Manatee Memorial Hospital in Bradenton, Fla., is revising its charity care policies due to funding shortfalls, a move the investor-owned hospital called a “difficult, yet responsible, fiscally prudent decision,” according to a June 3 report by the Sarasota Herald-Tribune.
Part of King of Prussia, Pa.-based Universal Health Services, Manatee Memorial Hospital is a 300-bed facility staffed by over 800 physicians, residents, and allied health professionals.
In May, the hospital informed stakeholders it would no longer accept patients enrolled in Manatee County’s healthcare plan or unfunded referrals from the We Care Manatee nonprofit for uninsured, low-income county residents, effective June 1, the Sarasota Herald-Tribune reported.
Emergency room access will be maintained in compliance with the federal Emergency Medical Treatment and Labor Act.
“Our projected deficit from unfunded care, beyond charity care, amounts to several millions of dollars,” Manatee Memorial wrote in a May letter to stakeholders, as reported by the Sarasota Herald-Tribune. “The significant cost of unreimbursed care is unsustainable. We continue to be a supportive community partner and will maintain open discussions with Manatee County regarding solutions, however, we need to make this difficult, yet responsible, fiscally prudent decision.”
In April, Manatee Memorial Hospital CEO Tom McDougal indicated the hospital’s funding for indigent care services was unsustainable. He noted that the hospital’s costs for charity, indigent and uninsured care rose by 47% over two years, reaching $21.2 million in 2023, with an additional $2.9 million in uncollectable care. Last year, the hospital received $2.7 million in indigent funding from Manatee County.
“Ladies and gentlemen, I simply can’t afford to keep doing this without being compensated for it,” Mr. McDougal said at the April 16 public county commission meeting. “It takes away care from other patients.”
McDougal made his remarks at a commission meeting focused on undocumented immigration, acknowledging that specific figures linking undocumented immigrants to the rise in charity care costs were not available. Six percent of patients in the hospital emergency room self-disclosed their status as undocumented immigrants, which Mr. McDougal believes is an undercount.
The latest changes follow Mr. McDougal’s “very uncomfortable decision,” as he put it, in February to stop oncology services and some surgeries for Manatee County health plan enrollees, as the hospital’s costs under the program reached $9 million in 2023, compared to the $2.7 million reimbursement from the county.
Nonprofit hospital margins hit 4.3% in April, up 33% year over year, according to Kaufman Hall’s “National Hospital Flash Report” released June 3.
Kaufman Hall examined data from 1,300 hospitals in Syntellis Performance Solutions’ database and found that while hospital margins are improving overall, so is the gap between the highest and lowest performing hospitals. The best performing hospitals had a margin of 28.9%, compared to -16.1% for the worst performing hospitals.
“While financial performance looks solid on the surface, a closer examination of the data shows a greater divide between high- and low-performing hospitals,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall. “Forty percent of hospitals in the United States are losing money.
Organizations who have weathered the challenges of the last few years have adopted a wide range of proactive and growth-related strategies, including improving discharge transitions and building a larger outpatient footprint.”
Operating margins were up 7% month over month and year to date operating margins were 21% higher than in 2023. Operating EBITDA margin year to date was up 14% over the same period last year, and flat with hospital performance in 2021.
Net operating revenue per calendar day jumped 9% year to date in April compared, and 5% over March 2024. Inpatient revenue climbed 12 percent year over year in April.
Hospital operating margin index also increased in April to 4.3% after three months of decline.
Of note, the data revealed:
1. Outpatient revenue increased 10% year over year in April. 2. Average length of stay dropped 4% year over year in April. 3. Emergency department visits increased to hit pre-pandemic levels.
Here are 37 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service released in 2024.
AdventHealth has an “AA” rating and stable outlook with Fitch. The rating is based on the Altamonte Springs, Fla.-based system’s competitive market position — especially in its core Florida markets — and its financial profile, Fitch said.
Advocate Health members Advocate Aurora Health and Atrium Health have “Aa3” ratings and positive outlooks with Moody’s. The ratings are supported by the Charlotte, N.C-based system’s significant scale, strong market share across several major metro areas and good financial performance and liquidity, Moody’s said.
