US consumer price increases cooled during the month of April, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.
The Consumer Price Index (CPI) rose 0.3% over the previous month and 3.4% over the prior year in April, a slight deceleration from March’s 3.5% annual gain in prices and 0.4% month-over-month increase.
April’s monthly increase came in lower than economist forecasts of a 0.4% uptick. The annual rise in prices matched estimates, according to data from Bloomberg, and marked the slowest gain in three months.
On a “core” basis, which strips out the more volatile costs of food and gas, prices in April climbed 0.3% over the prior month and 3.6% over last year — cooler than March’s data. Both measures met economist expectations.
Investors now anticipate two 25 basis point cuts this year, down from the six cuts expected at the start of the year, according to updated Bloomberg data.
Markets rose following the data’s release, with the 10-year Treasury yield (^TNX) falling about 6 basis points to trade around 4.38%.
“The lack of a nasty surprise this time around is welcomed,” Bankrate senior economist analyst Mark Hamrick wrote in reaction to the print. Still, Hamrick added, “with the 3.4% year-over-year headline increase and 3.6% in the core (excluding food and energy), these remain irritatingly high. The status of the battle against inflation requires that interest rates remain elevated in the near-term.”
Following the data’s release, markets were pricing in a roughly 53% chance the Federal Reserve begins to cut rates at its September meeting, according to data from the CME FedWatch Tool. That’s up from about a 45% chance the month prior.
Shelter, gas prices remain sticky
Notable call-outs from the inflation print include the shelter index, which rose 5.5% on an unadjusted, annual basis, a slowdown from March. The index rose 0.4% month over month and was the largest factor in the monthly increase in core prices, according to the BLS.
Sticky shelter inflation is largely to blame for higher core inflation readings, according to economists.
The index for rent and owners’ equivalent rent (OER) each rose 0.4% on a monthly basis, matching March’s rise. Owners’ equivalent rent is the hypothetical rent a homeowner would pay for the same property.
Lodging away from home decreased 0.2% in April after rising 0.1% in March.
Energy prices continued to rise in April, buoyed by higher gas prices. The index jumped another 1.1% last month, matching March’s increase. On a yearly basis, the index climbed 2.6%.
Gas prices rose 2.8% from March to April after climbing 1.7% the previous month.
The food index increased 2.2% in April over the last year, with food prices flat from March to April. The index for food at home decreased 0.2% over the month while food away from home rose another 0.3%.
Other indexes that increased in April included motor vehicle insurance, medical care, apparel, and personal care. Motor vehicle insurance, a standout in March’s report after the category jumped 2.6%, climbed another 1.8% in April.
The indexes for used cars and trucks, household furnishings and operations, and new vehicles were among those that decreased over the month, according to the BLS.
During the first quarter of 2024, hospitals and health systems across the nation experienced a rise in payments that were either delayed or missing, a report from Strata Decision Technology found.
The rise was largely due to a significant disruption in payment processing services, according to the report which integrated financial, operational and claims information sourced from hospitals, health systems and various other healthcare entities nationwide in order to assess performance trends.
Additionally, the report found that depending on the size of the hospital, the gap between expected and actual revenue ranged from 16.5% to 17.9% for the first three months of 2024.
Large hospitals with operating expenses exceeding $2.5 billion experienced the most significant impacts in terms of percentage, according to the report. These hospitals saw a starting shortfall of 12.2% for services provided in January, which then increased to 20.3% in February and peaked at 21.1% in March, averaging 17.9% over the three-month period.
According to Strata, this indicates a substantial financial challenge for these institutions, particularly considering that payments can take several weeks to process after the date of service.
Smaller hospitals with less than $500 million yearly operating costs were the next most affected group. On average, they had a 17.1% deficit for the quarter. This gap grew from 12% in January to 20.4% by March.
On March 8, 2023, Silicon Valley Bank (SVB) announced a $1.8 billion loss from the sale of securities to cover a decline in clients’ deposits. The following day, SVB’s stock dropped 60% and the bank saw a historic $42 billion in withdrawal requests. Twenty-four hours later, SVB was under the control of U.S. banking regulators and concern turned into panic across the banking sector.
