Volume 10
Whether you’re an investor, physician, healthcare executive, it’s impossible to keep up with all the research, policy, information – and misinformation! – that will impact patients and our industry. This newsletter provides actionable intelligence to help payers, investors, practitioners, and thought leaders to solve the big problems in healthcare.
This week we cover the coming COVID winter, the impact of the nation’s nursing shortage and clinician burnout, hospital and insurance companies’ third quarter financial results, increased enforcement and regulatory interest in Medicare Advantage plans, and more.
#1: Winter Is Coming.
Big Synopsis: COVID case numbers and hospitalizations are rising in Europe as temperatures are falling. Throughout the pandemic, the United States has tracked a few weeks behind Europe and, indeed, in states in the Northeast, where winter already is setting in, we’ve already seen higher hospitalization rates. Lab data also suggest new subvariants are capable of substantial immune evasion.
So What’s The Big Deal: While aggregate COVID cases across the United States are falling, there are places in the country where that’s not true. Why? On a population level, immunity is waning amid the appearance of new variants. Not only does this mean prior infections offer less protection, it means some treatments like monoclonal antibodies may be less effective. If this winter is like the past two, we’ll likely see a surge similar to Europe’s. And like the past, not all regions of the country will experience the same wave or a wave at the same time. COVID is not the only concern. Flu and RSV cases are rising fast and already straining hospital systems and resources.
So What’s Next: Dueling pandemics will stress hospital resources, staffing, and finances. As individuals, our best protection is getting the annual flu vaccine and the updated bivalent vaccine. For hospitals, a surge could challenge already-stressed staffing capabilities. (Think: Omicron winter surge of ‘21-22). Hospitals should think now about the PPE needs and contingency staffing.
#2: Fixable? The U.S. Nursing Shortage
Big Synopsis: Speaking of staffing shortages, the country doesn’t have enough nurses right now. And the problem will only get worse. According to some estimates, 1 million nurses will retire over the next 8 years. As the shortage grows, hospital costs rise. Hospitals spent almost 40% of their total nurse labor costs on travel nurses in January 2022, compared with 5% in 2019. The American Hospital Association expects labor costs to increase by $86 billion this year.
So What’s The Big Deal: Hospitals continue to face significant headwinds with increased labor costs, supply chain woes, inflation, and a decline in COVID funding. There are few options other than to continue to use nursing agencies. While we may see a slight dip in travel/agency staffing costs over the next few months, travel nursing utilization will continue to stay high.
So What’s Next: Lawmakers, educators, businesses, and other stakeholders must begin to develop a long-term, comprehensive, multifaceted plan to increase nursing staffing in the United States. Without regulatory intervention or an influx of nurses from other parts of the world, little can be done immediately to control the costs since supply and demand will dictate pricing. And with so many nurses retiring, staffing agencies will remain a critical component of the U.S.’s healthcare safety net.
#3: Private Equity is Investing in Nursing
Big Synopsis: The country’s nursing shortage has had another impact on the industry: increased interest by private equity. A new report by the nonprofit Private Equity Shareholder Project revealed a “record-breaking” number of private equity deals involving travel nursing agencies in 2021. Specifically, there were 27 private equity deals in the medical staffing space during 2021, up from 11 in 2020, and higher than in any year during the past decade.
So What’s The Big Deal: As noted above, nursing staff shortages are here to stay. With a fairly fragmented nurse agency market and growing demand, agencies are an attractive target for future investment. While travel nurse rates have declined in the near term, the market remains attractive.
So What’s Next: Watch what hospitals do. Will they increase their base rates for nursing staff to retain or recruit new nurses? If so, this could decrease the overall need for nurse staffing agencies. That said, nurse staffing firms continue to be a strong, lucrative target for private equity firms and investors. Investors will need to watch for regulatory interventions, however, and hospital closures.
#4. Hospitals Continue To Shed Revenues
Big Synopsis: Two of the country’s largest investor-owned hospital chains reported their revenue and profits had dropped significantly from the third quarter of 2021 to the third quarter of 2022. Stocks plunged as a result. Specifically, after their profit reports, HCA Healthcare and Tenet Healthcare lost nearly 10% and 30% of their stock, respectively, during the trading day.
So What’s The Big Deal: Hospitals will continue to face significant headwinds as labor costs, inflation, and capacity constraints plague health systems. There were a few silver linings in the last quarter, however, including improved reimbursement rates from payers and decrease in travel nurse expenses.
So What’s Next: While travel nurse expenses have decreased slightly over the past quarter, we will need to see what challenges this winter could bring. With a likely recession on the horizon and dueling pandemics (flu and COVID), this could be the calm before the storm.
#5 Surgeon General’s Plan For Workers’ Mental Health
Big Synopsis: With 84% of all U.S. workers reporting that their job has led to at least one mental health challenge, the U.S. surgeon general and the National Academy of Medicine (NAM) have each released reports outlining how employers can improve employee mental health.
So What’s The Big Deal: Alarm bells are ringing and red flags are flying. The challenge is especially important for the healthcare sector. The NAM noted 54% of nurses and clinicians, 60% of medical students and residents, and 61% of pharmacists report burnout.