Avera Health has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Sioux Falls, S.D.-based system’s strong operating risk and financial profile assessments, and significant size and scale, Fitch said.
Carilion Clinic has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Roanoke, Va.-based system’s scale, regional significance as a tertiary referral system with broad geographic capture, and a highly integrated physician base with a well-defined culture, Moody’s said.
Cedars-Sinai Health System has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Los Angeles-based system’s consistent historical profitability and its strong liquidity metrics, historically supported by significant philanthropy, Fitch said.
Children’s Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Dallas-based system’s continued strong performance from a focus on high margin and tertiary services, as well as a distinctly leading market share, Moody’s said.
Children’s Hospital Medical Center of Akron (Ohio) has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the system’s large primary care physician network, long-term collaborations with regional hospitals and leading market position as its market’s only dedicated pediatric provider, Moody’s said.
Children’s Hospital of Orange County has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Orange, Calif.-based system’s position as the leading provider for pediatric acute care services in Orange County, a position solidified through its adult hospital and regional partnerships, ambulatory presence and pediatric trauma status, Fitch said.
Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The rating reflects the Minneapolis-based system’s strong balance sheet, robust liquidity position and dominant pediatric market position, Fitch said.
Cincinnati Children’s Hospital Medical Center has an “Aa2” rating and stable outlook with Moody’s. The rating is supported by its national and international reputation in clinical services and research, Moody’s said.
Cleveland Clinic has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the system’s strength as an international brand in highly complex clinical care and research and centralized governance model, the ratings agency said.
Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The ratings agency said the Fort Worth Texas-based system will benefit from revenue diversification through its sizable health plan, large physician group, and an expanding North Texas footprint.
El Camino Health has an “AA” rating and a stable outlook with Fitch. The rating reflects the Mountain View, Calif.-based system’s strong operating profile assessment with a history of generating double-digit operating EBITDA margins anchored by a service area that features strong demographics as well as a healthy payer mix, Fitch said.
Hoag Memorial Hospital Presbyterian has an “AA” rating and stable outlook with Fitch. The Newport Beach, Calif.-based system’s rating is supported by its strong operating risk assessment, leading market position in its immediate service area and strong financial profile,” Fitch said.
Inspira Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the Mullica Hill, N.J.-based system will return to strong operating cash flows following the operating challenges of 2022 and 2023, as well as the successful integration of Inspira Medical Center of Mannington (formerly Salem Medical Center).
JPS Health Network has an “AA” rating and stable outlook with Fitch. The rating reflects the Fort Worth, Texas-based system’s sound historical and forecast operating margins, the ratings agency said.
Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Somerville, Mass.-based system’s strong reputation for clinical services and research at its namesake academic medical center flagships that drive excellent patient demand and help it maintain a strong market position, Moody’s said.
McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The rating reflects the Grand Blanc, Mich.-based system’s leading market position over a broad service area covering much of Michigan, the ratings agency said.
Med Center Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Bowling Green, Ky.-based system’s strong operating risk assessment and leading market position in a primary service area with favorable population growth, Fitch said.
Memorial Hermann Health System has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Houston-based system’s leading and expanding market position and strong demand in a growing region, Moody’s said.
Nationwide Children’s Hospital has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the Columbus, Ohio-based system’s strong market position in pediatric services, growing statewide and national reputation and continued expansion strategies.
Nicklaus Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating is supported by the Miami-based system’s position as the “premier pediatric hospital in South Florida with a leading and growing market share,” Fitch said.
Novant Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Winston-Salem, N.C.-based system’s recent acquisition of three South Carolina hospitals from Dallas-based Tenet Healthcare will be accretive to its operating performance as the hospitals are highly profited and located in areas with growing populations and good income levels.
Oregon Health & Science University has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Portland-based system’s top-class academic, research and clinical capabilities, Moody’s said.
Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the health system’s strong and consistent operating performance and a growing presence in a demographically favorable market, Fitch said.
Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system’s rating is driven by a strong financial profile combined with a leading market position with broad coverage in both acute care services and health plan operations, Fitch said.
Rush University System for Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Chicago-based system’s strong financial profile and an expectation that operating margins will rebound despite ongoing macro labor pressures, the rating agency said.
Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The rating reflects the Cape Girardeau, Mo.-based system’s strong financial profile, characterized by robust liquidity metrics, Fitch said.
Saint Luke’s Health System has an “Aa2” rating and stable outlook with Moody’s. The Kansas City, Mo.-based system’s rating was upgraded from “A1” after its merger with St. Louis-based BJC HealthCare was completed in January.
Salem (Ore.) Health has an”AA-” rating and stable outlook with Fitch. The rating reflects the system’s dominant marketing positive in a stable service area with good population growth and demand for acute care services, Fitch said.
Seattle Children’s Hospital has an “AA” rating and a stable outlook with Fitch. The rating reflects the system’s strong market position as the only children’s hospital in Seattle and provider of pediatric care to an area that covers four states, Fitch said.
SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system’s rating is supported by a strong financial profile, multistate presence and scale with good revenue diversity, Fitch said.
St. Elizabeth Medical Center has an “AA” rating and stable outlook with Fitch. The rating reflects the Edgewood, Ky.-based system’s strong liquidity, leading market position and strong financial management, Fitch said.
Stanford Health Care has an “Aa3” rating and positive outlook with Moody’s. The rating reflects the Palo Alto, Calif.-based system’s clinical prominence, patient demand and its location in an affluent and well insured market, Moody’s said.
UChicago Medicine has an “AA-” rating and stable outlook with Fitch. The rating reflects the system’s strong financial profile in the context of its broad and growing reach for high-acuity services, Fitch said.
University of Colorado Health has an “AA” rating and stable outlook with Fitch. The Aurora-based system’s rating reflects a strong financial profile benefiting from a track record of robust operating margins and the system’s growing share of a growth market anchored by its position as the only academic medical center in the state, Fitch said.
Willis-Knighton Medical Center has an “AA-” rating and positive outlook with Fitch. The outlook reflects the Shreveport, La.-based system’s improving operating performance relative to the past two fiscal years combined with Fitch’s expectation for continued improvement in 2024 and beyond.
Although COVID-19 cases are currently declining, some health experts have voiced concerns that circulating FLiRT variants could lead to a spike in cases as more people gather in the summer months.
What are the FLiRT variants?
Over the winter, the dominant COVID-19 variant was JN.1, which spread globally. However, a new variant called KP.2, or FLiRT due to the location of its mutations, began to emerge in March.
There are several different FLiRT variants, including KP.2, KP.1.1, and KP.3. In a two-week period ending May 11, KP.2 made up 28.2% of COVID-19 cases in the United States, while KP.1.1 made up over 7% of cases.
According to some health experts, KP.2 and KP.1.1 could be more transmissible than previous COVID-19 variants. So far, early data suggests that KP.2 may be “rather transmissible” since its new mutations help “its ability to transmit, but also now evades some of the pre-existing immunity in the population,” said Andrew Pekosz, a virologist at Johns Hopkins University.
Currently, there’s no evidence to suggest that the FLiRT variants cause more severe illness than previous COVID-19 variants. Some of the symptoms associated with the FLiRT variants include fever or chills, cough, sore throat, fatigue, a loss of taste or smell, and brain fog.
“The CDC is tracking SARS-CoV-2 variants KP.2 and KP.1.1, sometimes referred to as ‘FLiRT,’ and working to better understand their potential impact on public health,” the agency said. “Currently, KP.2 is the dominant variant in the United States, but laboratory testing data indicate low levels of SARS-CoV-2 transmission overall at this time. That means that while KP.2 is proportionally the most predominant variant, it is not causing an increase in infections as transmission of SARS-CoV-2 is low.”
Could these variants lead to another COVID-19 surge?
Currently, COVID-19 cases and deaths are declining, but health experts say the FLiRT variants’ potential to evade immunity could lead to a spike in cases as people gather for summer holidays.
Immunity may also be waning since few people received updated COVID-19 vaccines last fall. According to CDC, only 22.6% of adults reported receiving an updated vaccine since September 2023, though vaccination increased by age and was highest among those ages 75 and older.
“We’ve got a population of people with waning immunity, which increases our susceptibility to a wave,” said Thomas Russo, chief of infectious disease at the Jacobs School of Medicine and Biomedical Sciences at the University of Buffalo.
