16 Things CEOs Need to Know in 2023

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Understand the health care industry’s most urgent challenges—and greatest opportunities.

The health care industry is facing an increasingly tough business climate dominated by increasing costs and prices, tightening margins and capital, staffing upheaval, and state-level policymaking. These urgent, disruptive market forces mean that leaders must navigate an unusually high number of short-term crises.

But these near-term challenges also offer significant opportunities. The strategic choices health care leaders make now will have an outsized impact—positive or negative—on their organization’s long-term goals, as well as the equitability, sustainability, and affordability of the industry as a whole.

This briefing examines the biggest market forces to watch, the key strategic decisions that health care organizations must make to influence how the industry operates, and the emerging disruptions that will challenge the traditional structures of the entire industry.

Preview the insights below and download the full executive briefing (using the link above) now to learn the top 16 insights about the state of the health care industry today.

Preview the insights

Part 1 | Today’s market environment includes an overwhelming deluge of crises—and they all command strategic attention

Insight #1

The converging financial pressures of elevated input costs, a volatile macroeconomic climate, and the delayed impact of inflation on health care prices are exposing the entire industry to even greater scrutiny over affordability. Keep reading on pg. 6

Insight #2

The clinical workforce shortage is not temporary. It’s been building to a structural breaking point for years. Keep reading on pg. 8

Insight #3

Demand for health care services is growing more varied and complex—and pressuring the limited capacity of the health care industry when its bandwidth is most depleted. Keep reading on pg. 10

Insight #4

Insurance coverage shifted dramatically to publicly funded managed care. But Medicaid enrollment is poised to disperse unevenly after the public health emergency expires, while Medicare Advantage will grow (and consolidate). Keep reading on pg. 12

Part II | Competition for strategic assets continues at a rapid pace—influencing how and where patient care is delivered.

Insight #5

The current crisis conditions of hospital systems mask deeper vulnerabilities: rapidly eroding power to control procedural volumes and uncertainty around strategic acquisition and consolidation. Keep reading on pg. 15

Insight #6

Health care giants—especially national insurers, retailers, and big tech entrants—are building vertical ecosystems (and driving an asset-buying frenzy in the process). Keep reading on pg. 17

Insight #7

As employment options expand, physicians will determine which owners and partners benefit from their talent, clinical influence, and strategic capabilities—but only if these organizations can create an integrated physician enterpriseKeep reading on pg. 19

Insight #8

Broader, sustainable shifts to home-based care will require most care delivery organizations to focus on scaling select services. Keep reading on pg. 21

Insight #9

A flood of investment has expanded telehealth technology and changed what interactions with patients are possible. This has opened up new capabilities for coordinating care management or competing for consumer attention. Keep reading on pg. 23

Insight #10

Health care organizations are harnessing data and incentives to curate consumers choices—at both the service-specific and ecosystem-wide levels. Keep reading on pg. 25

Part III | Emerging structural disruptions require leaders to reckon with impacts to future business sustainability. 

Insight #11

For value-based care to succeed outside of public programs, commercial plans and providers must coalesce around a sustainable risk-based payment approach that meets employers’ experience and cost needs. Keep reading on pg. 28

Insight #12

Industry pioneers are taking steps to integrate health equity into quality metrics. This could transform the health care business model, or it could relegate equity initiatives to just another target on a dashboard. Keep reading on pg. 30

Insight #13

Unprecedented behavioral health needs are hitting an already fragmented, marginalized care infrastructure. Leaders across all sectors will need to make difficult compromises to treat and pay for behavioral health like we do other complex, chronic conditions. Keep reading on pg. 32

Insight #14

As the population ages, the fragile patchwork of government payers, unpaid caregivers, and strained nursing homes is ill-equipped to provide sustainable, equitable senior care. This is putting pressure on Medicare Advantage plans to ultimately deliver results. Keep reading on pg. 34

Insight #15

The enormous pipeline of specialized high-cost therapies in development will see limited clinical use unless the entire industry prepares for paradigm shifts in evidence evaluation, utilization management, and financing. Keep reading on pg. 36

Insight #16

Self-funded employers, who are now liable for paying “reasonable” amounts, may contest the standard business practices of brokers and plans to avoid complex legal battles with poor optics. Keep reading on pg. 38

Be Ready for the Reorganized Healthcare Landscape

Running a health system recently has proven to be a very hard job. Mounting losses in the face of higher operating expenses, softer than expected volumes, deferred capex, and strained C-suite succession planning are just a few of the immediate issues with which CEOs and boards must deal.


