with different cost-sharing structures compared to traditional Medicare.
A November report from Inovalon indicated MA beneficiaries generally experience improved health outcomes, encountering reduced avoidable hospitalizations, readmissions and lower rates of high-risk medication use.
The authors of the NEJM report question the affordability of a program that costs a minimum of 6% more per enrollee and scrutinized the insights offered by MA’s popularity concerning the limitations of traditional Medicare.
This growing expense, even prior to factoring in the effects of selective enrollment into MA, elevates federal expenditures, widens deficits and ultimately heightens costs for all beneficiaries.
The report cautioned the resultant fiscal strains exert pressure to curtail Medicare benefits and elevate federal taxes – both politically complex undertakings.
Furthermore, the escalating clout of the MA sector, accompanied by the substantial enrollment of older voters in these plans, presents political hurdles to significantly altering the program’s trajectory. The study also analyzed the implications of MA’s popularity on the constraints of traditional Medicare.
The allure of supplementary benefits and capped out-of-pocket expenses within MA designs has magnetized older and disabled Americans, while attempts to incorporate such services within traditional Medicare have met consistent failure due to explicit cost constraints.
The report notes the federal government indirectly shoulders these expenses through augmented payments to plans, and adds that the profits amassed by MA plans – which it says verge on being excessive – may not uniformly represent genuine efficiencies or enhanced value.
“Aside from these broad policy issues, some more-practical questions arise,” the study explained. “One concerns how the growth of Medicare Advantage will affect the ability of policymakers and researchers to understand and manage the Medicare program and the health system generally.”
The study suggests enhanced federal policies on risk adjustment, coding incentives, payment structures for quality and rectification of market imbalances in MA could improve evaluation of plan value for beneficiaries and taxpayers. It calls for ensuring accurate provider directories to mitigate misleading tactics.
“As Medicare Advantage continues to grow, federal authorities and plan stakeholders face a continuing challenge to craft a program that is affordable, high in quality, and free of abuse and that meets the needs of beneficiaries,” the report concludes.
THE LARGER TREND
A recent analysis of 1,300 hospitals revealed escalating reimbursement delays and shrinking cash reserves, highlighting the urgent need for interventions to ease financial strain and maintain consistent patient care.
The 2024 MA final rule ensures better alignment and coverage parity between traditional Medicare and MA, and increases oversight of Medicare Advantage Organizations (MAOs).
Affordable Care Act (ACA) enrollment appears poised to reach record levels once again as signups grew by more than a third of what they were this time last year, a fact the White House is using to continue to draw attention to former President Trump’s threats to try again to repeal the law.
More than 15 million people have signed up for plans in states that use HealthCare.gov, representing a 33 percent increase from last year. The Biden administration estimates 19 million will sign up for plans by the Jan. 16 deadline.
On Dec. 15, the deadline for coverage starting Jan. 1, more than 745,000 people selected a plan through HealthCare.gov — the most in a day in history, the Department of Health and Human Services said.
For 2023 plans, more than 16.3 million people signed up through HealthCare.gov last year, another record. Of those who enrolled for this year, 22 percent were new to the marketplace.
This year’s enrollment had some unusual factors that may have played a part in boosting enrollment. Those who were disenrolled from Medicaid this year during the “unwinding” period were allowed to sign up for ACA plans earlier than normal.
There was also stronger insurer participation in the program this year, providing significantly more options for customers to choose from.
“Thanks to policies I signed into law, millions of Americans are saving hundreds or thousands of dollars on health insurance premiums,” President Biden said on Wednesday.
“Extreme Republicans want to stop these efforts in their tracks,” he added. “At every turn, extreme Republicans continue to side with special interests to keep prescription drug prices high and to deny millions of people health coverage.”
After a presentation this week, a senior physician from the audience of our member health systems reached out to discuss a well-trod topic, the future of health reform legislation. But his question led to a more forward-looking concern:
“You talked very little about politics, even though we have an election coming up next year. Are you anticipating that Medicare for All will come up again? And what would the impact be on doctors?”
