Category Archives: Regulation

The Four Conflicts that Hospitals must Resolve in 2024

Posted on by • Posted in Board, Board Accountability, Board Competency, Challenge, Executive Compensation, Financial Stewardship, Financial Transparency, Financial Viability, Financially Distressed, Health Insurance Industry, Health Policy, Health System, High Drug Prices, Hospital, Hospital Industry, Lobbyist, Medicaid Disproportionate Share Reimbursement (DSH), Medicare Site Neutral Payment, Pharmaceutical Industry, Pharmacy Benefits Management, Price Transparency, Regulation, Tax Exempt Status • Leave a comment
The Four Conflicts that Hospitals must Resolve in 2024

If you’re a U.S. health industry watcher, it would appear the $4.5 trillion system is under fire at every corner.

Pressures to lower costs, increase accessibility and affordability to all populations, disclose prices and demonstrate value are hitting every sector. Complicating matters, state and federal legislators are challenging ‘business as usual’ seeking ways to spend tax dollars more wisely with surprisingly strong bipartisan support on many issues. No sector faces these challenges more intensely than hospitals.

In 2022 (the latest year for NHE data from CMS), hospitals accounted for 30.4% of total spending ($1.35 trillion. While total healthcare spending increased 4.1% that year, hospital spending was up 2.2%–less than physician services (+2.7%), prescription drugs (+8.4%), private insurance (+5.9%) and the overall inflation rate (+6.5%) and only slightly less than the overall economy (GDP +1.9%). Operating margins were negative (-.3%) because operating costs increased more than revenues (+7.7% vs. 6.5%) creating deficits for most. Hardest hit: the safety net, rural hospitals and those that operate in markets with challenging economic conditions.

In 2023, the hospital outlook improved. Pre-Covid utilization levels were restored. Workforce tensions eased somewhat. And many not-for-profits and investor-owned operators who had invested their cash flows in equities saw their non-operating income hit record levels as the S&P 500 gained 26.29% for the year.

In 2024, the S&P is up 5.15% YTD but most hospital operators are uncertain about the future, even some that appear to have weathered the pandemic storm better than others. A sense of frustration and despair is felt widely across the sector, especially in critical access, rural, safety net, public and small community hospitals where long-term survival is in question. 

The cynicism felt by hospitals is rooted in four conflicts in which many believe hospitals are losing ground:

Hospitals vs. Insurers:

Insurers believe hospitals are inefficient and wasteful, and their business models afford them the role of deciding how much they’ll pay hospitals and when based on data they keep private. They change their rules annually to meet their financial needs. Longer-term contracts are out of the question. They have the upper hand on hospitals.

Hospitals take financial risks for facilities, technologies, workforce and therapies necessary to care. Their direct costs are driven by inflationary pressures in their wage and supply chains outside their control and indirect costs from regulatory compliance and administrative overhead, Demand is soaring. Hospital balance sheets are eroding while insurers are doubling down on hospital reimbursement cuts to offset shortfalls they anticipate from Medicare Advantage. Their finances and long-term sustainability are primarily controlled by insurers. They have minimal latitude to modify workforces, technology and clinical practices annually in response to insurer requirements.

Hospitals vs. the Drug Procurement Establishment: 

Drug manufacturers enjoy patent protections and regulatory apparatus that discourage competition and enable near-total price elasticity. They operate thru a labyrinth of manufacturers, wholesalers, distributors and dispensers in which their therapies gain market access through monopolies created to fend-off competition. They protect themselves in the U.S. market through well-funded advocacy and tight relationships with middlemen (GPOs, PBMs) and it’s understandable: the global market for prescription drugs is worth $1.6 trillion, the US represents 27% but only 4% of the world population.

And ownership of the 3 major PBMs that control 80% of drug benefits by insurers assures the drug establishment will be protected.

Prescription drugs are the third biggest expense in hospitals after payroll and med/surg supplies. They’re a major source of unexpected out-of-pocket cost to patients and unanticipated costs to hospitals, especially cancer therapies. And hospitals (other than academic hospitals that do applied research) are relegated to customers though every patient uses their products.

Prescription drug cost escalation is a threat to the solvency and affordability of hospital care in every community.

Hospitals vs. the FTC, DOJ and State Officials: 

Hospital consolidation has been a staple in hospital sustainability and growth strategies. It’s a major focus of regulator attention. Horizontal consolidation has enabled hospitals to share operating costs thru shared services and concentrate clinical programs for better outcomes. Vertical consolidation has enabled hospitals to diversify as a hedge against declining inpatient demand: today, 200+ sponsor health insurance plans, 60% employ physicians directly and the majority offer long-term, senior care and/or post-acute services. But regulators like the FTC think hospital consolidation has been harmful to consumers and third-party data has shown promised cost-savings to consumers are not realized.

Federal regulators are also scrutinizing the tax exemptions afforded not-for-profit hospitals, their investment strategies, the roles of private equity in hospital prices and quality and executive compensation among other concerns. And in many states, elected officials are building their statewide campaigns around reining in “out of control” hospitals and so on.

Bottom line: Hospitals are prime targets for regulators.

Hospitals vs. Congress: 

Influential members in key House and Senate Committees are now investigating regulatory changes that could protect rural and safety net hospitals while cutting payments to the rest. In key Committees (Senate HELP and Finance, House Energy and Commerce, Budget), hospitals are a target. Example: The Lower Cost, More Transparency Act passed in the the House December 11, 2023. It includes price transparency requirements for hospitals and PBMs, site-neutral payments, additional funding for rural and community health among more. The American Hospital Association objected noting “The AHA supports the elimination of the Medicaid disproportionate share hospital (DSH) reductions for two years. However, hospitals and health systems strongly oppose efforts to include permanent site-neutral payment cuts in this bill. In addition, the AHA has concerns about the added regulatory burdens on hospitals and health systems from the sections to codify the Hospital Price Transparency Rule and to establish unique identifiers for off-campus hospital outpatient departments (HOPDs).” Nonetheless, hospitals appear to be fighting an uphill battle in Congress.

Hospitals have other problems:

Threats from retail health mega-companies are disruptive. The public’s trust in hospitals has been fractured. Lenders are becoming more cautious in their term sheets.  And the hospital workforce—especially its doctors and nurses—is disgruntled. But the four conflicts above seem most important to the future for hospitals.

However, conflict resolution on these is problematic because opinions about hospitals inside and outside the sector are strongly held and remedy proposals vary widely across hospital tribes—not-for profits, investor-owned, public, safety nets, rural, specialty and others.

Nonetheless, conflict resolution on these issues must be pursued if hospitals are to be effective, affordable and accessible contributors and/or hubs for community health systems in the future. The risks of inaction for society, the communities served and the 5.48 million (NAICS Bureau of Labor 622) employed in the sector cannot be overstated. The likelihood they can be resolved without the addition of new voices and fresh solutions is unlikely.