But frankly, none of those are the biggest strategic issue facing health systems. The biggest
strategic issue
is the reorganization of the American healthcare landscape into an ambulatory care
business that emphasizes competing for covered lives at scale in lower cost and convenient settings
of care. This shift in business model has significant ramifications, if you own and operate acute care
hospitals.


Village MD and Optum are two of the organizations driving the business model shift. They are
owned by large publicly traded companies (Walgreens and UnitedHealth Group, respectively). Both
Optum and Village MD have had a string of announced major patient care acquisitions over the past
few years, none of which is in the acute care space.


The future of American healthcare will likely be dominated by large well-organized and well-run
multi-specialty physician groups with a very strong primary care component. These physician
service companies will be payer agnostic and focused on value-based care, though will still be
prepared to operate in markets where fee-for-service dominates. They will deliver highly
coordinated care in lower cost settings than hospital outpatient departments. And these companies
will be armed with tools and analytics that permit them to manage the care for populations of
patients, in order to deliver both better health outcomes and lower costs.


At the same time this is happening, we are experiencing steady growth in Medicare Advantage.
And along with it, a stream of primary care groups who operate purpose-built clinics to take full risk
on Medicare Advantage populations. These companies include ChenMed, Cano Health and Oak
Street, among others. These organizations use strong culture, training, and analytics to better
manage care, significantly reduce utilization, and produce better health outcomes and lower costs.


Public and private equity capital are pouring into the non-acute care sectors, fueling this growth. As
of the start of 2022, nearly three quarters of all physicians in the US were employed by either
corporate entities
(such as private equity, insurance companies, and pharmacy companies), or
employed by health systems. And this employment trend has accelerated since the start of the
pandemic. The corporate entities, rather than health systems, are driving this increasing trend.
Corporate purchases of physician practices increased by 86% from 2019 to 2021.


What can health systems do? To succeed in the future, you must be the nexus of care for the
covered lives in your community. But that does not mean the health system must own all the
healthcare assets or employ all of the physicians. The health system can be the platform to convene these assets and services in the community. In some respects, it is similar to an Apple iPhone. They are the platform that convenes the apps. Some of those apps are developed and owned by Apple. But many more apps are developed by people outside of Apple, and the iPhone is simply the platform to provide access.


Creating this platform requires a change in mindset. And it requires capital. There are many opportunities for health systems to partner with outside capital providers, such as private equity, to position for the future – from both a capital and a mindset point of view.


The change in mindset, and the access to flexible capital, is necessary as the future becomes more and more about reorganizing into an ambulatory care business that emphasizes competing for covered lives at scale in lower cost and convenient settings of care.

Intermountain and UCHealth partner to form CIN

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 Late last week, Salt Lake City, Utah-based Intermountain Healthcare and University of Colorado-affiliated UCHealth, based in Aurora, CO, shared that they are jointly developing a clinically integrated network (CIN). It will initially comprise 700 primary care physicians working at UCHealth’s 12 hospitals and hundreds of clinics, but may expand in the future. The CIN will leverage Intermountain’s value-based care expertise and its SelectHealth insurance plans. The two health systems will remain independent and operate the CIN as a separate company. 

The Gist: This partnership continues Intermountain’s expansion into Colorado, after it finalized its merger with SCL Health in April of last year. 

It’s a smart way for Intermountain to strengthen its foothold in the state, especially as further health system acquisitions in the Denver area may raise antitrust concerns. 

Intermountain will be able to tap into a larger network of physician relationships that it can use to bolster its health plan, with significantly lower infrastructure costs compared to employment. 

These types of partnership strategies may also be bed-warming for deeper relationships, with the opportunity to demonstrate value before a full-on merger.  

A contentious time for payer-provider negotiations

https://mailchi.mp/59374d8d7306/the-weekly-gist-january-13-2023?e=d1e747d2d8

In our decades of working in healthcare, we’ve never seen a time when payer-provider negotiations have been more tense. Emboldened insurers, having seen strong growth during the pandemic, are entering contract negotiations with an aggressive posture.

