Category Archives: Medicare Funding

8 Reasons Hospitals must Re-think their Future

Posted on by • Posted in 2024 Election Issues, Affordability, Health Insurance Industry, Health Policy, Health System, Hospital, Hospital Industry, Inflation, Market Consolidation, Market Power, Media Backlash, Medical Debt, Medicare Funding, Medicare Payment, Operating Expenses, Operating Income, Operating Margin, Operating Margin Drivers, Operating Metrics, Operating Performance, Operating Revenue, Physician Compensation, Physician Discontent, Physician Shortage, Physician Workforce, Strategic Change, Strategy, Strategy and Transformation, Surprise Bills, Survival Mode, Sustainable, Value-Based Healthcare • Leave a comment
8 Reasons Hospitals must Re-think their Future

Today is the federal income Tax Day. In 43 states, it’s in addition to their own income tax requirements. Last year, the federal government took in $4.6 trillion and spent $6.2 trillion including $1.9 trillion for its health programs. Overall, 2023 federal revenue decreased 15.5% and spending was down 8.4% from 2022 and the deficit increased to $33.2 trillion. Healthcare spending exceeded social security ($1.351 trillion) and defense spending ($828 billion) and is the federal economy’s biggest expense.

Along with the fragile geopolitical landscape involving relationships with China, Russia and Middle East, federal spending and the economy frame the context for U.S. domestic policies which include its health system. That’s the big picture.

Today also marks the second day of the American Hospital Association annual meeting in DC. The backdrop for this year’s meeting is unusually harsh for its members:

Increased government oversight:

Five committees of Congress and three federal agencies (FTC, DOJ, HHS) are investigating competition and business practices in hospitals, with special attention to the roles of private equity ownership, debt collection policies, price transparency compliance, tax exemptions, workforce diversity, consumer prices and more.

Medicare payment shortfall: 

CMS just issued (last week) its IPPS rate adjustment for 2025: a 2.6% bump that falls short of medical inflation and is certain to exacerbate wage pressures in the hospital workforce. Per a Bank of American analysis last week, “it appears healthcare payrolls remain below pre-pandemic trend” with hospitals and nursing homes lagging ambulatory sectors in recovering.”

Persistent negative media coverage:

The financial challenges for Mission (Asheville), Steward (Massachusetts) and others have been attributed to mismanagement and greed by their corporate owners and reports from independent watchdogs (Lown, West Health, Arnold Ventures, Patient Rights Advocate) about hospital tax exemptions, patient safety, community benefits, executive compensation and charity care have amplified unflattering media attention to hospitals.

Physicians discontent: 

59% of physicians in the U.S. are employed by hospitals; 18% by private equity-backed investors and the rest are “independent”. All are worried about their income. All think hospitals are wasteful and inefficient. Most think hospital employment is the lesser of evils threatening the future of their profession. And those in private equity-backed settings hope regulators leave them alone so they can survive. As America’s Physician Group CEO Susan Dentzer observed: “we knew we’re always going to need hospitals; but they don’t have to look or operate the way they do now. And they don’t have to be predicated on a revenue model based on people getting more elective surgeries than they actually need. We don’t have to run the system that way; we do run the healthcare system that way currently.”

The Value Agenda in limbo:

Since the Affordable Care Act (2010), the CMS Center for Innovation has sponsored and ultimately disabled all but 6 of its 54+ alternative payment programs. As it turns out, those that have performed best were driven by physician organizations sans hospital control. Last week’s release of “Creating a Sustainable Future for Value-Based Care: A Playbook of Voluntary Best Practices for VBC Payment Arrangements.” By the American Medical Association, the National Association of ACOs (NAACOs) and AHIP, the trade group representing America’s health insurance payers is illustrative. Noticeably not included: the American Hospital Association because value-pursuers think for hospitals it’s all talk.

National insurers hostility:  

Large, corporate insurers have intensified reimbursement pressure on hospitals while successfully strengthening their collective grip on the U.S. health insurance sector. 5 insurers control 50% of the U.S. health insurance market: 4 are investor owned. By contrast, the 5 largest hospital systems control 17% of the hospital market: 1 is investor-owned. And bumpy insurer earnings post-pandemic has prompted robust price increases: in 2022 (the last year for complete data and first year post pandemic), medical inflation was 4.0%, hospital prices went up 2.2% but insurer prices increased 5.9%.

