Volume 11
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 take a look at the 2022 election results and how they could impact policymaking; cover how the seasonal flu and RSV cases are straining hospitals and emergency rooms; discuss how to address clinician burnout; and take a look at the industry’s latest financial results and what they mean.
#1: Takeaways from Election Night
Big Synopsis: Going into Election Day, most analysts predicted a Republican “Red Tsunami” with huge gains in the House and the Senate. After last night’s results, however, that wave looks a bit more like a trickle. Republicans will likely win back the majority in the House, but not by too much. As for the Senate, control remains a toss up with races in Arizona, Nevada, and Georgia still outstanding. It’s quite possible control of the Senate could be determined after December 6 when it appears Democrat Sen. Raphael Warnock will have a run-off with Republican Hershel Walker.
So What’s The Big Deal: Historically, the President’s party loses big in the first midterm election. And last night, that just didn’t happen. So why? While some point to reproductive rights over economics (inflation) as the main issue that drove young voters and women to the polls, many miss how those issues are inextricably linked. When people are struggling or worried about economics, having control over family planning is as much of an economic issue as personal freedom.
So What’s Next: Count the ballots.
#2: What's Planned for Healthcare in the Lame Duck Session?
Big Synopsis: The election is over, but the 117th Congress is not. Federal lawmakers will reconvene on November 14 for a “lame duck” session. In addition to tackling spending legislation for fiscal year 2023, they will consider important healthcare legislation.
So What’s The Big Deal: In healthcare, all eyes will be on how (or if) Congress will address planned Centers for Medicare and Medicaid Services’ (CMS) physician rate cuts. (See #3). But that’s not all Congress could consider. Lawmakers may extend some of the public health emergency flexibilities implemented at the beginning of the COVID pandemic. Given continued workforce shortages, the Senate also may take up a bill passed by the House on workplace violence. Each issue would have a huge impact on healthcare.
So What’s Next: We will need to see what Congress will or won’t do during the lame duck session. Many insiders believe there will be some fixes (albeit temporary) to CMS physician rate cuts, but to what degree? What Congress decides to do could make a huge impact on the balance sheet for healthcare services for 2023 and 2024.
#3: Will Congress Prevent Deep CMS Rate Cuts to Physicians?
Big Synopsis: As noted above, one issue docs are hoping Congress will address during the lame duck session is CMS’ plans for physician fee reimbursement. Last week, the agency finalized cuts in its physician fee schedule. Almost immediately, clinician groups turned up the volume on lawmakers, asking them to reverse the cuts as part of the end-of-the-year spending package that must be passed by Dec. 16.
So What’s The Big Deal: To some, a 4.5% reimbursement haircut may not seem that significant but that’s only a piece of the story. CMS’s reimbursement cuts paired with other planned CMS cuts in 2023 paired with declines in private payer reimbursements could have a significant negative financial and psychological impact on providers. Those are not the only financial headwinds, however. Inflation, supply chain challenges, burnout, and now further pay cuts from Medicare are complicating the balance sheet for physicians and physician practices.
So What’s Next: See #2. The lame duck session is the last hope for preventing the cuts from taking place. If Congress is unable to come up with a package that is acceptable to a majority of lawmakers, physicians will face these cuts amid continued financial headwinds for providers.
#4: Flu Spiking Early
Big Synopsis: Cases of seasonal influenza are spiking around the country. The southeastern and south-central areas of the country are among the hardest hit, but the Mid-Atlantic and south-central West Coast regions are not far behind.
So What’s The Big Deal: Flu is striking earlier this year than in previous years and hospitalization rates are the highest they've been in more than a decade. Higher-than-normal flu hospitalizations, combined with rising COVD case numbers and high levels of circulating RSV, will make for a very challenging late fall and early winter. Hospitals already are full and are finding it difficult to source staff and resources like medicines and ventilators.
So What’s Next: We need a multifaceted approach to dealing with preventable respiratory viruses. Needed capabilities range from accurate surveillance, resourcing strategies in hospitals, and prevention methods (vaccines and other mitigation efforts). With COVID booster and influenza vaccination rates at abysmal levels, the healthcare community must act now by re-upping educational efforts and community outreach efforts.
#5: Pediatric Respiratory Viruses Strain Emergency Care
Big Synopsis: Imagine your child cannot breathe – and your local ER cannot help. With RSV and flu running rampant, too many parents are running into this nightmare scenario. One reason: for 90% of U.S. families, their closest ER is not an ER that specializes in pediatric care.
So What’s The Big Deal: See #4. RSV cases are spiking while influenza and COVID cases continue to rise, creating a significant strain on hospitals and hospital personnel (not to mention other patients). Take it from someone who worked in the ER last week, available hospital beds for pediatric patients are extremely low.
