Democratic lawmakers have reached a deal on legislation to lower prescription drug prices to be included in President Biden‘s social spending package, Senate Majority Leader Charles Schumer (D-N.Y.) announced Tuesday.
The agreement is less far-reaching than earlier Democratic proposals, but still represents progress on an issue the party has campaigned on for years.
The agreement would allow Medicare to negotiate drug prices in limited instances, prevent drug companies from raising prices faster than inflation and cap out-of-pocket costs for seniors on Medicare at $2,000 per year.
Democrats scaled back their earlier sweeping measure because of concerns from a handful of moderates that it would have harmed innovation from drug companies to develop new treatments. Sen. Kyrsten Sinema (D-Ariz.), as well as Reps. Scott Peters (D-Calif.) and Kurt Schrader (D-Ore.) were among those moderates and helped lead negotiations with leadership over the compromise measure.
“It’s not everything we all wanted, many of us would have wanted to go much further, but it’s a big step in helping the American people deal with the price of drugs,” Schumer told reporters.
Sinema said in a statement that she supported the agreement. “The Senator welcomes a new agreement on a historic, transformative Medicare drug negotiation plan that will reduce out-of-pocket costs for seniors – ensuring drug prices cannot rise faster than inflation – save taxpayer dollars, and protect innovation to ensure Arizonans and Americans continue to have access to life-saving medications, and new cures and therapeutics,” Sinema’s office said.
One of the key compromises leading to a deal was limiting the scope of Medicare’s ability to negotiate lower drug prices, which has long been a signature Democratic proposal. Lawmakers agreed to limit Medicare’s ability to negotiate to older drugs that no longer have “exclusivity,” meaning the period when they are protected from competition. Earlier versions of Democrats’ bills would have allowed negotiation for newer drugs too.
A draft measure that circulated to lobbyists in recent days would allow negotiation for 10 drugs starting in 2025 and 30 drugs starting in 2028. Full details of the final measure have not yet been released.
Edward Karlovich serves as the executive vice president and CFO for UPMC, a $23 billion provider and insurer based in Pittsburgh.
Since joining UPMC in 1990, Mr. Karlovich has served in several financial leadership roles. Most recently, he was vice president, CFO and chief of staff for UPMC’s Health Services Division. He became CFO of the entire integrated system with 40 hospitals in October 2020, after serving on an interim basis for about a year.
Here, Mr. Karlovich shares with Becker’s the skills he thinks CFOs need to succeed today, some key capital projects in the works at UPMC and his organization’s top financial priorities.
Editor’s note: Responses were lightly edited for length and clarity.
Question: What is the most pressing issue facing hospital CFOs due to COVID-19?
Edward Karlovich: I would say the most pressing issue for me is disruption. COVID-19 has done many things to disrupt the way we think about our organization and business. Some disruptions we faced in the last year include staffing and supply chain challenges. UPMC did a great job weathering through the supply disruptions and labor challenges. We always had adequate personal protective equipment for our folks here. We also really made a conscientious decision last year to keep our workforce intact; we didn’t lay off workers, and we took care of people who needed time off because of COVID-19. We also made sure employees knew they had the support of our executive leadership team. In summary, COVID-19 has created a disruption, and we must think about how things are different now coming out of the disruption.
Q: What are some things you are doing to work through the change/disruption?
EK: From an organizational perspective, we embarked on what we call the “UPMC experience” a few years ago. We looked at the way we are doing things to understand the experience of our employees and patients. This prepared us to be more creative in our thinking as to how we address challenges and disruption. We also learned through this the importance of interdependencies. Our business, both provider and insurance side, discussed a need to tackle the disruptions in an integrated way and discussed a need to communicate changes effectively. This year, we provided about 40 news conferences to get the standard message out across all of our regions. We also have a 90,000-plus employee organization which allows you to move around resources to deal with some challenges and disruptions.
Q: What are UPMC’s top financial priorities for 2022?
