In this episode, we are joined by Paul Keckley, Managing Editor of the Keckley Report and a healthcare researcher and widely-known industry expert. Paul shares his analysis of the issues facing healthcare in 2020.
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Highlights of this episode include:
- Why price transparency will be an important issue in 2020 for consumers and the healthcare industry.
- How legislation will address the issue of surprise billing in 2020.
- How the 2020 election will drive healthcare issues for consumers and voters.
- What disruptive events could possibly challenge health providers the most in 2020?
- And more…
Mike Passanante: Hi, this is Mike Passanante. And welcome back to the award-winning Hospital Finance Podcast®.
Today, I’m joined by, Paul Keckley, managing editor of The Keckley Report, a healthcare researcher and widely known industry expert. Paul recently wrote about what he sees coming in healthcare in 2020. And we’re happy to have him back on the show to discuss his analysis. Paul, welcome back.
Paul Keckley: Thank you, Mike. Always good to be with you.
Mike: So, Paul, we were chatting about a myriad of issues coming up right now in healthcare, and as usual, there are no lack of things to discuss. One of the things that was sort of top-of-mind for me – and I’ve just been involved in a lot of these discussions lately – has to do with price transparency. And the hospitals have a mandate coming up– they already have next year to deal with– how they’re going to put that information out on their websites for public consumption. And I guess, the question is, how do you think that’s going to go, and what, if any, impact might it actually have on consumers or researchers or other stakeholders?
Paul: It’s obviously a hot topic, though FAH and AHA and some others followed suit as expected to challenge it, and that will be, I think, expedited in the DC Court. But the most problematic part of that executive order and, then, that stipulation from CMS is that the negotiations between insurers and hospitals becomes publicly accessible in addition to the underlying costs and what prices folks would expect to pay for 300 “shoppable services”. 75 would be standard across all hospitals– and then, 225 others. I don’t think this in its current form will be implemented because it challenges contract law and it gets into some pretty vicious counterpoint around what’s the end game here?
If you disclose the agreement that you have with an insurer, then, does that immediately drive prices for consumers up or down? And that depends on the source. The academicians that have advised on this have basically said, “We know that if we’re making this information available, that prices will plummet for consumers,” and that’s a great theory. But what we found in the past, in similar efforts, is what really stimulates a consumer to pay any attention at all is really the effort on the part of a plan or an employer to structure price shopping into their benefit design, and that’s not been a very consistent plan design for a lot of employers and a lot of health insurers so we’re a long way from seeing where this is going to play out. I know the rule said this would be implemented January 1st, 2021. But I think we’ll step back. I think there’ll be some concessions made as to how this is implemented, and will it apply to all 4,900 hospitals or will there be exceptions made. Mike, another interesting piece of that is that it applied to physician services for physicians who are employed by the hospital, which is about 40% of the docs in the country. But it doesn’t apply to services provided for non-employed doctors. So it’s a complicated rule. And we’ve just seen the first chapter of this. There have been– president has issued five executive orders of which three have related to more transparency in health care. Alex Azar has kind of been on the same page. Seema Verma’s role at CMS, they’ve kind of created a little bit of distance between where Alex Azar is on this and where CMS is. But it’s one of those things where you stay tuned.
I think we’ll know by the end of the first quarter, March or so, exactly how to respond to the negotiated effort to increase price transparency. But as everybody is aware, we had a rule that’s been in place for now more than a year that every hospital had to post its charges and its charge master in a machine-readable format. So that’s already on the books. So it’s not over. I think right now my bet would be that we’ll probably reduce the number of shoppable services on the list and reduce the number in that 75 that are mandated, and transition this in over a longer period of time where we can make apples and apples comparisons. Because there’s a lot of unknowns here. There’s a lot of gray area, and it’s not as simple as an academic theory of price transparency.