More recently, the cyberattack on Change Healthcare raised the issue of counterparty risk in a different sector. Provider organizations—especially those that had become predominantly reliant on Change Healthcare for health plan payment processing—experienced serious cash flow issues.
Both the SVB and Change Healthcare incidents brought to the fore significant new risks that were at least in part driven by rapidly evolving technological change. An April 28, 2023, report by the Federal Reserve responding to SVB’s collapse noted how “social media enabled depositors to instantly spread concern about a bank run, and technology enabled immediate withdrawals of funding.” The Change Healthcare cyberattack was the most dramatic example to date of a problem that is growing quickly across the healthcare industry, as cyber criminals seek access to data-rich health records.U.S. Department of Health & Human Services data shows a 93% increase in large data breaches the healthcare sector from 2018 to 2022 and a 278% increase in large data breaches involving ransomware over the same period.
Lessons learned over the past year
The SVB collapse and Change Healthcare cyberattack have taught several important lessons:
The risk of contagion is real. The problems of one organization can quickly spread across an entire sector. In the case of SVB, instability and uncertainty led to a flight to safety, as both corporate clients and consumers shifted their deposits into what the Federal Reserve describes as “systemically important institutions,” leaving regional banks scrambling to reassure clients of their financial health.
Not all risks can be anticipated. The Federal Reserve report on the SVB collapse notes that “as risks continue to evolve, we need to…be humble about our ability to assess and identify new and emerging risks.”
Solutions take time to implement. Major relationships with a bank, a payment processing platform, or any other significant counterparty can not be shifted overnight. It can take weeks—or even months—to identify a new partner and implement the processes and technologies needed to transfer data and funds. Existing clients of the new partner can experience impacts as well if a major in-flow of new clients strains the partner’s ability to service its accounts.
Risk diversification must be a priority. These events are generating a “hyper focus” by boards, C-suite executives, and finance and treasury professionals to diversify risk within their major counterparty relationships and create formal counterparty risk policies.
Not all risks can be fully mitigated. Having a balance sheet that can weather the storm if a risk materializes is of paramount importance. Measuring and monitoring counterparty risk should be part of a broader, systematic approach that balances risks and resources across the organization.
Measuring counterparty risk
While one of the lessons learned is that not all risks can be anticipated, there are focus areas specific to different sectors that, even within a rapidly changing macroeconomic environment, will help provide a fuller view of risk. Using the banking sector as an example, key focus areas include:
Market risk outlook. This outlook combines debt ratings and long- and short-term counterparty risk metrics, along with an understanding of country risks for banks not headquartered in the United States.
Capital and asset resiliency. This focus area evaluates the quality of bank assets and liabilities to measure balance sheet strength throughout the business cycle.
Growth and profitability. Here, the overall performance of the banking partner is measured to understand the systemic importance of the institution and how well it is positioned for long-term growth.
Loan portfolio. This focus area measures the mix of loan exposure, highlighting commitments to various industries and the breakdown between consumer and corporate debt.
Representative metrics for each of these four focus areas are provided in Figure 1.
• Tier 1 Capital (%)• Total Debt to Assets• Coverage Ratio
Growth and Profitability
• Net Income• Market Capitalization• Efficiency Ratio
Loan Portfolio
• Total Loan• Residential Real Estate Loans• Credit Card Loans
Staying focused on the challenges of today and tomorrow
Comprehensively measuring counterparty risk can give early insights into troubled situations that could lead to severe business disruptions. Within the banking sector, the focus for 2023 was on banks effectively managing risk through an elevated rate environment. As we move through 2024, the challenges might look significantly different.
With uncertainty around the path forward for the U.S. economy, mixed signals on bank financial performance, and a highly contested election shaping up for the end of the year, there will continue to be a heightened focus on effectively managing a bank group to ensure business resilience and continuity in times of stress.
