Volume 18
It was a big week for healthcare news last week with CVS announcing its purchase of Oak Street Health, President Biden’s State of the Union address, and more, but before discussing our top 10 stories, here are a few takeaways on health equity from my time at the École Supérieure de Commerce de Paris, one of Europe’s top business schools, last week:
Public-Private Partnerships are essential.
Governments must create incentives for investment in health equity solutions.
Politics drive policy and policy drives health outcomes.
Business must determine the societal impact of their new products, services, and innovations.
To address health inequities, dispatching medicines and healthcare resources are not enough. Addressing the antecedents to poor health will make greater impacts. These include: housing, transportation, economic inequality, education, healthcare access, social support, and food security.
Now here’s this week’s Top 10 things you need to know in healthcare.
#1 CVS Buys Oak Street Health
CVS Health finalized a deal to acquire the Medicare-centered primary care firm Oak Street Health for approximately $10.6 billion, including debt. (We have highlighted this potential purchase in the past few newsletters.) The purchase is yet another example of the current trend of health insurance companies broadening their scope to move beyond managing medical and drug benefits and into the provision of primary care treatments in clinics or in the home.
So What’s The Big Deal? CVS Health is expanding even further into the Medicare primary care space, now controlling multiple components of the continuum of patient care. The play here is cost reduction, control, and access. The result will be significant control of 6 main healthcare sectors for the patients and customers they serve:
Retail Pharmacy (CVS Stores)
Acute Care Providers (Minute Clinic)
Long-Term Care Providers and Home Health (Signify Health)
Primary Care (Oak Street) for Medicare Patients
Insurance (Aetna) and Medicare Advantage Programs
Pharmacy Benefits Managers - CVS/Caremark
There are many advantages to CVS owning these low-cost settings. By proactively monitoring patients' health conditions and managing their care, it can help stop some people from having to go to the hospital, which can be expensive. When companies are able to direct their members to clinics that they own, they can keep more money from the premiums they collect. And rather than having to pay out to external physicians and establishments, companies are sending money to themselves - a highly profitable and contentious tactic that companies like UnitedHealth Group have been making use of for the past 10 years.
#2 Outpatient Surgical Center Growth Boosts Tenet
Tenet Healthcare Corporation, a major profit-making hospital, has predicted a rise in earnings for 2023 due to reduced dependence on temporary staff and an expansion of their surgical division. The company made an announcement in their financial statement, saying it earned $102 million in the fourth quarter of 2022 and had $4.9 billion dollars in total income. The company also released predictions for 2023, estimating their adjusted earnings before interest, taxes, depreciation, and amortization will be between $3.16 and $3.36 billion.
So what’s the big deal? The shift of certain medical treatments from inpatient to outpatient services is a long-term boost for hospitals. Tenet estimates its hospital division will have an adjusted EBITDA increase of 4.6 percent in 2023, which is greater than its previous predictions of a 2-3 percent yearly increase. This revenue growth was paired with a reduced dependence on costly contracted personnel, which had caused financial difficulties for many medical facilities due to the shortage of workers caused by the pandemic.
#3 Rural Hospitals Will Face a Fiscal Cliff in 2023
During the first year of the COVID-19 crisis, 19 rural medical centers closed. Only 6 others have shut down since then, but experts have warned more closures are coming soon. In the 10 years before the pandemic, the financial margins of rural hospitals had been gradually decreasing, with more than 130 hospitals closing during that period. Staffing and resource shortages plagued rural hospitals during the pandemic, but they were able to use federal COVID relief funds to help offset mounting costs. With a cessation of COVID relief funds, they will no longer have that luxury.
So What’s The Big Deal: Even if rural healthcare facilities don’t totally shut down, they may be forced to suspend services. Depending on the demographics in the community that the hospital supports, the first services to be cut are generally pediatrics and obstetrics. Hospitals also normally try to shift toward outpatient services. But if these measures don’t work, it is likely we will see more medical centers close in 2023 and 2024, a problem that not only puts the availability of healthcare in the community at risk, but is a huge blow to the economic stability of many rural areas.
#4 Healthcare Investor Hospital Outlook for 2023
Despite continued investment in healthcare, hospitals are continuing to struggle, a problem that has given investors some pause in this space and to focus more heavily on operational improvements than capital investments. By the conclusion of 2022, approximately 50 percent of hospitals in the United States had a negative operating margin. Even Kaiser Permanente has experienced significant losses in 2022. Last year put massive amounts of pressure on the healthcare industry, resulting in unfavorable circumstances in almost every area. And many of those trends are likely to continue.
So What’s The Big Deal? In order to achieve future success, hospitals must focus on two things: 1) concentrate on their operational expenses and 2) identify potential earnings outside of the walls of the hospital. (See #2) However, when attempting to reduce expenses, hospitals must take into account the long-term effects and be sure to collaborate with medical personnel to guarantee there are no sacrifices to patient safety or access to treatment.
#5 Healthcare Labor Woes Will Continue
The healthcare personnel deficit is expected to continue in 2023, particularly among nursing professionals. Lack of labor has resulted in the ongoing utilization of pricey short-term work to fill the staffing void even as critical COVID-19 admissions have decreased. According to information from the nurse staffing platform Vivian Health, the national average weekly wage for travel nurses in December was $3,173, an increase from $1,894 in January 2020.
So What’s The Big Deal? See #2 and #3. While some hospitals have begun to reduce their dependencies on expensive outsourced labor, the general staffing shortage trends will likely continue to be a drag on the profit and loss sheet. As labor costs continue to increase, hospitals and provider groups will continue to face significant headwinds into 2023.
