Volume 30

CVS’s Profits Plummet

CVS Health made a pivotal announcement recently, unveiling a comprehensive restructuring strategy in response to a significant 37% year-over-year profit decline that totaled $1.9 billion for the second quarter. This move follows CVS’s first quarter revelation that it has been experiencing significant cost pressures due to substantial integration expenses from its acquisitions of Oak Street and Signify. (Those two deals together have been valued at $18.6 billion.) Those investments, while strategically sound, weighed on the company's financial outlook for 2023. The first quarter had exposed other challenges as well, including constraints imposed by drug manufacturers on discounted drug sales and a swifter-than-anticipated fading of COVID-19-related contributions. These factors, coupled with amplified medical costs within CVS’s Medicare Advantage sector and a reduced footfall in retail pharmacies due to diminishing COVID-19 cases, have combined to create a complex financial landscape.

So What’s the Big Deal? Healthcare leaders and investors should closely watch how CVS navigates these complex challenges and the resulting strategic realignment. That’s becase CVS’s story underscores the multi-dimensional considerations facing not only CVS Health, but other large, vertically integrated healthcare companies as well and spotlights the complex interplay between acquisitions, market dynamics, and service expansion.

Your BIG Thoughts: Were you surprised by CVS’s announcement? What do the CVS revelations say about vertical integration in general? Join the discussion on social.

CMS Bumps Hospital Reimbursement - A Little.

The Centers for Medicare and Medicaid Services (CMS) has solidified a pivotal decision: 3.1% augmentation in payment rates for hospitals in 2024. This increase transcends the earlier proposed 2.8% increase. Hospitals can anticipate an overall upsurge of $2.2 billion in payment allocations. CMS anticipates Medicare disproportionate share hospital payments and uncompensated care payments will witness a decrease of approximately $957 million in the coming year, an outcome directly linked to the rule's implementation.

So What’s The Big Deal? As I stated in last month’s newsletter, what CMS giveth, CMS taketh away due to budget neutrality rules. And because of budget neutrality, physicians will see a pay cut, while hospitals will see a boost in payments. No one really is happy since hospitals believe the increase isn’t large enough to keep up with inflation (despite being on the more positive side of the equation). As you will see in the next article, hospital margins have improved ever-so-slightly but are still strained for 2023. Until there are changes in budget neutrality rule, we will likely not see Medicare payments keep up with inflation for hospitals and physicians.

Your BIG Thoughts: How will declining payments affect patient care and access? What do policymakers need to know? Join the discussion on social.

Hospital Margins Improve

According to Kaufman Hall, U.S. hospitals continue to struggle even though there was a moderate improvement in margins (1.4%) in June. Hospitals are continuing to face challenges both with inflation and expenses (although some hospitals have made some improvements). That said, an interesting trend has emerged: a widening disparity between under-performing and over-performing hospitals.

So What’s The Big Deal? What this trend means is that can’t necessarily rely on the industry average for insights into the entire system. There are wide disparities in the decline in ER visits and average length of stay, inflation, and labor expenses, for example. Patient volumes also continue to shift to more outpatient centers of care. A hospital’s exposure to these financial drivers could reinforce their position or move them into positive or negative territory. In addition to these dynamics, hospitals are challenged by escalating bad debt and charity care. Hospitals (and physician practices) find themselves navigating the repercussions of Medicaid eligibility redeterminations, leading to an upswing in disenrollments and subsequently impacting hospitals. The interplay of financial trends, patient dynamics, and external forces necessitates a keen focus on adaptability and astute management, underscoring the continued headwinds faced by hospitals.

Your BIG Thoughts: What are high-performing hospitals getting right? Do you think these numbers will continue to improve and, if so, what will be the contributing factors? Join the discussion on social.

Privia’s Positive Financial Returns

Privia Health, a leading physician enablement firm, reported robust financial results for the second quarter of 2023, coupled with an expansion into a new market. The Virginia-based company demonstrated impressive net income of $7.3 million, equivalent to 6 cents per share, marking a notable improvement from the net loss of $10.5 million, or 10 cents per share, recorded in the same period of 2022. Additionally, the company's revenue exhibited substantial growth, rising from $335.5 million in 2022 to an impressive $413.4 million in 2023.