EK: From a financial perspective, we want to maintain a positive margin to support our capital investments and employees. To do this, we are focused on a few things. First, supporting our operating employees to ensure they can perform to the best of their ability. They are the ones who make the difference each and every day. Second, we want to make sure we, as a finance team, can provide the things that the organization needs to be successful. This includes, but is not limited to, making sure supply chain folks can get all needed supplies and ensuring we have the cash collections needed to fund our organization. Another priority is making sure we provide the advice and guidance needed to invest our dollars effectively so we can prepare for the next challenge.
Q: What are a few key capital projects UPMC has in the works?
EK: UPMC is a premier provider in our community, and we operate a number of specialty hospitals in the area. We are the primary pediatric, psychiatric, women’s health and oncology provider in the region. Over the past couple of years, we’ve embarked on a journey to provide new facilities in western Pennsylvania for these major programs. We are also investing heavily in a vision and rehabilitation institute, which is a $500 million project that will put our clinicians, researchers and other providers together to drive breakthroughs in vision care and rehabilitation.
We also are going to embark on a new tower for UPMC Presbyterian Oakland Campus [in Pittsburgh]. It is going to be the largest capital project we’ve embarked on since I’ve been here. This project will be more than $1 billion and is so important to the community.
The third thing we are looking at is enhancing our oncology services and product at UPMC Shadyside [in Pittsburgh]. What we’ve recognized is that we are the provider and insurer of choice in western Pennsylvania, and we have to invest in this community for the next 50 to 100 years.
Q: What skills are essential for hospital and health system CFOs to thrive in today’s healthcare landscape?
EK: The technical skills are given as CFO. To get in that leadership position, you have to be able to perform the necessary tasks. However, to make your organization better, I could boil it down to four things. First, you have to be a partner to your other senior leaders. Finance doesn’t exist in a vacuum. You have to be in the room with those folks, helping them manage and drive the business. The second thing is flexibility. If you think about what we experienced as an industry over the last two years, if you weren’t flexible, you were going to be seriously challenged. Flexibility is such an important attribute because the pace of change is going to accelerate in our industry. Third, I’d say talent recognition is a key skill. It is important to be able to find talent as well as mentor and develop them as employees who can provide a great service to the organization. Fourth, you have to embody integrity. There is no doubt in my mind that integrity is a core value that is essential to everything you do as a finance leader. You have to maintain your integrity at all times. Those are essential skills. If you’re going to be a successful CFO now, you have to have those skills outside of the technical.
Q: What is one piece of advice you would offer to another healthcare CFO, and why?
EK: I’d say, look beyond the challenges of today. It’s not just about what you can actually see and envision in front of you. Try to look at the implications that are not necessarily top of mind. What the future holds is uncertain for all of us in healthcare now. You need to be thinking about what things might be coming down the road that will change our business and commitment to our communities dramatically. Try to brainstorm around that. Trying to think forward and speculate about what might happen is very valuable.
Operating cash flow margins for nonprofit hospitals fell to a median 7% in 2020.
A shortage of nurses and other workers will continue to erode hospital financial performance into 2022, according to a new Healthcare Quarterly report from Moody’s.
A rise in COVID-19 cases in various regions of the United States has contributed to a wave of nurses, often burned out, resigning to take care of family, to work in less acute healthcare settings such as ambulatory care or to pursue higher-paying contract opportunities, such as becoming a travel nurse.
Hospitals are also having difficulty finding other types of healthcare workers, such as respiratory therapists and imaging technicians, as well as nonclinical workers in areas such as dietary, housekeeping and environmental services.
WHY THIS MATTERS
The report holds no surprises for hospital executives, who already know the financial affect labor shortages are having on revenue. But Moody’s confirms projections that rising costs will make it difficult for hospitals to rebuild margins to pre-COVID-19 levels.
Labor shortages are driving up costs and also may be limiting the number of lucrative elective procedures, resulting in lost revenue. Not-for-profit hospitals saw operating cash flow margins fall to a median 7% in 2020, from 8.3% in the three prior years, according to Moody’s median data.
Hospitals using contract nurses report that hourly wages are very high, in some cases higher now with the Delta variant than during earlier COVID-19 surges. Many hospitals and health systems have also increased minimum wages for nonclinical workers and are finding they must compete with other service sectors, such as the food industry, to attract nonclinical staff.