#6 United Healthcare Dominates Profits and Revenues
UnitedHealth Group achieved remarkable success in 2022,doubling the profit margins of its closest contenders. The company earned a total of $20.1 billion in profits for the year, for example, while its rival Cigna brought in just $6.7 billion. UHG also outpaced CVS Health: its total income of $324.2 billion just surpassed CVS’s $322.5 billion. The primary contributor to UHG’s mammoth profits was its subsidiary Optum, which is composed of a multitude of businesses, including a pharmacy benefit manager, data analytics branch, and the vast Optum Health provider group.
So What’s The Big Deal? Optum Health has been a huge contributor to the success of UnitedHealth, demonstrated by its 29 percent growth in revenue per patient in 2022. Optum is one of the biggest employers of physicians in the country, with a workforce of around 60,000 doctors. The company provides services to more than 20 million patients annually and it has predicted significant growth in its value-based care objectives with more than 4 million patients participating in the model.. Combining home health into the clinic-based model empowers Optum to stand out from the competition. But with Amazon, CVS, and others following similar paths this differentiation may not last long.
#7 United Healthcare Will Pay for Your Apple Watch?
UnitedHealthcare has launched a new incentive program that allows qualified members and their partners to receive up to $1,000 annually by achieving daily health objectives and accomplishing one-time tasks. To get this benefit through UnitedHealthcare Rewards, a member must use a suitable activity tracker (smartwatch or mobile phone) to meet their daily activity goals and monitor their sleep and other health-related activities. Members can have these benefits put onto a prepaid debit card or deposited into a health savings account if they want to help cover out-of-pocket medical expenses.
So What’s the Big Deal? Three things:
Investors may see this as another proof point that digital health is a smart investment.
Insurers and others recognize that wearables can improve health at low costs versus waiting to treat expensive diseases and acute illnesses.
We need government regulation to make sure individuals are aware of, and can manage, what is being done with their data. We also need data standards to ensure patients' data is part of medical records (which are not always user-friendly). Regulations and standards also would serve as a guide for developers when creating devices. Doctors also need treatment protocols regarding how to utilize the new tech and must be offered payment for providing digital treatments and analyzing data. The healthcare system is too consumed with getting through the day-to-day to invest in preventive measures. Regulators and insurance companies must figure out how to properly incorporate the technology before it can be useful.
#8 Another Lawsuit Against the Biden Administration for the No Surprises Act
The Texas Medical Association (TMA) has taken legal action to contest a 600 percent increase in administrative fees resulting from the No Surprises Ac (NSA)t. The suit, filed in the U.S. District Court for the Eastern District of Texas, is TMA’s fourth against the NSA. The association has labeled the fee hike as "arbitrary and capricious," contrary to the law, and in violation of the NSA’s notice and comment requirements. The association claims the dramatic increase in fees will strip many physicians and healthcare providers of the arbitration process that was established by Congress. However, in BREAKING NEWS, a court ruling on one of the four lawsuits broke in favor of the TMA. As a result, CMS placed a halt on the payment dispute process. More in our next newsletter!
So What’s The Big Deal? NSA regulations require an obligatory, non-refundable administrative payment from each side to enter the federal independent dispute resolution (IDR) process should there be a payment dispute between a health plan and out-of-network medical provider. TMA has argued the increased fee will be difficult for all physician groups to pay, especially ones that handle more small-value claims such as radiology. The non-refundable administrative fee is separate from the fee for the IDR entity's services, which is refundable to the victorious party in the arbitration. Therefore, this rule puts up significant roadblocks for provider groups to challenge reimbursements from payers, which in turn encourages them not to go to arbitration. This outcome is beneficial to the payers and only bolsters the current trend of poor reimbursements.
#9 Special Enrollment Period for Those Losing Medicaid
Starting this spring, millions of individuals may be deprived of Medicaid coverage due to the expiration of the pandemic-era coverage safeguards. In April, states are allowed to begin removing people from the Medicaid program if they do not meet the criteria for eligibility. The U.S. Department of Health and Human Services is activating a special registration period to allow these individuals to apply for coverage through the Affordable Care Act.
So What’s The Big Deal? Two things: revenue for providers and coverage for patients. Without health insurance, people are more likely to avoid services and delay care. The effect on a patient’s health can be significant. Economically, a lack of insurance coverage is problematic for providers. Patient volumes can drop and when care is rendered to an uninsured patient, reimbursements are traditionally low to non-existent.
#10 Medicare Drug Pricing Rules Become More Clear
Starting in 2025, pharmaceutical corporations will need to reimburse the federal government for any price increases for medicines in Medicare that surpass inflation. This timeline is part of the initial guidelines CMS issued for controlling cost increases and is one of a set of reforms in the Inflation Reduction Act (IRA) of 2022 that are intended to reduce Medicare medication prices. The IRA also permits Medicare to negotiate prices for the most popular medications with a single provider and limit how much insulin beneficiaries of the program have to pay every month.
So What’s The Big Deal? Pharmaceutical companies are worried drug pricing laws will inhibit essential research and development. But patients and insurance companies are excited about cost savings. Although drug makers' apprehensions are valid, the scope of the legislation is moderate; only a few drugs are affected by the drug pricing rules and the required refunds only apply to drug prices that go beyond inflation. Medicare has never had price gouging sanctions before. These plans should offer authentic savings for Americans.
About Our Newsletter: Whether you’re an investor, healthcare executive, or clinical leader, it’s impossible to keep up with the research, policy, information – and misinformation! – that will impact patients and our industry. This newsletter provides actionable intelligence to help leaders solve the big problems in healthcare.
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