Costly capital: 

The U.S. economy is in a tricky place: inflation is stuck above 3%, consumer prices are stable and employment is strong. Thus, the Fed is not likely to drop interest rates making hospital debt more costly for hospitals—especially problematic for public, safety net and rural hospitals. The hospital business is capital intense: it needs $$ for technologies, facilities and clinical innovations that treat medical demand. For those dependent on federal funding (i.e. Medicare), it’s unrealistic to think its funding from taxpayers will be adequate.  Ditto state and local governments. For those that are credit worthy, capital is accessible from private investors and lenders. For at least half, it’s problematic and for all it’s certain to be more expensive.

Campaign 2024 spotlight:

In Campaign 2024, healthcare affordability is an issue to likely voters. It is noticeably missing among the priorities in the hospital-backed Coalition to Strengthen America’s Healthcare advocacy platform though 8 states have already created “affordability” boards to enact policies to protect consumers from medical debts, surprise hospital bills and more.

Understandably, hospitals argue they’re victims. They depend on AHA, its state associations, and its alliances with FAH, CHA, AEH and other like-minded collaborators to fight against policies that erode their finances i.e. 340B program participation, site-neutral payments and others. They rightfully assert that their 7/24/365 availability is uniquely qualifying for the greater good, but it’s not enough. These battles are fought with energy and resolve, but they do not win the war facing hospitals.

AHA spent more than $30 million last year to influence federal legislation but it’s an uphill battle. 70% of the U.S. population think the health system is flawed and in need of transformative change. Hospitals are its biggest player (30% of total spending), among its most visible and vulnerable to market change.

Some think hospitals can hunker down and weather the storm of these 8 challenges; others think transformative change is needed and many aren’t sure. And all recognize that the future is not a repeat of the past.

For hospitals, including those in DC this week, playing victim is not a strategy. A vision about the future of the health system that’s accessible, affordable and effective and a comprehensive plan inclusive of structural changes and funding is needed. Hospitals should play a leading, but not exclusive, role in this urgently needed effort.

Lacking this, hospitals will be public utilities in a system of health designed and implemented by others.

Healthcare Spending 2000-2022: Key Trends, Five Important Questions

Posted on by • Posted in Affordability, Aging Population, Dept of Justice (DOJ), Health Plan, Health Policy, Health System, Healthcare Reform, Healthcare Sector, Inflation Reduction Act, Market Consolidation, Market Trends, Medicare, Medicare Funding, Monopoly Behavior, Operating Margin, Operating Margin Drivers, Out of Pocket Expenses, Underinsured, Uninsured, UnitedHealth Group, UnitedHealthcare • Leave a comment
Healthcare Spending 2000-2022: Key Trends, Five Important Questions

Last week, Congress avoided a partial federal shutdown by passing a stop-gap spending bill and now faces March 8 and March 22 deadlines for authorizations including key healthcare programs.

This week, lawmakers’ political antenna will be directed at Super Tuesday GOP Presidential Primary results which prognosticators predict sets the stage for the Biden-Trump re-match in November. And President Biden will deliver his 3rd State of the Union Address Thursday in which he is certain to tout the economy’s post-pandemic strength and recovery.

The common denominator of these activities in Congress is their short-term focus: a longer-term view about the direction of the country, its priorities and its funding is not on its radar anytime soon. 

The healthcare system, which is nation’s biggest employer and 17.3% of its GDP, suffers from neglect as a result of chronic near-sightedness by its elected officials. A retrospective about its funding should prompt Congress to prepare otherwise.

U.S. Healthcare Spending 2000-2022

Year-over-year changes in U.S. healthcare spending reflect shifting demand for services and their underlying costs, changes in the healthiness of the population and the regulatory framework in which the U.S. health system operates to receive payments. Fluctuations are apparent year-to-year, but a multiyear retrospective on health spending is necessary to a longer-term view of its future.

The period from 2000 to 2022 (the last year for which U.S. spending data is available) spans two economic downturns (2008–2010 and 2020–2021); four presidencies; shifts in the composition of Congress, the Supreme Court, state legislatures and governors’ offices; and the passage of two major healthcare laws (the Medicare Modernization Act of 2003 and the Affordable Care Act of 2010).