Given their substantial reliance on government reimbursement from Medicare and Medicaid, most healthcare providers maintain limited pricing flexibility to offset the costs of higher wages. While there are opportunities for more lucrative commercial insurance contracts, rates are the subject of intense negotiations, limiting providers’ pricing power, Moody’s said.
Providers with strong liquidity and diversified cash flow will remain better positioned to manage stress from cost constraints. Hospitals are taking steps to retain nurses, including developing “float pools” of nurses who can work in multiple departments, increasing retention and merit pay, and expanding healthcare benefits such as mental health and child care services.
LifeBridge Health, a not-for-profit health system operating in Baltimore and Carroll County, Maryland, paid its nursing staff retention bonuses in December 2020 as the labor market tightened. To recruit nurses, many systems are offering signing bonuses in exchange for multi-year work commitments as well as scholarship and loan forgiveness programs with local nursing schools.
While these strategies will ease the effect of labor shortages over the long term, they will cause hospitals’ costs to increase in 2022 as salaries and benefits typically represent at least half of a hospital’s expenses. Labor shortages will also likely spark an increase in unionization efforts or lead to more difficult negotiations between unions and providers, potentially increasing costs via new contracts.
THE LARGER TREND
The quarterly report focused on the impact of labor shortages and cost pressures for various sectors, including hospitals, insurers, pharmaceuticals, healthcare services such as staffing firms and health insurers.
Health insurers are less affected by labor shortages, wage pressure and potentially burgeoning inflation than many other healthcare sectors, Moody’s said. Insurers reset premiums each year, which helps them to offset inflation. But if the government does not keep up with payment, providers will look to insurers to make up the shortfall.
Large physician staffing companies, such as Envision Healthcare Corporation and Team Health Holdings, will experience pressure on their profitability as it becomes harder and more expensive to fill open positions as burnout and retirements decrease the number of doctors available to work.
Travel nurse staffing has higher profit margin resilience compared to physician staffing, the report said.
For real estate investment trusts, worker shortages are slowing net operating income growth for REITs to invest in senior housing and skilled nursing facilities.
Growth in salaries and benefits has exceeded hospitals’ expense growth, a trend likely to continue for the remainder of 2021 andinto 2022, Moody’s said in an earlier October report.
In one bright spot in the earlier report, Moody’s noted recent rises in nursing school enrollment indicating a more robust long-term staffing pipeline. However, the aging population, combined with a healthcare workforce that may be retiring from their jobs or quitting due to burnout, represent long-term healthcare staffing challenges nationwide.
Health economists study the economic determinants of health. They also analyze how health care resources are utilized and allocated, and how health care policies and quality of care can be improved. In this episode, we discuss what exactly a healthcare system would look like if these professionals were calling all the shots.
Medicare for All, which would extend health coverage to all Americans, has been a hot topic of debate in recent years. Researchers have looked into the many ways that a switch to Medicare for All might change our lives, and one of those areas of change might be wages. Employer provided healthcare is baked into our current system of healthcare, and there are a lot of studies that look at how employer paid premiums can depress wages, and how our paychecks might shift in a M4A-type situation.
Labor shortages from the COVID-19 pandemic will continue to worsen the financial performance of nonprofit and for-profit hospitals into 2022, an October Moody’s quarterly report found.
As nurses and other workers deal with burnout and resign from positions, some hospitals are limiting elective procedures, which is reducing revenue. They’re also increasing minimum wage and using contract nurses with much higher hourly wages.
Physician staffing companies like Envision Healthcare Corp. and TeamHealth will also struggle with profitability as it becomes more difficult to fill open positions because of fewer available physicians, the report said.
An Association of American Medical Colleges study in 2020 found that more than 2 out of 5 physicians will be 65 or older by 2030; COVID-19 is accelerating retirement.
Meanwhile, health insurers are not as affected by labor shortages, wage pressure and inflation, according to the report. Because their product is more short-term and premiums reset every year, they have more flexibility when it comes to inflation.
HENRY KOTULA 