PS: In the sections that follow, citations illustrate the gist of today’s major message: hospitals are under attack—some deserved, some not. It’s a tough business climate for all of them requiring fresh ideas from a broad set of stakeholders.

PS If you’ve been following the travails of Mission Hospital, Asheville NC—its sale to HCA Healthcare in 2019 under a cloud of suspicion and now its “immediate jeopardy” warning from CMS alleging safety and quality concerns—accountability falls squarely on its Board of Directors. I read the asset purchase agreement between HCA and Mission: it sets forth the principles of operating post-acquisition but does not specify measurable ways patient safety, outcomes, staffing levels and program quality will be defined. It does not appear HCA is in violation with the terms of the APA, but irreparable damage has been done and the community has lost confidence in the new Mission to operate in its best interest. Sadly, evidence shows the process was flawed, disclosures by key parties were incomplete and the hospital’s Board is sworn to secrecy preventing a full investigation.

The lessons are 2 for every hospital:

Boards must be prepared vis a vis education, objective data and independent counsel to carry out their fiduciary responsibility to their communities and key stakeholders. And the business of running hospitals is complex, easily prone to over-simplification and misinformation but highly important and visible in communities where they operate.

Business relationships, price transparency, board performance, executive compensation et al can no longer to treated as private arrangements.

The Three In-bound Truth Bombs set to Explode in U.S. Healthcare

Posted on by • Posted in ACA, Administrative Burden, Affordability, Health Insurance Coverage Adequacy, Health System, Healthcare Reform, High Deductible Health Plans, Hospital, Hospital Industry, Medicare Advantage, Outcomes, Pharmaceutical Industry, Primary Care, Quality of Care, Regulation, Tax Exempt Status, Truth, Truth Unvarnished, Underinsured, Uninsured • Leave a comment
The Three In-bound Truth Bombs set to Explode in U.S. Healthcare

In Sunday’s Axios’ AM, Mike Allen observed “Republicans know immigration alone could sink Biden. So, Trump and House Republicans will kill anything, even if it meets or exceeds their wishes. Biden knows immigration alone could sink him. So he’s willing to accept what he once considered unacceptable — to save himself.”

Mike called this a “truth Bomb” and he’s probably right: the polarizing issue of immigration is tantamount to a bomb falling on the political system forcing well-entrenched factions to re-think and alter their strategies.

In 2024, in U.S. healthcare, three truth bombs are in-bound. They’re the culmination of shifts in the U.S.’ economic, demographic, social and political environment and fueled by accelerants in social media and Big Data.

Truth bomb: The regulatory protections that have buoyed the industry’s growth are no longer secure. 

Despite years of effectively lobbying for protections and money, the industry’s major trade groups face increasingly hostile audiences in city hall, state houses and the U.S. Congress.

The focus of these: the business practices that regulators think protect the status quo at the public’s expense. Example: while the U.S. House spent last week in their districts, Senate Committees held high profile hearings about Medicare Advantage marketing tactics (Finance Committee), consumer protections in assisted living (Special Committee on Aging), drug addiction and the opioid misuse (Banking) and drug pricing (HELP). In states, legislators are rationalizing budgets for Medicaid and public health against education, crime and cybersecurity and lifting scope of practice constraints that limit access.

Drug makers face challenges to patents (“march in rights”) and state-imposed price controls. The FTC and DOJ are challenging hospital consolidation they think potentially harmful to consumer choice and so. Regulators and lawmakers are less receptive to sector-specific wish lists and more supportive of populist-popular rules that advance transparency, disable business relationships that limit consumer choices and cede more control to individuals. Given that the industry is built on a business-to-business (B2B) chassis, preparing for a business to consumer (B2C) time bomb will be uncomfortable for most.

Truth bomb: Affordability in U.S. is not its priority.

The Patient Protection and Affordability Act 2010 advanced the notion that annual healthcare spending growth should not exceed more than 1% of the annual GDP.  It also advanced the premise that spending should not exceed 9.5% of household adjusted gross income (AGI) and associated affordability with access to insurance coverage offering subsidies and Medicaid expansion incentives to achieve near-universal coverage. In 2024, that percentage is 8.39%.

Like many elements of the ACA, these constructs fell short: coverage became its focus; affordability secondary.

The ranks of the uninsured shrank to 9% even as annual aggregate spending increased more than 4%/year. But employers and privately insured individuals saw their costs increase at a double-digit pace: in the process, 41% of the U.S. population now have unpaid medical debt: 45% of these have income above $90,000 and 61% have health insurance coverage. As it turns out, having insurance is no panacea for affordability: premiums increase just as hospital, drug and other costs increase and many lower- and middle-income consumers opt for high-deductible plans that expose them to financial insecurity. While lowering spending through value-based purchasing and alternative payments have shown promise, medical inflation in the healthcare supply chain, unrestricted pricing in many sectors, the influx of private equity investing seeking profit maximization for their GPs, and dependence on high-deductible insurance coverage have negated affordability gains for consumers and increasingly employers. Benign neglect for affordability is seemingly hardwired in the system psyche, more aligned with soundbites than substance.

Truth bomb: The effectiveness of the system is overblown.

Numerous peer reviewed studies have quantified clinical and administrative flaws in the system.  For instance, a recent peer reviewed analysis in the British Medical Journal concluded “An estimated 795 000 Americans become permanently disabled or die annually across care settings because dangerous diseases are misdiagnosed. Just 15 diseases account for about 50.7% of all serious harms, so the problem may be more tractable than previously imagined.”

The inadequacy of personnel and funding in primary and preventive health services is well-documented as the administrative burden of the system—almost 20% of its spending.  Satisfaction is low. Outcomes are impressive for hard-to-diagnose and treat conditions but modest at best for routine care. It’s easier to talk about value than define and measure it in our system: that allows everyone to declare their value propositions without challenge.

Truth bombs are falling in U.S. healthcare. They’re well-documented and financed. They take no prisoners and exact mass casualties.

Most healthcare organizations default to comfortable defenses. That’s not enough. Cyberwarfare, precision-guided drones and dirty bombs require a modernized defense. Lacking that, the system will be a commoditized public utility for most in 15 years.

PS: Last week’s report, “The Holy War between Hospitals and Insurers…” (The Keckley Report – Paul Keckley) prompted understandable frustration from hospitals that believe insurers do not serve the public good at a level commensurate with the advantages they enjoy in the industry. However, justified, pushback by hospitals against insurers should be framed in the longer-term context of the role and scope of services each should play in the system long-term. There are good people in both sectors attempting to serve the public good. It’s not about bad people; it’s about a flawed system.

