While Congressional leaders play chicken with the debt ceiling this week, antipathy toward hospitals is mounting.
To be fair, hospitals are not alone: drug companies and PBMs share the distinction while health insurers, device companies, medical groups and long-term care providers enjoy less attention…for now.
Hospitals are soft targets. They’re also vulnerable.
They operate in a sector that’s labor intense, capital intense and highly regulated by federal, state and local governments. They’re high profile: many advertise regionally/nationally, all claim unparalleled clinical excellence and unfair treatment by health insurers.
Hospitals operate locally, so storylines like these get attention
In Minnesota, Mississippi and Pennsylvania, hospitals are in court alleging under-payments and/or adverse coverage policies by dominant insurers in their markets.
In NC, the state treasurer and others are challenging a unanimous State Senate vote last week granting the UNC Health System a waiver from antitrust concerns as it builds out its system.
In CA, nurses are striking for higher wages, improved work conditions in 5 HCA hospitals.
And in Nashville today, private equity-owned Envision will declare bankruptcy throwing its emergency room staffing contracts with hospitals into limbo.
The future for hospitals is unclear
Inpatient demand is shrinking/shifting. Outpatient, virtual, and in-home services demand is growing. Discontent among workers and employed physicians is palpable. Labor and supply chain costs wipe-out operating margins and price sensitivity among consumers and employers is soaring. Most are trying to survive any way they can. Some won’t.
Per Syntellis’ latest analysis, the tide may be turning:
Total hospital expenses rose for an 11th consecutive month, but growth in labor expenses slowed for the first three months of 2023; Total Expense rose 4.7% YOY for the month while Total Non-Labor Expense rose 5.5% YOY due to higher costs for drugs, supplies, and purchased services. Total Labor Expense was up 1.8% YOY — a slight uptick after YOY labor expense increases eased to less than 1% in January and February.
Hospital margins remained extremely narrow but inched back into the black for the first time in 15 months as revenue growth outpaced expense increases. The median, actual year-to-date Operating Margin was 0.4% for March, up from -1.1% in February.
Surgery expenses increased despite lower volumes, while levels of patient care remained relatively steady.
But no one knows for sure how long a full recovery will take, how debt ceiling negotiations will impact payments by Medicaid or Medicare or how court and antitrust actions by the DOJ will impact hospitals in the future.
What we know with a fair amount of confidence is this:
Bigger organizations in each sector—hospitals, drug & device manufacturers, medical groups, and health insurers—will have advantages others don’t.
Private equity will play a bigger role in the delivery and financing of care through strategic investments that drive low cost, high value alternatives for consumers and employers.
Regulators will enact selective price controls in targeted domains of the health system.
Large self-insured employers will be the primary catalyst for transformative changes.
Inpatient demand will shrink and tertiary services will be centralized in regulated hubs.
Structural remedies—convergence of social services and health systems, integration of financing and delivering care and direct alignment of insurer and provider incentives—will be key features of systemness choices to consumers and purchasing groups.
Most hospital boards of directors, especially not-for-profit organizations, are not prepared to calibrate the pace of these changes nor active in developing scenario possibilities for their future. That’s the place to start.
Post-pandemic recovery is not a technology-empowered 2.0 version of hospital operations: it is a fundamentally different business model based on new assumptions and bold leadership.
The national spotlight this week will be on the debt ceiling stand-off in Congress, the end of Title 42 that enables immigrants’ legal access to the U.S., the April CPI report from the Department of Labor and the aftermath of the nation’s 199th mass shooting this year in Allen TX.
The official end of the Pandemic Health Emergency (PHE) Thursday will also be noted but its impact on the health industry will be immediate and under-estimated.
The US Centers for Disease Control and Prevention (CDC) logged more than 104 million COVID-19 cases in the US as of late April and more than 11% of adults who had COVID-19 currently have symptoms of long COVID. It comes as the CDC say there’s a 20% chance of a Pandemic 2.0 in the next 2-5 years and the current death toll tops 1000/day in the U.S.
The Immediate impact:
The official end of the PHE means much of the cost for treating Covid will shift to private insurers; access to testing, vaccines and treatments with no out-of-pocket costs for the uninsured will continue through 2024. But enrollees in commercial plans, Medicare, Medicaid and the Children’s Health Insurance Program can expect more cost-sharing for tests and antivirals.
That means higher revenues for insurers, increased out of pocket costs for consumers and more bad debt for hospitals and physicians.
At the state level, Medicaid disenrollment efforts will intensify to alleviate state financial obligations for Covid-related health costs. In tandem, state allocations for SNAP benefits used by 1 in 4 long-covid victims will shrink as budget-belts tighten lending to hunger cliff.
That means less access to health programs in many states and more disruption in low-income households seeking care.
The Under-estimated Impact:
The end of the PHE enables politicians to shift “good will” toward direct care workers, home and Veteran’s health services and away from hospitals and specialty medicine who face reimbursement cuts and hostile negotiations with insurers. The April 18, 2023 White House Executive Order which enables increased funding for direct care workers called for prioritization across all federal agencies. Notably, in the PHE, hospitals received emergency funding to treat the Covid-19 patients while utilization and funding for non-urgent services was curtailed. Though the Covid-19 population is still significant, funding for hospitals is unlikely in lieu of in-home and social services programs for at risk populations.
A second unknown is this: As the ranks of the uninsured and under-insured swell, and as affordability looms as a primary concern among voters and employers, provider unpaid medical bills and “bad debt” increases are likely to follow.
Hostility over declining reimbursement between health insurers and local hospitals and medical groups will intensify while the biggest drug manufacturers, hospital systems and health insurers launch fresh social media campaigns and advocacy efforts to advance their interests and demonize their foes.
Loss of confidence in the system and a desire for something better may be sparked by the official end of the PHE. And it’s certain to widen antipathy between insurers and hospitals.
