Small businesses are struggling to cover the high costs of healthcare for their employees after a year of COVID-19, according to a new poll sponsored by the Small Business Majority and patient advocacy group Families USA.
More than one in three small businesses owners said it’s a challenge getting coverage for themselves and their workers. That pain is particularly acute among Black, Asian American and Latino businesses, which have fewer resources than their White counterparts, SBMfound.
As a result, small businesses want policymakers to expand coverage access and lower medical costs, beyond the temporary fixes included in the sweeping $1.9 trillion American Rescue Plan passed by Congress earlier this month.
Providing health insurance can be pricey for small employers, a challenge that’s been exacerbated by the pandemic and its subsequent economic downturn.
Accessing health insurance has been a major barrier over the course of COVID-19, the national survey of 500 businesses with 100 employees or fewer in November found. The poll, conducted by Lake Research Partners for SBM and Families USA, found many such businesses have had to slash benefits during the pandemic. Among small business owners that have reduced insurance benefits, 36% have trimmed their employer contribution for medical premiums and 56% switched to a plan with a lower premium.
Additionally, one in five small business owners say they plan to change or lower coverage in the next few months, while only about a quarter have been able to maintain coverage for temporarily furloughed employees.
The situation is bleaker for minority-owned small businesses. Overall, 34% say accessing health insurance has been a top barrier during COVID-19, but that figure rises to 50%, 44% and 43% for Black, Asian American and Latino business respondents, SBM, which represents some 80,000 small businesses nationwide, said.
That’s in line with past SBM polling finding non-white entrepreneurs are more likely to face temporary or permanent closure in the next few months than their white counterparts, and are also more likely to struggle with rent, mortgage or debt repayments.
Washington did allocate a significant amount of financial aid for small businesses last year, and the ARP includes numerous provisions including increased subsidies for health insurance premiums for two years, and extended COBRA coverage for laid off employees through September.
But respondents to this latest polling urged for more long-term support.
The most popular policy proposal was bringing down the cost of prescription drugs, with 90% of businesses saying they supported the measure and 54% saying they were in strong support. Protecting coverage for people with pre-existing conditions was also popular, with 87% of small business owners in total support and 51% strongly supporting.
Three-fourths of small business owners strongly support a public health insurance option, while 73% support expanding Medicaid eligibility in all states and 66% support letting people buy into Medicare starting at age 55.
A survey of large to mid-size employers from the National Alliance of Healthcare Purchaser Coalitions published Wednesday found at least three-fourths of employers support drug price regulation, surprise billing regulation, hospital price transparency and hospital rate regulation.
Employers — including companies, state governments and universities — purchase health care on behalf of roughly 150 million Americans. The cost of that care has continued to climb for both businesses and their workers.
For many years, employers saw wasteful care as the primary driver of their rising costs. They made benefits changes like adding wellness programs and raising deductibles to reduce unnecessary care, but costs continued to rise. Now, driven by a combination of new research and changing market forces — especially hospital consolidation — more employers see prices as their primary problem.
By amassing and analyzing employers’ claims data in innovative ways, academics and researchers at organizations like the Health Care Cost Institute (HCCI) and RAND have helped illuminate for employers two key truths about the hospital-based health care they purchase:
1) PRICES VARY WIDELY FOR THE SAME SERVICES
Data show that providers charge private payers very different prices for the exact same services — even within the same geographic area.
For example, HCCI found the price of a C-section delivery in the San Francisco Bay Area varies between hospitals by as much as:$24,107
Data show that hospitals charge employers and private insurers, on average, roughly twice what they charge Medicare for the exact same services. A recent RAND study analyzed more than 3,000 hospitals’ prices and found the most expensive facility in the country charged employers:4.1xMedicare
Hospitals claim this price difference is necessary because public payers like Medicare do not pay enough. However, there is a wide gap between the amount hospitals lose on Medicare (around -9% for inpatient care) and the amount more they charge employers compared to Medicare (200% or more).
A small but growing group of companies, public employers (like state governments and universities) and unions is using new data and tactics to tackle these high prices. (Learn more about who’s leading this work, how and why by listening to our full podcast episode in the player above.)
Note that the employers leading this charge tend to be large and self-funded, meaning they shoulder the risk for the insurance they provide employees, giving them extra flexibility and motivation to purchase health care differently. The approaches they are taking include:
Some employers are implementing so-called tiered networks, where employees pay more if they want to continue seeing certain, more expensive providers. Others are trying to strongly steer employees to particular hospitals, sometimes know as centers of excellence, where employers have made special deals for particular services.
Purdue University, for example, covers travel and lodging and offers a $500 stipend to employees that get hip or knee replacements done at one Indiana hospital.
Negotiating New Deals
There is a movement among some employers to renegotiate hospital deals using Medicare rates as the baseline — since they are transparent and account for hospitals’ unique attributes like location and patient mix — as opposed to negotiating down from charges set by hospitals, which are seen by many as opaque and arbitrary. Other employers are pressuring their insurance carriers to renegotiate the contracts they have with hospitals.
In 2016, the Montana state employee health plan, led by Marilyn Bartlett, got all of the state’s hospitals to agree to a payment rate based on a multiple of Medicare. They saved more than $30 million in just three years. Bartlett is now advising other states trying to follow her playbook.
In 2020, several large Indiana employers urged insurance carrier Anthem to renegotiate their contract with Parkview Health, a hospital system RAND researchers identified as one of the most expensive in the country. After months of tense back-and-forth, the pair reached a five-year deal expected to save Anthem customers $700 million.