“They weren’t even willing to discuss a rate increase,” one CFO shared as he described his health system’s recent negotiations with a large national insurer. “The plan’s opening salvo was a fifteen percent rate cut!”

Health systems are feeling lucky to get even a two or three percent rate bump, well short of the historical average of seven percent—and far short of what would be needed to account for skyrocketing labor, supply, and drug costs. According to executives we work with, efforts to describe the current labor crisis and resulting cost impacts with payers are largely falling on deaf ears.  
 
This scenario is playing out in markets across the country, with more insurers and health systems announcing that they are “terming” their contract, publicly stating they will cut ties should the stalemate in negotiations persist.

Speaking off the record, a system executive shared how this played out for them. With negotiations at an impasse, a large insurer began the process of notifying beneficiaries that the system would soon be out-of-network, and patients would be reassigned to new primary care providers. The health plan assumed that the other systems in the market would see this as a growth opportunity—and was shocked when they discovered that other providers were already operating at capacity, unable to accommodate additional patients from the “terminated” system. 

Mounting concerns about access brought the plan back to the table. Even in the best of times, a major insurer cutting ties with a health system is extremely disruptive for consumers, who must shift their care to new providers or pay out-of-network rates. But given current capacity challenges in hospitals nationwide, major network disruptions can be even more dire for patients—and may force payers and providers to walk back from the brink of contract termination. 

The dire state of hospital finances (Part 1: Hospital of the Future series)

About this Episode

The majority of hospitals are predicted to have negative margins in 2022, marking the worst year financially for hospitals since the beginning of the Covid-19 pandemic.

In Part 1 of Radio Advisory’s Hospital of the Future series, host Rachel (Rae) Woods invites Advisory Board experts Monica WestheadColin Gelbaugh, and Aaron Mauck to discuss why factors like workforce shortages, post-acute financial instability, and growing competition are contributing to this troubling financial landscape and how hospitals are tackling these problems.

Links:

As we emerge from the global pandemic, health care is restructuring. What decisions should you be making, and what do you need to know to make them? Explore the state of the health care industry and its outlook for next year by visiting advisory.com/HealthCare2023.

JPMorgan wants to bring back 60-minute doctor’s appointments

The demise of Haven — a coalition of three big employers aiming to lower the cost of healthcare for their workers — was met with a surprising reaction from Jamie Dimon, CEO of JPMorgan Chase: “We want to do this again.” 

A Dec. 6 report from Bloomberg details some of the aftermath of Haven’s end and also the origins of Morgan Health, the bank’s second go at lowering healthcare costs that was rolled out in spring 2021. While still in its early stages, one tenet of its strategy is a return to basics, including appointments between clinicians and patients that take at least 30 minutes if not an hour.  

Haven was the healthcare partnership formed in 2018 by Amazon, JPMorgan Chase and Berkshire Hathaway with an aim to lower healthcare costs for their 1.2 million workers. It disbanded in 2021. As its end neared, Mr. Dimon set out to learn what had gone wrong. 

When he asked the question of Bill Wulf, MD, CEO of Central Ohio Primary Care, the internist told the businessman the initiative had moved too slowly. A virtual care program drew in only 150 people in Ohio, for example, before it was scrapped. 

Shortly after the debrief with Dr. Wulf, Mr. Dimon assigned a lieutenant to restart the work on lowering employer healthcare costs, this time focusing on JPMorgan Chase alone. That leader was Peter Scher, vice chairman with the bank, who had his doubts at first. “There are a lot of things we could be spending our time on,” he told Bloomberg. “I was perfectly prepared to go back to Jamie and the operating committee and say, ‘Listen, it was a good try.'” 

Mr. Scher stuck with it and brought on Dan Mendelson, founder and former CEO of healthcare advisory group Avalere Health, to lay the groundwork for JPMorgan’s second healthcare attempt. Mr. Mendelson, who had been a skeptic of Haven, spent three months crafting a strategy and playbook that recognized where Haven had fallen short and avoided repeated mistakes. He signed on to lead the group, dubbed Morgan Health. 

The group has made more headlines since its launch than its predecessor Haven, which premiered with much bravado but went nearly a year without releasing any news except for its name and a new website. In fall 2022, Morgan Health opened three advanced primary care centers in Ohio for a total of five and formed a healthcare venture capital team targeting early- to later-stage healthcare companies with innovations in areas like genetic medicine, autoimmune diseases, cardiometabolic diseases and rare disorders. It also hired Cheryl Pegus, MD, Walmart’s executive vice president of health and wellness, as a managing director.