My take:
In this month’s Health Affairs, DePaul University health researchers reported results of their analysis of the association between hospital reimbursement rates and insurer consolidation:
“Our results confirm this prior work and suggest that greater insurer market power is associated with lower prices paid for services nationally. A critical question for policy makers and consumers is whether savings obtained from lower prices are passed on in the form of lower premiums. The relationship to premiums is theoretically ambiguous. It is possible that insurers simply retain the savings in the form of higher profits.”
What’s clear is health insurers are winners and providers—especially hospitals and physicians—are likely losers as the PHE ends. What’s also clear is policymakers are in no mood to provide financial rescue to either.
In the weeks ahead as the debt ceiling is debated, the Federal FY 2024 budget finalized and campaign 2024 launches, the societal value of the entire health system and speculation about its preparedness for the next pandemic will be top of mind.
For some—especially not-for-profit hospitals and insurers who benefit from tax exemptions in favor of community health obligations– it requires rethinking of long-term strategies to serve the public good. And it necessitates their Boards to alter capital and operating priorities toward a more sustainnable future.
The pandemic exposed the disconnect between local health and human services programs and inadequacy of local, state and federal preparedness Given what’s ahead, the end of the Pandemic Health Emergency seems ill-timed and short-sighted: the impact will further destabilize the health industry.
Paul
PS: Saturday, the Allen Premium Outlets, (Allen, TX) was the site of America’s 199th mass shooting this year:
this time, 8 innocents died and 7 remain hospitalized, 4 in critical condition. Sadly, it’s becoming a new normal, marked by public officials who offer “thoughts and prayers” followed by calls for mental health and gun controls. Local law enforcement is deified if prompt or demonized if not. But because it’s a “new normal,” the heroics of EMS, ED and hospitals escapes mention. Medical City Healthcare is where 2 of the 8 drew their last breaths while staff labored to save the other 7. At a time when hospitals are battered by bad press, they deserve recognition for work done like this every day.
Tit for Tat battles in healthcare are nothing new. Last week, they were on full display.
Health insurers and drug manufacturers squared off in national ad campaigns accusing the other of complicity in keeping drug costs high.
The House Energy and Commerce and Ways and Means Committees held hearings challenging non-profit hospital tax exemptions as momentum builds for a new site neutral payment policy opposed by the American Hospital Association. In tandem, Indiana Republican Rep. Victoria Spartz reintroduced “Combatting Hospital Monopolies Act,”– a bill April 20 that would allow the FTC to enforce antitrust rules among the nation’s more than 2,900 nonprofit hospitals.
The intensity of these battles is likely to increase because healthcare affordability is a kitchen-table issue and the public’s paying attention.
Executive compensation in hospitals, drug companies and health insurers is a flashpoint: the disparity between pay packages for healthcare CEOs and their rank-and-file employees is widening. Books and documentaries about healthcare rogue operators like Theranos and Purdue draw wide audiences. And announcements like the Kaiser Permanente-Geisinger deal last week lend to the industry’s growing kinship with BIG BUSINESS.
The corporatization of U.S. healthcare has endangered its future. The time has come to revisit its purpose, refresh its structure and re-organize its finances.
Revisit it’s purpose:
The modern health system has evolved through economic cycles, population growth, scientific explosion and shifting demand. Regulations, roles and money has followed. The integration of artificial intelligence is the next threshold in its evolution unlocking efficiencies heretofore unimagined and capabilities that enable self-care and customization. Might the system’s purpose shift from producing products and services for patients to enabling individuals to care for themselves and others more effectively? Might price and cost transparency in each sector be without pre-condition and barriers? And might the system’s true north be health and wellbeing rather than utilization and revenue growth?
Refresh its structure:
The system’s fundamental flaw is structural: the U.S. operates a health system of caregivers and facilities that serve its majority and a separate system of 3000 public health programs that serve the rest. Though long acknowledged, social determinants of health play second fiddle to specialized services to populations that are insured. The destination for the system must be health + social services, not health or human services, and the fiduciary role of its prominent non-profit institutions to steward the transition. In tandem, the system’s financing (through insurance) and delivery (through services and facilities) must necessarily be integrated so investments in prevention, population health management and care coordination are optimized.
Re-organize its finances:
The health system’s primary financing is derived primarily from direct government appropriations (vis a vis tax collections from individuals and employers) and profits earned by its operators and suppliers. Its capital investing is increasingly dependent on private equity that seeks profits in 5-6 years for its limited partner investors. In systems of the world with better outcomes and lower costs, government financing plays a bigger role balancing prevention and social services with the needs of the sick. The U.S. financing system rewards taking care of health problems after they’re manifest in hospitalization or medication management and insignificant investment elsewhere. Capitalizing innovation across the system is an imperative: otherwise, risk-taking by private investors in the system will default to short-term returns. And the public’s long-term wellbeing is compromised.
Most of the food fights in healthcare like last week’s revolve around each sector’s unique response to the three challenges above. That’s why they exist: to protect the interests of their members and advocate on their behalf. All believe their mission and vision is essential to the greater good and the moral high ground theirs. Some are imperiled more than others: not for profit, rural and safety net hospitals, long-term care operators, direct caregivers and public health programs at the top of this list.
Educating lawmakers is necessary but what’s needed is serious, objective forward-looking definition of the U.S. health system’s future. The tit for tat game will not solve anything. That’s where we are.
Paul
PS: Bipartisanship in Congress is rare.
Hospitals, particularly non-profit hospitals, may be the exception. Bipartisan headwinds are swelling and adversaries organizing. Members of Congress appear keen to assert more influence in how hospitals operate.
Price transparency, cost controls, site-neutral payments, charity care, pay equity and funding for non-patient care activity are on their radar. Hospitals, especially large not-for-profit multi-hospital systems, have joined drug manufacturers and pharmacy benefits managers as targets for reformers seeking lower cost and greater accountability.
As the debt ceiling is debated and FY24 federal budget is crafted, softening support for healthcare will take its toll across the industry and create unintended negative consequences for all.
American Hospitals is the fourth in a series of documentaries produced by the Unfinished Business Foundation, founded by Richard Master, CEO of MCS Industries Inc., who took a deep dive into the economics of the U.S. health-care system after his company was hit year after year with double-digit health insurance rate increases.