Legislating, Regulating, Litigating
Some employer coalitions are advocating for more intervention by policymakers to cap health care prices or at least make them more transparent. States like Colorado and Indiana have passed price transparency legislation, and new federal rules now require more hospital price transparency on a national level. Advocates expect strong industry opposition to stiffer measures, like price caps, which recently failed in the Montana legislature.
Other advocates are calling for more scrutiny by state and federal officials of hospital mergers and other anticompetitive practices. Some employers and unions have even resorted to suing hospitals like Sutter Health in California.
Employers face a few key barriers to purchasing health care in different and more efficient ways:
Hospitals tend to have much more market power than individual employers, and that power has grown in recent years, enabling them to raise prices. Even very large employers have geographically dispersed workforces, making it hard to exert much leverage over any given hospital. Some employers have tried forming purchasing coalitions to pool their buying power, but they face tricky organizational dynamics and laws that prohibit collusion.
Employers can attempt to lower prices by renegotiating contracts with hospitals or tailoring provider networks, but the work is complicated and rife with tradeoffs. Few employers are sophisticated enough, for example, to assess a provider’s quality or to structure hospital payments in new ways.Employers looking for insurers to help them have limited options, as that industry has also become highly consolidated.
Employers say they primarily provide benefits to recruit and retain happy and healthy employees. Many are reluctant to risk upsetting employees by cutting out expensive providers or redesigning benefits in other ways. A recent KFF survey found just 4% of employers had dropped a hospital in order to cut costs.
Employers play a unique role in the United States health care system, and in the lives of the 150 million Americans who get insurance through work. For years, critics have questioned the wisdom of an employer-based health care system, and massive job losses created by the pandemic have reinforced those doubts for many.
Assuming employers do continue to purchase insurance on behalf of millions of Americans, though, focusing on lowering the prices they pay is one promising path to lowering total costs. However, as noted above, hospitals have expressed concern over the financial pressures they may face under these new deals. Complex benefit design strategies, like narrow or tiered networks, also run the risk of harming employees, who may make suboptimal choices or experience cost surprises. Finally, these strategies do not necessarily address other drivers of high costs including drug prices and wasteful care.
With nearly 30% of workers now having a high deductible health plan and a typical family being responsible for on average the first $8,000 of costs, consumers are increasingly weighing care versus cost. Historically, with a small copay, you would conveniently take care of an ailment without shopping around, but with the average person now bearing the brunt of the initial costs, wouldn’t you want to know how much a service costs and what other providers are charging before you “buy” the service?
CMS believes“consumers should be able to know, long before they open a medical bill, roughly how much a hospital will charge for items and services it provides.” Cue the hospital price transparency rule that just went into effect January 1, 2021. Hospitals are now required to post their standard charges, including the rates they negotiate with insurers, and the discounted price a hospital is willing to accept directly from a patient if paid in cash. As a consumer, the intent is to make it “easier to shop and compare prices across hospitals and estimate the cost of care before going to the hospital.”
There are a few different angles to analyze here:
Are hospitals following the rules?
Each hospital must post online a comprehensive machine readable file with all items and services, including gross charges, actual negotiated prices with insurers, and the cash price for patients who are uninsured. Additionally, hospitals must post the costs for 300 common “shoppable” services in a “consumer-friendly format.” Some hospitals and health systems have done a good job at posting these prices in a digestible format, like the Cleveland Clinic or Sutter Health, but others have posted complicated spreadsheets, relied on online cost estimator tools, or simply not posted them at all. An analysis from consulting firm ADVI of the top 20 largest hospitals in the U.S. found that not all of them appeared to completely comply with this mandate. In some instances, data was not able to be downloaded in a useable format, others did not post the DRG or service codes, and the variability in the terms/categories used simply created difficulty in comparing pricing information across hospitals. CMS has stated that a failure to comply with the rules could result in a fine of up to $300 per day. As with most new rules, there are growing pains, and hospitals will likely get better at this over time, assuming the data is being used for its original intent.
Is this helpful to consumers?
Consumers will able to see the variation in prices for the exact same service or procedure between hospitals and get an estimate of what they will be charged before getting the care. But how likely is the average person to go to their hospital’s website, look at a price, and change their decision about where to get care? In addition, awareness of these price transparency tools is still low among consumers. Frankly, it is competitors and insurers that have been first in line to review the data. Looking through a number of hospital websites, and even certain state agency sites that have done a good job at summarizing the costs, like Florida Health Price Finder, the price transparency tools are helpful, but appear to be much more suited for relatively standardized services that can be scheduled in advance, like a knee replacement. It’s highly unlikely you will be telling your ambulance driver what hospital to go to based on cost while in cardiac arrest…Plus, it’s all still confusing – even physicians have shared their bewilderment, when trying to decipher and compare pricing. Conceptually, price transparency should be beneficial to consumers, but it will take time; and it will need to involve not just the hospitals posting rates, but the outpatient care facilities as well. Knowing what you will pay before you decide to go to a physician’s office or a clinic or an urgent care or an ED will hopefully help drive consumers to make more educated decisions in the future.
Will this ultimately drive down costs?
I sure hope so. Revealing actual negotiated prices between hospitals and insurers should push the more expensive hospitals in the area to reduce prices, especially if consumers start using the other hospitals, instead. However, it could also have an inverse effect, with lower cost hospitals insisting on a payment increase from insurers; thereby driving up costs. In the end, as has historically been the case, the market power of certain providers will likely dictate the direction of costs in a given region. That is, until both price AND quality become fully transparent and the consumer is armed with the tools to shop for the best care at the lowest cost – consumerism here we come.