Beyond the bank financial worries of the past year, the recent disruptions related to the Change Healthcare cyberattack have brought a new focus to the technological resilience of core services partners. Organizations should be digging deeper into the cybersecurity investments of their key partners and investigating the outside technology that is leveraged by these partners.
In all cases, organizations should be asking how and to what extent they should be diversifying risk in counterparty relationships. Both known and unknown risks will continue to emerge. Managing counterparty risk must be a comprehensive and ongoing exercise to both evaluate and mitigate against that risk.
Counterparty risk, also known as default risk, is the chance that a party in a financial transaction will not fulfill their obligations. This can occur in credit, investment, or trading transactions. For example, in a reinsurance transaction, the reinsurer may not reimburse the insurance company for claims, which could lead to financial shortfall.
Published by the Congressional Budget Office (CBO) last month, this report reviews recent research findings about factors that have either helped or hindered Medicare accountable care organization (ACO) cost performance over the last 12 years.
ACOs led by independent physicians, those with a high share of primary care providers, and those whose initial baseline sending was higher than the regional average have been associated with greater cost savings. But a lack of resources necessary for providers to participate, weak incentives for providers to reduce spending, and a model design that allows providers to selectively enter and exit a program based on their anticipated level of financial bonus or loss have all undermined the potential savings generated.
The report recognizes that Medicare ACOs have found success capturing the low-hanging fruit of potential cost savings, but that there are plentiful opportunities to increase the impact of these programs through targeted policy changes.
The Gist: Medicare ACO model design attempts to strike a balance between achieving wider provider participation and generating net savings. Although ACO programs are starting to deliver some cost savings to Medicare, they have not reached their intended scale.
Medicare’s largest ACO model, the Medicare Shared Savings Program, generated $1.8B in savings in 2022, which is just 0.2 percent of total Medicare spending.
Many health systems have only mildly embraced Medicare ACOs as the level of potential cost-savings often fails to compensate for foregone fee-for-service revenue.
CMS will need to continue to iterate on ACO model design if it hopes to achieve its goal of having every Medicare beneficiary in one by 2030, as it’s not even halfway there yet.
With Walmart’s announcement last week that it plans to shutter its Walmart Health business, this week’s graphic takes stock of the company’s healthcare delivery journey over nearly the past two decades.
In about 2007, Walmart launched “The Clinic at Walmart,” which leased retail space to various third-party retail clinic companies, and then later health systems, to provide basic primary care services inside Walmart stores, with the ambition of eventually becoming “the largest provider of primary healthcare services in the nation.”
However, low volumes and incompatible incentives between Walmart and its contractors led most of these clinics to close over time. In 2014 Walmart partnered with a single company, the worksite clinic provider QuadMed, to launch “Walmart Care Clinics.” These in-store clinics offered $4 visits for covered Walmart employees and $40 visits for the cash-paying public. Despite these low prices, this iteration of care clinic also suffered from low volumes, and Walmart scrapped the idea after opening only 19 of them.
The retail giant’s most recent effort at care delivery began in 2019 with its revamped “Walmart Health Centers,” which it announced alongside its goal to “become America’s neighborhood health destination.”
These health centers, which had separate entrances from the main store, featured physician-led, expanded primary care offerings including X-ray, labs, counseling, and dental services. As recently as April 2024, Walmart said it was planning to open almost two dozen more within the calendar year, until it announced it was shutting down its entire Walmart Health unit, which included virtual care offerings in addition to 51 health centers, citing an unfavorable operating environment.
Despite multiple rebranding efforts, consumers have thus far appeared unwilling to see affordability-focused Walmart as a healthcare provider.
Almost two decades of clinic experimentation have shown the company is willing to try things and admit failure, but it remains to be seen if this is just the end of Walmart’s latest phase or the end of the road for its healthcare delivery ambitions altogether.
“Incrementalism.” The word is perceived as the enemy of hope for universal health care in the United States.
Those who advocate for single-payer, expanded Medicare for all tend to be on the left side of the political spectrum, and we have advanced the movement while pushing back on incremental change. But the profit-taking health industry giants in what’s been called the medical-industrial complex are pursuing their own incremental agenda, designed to sustain the outrageously expensive and unfair status quo.