Master teamed up with filmmaker Vincent Mondillo to produce Fix It: Healthcare at the Tipping Point; Big Pharma: Market Failure; Big Money Agenda: Democracy on the Brink, and now, American Hospitals.
A provocative look at the cost and inequities of American Hospitals, often more motivated by money and power than in providing for the health needs of individuals and the communities they were founded to serve. From the filmmakers behind the hit documentaries Fix It: Healthcare at the Tipping Point, Big Money Agenda, and Big Pharma.
Learn more and find out where to see the latest film at fixithealthcare.com/events
After 18 years as CEO in Kaiser Permanente, I set my sights on improving the heatlh of the nation, hoping to find a way to achieve the same quality, technology and affordability our medical group delivered to 5 million patients on both coasts.
That quest launched the Fixing Healthcare podcast in 2018, and it inspired interviews with dozens of leaders, thinkers and doers, both in and around medicine. These experts shared innovative ideas and proven solutions for achieving (a) superior quality, (b) improved patient access, (c) lower overall costs, and (d) greater patient and clinician satisfaction.
Which of the hundreds of ideas presented remain most promising?
Why, after five years and so many excellent solutions, has our nation experienced such limited improvements in healthcare?
And finally, how will these great ideas become reality?
To answer the first question, I offer 15 of the best Fixing Healthcare recommendations so far. Some quotes have been modified for clarity with links to all original episodes (and transcripts) included.
Fixing the business of medicine
1. Malcolm Gladwell, journalist and five-time bestselling author: “In other professions, when people break rules and bring greater economic efficiency or value, we reward them. In medicine, we need to demonstrate a consistent pattern of rewarding the person who does things better.”
2. Richard Pollack, CEO of the American Hospital Association (AHA): “I hope in 10 years we have more integrated delivery systems providing care, not bouncing people around from one unconnected facility to the next. I would hope that we’re in a position where there’s a real focus on ensuring that people get care in a very convenient way.”
Eliminating burnout
3. Zubin Damania, aka ZDoggMD, hospitalist and healthcare satirist: “In the culture of medicine, specialists view primary care as the weak medical students, the people who couldn’t get the board scores or rotation honors to become a specialist. Because why would you do primary care? It’s miserable. You don’t get paid enough. It’s drudgery. We must change these perceptions.”
4. Devi Shetty, India’s leading heart surgeon and founder of Narayana Health: “When you strive to work for a purpose, which is not about profiting yourself, the purpose of our action is to help society, mankind on a large scale. When that happens, cosmic forces ensure that all the required components come in place and your dream becomes a reality.”
5. Jonathan Fisher, cardiologist and clinician advocate: “The problem we’re facing in healthcare is that clinicians are all siloed. We may be siloed in our own institution thinking that we’re doing it best. We may be siloed in our own specialty thinking that we’re better than others. All of these divides need to be bridged. We need to begin the bridging.”
Making medicine equitable
6. Jen Gunter, women’s health advocate and “the internet’s OB-GYN”: “Women are not listened to by doctors in the way that men are. They have a harder time navigating the system because of that. Many times, they’re told their pain isn’t that serious or their bleeding isn’t that heavy. We must do better at teaching women’s health in medicine.”
7. Amanda Calhoun, activist, researcher and anti-racism educator: “A 2015 survey showed that white residents and medical students still thought Black people feel less pain, which is wild to me because Black is a race. It’s not biological. This is actually an historical belief that persists. One of the biggest things we can do as the medical system is work on rebuilding trust with the Black community.”
Addressing social determinants of health
8. Don Berwick, former CMS administrator and head of 100,000 Lives campaign: “We know where the money should go if we really want to be a healthy nation: early childhood development, workplaces that thrive, support to the lonely, to elders, to community infrastructures like food security and transportation security and housing security, to anti-racism and criminal-justice reform. But we starve the infrastructures that could produce health to support the massive architecture of intervention.”
9. David T. Feinberg, chairman of Oracle Health: “Twenty percent of whether we live or die, whether we have life in our years and years in our life, is based on going to good doctors and good hospitals. We should put the majority of effort on the stuff that really impacts your health: your genetic code, your zip code, your social environment, your access to clean food, your access to transportation, how much loneliness you have or don’t have.”
Empowering patients
10. Elisabeth Rosenthal, physician, author and editor-in-chief of KHN: “To patients, I say write about your surprise medical bills. Write to a journalist, write to your local newspaper. Hospitals today are very sensitive about their reputations and they do not want to be shamed by some of these charges.”
11. Gordon Chen, ChenMed CMO: “If you think about what leadership really is, it’s influence. Nothing more, nothing less. And the only way to achieve better health in patients is to get them to change their behaviors in a positive way. That behavior change takes influence. It requires primary care physicians to build relationship and earn trust with patients. That is how both doctors and patients can drive better health outcomes.”
Utilizing technology
12. Vinod Khosla, entrepreneur, investor, technologist: “The most expensive part of the U.S. healthcare system is expertise, and expertise can relatively be tamed with technology and AI. We can capture some of that expertise, so each oncologist can do 10 times more patient care than they would on their own without that help.”
13. Rod Rohrich, influential plastic surgeon and social media proponent: “Doctors, use social media to empower your audience, to educate them, and not to overwhelm them. If you approach social media by educating patients about their own health, how they can be better, how can they do things better, how they can find doctors better, that’s a good thing.”
Rethinking medical education
14. Marty Makary, surgeon and public policy researcher: “I would get rid of all the useless sh*t we teach our medical students and residents and fellows. In the 16 years of education that I went through, I learned stuff that has nothing to do with patient care, stuff that nobody needs to memorize.”
15. Eric Topol, cardiologist, scientist and AI expert: “It’s pretty embarrassing. If you go across 150 medical schools, not one has AI as a core curriculum. Patients will get well versed in AI. It’s important that physicians stay ahead, as well.”
