The number of independent physician practices continued to decline nationwide as health systems, payers, and investors accelerated their physician acquisition and employment strategies during the pandemic.
The graphic above highlights recent analysis from consulting firm Avalere Health and the nonprofit Physicians Advocacy Institute, finding that nearly half of physician practices are now owned by hospital or corporate entities, meaning insurers, disruptors, or other investor-owned companies.
This increase has been driven mainly by a surge in the number of corporate-owned practices, which has grown over 50 percent across the last two years. (Researchers said they were unable to accurately break down corporate employers more specifically, and that the study likelyundercounts the number of practices owned by private equity firms, given the lack of transparency in that segment.)
It’s no surprise that we’re seeing an uptick in physician employment, as about a quarter of physicians surveyed a year ago claimed COVID was making them more likely to sell or partner with other entities, and last year saw independent physicians’ average salary falling below that of hospital-employed physicians.
We expect the move away from private practice will continue throughout this year and beyond, as physicians seek financial stability and access to capital for necessary investments to remain competitive.
On Thursday, the Missouri Supreme Court unanimously reversed a lower court ruling that held that the state’s $1.9B Medicaid expansion, approved by voters in a 2020 ballot initiative, was unconstitutional.
The ruling clears the way for the state’s Department of Social Services to begin implementation of the expansion, which is expected to cover 275,000 low-income Missouri residents. Under the Affordable Care Act (ACA), the federal government will pay 90 percent of the cost to cover the newly eligible Medicaid beneficiaries, along with an additional bump in federal funding for Missouri’s Medicaid program, thanks to a provision in the American Rescue Plan Act passed earlier this year.
Missouri voters approved the expansion by a 53-47 margin last year, but the ballot initiative was held to be unconstitutional because it did not include a source of funding for the portion of coverage costs to be paid for by the state (and the state legislature refused to allocate money for the expansion, despite currently running a surplus). Five other states have turned to ballot initiatives to expand Medicaid under the ACA, seeking to work around state legislatures that have resisted the change. In all, a dozen states, mostly in the Southeast, have chosen not to expand their Medicaid programs, even despite the additional incentives Congress voted into law this year.
Democrats on Capitol Hill are considering legislative alternatives to provide new coverage to low-income residents in those states, as part of the $3.5T reconciliation package currently being negotiated. Numerous studies have shown the positive impact of expanding Medicaid on health and financial well-being, but state-level politics have proven to be a challenge, especially in deep-red states. Meanwhile, tax dollars continue to flow from those states to fund Medicaid expansion elsewhere—now, including Missouri.
Two major policy developments emerged from this week’s release by the Centers for Medicare & Medicaid Services (CMS) of the FY22 proposed rule governing payment for hospital outpatient services and ambulatory surgical centers.
First, CMS proposes todramatically increase the financial penalties assessed to hospitals that fail to adequately reveal prices for their services, a requirement first put in place by the Trump administration. According to a report by the consumer group Patient Rights Advocate, only 5.6 percent of a random sample of 500 hospitals were in full compliance with the transparency requirement six months after the regulation came into effect, with many instead choosing to pay the $300 per hospital per day penalty associated with noncompliance. The new CMS regulation proposes to scale the assessed penalties in accordance with hospital size, with larger hospitals liable for up to $2M in annual penalties, a substantial increase from the earlier $109,500 maximum annual fine. In a press release, the agency said it “takes seriously concerns it has heard from consumers that hospitals are not making clear, accessible pricing information available online, as they have been required to do since January 1, 2021.” In a statement, the AHA stated that it was “deeply concerned” about the proposal, “particularly in light of substantial uncertainty in the interpretation of the rules.” The penalty hike is a clear signal that the Biden administration plans to put teeth behind its new push for more competition in healthcare, which was a major focus of the President’s recent executive order. We’d expect to see most hospitals and health systems quickly move to comply with the transparency rule, given the size of potential penalties.
More heartening to hospitals was CMS’ proposal to roll back changes the Trump administration made, aimed at shifting certain surgical procedures into lower cost, ambulatory settings. The agency proposed halting the elimination of the Inpatient Only (IPO) list, which specifies surgeries CMS will only pay for if they are performed in an inpatient hospital. Citing patient safety concerns, CMS noted that the phased elimination of the IPO list, which began this year, was undertaken without evaluating whether individual procedures could be safely moved to an outpatient setting. Nearly 300 musculoskeletal procedures have already been eliminated from the list, and will now be added back to the list for 2022, keeping the rest of the list intact while CMS undertakes a formal process to review each procedure. Longer term, we’d anticipate that CMS will look to continue the elimination of inpatient-only restrictions on surgeries, as well as pursuing other policies (such as site-neutral payment) that level the playing field between hospitals and lower-cost outpatient providers.