In recent years, as the financial sector of the U.S. economy has joined that unholy alliance, scholars have begun writing about the “financialization” of health care.
It has morphed into the medical-financial-industrial complex (MFIC) so vast and deeply entrenched in our economy that a single piece of legislation to achieve our goal–even with growing support in Congress–remains far short of enough votes to enact.
If we are to see the day when all Americans can access care without significant financial barriers, policy changes that move us closer to that goal must be pursued as aggressively as we fight against the changes that push universal health care into the distant future. Labeling all positive steps toward universal health care as unacceptable “incrementalism” could have the effect of aiding and abetting the MFIC and increase the chances of a worst-case scenario: Medicare Advantage for all, a goal of the giants in the private insurance business. But words matter. Instead of “incremental,” let’s call the essential positive steps forward as “foundational” and not undermine them.
The pandemic crisis exposed the weaknesses of our health system. When millions of emergencies in the form of COVID-19 infections overtook the system, most providers were ill-prepared and understaffed. More than 1.1 million U.S. citizens died of COVID-19-related illness, according to the Centers for Disease Control.
For years, the MFIC had been advancing its agenda, even as the U.S. was losing ground in life expectancy and major measures of health outcomes. While health care profits soared in the years leading up to and during the pandemic, those of us in the single-payer movement demanded improved, expanded Medicare for all. And we were right to do so. Progress came through almost every effort. The number of advocates grew, and more newly elected leaders supported a single-payer plan. Bernie Sanders’ 2016 presidential bid proved that millions of Americans were fed up with having to delay or avoid care altogether because it simply cost too much or because insurance companies refused to cover needed tests, treatments and medications.
But as the demand for systemic overhaul grew, the health care industry was making strategic political contributions and finding ways to gain even more control of health policy and the political process itself.
Over the years, many in the universal health care movement have opposed foundational change for strategic reasons. Some movement leaders believed that backing small changes or tweaks to the current system at best deflected from our ultimate goal. And when the Patient Protection and Affordable Care Act was passed, many on the left viewed it as a Band-Aid if not an outright gift to the MFIC. While many physicians in our movement knew that the law’s Medicaid expansion and the provisions making it illegal for insurers to refuse coverage to people with preexisting conditions would save many thousands of lives, they worried that the ACA would further empower big insurance companies. Both positions were valid.
After the passage of the ACA, more of us had insurance cards in our wallets and access to needed care for the first time, although high premiums and out-of-pocket costs have become insurmountable barriers for many. Meanwhile, industry profits soared.
The industry expanded its turf. Hospitals grew larger, stand-alone urgent care clinics, often owned by corporate conglomerates, opened on street corners in cities across the country, private insurance rolls grew, disease management schemes proliferated, and hospital and drug prices continued the march upward. The money flowing into the campaign coffers of political candidates made industry-favored incremental changes an easier lift.
To change this “system” would require an overhaul of the whole economy. Single-payer advocates must consider that herculean task as they continue their work. We must understand that the true system of universal health care we envision would also disrupt the financial industry – banks, collection agencies, investors – an often-forgotten but extraordinarily powerful segment of the corporate-run complex.
Even if the research and data show that improved, expanded Medicare for all would save money and lives (and they do show that), that is not motivating for the finance folks, who fear that without unfettered control of health care, they might profit less. Eliminating medical bills and debt would be marvelous for patients but not for a large segment of the financial community, including bankruptcy attorneys.
Following the money in U.S. health care means understanding how deep and far the tentacles of profit reach, and how embedded they are now.
We know the MFIC positioned itself to continue growing profits and building more capacity. The industry made steady, incremental progress toward that goal. There is no illusion that better overall health for Americans is the mission of the stockholders who drive this industry. No matter what the marketers tell us, patients are not their priority. If too many of us get healthier, we might not use as much care and generate as much money for the owners and providers. Private insurers want enough premiums and government perks to keep flowing their way to keep the C-Suite and Wall Street happy.