During this span of time, there were notable changes in healthcare spending:

  • In 2000, national health expenditures were $1.4 trillion (13.3% of gross domestic product); in 2022, they were $4.5 trillion (17.3% of the GDP)—a 4.1% increase overall, a 321% increase in nominal spending and a 30% increase in the relative percentage of the nation’s GDP devoted to healthcare. No other sector in the economy has increased as much.
  • In the same period, the population increased 17% from 282 million to 333 million, per capita healthcare spending increased 178% from $4,845 to $13,493 due primarily to inflation-impacted higher unit costs for , facilities, technologies and specialty provider costs and increased utilization by consumers due to escalating chronic diseases.
  • There were notable changes where dollars were spent: Hospitals remained relatively unchanged (from $415 billion/30.4% of total spending to $1.355 trillion/31.4%), physician services shrank (from $288.2 billion/21.1% to $884.8/19.6%) and prescription drugs were unchanged (from $122.3 billion/8.95% to $405.9 billion/9.0%).
  • And significant changes in funding Out-of-pocket shrank from 14.2% ($193.6 billion in 2020) to (10.5% ($471 billion) in 2020, private insurance shrank from $441 billion/32.3% to $1.289 trillion/29%, Medicare spending grew from $224.8 billion/16.5% to $944.3billion/21%; Medicaid and the Children’s Health Insurance Program spending grew from $203.4 billion/14.9% to $7805.7billion/18%; and Department of Veterans Affairs healthcare spending grew from $19.1 billion/1.4% to $98 billion/2.2%.

Looking ahead (2022-2031), CMS forecasts average National Health Expenditures (NHE) will grow at 5.4% per year outpacing average GDP growth (4.6%) and resulting in an increase in the health spending share of Gross Domestic Product (GDP) from 17.3% in 2021 to 19.6% in 2031.

The agency’s actuaries assume

“The insured share of the population is projected to reach a historic high of 92.3% in 2022… Medicaid enrollment will decline from its 2022 peak of 90.4M to 81.1M by 2025 as states disenroll beneficiaries no longer eligible for coverage. By 2031, the insured share of the population is projected to be 90.5 percent. The Inflation Reduction Act (IRA) is projected to result in lower out-of-pocket spending on prescription drugs for 2024 and beyond as Medicare beneficiaries incur savings associated with several provisions from the legislation including the $2,000 annual out-of-pocket spending cap and lower gross prices resulting from negotiations with manufacturers.”

My take:

The reality is this: no one knows for sure what the U.S. health economy will be in 2025 much less 2035 and beyond. There are too many moving parts, too much invested capital seeking near-term profits, too many compensation packages tied to near-term profits, too many unknowns like the impact of artificial intelligence and court decisions about consolidation and too much political risk for state and federal politicians to change anything.

One trend stands out in the data from 2000-2022: The healthcare economy is increasingly dependent on indirect funding by taxpayers and less dependent on direct payments by users. 

In the last 22 years, local, state and federal government programs like Medicare, Medicaid and others have become the major sources of funding to the system while direct payments by consumers and employers, vis-à-vis premium out-of-pocket costs, increased nominally but not at the same rate as government programs. And total spending has increased more than the overall economy (GDP), household wages and  costs of living almost every year.

Thus, given the trends, five questions must be addressed in the context of the system’s long-term solvency and effectiveness looking to 2031 and beyond:

  • Should its total spending and public funding be capped?
  • Should the allocation of funds be better adapted to innovations in technology and clinical evidence?
  • Should the financing and delivery of health services be integrated to enhance the effectiveness and efficiency of the system?
  • Should its structure be a dual public-private system akin to public-private designations in education?
  • Should consumers play a more direct role in its oversight and funding?

Answers will not be forthcoming in Campaign 2024 despite the growing significance of healthcare in the minds of voters. But they require attention now despite political neglect.

PS: The month of February might be remembered as the month two stalwarts in the industry faced troubles:

United HealthGroup, the biggest health insurer, saw fallout from a cyberattack against its recently acquired (2/22) insurance transaction processor by ALPHV/Blackcat, creating havoc for the 6000 hospitals, 1 million physicians, and 39,000 pharmacies seeking payments and/or authorizations. Then, news circulated about the DOJ’s investigation about its anti-competitive behavior with respect to the 90,000 physicians it employs. Its stock price ended the week at 489.53, down from 507.14 February 1.

And HCA, the biggest hospital operator, faced continued fallout from lawsuits for its handling of Mission Health (Asheville) where last Tuesday, a North Carolina federal court refused to dismiss a lawsuit accusing it of scheming to restrict competition and artificially drive-up costs for health plans. closed at 311.59 last week, down from 314.66 February 1.