Otto Yang, associate chief of infectious diseases at the University of California, Los Angeles‘ David Geffen School of Medicine, said that while healthcare systems can manage COVID-19 waves, immunocompromised and older adults at a higher risk of developing severe disease are often overlooked.
“Those people unfortunately carry a heavy burden,” Yang said. “I’m not sure there is a good solution for them, but one thing could be better preventive measures.”
However, COVID-19 protections that were common in the past, including testing before events and mask requirements, have now fallen by the wayside, the Washington Post reports. Even events with preventive measures in place have faced difficulties enforcing them.
“Culturally we are coming away from it as a society, so it gets much harder to ask people to really be consistent, because they aren’t doing it anywhere else,” said D Schwartz, who organized a large LGBTQ+ community gathering event in Washington, D.C. “You go into a movie theater now, you see maybe five people wearing a mask.”
Declining data collection has also impacted how people view the current COVID-19 situation. Although CDC still tracks coronavirus levels in wastewater and the percentage of ED visits with a diagnosed case of COVID-19, hospitals stopped reporting confirmed COVID-19 cases in April.
“We’re kind of shooting blind now,”
said Peter Hotez, dean of the National School of Tropical Medicine at Baylor College of Medicine and co-director of the Texas Children’s Hospital Center for Vaccine Development. Hotez also noted that a lack of data collection will make it harder to convince Americans that COVID-19 is enough of a threat to require continued vaccination.
“If a wave materializes this summer, we’re less poised to navigate the rough waters,” said Ziyad Al-Aly, an epidemiologist and long COVID researcher at the Veterans Affairs health system in St. Louis.
On the one hand, the alternative to traditional Medicare is still popular among consumers, who have been lured by the promises of lower out-of-pocket costs and increased supplemental benefits.
On the other hand,Medicare Advantage profitability is on the decline, as shown in recent quarterly reports from the large insurers. The headwinds, executives said during recent earnings calls, have been due to greater than expected utilization of benefits and lower than expected reimbursement from the government.
Adding to MA’s margin challenges are providers who are making the decision to cut their ties with MA plans rather than deal with delays in prior authorization and claims payments.
Moody’s Investors Service said this year, and an HFMAsurvey from March indicates 19% of health systems have discontinued at least one Medicare Advantage plan, while 61% are planning to or considering dropping Medicare Advantage payers.
Until recently, the story of Medicare Advantage was one of ascendancy. Just last year it hit a milestone: More than half of eligible Medicare beneficiaries are now in MA plans. So why is business taking a step back?
WHY THIS MATTERS
There are many factors at play, but a big one is the 3.7% rate increase for 2025 that Medicare Advantage plans will receive from the Centers for Medicare and Medicaid Services. The federal government is projected to pay between $500 and $600 billion in Medicare Advantage payments to private health plans, according to the 2025 Advance Notice for the Medicare Advantage and Medicare Part D Prescription Drug Programs released in April.
The payment rate was considered inadequate by insurers, who were also troubled over other key factors, including a 0.16% reduction in the Medicare Advantage benchmark rate for 2025, which represents a 0.2% decrease.
“AHIP has strong concerns that the estimated growth rate in the Advance Notice – an average of 2.44% – will lead to benchmark changes that are insufficient to cover the cost of caring for 33 million MA beneficiaries in 2025,” AHIP president and CEO Mike Tuffin said in April. “The estimate does not reflect higher utilization and cost trends in the healthcare market that are expected to continue into 2025.”
According to Karen Iapoce, vice president Government Programs at ZeOmega, the cost of running an MA business is increasing due to the burdens being placed on health plans.
“If you sit inside with a health plan, they’re asked to do a lot with not as much bandwidth as they had before,” said Iapoce. “For example, health equity requires plans to have new regulatory guidance they need to meet. There’s a host of measures around health equity. Our plans are not in the business of really understanding how to manage transportation, how to manage housing, so they’re working with other entities. This requires an expert to sit in with the health plan … and then track and report. On the business end, they want to show an ROI, but that could be six months or a year down the line.”