More than health insurers
Health insurers are far from the only rapidly expanding component of the MFIC. A recent documentary, “American Hospitals: Healing a Broken System,” for example, explores a segment of the U.S. health industry that is often overlooked by policymakers and the media. Though they were unprepared for the national health crisis, hospitals endured the pandemic in this country largely because the dedicated doctors, nurses and ancillary staff risked their own lives to keep caring for COVID-19 patients while everything from masks, gowns and gloves to thermometers and respirators were in short supply. But make no mistake, many hospitals were still making money through the pandemic. In fact, some boosted their already high profits, and private insurance companies had practically found profit-making nirvana. Patients put off everything from colonoscopies to knee replacements, physical therapy to MRIs. Procedures not done meant claims not submitted, while monthly insurance premiums kept right on coming and right on increasing.
The pandemic was a time of turmoil for most businesses and families, yet the MFIC took its share of profits. It was pure gold for many hospitals until staffing pressures and supply issues grew more dire, COVID patients were still in need of care, and more general patient care needs started to reemerge.
We might be forgiven for thinking there wasn’t much regulating or legislating done around health care during the pandemic years. We’d be wrong. There was a flurry of legislation at the state level as some states took on the abuses of the private insurance industry and hospital billing practices.
And the movement to improve and expand traditional Medicare to cover all of us stayed active, though somewhat muted. The bills before Congress that expanded access to Medicaid during the pandemic through a continuous enrollment provision offered access to care for millions of people. Yet as that COVID-era expansion ended, many of those patients were left without coverage or access to care. This might have been a chance to raise the issue loudly, but the social justice movement did not sufficiently activate national support for maintaining continuous enrollment in Medicaid. Is that the kind of foundational change worth fighting for? I would argue it most certainly is.
As those previously covered by Medicaid enter this “unwinding” phase, many will be unable to secure equivalent or adequate health insurance coverage. The money folks began to worry as coverage waned. After all, sick people will show up needing care and they will not be able to pay for it. As of this writing, patient advocacy groups are largely on the sidelines.
But Allina Health took action. The hospital chain announced it would no longer treat patients with medical debt. After days of negative press, the company did an about-face.
Throughout the country, even as the pandemic loomed, the universal, single-payer movement focused on explaining to candidates and elected officials why improving and expanding Medicare to cover all of us not only is a moral imperative but also makes economic sense. In many ways, the movement has been tremendously effective: More than 130 city and county governing bodies have passed resolutions in support of Medicare for all, including in Seattle, Denver, Cincinnati, Washington, D.C., Tampa, Sacramento, Los Angeles, St. Louis, Atlanta, Duluth, Baltimore, and Cook County (Chicago).
The Medicare for All Act, sponsored by Rep Pramila Jayapal (D-Wash.) and Sanders (I-Vt.) has 113 co-sponsors in the House and 14 in the Senate. Another bill allowing states to establish their own universal health care programs has been introduced in the House and will be introduced soon in the Senate.
Moving us closer
The late Dr. Quentin Young was a young Barack Obama’s doctor in Chicago. Young spoke to his president-in-the-making patient about universal health care and Obama, then a state legislator, famously answered that he would support a single-payer plan if we were starting from scratch. Many in the Medicare–for-all movement dismissed that statement as accepting corporate control of health care.
But Young would steadfastly advocate for single-payer health care for years to come and as one of the founding forces behind Physicians for a National Health Program. Once Dr. Young was asked if the movement should support incremental changes. He answered, “If a measure makes it easier and moves us closer to achieving health care for all of us, we should support that wholeheartedly. And if a measure makes it harder to get to single-payer, we need to oppose it and work to defeat that measure.” Many people liked that response. Others were not persuaded.
But in recent years, PHNP has become a national leader in a broad-based effort to halt the privatization of Medicare through so-called Medicare Advantage plans and other means. A case can be made that those are incremental/foundational but essential steps to achieving the ultimate goal.