Great ideas, but little progress
Since 2018, our nation has spent $20 trillion on medical care, navigated the largest global pandemic in a century and developed an effective mRNA vaccine, nearly from scratch. And yet, despite all this spending and scientific innovation, American medicine has lost ground.
American life expectancy has dropped while maternal mortality rates have worsened. Clinician burnout has accelerated amid a growing shortage of primary care and emergency medicine physicians. And compared to 12 of its wealthiest global peers, the United States spends nearly twice as much per person on medical care, but ranks last in clinical outcomes.
Guests on Fixing Healthcare generally agree on the causes of stagnating national progress.
Healthcare system giants, including those in the drug, insurance and hospital industries, find it easier to drive up prices than to prevent disease or make care-delivery more efficient. Over the past decade, they’ve formed a conglomerate of monopolies that prosper from the existing rules, leaving them little incentive to innovate on behalf of patients. And in this era of deep partisan divide, meaningful healthcare reforms have not (and won’t) come from Congress.
Then who will lead the way?
Industry change never happens because it should. It happens when demand and opportunity collide, creating space for new entrants and outsiders to push past the established incumbents. In healthcare, I see two possibilities:
1. Providers will rally and reform healthcare
Doctors and hospitals are struggling. They’re struggling with declining morale and decreasing revenue. Clinicians are exiting the profession and hospitals are shuttering their doors. As the pain intensifies, medical group leaders may be the ones who decide to begin the process of change.
The first step would be to demand payment reform.
Today’s reimbursement model, fee-for-service, pays doctors and hospitals based on the quantity of care they provide—not the quality of care. This methodology pushes physicians to see more patients, spend less time with them, and perform ever-more administrative (billing) tasks. Physicians liken it to being in a hamster wheel: running faster and faster just to stay in place.
Instead, providers of care could be paid by insurers, the government and self-funded businesses directly, through a model called “capitation.” With capitation, groups of providers receive a fixed amount of money per year. That sum depends on the number of enrollees they care for and the amount of care those individuals are expected to need based on their age and underlying diseases.
This model puts most of the financial risk on providers, encouraging them to deliver high-quality, effective medical care. With capitation, doctors and hospitals have strong financial incentives to prevent illnesses through timely and recommended preventive screenings and a focus on lifestyle-medicine (which includes diet, exercise and stress reduction). They’re rewarded for managing patients’ health and helping them avoid costly complications from chronic diseases, such as heart attacks, strokes and cancer.
Capitation encourages doctors from all specialties to collaborate and work together on behalf of patients, thus reducing the isolation physicians experience while ensuring fewer patients fall through the cracks of our dysfunctional healthcare system. The payment methodology aligns the needs of patients with the interests of providers, which has the power to restore the sense of mission and purpose medicine has lost.
Capitation at the delivery-system level eliminates the need for prior authorization from insurers (a key cause of clinician burnout) and elevates the esteem accorded to primary care doctors (who focus on disease prevention and care coordination). And because the financial benefits are tied to better health outcomes, the capitated model rewards clinicians who eliminate racial and gender disparities in medical care and organizations that take steps to address the social determinants of health.
2. Major retailers will take over
If clinicians don’t lead the way, corporate behemoths like Amazon, CVS and Walmart will disrupt the healthcare system as we know it. These retailers are acquiring the insurance, pharmacy and direct-patient-care pieces needed to squeeze out the incumbents and take over American healthcare.
Each is investing in new ways to empower patients, provide in-home care and radically improve access to both in-person and virtual medicine. Once generative AI solutions like ChatGPT gain enough computing power and users, tech-savvy retailers will apply this tool to monitor patients, enable healthier lifestyles and improve the quality of medical care compared to today.
When Fixing Healthcare debuted five years ago, none of the show’s guests could have foreseen a pandemic that left more than a million dead. But, had our nation embraced their ideas from the outset, many of those lives would have been saved. The pandemic rocked an already unstable and underperforming healthcare system. Our nation’s failure to prevent and control chronic disease resulted in hundreds of thousands of unnecessary deaths from Covid-19. Outdated information technology systems, medical errors and disparities in care caused hundreds of thousands more. As a nation, we could have done much better.
With the cracks in the system widening and the foundation eroding, disruption in healthcare is inevitable. What remains to be seen is whether it will come from inside or outside the U.S. healthcare system.
The film “American Hospitals: Healing a Broken System” premiered in Washington, D.C., on March 29. This documentary exposes the inconvenient truths embedded within the U.S. healthcare system. Here is a dirty dozen of them:
Hospitals are largely unaccountable for poor clinical outcomes.
The cost of commercially insured care is multiples higher than the cost of government-insured care for identical procedures.
Customer service at hospitals is dreadful.
Frontline clinicians are overburdened and leaving the profession in droves.
Healthcare still operates the same way it has for the last one hundred years — delivering hierarchical, fragmented, hospital-centric, disease-centric, physician-centric “sick” care. Accordingly, healthcare business models optimize revenue generation and profitability rather than health outcomes. These factors explain, in part, why U.S. life expectancy has declined four of the five years and maternal deaths are higher today than a generation ago.
It’s hard to imagine that the devil itself could create a more inhumane, ineffective, costly and change-resistant system. Hospitals consume more and more societal resources to maintain an inadequate status quo. They’re a major part of America’s healthcare problem, certainly not its solution. Even so, hospitals have largely avoided scrutiny and the public’s wrath. Until now.
“American Hospitals” is now playing in theaters throughout the nation. It chronicles the pervasive and chronic dysfunction plaguing America’s hospitals. It portrays the devastating emotional, financial and physical toll that hospitals impose on both consumers and caregivers.
Despite its critical lens, “American Hospitals” is not a diatribe against hospitals. Its contributors include some of healthcare’s most prominent and respected industry leaders, including Donald Berwick, Elizabeth Rosenthal, Shannon Brownlee and Stephen Klasko. The film explores payment and regulatory reforms that would deliver higher-value care. It profiles Maryland’s all-payer system as an example of how constructive reforms can constrain healthcare spending and direct resources into more effective, community-based care.