Because of that, she said, the benchmark rate is likely insufficient to cover the projected increase in administrative and other costs. Iapoce said the benchmark rates represent the maximum amount that will be paid to a person in a given county; this is used as a reference point for calculation. If a plan is higher than the benchmarks, the premiums end up going to the beneficiary. More commonly, the plans bid below the benchmark, and the difference represents the rebate plans will receive. But they also factor into risk adjustment.
“The plans are getting into these contract negotiations, so they have to know what goes into that benchmark,” said Iapoce. “I might not be a high utilizer, but you may be. If we’re bringing in a community of high utilizers, there’s no one offsetting that. There’s no balance.”
Richard Gundling, senior vice president, content and professional practice guidance at HFMA, said MA plans started running into these issues when the program crossed over the threshold of more than 50% of beneficiaries.
“When a Medicare Advantage plan comes in, then all the extra administrative burdens come into play,” said Gundling. “So you have prior authorizations, all the issues around lack of payment and denials. Patients get caught in the middle, and in particular elderly patients think they’re still on traditional Medicare.
“It used to be that healthier beneficiaries went into Medicare Advantage,” he added. “Sicker beneficiaries tended to stay in traditional Medicare. That’s not the case anymore, and so there’s a higher spend.”
Gundling said beneficiaries are likely flocking to MA with visions of lower costs and increased benefits such as eyeglasses and hearing aids, and many don’t realize the tradeoffs, such as prior authorizations and network restrictions.
MA remains popular with seniors, but studies show the plans cost the government more money than original Medicare.
A 2023 Milliman report showed annual estimated healthcare costs per beneficiary are $3,138, compared to $5,000 for traditional fee-for-service Medicare, and over $5,700 if a traditional Medicare beneficiary also buys a Medigap plan.
MA membership has grown nationally at an annual rate of 8% to approximately 32 million, while traditional Medicare has declined at an average annual rate of 1%. As that has happened the percentage of people choosing MA has grown to 49% from 28%, data shows.
Yet Medicare Advantage profitability is on the decline, Moody’s found in February. That’s largely because of a significant spike in utilization for most of the companies, which Moody’s expects will result in lower full-year MA earnings for insurers. Adding to that is lower reimbursement rates for the first time in years that are likely to remain weaker in 2025 and 2026, which is credit negative.
Moody’s analysts contend that MA may have “lost its luster,” citing as evidence Cigna’s efforts to sell its MA business, even after a failed merger with Humana.Cigna this past winter announced it had entered into a definitive agreement to sell its Medicare Advantage, Supplemental Benefits, Medicare Part D and CareAllies businesses to Health Care Service Corporation (HCSC) for about $3.7 billion.
Iapoce said Medicare Advantage may be a victim of its own success.
“Because of all this great promotion about what a Medicare Advantage plan can do for you, you’re seeing an increase in enrollment, or more people moving over, and the demographics are starting to change,” she said.
For many consumers, the appeal of an MA plan is the same as that of an online retailer like Amazon, said Iapoce. Such retailers offer one-stop shopping for a variety of goods, and the perception is that MA essentially offers one-stop shopping for a variety of healthcare services and benefits.
But while this massive shift is happening, it puts providers in an awkward position, said Iapoce.
“Their reimbursement is almost being dictated, in essence, by a health plan,” she said. “It almost feels like the payer has the upper hand over the provider. Think: I’m a provider. It’s my job to get this female with this particular age and condition a mammogram, and the health plan has told me to get her a mammogram. But you, as the health plan, get the money for it. I, as the provider … what am I getting? What’s it doing for me? It becomes this very tense situation, and the provider is probably the entity that is running on the thinnest of staff.”
Gundling expects that despite some “growing pains,” MA will remain viable and continue to grow.
“Nobody’s going to stay still,” said Gundling. CMS has to consider, ‘Are we paying the health plans appropriately for the types of patients they have?’ And then health plans will need to look at their medical utilization rules – ‘Are we overdoing pre-authorization or denying things appropriately?’ And providers need to say, ‘This is a market we need to continue to grow.’
“There’s still going to be a role for it,” he said. “It’s just that we’ve introduced a larger population into it, and I think that’s where a lot of the surprises come in.”
THE LARGER TREND
CVS reportedearlier this month that healthcare-benefits medical costs, primarily due to higher-than-expected Medicare Advantage utilization, came in approximately $900 million above expectations.