We must fight incrementally sometimes, for instance when traditional Medicare is threatened with further privatization. Bit by painful bit, a program that has served this nation so well for more than 50 years will be carved up and given over to the private insurance industry unless the foundational steps taken by the industry are met with resistance and facts at every turn. We can achieve our goal by playing the short game as well as the long game. Foundational change can be and has been powerful. It just has to be focused on the health and well-being of every person.
ALSO: We’re premiering our Magic Translation Box to help you decipher corporate jargon and understand what’s coming down the pike.
If you are enrolled in an Aetna Medicare Advantage plan, now might be a good time to get more nervous than usual.
Wall Street is not happy with Aetna’s parent, CVS Health. In response to that unhappiness, triggered by the company’s admission that it has been paying more claims than usual, CVS execs have promised to do whatever it takes to get profit margins back to a level investors deem suitable.
That means the odds have increased that Aetna will refuse to cover the treatments and medications your doctor says you need. It also means CVS/Aetna likely will increase your premiums next year and might dump you altogether. The company has a long history of doing just that, as you’ll see below.
Medicare Advantage companies in general are facing what Wall Street financial analysts call headwinds, and those winds are now coming from several sources: increased Congressional scrutiny of insurers’ business practices, Biden administration efforts to end years of overpayments that have cost taxpayers hundreds of billions of dollars, enrollee discontent, and a gathering storm of negative press.
To understand the pressures CVS CEO Karen Lynch and her C-Suite team are under to satisfy the company’s remaining shareholders (many have fled), you need to know and understand what they told them in recent weeks–and what she undoubtedly will have to say again, with conviction, this coming Thursday when CVS holds its annual meeting of shareholders. You can be certain Lynch’s staff has prepared a binder chock full of the rudest questions she could face from rich folks (mostly institutional investors) who’ve become a little less rich in recent months as the golden calf calf called Medicare Advantage has lost some of its luster. (My former colleagues and I used to put together such a CEO-briefing binder during my Cigna days, which coincided with Lynch’s years at Cigna.)
To help with that understanding, we’re introducing the HEALTH CARE un-covered Magic Translation Box (MTB). We’ll fire it up occasionally to decipher the coded language executives use when they have to deal with analysts and investors in a public setting. We’ll start with what Lynch and her team told analysts on May 1 when CVS announced first-quarter 2024 results that caused a stampede at the New York Stock Exchange.
Lynch: We recently received the final 2025 (Medicare Advantage) rate notice (from the Center for Medicare and Medicaid Services), and when combined with the Part D changes prescribed by the Inflation Reduction Act, we believe the rate is insufficient. This update will result in significant added disruption to benefit levels and choice for seniors across the country. While we strive to deliver benefit stability to seniors, we will be adjusting plan-level benefits and exiting counties as we construct our bid for 2025. We are committed to improving margins.
Magic Translation Box: Can you believe it? CMS did not bend to industry pressure to pay MA plans what we demanded for next year. We only got a modest increase, not enough, in our opinion, to protect our profit margins. To make matters worse, starting next year we won’t be able to make people enrolled in Medicare prescription drug plans (Part D) pay more than $2,000 out of their own pockets, thanks to the Inflation Reduction Act President Biden signed in 2022. So, to make sure you, our most important stakeholder, once again have a good return on your investment, we will notify CMS next month that we will slash the value of Medicare Advantage plans by reducing or eliminating some benefits, like dental, hearing and vision, that attract people to MA plans in the first place. And, for good measure, we’ll be dumping Medicare Advantage enrollees who live in zip codes where we can’t make as much money as we’d like. For them: too bad, so sad. For you: more money in your bank account. And for extra good measure, to keep seniors from blaming greedy us for what we have in store for them, our industry will be bankrolling dark money ads to persuade voters that Biden and the Democrats are the bad guys cutting Medicare.
Later during CVS’s earnings call, CFO Thomas Cowhey reiterated Lynch’s remarks about reducing benefits.
Cowhey:So, we’ve given you all the pieces to kind of understand why we think it (Medicare Advantage) will lose a significant amount of money this year. But as you think about improvement there, obviously there’s a lot of work that we still need to do to understand what benefits we’re going to adjust and what ones we can and can’t…To the extent that we don’t believe we can credibly recapture margin in a reasonable period of time, we will exit those counties…(And) as we’ve all mentioned we’re going to be taking significant pricing actions and really it’s going to depend on what our competitors do.