For now, hospitals will enjoy a little more breathing room to plan for the financial consequences of that inevitable shift.
Collection agencies held $140 billion in unpaid medical debt in 2020, according to a study published July 20 in JAMA.
Researchers examined a nationally representative panel of consumer credit reports between January 2009 and June 2020. Below are four other notable findings from their report.
An estimated 17.8 percent of Americans owed medical debt in June 2020. The average amount owed was $429.
Over the time period studied, the amount of medical debt became progressively more concentrated in states that don’t participate in the Affordable Care Act’s Medicaid expansion program.
Between 2013 and 2020, states that expanded Medicaid in 2014 experienced a decline in the average flow of medical debt that was 34 percentage points greater than the average medical debt flow in states that didn’t expand Medicaid.
In the states that expanded Medicaid, the gap in the average medical debt flow between the lowest and highest ZIP code income levels decreased by $145, while the gap increased by $218 in states that did not expand Medicaid.
Here are 18 health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.
1. Altamonte Springs, Fla.-based AdventHealth has an “Aa2” rating and stable outlook with Moody’s and an “AA” rating and a stable outlook with Fitch. The system has strong profitability, solid liquidity and presence in several high growth markets, Fitch said.
2. St. Louis-based BJC HealthCare has an “AA” rating and stable outlook with S&P and an “Aa2” rating and stable outlook with Moody’s. The health system has a leading market share and a highly regarded reputation, particularly for its flagship hospitals that are affiliated with Washington University School of Medicine in St. Louis, S&P said. The health system has consistently produced stable earnings and cash flow, even during the COVID-19 pandemic, according to the credit rating agency.
3. Dallas-based Children’s Health System of Texas has an “AA” rating and stable outlook with Fitch. The system has robust operating profitability, good expense management and strong EBITDA margins, according to Fitch.
4. Cleveland Clinic has an “Aa2” rating and stable outlook with Moody’s. The system’s international brand will allow it to grow revenue outside of the northeast Ohio market and offset the effects of the pandemic on patient volume, Moody’s said. The credit rating agency expects the system to maintain good cash flow margins.
5. Evansville, Ind.-based Deaconess Health System has an “AA” rating and stable outlook with Fitch. The health system has strong operating performance and an expanding footprint in a stable and economically diverse service area, Fitch said. Investments in core service lines should help support patient volume growth, according to the credit rating agency.
6. Durham, N.C.-based Duke Health has an “AA” rating and stable outlook with Fitch. The system has a strong clinical reputation and a solid balance sheet with substantial liquidity reserves, Fitch said.
7. Pinehurst, N.C.-based FirstHealth of the Carolinas has an “AA” rating and stable outlook with Fitch. The health system has a strong financial profile and stable operating performance, despite disruption from the COVID-19 pandemic, Fitch said. The health system’s revenue in the first quarter of fiscal 2021 rebounded to levels close to historical trends, according to the credit rating agency.
8. Milwaukee-based Froedtert Health has an “AA” rating and stable outlook with Fitch. The system has a solid market position and a robust liquidity position, Fitch said. The credit rating agency expects Froedtert to maintain robust operating cash flow levels.
9. Indianapolis-based Indiana University Health has an “Aa2” rating and stable outlook with Moody’s and an “AA” rating and positive outlook with Fitch. Cost controls and patient volume will help the system sustain strong margins and liquidity, Moody’s said.
10. IHC Health Services, the borrowing group of Salt Lake City-based Intermountain Healthcare, has an “Aa1” rating and stable outlook with Moody’s. Intermountain has a leading statewide market position, low debt levels and strong cash levels, Moody’s said. The credit rating agency expects Intermountain will sustain strong margins and cash levels.
11. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The system has a strong financial profile, and Moody’s expects Inova’s balance sheet to remain exceptionally strong.
12. Rochester, Minn.-based Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The health system has strong balance sheet measures, an excellent market position and strong patient demand at its three academic campuses in Minnesota, Arizona and Florida, Moody’s said. The credit rating agency expects strong patient demand and steps taken by management to allow Mayo to maintain adequate cash flow and strengthen balance sheet measures.
13. Traverse City, Mich.-based Munson Healthcare has an “AA” rating and stable outlook with Fitch. The system has strong leverage and liquidity, Fitch said. The credit rating agency expects Munson to maintain solid operating cash flow margins.