The rising danger of private equity in healthcare

Posted on by • Posted in Adverse Events, Federal Trade Commission, Federal Trade Commission (FTC), Financialization of Health, Health Insurance Industry, Health System, Hospital, Hospital Industry, Joint Liability, Management Company, Market Consolidation, Market Power, Market Trends, Mergers & Acquisitions, Ownership Transparency, Private Equity, Regulation, Social Responsibility, Tax Loopholes • Leave a comment
The rising danger of private equity in healthcare

Private equity (PE) acquisitions in healthcare have exploded in the past decade. The number of private equity buyouts of physician practices increased six-fold from 2012-2021. At least 386 hospitals are now owned by private equity firms, comprising 30% of for-profit hospitals in the U.S. 

Emerging evidence shows that the influence of private equity in healthcare demands attention. Here’s what’s in the latest research.

What is private equity?

There are a few key characteristics that differentiate private equity firms from other for-profit companies. At a 2023 event hosted by the NIHCM Foundation, Assistant Professor of Health Care Management at The Wharton School at the University of Pennsylvania Dr. Atul Gupta explained these factors:

  1. Financial engineering. PE firms primarily use debt to finance acquisitions (that’s why they’re often known as “leveraged buyouts”). But unlike in other acquisitions, this debt is placed on the balance sheet of the the target company (ie. the physician practice or hospital). 
  2. Short-term goals. PE firms make the majority of their profits when they sell, and they look to exit within 5-8 years. That means they generally look for ways to cut costs quickly, like reducing staff or selling real estate. 
  3. Moral hazard. PE companies can make a big profit even if their target firm goes bankrupt. This is different from most investments where the success of the investor depends on how well the target company does.

The nature of private equity itself has serious implications for healthcare, in which the health of communities depends on the long-term sustainability and quality improvement of hospitals and physician practices. But are these concerns borne out in the real world?   

PE acquisition and adverse events

A recent study in JAMA from researchers at Harvard Medical School and the University of Chicago analyzed patient mortality and the prevalence of adverse events at hospitals acquired by private equity compared to non-acquired hospitals. The study used Medicare claims from more than 4 million hospitalizations from 2009-2019, comparing claims at 51 PE-acquired hospitals and 249 non-acquired hospitals to serve as controls.

In-hospital mortality decreased slightly at PE-acquired hospitals compared to controls, but not 30-day mortality. This may be because the patient mix at PE-acquired hospitals shifted more toward a lower-risk group, and transfers to other acute care hospitals increased. 

However, there were concerning results for patient safety. The rate of adverse events at PE-acquired hospitals compared to control hospitals increased by 25%, including a 27% increase in falls, 38% increase in central line-associated bloodstream infections (CLABSI), and double the rate of surgical site infections. The authors found the rates of CLABSI and surgical site infections at PE-acquired hospitals alarming because overall surgical volume and central line placements actually decreased. 

What could be behind these higher rates of adverse events after PE acquisition? In a Washington Post op-ed, Dr. Ashish Jha, dean of the School of Public Health at Brown University, writes that it’s down to two things: staffing levels and adherence to patient safety protocols. “Both cost money, and it is not a stretch to connect cuts in staffing and a reduced focus on patient safety with an increased risk of harm for patients,” he writes.   

Social responsibility impact

Private equity acquisitions may have a negative effect on patient safety, but what about social responsibility? In a recent report from PE Stakeholder on the impact of Apollo Global Management’s reach into healthcare, the authors use the Lown Institute Hospitals Index to understand hospitals owned by Apollo perform on social responsibility. Lifepoint Health, a health system owned by Apollo, was ranked 222 out of 296 systems on social responsibility nationwide. And in Virginia, North Carolina, and Arizona, some of the worst-ranked hospitals in the state for social responsibility are those owned by Lifepoint Health, the PE Stakeholder report shows.

Apollo Global Management is the second largest private equity firm in the United States, with $598 billion total assets under management, according to the report. The PE stakeholder report outlines concerning practices by Apollo, including putting high levels of debt that lowers hospitals’ credit ratings and increases their interest rates, cutting staff and essential healthcare services, and selling off real estate for a quick buck. If we care about hospital social responsibility we should clearly be concerned about private equity acquisitions. 

The bigger picture

Private equity buyouts did not come from out of nowhere, so what does this trend tell us about our healthcare system? PE acquisitions are in many ways a symptom of larger issues in healthcare, such as increasing administrative burden, tight margins, and lack of regulation on consolidation. For owners of private physician practices that face a lot of administrative work, deciding to sell to a PE firm to reduce this workload and focus on patient care (not to mention, getting a hefty payout) is a tempting proposal. 

In the Washington Post, Ashish Jha describes what made his colleague decide to sell his practice to a PE firm: “The price he was getting was very good, and he was happy to outsource the headache of running the business (managing billing, making sure there was adequate coverage for nights and weekends, etc.).”

“In many ways, private equity is both a response to and an accelerator of broader health system trends – one in which consolidation is happening quickly, care is being delivered by larger and larger entities, and corporate influence is growing.”Jane M. Zhu, MD, MPP, MSHP, Associate Professor of Medicine at Oregon Health & Science University, at NIHCM Foundation Event

PE buyouts are also indicative of a larger trend, what some researchers call the “financialization” of health. As Dr. Joseph Bruch at the University of Chicago and colleagues describe in the New England Journal of Medicine, financialization refers to the “transformation of public, private, and corporate health care entities into salable and tradable assets from which the financial sector may accumulate capital.”  

Financialization is a sort of merging of the financial and healthcare sectors; not only are financial actors like private equity buying up healthcare providers, but healthcare institutions are also acting like financial firms. For example, 22 health systems have investment arms, including nonprofit system Ascension, which has its own private equity operation worth $1 billion. The financialization of healthcare is also reflected in the boards of nonprofit hospitals. A 2023 study of US News top-ranked hospitals found that a plurality of their board members (44%) were from the financial sector. 

What we can do about it?

What can we do to mitigate harms caused by PE acquisitions? In Health Affairs Forefront, executive director of Community Catalyst Emily Stewart and executive director of the Private Equity Stakeholder Project Jim Baker provide some policy ideas to stop the “metastasizing disease” of private equity:

  • Joint Liability. Currently PE firms can put all of their debt on the balance sheet of the firm they acquire, letting them off the hook for this debt and making it harder for the acquired company to succeed. “Requiring private equity firms to share in the responsibility of the debt…would prevent them from making huge profits while they are saddling hospitals and nursing homes with debts that ultimately impact worker pay and cut off care to patients,” write Stewart and Baker.
  • Regulate mergers. Private equity acquisitions often go under the radar because the acquisitions are small enough to not be reported to authorities. But the U.S. Federal Trade Commission could be more aggressive in evaluating mergers and buyouts by PE, as they have done recently in Texas, where a PE firm has been buying up numerous anesthesia practices. 
  • Transparency of PE ownership. It can be hard to know when hospitals are bought by a PE firm. The Department of Health and Human Services could require disclosure of PE ownership for hospitals as they have done for nursing homes.
  • Remove tax loopholes. The carried interest loophole allows PE management fees to be taxed at as capital gains, which is a lower rate than corporate income. Closing this loophole would remove a big incentive that makes PE buyouts so attractive for firms.  