Magic Translation Box: We’re under the gun to figure this out because we have to notify CMS by June 3 how much we will increase Medicare Advantage premiums and cut benefits next year and which counties we’ll abandon altogether. We’ll also be watching what our competitors do, but we know from what they’ve been telling you guys that they, too, will be dumping enrollees, hiking premiums and slashing benefits.
To make sure investors couldn’t miss what they were saying, Lynch jumped back into the conversation to make clear they knew they were #1 in her book:
Lynch: I’m just going to reiterate what I said in my prepared remarks. (You can bet what follows were prepared, too.) We are committed to improving margin in Medicare Advantage [emphasis added] and we will do so by pricing for the expected trends. We will do so by adjusting benefits and exiting service counties. And we are committed to doing that.
Magic Translation Box: Have I made myself clear? We will do whatever it takes to deliver the profits you expect. We will keep a closer eye on how much care people are trying to get and we’ll swing into action faster next time if we see evidence of an uptick. There will be carnage, but you guys rule. You mean a lot more to us than those old and disabled people who don’t have nearly as much money as you do in their bank accounts.
This will not be the first time Aetna has dumped health plan enrollees who were a drain on profits. In 2000, when Medicare Advantage was called Medicare+Choice, Aetna notified the Clinton administration it would stop offering Medicare plans in 14 states, affecting 355,000 people, more than half of Aetna’s total Medicare enrollment at the time. Other companies, including Cigna, did the same thing. My team and I wrote a press release to announce that Cigna would be bailing from almost all the markets where we sold private Medicare plans.
We of course blamed the federal government (i.e., the Democrats) for being the skinflints that made it necessary to bail. Our CEO at the time, Ed Hanway, said the government just couldn’t be relied upon to be a reliable “partner.”
Back then, just a relatively small percentage of Medicare beneficiaries were in private plans. Today, more than half of Medicare-eligible Americans are enrolled in a Medicare Advantage plan, which means the disruption could be much worse this time. Some people in counties where Aetna and other companies stop offering plans likely will not find a replacement plan with the same provider network, premiums and benefits.
But in most places, those who get dumped will be stuck in the volatile, often nightmarish Medicare Advantage world, unable to return to traditional Medicare and buy a Medicare supplement policy to cover their out-of-pocket obligations.
That’s because in all but a handful of states, seniors and disabled people will not be able to buy a Medicare supplement policy as cheaply as they could within six months of becoming eligible for Medicare benefits. After that, Medicare supplement insurers, including Aetna, get their underwriters involved. If your health isn’t excellent, expect to pay a king’s ransom for a Medigap policy.
This is National Hospital week. It comes at a critical time for hospitals:
The U.S. economy is strong but growing numbers in the population face financial insecurity and economic despair. Increased out-of-pocket costs for food, fuel and housing (especially rent) have squeezed household budgets and contributed to increased medical debt—a problem in 41% of U.S. households today. Hospital bills are a factor.
The capital market for hospitals is tightening: interest rates for debt are increasing, private investments in healthcare services have slowed and valuations for key sectors—hospitals, home care, physician practices, et al—have dropped. It’s a buyer’s market for investors who hold record assets under management (AUM) but concerns about the harsh regulatory and competitive environment facing hospitals persist. Betting capital on hospitals is a tough call when other sectors appear less risky.
Utilization levels for hospital services have recovered from pandemic disruption and operating margins are above breakeven for more than half but medical inflation, insurer reimbursement, wage increases and Medicare payment cuts guarantee operating deficits for all. Complicating matters, regulators are keen to limit consolidation and force not-for-profits to justify their tax exemptions. Not a pretty picture.