Lawmakers stress urgency of healthcare worker shortage

Posted on by • Posted in American Hospital Association (AHA), Association of American Medical Colleges (AAMC), Health Policy, Health System, Hospital, Hospital Industry, Labor Relations, Medicare Funding, Nurse Agency Staffing, Nurse Education, Nurse Staffing, Nurse Training, Nurse Travelers, Nurses Compensation, Nurses Shortage, Physician, Physician Residents, Physician Shortage, Physician Staffing, Physician Workforce • Leave a comment

https://www.healthcaredive.com/news/lawmakers-fixes-healthcare-workforce-shortages/642994/

Addressing the education pipeline is one thing that legislators could focus on to improve nurse and physician shortages, medical school and health system leaders said.

As the healthcare industry continues to face pandemic-driven workforce challenges, lawmakers are exploring ways to boost the number of clinicians practicing in the U.S.

“A shortage of healthcare personnel was a problem before the pandemic and now it has gotten worse,” Chairman Sen. Bernie Sanders I-Vt., said during a Thursday Senate HELP committee hearing. “Health care jobs have gotten more challenging and, in some cases, more dangerous,” he said.

The country faces a shortage of up to 124,000 physicians by 2034, including 48,000 primary care physicians, according to the Association of American Medical Colleges.

Hospitals are currently facing shortages of registered nurses as burnout and other factors drive them to other roles. 

For example, 47-hospital system Ochsner Health in New Orleans has about 1,200 open nursing positions, Chief Academic Officer Leonardo Seoane said at Thursday’s hearing.

The workforce shortaged led Ochsner to close about 100 beds across its system during the past six months, leading to it use already-constrained emergency departments as holding bays for patients, he said.

Like other systems, labor costs have also been a concern due to a continued reliance on temporary staff to fill gaps. Ochsner’s non-agency labor costs grew just under 60% since 2019, while its costs for contract staff grew nearly 900%, he said.

“Our country is perilously short of nurses, and those we do have are often not working in the settings that could provide the most value,” Sarah Szanton, dean of Johns Hopkins School of Nursing said.

“This was true before the pandemic and has become more acute,” she said.

While many nurses left permanent roles for higher-paying contract positions during the pandemic, others have turned to jobs at outpatient clinics, coinciding with a shift toward non-hospital based care.

Registered nurse employment is nearly 5% above where it was in 2019, with nearly all that growth occurring outside of hospitals, Douglas Staiger, a professor of economics at Dartmouth College, found in his research and said at the hearing.

One major concern: Driving current and projected shortages in hospitals that lawmakers can address is the educational pipeline, medical school and health system leaders said.

Educational programs for nurses and physicians face site shortages and educators who are often allured by other higher-paying jobs in the industry.

Nursing educators in Vermont earn about $65,000 a year — about half of what nurses with similar degrees working in hospitals earn, Sanders said during the hearing. He asked members to consider expanding the Nurse Corps and nurse faculty loan repayments, among other programs.

Supporting partnerships between universities and hospitals to create more training opportunities is another way Congress can help, along with addressing high costs of tuition, James Herbert, president of University of New England, said during the hearing.

“Scholarship and loan repayment programs are critical to make healthcare education more accessible for those who would otherwise find it out of reach,” Herbert said.

That includes expanding and improving Medicare-funded physician residencies, he said.

Creating a more diverse workforce that looks more like the population it serves is another important task, and one lawmakers can address by supporting historically black colleges and universities.

Federal funding could help improve classrooms and other infrastructure at HBCUs “that have been egregiously are underfunded for decades,” in addition to expanding Medicare-funded residencies for hospitals that train a large number of graduates for HBCU medical schools, said James Hildreth Sr., president and CEO at Meharry Medical College in Nashville.

The American Hospital Association submitted a statement to the HELP subcommittee and said it also supports increasing the number of residency slots eligible for Medicare funds and rejecting cuts to curb long-term physician shortages.

Other AHA supported policies to address current and long-term workforce shortages include better funding for nursing schools and supporting expedited visas for foreign-trained nurses.

AHA also asked lawmakers to look into travel nurse staffing agencies, reviving requests it made last year alleging that staffing companies engaged in price gouging during the pandemic.

Last year some state lawmakers considered capping the rate hospitals can pay agencies for temporary nursing staff, though none ended up passing legislation to do so.