The United States already spends more than enough on healthcare. It doesn’t need to spend more. It needs to spend more wisely. The system must downsize its acute and specialty care footprint and invest more in primary care, behavioral health, chronic disease management and health promotion. It’s really that simple.
My only critique of “American Hospitals” is many of its contributors expect too much from hospitals. They want them to simultaneously improve their care delivery and advance the health of their communities. This is wishful thinking. Health and healthcare are fundamentally different businesses. Rather than pivoting to population health, hospitals must focus all their efforts on delivering the right care at the right time, place and price.
If hospitals can deliver appropriate care more affordably, this will free up enormous resources for society to invest in health promotion and aligned social-care services. In this brave new world, right-sized hospitals deliver only necessary care within healthier, happier and more productive communities.
All Americans deserve access to affordable health insurance that covers necessary healthcare services without bankrupting them and/or the country. Let me restate the obvious. This requires less healthcare spending and more investments in health-creating activities. Less healthcare and more health is the type of transformative reform that the country could rally behind.
At issue is whether America’s hospitals will constructively participate in downsizing and reconfiguring the nation’s healthcare system. If they do so, they can reinvent themselves from the inside out and control their destinies.
Historically, hospitals have preferred to use their political and financial leverage to protect their privileged position rather than advance the nation’s well-being. Like Satan in Milton’s “Paradise Lost,” they have preferred to reign in hell rather than serve in heaven.
Pride comes before the fall. Woe to those hospitals that fight the nation’s natural evolution toward value-based care and healthier communities. They will experience a customer-led revolution from outside in and lose market relevance. Only by admitting and addressing their structural flaws can hospitals truly serve the American people.
Large, not-for-profit hospitals/health systems are getting a disproportionate share of unflattering attention these days. Last week was no exception: Here’s a smattering of their coverage:
Jiang et al “Factors Associated with Hospital Commercial Negotiated Price for Magnetic Resonance Imaging of Brain” JAMA Network Open March 21. 2023;6(3):e233875. doi:10.1001/jamanetworkopen.2023.3875
Whaley et al What’s Behind Losses At Large Nonprofit Health Systems? Health Affairs March 24, 2023 10.1377/forefront.20230322.44474
A Pa. hospital’s revoked property tax exemption is a ‘warning shot’ to other nonprofits, expert says KYW Radio Philadelphia March 24, 2023 ww.msn.com/en-us/news/us/a-pa-hospital-s-revoked-property-tax-exemption-is-a-warning-shot-to-other-nonprofits-expert-says
These come on the heals of the Medicare Advisory Commission’s (MedPAC) March 2023 Report to Congress advising that all but safety-net hospitals are in reasonably good shape financially (contrary to industry assertions) and increased lawmaker scrutiny of “ill-gotten gains” in healthcare i.e., Moderna’s vaccine windfall, Medicare Advantage overpayments and employer activism about hospital price-gauging in several states.
Like every sector in healthcare, hospitals enter budget battles with good stories to tell about cost-reductions and progress in price transparency compliance. But in the current political and economic environment, large, not-for-profit hospitals and health systems seem to be targets of more adverse coverage than others as illustrated above. Like many NFP institutions in society (higher education, organized religion, government), erosion of trust is palpable. Not-for-profit hospitals and health systems are no exception.
The themes emerging from last week’s coverage are familiar:
‘Not-for-profit hospitals/health systems, do not provide value commensurate with the tax exemptions they get.’
‘Not for profit hospitals & health systems take advantage of their markets and regulations to create strong brands and generate big profits.’.
‘Not for profit hospitals & health systems charge more than investor-owned hospitals: the victims are employers and consumers who pay higher-than-necessary prices for their services.’
‘NFP operators invest in risky ventures: when the capital market slumps, they are ill-prepared to manage. Risky investments, not workforce and supply chain issues, are the root causes of NFP financial stress. They’re misleading the public purposely.’
‘Executives in NFP systems are overpaid and patient collection policies are more aggressive than for-profits. NFP boards are ineffective.’
The stimulants for this negative attention are equally familiar:
Proprietary studies by think tanks, trade associations, labor unions and consultancies designed to “prove a point” for/against not-for-profit hospitals/health systems.
Government reports about hospital spending, waste, fraud, workforce issues, patient safety, concentration and compliance with transparency rules.
Aggressive national/local reporting by journalists inclined to discount NFP messaging.
Public opinion polls about declining trust in the system and growing concern about price transparency, affordability and equitable access.
Politicians who use soundbites and dog whistles about NFP hospitals to draw attention to themselves.
The cumulative effect of these is confusion, frustration and distrust of not-for-profit hospitals and health systems. Most believe not-for-profit hospitals/health systems do not own the moral high ground they affirm to regulators and their communities (though religiously-affiliated systems have an edge). Most are unaware that more than half of all hospitals (54%) are not-for-profit and distinctions between safety net, rural, DSH, teaching and other forms of NFP ownership are non-specific to their performance.
What’s clear to the majority is that hospitals are expensive and essential. They’re soft targets representing 31.1% of the health system’s total spend ($4.3 trillion in 2021) increasing 4.9% annually in the last decade while inflation and GDP growth were less.
So why are not-for-profit systems bearing the brunt of hospital criticism?
Simply put: many NFP systems act more like Big Business than shepherds of community health. In fact, 4 of the top 10 multi-hospital system operators is investor owned: HCA (184), CHS (84), LifePoint (84), Tenet (65). In addition, 3 others are in the top 50: Ardent (30), UHS (26), Quorum (22). So, corporatization of hospital care using private capital and public markets for growth is firmly entrenched in the sector exposing not-for-profit operators to competition that’s better funded and more nimble. And, per industry studies, not-for-profits tend to stay in markets longer and operate unprofitable services more frequently than their investor-owned competitors. But does this matter to insurers, community leaders, legislators, employers, hospital employees and physicians? Some but not much.