Hospitals are now required to disclose the prices they secretly negotiate with insurers.
But many are dragging their feet on the new regulations, which were passed under President Donald Trump and could very well stay in place under President Biden.
The rules went into place Jan. 1, but hospital compliance is spotty.
“Hospitals are playing a hide-and-seek game,” said Ge Bai, an expert on health-care pricing at Johns Hopkins Bloomberg School of Public Health.“Even with this regulation, most of them are not being fully transparent.”
Hospitals lost a bruising court battle last year to stop the rules, which require them to publish a list of prices for goods and services. The point is to bring more transparency to prices for medical goods and services — information that has long been inaccessible to consumers. The new rules were a centerpiece of Trump’s promise to inject more price transparency in the health-care system and curb surprise billing.
But Nisha Kurani, a policy analyst at the Kaiser Family Foundation who is tracking hospital responses to the new rule, said she’s seen the full gamut.
MedStar in Washington posted its prices in an Excel sheet on its website, but other hospitals only posted price estimates, uploaded files in difficult to use formats, or promised to release information only after someone inputs their insurance, Kurani said.
A Gothamist investigation found that only one of five major New York hospitals posted a list of their negotiated services to their website, and even then, not for all procedures. The fine for not complying with the new rules — $300 a day — is a drop in the bucket for many hospitals.
The rules probably aren’t going away anytime soon.
The Biden administration hasn’t taken any public position on the rules — and right now, officials are focused on reversing dozens of other Trump administration regulations they believe are damaging to health insurance and costs in the United States.
Revising the hospital transparency rules — if that’s even something the new administration wants to do — would likely be far down on the priority list, despite heavy lobbying by the hospital industry to suspend enforcement of the new rule.
Plus, price transparency is broadly popular among the public and was one of the planks of a joint health policy plan developed by a task force Biden formed with Sen. Bernie Sanders (I-Vt.) after the 2020 primary elections.
The American Hospital Association says staff who would help with compliance are stretched thin.
Molly Smith, the association’s group vice president for public policy, said many of the staff members who would normally be tasked with compiling and formatting the price data are the same people being asked to help set up patient registries and vaccine tracking systems in response to the pandemic.
“We’ve got a lot of hospitals that are at or beyond capacity,” Smith said.
A lawyer for the hospital association said that it is considering petitioning its legal case to the Supreme Court. Meanwhile, the lobbying group has been pushing the Biden administration to suspend enforcement of the new rule.
Consumer advocates like the transparency rules designed to protect patients and drive down health-care costs.
“In the past there was absolutely no power for the consumer. It was like highway robbery being committed every day by the health-care system,” said Cynthia Fisher, head of the nonprofit Patient Rights Advocate, which pushes for price transparency.
But now, Fisher says, “it’s the American consumer who is going to drive down the cost of care.”
But the effect might be modest.
Experts in health-care economics hotly debate whether the price transparency rules will, in fact, drive down costs. Even those who support the changes say the effect might be incremental.
“I don’t think it’s going to be an earthquake in terms of pricing, but it’s a first step in the right direction,” said Bai.
There are several reasons the new price transparency rule may not have a massive effect on hospital prices. Perhaps the biggest, and one often cited by the hospital lobby, is that most Americans are not going to pay the negotiated price for a procedure. Instead, they are likely to pay co-pays or coinsurance that amount to a fraction of this price.
This isn’t always true, of course. Those with high-deductible plans may pay the negotiated rate, and for those without insurance paying out of pocket, it can be helpful to get a peek behind the sticker price. But even for these patients, it may be challenging to extract useful information from unwieldy spreadsheets full of obscure billing codes.
Bai said that she is hopeful that third parties may make some of the pricing information easier for consumers to use. And some self-insured employers may start identifying cheaper providers and incentivizing patients to use them. The rules also require hospitals to provide cost-sharing estimates for commonly used procedures in an easily navigable format.
Still, price competition works only if there are players to compete.
The market for health care has become increasingly consolidated as hospitals merge and buy up physician practices. If a hospital is the only health-care provider in town, then there’s not a whole lot patients can do about high prices, even if they think they’re unfair.
“I don’t think transparency will fundamentally change the power balance between the payer and the hospital in many markets,” Bai said.
Beyond the initiatives directly tied to COVID relief, President Biden’s healthcare agenda includes a broader bolstering of the protections and coverage mechanisms in the Affordable Care Act (ACA), as well as the rollback of several of the previous administration’s regulatory changes. We’ve outlined that agenda in the graphic below, as well as highlighting key members of the Biden healthcare team.
While much will depend on how the COVID pandemic continues to unfold, and how successful Biden is at striking bipartisan compromises with a closely divided Congress, we’re watching closely for the answers to several key questions:
(1) how aggressive can and will the new administration be in unwinding Trump-era reforms, particularly regarding Medicaid work requirements;
(2) what will be the thrust of Biden’s antitrust policyin the healthcare space;
(3) how hard will Biden be willing to push for expanded subsidies for individuals purchasing insurance on the ACA exchanges;
(4) how will the Biden team build on the transparency measures implemented by the Trump administration; and
(5) how will the new administration use payment reforms and other regulations to address racial and other disparities in healthcare?