Last month, Humana said it expected membership may take a hit from future Medicare Advantage pricing resulting from the CMS payment rate notice. Humana is actively evaluating plan level pricing decisions and the expected impact to membership, president and COO James Rechtin said on the call.
Elevance Health, formerly Anthem, reported a 12.2% earnings increase for Q1, but company margins have not been as affected as those insurers that are heavily invested in the MA market. Fewer of its members are in MA plans compared to other large insurers Humana, CVS Health or UnitedHealth Group, executives said.
Speaking of Andrew Witty, the UnitedHealth chief spurred a freakout last week on Wall Street after he said the company was beginning to see a “disturbance” in its Medicaid medical costs. More people on Medicaid are going to the doctor and hospital, which eats into the insurance company’s profits.
The biggest insurers that run state Medicaid programs — UnitedHealth, Elevance Health, Centene, and Molina Healthcare — all saw their stocks take a dive after Witty’s disclosure. For the past year, the surge in medical services has mostly been confined to older adults in Medicare Advantage plans.
Wall Street largely did not account for that trend creeping into Medicaid, which covers low-income people.
This switch is largely a function of the government’s Medicaid “redeterminations” process, Centene CEO Sarah London said at a banking conference Friday. During the pandemic, states didn’t have to kick people off Medicaid if they no longer were eligible. But over the past year, states had to redetermine if someone still qualified for coverage, and to boot those that no longer did. As fewer people remain enrolled in Medicaid, the ones who have stayed are sicker and are getting more care.
Looking ahead, London told investors not to worry. That’s because Centene and other insurers will get more money from state Medicaid programs (translation: taxpayers) over the next several months, through routine payment updates, to match how sick its enrollees are. The explanation worked: The stocks of all the Medicaid insurers rose on Friday.
“We know how to do this,” London said. “This dynamic of redeterminations is unprecedented right now because of the scale. But matching rates to acuity in Medicaid is normal course.”
Permanente grabbed everyone’s attention last year when it said it was creating Risant Health, a new and vague entity that acquired Geisinger and had plans to scoop up at least four more health systems that are focused on “value-based care.”
Well, nothing has happened since then, at least publicly. Instead, everyone has been playing the parlor game of guessing who those next systems could be. There are some rumblings that the next deal could be announced in the near future. After reading some recent hospital financial reports, it’s clear there are a handful of systems that mirror Geisinger’s shaky trajectory and could find themselves in Kaiser’s crosshairs.
But Kaiser is being very deliberate in its next targets. “The old phrase, ‘Measure twice, cut once’ — Kaiser will measure four or five times before they cut,” said Kevin Holloran, a senior director at Fitch Ratings who leads the company’s nonprofit health care group.
By picking Geisinger as its first acquisition, Kaiser has established some criteria for future Risant targets.Read my story to learn which health systems could fit the mold.
As campaigns for November elections gear up for early voting and Congress considers bipartisan reforms to limit consolidation and enhance competition in U.S. healthcare, prospective voters are sending a cleat message to would-be office holders:
Healthcare Affordability must be addressed directly, transparently and now.
Polling by Gallup, Kaiser Family Foundation and Pew have consistently shown healthcare affordability among top concerns to voters alongside inflation, immigration and access to abortion. It is higher among Democratic-leaning voters but represents the majority in every socio-economic cohort–young and old, low and middle income and households with/without health insurance coverage., urban and rural and so on.
It’s understandable: household economic security is declining: per the Federal Reserve’s latest household finances report:
72% of US adults say they are doing well financially (down from 78% in 2021)
54% say they have emergency savings to cover 3 months expenses ($400)—down from high of 59% in 2015.
69% say their finances deteriorated in 2023. They’re paying more for groceries, fuel, insurance premiums and childcare.
Renters absorbed a 10% increase last year and mortgage interest spike has put home ownership beyond reach for 6 in 10 households
Thus, household financial security is the issue and healthcare expenses play a key role. Drug prices, hospital consolidation, price transparency and corporate greed will get frequent recognition in candidate rhetoric. “Reform” will be promised. And each sector in the industry will offer solutions that place the blame on others.