My take:
There are no easy answers for not-for-profit hospitals/heath systems. The issue is about more than messaging and PR. It’s about more than Medicare reimbursement (7.5% below cost), protecting programs like 340B, keeping tax exemptions and maintaining barriers against physician-owned hospitals. The issue is NOT about operating income vs. investment income: in every business, both are essential and in each, economic cycles impact gains/losses. Each of these is important but only band-aids on an open wound in U.S. healthcare.
Near-term (the next 2 years), opportunities for not-for-profit hospitals involve administrative simplification to reduce costs and improve the efficiencies and effectiveness of the workforce. Clinical documentation using ChatGPT/Bard-like tools can have a massive positive impact—that’s just a start. Advocacy, public education and Board preparedness require bigger investments of time and resources. But that’s true for every hospital, regardless of ownership. These are table stakes to stay afloat.
The longer-term issue for NFPs is bigger:
It’s about defining the future of the U.S. health system in 2030 and beyond—the roles to be played and resources necessary for it to skate to where the puck is going. It’s about defining the role played by private employers and whether they’ll pay 220% more than Medicare pays to keep providers and insurers solvent. It’s about how underserved and unhealthy people are managed. It’s about defining systemness in healthcare and standardizing processes. It’s about defining sources of funding and optimal use of resources. Not-for-profit systems should drive these discussions in the communities they serve and at a national level.
MedPAC’s 17 member Commission will play a vital role, but equally important to this design process are inputs from employers, consumers and thought leaders who bring fresh insight. Until then, not-for-profit health systems will be soft targets for unflattering media because protecting the status quo is paramount to insiders who benefit from its dysfunction. Incrementalism defined as innovation is a recipe for failure.
It’s time to begin a discussion about the future of the U.S. health system—all of it, not just high-profile sectors like not-for-profit hospitals/health systems who are currently its soft target.
Hard-pressed to come up with significant savings to reduce the deficit, some Senate Republicans are taking a closer look at reforms to Medicare Advantage in light of reports that insurance companies are collecting billions of dollars in extra profits by over-diagnosing older patients.
But the idea of cracking down on Medicare Advantage overpayments to insurance companies divides Republicans, who have traditionally championed the program.
Proponents of Medicare Advantage reform anticipated it will face strong opposition from the insurance industry, one of the most powerful special interest groups in Washington.
Sen. Bill Cassidy (La.), the top-ranking Republican on the Senate Health, Education, Labor and Pensions Committee, is leading the push to reduce Medicare overpayments.
“Medicare is going insolvent. If we don’t do anything, it’s going to go insolvent. We have a whole package of things, all of them bipartisan, and we’re doing it essentially to have something out there so that if somebody decides to do something, there will be things that are examined, considered and bipartisan” to vote on, he said.
“I come up with lots of stuff. We thought it through policy and think it’s policy that can make it all the way through,” he said.
Cassidy’s office says his bill could extend the solvency of Medicare by saving as much as $80 billion in federal funds over the next decade without cutting benefits.
He emphasizes that it would not cut Medicare Advantage benefits, but critics of the legislation are sure to challenge that claim.
“We’re not undermining Medicare Advantage,” he said.
“In fact, I would say this is a better alternative than what CMS is doing by rule,” he added, referring to a new rule-making action by the Biden administration to recover overpayments in Medicare Advantage through the Centers for Medicare & Medicaid Services.
The Medicare Payment Advisory Panel estimates that Medicare Advantage plans collected $124 billion in overpayments from 2008 to 2023. They collected an estimated $44 billion overpayments in 2022 and 2023 alone, according to MedPAC.
Unlike traditional fee-for-service Medicare, Medicare Advantage plans are offered by private companies. Both are funded by taxpayers through general revenues, payroll taxes and beneficiaries’ premiums.
Cassidy is also leading a bipartisan working group to reform Social Security to extend its solvency. Members include Sens. Angus King (I-Maine) and Mitt Romney (R-Utah).
“To have a significant impact on fiscal policy, you’d have to look at entitlements,” said Romney, who called Medicare Advantage “an area we’re going to be looking at very shortly — the committee will be looking at Medicare Advantage,
the cost of Medicare Advantage …. It’s become more expensive than the old fee-for-service Medicare.”
In a follow-up interview Thursday, Romney said senators are also looking at reforms to Pharmacy Benefit Managers, the companies that serve as middle-men between drug manufacturers, insurance companies and pharmacies.
Romney said, “in the past, Medicare Advantage has been a lower-cost way of providing Medicare than fee-for-service Medicare.”
“If that’s changing, I’d like to understand why and make sure we don’t create impediments to the lower-cost Medicare Advantage,” he said.
Sen. Mike Braun (R-Ind.) said Medicare Advantage overpayment “definitely” is a “reform issue.”
“I’ve been the loudest voice on reforming health care and that’s a commonsense idea,” he said. “Whatever it takes to bring down health care costs.
“I’m one of the most free-market people here, but the health care industry is not a free market. It’s like an unregulated utility,” he said. “There’s so much opaqueness.”
But some Republicans are already trying to paint efforts to reduce overpayments as cuts to Medicare Advantage.
“The problem with Medicare Advantage is President Biden is cutting $540 per member per year. That’s the problem. Medicare Advantage has been very successful,” said Sen. Roger Marshall (R-Kan.), an OB/GYN who practiced medicine for more than 25 years.
National Republican Senatorial Committee Chairman Steve Daines (R-Mont.) accused Biden of “proposing Medicare Advantage cuts” when the president accused some Republicans of wanting to sunset Medicare at his Feb. 7 State of the Union address.
Medicare Advantage is getting more popular among Democrats as well as the number of blue state enrollees in the program soars. The number of Americans enrolled in Medicare Advantage has nearly doubled over the last 12 years, according to the Kaiser Family Foundation.
Cassidy’s proposal, which he introduced with progressive Sen. Jeff Merkley (D-Ore.) on Monday, could draw broader interest from Republicans.
Sen. John Cornyn (R-Texas), an adviser to the Senate GOP leadership, called Medicare Advantage a “success.”