So What’s Next: While the framework provided by the surgeon general highlights the issue and gives general guidance, it’s only a start. Healthcare administrators must recognize the importance of investing heavily in workforce wellness solutions. The lack of focus in this area will worsen shortages.
#6 UnitedHealth Group Earns $5B In profit In Q3
Big Synopsis: While hospital profits are declining, insurers are raking in profits. UnitedHealth’s earnings rose 28% to $5.79 a share in the third quarter. Revenue grew nearly 12% to $80.894 billion. The profits were driven by strong performances from Optum Health and the insurer’s health plans.
So What’s The Big Deal: UHC/Optum continues to make significant profits via multiple service offerings from healthcare providers to insurance to data analytics to a PBM. Much of the growth in revenues has been attributed to Optum (United Health’s provider arm). The provider service portion of the organization saw the biggest gains with a 31% increase in revenues per customer (compared to previous year) mostly with value based care contracting and moves.
So What’s Next: UnitedHealth is integrating more key components of the healthcare ecosystem and there appears to be no end in sight.
#7: DOJ Sues Cigna Medicare Advantage
Big Synopsis: The U.S. Department of Justice (DOJ) is suing Cigna and its Medicare Advantage subsidiaries. The DOJ alleges the insurer reaped higher federal reimbursements by submitting false and inaccurate Medicare Advantage diagnostic codes, mostly for home visits. In a statement, Cigna denied the allegations.
So What’s The Big Deal: While Medicare Advantages will continue to grow into 2023, the DOJ and regulatory agencies are looking closely at possible fraud. In this specific case, DOJ alleges that Cigna claimed participants in its Medicare Advantage plans were sicker than they actually were. The result would mean a higher reimbursement from the Centers for Medicare and Medicaid Services (and federal taxpayers) to Cigna.
So What’s Next: As MA plans expand (and appear to be quite lucrative) expect greater scrutiny.
#8: Primary Care Visits Slow
Big Synopsis: Trilliant Health has identified 13 macro healthcare industry trends, including the fact that Americans seem to be seeing their primary care doctors less. Specifically, Trilliant found primary care utilization volumes in the first quarter of 2022 were just 0.2% higher than in 2019. Trilliant projected the national median incidence rate for primary care will increase only nominally between 2022 and 2026.
So What’s The Big Deal: Primary care is good for patients and as a society we need more providers. As a gatekeeper and coordinator of preventive care services and chronic disease management, general practitioners provide a critical service to public health and the healthcare system broadly. That said, patients are voting with their feet (especially those with private insurance). Many patients like the convenience of on-demand services that Urgent Cares and other same-day appointment providers provide. While this may be good for new entrants in healthcare in the short-term, there are concerns about the long-term implications to the financial viability of some primary care clinics and patients missing all-important preventive care services.
So What’s Next: To compete, primary care clinics must carefully watch new entrants and patient movements closely, identifying possible new revenue streams, urgent care partnerships, and similar same-day service offerings.
Article 9: Glacial Movements to Value Based Care
Big Synopsis: Centers for Medicare and Medicaid Services (CMS) Innovation Director Liz Fowler is disappointed with how slowly providers are moving toward value-based care. Fowler pledged the federal government will continue to try to accelerate the move, but she said, “I think we need to be realistic about what providers are able to do.”
So What’s The Big Deal: While providers who participated in value-based care models fared better during the pandemic, adoption has moved at a glacial pace. It’s likely the pandemic slowed progression since value based care adoption typically requires significant investment for infrastructure and processes. Fowler said CMS hopes to accelerate the move to value based care with a new capitated model called the ACO REACH model to start in January. Capitation models like Medicare Advantage plans and ACO REACH have the advantage of providing necessary capital for investment and management of patients.
So what’s next: We will continue to see growth in value based oriented MA plans into 2023, but we will need to see the level of interest and participation in the ACO REACH program.
#10: Provides Invest in Technology to Solve Revenue Woes
Big Synopsis: According to Bain and KLAS Research, nearly 45% of healthcare providers increased their software investments over the past year. Providers are focusing their investments mostly in revenue cycle management, patient intake and cybersecurity. They are also looking to their electronic health record providers.
So What’s The Big Deal: Unsurprisingly, provider groups and hospitals are identifying any means possible to capture revenue and improve other staffing efficiencies. The hope is tech may be the answer. The economic realities on the ground, however, may limit investment as economic outlooks continue to look bleak for hospitals and provider groups. Beyond improving revenue capture and controlling expenses, hospitals and providers may choose to invest in security upgrades for their existing technology. With multiple health systems dealing with cyberattacks and ransomware, health systems and provider groups will likely have to forego other upgrades and investments to ensure the cyber safety.
So What’s Next: With a recession looming, providers must determine “needs versus wants” for IT infrastructure especially as it relates to cybersecurity. From a revenue and operational efficiency perspective, improved or new IT infrastructure may be an answer but it’s unlikely to solve all revenue woes.
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-Dr. N. Adam Brown
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