14. Tupelo-based North Mississippi Health Services has an “AA” rating and stable outlook with Fitch. The system has a leading market share in a large 20-county service area and strong adjusted leverage metrics, Fitch said.
15. Chicago-based Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s and an “AA+” rating and stable outlook with S&P. The health system had strong pre-COVID margins and liquidity, Moody’s said. The credit rating agency expects the system to maintain strong operating cash flow margins.
16. Columbus-based OhioHealth has an “Aa2” rating and stable outlook with Moody’s and an “AA+” rating and stable outlook with S&P. The system has a leading market position and opportunities for service line expansion, Moody’s said. The credit rating agency expects the system’s strong liquidity to provide ample cushion for volatility in investment returns.
17. Stanford (Calif.) Health Care has an “AA” rating and stable outlook with Fitch. The system has broad reach and is a clinical destination for high acuity services, Fitch said. The credit rating agency expects the system to sustain strong EBITDA margins.
18. Iowa City-based University of Iowa Hospitals & Clinics has an “Aa2” rating and stable outlook with Moody’s. The credit rating agency expects the system to maintain strong operating performance and cash flow. The system benefits as the only academic medical center in Iowa, according to Moody’s.
Trinity Health is the latest—and now the largest—U.S. provider organization to roll out a COVID-19 vaccination requirement for all of its employees.
Announced Thursday and effective immediately, the nonprofit, Catholic healthcare system said the policy will extend across its entire workforce of more than 117,000 employees, including clinical staff, remote employees, contractors and “those conducting business in its healthcare facilities.”
Trinity said it will approve exemptions for religious or health reasons that are formally requested and documented. Others who don’t meet the criteria for exemption and fail to provide proof of vaccination “will face termination of employment,” according to the announcement.
Trinity said an estimated 75% of its employees have already received at least one dose of a COVID-19 vaccine, and it hopes the new policy will bring that number closer to 100%.
“Safety is one of our core values. We feel it is important that we take every step available to us to stop the spread and protect those around us—especially the most vulnerable in our communities who cannot be vaccinated including young children and the more than 10 million people who are immunocompromised,” Trinity Health President and CEO Mike Slubowski said in a statement.
“Over the last year, Trinity Health has counted our own colleagues and patients in the too-high coronavirus death toll. Now that we have a proven way to prevent COVID-19 deaths, we are not hesitating to do our part,” he said.
Livonia, Michigan-based Trinity operates 91 hospitals and 113 continuing care locations serving more than 30 million people across 22 states. The system reports $19.4 billion in annual operating revenues and is on track to top that number having recently reported $15.1 billion in operating revenues for the nine-month period between July 2020 and March 2021.
Trinity said that most of its locations will be requiring employees to submit their proof of vaccination by Sept. 21. Should it be determined that COVID-19 vaccine boosters will be necessary down the line, the hospital said that it would similarly require employees to submit proof of their receipt “as needed.”
“The science has shown us that the COVID-19 vaccine is the single most effective tool in slowing, and even stopping, the spread of the virus,” Dan Roth, M.D., Trinity Health executive vice president and chief clinical officer, said in a statement. “As a Catholic Health Ministry—even if we work remotely or do not regularly encounter patients—we view ourselves as caregivers, and it’s important that we do everything we can to end the pandemic and save lives.”
But perhaps the best known of the bunch has been Houston Methodist, which drew a line in the sand on June 8 and has since cut loose 153 employees who did not comply with the vaccine mandate.
That policy led to protests from the dissenting employees as well as a lawsuit that argued the system was “forcing its employees to be human ‘guinea pigs’ as a condition for continued employment.” The case was dismissed by a U.S. district judge and quickly appealed by the employees.
Other organizations such as Mass General Brigham have signaled support for a mandatory COVID-19 vaccination policy but said that they would not enforce the requirement until a COVID-19 vaccine receives formal approval from the FDA.
Earlier this year, the U.S. Equal Employment Opportunity Commission paved the way for employer-mandated COVID-19 vaccine policies with guidance permitting the requirements “so long as employers comply with the reasonable accommodation provisions of the [Americans with Disabilities Act] and Title VII of the Civil Rights Act of 1964 and other [Equal Employment Opportunity] considerations.”
Senate Democrats announced a compromise budget framework to fund President Biden’s social spending plans to the tune of $3.5T, including substantial money for some of the administration’s key healthcare priorities. The framework sends instructions to several Senate committees, including the Budget and Finance panels, to craft legislative language around the central components of the deal, with the goal of passing a spending package before next month’s recess.