So What’s The Big Deal? Privia Health has devised a strategic approach to collaborating with healthcare providers through the establishment of a unified tax ID entity. This framework fosters enhanced payer negotiations and clinical alignment while preserving providers’ existing ownership structure. Additionally, Privia Health orchestrates the creation of Accountable Care Organizations (ACOs) designed for risk-bearing value-based contracts, coupled with the provision of its advanced technology and service platform. The company's growth trajectory aligns with the current trend of heightened interest in primary care enablement enterprises, a critical piece of value-based care. Furthermore, major players and payers are intensifying their investments in value-based care alternative payment models, a testament to the increasing significance of Privia Health's strategic endeavors.

Your BIG Thoughts: Do you agree? Does Privia exemplify the value of value-based care? Join the discussion on social.

U.S. Department of Labor Sues United Healthcare

In “a big” development (see what I did there), the U.S. Department of Labor has sued UnitedHealth Group, for denying payments for crucial healthcare services in ERs. Thousands of patients were reportedly affected, raising important questions about compliance and patient rights. The list of denials includes payments for emergencymedicine services and urinary drug screenings. It looks like the denials were near universal and automated, indicating a much broader issue surrounding claim adjudication.

So What’s The Big Deal? The federal government is finally paying attention to the denials process. As a result, the government may scrutinize other health insurers' denial processes for services rendered in the ER.

Your BIG Thoughts: If the feds are suing, congressional oversight cannot be far behind. What questions should lawmakers ask about claim denials?

Insurers Refusing to Pay?

According to a recent survey by Americans for Fair Health Care (AFHC), a new advocacy entity for clinicians, medical professionals are concerned about health insurers disregarding or inadequately honoring third-party arbitration decisions on surprise billing. Specifically, doctors reported non-reimbursement by payers in more than half of the surprise billing awards. Moreover, insurers purportedly dismissed independent dispute resolution rulings, deeming them "unenforceable" and "non-binding." The survey underscores the growing contention between healthcare providers and insurers on the execution of arbitration outcomes, a phenomenon that AFHC aims to address through its clinician-focused advocacy efforts.

So What’s The Big Deal? This survey was comprehensive: 48,000 physicians across 45 states. It is proof health payers are not only prolonging the disbursement of award payments but, in some instances, are outright rejecting them. This unsettling revelation, as highlighted by AFHC, poses a potential threat to the stability of the recently implemented No Surprises Act (NSA), a pivotal legislative achievement enacted by Congress in 2022. Congress must closely review the dynamics between healthcare practitioners and insurers and examine the NSA’s efficacy.

Your BIG Thoughts: Should Congress have anticipated the NSA’s unintended consequences? What can it do now to undo harm?

AI Technology at Duke

As a Chapel Hill graduate, I’m the furthest thing from a Duke fan, but I do have to give credit when credit is due … and on AI Duke is leading. Duke University Health System has entered a transformative collaboration with Microsoft, aiming to harness the potential of generative AI and cloud technologies. This strategic partnership, spanning five years, will revamp and streamline IT operations at Duke Health through the utilization of a secure Microsoft Azure cloud environment. The initiative reflects an astute move towards embracing cutting-edge innovations to enhance healthcare operations.

So What’s the Big Deal? By joining forces with Microsoft, Duke Health is poised to embark on a journey toward IT modernization and optimization. The integration of generative AI and the robust capabilities of the Azure cloud will undoubtedly fuel efficiency, scalability, and data security within the health system's IT framework. This strategic alignment underscores the growing recognition of technology's role in revolutionizing healthcare operations. Generative AI holds the potential to streamline complex processes, enhance decision-making, and accelerate innovation. Moreover, the adoption of a secure cloud environment provides the agility and scalability needed to keep pace with the evolving demands of healthcare. Duke University Health System's partnership with Microsoft signifies a pivotal step towards leveraging advanced technologies for operational enhancement.

Your BIG Thoughts: Clearly I believe in the promise of AI (with some caveats), but do you? Also: Who is going to have the better basketball season: My Tar Heels or the Blue Devils?

