Volume 39

NUMBER: 10: Telehealth Is Still An Option

Yes, telehealth use waned post-pandemic, but many patients still see a significant role for this tool. A study covering the second quarter of 2019 to the third quarter of 2023 examined 475 million healthcare encounters, and telehealth was utilized less than 1% of the time before the pandemic. Use surged in the second quarter of 2020, and shutdowns were implemented. That quarter was the apex for telehealth usage, especially for mental health care, endocrinology, geriatrics, transplant, and GI, with rates surpassing 50%. Use spiked again in the first quarter of 2021 with the Omicron variant before leveling off a bit. Still, data from the third quarter of 2023 revealed sustained usage, especially in mental health (37%), infectious disease (11%), OB (10%), and transplant (10%). Certain hands-on specialties like ophthalmology, podiatry, and wound care maintained less than 1% telehealth visits, however.

So What’s The Big Deal? The study highlights the continued need for investment in telehealth. The prolonged high usage rates in mental health and elsewhere signal a fundamental change in healthcare delivery, at least for many specialties. As telehealth becomes more important to patients, adapting strategies for in-demand telehealth specialties is vital for enhancing their care and healthcare efficiency.

Your BIG Thoughts: What is the growth potential for telehealth? Where will it never (or rarely) be utilized?

NUMBER 9: Healthcare Workers Strike

Auto workers and Hollywood writers were not the only ones striking in 2023. Healthcare saw one of its largest strikes in history when 75,000 Kaiser Permanente took to the picket lines, requesting fair compensation, adequate staffing, and improved working conditions. And they won. These practitioners also were not alone. Doctors and residents are joining unions to tackle challenges like understaffing and pandemic-induced burnout.

So What’s The Big Deal? Working conditions, burnout, wages, and safety are big drivers of these strikes, but those factors are not the only ones at play. With mega-mergers and the corporatization of healthcare, we have seen a fundamental shift in how healthcare workers are viewed and treated by their employers and patients. Indeed, healthcare workers are now often treated as transactional, service-based commodities instead of professionals. The unionization trend among doctors and residents reflects a broader push for advocacy and fairness, emphasizing patient safety, improved work environments, and a return to the profession many individuals admired and wanted. Legislative responses in states like California and Ohio recognize the need for systemic changes. The impact of strikes on patient care quality and broader healthcare dynamics means stakeholders must address workforce concerns … now!

Your BIG Thoughts: What companies are most vulnerable to strikes in 2024?

NUMBER 8: Healthcare Costs - They're Up!

Health insurance costs are expected to spike in 2024, potentially by 6.5%, the highest increase in more than a decade. The surge will affect businesses and employees, adding substantially to the already-hefty average cost of more than $14,600 per employee annually. (Employers are reeling, and worried!) The rise is attributed to hospitals’ increased labor costs, growing demand for expensive diabetes and obesity drugs, and higher drug spending in general.

So What’s The Big Deal? Health insurers have continued to merge and acquire more pieces of the healthcare value chain and argue these deals improve costs. It’s clear, however, from financial reporting, this is not the case. Health insurance parent companies continue to rake in the dough while the costs to employers and beneficiaries rise and reimbursements to providers decline. (I wrote about this phenomenon a few months ago.) The reasons behind this surge, including hospitals’ rising labor costs and increased spending on specific drug classes, highlight the complexity that contributes to the overall cost of healthcare. Employers and regulators (see the FTC story below) face a challenging dilemma of maintaining attractive benefits while navigating the need to control costs amid a competitive labor market. As the healthcare landscape evolves, addressing the root causes of cost increases and implementing strategic solutions will be necessary for ensuring sustainable and accessible healthcare for workers.

Your BIG Thoughts: Is there any evidence mergers and acquisitions by health insurers have quelled costs? What, if anything, are we missing?