All of that preceded by one burning question that has us holding our breath: who will Biden pick to run the all-important Centers for Medicare and Medicaid Services?
The annual J.P. Morgan Healthcare Conference is one of the best ways to diagnose the financial condition of the healthcare industry. Every January, every key stakeholder — providers, payers, pharmaceutical companies, tech companies, medical device and supply companies as well as bankers, venture capital and private equity firms — comes together in one exam room, even when it is virtual, for their annual check-up. But as we all know, this January is unlike any other as this past year has been unlike any other year.
You would have to go back to the banking crisis of 2008 to find a similar moment from an economic perspective. At the time, we were asking, “Are banks too big to fail?” The concern behind the question was that if they did fail, the economic chaos that would follow would lead to a collapse with the consumer ultimately picking up the tab. The rest is history.
Healthcare is “Too Vital to Fail”
2020 was historic in too many ways to count. But in a year when healthcare providers faced the worst financial crisis in the history of healthcare, the headline is that they are still standing. And what they proved is that in contrast to banks in 2008 that were seen by many as “too big to fail,” healthcare providers in 2020 proved that they were “too vital to fail.”
One of the many unique things about the COVID-19 pandemic is we are simultaneously experiencing a health crisis, where healthcare providers are the front line in the battle, and an economic crisis, felt in a big way in healthcare given the unique role hospitals play as the largest employer in most communities. Hospitals and health systems have done the vast majority of testing, treating, monitoring, counseling, educating and vaccinating all while searching for PPE and ventilators, and conducting clinical trials. And that’s just the beginning of the list.
Stop and think about that for a minute. What would we have done without them? Thinking through that question will give you some appreciation for the critical, challenging and central role that healthcare providers have had to play over the past year.
Simply stated, healthcare providers are the heart of healthcare, both clinically (essentially 100 percent of the care) and financially (over 50 percent of the $4 trillion annual spend on U.S. healthcare). Over the last year they stepped up and they stepped in at the moment where we needed them the most. This was despite the fact that, like most businesses, they were experiencing calamitous losses with no assurances of any assistance.
Healthcare is “Pandemic-Proof”
This was absolutely the worst-case scenario and the biggest test possible for our nation’s healthcare delivery system. Patient volume and therefore revenue dropped by over 50 percent when the panic of the pandemic was at its peak, driving over $60 billion in losses per month across hospitals and healthcare providers. At the same time, they were dramatically increasing their expenses with PPE, ventilators and additional staff. This was not heading in a good direction. While failure may not have been seen as an option, it was clearly a possibility.
The CARES Act clearly provided a temporary lifeline, providing funding for our nation’s hospitals to weather the storm. While there are more challenging times ahead, it is now clear that most are going to make it to the other side. The system of care in our country is often criticized, but when faced with perhaps the most challenging moment in the history of healthcare, our nation’s hospitals and health systems stepped up heroically and performed miraculously. The work of our healthcare providers on the front line and those who supported them was and is one thing that we all should be exceptionally proud of and thankful for.In 2020, they proved that not only is our nation’s healthcare system too vital to fail, but also that it is “pandemic proof.”
Listening to Front Line at the 2021 J.P. Morgan Healthcare Conference
There has never been a more important year to listen to the lessons from healthcare providers. They are and were the front line of our fight against COVID-19. If there was a class given about how to deal with a pandemic at an institutional level, this conference is where those lessons were being taught.
This year at the J.P. Morgan Healthcare Conference, CEOs, and CFOs from many of the most prestigious and most well-respected health systems in the world presented including AdventHealth, Advocate Aurora Health, Ascension, Baylor Scott & White Health, CommonSpirit Health, Henry Ford Health System, Intermountain Healthcare, Jefferson Health, Mass General Brigham, Northwell Health, OhioHealth, Prisma Health, ProMedica Health System, Providence, Spectrum Health and SSM Health.
I’ve been in healthcare for 30 years and this is my fifth year of writing up the summary of the non-profit provider track of the conference for Becker’s Healthcare to help share the wisdom of the crowd of provider organizations that share their stories. Clearly, this year was different and not because the presentations were virtual, but because they were inspirational.
What did we learn? The good news is that they have made many changes that have the potential to move healthcare in a much better direction and to get to a better place much faster. So, this year instead of providing you a nugget from each presentation, I am going to take a shot at summarizing what they collectively have in motion to stay vital after COVID.
10 Moves Healthcare Providers are Making to Stay Vital After-COVID
As a leader in healthcare, you will never have a bigger opportunity to drive change than right now. Smart leaders are framing this as essentially “before-COVID (BC)” and “after-COVID (AC)” and using this moment as their burning platform to drive change. Credit to the team at Providence for the acronym, but every CEO talked about this concept. As the saying goes, “never let a good crisis go to waste.” Well, we’ve certainly had a crisis, so here is a list of what the top health systems are doing to ensure that they don’t waste it and that they stay vital after-COVID:
1. Take Care of Your Team and They’ll Take Care of You: In a crisis, you can either come together as a team or fall apart. Clearly there has been a significant and stunning amount of pressure on healthcare providers. Many are fearing that mental health might be our nation’s next pandemic in the near future because they are seeing it right now with their own team. Perhaps one of their biggest lessons from this crisis has been the need to address the mental, physical and spiritual health of both team members as well as providers. They have put programs in place to help and have also built a tremendous amount of trust with their team by, in many cases, not laying off and/or furloughing employees. While they have made cuts in other areas such as benefits, this collective approach proved incredibly beneficial. And the last point here that relates to thinking differently about their team is that similar to other businesses, many health systems are making remote arrangements permanent for certain administrative roles and moving to a flexible approach regarding their team and their space in the future.