“It is clear that the problem is not the lack of solutions but rather the lack of political will to take on private equity,” write Steward and Baker.

We need not to not only stem the tide of PE acquisitions sweeping through healthcare, but address the financialization of healthcare more broadly, to put patients back at the center of our health system.

Economic Indigestion for U.S. Healthcare is Reality: Here’s What it Means in 2024

Posted on by • Posted in Health Policy, Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Trends, Mergers & Acquisitions, Private Equity, Regulation, Tax Exempt Status • Leave a comment
Economic Indigestion for U.S. Healthcare is Reality: Here’s What it Means in 2024

By the end of this week, we’ll know a lot more about the economic trajectory for U.S. healthcare in 2024: it may cause indigestion.

  • Digesting deal announcements and industry prognostics from last week’s 42nd JPM conference in San Francisco. Notably, with the exceptions of promising conditions for weight loss drugs, artificial intelligence and biotech IPOs, the outlook is cautionary for providers and inviting for insurers and retail health. Expanded conflicts in Ukraine and Gaza loom as threats. The U.S. trade relationship with China and its growing tension with Taiwan poses an immediate threat to the U.S. healthcare supply chain for raw materials in drugs, OTC products, disposables. U.S. public opinion about its institutions is arguably shaped in part in social media: TikTok is owned by Chinese internet tech company ByteDance and operates in 150 countries. The 16 not for profit health system presentations at JPM sounded a chorus in unison: ‘our core business—hospital care– is not sustainable. We need deals with private capital to stay afloat.’ By contrast, national insurers and retailers sang a different tune: ‘the market is receptive to our products and services that are cheaper, better and more easily accessed through digital platforms. The status quo is outdated’.
  • Digesting results from today’s Iowa GOP Caucus which serves as a gatekeeper for Presidential candidate wannabes. In the run-up to Campaign 2024, polls show voters interested in abortion rights and affordability. But specific health system reforms have not surfaced to date in this election cycle and understandably: per the November 2023 Keckley Poll, 76% of U.S. adults agree that “Most politicians avoid healthcare issues because solutions are complicated and they fear losing votes” vs. 6% who disagree. Thus, the Iowa results might narrow the President contestant pool, but it will do little to clarify U.S. health policies in 2025 and beyond.
  • Digesting takeaways from the World Economic Forum (WEF) in Davos. The annual confab draws world leaders and big-name consultancies and bankers who want to rub elbows with them. It’s notable that the WEF pre-conference Global Risk Survey indicated growing concern about a looming “global catastrophe” and its agenda includes sessions on women’s health, misinformation and artificial intelligence—all central to healthcare’s future. The world is small: 8 billion inhabitants in 195 countries. There’s growing global attention to healthcare and recognition that the integration of social services (nutrition, housing, transportation, et al) and elimination of structural barriers that limit access are necessary to the effectiveness of their systems. The U.S. lacks both though it’s the world’s most expensive system. Thus, U.S.-based solutions to enhance clinical efficacy for specialty care are accessible to global markets at prices significantly lower than what U.S. taxpayers pay because their government’s refuse to pay U.S. rates.
  • Digesting where Congress lands this week on the fiscal 2024 budget. A deal was reached tentatively yesterday on a short-term funding bill that would avert a partial government shutdown this Friday. The $1.6 trillion continuing resolution funds the government through March 1 and March 8 and includes $886B for defense and $704B for other total discretionary programs. While payments for social security and Medicare are not impacted, most other federal health programs are impacted and therefore caught in the Congressional crossfire between budget hawks wary of the ballooning federal deficit ($34 trillion) and progressives who think the federal government spends too much on the ‘have’s’ and not enough, including health and social services, on its ‘have not’s.’ And this deal is TENTATIVE!

My take:

The cumulative effect of these events in economic indigestion for the entire U.S. economy and especially for those of us who work in its healthcare industry. So, for the balance of 2024, the realities for U.S. healthcare are these:

  1. Public support for the health system is eroding. Trust and confidence in the U.S. health system is low. No sector in U.S. healthcare is immune though some (community hospitals, public health programs, independent physicians) are more favorably viewed than others. Confidence in government agencies (CDC, FDA, CMS) is fractured due to misinformation and disinformation. ‘Not-for-profit’ designation is a meaningful distinction to some but secondary to characteristics more readily understood and valued.
  2. Federal policies toward healthcare are increasingly antagonistic. They’re popular and in most cases, bipartisan. Federal policies that expand price transparency (drugs, hospitals, health insurance), constrain on consolidation (horizontal) and private equity investing, expose/reduce conflicts of interest, address workforce resilience (compensation, work-rules) and protect consumers will be prominent. Beyond these, court actions and budgetary negotiations will define/refine federal health policies. Notably, the rumored DOJ antitrust action against Apple will be a closely watched barometer as will the government’s attention toward Microsoft given its leading role in ChatGPT and AI platform Copilot et al.
  3. The big players enjoy advantages over smaller players. It’s a buyer’s market for them. The corporatization of U.S. healthcare has rewarded big operators in each sector and punished smaller, independent operators. More regulation, higher operating costs, escalating administrative complexity and shifting demand require capital that’s increasingly unaffordable/inaccessible to less credit-worthy players. In 2024, in every sector, bigger fish will eat the smaller as readily-accessible private capital is deployed to welcoming sellers. But mechanisms whereby ‘independents’ are protected and growing disparity in how care is financed and delivered will be a prominent concern to policymakers.

Regrettably, an off-the-shelf Pepto-Bismol is not available to the U.S. system. It is complex, fragmented, inequitable and expensive, but also profitable for many who benefit from the status quo.

So, the conclusion that can be deduced from the four events this week is this: economic indigestion in U.S. healthcare will persist this year and beyond because there is no political will nor industry appetite to fix it.  Darwinism aka ‘survival of the fittest’ is its destiny unless….???