Morgan Health’s strategy is marked by what appears to be common sense and a return to basics, including the placement of clinics in office building atriums — “a full-service practice where employees can develop long-term relationships with primary-care providers, wellness coaches, mental health providers and care coordinators.” 

All appointments are booked for at least 30 minutes with many going an hour, according to Bloomberg. Patients generally see the same practitioner for each visit to build long-term relationships. Clinicians’ payments are tied to goals like avoiding emergency room visits, providing cancer screenings and keeping high blood pressure in check. If it plays out as designed, JPMorgan says the investment in prevention and primary care will curb high-cost services and hospital stays, ultimately leading to meaningful savings.

The goal is to “​​identify high-risk patients and then bubble-wrap them,” Dr. Wulf told Ohio business leaders in an October meeting, Bloomberg reports. “How do we keep you out of the hospital?”

JPMorgan has opened five clinics in the area of Columbus, Ohio, which will also be open to other employers who want to sign on. The clinics and primary care centers are managed and staffed by Vera Whole Health and Central Ohio Primary Care. JPMorgan is seeking “like-minded” medical groups in markets like New York, Chicago and Dallas where it has hubs of workers, Bloomberg reports. 

Still a long way away from real “value” 

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The belief that healthcare should, and would, transition from “volume to value” was a key pillar of the Affordable Care Act (ACA). However, with more than a decade of experience and data to consider, there is little indication that either Medicare or the healthcare industry at large has meaningfully shifted away from fee-for-service payment. Using data from the National Association of Accountable Care Organizations, the graphic below shows that the Medicare Shared Savings Program (MSSP)—the largest of the ACA’s payment innovations, with over 500 accountable care organizations (ACOs) reaching 11M assigned beneficiaries—has led to minimal savings for Medicare. In its first eight years, MSSP saved Medicare only $3.4B, or a paltry 0.06 percent, of the $5.6T that it spent over that time.  
 
Policymakers had hoped that a Medicare-led move to value would prompt commercial payers to follow suit, but that also hasn’t happened. The proportion of payment to health systems in capitated or other risk-based arrangements barely budged from 2013 to 2020—remaining negligible for most organizations, and rarely amounting to enough to influence strategy. The proportion of risk-based payment for doctors is slightly higher, but still far below what is needed to enable wholesale change in care across a practice.

While Medicare has other options if it wants to increase value-based payment, like making ACOs mandatory, it’s harder to see how the trend in commercial payment will improve, as large payers, who are buying up scores of care delivery assets themselves, seem to have little motivation to deal providers in on risk. 

While financial upside of moving to risk hasn’t been significant enough to move the market to date, we aren’t suggesting health systems throw out their population management playbook—to meet mounting cost labor pressures, systems must deliver lower cost care, in lower cost settings, with lower cost staff, just to maintain economic viability moving forward.