“That doesn’t mean that it should be immune from oversight, so I’ll be interested to see what they have to say,” he said.
Cassidy and Merkley say that Medicare Advantage plans have a financial incentive to make beneficiaries appear sicker than they are because they are paid a standard rate based on the health of individual patients. Their bill, the No Unreasonable Payment, Coding or Diagnoses for Elderly (No Upcode Act) would require risk models based on more extensive diagnostic data over a period of two years.
The goal is to narrow the disparity in how patients are assessed by traditional Medicare and Medicare Advantage.
Studies and audits conducted by CMS and the Department of Health and Human Services’ inspector general found that insurance companies collected billion of dollars in overpayments because of diagnoses that were not later supported by enrollees’ medical records.
The Kaiser Family Foundation reported in August that more than 28 million people — or about 48 percent of the eligible Medicare population — were enrolled in Medicare Advantage plans in 2022. They accounted for $427 billion or 55 percent of total federal Medicare spending.
Since its opening in a converted wood-frame mansion 117 years ago, Greenwood Leflore Hospital had become a medical hub for this part of Mississippi’s fertile but impoverished Delta, with 208 beds, an intensive-care unit, a string of walk-in clinics and a modern brick-and-glass building.
But on a recent weekday, it counted just 13 inpatients clustered in a single ward. The I.C.U. and maternity ward were closed for lack of staffing and the rest of the building was eerily silent, all signs of a hospital savaged by too many poor patients.
Greenwood Leflore lost $17 million last year alone and is down to a few million in cash reserves, said Gary Marchand, the hospital’s interim chief executive. “We’re going away,” he said. “It’s happening.”
Rural hospitals are struggling all over the nation because of population declines, soaring labor costs and a long-term shift toward outpatient care. But those problems have been magnified by a political choice in Mississippi and nine other states, all with Republican-controlled legislatures.
They have spurned the federal government’s offer to shoulder almost all the cost of expanding Medicaid coverage for the poor. And that has heaped added costs on hospitals because they cannot legally turn away patients, insured or not.
Opponents of expansion, who have prevailed in Texas, Florida and much of the Southeast, typically say they want to keep government spending in check. States are required to put up 10 percent of the cost in order for the federal government to release the other 90 percent.
But the number of holdouts is dwindling. On Monday, North Carolina became the 40th state to expand Medicaidsince the option to cover all adults with incomes below 138 percent of the poverty line opened up in 2014 under the terms of the 2010 Affordable Care Act. The law, a major victory for President Barack Obama, has continued to defy Republican efforts to kill or limit it.
“This argument about rural hospital closures has been an incredibly compelling argument to voters,” said Kelly Hall, the executive director of the Fairness Project, a national nonprofit that has successfully pushed ballot measures to expand Medicaid in seven states.
In Mississippi, one of the nation’s poorest states, the missing federal health care dollars have helped drive what is now a full-blown hospital crisis. Statewide, experts say that no more than a few of Mississippi’s 100-plus hospitals are operating at a profit. Free care is costing them about $600 million a year, the equivalent of 8 percent to 10 percent of their operating costs — a higher share than almost anywhere else in the nation, according to the state hospital association.
Expanding Medicaid would uncork a spigot of about $1.35 billion a year in federal funds to hospitals and health care providers, according to a 2021 report by the office of the state economist.
And it would guarantee medical coverage to some 100,000 uninsured adults making less than $20,120 a year in a state whose death rates are at or near the nation’s highest for heart disease, stroke, diabetes, cancer, kidney disease and pneumonia. Infant mortality is also sky-high, and the Delta has the nation’s highest rate of foot and leg amputations because of diabetes or hypertension.
Health officials blame those numbers in part on the high rate of uninsured residents who miss out on preventive care.
“I can tell you I have a number of patients who are on dialysis with renal failure for the rest of their life because they couldn’t afford the medication for their blood pressure, and that caused their kidneys to go bad,” said Dr. John Lucas, a Greenwood Leflore surgeon.
Among Mississippi adults, only disabled people and parents with extremely low incomes, along with most pregnant women, are eligible for Medicaid. Many of the ineligible are also too poor to qualify for the tax credits for insurance under the Affordable Care Act, leaving them without affordable options.
The same is true for close to two million other Americans who live in the states that have not expanded Medicaid. Three in five are adults of color, according to a 2021 study by the Center on Budget and Policy Priorities, a nonprofit research group. In Mississippi, more than half are Black.
Gov. Tate Reeves, a Republican, and key G.O.P. state lawmakers argue that a bigger Mississippi program is not in taxpayers’ best interest. The governor says the state’s $3.9 billion surplus would be best used to help eliminate Mississippi’s income tax.
“Don’t simply cave under the pressure of Democrats and their allies in the media who are pushing for the expansion of Obamacare, welfare and socialized medicine,” Mr. Reeves said in his annual State of the State address in January.
Opponents also argue that the newly insured would become dependent on Medicaid and therefore be less likely to work. “I believe we should be working to get people off Medicaid as opposed to adding more people to it,” said Philip Gunn, the powerful Republican House speaker.
Yet in Mississippi’s Delta, a flat swath of fields of corn, soybeans and other crops nearly as big as Delaware, access to any kind of medical care is drying up for lack of money. More than 300,000 people live here, nearly 35 percent of them Black. About the same percentage live in poverty, a rate three times the national average.
Dr. Daniel P. Edney, the state’s top health officer, said he did not set Medicaid policy, and he has been careful not to take sides. But he predicted emerging health care deserts where women would have to travel long distances to deliver babies and more sick people would die because they could not gain access to care.
Of the state’s hospitals, “I have maybe heard of two that are generating any profit,” he said. When he asks hospital executives if Medicaid expansion would help their balance sheets, he said, “they say it’s a game changer.”
He predicted that five hospitals would soon downgrade into mere emergency rooms, where doctors work to stabilize patients, then transfer them to the nearest hospital.
If that happens, some of the sickest will not make it, said Dr. Jeff Moses, an emergency room physician at Greenwood Leflore.