2. Focus on Health Equity, Not Just Health Care: This was perhaps the most notable and encouraging change from presentations in past years at J.P. Morgan. I have been going to the conference for over a decade, and I’ve never heard someone mention this term or outline their efforts on “health equity” — this year, nearly everyone did. In the past, they have outlined many wonderful programs on “social determinants of health,” but this year they have seen the disproportionate impact of COVID on low-income communities bringing the ongoing issue of racial disparities in access to care and outcomes to light. As the bedrock of employment in their community, this provides an opportunity to not just provide health care, but also health equity, taking an active role to help make progress on issues like hunger, homelessness, and housing. Many are making significant investments in a number of these and other areas.
3. Take the Lead in Public Health — the Message is the Medicine:One of the greatest failings of COVID, perhaps the greatest lesson learned, is the need for clear and consistent messaging from a public health perspective. That is a role that healthcare providers can and should play. In the pandemic, it represented the greatest opportunity to save lives as the essence of public health is communication — the message is the medicine. A number of health systems stepped into this opportunity to build trust and to build their brand, which are essentially one in the same. Some organizations have created a new role — a Chief Community Health Officer — which is a good way to capture the work that is in motion relative to social determinants of health as well as health equity. Many understand the opportunity here and will take the lead relative to vaccine distribution as clear messaging to build confidence is clearly needed.
4. Make the Home and Everywhere a Venue of Care:A number of presenters stated that “COVID didn’t change our strategy, it accelerated it.” For the most part, they were referring to virtual visits, which increased dramatically now representing around 10 percent of their visits vs. 1 percent before-COVID. One presenter said, “Digital has been tested and perfected during COVID,” but that is only considering the role we see digital playing in this moment. It is clear some organizations have a very narrow tactical lens while others are looking at the opportunity much more strategically. For many, they are looking at a “care anywhere and everywhere” strategy. From a full “hospital in the home” approach to remote monitoring devices, it is clear that your home will be seen as a venue of care and an access point moving forward. The pandemic of 2020 may have sparked a new era of “post-hospital healthcare” — stay tuned.
5. Bury Your Budget and Pivot to Planning:The budget process has been a source of incredible distrust, dissatisfaction and distraction for every health system for decades. The chaos and uncertainty of the pandemic forced every organization to bury their budget last year. With that said, many of the organizations that presented are now making a permanent shift away from a “budget-based culture” where the focus is on hitting a now irrelevant target set that was set six to nine months ago to a “performance-based culture” where the focus is on making progress every day, week, month and quarter. Given that the traditional annual operating budget process has been the core of how health systems have operated, this shift to a rolling forecast and a more dynamic planning process is likely the single most substantial and permanent change in how hospitals and health systems operate due to COVID. In other words, it is arguably a much bigger headline than what’s happened with virtual visits.
6. Get Your M&A Machine in Motion: It was clear from the presentations that activity around acquisitions is going to return, perhaps significantly. These organizations have strong balance sheets and while the strong have gotten stronger during COVID, the weak have in many cases gotten weaker. Many are going to be opportunistic to acquire hospitals, but at the same time they have concluded that they can’t just be a system of care delivery. They are also focused on acquiring and investing in other types of entities as well as forming more robust partnerships to create new revenue streams. Organizations that already had diversified revenue streams in place came through this pandemic the best. Most hospitals are overly reliant on the ED and surgical volume. Trying to drive that volume in a value-based world, with the end of site of service differentials and the inpatient only list, will be an even bigger challenge in the future as new niche players enter the market. As I wrote in the headline of my summary two years ago, “It’s the platform, stupid.” There are better ways to create a financial path forward that involve leveraging their assets — their platform — in new and creative ways.
7. Hey, You, Get into the Cloud:With apologies for wrapping a Rolling Stones song into a conference summary, one of the main things touted during presentations was “the cloud” and their ability to pull clinical, operational and financial dashboards together to monitor the impact of COVID on their organization and organize their actions. Focus over the last decade has been on the clinical (implementing EHRs), but it is now shifting to “digitizing operations” with a focus on finance and operations (planning, cost accounting, ERPs, etc.) as well as advanced analytics and data science capabilities to automate, gather insight, manage and predict. It is clear that the cloud has moved from a curiosity to a necessity for health systems, making this one of the biggest areas of investment for every health system over the next decade.
8. Make Price Transparency a Key Differentiator: One of the great lessons from Amazon (and others) is that you can make a lot of money when you make something easy to buy. While many health systems are skeptical of the value of the price transparency requirements, those that have a deep understanding of both their true cost of care and margins are using this as an opportunity to prove their value and accelerate their strategy to become consumer-centric. While there is certainly a level of risk, no business has ever been unsuccessful because they made their product easier to understand and access. Because healthcare is so opaque, there is an opening for healthcare providers to build trust, which is their main asset, and volume, which is their main source of revenue, by becoming stunningly easy to do business with. This may be tough sledding for some as this isn’t something healthcare providers are known for. To understand this, spend a few minutes on Tesla’s website vs. Ford’s. The concept of making something easy, or hard, to buy will become crystal clear as fast as a battery-driven car can go from zero to 60.