NUMBER 7: Hospitals' Finances Stabilize... For Now

Despite all the talk of bankruptcy, there are some potential tailwinds for hospitals and provider groups. Median hospital operating margins reached 1.4% in August 2023, marking the sixth consecutive month of positive margins for the 1,300 hospitals in Syntellis’ dataset. This consistency suggests a potential stabilization in hospital finances following the challenges of the COVID-19 pandemic. Outpatient revenue played a key role in the stabilization, rising 10% compared to August 2022. Inpatient revenue grew more modestly at a 4% year-over-year rate.

So What’s The Big Deal? The sustained improvement in hospital operating margins is positive and offers a glimmer of financial stability, but here is the key: Outpatient revenues are outpacing inpatient revenue, demonstrating that hospitals must have a growing outpatient plan that focuses on lower-acuity services and ambulatory services. And, all is not rosy. The report also highlights lingering challenges, including rising expenses driven by increases in supply, labor, and drug costs.

Your BIG THoughts: Is this trend sustainable, especially considering the Centers for Medicare and Medicaid Services (CMS) plans for physician fee service cuts and only minuscule boosts to hospital fees?

NUMBER 6: Retail's Revolution: The Unprecedented Disruption Of Healthcare

In A BIG shift, major retailers like CVS Health, Walgreens Boots Alliance, Amazon, Walmart, and Dollar General are reshaping healthcare by offering retail, customer-based services. Fueled by on-demand choices, retailers have recognized they may be able to capitalize on lower costs due to existing product and service offerings and diversify in ways that will enhance revenue and in-store sales. To wit: CVS has projected $7 million in potential earnings from Oak Street clinics and Walgreens has reported significant healthcare service sales, including $1.1 billion from VillageMD in its second quarter.

So What’s The Big Deal? Care delivery is changing. With established brand recognition, expansive store networks, and a large customer base, retailers recognize the financial opportunity to deliver alternative healthcare services. This market disruption could have a growing impact on traditional providers as retail disruptors, primarily focused on primary care, respond to consumer demands for convenience and value. As retail disruptors explore multispecialty and virtual care, their healthcare strategy will align with their merchandising approach, adapting services based on profitability and capital efficiency. The success of these ventures hinges on effectively balancing healthcare's low-margin nature with promises of diversification and increased store foot traffic.

Your BIG Thoughts: Is this trend actually better for patients? Will consumerism in healthcare further fragment an already fragmented system, thwarting any semblance of care continuity? Alternatively, will this expand primary care services to healthcare deserts?

NUMBER 5: Lina Khan And The Role Of The FTC

The Department of Justice (DOJ) and Federal Trade Commission (FTC) have proposed new guidelines for healthcare mergers. The rules focus on market share and concentration measures and could expose additional hospital mergers to federal antitrust examination. In 2023, the FTC did not stop at rulemaking, however. It also sued a private equity firm and its portfolio company, Welsh-Carson and U.S. Anesthesia Partners, for what it called an anticompetitive “scheme.” The new guidelines, and potential future lawsuits, could reduce hospital mergers and private equity acquisitions of physician clinics.

So What’s The Big Deal? While the lawsuit from the FTC against U.S. Anesthesia Partners is far from over, industry observers recognize it could chill frequently used roll-up strategies. It remains to be seen, however, whether the FTC and DOJ will actually deploy greater scrutiny of payer vertical mergers, which can have a much greater impact on consumer healthcare costs and access. (The proposed merger of industry giants Cigna and Humana is an example.) While the FTC has focused on horizontally integrated or like-type industry integrations (hospitals or roll-up of provider groups), it has been much less engaged in the vertical value chain. That said, for private equity firms, roll-up strategies of provider groups have long been a strategy. Maybe the FTC is waking up.

Your BIG Thoughts: 2024 is an election year. If power shifts in Washington, will this increased scrutiny survive?

NUMBER FOUR: Bankruptcy: Healthcare's Not Immune

Healthcare bankruptcies surged in 2023, exceeding historical rates, with more than 80 companies filing. Victims include staffing firms, hospitals, pharmaceutical companies, and senior living facilities like Envision, American Physician Partners, Rite Aid, Babylon's U.S. units, and Pear Therapeutics. (Notice what is not on the list: Payers.) Factors contributing to this spike include lapsed federal COVID-19 funding, higher interest rates, regulatory changes, revenue declines, and labor shortages.