Many specifics remain to be ironed out in negotiations among the party’s progressive and moderate camps, but some of the main elements of the deal became clear this week. The plan includes extending theenhanced subsidies for purchasing individual coverage on the healthcare marketplaces, which were implemented earlier this year as part of the American Rescue Plan Act. It would also seek to close the so-called “Medicaid coverage gap”, by providing new coverage options for low-income adults in states that did not expand Medicaid under the Affordable Care Act (ACA).
New investments would be made in home- and community-based services for long-term care, along the lines of the $400B proposed in President Biden’s American Families Plan. And the budget deal envisions expanding benefits in the Medicare program to include dental, vision, and hearing services. Given the budgetary concerns of moderate Democratic lawmakers like Sen. Joe Manchin (WV), one critical question will be how the $3.5T deal will be paid for. One likely source of funding for the deal will be reforming the way Medicare purchases prescription drugs, making that long-time Democratic policy objective a probable part of any final package.
Notably absent from the healthcare spending proposals: lowering the eligibility age for Medicare from 65 to 60. No final decision has been reached on whether to incorporate such a move; rather, the question will be sent to the Senate Finance Committee for consideration. Given the urgency of passing as much of the Biden administration’s legislative agenda as possible before the midterm campaign season begins in earnest, we think it’s unlikely that Democrats will be willing to cross the Rubicon of Medicare expansion at this point.
The prospect of having to gain support from all 50 Democratic senators—as zero Republicans are expected to support the package—will likely temper any appetite for picking a fight with the influential hospital and physician industries, which have strongly opposed Medicare expansion.
One longer-term implication of the apparent decision to favor expansion of Medicare benefits over lowering the Medicare eligibility age now:a richer package of services in traditional Medicare might make Medicare Advantage (MA) a less attractive alternative for potential enrollees and could undermine any future efforts to create an “MA buy-in” for coverage expansion.
Expect lobbying and negotiations to reach a furious pace over the next several weeks, as lawmakers work out the final details of the $3.5T spending plan.
We’ve been working with a CEO and his strategy team around their health system’s five-year strategic plan. It’s still early in development, and they’re considering some bold moves. Given that some of the ideas are disruptive, he astutely observed they needed to bring a clinical leader into the process before the strategy is fully developed, but he’s having trouble identifying the right physician to be part of the very small executive working group.
We began listing the important attributes, creatingarough job description for a “clinician strategist”: the ability to consider clinical and operational implications but not get bogged down in details; bold, big-picture thinking and a willingness to take risks; strong communication and leadership skills.
As the list grew longer, we began to wonder if we were really telling the CEO to chase a unicorn. Some of the characteristics that typically make for an outstanding clinician—reliance on data and evidence, lower risk tolerance—might conflict with embracing disruptive change. Much of strategic decision making is about finding “80-20” compromises, while doctors often tend to get bogged down in detail (for good reason) and are quick to poke holes.
And our ideal physician strategist, out of a desire to safeguard patient care, might sometimes find that the strategy team isn’t adequately considering the ramifications for quality and safety. Finding a physician leader who also has the skills of a chief strategy officer is indeed a rare thing. It’s probably a better bet to identify early-career doctors who have the right mindset and an interest in strategy and help them develop their leadership skills over time.
Regardless, this CEO’s instinct was correct. Bringing doctors into the strategy-setting process early is crucial, even if the perfect clinician strategist might prove difficult to find.
An estimate from the Partnership for America’s Healthcare Future predicts that nearly four out of five 60- to 64-year-olds would enroll in Medicare, with two-thirds transitioning from existing commercial plans, if “Medicare at 60” becomes a reality.
In the graphic above, we’ve modeled the financial impact this shift would have on a “typical” five-hospital health system, with $1B in revenue and an industry-average two percent operating margin.
If just over half of commercially insured 60- to 64-year-olds switch to Medicare, the health system would see a $61M loss in commercial revenue.
There would be some revenue gains, especially from patients who switch from Medicaid, but the net result of the payer mix shift among the 60 to 64 population would be a loss of $30M, or three percent of annual revenue, large enough to push operating margin into the red, assuming no changes in cost structure. (Our analysis assumed a conservative estimate for commercial payment rates at 240 percent of Medicare—systems with more generous commercial payment would take a larger hit.)
Coming out of the pandemic, hospitals face rising labor costs and unpredictable volume in a more competitive marketplace. While “Medicare at 60” could provide access to lower-cost coverage for a large segment of consumers, it would force a financial reckoning for many hospitals, especially standalone hospitals and smaller systems.