By the way, we’ve had similar efforts through the years in places like California and New Hampshire, and other states have tried to do this, and they found two things. They found that not a lot of folks pay attention to this, ranging from 2 to 8% consumers ever paid any attention at all. And second, we’ve had some of the major consultancies like Deloitte, and others that kind of dig deep in this stuff, find that the costs that are targeted to be reduced, if this is all about reducing health spending and health costs, it’s not in these out-of-pocket, payment-sensitive services where you have your high costs. It’s in these high acuity, complex, and acute interventions, like joint replacements and others. So I think you have to step back and determine what’s the endgame here? Is it to lower health care spending by engaging consumers more aggressively or is it to check a box and say, “We’ve done it. We’ve created transparency in healthcare.” And that’s an unresolved issue right now.
Mike: Clearly. I think you’re absolutely right. When you get down to some of the things that are shoppable, certainly it creates an opportunity for people to really think about how they’re going to spend their money and get competitive. But when you get into those more complex situations and therapeutic interventions, how do you put together the patchwork of things that might go into that cauldron to create an episode of care, for instance? And so how do you price that out, particularly if it’s acute? An ER situation, obviously, you can’t do it, right?
Paul: Well, if you look at these 32 bundles that are still kind of the center piece of the bundle payment program that CMS has advanced, about half of those you could argue there is a significant opportunity to engage consumers more directly because there’s competition in those domains, like hip replacement or heart surgery and others. But in others, in some of the cancers, you’re dependent on very expensive drugs and in some cases those drugs are the only drug in that particular therapeutic class. So it’s just not as simple as pricing a Snickers bar. And when I’m on the hill, or with various groups, when you break down all of the costs and then you break down indirect costs, you’ve got a lot of folks in the providers sector when you look at over head or you look at the payer mix or you look at the level of uncompensated care or even the clinical program portfolio where some of those services are never going to be break even. You do them because mission or a teaching responsibility or other. So the short answer is its more complicated than I think folks recognize, yet a level of price transparency is certain. So how do we get from here to there and how fast do we do it and where do we start? So this was simply a start in my view and it’ll be resolved.
Mike: And I suppose tangent to that, perhaps on the other end of the spectrum, is surprise billing. You’re hearing a lot of talk both at the federal and the state level around that issue. What’s your take on that?
Paul: Well, it’s another one of those very interesting stories. As you know, about 30 million dollars has been spent by a coalition, largely private equity backed folks, that say this is going to limit access to providers and do this and that. We’re going to have legislation that addresses surprise medical billing probably in the next two or three weeks. The question is what will be the basis for setting the rate at which a surprise medical bill is resolved? And you’ve got a group of folks that say it ought to go to arbitration if it’s above $750.00 another of it says. We should use the medium rather than the mean. And we should resolve those disputes differently. But we’re going to get legislation. It will, I suspect, be based on the median of the third-party insures payment for in-network care for that out-of-network bill. And I suspect that floor for that is going to be somewhere in that $750.00 or so range. This is one of those rare areas along drug prices where the left and the right, if you will, recognize they have to do something. It’s just a matter of what’s actually in the bill that can pass. And this one seems to be moving closer. I think what’s surprised people is the degree to which the funders of opposition to this were the private equity plans that had funded groups like InVision and others. Where they were actually creating revenue as a result of collecting those surprise medical bills. So it probably led to some transparency about how that part of the industry operates that may be uncomfortable. But I think there’ll be legislation.
Mike: So, Paul, I want to pivot and talk about spending a little bit. You’ve also written about that recently. And perhaps disturbingly and maybe predictably, spending is again on the rise and appears to be– predicted to be on the rise for some time to come. And then, conversely, you’ve got less people insured again. So you’re sort of seeing that trend kind of flipping around. So we were talking before the podcast about 2009 and the ACA, the whole of idea of sort of handling both of these issues almost simultaneously, or at very least the coverage issue, right? But it doesn’t seem like long-term those trends are bending. At least to the naked eye. Is there more to the story?