So What’s Next: Similar to the flu, RSV is a seasonal respiratory virus. We must employ mitigation techniques to prevent severe illness and hospitalization. This year, the RSV infections are occurring earlier than normal and in conjunction with an earlier-than- normal flu wave. While no vaccine exists for RSV today, one is on the horizon.
#6: 300,000 Clinicians Drop Out of the Workforce
Big Synopsis: The United States is shedding healthcare workers at an alarming rate. In 2021, 117,000 physicians left the workforce. The country also lost 53,295 nurse practitioners, 22,704 physician assistants, 22,000 physical therapists, and 15,500 licensed clinical social workers.
So What’s The Big Deal: From a business perspective, hospitals are spending large sums of money to patch the holes left by these clinicians. But without significant change, the problem will worsen. While almost 300,000 clinicians dropped out of the workforce in 2021, 64% currently feel burnout, which is a clear driver of attrition. Organizations like the Dr. Lorna Breen Heroes Foundation have attempted to address the drivers of clinician burnout and have been successful in pushing through legislation that takes a first step at a solution.
So What’s Next: Hospitals, employers of clinicians, and other members of the healthcare ecosystem (ahem… I’m looking at you payers) must do serious soul searching to understand their role in clinician burnout.
#7: Are More Doctors' Unions on the Horizon?
Big Synopsis: In the absence of an industry-wide strategy to address burnout, clinicians are taking matters into their own hands. Case in point: More than 1,200 resident physicians and interns at Montefiore Medical Center in the Bronx voted last week to unionize. They are demanding better pay, benefits and working conditions.
So What’s The Big Deal: Doctors (especially resident physicians) are getting fed up with working conditions. Nearly two decades ago, the ACGME, the regulatory body for residency programs, instituted an 80-hour work week. (80 hours and limited shifts to no longer than 24 hours of directed patient care!) Many applauded that move, but felt it didn’t go far enough. While some worry unionization could undermine public trust, others see this as the only option to place physicians back at the bargaining table against large hospital systems.
So What’s Next: Are clinicians at other hospitals likely to follow? Yes. Already this year, the Committee of Interns and Residents, which is part of the Service Employees International Union, has had a record year, organizing unions at five hospitals.
#8: Hospitals Remain in the Red for 9 Straight Months
Big Synopsis: Kaufman Hall’s median year-to-date operating margin index for hospitals came in at -0.1% at the close of the third quarter. Much of hospitals’ revenue challenges were due to a shift in patients to outpatient facilities.
So What’s The Big Deal: Hospitals continue to face significant pressures from labor shortages, premium labor costs, supply chain woes, and worsening revenues. Kaufman Hall warned these pressures could soon “force hospitals into difficult decisions” about service line offerings. If the trend continues, those warnings will quickly become reality and patients will suffer as a result.
So What’s Next: Hospitals and health systems must focus on two big areas heading into 2023: outpatient service offerings and labor strategies. As payers incentivize both patients and providers in the outpatient space, hospitals must develop strategies to ensure outpatient services are a part of their portfolio. From an expense perspective, hospitals must take a hard look at their labor retention strategies.
#9: Kaiser Permanente Reports Massive Losses
Big Synopsis: Kaiser Foundation Health Plan, Kaiser Foundation Hospitals, and subsidiaries reported a net loss of $1.5 billion in the third quarter of 2022. That number is a total reversal from a year prior. Kaiser’s net income in the third quarter of 2021 totaled $1.6 billion. In the first two quarters of 2022, Kaiser lost more than $2 billion.
So What’s The Big Deal: Expenses and declining returns in investment assets are driving the losses at Kaiser. While Kaiser’s revenues grew in the third quarter, expenses outstripped the gains. The driver? Labor shortages and supply chain costs. In 2021, Kaiser saw more than $8 billion in revenues buoyed by growing patient volumes and strong returns on their investment assets. In 2022, the tide has turned.
So What’s Next: Large numbers of for-profit and not-for-profit hospitals are seeing their worst financial performance in years. Hospitals must re-imagine how to deliver care in an outpatient space since patients are voting with their feet.
#10: Value Based Care Arrangements with One Medical Make Up A Disproportionate Amount of Revenue
Big Synopsis: Revenue from capitated contracts now makes up half of One Medical’s net revenue, even though the primary care provider’s at-risk members comprise just 5% of its membership. Those numbers represent a dramatic shift from even just a few months ago.
So What’s The Big Deal: The speed at which One Medical’s revenue shifted from fee-for-service to capitated arrangements is the big deal. In 2022, One Medical’s majority revenues shifted from fee-for-service to a capitated arrangement despite having a relatively low number of patients enrolled in the capitated arrangements in Medicare. Their acquisition of Iora permitted this shift, but could Medicare Advantage plans or other capitated models become the driver to push the U.S. closer to value based care and value based payment arrangements? Quite possibly.
So What’s Next: We will need to see if these revenues continue. If they do, other companies will follow.
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Have a wonderful rest of the week!
-Dr. N. Adam Brown
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