Granted, the U.S. health system lacks a uniform definition of healthcare affordability. It’s a flaw. In the Affordable Care Act, it was framed in the context of an individual’s eligibility for government-subsidized insurance coverage (8.39% adjusted gross income for households between 100% and 400% of the federal poverty level). But a broader application to the entire population was overlooked. Nonetheless, economists, regulators and consumers recognize the central role healthcare affordability plays in household financial security.
Handicapping the major players potential to win the hearts and minds of voters about healthcare affordability is tricky:
Each major sector has seen the ranks of its membership decrease and the influence (and visibility) of its bigger players increase. They’re easy targets for industry critics.
Each sector is seeing private equity and non-traditional players play bigger roles. The healthcare landscape is expanding beyond the traditional players.
Each sector is struggling to make their cases for incremental reforms while employers, legislators and consumers want more. Bipartisan support for anything is a rarity: an exception is antipathy toward healthcare consolidation and lack of price transparency.
All recognize that affordability is complicated. Unit cost and price increases for goods and services are the culprit: excess utilization is secondary.
Against this backdrop, here’s a scorecard on the current state of preparedness as each navigates affordability going into Campaign 2024:
Sector
Advantages
Disadvantages
Handicap Score1=Unprepared to5=Well Prepared
Hospitals
Community presence (employer, safety net) Economic impact Influence in Congress Scale: 30% of spending + direct employment of 52% of physicians Access to capital
Lack of costs & price transparency Unit costs inflation due to wage, supply chain & admin Shifting demand for core services. Low entry barriers for key services Regulator headwind (state, federal). Operating, governing culture Value proposition erosion with employers, pre-Medicare populations Consumer orientation
3
Physicians
Consumer trust Influence in Congress Shared savings (Medicare) Essentiality Specialization Access to technology
Care continuity Inadequacy of primary care Disorganization (fragmentation) Value of shared savings to general population (beyond Medicare) Culture: change-averse (education, licensing performance measurement, et al) Data: costs, outcomes
2
Drug Manufacturers
Increasing product demand Influence in Congress Public trust in drug efficacy Insurance structure that limits consumer price sensitivity to OOP Potential for AI -enabled discovery, market access Access to private capital Congress’ constraint on PBMs
Unit cost escalation Lack of price transparency Growing disaffection for FDA Long-term Basic Research Funding State Price Control Momentum Market access Restrictive Formulary Growth Transparency in Distributor-PBM business relationships Public perception of corporate greed
2
Health Insurers
Availability of claims, cost data Employer tax exemptions Growing government market Plan design: OOP, provider access Public association: coverage = financial security Access to private capital
Escalating premiums Declining group market Growing regulatory scrutiny (consolidation, data protection) Tension with health systems Value proposition erosion among government, employers, consumers
4
Retail Health
Non-incumbrance of restrictive regulatory framework Consumer acceptance Breadth of product opportunities Access to private capital Opportunity for care management (i.e. CVS- Epic) Operational orientation to consumers (convenience, pricing, et al) Potential with employers,
Lack of access, coordination with needed specialty care Threat of regulatory restraint on growth Risks associated with care management models
3
The biggest, investor-owned health insurers own the advantage today. As in other sectors, they’re growing faster than their smaller peers and enjoy advantages of scale and private capital access to fund their growth. A handful of big players in the other sectors stand-out, but their affordability solutions are, to date, not readily active.
In each sector above, there is consensus that a fundamental change in the structure, function and oversight of the U.S. health is eminent. In all, tribalism is an issue: publicly-owned, not for profits vs. investor-owned, independent vs. affiliated, big vs. small and so on.
Getting consensus to address affordability head on is hard, so not much is done by the sectors themselves. And none is approaching the solution in its necessary context—the financial security of a households facing unprecedented pressures to make ends meet. In all likelihood, the bigger, more prominent organizations in their ranks of these sectors will deliver affordability solutions well-above the lowest common denominators that are comfortable for most Thus, health care affordability will be associated with organizational brands and differentiated services, not the sectors from which their trace their origins. And it will be based on specified utilization, costs, outcome and spending guarantees to consumers and employers that are reasonable and transparent.
HENRY KOTULA 