One System; Two Divergent Views

Posted on by • Posted in Cost Management, Cost Reduction, Cost Structure, Divergence, Health Policy, Health System, Hospital, Hospital Industry, Innovation, Innovative Care Models, Investing, Investment, Investments, Leadership Vision, Lobbyist, Pharmaceutical Industry, Pharmacy Benefits Management, Political Inaction, Politics, Private Equity, Regulation • Leave a comment
One System; Two Divergent Views

Healthcare is big business. That’s why JP Morgan Chase is hosting its 42nd Healthcare Conference in San Francisco starting today– the same week Congress reconvenes in DC with the business of healthcare on its agenda as well. The predispositions of the two toward the health industry could not be more different.

Context: the U.S. Health System in the Global Economy


Though the U.S. population is only 4% of the world total, our spending for healthcare products and services represents 45% of global healthcare market. Healthcare is 17.4% of U.S. GDP vs. an average of 9.6% for the economies in the 37 other high-income economies of the world. It is the U.S.’ biggest private employer (17.2 million) accounting for 24% of total U.S. job growth last year (BLS). And it’s a growth industry: annual health spending growth is forecast to exceed 4%/year for the foreseeable future and almost 5% globally—well above inflation and GDP growth. That’s why private investments in healthcare have averaged at least 15% of total private investing for 20+ years. That’s why the industry’s stability is central to the economy of the world.

The developed health systems of the world have much in common: each has three major sets of players:

  • Service Providers: organizations/entities that provide hands-on services to individuals in need (hospitals, physicians, long-term care facilities, public health programs/facilities, alternative health providers, clinics, et al). In developed systems of the world, 50-60% of spending is in these sectors.
  • Innovators: organizations/entities that develop products and services used by service providers to prevent/treat health problems: drug and device manufacturers, HIT, retail health, self-diagnostics, OTC products et al. In developed systems of the world, 20-30% is spend in these.
  • Administrators, Watchdogs & Regulators: Organizations that influence and establish regulations, oversee funding and adjudicate relationships between service providers and innovators that operate in their systems: elected officials including Congress, regulators, government agencies, trade groups, think tanks et al. In the developed systems of the world, administration, which includes insurance, involves 5-10% of its spending (though it is close to 20% in the U.S. system due to the fragmentation of our insurance programs).

In the developed systems of the world, including the U.S., the role individual consumers play is secondary to the roles health professionals play in diagnosing and treating health problems. Governments (provincial/federal) play bigger roles in budgeting and funding their systems and consumer out-of-pocket spending as a percentage of total health spending is higher than the U.S. All developed and developing health systems of the world include similar sectors and all vary in how their governments regulate interactions between them. All fund their systems through a combination of taxes and out-of-pocket payments by consumers. All depend on private capital to fund innovators and some service providers. And all are heavily regulated. 

In essence, that makes the U.S. system unique  are (1) the higher unit costs and prices for prescription drugs and specialty services, (2) higher administrative overhead costs, (3) higher prevalence of social health issues involving substance abuse, mental health, gun violence, obesity, et al (4) the lack of integration of our social services/public health and health delivery in communities and (5) lack of a central planning process linked to caps on spending, standardization of care based on evidence et al.

So, despite difference in structure and spending, developed systems of the world, like the U.S. look similar:

The Current Climate for the U.S. Health Industry


The global market for healthcare is attractive to investors and innovators; it is less attractive to most service providers since their business models are less scalable. Both innovator and service provider sectors require capital to expand and grow but their sources vary: innovators are primarily funded by private investors vs. service providers who depend more on public funding.  Both are impacted by the monetary policies, laws and political realities in the markets where they operate and both are pivoting to post-pandemic new normalcy. But the outlook of investors in the current climate is dramatically different than the predisposition of the U.S. Congress toward healthcare:

  • Healthcare innovators and their investors are cautiously optimistic about the future. The dramatic turnaround in the biotech market in 4Q last year coupled with investor enthusiasm for generative AI and weight loss drugs and lower interest rates for debt buoy optimism about prospects at home and abroad. The FDA approved 57 new drugs last year—the most since 2018. Big tech is partnering with established payers and providers to democratize science, enable self-care and increase therapeutic efficacy. That’s why innovators garner the lion’s share of attention at JPM. Their strategies are longer-term focused: affordability, generative AI, cost-reduction, alternative channels, self-care et al are central themes and the welcoming roles of disruptors hardwired in investment bets. That’s the JPM climate in San Franciso.
  • By contrast, service providers, especially the hospital and long-term care sectors, are worried. In DC, Congress is focused on low-hanging fruit where bipartisan support is strongest and political risks lowest i.e.: price transparency, funding cuts, waste reduction, consumer protections, heightened scrutiny of fraud and (thru the FTC and DOJ) constraints on horizontal consolidation to protect competition. And Congress’ efforts to rein in private equity investments to protect consumer choice wins votes and worries investors. Thus, strategies in most service provider sectors are defensive and transactional; longer-term bets are dependent on partnerships with private equity and corporate partners. That’s the crowd trying to change Congress’ mind about cuts and constraints.

The big question facing JPM attendees this week and in Congress over the next few months is the same: is the U.S. healthcare system status quo sustainable given the needs in other areas at home and abroad? 

Investors and organizations at JPM think the answer is no and are making bets with their money on “better, faster, cheaper” at home and abroad. Congress agrees, but the political risks associated with transformative changes at home are too many and too complex for their majority.

For healthcare investors and operators, the distance between San Fran and DC is further and more treacherous than the 2808 miles on the map. 

The JPM crowd sees a global healthcare future that welcomes change and needs capital; Congress sees a domestic money pit that’s too dicey to handle head-on–two views that are wildly divergent.

Health System Chief Strategy Officer Roundtable Assessment: ‘The Near-Term is Tough, the Long-Term is Uncertain and the Deck is Stacked against Hospitals’

Posted on by • Posted in Affordability, Chief Strategy Officer, Competition, Competition on Price, Health Policy, Health System, Healthcare Reform, Hospital Industry, Leadership, Leadership Transformation, Leadership Vision, Private Equity, Regulation, Regulatory Pressures, Reputation, Transition to Value-Based Healthcare, Value Based Care Model, Value Proposition, Value-Based Healthcare • Leave a comment
https://paulkeckley.com/the-keckley-report/2023/12/4/health-system-chief-strategy-officer-roundtable-assessment-the-near-term-is-tough-the-long-term-is-uncertain-and-the-deck-is-stacked-against-hospitals/

On November 2-3 in Austin, I moderated the 4th Annual CSO Roundtable* in which Chief Strategy/Growth Officers from 12 mid-size and large multi-hospital systems participated. The discussion centered on the future: the issues and challenges they facing their organizations TODAY and their plans for their NEAR TERM (3-5 years) and LONG-TERM (8-10 years) future. Augmenting the discussion, participants rated the likelihood and level of disruptive impact for 50 future state scenarios using the Future State Diagnostic Survey. *

Five themes emerged from this discussion:

1-Major change in the structure and financing of U.S. health system is unlikely.