In Defense of Value: A Response to Ken Kaufman

In an Oct. 5, 2022, commentary, Ken Kaufman offers a full-throated and heartfelt defense of non-profit healthcare during a time of significant financial hardship. Ken describes 2022 as “the worst financial year for hospitals in memory.” His concern is legitimate. The foundations of the nonprofit healthcare business model appear to be collapsing. I’ve known and worked with Ken Kaufman for decades. He is the life force behind Kaufman Hall, a premier financial and strategic advisor to nonprofit hospitals and health systems. The American Hospital Association uses Kaufman Hall’s analysis of hospitals’ underlying financial trends to support its plea for Congressional funding. Beyond the red ink, Ken laments the “media free-for-all challenging the tax-exempt status, financial practices, and ostensible market power of not-for-profit hospitals and health systems.” He is referring to three recent investigative reports on nonprofits’ skimpy levels of charity care (Wall Street Journal), aggressive collection tactics (New York Times) and 340B drug purchasing program abuses (New York Times). Ken has never been timid about expressing his opinions. He’s passionate, partisan and proud. His defense of nonprofit healthcare chronicles their selfless care of critically ill patients, the 24/7 demands on their resources and their commitment to treating the uninsured. These “must have clinical services…don’t just magically appear.” Nonprofit healthcare needs “our support and validation in the face of extreme economic conditions and organizational headwinds. ”Given his personality, it’s not surprising that Ken’s strident rhetoric in defending nonprofit healthcare reminds me of the famous “You can’t handle the truth” exchange between Lieutenant Kaffee (Tom Cruise) and Colonel Jessup (Jack Nicholson) from the 1992 movie “A Few Good Men.” Kaffee presses Jessup on whether he ordered a “code red” that led to the death of a soldier under his command. When Kaffee declares he’s entitled to the truth, Jessup erupts,… I have neither the time nor the inclination to explain myself to a man that rises and sleeps under the blanket of the very freedom I provide and then questions the manner in which I provide it. I would rather you say, “thank you” and be on your way. Should American society just say “thank you” to nonprofit healthcare and provide the massive incremental funding required to sustain their current operations?
Truth and Consequences
(Download PDF here)The social theorist Thomas Sowell astutely observed, “If you want to help someone, tell them the truth. If you want to help yourself, tell them what they want to hear.” In this commentary, Ken Kaufman is telling nonprofit healthcare exactly what they want to hear. The truth is more nuanced, troubling and inconvenient. Healthcare now consumes 20 percent of the national economy and the American people are sicker than ever. Despite the high healthcare funding levels, the CDC recently reported in U.S. life expectancy dropped almost a full year in 2021. Other wealthy nations experienced increases in life expectancy. Combining 2020 and 2021, the 2.7-year drop in U.S. life expectancy is the largest since the early 1920s. During an interview regarding the September 28, 2022, White House Conference on Hunger, Nutrition and Health, Senator Cory Booker highlighted two facts that capture America’s healthcare dilemma. One in three government dollars funds healthcare expenditure. Half of Americans suffer from diabetes or pre-diabetes.As a nation, we’re chasing our tail by prioritizing treatment over prevention. Particularly in low-income rural and urban communities, there is a breathtaking lack of vital primary care, disease management and mental health services. Instead of preventing disease, our healthcare system has become adept at keeping sick people alive with a diminished life quality. There is plenty of money in the system to amputate a foot but little to manage the diabetes that necessitates the amputation. Despite mission statements to the contrary, nonprofit healthcare follows the money. The only meaningful difference between nonprofit and for-profit healthcare is tax status. Each seeks to maximize treatment revenues by manipulating complex payment formularies and using market leverage to negotiate higher commercial payment rates. According to Grandview Research, the market for revenue cycle management in 2022 is $140.4 billion and forecasted to grow at a 10% annual rate through 2030. By contrast, Ibis World forecasts the U.S. automobile market to grow 2.6% in 2022 to reach $100.9 billion. Unbelievably, in today’s America, processing medical claims is far more lucrative than manufacturing and selling cars and trucks. According to CMS’s National Expenditure Report for 2020, hospitals (31%) and physicians and clinical services (20%) accounted for over half of national healthcare expenditures. This included $175 billion allocated to providers through the CARES Act. Despite the massive waste embedded within healthcare delivery, the CARES Act funding gave providers the illusion that America would continue to fund its profligate and often ineffective operations. It’s not at all surprising that healthcare providers now want, even expect, more emergency funding. Change is hard. Not even during COVID did providers give up their insistence on volume-based payment. Providers did not embrace proven virtual care and hospital-at-home business practices until CMS guaranteed equivalent payment to existing in-hospital/clinic service provision. Even with parity payment and the massive CARES Act funding, there was uneven care access for COVID patients. Particularly in low-income communities, tens of thousands died because they did not receive appropriate care. More of the same approach to healthcare delivery will yield more of the same dismal results. Healthcare providers have had over a decade to advance value-based care (VBC). I define VBC as the right care at the right time in the right place at the right price. Instead of pursuing VBC, providers have doubled-down on volume-driven business models that attract higher-paying commercially-insured patients. Despite the relative ease of migrating service provision to lower-cost settings, providers insist on operating high-cost, centralized delivery models (think hospitals). They want society, writ large, to continue paying premium prices for routine care. It’s time to stop. As a country, we need less healthcare and more health.
A Fourth Question
(Download PDF here)