Paul: No, it’s pretty clear. I think both the numbers of uninsured and the increasing number of underinsured, which as you know we have ways of calibrating that, where health costs are more than 10% of your disposable household income or things like that. So nearing a third of the population is underinsured who have insurance. So that leads to bad debt, obviously. The deficits of the past two years in the federal spend, total just slightly more than $1.6 trillion. In combination, the tax cut and jobs act that was passed in ’17 added another trillion to the deficit. So something’s got to give and in an election year, this is now kind of being buried underneath the impeachment stuff and this and that. But it’ll come back and Medicare is the biggest target for spending cuts. It represents– it with the federal part of Medicaid represent 28% of the federal budget. So you expect the feds to come back with some cuts. They’re not going to see cuts as a result of these alternative payment models in the near term because, as you know, they’ve not produced the kind of savings that anybody thought they would. So it will boil down to kind of the way we bought growing up in this industry, which is Medicare will set its payment rates and they’ll be increasingly aggressive. And that means the solvency and liquidity for hospitals will become kind of front and center. One out of four today is in reasonably good shape. Some of that’s because they’re in markets where you can do that. Some of it is they operate very lean. But three out of four is not. So, I think the story coming out of 2020, let’s assume in 2020 it’s all about the election and Medicare for All gets a lot of attention. That’s not going to happen, but some version of that, Medicare Advantage for All or a public option becomes the alternative on the democratic side to the republican side that says, “We really need to go back and let the market work.” That will play to the advantage of the big, large, integrated systems and those in markets where you can operate in a five to six percent or above operating margin where they’ve had enough on their balance sheet in non-operating income to be strong and creditworthy.
I think it’s notable that most of the major systems in the past 12 months and even going into next year, are floating bonds and securing additional debt because the rates are cheap. So, I think the separation between the haves and have nots is what we’ll see resulting from all of this discussion including price transparency and whatever happens to the exchanges and things like that.
Mike: Paul, my last question for you. When you think about the myriad of issues that providers have to deal with, not just financial but your cybersecurity, and the list goes on, what do you think’s going to be the most disruptive event to affect healthcare providers in 2020?
Paul: Wow. Great question. I just had breakfast with some CEOs and I can kind of reflect on their concerns. One is this question of solvency and liquidity. The sustainability of their capital commitments as they transition from inpatient to outpatient. None are making big bets on all the alternative payment programs. But all are saying, “I’ve got to at least play.” I think there’s in tandem growing question of private equity’s role. The funding of private equity, for instance, in position roll ups, is really reshaping how dermatology, urology, orthopedics look in this country. And those business models are not necessarily community-focused. PE wants to make an investment, create synergies, get its management fee, get a 20% return, annually, and flip that in four to five years. So that disruption is something that I think folks are going to have to pay attention to.
Probably akin is physicians aren’t happy, and whether employed or independent or part of a PE-funded venture, there’s a sense among the docs that they have to step out and become much more aggressive. But there’s not a belief that anyone has the secret sauce, that there’s some pathway to the promised land for doctors. So I see a lot of entrenchment of the specialty practices into their own kind of subsectors. We already had seen that in AMA, for instance, it only represents about a fourth of the doctors in the country now, that the specialty societies are more important to most doctors than AMA or the umbrella. So I’d say how physicians respond over the next couple of years is probably a key concern.
And then, I guess lastly, insurers are in a unique position. We’ve got about 200 health systems, right now, that have ventures with some of the major private insurers. And then, of course, you’ve got the United/Optums of the world that are direct employers of 46,000 doctors and operating surgery centers and a variety of other delivery systems. So I think the role that the insurers play and how that’s defined – and it’s going to be very different – is the core business of insuring groups. The future, for most, Medicare Advantage is the most profitable part of their portfolio. Individual market continues to be problematic. But do they go it on their own? Do they partner with health systems? Each is going to answer that differently. We’ve even got the CVS-Aetna thing which is kind of fascinating to watch. So those four, I’d say, are kind of the top of the list.
Mike: Paul, I always enjoy hearing your insights and having you back on the show. If someone wanted to read more of your insights and get some additional perspectives from you, where can they go?
Paul: Well, thank you. It’s www.paulkeckley.com. It’s basically a weekly report that I produced, and I try to be independent. I’m not blue or red. I’m just a data geek and an industry student. And that report’s free, so the entry barrier’s not very high, but thanks for mentioning that.
Mike: Well, I enjoy reading it, and I hope our audience takes a few minutes to check it out. Paul Keckley, thanks so much for joining us again on The Hospital Finance Podcasts.
Paul: Thanks, Mike. Appreciate it.