  • CSOs do not believe Medicare for All will replace the current system. They anticipate the existing public-private delivery system will continue with expanded government influence likely.
  • Public funding for the system remains problematic: private capital will play a larger role.
  • CSOs think it is unlikely the public health system will be fully integrated into the traditional delivery system (aka health + social services). Most hospital systems are expanding their outreach to public health programs in local markets as an element of their community benefits strategy.
  • CSOs recognize that states will play a bigger role in regulating the system vis a vis executive orders and referenda on popular issues. Price controls for hospitals and prescription drugs, restraints on hospital consolidation are strong possibilities.
  • Consensus: conditions for hospitals will not improve in the immediate and near-term. Strategies for growth must include all options.

2-Health costs, affordability and equitable access are major issues facing the health industry overall and hospitals particularly.

  • CSOs see equitable access as a compliance issue applicable to their workforce procurement and performance efforts and to their service delivery strategy i.e., locations, patient experiences, care planning.
  • CSOs see reputation risk in both areas if not appropriately addressed in their organizations.
  • CSOs do not share a consensus view of how affordability should be defined or measured.
  • There is consensus among CSOs that hospitals have suffered reputation damage as a result of inadequate price transparency and activist disinformation campaigns. Executive compensation, non-operating income, discrepancies in charity care and community benefits calculations and patient “sticker shock” are popular targets of criticism.
  • CSO think increased operating costs due to medical inflation, supply chain costs including prescription drugs, and labor have offset their efforts in cost reduction and utilization gains.
  • CSO’s are focusing more of their resources and time in support of acute clinical programs where streamlining clinical processes and utilization increases are achievable near-term.
  • Consensus: the current financing of the system, particularly hospitals, is a zero-sum game. A fundamental re-set is necessary.

3-The regulatory environment for all hospitals will be more challenging, especially for not-for-profit health systems.

  • Most CSOs think the federal regulatory environment is hostile toward hospitals. They expect 340B funding to be cut, a site neutral payment policy in some form implemented, price controls for hospital services in certain states, increased federal and state constraints on horizontal consolidation vis a vis the FTC and State Attorneys General, and unreasonable reimbursement from Medicare and other government program payers.
  • CSOs believe the challenges for large not-for-profit hospital systems are unique: most CSOs think not-for-profit hospitals will face tighter restrictions on their qualification for tax-exempt status and tighter accountability of their community benefits attestation. Most expect Congress and state officials to increase investigations about for-profit activities, partnerships with private equity, executive compensation and other issues brought to public attention.
  • CSOs think rural hospital closures will increase without significant federal action.
  • Consensus: the environment for all hospitals is problematic, especially large, not-for-profit multi-hospitals systems and independent rural facilities.

4-By contrast, the environment for large, national health insurers, major (publicly traded) private equity sponsors and national retailers is significantly more positive.

  • CSOs recognize that current monetary policy by the Fed coupled with tightening regulatory restraints for hospitals is advantageous for national disruptors. Scale and access to capital are strategic advantages enjoyed disproportionately by large for-profit operators in healthcare, especially health insurers and retail health.
  • CSOs believe publicly traded private equity sponsors will play a bigger role in healthcare delivery since they enjoy comparably fewer regulatory constraints/limitations, relative secrecy in their day-to-day operations and significant cash on hand from LPs.
  • CSOs think national health insurer vertical consolidation strategies will increase noting that all operate integrated medical groups, pharmacy benefits management companies, closed networks of non-traditional service providers (i.e. supplemental services like dentistry, home care, et al) and robust data management capabilities.
  • CSOs think national retailers will expand their primary care capabilities beyond traditional “office-based services” to capture market share and widen demand for health-related products and services
  • Consensus: national insurers, PE and national retailers will leverage their scale and the friendly regulatory environment they enjoy to advantage their shareholders and compete directly against hospital and medical groups.

5-The system-wide shift from volume to value will accelerate as employers and insurers drive lower reimbursement and increased risk sharing with hospitals and medical groups.

  • CSOs think the pursuit of value by payers is here to stay. However, they acknowledge the concept of value is unclear but they expect HHS to advance standards for defining and measuring value more consistently across provider and payer sectors.
  • CSOs think risk-sharing with payers is likely to increase as employers and commercial insurers align payment models with CMS’ alternative payment models: the use of bundled payments, accountable care organizations and capitation is expected to increase.
  • CSOs expect network performance and data management to be essential capabilities necessary to an organization’s navigation of the volume to value transition. CSOs want to rationalize their current acute capabilities by expanding their addressable market vis a vis referral management, diversification, centralization of core services, primary and preventive health expansion and aggressive cost management.
  • Consensus: successful participation in payer-sponsored value-based care initiatives will play a bigger role in health system strategy.

My take:

The role of Chief Strategy Officer in a multi-hospital system setting is multi-functional and unique to each organization. Some have responsibilities for M&A activity; some don’t. Some manage marketing, public relations and advocacy activity; others don’t. All depend heavily on market data for market surveillance and opportunity assessments. And all have frequent interaction with the CEO and Board, and all depend on data management capabilities to advance their recommendations about risk, growth and the future. That’s the job.

CSOs know that hospitals are at a crossroad, particularly not-for-profit system operators accountable to the communities they serve. In the 4Q Keckley Poll, 55% agreed that “the tax exemption given not-for-profit hospitals is justified by the community benefits they provide”  but 45% thought otherwise. They concede their competitive landscape is more complicated as core demand shifts to non-hospital settings and alternative treatments and self-care become obviate traditional claims-based forecasting. They see the bigger players getting bigger: last week’s announcements of the Cigna-Humana deal and expansion of the Ascension-LifePoint relationship cases in point. And they recognize that their reputations are under assault: the rift between Modern Healthcare and the AHA over the Merritt Research ’s charity care study (see Hospital section below) is the latest stimulant for not-for-profit detractors.

In 1937, prominent literary figures Laura Riding and Robert Graves penned a famous statement in an Epilogue Essay that’s especially applicable to hospitals today: “the future is not what it used to be.”

For CSO’s, figuring that out is both worrisome and energizing.

Thinking Long-Term: Changes in Five Domains will Impact the Future of the U.S. System but Most are Not Prepared

Posted on by • Posted in Change, Change Mindset, Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Trends, Market Uncertainty, Private Equity, Regulation, Regulatory Pressures, Strategic Change, Strategic Imperative, Strategic Leadership, Strategy Sustainable Long Term • Leave a comment
Thinking Long-Term: Changes in Five Domains will Impact the Future of the U.S. System but Most are Not Prepared

The U.S. health system is big and getting bigger. It is labor intense, capital intense, and highly regulated. Each sector operates semi-independently protected by local, state and federal constraints that give incumbents advantages and dissuade insurgents.