9. Make Care More Affordable:This represents the biggest challenge for hospitals and health systems as they ultimately need to be on the right side of this issue or the trust that they have will disappear and they will remain very vulnerable to outside players. All are investing in advanced cost accounting systems (time-driven costing, physician costing, supply, and drug costing) to truly understand their cost and use that as a basis to price more strategically in the market. Some are dropping prices for shoppable services and using loss leader strategies to build their brand. The incoming Secretary of Health and Human Services has a strong belief regarding the accountability of health systems to be consumer centric. The health systems that understand this are working to get ahead of this issue as it is likely one of their most significant threats (or opportunities) over the next decade. This means getting all care to the right site of care, evaluating every opportunity to improve, and getting serious about eliminating the need for expensive care through building healthy communities. If you’re worried about Wal-Mart or Amazon, this is your secret weapon to keep them on the sideline.
10. Scale = Survival: One of the big lessons here is that the strong got stronger, the weak got weaker. For the strong, many have been able to “snapback” in financial performance because they were resilient. They were able to designate COVID-only facilities, while keeping others running at a higher capacity. To be clear, while most health systems are going to get to the other side and are positioned better than ever, there are many others that will continue to struggle for years to come. According to our data at Strata, we see 25 percent operating at negative margins right now and another 50 percent just above breakeven. They key to survival moving forward, for those that don’t have a captive market, will be scale. If this pandemic proved one thing relative to the future of health systems it is this — scale equals survival.
When Will We Return to Normal?
Based on what the projections that these health systems shared, the “new normal” for health systems for the first half of 2021 will be roughly 95 percent of prior year inpatient volume with a 20 percent year-over-year drop in ED volume and a drop of 10-15 percent in observation visits. So, the pain will continue, but given the adjustments that were already made in 2020, it looks like they will be able to manage through COVID effectively. While there will be a pickup in the second half of 2021, the safe bet is that a “return to normal” pre-COVID volumes likely won’t occur until 2022. And there are some who believe that some of the volume should have never been there to begin with and we might see a permanent shift downward in ED volume as well as in some other areas.
With that said, I’ll steal a quote from Bert Zimmerli, the CFO of Intermountain Healthcare, who said, “Normal wasn’t ever nearly good enough in healthcare.”In that spirit, the goal should be to not return to normal, but rather to use this moment as an opportunity to take the positive changes driven by COVID — from technology to processes to areas of focus to a sense of responsibility — and make them permanent.
Thanking Our “Healthcare Heroes”
We’ll never see another 2020 again, hopefully. With that said, one of the silver linings of the year is everything we learned in healthcare. The most important lesson was this — in healthcare there are literally heroes everywhere. To each of them, I just want to say “thank you” for being there for us when we needed you the most. We should all be writing love letters to those on the front line who risked their lives to save others. Our nation’s healthcare system has taken a lot of criticism through the years from those on the outside, often with a blind eye to how things work in practice vs. in concept. But this year we all got to see first-hand what’s happening inside of healthcare — the heroic work of our healthcare providers and those who support them.
They faced the worst crisis in the history of healthcare. They responded heroically and were there for our families and friends.
They proved that healthcare is too vital to fail. They proved that healthcare is pandemic-proof.
President-elect Joe Biden’s healthcare agenda: building on the ACA, value-based care, and bringing down drug prices.
In many ways, Joe Biden is promising a return to the Obama administration’s approach to healthcare:
Building on the Affordable Care Act (ACA) through incremental expansions in government-subsidized coverage
Continuing CMS’ progress toward value-based care
Bringing down drug prices
Supporting modernization of the FDA
Bolder ideas, such as developing a public option, resolving “surprise billing,” allowing for negotiation of drug prices by Medicare, handing power to a third party to help set prices for some life sciences products, and raising the corporate tax rate, could be more challenging to achieve without overwhelming majorities in both the House and the Senate.
Biden is likely to mount an intensified federal response to the COVID-19 pandemic, enlisting the Defense Production Act to compel companies to produce large quantities of tests and personal protective equipment as well as supporting ongoing deregulation around telehealth. The Biden administration also will likely return to global partnerships and groups such as the World Health Organization, especially in the area of vaccine development, production and distribution.
What can health industry executives expect from Biden’s healthcare proposals?
Broadly, healthcare executives can expect an administration with an expansionary agenda, looking to patch gaps in coverage for Americans, scrutinize proposed healthcare mergers and acquisitions more aggressively and use more of the government’s power to address the pandemic. Executives also can expect, in the event the ACA is struck down, moves by the Biden administration and Democratic lawmakers to develop a replacement. Healthcare executives should scenario plan for this unlikely yet potentially highly disruptive event, and plan for an administration marked by more certainty and continuity with the Obama years.
All healthcare organizations should prepare for the possibility that millions more Americans could gain insurance under Biden. His proposals, if enacted, would mean coverage for 97% of Americans, according to his campaign website. This could mean millions of new ACA customers for payers selling plans on the exchanges, millions of new Medicaid beneficiaries for managed care organizations, millions of newly insured patients for providers, and millions of covered customers for pharmaceutical and life sciences companies. The surge in insured consumers could mirror the swift uptake in the years following the passage of the ACA.
Biden’s plan to address the COVID-19 pandemic
Biden is expected to draw on his experience from H1N1 and the Ebola outbreaks to address the COVID-19 pandemic with a more active role for the federal government, which many Americans support. These actions could shore up the nation’s response in which the federal government largely served in a support role to local, state and private efforts.