And, despite all this, the public’s view of hospitals remains positive though tarnished by headlines like these about Steward Health’s bankruptcy filing last Monday:
The public is inclined to hold hospitals in high regard, at least for the time being. When asked how much trust and confidence they have in key institutions to “to develop a plan for the U.S. health system that maximizes what it has done well and corrects its major flaws,” consumers prefer for solutions physicians and hospitals over others but over half still have reservations:
A Great Deal
Some
Not Much/None
Health Insurers
18%
43%
39%
Hospitals
27%
52%
21%
Physicians
32%
53%
15%
Federal Government
14%
42%
44%
Retail Health Org’s
21%
51%
28%
The American Hospital Association (AHA) is rightfully concerned that hospitals get fair treatment from regulators, adequate reimbursement from Medicare and Medicaid and protection against competitors that cherry-pick profits from the health system.
It can rightfully assert that declining operating margins in hospitals are symptoms of larger problems in the health system: flawed incentives, inadequate funding for preventive and primary care, the growing intensity of chronic diseases, medical inflation for wages, drugs, supplies and technologies, the dominance of ‘Big Insurance’ whose revenues have grown 12.1% annually since the pandemic and more. And it can correctly prove that annual hospital spending has slowed since the pandemic from 6.2% (2019) to 2.2% (2022) in stark contrast to prescription drugs (up from 4% to 8.4% and insurance costs (from -5.4% to +8.5%). Nonetheless, hospital costs, prices and spending are concerns to economists, regulators and elected officials.
National health spending data illustrate the conundrum for hospitals: relative to the overall CPI, healthcare prices and spending—especially outpatient hospital services– are increasing faster than prices and spending in other sectors and it’s getting attention: that’s problematic for hospitals at a time when 5 committees in Congress and 3 Cabinet level departments have their sights set on regulatory changes that are unwelcome to most hospitals.
My take:
The U.S. market for healthcare spending is growing—exceeding 5% per year through the next decade. With annual inflation targeted to 2.0% by the Fed and the GDP expected to grow 3.5-4.0% annually in the same period, something’s gotta’ give. Hospitals represent 30.4% of overall spending today (virtually unchanged for the past 5 years) and above 50% of total spending when their employed physicians and outside activities are included, so it’s obvious they’ll draw attention.
Today, however, most are consumed by near-term concerns– reimbursement issues with insurers, workforce adequacy and discontent, government mandates– and few have the luxury to look 10-20 years ahead.
I believe hospitals should play a vital role in orchestrating the health system’s future and the role they’ll play in it. Some will be specialty hubs. Some will operate without beds. Some will be regional. Some will close. And all will face increased demands from regulators, community leaders and consumers for affordable, convenient and effective whole-person care.
For most hospitals, a decision to invest and behave as if the future is a repeat of the past is a calculated risk. Others with less stake in community health and wellbeing and greater access to capital will seize this opportunity and, in the process, disable hospitals might play in the process.
Near-term reactive navigation vs. long-term proactive orchestration–that’s the crossroad in front of hospitals today. Hopefully, during National Hospital Week, it will get the attention it needs in every hospital board room and C suite.
PS: Last week, I wrote about the inclination of the 18 million college kids to protest against the healthcare status quo (“Is the Health System the Next Target for Campus Unrest?” The Keckley Report May 6, 2024 www.paulkeckley.com). This new survey caught my attention:
According to the Generation Lab’s survey of 1250 college students released last week, healthcare reform is a concern. When asked to choose 3 “issues most important to you” from its list of 13 issues, healthcare reform topped the list. The top 5:
Health Reform (40%)
Education Funding and access (38%)
Economic fairness and opportunity (37%)
Social justice and civil rights (36%)
Climate change (35%)
If college kids today are tomorrow’s healthcare workforce and influencers to their peers, addressing the future of health system with their input seems shortsighted. Most hospital boards are comprised of older adults—community leaders, physicians, et al.
And most of the mechanisms hospitals use to assess their long-term sustainability is tethered to assumptions about an aging population and Medicare.
College kids today are sending powerful messages about the society in which they aspire to be a part. They’re tech savvy, independent politically and increasingly spiritual but not religious. And the health system is on their radar.
HENRY KOTULA 