Competition has been intramural:

Growth by horizontal consolidation within sectors has been the status quo for most to meet revenue and influence targets. In tandem, diversification aka vertical consolidation and, for some, globalization in each sector has distanced bigger players from smaller:

  • insurers + medical groups + outpatient facilities + drug benefit managers
  • hospitals + employed physicians + insurance plans + venture/private equity investing in start-ups
  • biotech + pharma + clinical data warehousing,
  • retail pharmacies + primary & preventive care + health & wellbeing services + OTC products/devices
  • regulated medical devices + OTC products for clinics, hospitals, homes, workplaces and schools.

The landscape is no man’s land for the faint of heart but it’s golden for savvy private investors seeking gain at the expense of the system’s dysfunction and addictions—lack of price transparency, lack of interoperability and lack of definitive value propositions.

What’s ahead? 

Everyone in the U.S. health system is aware that funding is becoming more scarce and regulatory scrutiny more intense, but few have invested in planning beyond tomorrow and the day after. Unlike drug and device manufacturers with global markets and long-term development cycles, insurers and providers are handicapped. Insurers respond by adjusting coverage, premiums and co-pays annually. Providers—hospitals, physicians, long-term care providers and public health programs– have fewer options. For most, long-range planning is a luxury, and even when attempted, it’s prone to self-protection and lack of objectivity.

Changes to the future state of U.S. healthcare are the result of shifts in these domains:

They apply to every sector in healthcare and define the context for the future of each organization, sector and industry as a whole:

  • The Clinical Domain: How health, diseases and treatments are defined and managed where and by whom; how caregivers and individuals interact; how clinical data is accessed, structured and translated through AI enabled algorithms; how medication management and OTC are integrated; how social determinants are recognized and addressed by caregivers and communities: and so on. The clinical domain is about more than doctors, nurses, facilities and pills.
  • The Technology Domain: How information technologies enable customization in diagnostics and treatments; how devices enable self-care; how digital platforms enable access; how systemness facilitates integration of clinical, claims and user experience data; how operating environments shift to automation lower unit costs; how sites of care emerge; how caregivers are trained and much more. Proficiency in the integration of technologies is the distinguishing feature of organizations that survive and those that don’t. It is the glue that facilitates systemness and key to the system’s transformation.
  • The Regulatory Domain: How affordability, value, competition, choice, healthcare markets, not-for-profit and effectiveness are defined; how local, state and federal laws, administrative orders by government agencies and executive actions define and change compliance risks; how elected officials assess and mitigate perceived deficiencies in a sector’s public accountability or social responsibility; how courts adjudicate challenges to the status quo and barriers to entry by outsiders/under-served populations; how shareholder ownership in healthcare is regulated to balance profit and the public good; et al. Advocacy on behalf of incumbents geared to current regulatory issues (especially in states) is compulsory table stakes requiring more attention; evaluating potential regulatory environment shifts that might fundamentally change the way a system is structured, roles played, funded and overseen is a luxury few enjoy.
  • The Capital Domain: how needed funding for major government programs (Medicare, Medicaid, Children’s, Military, Veterans, HIS, Dual Eligibles et al) is accessed and structured; how private investment in healthcare is encouraged or dissuaded; how monetary policies impact access to debt; how personal and corporate taxes impact capitalization of U.S. healthcare; how value-based programs reduce unnecessary costs and improve system effectiveness; how the employer tax exemption fares long-term as employee benefits shrink; how U.S. system innovations are monetized in global markets; how insurers structure premiums and out of pocket payments: et al. The capital domain thinks forward to the costs of capital it deploys and anticipated returns. But inputs in the models are wildly variable and inconsistent across sectors: hospitals/health systems vs. global private equity healthcare investors vs. national insurers’ capital strategies vary widely and each is prone to over-simplification about the others.
  • The Consumer Domain: how individuals, households and populations perceive and use the system; how they assess the value of their healthcare spending; how they vote on healthcare issues; how and where they get information; how they assess alternatives to the status quo; how household circumstances limit access and compromise outcomes; et al. The original sin of the U.S, health system is its presumption that it serves patients who are incapable/unwilling to participate effectively and actively in their care. Might the system’s effectiveness and value proposition be better and spending less if consumerization became core to its future state?

For organizations operating in the U.S. system, staying abreast of trends in these domains is tough. Lag indicators used to monitor trends in each domain are decreasingly predictive of the future. Most Boards stay focused on their own sector/subsector following the lead of their management and thought leadership from their trade associations. Most are unaware of broader trends and activities outside their sector because they’re busy fixing problems that impact their current year performance. Environmental assessments are too narrow and short-sighted. Planning processes are not designed to prompt outside the box thinking or disciplined scenario planning. Too little effort is invested though so much is at risk.

It’s understandable. U.S. healthcare is a victim of its success; maintaining the status quo is easier than forging a new path, however obvious or morally clear.  Blaming others and playing the victim card is easier than corrective actions and forward-thinking planning.

In 10 years, the health system will constitute 20% of the entire U.S. economy and play an outsized role in social stability. It’s path to that future and the greater good it pursues needs charting with open minds, facts and creativity. Society deserves no less.

The Four Issues that will Impact Healthcare Services Providers and Insurers Most in the Last Half of 2023 and First Half of 2024

Posted on by • Posted in Artificial Intelligence, Board, Board Engagement, Charity Care, Competition, Dept of Justice (DOJ), Executive Compensation, Federal Trade Commission, Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Leadership Plan, Leadership Vision, Long Term Planning, Long Term Strategy, Non-Profit Healthcare Industry, Private Equity Maturity Wall, Regulation, Regulatory Pressures • Leave a comment
The Four Issues that will Impact Healthcare Services Providers and Insurers Most in the Last Half of 2023 and First Half of 2024

As first half 2023 financial results are reported and many prepare for a busy last half, strategic planning for healthcare services providers and insurers point to 4 issues requiring attention in every boardroom and C suite:

Private equity maturity wall: 

The last half of 2023 (and into 2024) is a buyer’s market for global PE investments in healthcare services: 40% of PE investments in hospitals, medical groups and insurtech will hit their maturity wall in the next 12 months. Valuations of companies in these portfolios are below their targeted range; limited partner’ investing in PE funds is down 28% from pre-pandemic peak while fund raising by large, publicly traded, global funds dominate fund raising lifting PE dry powder to a record $3.7 trillion going into the last half of 2023.