So What’s The Big Deal? The unprecedented rise in healthcare bankruptcies shines a light on the sector’s vulnerability to broad economic forces. With CMS’s planned physician fee schedule cuts, Medicaid disenrollment, inflation, and labor costs, the economic trend lines are not moving in the provider industry’s favor. Indeed, it is a perfect storm for healthcare entities, and 2024 could be an extension of 2023 since many of the negative headwinds of 2023 will continue to blow. While there could be some relief with declining inflation and stabilizing patient volumes, the trend lines will continue to pose a challenge for profitability and, possibly, survival.

Your BIG Thoughts: What measures can healthcare entities take to survive?

NUMBER 3: Surprise! The "No Surprises Act" Needs Major Work

Implementing the No Surprises Act continues to cause financial distress for healthcare providers. Lengthy billing disputes and payment delays with insurers have led to bankruptcies at major players like Envision Healthcare and American Physician Partners. The law has resulted in more than 489,000 claim disputes since April 2022, impacting earnings and cash flows for companies like TeamHealth, Radiology Partners, and Global Medical Response. Despite its success in protecting patients, the law’s unintended consequences are straining the financial viability of healthcare businesses.

So What’s The Big Deal? The No Surprises Act set off a chain of unintended financial challenges for healthcare providers and tipped the scales heavily toward cash-flushed health insurance giants. While the law has helped patients in the short-term, in the long-term, it will harm patients by limiting access to care. As a result of the botched roll-out, many provider groups, already struggling financially because of the COVID-19 pandemic, are in peril. Their problems are not theoretical, they are reality and underscore the complexities arising from billing conflicts and delayed payments. The prolonged and backlogged dispute resolution, particularly evident in Radiology Partners waiting more than 250 days for claim settlement, raises concerns about disruptions to corporate cash flows.

Your BIG Thoughts: Is help on the way in 2024? Will policymakers address these unintended consequences in order to strike a balance between patient protection and the financial stability of the whole healthcare system?

NUMBER TWO: Reproductive Rights And Abortion Access

In states' off-year elections, abortion access was a prevailing issue. The most notable was Ohio where voters approved protections for reproductive health decisions in the state constitution. That victory continues a trend from 2022 in which abortion rights advocates succeeded in both red and blue states. Courts have continued to step in however, targeting drugs like mifepristone that are used in both elective and life-saving, non-elective abortions.

So What’s The Big Deal? The majority of voters have rejected the overturn of Roe v. Wade. Going into 2024, it is clear abortion access and reproductive freedoms are a major motivator for voters. But the case regarding mifepristone is concerning since it means the independent process used by the U.S. Food and Drug Administration (FDA) to approve medicines could be upended. If a drug like mifepristone, which has been safely administered in innumerable cases and has been approved for decades, becomes banned, what drugs or procedures will be next? Any federal judge could ban any drug, even one that has been demonstrated safe and effective.

Your BIG Thoughts: Legal experts: give us hope. Is there any chance the majority of the court will not undermine the FDA’s authority?

NUMBER ONE: Artificial Intelligence: It's Here

The integration of Artificial Intelligence (AI) in healthcare could be transformational. It could revolutionize clinical workflows, alleviate documentation burdens, and improve decision-making, for example, but widespread adoption faces challenges due to concerns about accuracy and implementation costs. The Biden administration has responded with a far-reaching executive order that directs federal health agencies to establish a task force and develop a strategic plan for regulating AI-enabled healthcare tools. To unlock AI’s promise, policymakers must help address concerns about bias, equity, and security.

So What’s The Big Deal? The Biden administration's proactive stance demonstrates dedication to navigating complexities, especially in alleviating clinician burnout. While promoting AI's efficiency, it underscores concerns like bias and security, endorsing strict regulations and a national tracking system for ethical use. Collaboration among healthcare leaders, investors, and innovators is pivotal for establishing trust in AI's beneficial impact.

Your BIG Thoughts: Again, 2024 is an election year. How would the GOP handle healthcare AI?

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Adam Brown