As we’ve discussed before, we think it’s unlikely that sweeping health reform legislation like Medicare for All (M4A) would make its way through Congress, even if Democrats sweep the 2024 elections—and it’s far too early for health systems to dedicate energy to a M4A strategy.
Healthcare is not shaping up to be a campaign priority for either party, and given the levels of partisan division and expectations that slim majorities will continue, passing significant reform would be highly unlikely.
Although there is bipartisan consensus around a limited set of issues like increasing transparency and limiting the power of PBMs, greater impact in the near term will come from regulatory, rather than legislative, action.
For instance, health systems are much more exposed by the push toward site-neutral payments. How large is the potential hit? One mid-sized regional health system we work with estimated they stand to lose nearly $80M of annual revenue if site-neutral payments are fully implemented—catastrophic to their already slim system margins.
Preparing for this inevitable payment change or the long-term possibility of M4A both require the same strategy: serious and relentless focus on cost reduction.
This still leaves a giant elephant in the room: the long-term impact on the physician enterprise.
As referral-based economics continue to erode, health systems will find it increasingly difficult to maintain current physician salaries, further driving the need to move beyond fee-for-service toward a health system economic model based on total cost of care and consumer value, while building physician compensation around those shared goals.
Ten states have uninsured rates below 5 percent. What are they doing right?
Universal health care remains an unrealized dream for the United States. But in some parts of the country, the dream has drawn closer to a reality in the 13 years since the Affordable Care Act passed.
Overall, the number of uninsured Americans has fallen from 46.5 million in 2010, the year President Barack Obama signed his signature health care law, to about 26 million today. The US health system still has plenty of flaws — beyond the 8 percent of the population who are uninsured, far higher than in peer countries, many of the people who technically have health insurance still find it difficult to cover their share of their medical bills. Nevertheless, more people enjoy some financial protection against health care expenses than in any previous period in US history.
The country is inching toward universal coverage. If everybody who qualified for either the ACA’s financial assistance or its Medicaid expansion were successfully enrolled in the program, we would get closer still: More than half of the uninsured are technically eligible for government health care aid.
Particularly in the last few years, it has been the states, using the tools made available by them by the ACA, that have been chipping away most aggressively at the number of uninsured.
Today, 10 states have an uninsured rate below 5 percent — not quite universal coverage, but getting close. Other states may be hovering around the national average, but that still represents a dramatic improvement from the pre-ACA reality: In New Mexico, for instance, 23 percent of its population was uninsured in 2010; now just 8 percent is.
Their success indicates that, even without another major federal health care reform effort, it is possible to reduce the number of uninsured in the United States. If states are more aggressive about using all of the tools available to them under the ACA, the country could continue to bring down the number of uninsured people within its borders.
The law gave states discretion to build upon its basic structure. Many received approval from the federal government to create programs that lower premiums; some also offer state subsidies in addition to the federal assistance to reduce the cost of coverage, including for people who are not eligible for federal aid, such as undocumented immigrants. A few states are even offering new state-run health plans that will compete with private offerings.
I asked several leading health care experts which states stood out to them as having fully weaponized the ACA to reduce the number of uninsured. There was not a single answer.
“I don’t think any state has taken advantage of everything,” said Larry Levitt, executive vice president at the KFF health policy think tank. “No state has put all the pieces together to the full extent available under the ACA.”
But a few stood out for the steps they have taken over the last decade to strive toward universal health care.
Massachusetts (and New Mexico): Streamlined enrollment and state subsidies
Massachusetts has the lowest uninsured rate of any state: Just 2.4 percent of the population lacks coverage. It had a head start: The law provided the model for the ACA itself, with its system of government subsidies for private plans sold on a public marketplace that existed prior to 2010.
But experts say it still deserves credit for the steps it has taken since the Massachusetts model was applied to the rest of the country. Matt Fiedler, a senior fellow with the Brookings Schaeffer Initiative on Health Policy, said two policies stood above any others in expanding coverage: integrating the enrollment process for both Medicaid and ACA marketplace plans and offering state-based assistance on top of the law’s federal subsidies.
Massachusetts was among the first states to do both.