In the U.S. healthcare services market, conditions favor well-capitalized big players—global private equity funds and large cap aggregators (i.e., Optum, CVS, Goldman Sachs, Blackstone et al) who have $1 trillion to invest in deals that enhance their platforms. Deals done via special purpose acquisition corporations (SPACS) and smaller PE funds in physicians, hospitals, ambulatory services and others are especially vulnerable. (see Bain and Pitchbook citations below). Addressing the growing role of large-cap PE and strategic investors as partners, collaborators, competitors or disruptors is table stakes for most organizations recognizing they have the wind at their backs.

Consolidation muscle by DOJ and FTC: 

Healthcare is in the crosshair of the FTC and DOJ, especially hospitals and health insurers.  Hospital markets have become increasingly concentrated: only 12% of the 306 Hospital Referral Regions is considered unconcentrated vs. 23% in 2008. In the 384 insurance markets, 23% are unconcentrated, down from 35% in 2020. Wages for healthcare workers are lower, prices for consumers are higher and choices fewer in concentrated markets prompting stricter guidelines announced last week by the oversight agencies. Big hospitals and big insurers are vulnerable to intensified scrutiny. (See Regulatory Action section below).

Defamatory attacks on nonprofit health systems: 

In the past 3 years, private, not-for-profit multi-hospital systems have been targeted for excess profits, inadequate charity care and executive compensation.  Labor unions (i.e., SEIU) and privately funded foundations (i.e., West, Arnold Venture, Lown Institute) have joined national health insurers in claims that NFP systems are price gaugers undeserving of the federal, state and local tax exemptions they enjoy. It comes at a time when faith in the U.S. health system is at a modern-day low (Gallup), healthcare access and affordability concerns among consumers are growing and hospital price transparency still lagging (36% are fully compliant with the 2021 Executive Order).

Notably, over the last 20 years, NFP hospitals have become less dominant as a share of all hospitals (61% in 2002 vs. 58% last year) while investor-owned hospitals have shown dramatic growth (from 15% in 2002 to 24% last year). Thus, the majority of local NFP hospitals have joined systems creating prominent brands and market dominance in most regions. But polling indicates many of these brands is more closely associated with “big business” than “not-for-profit health” so they’re soft targets for critics. It is likely unflattering attention to large, NFP systems will increase in the next 12 months prompting state and federal regulatory actions and erosion of public support.  (See New England Journal citation in Quotables below)

Campaign 2024 healthcare rhetoric: 

Republican candidates will claim healthcare is not affordable and blame Democrats. Democrats will counter that the Affordable Care Act’s expanded coverage and the Biden administration’s attack on drug prices (vis a vis the Inflation Reduction Act) illustrate their active attention to healthcare in contrast to the GOP’s less specific posturing.

Campaigns in both parties will call for increased regulation of hospitals, prescription drug manufacturers, health insurers and PBMs. All will cast the health industry as a cesspool for greed and corruption, decry its performance on equitable access, affordability, price transparency and improvements in the public’s health and herald its frontline workers (nurses, physicians et al) as innocent victims of a system run amuck.

To date, 16 candidates (12 R, 3 D, 1 I) have announced they’re candidates for the White House while campaigns for state and local office are also ramping up in 46 states where local, state and national elections are synced. Healthcare will figure prominently in all. In campaign season, healthcare is especially vulnerable to misinformation and hyper-attention to its bad actors. Until November 5, 2024, that’s reality.

My take:

These issues frame the near-term context for strategic planning in every sector of U.S. healthcare. They do not define the long-term destination of the system nor roles key sectors and organizations will play. That’s unknown.

  • What’s known for sure is that AI will modify up to 70% of the tasks in health delivery and financing and disrupt its workforce.
  • Black Swans like the pandemic will prompt attention to gaps in service delivery and inequities in access.
  • People will be sick, injured, die and be born.
  • And the economics of healthcare will force uncomfortable discussions about its value and performance.

In the U.S. system, attention to regulatory issues is a necessary investment by organizations in every state and at the federal level. Details about these efforts is readily accessible on websites for each organization’s trade group. They’re the rule changes, laws and administrative actions to which all are attentive. They’re today’s issues.

Less attention is given the long-term. That focus is often more academic than practical—much the same as Robert Oppenheimer’s early musings about the future of nuclear fusion. But the Manhattan Project produced two bombs (Little Boy and Fat Man) that detonated above the Japanese cities of Hiroshima and Nagasaki in 1945, triggering the end of World War II.

The four issues above should be treated as near and present dangers to the U.S. health system requiring attention in every organization. But responses to these do not define the future of the U.S. system. That’s the Manhattan Project that’s urgently needed in our system.

Cartoon – Hospital Regulations

Posted on by • Posted in Cartoon, Health Insurance Benefit Design, Health Insurance Coverage Adequacy, Health System, High Deductible Health Plans, High Prices, Hospital, Out of Pocket Expenses, Regulation, Rev Cycle Management, Revenue Cycle • Leave a comment
270 Hospital Cartoons ideas | hospital cartoon, medical humor, humor

Risking lives in pursuit of profits

Posted on by • Posted in Nursing Home, Outcomes, Oversight, Private Equity, Profit Margin, Profit Model, Profit Motive, Regulation, Return on Investment, Shareholder Primacy, Staffing Issues • Leave a comment

https://mailchi.mp/05e4ff455445/the-weekly-gist-february-26-2021?e=d1e747d2d8

Benefit of Private Equity in Healthcare? Lessons from Nursing Homes

Finding a good long-term care facility for a loved one has always been a difficult process. A new National Bureau of Economic Research working paper suggests that families should also be paying attention to who owns the facility, finding a significant increase in mortality in nursing homes owned by private equity investors.

Examining Medicare data from over 18,000 nursing homes, 1,674 of which were owned by private equity (PE) firms, researchers found that PE ownership increased Medicare patient mortality by 10 percent—translating to a possible 20,150 additional lives lost. PE-owned facilities were also 11 percent more expensive.

Counterintuitively, lower-acuity patients had the greatest increase in mortality. Researchers found staffing decreased by 1.4 percent in PE-owned facilities, suggesting that shorter-staffed facilities may be forced to shift attention to sicker patients, leading to greater adverse effects on patients requiring less care.

Antipsychotic use, which carries a higher risk in the elderly, was also a whopping 50 percent higher.

Nursing homes are low-margin businesses, with profits of just 1-2 percent per year—and PE ownership did not improve financial performance.

Researchers found private equity profited from three strategies: “monitoring fees” paid to services also owned by the PE firm, lease payments after real estate sales, and tax benefits from increased interest payments, concluding that PE is shifting operating costs away from patient care in order to increase return on investment. Private equity investment in care delivery assets has skyrocketed over the past decade.

This study draws the most direct correlation between PE investment and an adverse impact on patient outcomes that we’ve seen so far, highlighting the need for increased regulatory scrutiny to ensure that patient safety isn’t sacrificed for investor returns.