When I give speeches to healthcare audiences, I typically begin with three yes-or-no questions about U.S. healthcare to establish the foundation for my subsequent observations. Here they are. Question #1: The U.S. spends 20% of its economy on healthcare. The big country with the next highest percentage spend is France at 12%. How many believe we need to spend more than 20% of our economy to provide great healthcare to everyone in the country? No one ever raises their hand. Question #2: The CDC estimates that 90% of healthcare expenditure goes to treat individuals with chronic disease and mental health conditions. How many believe we’re winning the war against chronic disease and mental health conditions? No one ever raises their hand. Question #3: Given the answer to the previous two questions, how many believe the system needs to shift resources from acute and specialty care into health promotion, primary care, chronic disease management and behavioral health? Everyone raises their hands. This short exercise is quite revealing. It demonstrates that healthcare doesn’t have a funding problem. It has a distribution problem. It also demonstrates that providers aren’t adequately addressing our most critical healthcare challenge, exploding chronic disease and mental health conditions. Finally, the industry needs major restructuring.

The real questions about reforming healthcare are less about what to reform and more about how to undertake reform. The increasing media scrutiny that Ken Kaufman references as well as growing consumer frustrations with healthcare service provision, demonstrate that healthcare is losing the battle for America’s hearts and minds.

Markets are unforgiving. The operating losses most nonprofit providers are experiencing reflect a harsh reality. Their current business models are not sustainable. An economic reckoning is underway. The long arc of economics points toward value. As healthcare deconstructs, the nation’s acute care footprint will shrink, hospitals will close and value-based care delivery will advance. The process will be messy.

The devolving healthcare marketplace led me to ask a fourth question recently in Nashville during a keynote speech to the Council of Pharmacy Executives and Suppliers. Here it is. Question #4: As the healthcare system reforms, will that process be evolutionary (reflecting incremental change) or revolutionary (reflecting fundamental change). Two-thirds voted that the change would be revolutionary. That response is just one data point but it reflects why post-COVID healthcare reform is different than the reform efforts that have preceded it. The costs of maintaining status-quo healthcare are simply too high. From a policy perspective, either market-driven healthcare reforms will drive better outcomes at lower costs (that’s my hope) or America will shift to a government-managed healthcare system like those in Germany, France and Japan.

Like Ken Kaufman, I admire frontline healthcare workers and believe we need to make their vital work less burdensome. I also sympathize with health system executives who are struggling to overcome legacy business practices and massive operating deficits. Unfortunately, most are relying on revenue-maximizing playbooks rather than reconfiguring their operations to advance consumerism and value-based care delivery.

Unlike Ken Kaufman, I believe it’s time for some tough love with nonprofit healthcare providers. Payers must tie new incremental funding to concrete movement into value-based care delivery. This was the argument Zeke Emanuel, Merrill Goozner and I made in a two-part commentary (part 1part 2) in Health Affairs earlier this year. It’s also why the HFMA, where I serve on the Board, has made “cost effectiveness of health (CEoH)” its new operating mantra.

While this truth may be hard, it also is liberating. Freeing nonprofit organizations from their attachment to perverse payment incentives can create the impetus to embrace consumerism and value. Kinder, smarter and affordable care for all Americans will follow.

Debating the best way to Chase Commercial Market Share

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Cross-subsidy economics are increasingly challenged for America’s hospitals. Aging Baby Boomers are moving from commercial insurance to Medicare, decreasing the share of patients with lucrative private coverage, and insurers are increasingly reticent to provide the rate increases providers need to make up for the worsening mix.

At a recent executive retreat, one health system debated the best strategies to increase their capture of commercial volume. Most of the conversation focused on traditional market-based tactics to increase access and awareness in fast-growing, higher income areas of their service region.

For instance, the system’s chief marketing officer was pushing to increase advertising in the rapidly expanding suburbs, and advocated building ambulatory surgery centers in a wealthy area of town with a boom of new home construction. 
 
The chief strategy officer shared a different perspective, supporting an employer-focused strategy. His logic: “In most businesses, the CEO and the janitor have the same benefit plans. If we only focus on the wealthy parts of town, we’re missing a big portion of the workers with good insurance.” He advocated for a new round of direct-to-employer contracting outreach, hoping to steer workers to high-value primary and specialty care solutions.

In reality, any system looking to move commercial share will need to do both—but even the best playbook for building commercial volume is unlikely to close the growing cross-subsidy gap. To maintain profitability in the long term, health systems must reduce costs for managing Medicare patients by delivering lower-cost care in lower-cost settings, with lower-cost staff.