Telehealth Company, Amwell, Takes Revenue Hit

Amwell, a prominent telehealth provider, has revised its 2023 revenue forecast due to challenges encountered while transitioning customers to its innovative technology platform. The company's net losses also notably increased during the first half of this year. In the second quarter, Amwell reported $62.4 million in revenue, reflecting a 3% decrease compared to the corresponding quarter last year. These developments underscore the evolving landscape of telehealth and its dynamic impact on the industry.

So What’s The Big Deal? The telehealth industry has experienced a shift since the peak of the pandemic as companies, health systems, and payers rethink how to incorporate telehealth platforms into patient care. While Amwell's revenue decline can be attributed to platform changes, the decrease in subscriptions potentially highlights a larger trend within the telehealth market. Although telehealth experienced a surge during the pandemic, patients are now gradually returning to in-person healthcare models. Still, telehealth is expected to persist as a complementary approach to patient care, demonstrating potential for growth as an enhancement to existing healthcare practices. This evolving landscape prompts a careful assessment of telehealth's evolving role in the broader healthcare ecosystem.

Your BIG Thoughts: Patients still seem to prefer in-person visits to virtual ones? Will this ever change and will telehealth be forever limited?

A More Speedy Bankruptcy for Envision?

In a significant development, a Texas bankruptcy court has given its seal of approval to the disclosure statement and an expedited timeline for Envision Healthcare's Chapter 11 plan. Envision Healthcare, a physician staffing firm under the ownership of private equity giant KKR, is navigating this financial restructuring. The decision, made during a Houston hearing, signals progress despite objections from creditors who argue the allocated timeline is not sufficient. Federal bankruptcy judge Chris Lopez upheld the disclosure statement, dismissing the objections on the grounds that objectors had not substantiated the claim of unconfirmability. Notably, the dissenting creditors, who have raised concerns about due process and transparency, will present their case during the confirmation hearing slated for September 14.

So What’s The Big Deal? Although this ruling brings relief to Envision employees and clients, the immediate and near-term economic landscape for outsourced physician staffing and practice management presents ongoing challenges. As highlighted in past newsletters and MedPage articles, the industry is in trouble. We anticipate other companies may initiate restructuring efforts or face closures in the coming months too. This turbulent phase, lasting around 12-18 months, is likely to stabilize as inflation subsides, private payer revenue declines moderate, and contractual revenues adjust. However, the long-term outlook remains daunting. Payer reimbursements are anticipated to continue decreasing, government payers might reduce physician reimbursement from 2024 onward, labor difficulties and wage inflation will persist, and market consolidation and integration could weaken staffing firms’ negotiating power. The healthcare physician service sector is poised for prolonged challenges.

Your BIG Thoughts: Do you agree with the judges decision? Do you think we’ll see another firm drop soon?

Could Physicians See End to "MOC"?

A Change.org petition demanding the cessation of maintenance of certification (MOC) obligations overseen by the American Board of Internal Medicine (ABIM) has garnered more than 10,500 signatures. Launched on July 21 by Dr. Aaron Goodman, an associate professor in the Division of Blood and Marrow Transplantation at the University of California San Diego, the petitioners argue the MOC program is now a burden, both financially and operationally, and lacks substantiated proof of enhancing patient care or physician competence.

So What’s The Big Deal? Physicians are facing a tidal wave of low-yield, high-cost educational burdens that include box-check badges, certificates, and click-through classes. For maintenance of certification in particular, the cost of re-certifying or maintaining certification can be thousands of dollars. When adding biannual hospital re-credentialing costs, biannual licensing renewal, annual medical education, costs are unsustainable … and don’t even end there. There also are corporate compliance and HR trainings, state-by-state licensing medical education requirements, DEA educational requirements, and hospital-based education. Now wonder physicians are fighting back. While we may not completely see an end of MOC (physician lawsuits have so far not been successful), we may start to see big changes in how it is administered, the costs associated with it, and the volume of annual requirements.

Your BIG Thoughts: The cost of being a doc is growing. How can we mitigate these in order to ensure more motivative, compassionate students choose this field of work and current physicians don’t burnout?

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Adam Brown

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