“Where are they going? Davy Jones’s locker,” he said. “It is very dark, and I’m not exaggerating this. I just can’t imagine what will happen to this community if this hospital closes.”
Nine years after states began expanding Medicaid, evidence is growing that broader coverage saves lives. In a 2021 analysis, researchers for the National Bureau of Economic Research estimated that in one four-year period, 19,200 more adults aged 55 to 64 survived because of expanded coverage, and nearly 16,000 more would have lived if that coverage was nationwide.
Other studies suggest why: Making medical care more affordable led to increases in regular checkups, cancer screenings, diagnoses of chronic diseases and prescriptions for needed medicines.
Especially during the first six years of the Medicaid expansion, when the federal government picked up 95 to 100 percent of the cost, many states found that the program was a net fiscal gain. Some states have imposed taxes on hospitals or health care providers to cover their share of the expense, the same strategy used to help fund other Medicaid costs.
Now the federal government is offering a new incentive for the holdouts: As part of a 2021 pandemic relief measure, it agreed to temporarily pay a higher proportion of costs for some existing Medicaid patients if states broadened eligibility.
Mississippi’s office of the state economist has estimated that for at least the first decade, those savings and others would fully cover the roughly $200 million a year that Medicaid expansion would cost the state government.
Tim Moore, the president of the Mississippi Hospital Association, said expansion was “a no-brainer.” The state is so poor, he said, that for every dollar it spends on Medicaid, the federal government pumps four back in.
Polls, including by Mississippi Today and Siena College, appear to show Mississippians support Medicaid expansion, regardless of their political affiliation. Brandon Presley, the Democratic candidate for governor, is highlighting hospital closures as a reason to deny Mr. Reeves a second term in elections this November.
In a possible sign of political nervousness, the governor and the legislature recently agreed to extend Medicaid coverage to pregnant women for 12 months after they give birth, prolonging a federal pandemic-era policy.
The legislators are also trying to prop up the hospitals with a one-time infusion of $83 million or more. But that is a pittance compared with what the state has given up in Medicaid payments.
The state has lost four hospitals since 2008, according to the hospital association, and Dr. Edney, the state health officer, said that it would inevitably lose more. He said he worried most about health care access in the Delta, where he grew up, the child of working-class parents with no health insurance.
On Saturday, Representative Bennie Thompson, Democrat of Mississippi, said victims of a tornado that struck the Delta last week had to be ferried 50 miles away for medical treatment because the local hospital had no power. More Medicaid dollars, he said, would have equipped it with an emergency generator.
An hour due west from Greenwood Leflore, another major hospital, run by Delta Health System, is also in serious trouble. Licensed for more than 300 beds, the hospital one day last month held just 72 inpatients.
Thirty-two of them were kept in the emergency department, partly because of nursing cuts. One upshot is that patients seeking emergency care now wait an average of two hours, four times as long as they should, according to Amy Walker, the chief nursing officer. Some simply walk out.
The neonatal intensive care unit closed last July. Now babies in trouble must be ferried by ambulance or helicopter 125 miles south to Jackson.
Iris Stacker, the chief executive, said the hospital could remain open through the end of the year; after that, she makes no promises. She is hoping federal grants will help keep the doors open, despite the state’s failure to expand Medicaid.
But she said, “It’s very hard to ask the federal government for more money when you have this pot of money sitting here that we won’t touch.”
A top message on Greenwood Leflore’s website is now a request for donations. So far, the hospital has raised less than $12,000.
Mike Hardin, a 70-year-old retiree, was one of a handful of inpatients one recent day. He had come to the emergency room two days before with slurred speech. Doctors quickly diagnosed a stroke and now were sending him home with revised medications.
“They have to do something to keep this hospital open,” he said as he was wheeled out of his room. “The people around this area wouldn’t have any place else to go.”
The hospital’s outpatient clinics are largely still in business, and doctors there say their caseloads are full of impoverished patients who should have been treated earlier.
Dr. Abhash Thakur, a cardiologist, said he routinely saw patients in the late stages of congestive heart failure who had never seen a cardiologist or been prescribed heart medication. Some have as little as 10 percent of their heart function left.
“They are not the exception,” he said, before examining a 52-year-old man who uses a wheelchair because of his heart disease. “Every day, probably, I will see a few of them.”
Dr. Raymond Girnys, a general surgeon, had just treated a man in his late 50s. He said that a week earlier, the man had punctured his foot on a sharp stick while walking in his tennis shoes in a field.
The man did not seek medical attention until the foot became infected because he was poor and uninsured. Dr. Girnys pointed out the irony: If his patient lost his foot, he would become eligible for Medicaid because then he would be disabled.
“If they had insurance, they wouldn’t be afraid to seek care,” he said.
Experts say that no more than a few of Mississippi’s 100-plus hospitals are operating at a profit.
On tap today:Health and Human Services Secretary Xavier Becerra will defendPresident Biden’s fiscal 2024 budget before the Republican-controlled House Ways and Means Committee this afternoon. Becerra will also appear before a House Appropriations subcommittee at 10 a.m.
What to expect: There are three main proposals in the president’s budget request that panel Chair Jason Smith (R-Mo.) and other Republicans on the panel plan to grill Becerra on during the hearing, according to people familiar with the matter. Those include:
Expanding the Medicare drug negotiation and inflation rebate policies that were included in the Inflation Reduction Act last year.
Raising taxes on Americans earning over $400,000 in an attempt to shore up Medicare financing for at least another 25 years.
While Becerra was summoned to Capitol Hill to discuss the president’s budget, lawmakers could use the opportunity to quiz him on a variety of health policies. He’s likely to face criticism and tough questions from Republicans on the federal health department’s final rule addressing the Affordable Care Act’s “family glitch,” its implementation of surprise billing protections and its strategy to combat illicit fentanyl trafficking, people familiar with the matter said.
What we’re watching tomorrow: Becerra will testify in front of the House Energy and Commerce health subcommittee at 10 a.m. Wednesday.
HENRY KOTULA 