Three notable exceptions have been the substantial federal funding for development of vaccines against the SARS-CoV-2 virus, Congress’ aid packages and the rapid deregulatory actions taken by the FDA and CMS to clear a path for medical products to be enlisted for the pandemic and for providers, in particular, to be able to respond to it.
Implications of Biden’s 2020 health agenda on healthcare payers, providers and pharmaceutical and life sciences companies
The US health system has been slowly transforming for years into a New Health Economy that is more consumer-oriented, digital, virtual, open to new players from outside the industry and focused on wellness and prevention. The COVID-19 pandemic has accelerated some of those trends. Once the dust from the election settles, companies that have invested in capabilities for growth and are moving forcefully toward the New Health Economy stand to gain disproportionately.
Shortages of clinicians and foreign medical students may continue to be an issue for a while
The Trump administration made limiting the flow of immigrants to the US a priority. The associated policy changes have the potential to exacerbate shortages of physicians, nurses and other healthcare workers, including medical students. These consequences have been aggravated by the pandemic, which dramatically curtailed travel into the US.
Healthcare organizations, especially rural ones heavily dependent on foreign-born employees, may find themselves competing fiercely for workers, paying higher salaries and having to rethink the structure of their workforces.
Providers should consider reengineering primary care teams to reflect the patients’ health status and preferences, along with the realities of the workforce on the ground and new opportunities in remote care.
Focus on modernizing the supply chain
Biden and lawmakers from both parties have been raising questions about life sciences’ supply chains. This focus has only intensified because of the pandemic and resulting shortages of personal protective equipment (PPE), pharmaceuticals, diagnostic tests and other medical products.
Investment in advanced analytics and cybersecurity could allow manufacturers to avoid disruptive stockouts and shortages, and deliver on the promise of the right treatment to the right patient at the right time in the right place.
Drug pricing needs a long-term strategy
Presidents and lawmakers have been talking about drug prices for decades; few truly meaningful actions have been implemented. Biden has made drug pricing reform a priority.
Drug manufacturers may need to start looking past the next quarter to create a new pricing strategy that maximizes access in local markets through the use of data and analytics to engage in more value-based pricing arrangements.
New financing models may help patients get access to drugs, such as subscription models that provide unlimited access to a therapy at a flat rate.
Companies that prepare now to establish performance metrics and data analytics tools to track patient outcomes will be well prepared to offer payers more sustainable payment models, such as mortgage or payment over time contracts, avoiding the sticker shock that comes with these treatments and improving uptake at launch.
Pharmaceutical and life sciences companies will likely have to continue to offer tools for consumers like co-pay calculators and use the contracting process where possible to minimize out-of-pocket costs, which can improve adherence rates and health outcomes.
View interoperability as an opportunity to embrace, not a threat to avoid or ignore
While the pandemic delayed many of the federal interoperability rule deadlines, payers and providers should use the extra time to plan strategically for an interoperable future.
Payers should review business partnerships in this new regulatory environment.
Digital health companies and new entrants may help organizations take advantage of the opportunities that achieving interoperability may present.
Companies should consider the legal risks and take steps to protect their reputations and relationships with customers by thinking through issues of consent and data privacy.
Health organizations should review their policies and consider whether they offer protections for customers under the new processes and what data security risks may emerge. They should also consider whether business associate agreements are due in more situations.
Plan for revitalized ACA exchanges and a booming Medicare Advantage market
The pandemic has thrown millions out of work, generating many new customers for ACA plans just as the incoming Biden administration plans to enrich subsidies, making more generous plans within reach of more Americans.
Payers in this market should consider how and where to expand their membership and appeal to those newly eligible for Medicare. Payers not in this market should consider partnerships or acquisitions as a quick way to enter the market, with the creation of a new Medicare Advantage plan as a slower but possibly less capital-intensive entry into this market.
Payers and health systems should use this opportunity to design more tailored plan options and consumer experiences to enhance margins and improve health outcomes.
Payers with cash from deferred care and low utilization due to the pandemic could turn to vertical integration with providers as a means of investing that cash in a manner that helps struggling providers in the short term while positioning payers to improve care and reduce its cost in the long term.
Under the Trump administration, the FDA has approved historic numbers of generic drugs, with the aim of making more affordable pharmaceuticals available to consumers. Despite increased FDA generics approvals, generics dispensed remain high but flat, according to HRI analysis of FDA data.
Pharmaceutical company stocks, on average, have climbed under the Trump administration, with a few notable dips due to presidential speeches criticizing the industry and the pandemic.
Providers have faced some revenue cuts, particularly in the 340B program, and many entered the pandemic in a relatively weak liquidity position. The pandemic has led to layoffs, pay cuts and even closures. HRI expects consolidation as the pandemic continues to curb the flow of patients seeking care in emergency departments, orthopedic surgeons’ offices, dermatology suites and more.
Lawmakers and politicians often use bold language, and propose bold solutions to problems, but the government and the industry itself resists sudden, dramatic change, even in the face of sudden, dramatic events such as a global pandemic. One notable exception to this would be a decision by the US Supreme Court to strike down the ACA, an event that would generate a great deal of uncertainty and disruption for Americans, the US health industry and employers.
President Trump vowed to overhaul the health care system, notably saying in one of his first post-election speeches that pharmaceutical companies were “getting away with murder” over their pricing tactics.
Yes, but: Four years later, not a lot has changed. If anything, the health care industry has become more financially and politically powerful, Axios’ Bob Herman reports.