“The former can do a lot to reduce the risk that people lose their coverage when incomes change,” Fiedler told me, “while the latter directly improves affordability and thereby promotes take-up.”
Integrated enrollment means that, for the consumer, they can be directed to either the ACA’s marketplace (where they can use government subsidies to buy private coverage) or to the state Medicaid program through one portal. They enter their information and the state tells them which program they should enroll in. Without that integration, people might have to first apply to Medicaid and then, if they don’t qualify, separately seek out marketplace coverage. The more steps that a person must take to successfully enroll in a health plan, the more likely it is people will fall through the cracks.
The state assistance, meanwhile, both reduces premiums for people and makes it easier for them to afford more generous coverage, with lower out-of-pocket costs when they actually use medical services. Nine states including Massachusetts now have state assistance, with interest picking up in the past few years.
New Mexico, for example, only recently converted to a state-based ACA marketplace and started offering additional aid in 2023. Having already seen some dramatic improvements, it remains to be seen how much more progress the state can make toward universal coverage with that policy in place.
Minnesota and New York: The Basic Health Plan states
The basic structure of the ACA was this: Medicaid expansion for people living in or near poverty and marketplace plans for people with incomes above that. But the law included an option for states to more seamlessly integrate those two populations — and so far, the two states that have taken advantage of it, Minnesota and New York, are also among those states with the lowest uninsured rates. Just 4.3 percent of Minnesotans and 4.9 percent of New Yorkers lack coverage today.
They have both created Basic Health Plans, the product of one of the more obscure provisions of the health care law. This is a state-regulated health insurance plan meant to cover people up to 200 percent of the federal poverty level (about $29,000 for an individual or $50,000 for a family of three). Those are people who may not technically qualify for Medicaid under the ACA but who can still struggle to afford their monthly premiums and out-of-pocket obligations with a marketplace plan.
In both states, the Basic Health Plans offered insurance options with lower premiums and reduced cost-sharing responsibilities than the marketplace coverage that they would otherwise have been left with. In New York, for example, people between 100 percent and 150 percent of the federal poverty level pay no premiums at all, while people between 150 percent and 200 percent pay just $20 per month.
There is good evidence that the approach has increased coverage: In New York, for example, enrollment among people below 200 percent of the poverty level increased by 42 percent when the state adopted its BHP in 2016, compared to what it had been the year before when those people were relegated to conventional marketplace coverage.
State interest in Basic Health Plans has been limited so far, but Minnesota and New York provide a model others could follow. Fiedler said part of the basic plans’ success in those states has been using Medicaid managed-care companies to administer the plan: Those insurers already pay providers lower rates than marketplace plans do and the savings give the states money to reduce premiums and cost-sharing.
Colorado and Washington: Public options and assistance for the undocumented
These states have been inventive in myriad ways. They are both early adopters of a public option, a government health plan that competes with private plans on the marketplace, a policy also being tested in Nevada.
There is another policy that unites them, one that addresses a sizable part of the remaining uninsured nationwide: They both provide some state subsidies to undocumented immigrants.
Most uninsured Americans are already technically eligible for some kind of government assistance, whether Medicaid or marketplace subsidies. But there is a large chunk of people who are not: About 29 percent of the US’s uninsured are ineligible for government aid, among them the people who are in the country undocumented. Those people bear the full cost of their medical bills and may avoid care for that reason (among others, of course).
Starting this year, Washington is allowing undocumented people with incomes that would make them eligible for Medicaid expansion to enroll in that program, and making state subsidies available to people with higher incomes no matter their immigration status. Colorado has set aside a small pool of money annually to provide state aid to about 11,000 undocumented people. (After that threshold is hit, those folks can still enroll in a health plan but they must pay the full price.)
Interest has been robust: Last year, Colorado hit the enrollment limit after about a month. This year, enrollment capped out in just two days, suggesting the state may need to put more money behind the effort.
It is difficult to imagine insurance subsidies for undocumented people nationwide any time soon, given the fraught national politics of immigration. But states are finding ways to make inroads on their own: California has made undocumented people eligible for Medicaid.
Through these and other means, they are helping the US inch toward universal health care.
HENRY KOTULA 