“Most of the bigger ideas have either been stopped in the courts or just never got implemented,” said Cynthia Cox, a vice president at the Kaiser Family Foundation who follows the health care industry.
The administration killed its own regulationthat would have changed behind-the-scenes negotiations between drug companies and pharmacy benefit managers.
Forcing drug companies to disclose prices in TV ads was a small gambit, and the courts ultimately struck down the idea.
The other side: The policies the administration has seen through, so far, have been relatively modest.
New rules could force hospitals and health insurers to disclose their secret prices. Hospitals have sued, although the courts are not sympathetic to their pleas, and health insurers still have two years before their rule could go into effect.
Abstract: This article focuses on the correct strategic response to the impending implementation of price transparency on New Year’s Day of next year.
I have stated before that I have multiple articles in process at any given time. Some of them have been ‘in process’ for years because newer topics sometimes rise to the queue’s top. Price transparency is an example of such a case. I have a friend who is developing AI-enabled solutions to help organizations respond to price transparency government diktats. Few people beyond healthcare CFOs, healthcare financial consultants, and accountants have any useful understanding of how convoluted hospital pricing has become due to decades of ill-conceived government policy for the most part.
Another problem is endless confusion over terms. People frequently interchange the terms ‘price’, ‘cost’, ‘payment’, and ‘reimbursement’ in situations where the polar opposite is true on the other side of the issue. In other words, ‘cost’ to a payor is price or reimbursement to a provider.
Anyway, my friend’s questions finally inspired me to go to the Federal Register, acquire the final rule, and begin the process of learning where government is headed with these regulations. There are probably at least fifty diatribe angles I could launch into over the final rule, but I will confine my rant to only a couple of points.
First, the final draft of the rule is ‘only’ 331 pages long. The three-column final rule in the Federal Register is ‘only’ 83 pages long. That pales compared to Obamacare that is over 1,200 pages long, so by government standards, this is but a trifle of regulation.
Secondly, some parts of the final rule are actually funny. For example, CMS estimates that the average hospital will spend only 150 staff hours in the first and 46 staff hours in subsequent years complying with price transparency requirements. Is it constitutional for government to compel private enterprises to disclose the terms of what they thought were private contracts? Apparently so. Once government breaks this ice, will any agreement of any type ever be private?
As I have discussed price transparency with healthcare leaders, I sense that leaders are currently focused on technical compliance with the regulations. With COVID on their plate simultaneously, they have little capacity to take on strategic financial planning.
The final rule lays out in excruciating detail what providers face complying with the regulation. Reading the comments and responses is equally entertaining. CMS repeatedly says something to the effect; we heard your concern, and we’re proceeding as planned anyway. Litigation brought by the AHA and others has to date been unsuccessful in slowing stopping the price transparency snowball that is now most of the way down the mountain.
So, what are you supposed to do? The CFO and CIO will work, possibly with consultants’ assistance, to prepare the organization’s data release. Soon after the release occurs, expect the defecation to hit the rotary oscillator. The press will call out organizations with high prices, and the rancor over learning what some systems have been able to get from third-party payors will be entertaining, to say the least. Many people believe that one of the primary motivators of the massive consolidation occurring in the healthcare industry is the market leverage exerted by growing systems on third-party payors to obtain otherwise unachievable reimbursement rates.
Regardless of the course of action following price releases in January, the intended and most likely result of this initiative is to drive prices to a lower common denominator. A lot of people think Medicare rates will become that benchmark. There are two significant issues that I did not see addressed in the pricing rule that will have the effect of transferring substantial risk to providers.
The first is that there will be little if any provision for recognition of complications, comorbidities, and hospital-acquired conditions that can dramatically impact the cost of care in a given diagnosis.
The second is the elephant in the room. The current pricing system has developed over time to facilitate cross-subsidization among payors. There is a reason that commercial rates are so high that has nothing to do with the cost of providing care. I have stated before that, government has turned the entire healthcare industry into a taxing authority to extract tax from commercial payors for the benefit of government payors that routinely reimburse providers below the cost of providing care. It has been entertaining to watch the reaction of Boards of Directors when they first realize that the healthcare system has been forced by government into a wealth redistribution mechanism.
So, what happens as providers lose the ability to cross-subsidize the cost of care? Very few hospitals (<10%) are profitable on Medicare, and it is doubtful that any hospital is breaking even on services provided to Medicaid patients. In my experience, hospital reimbursement for self-pay patients is less than 5% of charges. If the prices hospitals realize for services start falling and they lose the current ability to cross-subsidize the cost of care . . . . . well, you don’t need an MBA to understand the likely outcome.
What to do? If (when) prices start falling and providers lose pricing leverage, the only place to turn is operating expense. Hospitals that have failed to undertake serious, highly focused, and robust operating cost reduction programs that yield quantifiable results may not have a very bright future. If your organization is not in the bottom quartile of operating cost compared to its peer group and part of your mission is to remain independent, you must be losing sleep. In a recent article related to COVID Response, I argued that the time has come to get after clinical process variance that is the source of most of the high cost, waste, and abuse in the healthcare system.For most organizations, the days of sourcing cheaper supplies and sending nurses home early are, for the most part, over as there is little if any juice remaining in that lemon.
If, as a leader, you do not have a plan that gets you to break-even on Medicare within the next 12-18 months, you had better have a plan B, something like tuning up your CV. I can help you with your response to price transparency, working on your CV, or helping manage your next career transition as the case may turn out. I am as close as your phone. Best of luck.
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