In this episode, we welcome back Paul Keckley, Managing Editor of The Keckley Report to share with us what he sees as major trends and issues in health care for the coming year.
Highlights of this episode include:
- Policy shifts within the regulatory environment
- Environmental trends
- How inflation is likely to affect health care in 2022
- No Surprise Billing Act
- How COVID can impact health care in 2022
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 and a health care researcher and widely known industry expert. Paul’s been a friend of the show for several years and has always been willing to share with us what he sees as major trends in health care for the coming year, and he’s back today to share his thoughts for 2022 Paul, welcome back to the show.
Paul Keckley: Thank you, Mike. Appreciate it.
Mike: So, Paul, we always saw big picture with you. And I think one of the biggest picture items we can talk about are some of the major policy shifts within the regulatory environment that you see coming in 2022. Can you explain them to us?
Paul: Yeah. I mean, you start with the current composition of Congress in the White House and Biden folks are center-left leaning in their policy framework. So Medicare for All is not on the table, but expanded access becomes a mantra, especially going into the ‘22 midterm election, where they’re likely to lose control of the House. The average first midterm for a sitting President is to lose 28 seats of their party. So we suspect this will be a Republican House and potentially a Republican Senate. So that means the policy levers you have to pull are going to be very short-term. You’ve got about a year to pull off as much as you can. So what’s that look like? Probably continuation of the price transparency policy that took effect January 1, ‘21. The pending of the No Surprises Act subject to the court challenges, which has the administration’s support and obviously some pushback from hospitals and doctors. They’ll lever the Federal Trade Commission to be much more aggressive about consolidation. There’s a strong belief inside HHS and inside the FTC that consolidation among hospitals has been particularly disadvantageous to competition and hurt consumers and so on. Ironically, incremental policy shifts on drug pricing, though highly popular with the public, it’s very clear the pharma industry pulls out all the stops to resist changes. So there will be some movement toward an inflation-adjusted ceiling on price changes for certain classes of drugs. But this wholesale drug price controls or linking prices to an international median comparison, or even changing some of the patent laws don’t appear to be possible. And I guess, lastly, the policies that are most important to this administration will advance access in underserved populations. So equity is kind of the Holy Grail in the Biden team, and everything you do has to reflect attentiveness to making sure underserved populations, populations of color, and so on get more than their share of access to the health care system. But that’s just kind of it at a high level. Every day there’s something new.
Mike: That is very true. And of course, there are some environmental trends that challenge health care as well. What do you see there, Paul?
Paul: I guess the role that the technology companies are playing to the extent that they become major disruptors in the system around aggregating data or controlling data or facilitating interoperability, which has kind of been not achieved too well in the past 10 years. I think that’s part of an environment that we never really anticipated when health care was being conceived in its current form. I think a second is the amount of private equity that’s flowing into the system. Private equity has raised about 200 billion more this year to make bets. Health care is a very attractive industry for bets of private equity and of venture capital because it grows and it seems to defy economics most of the time. So I think the role private investment is playing is the second environmental factor that I’m not sure the system was really as sensitive to through the years.
There’s some more that are subtle, like the extent to which employers might be pulling back from taking most of the risk of the health care system to taking less risk by pushing more of that risk to their employees or limiting their benefits, or in some cases, exiting health benefits coverage altogether. And there are probably a lot of others, Mike. When I think of health care in a macro sense, what happens in the technology market is something I follow closely. What happens in the capital markets is something to be followed. The consumer’s appetite for changes to the system is one that’s a head-scratcher because the system gets kind of a C-minus overall from consumers for being affordable and transparent and all the stuff that people talk about. And yet three out of four don’t want to see the system change dramatically. They just want to see improvements to the status quo. So health care can’t operate in the future as an island unto itself. It’s going to have to establish itself and its value proposition and its role much more clearly to populations that heretofore it just viewed as payers or users and without much influence. I think those non-healthcare populations are growing in their antipathy toward the health care system.
Mike: Yeah, definitely more environmental factors than one could count. And perhaps another one that we’ll dig into now. You and I just discussed a little bit about the November CPI numbers, and you were digging into that report. So I’m interested in your thoughts on how inflation is likely to affect health care in 2022?
Paul: Yeah. This last month’s report was the 39-year high for a lagging 12-month increase prices 6.8%. And when you peel that data back, it was largely fuel costs that drove most of that, with food closely behind. But when I look back at where medical services costs, so the way the CPI is constructed, you’ve got medical commodities cost, which are supplies and drugs and things like that. You’ve got medical services. Medical services cost increased 2.1% on the heels of a 3% increase in 2020 and a 5% increase in 2019. So the reality is that the CPI is being driven higher and consumer prices driven higher by factors including health care operating cost, our labor cost, our cost of turning the lights on.
And it’s not our drug costs and things that we’re prone to beat on. It tends to be the way we operate. And I think that really stands out in the current report. When you look back 12 months, 24, 36 months, and then you look forward and you know that there’s a workforce shortage that everybody in the health care delivery system is facing a certain amount of workforce burnout to some extent. And there’s an especially difficult situation brewing among our hourly employees and our mid-level employees who are not only increasingly in short supply, but the labor market is strong for them. They are able to find employment in other industries, and some would say not have to put up with health care.
So that’s what came out of that CPI report. It was fascinating to dig into the data and realize we’re going to be hearing about this. The Fed is meeting this week. This Wednesday. It’ll be on their radar. They’re going to essentially accelerate the bond purchasing program to $30 billion a month, which means they’ll raise interest rates in March. So you’ve got a combination of inflation going into 2022, higher consumer prices, higher interest costs, which means the folks in health care that want to raise their prices better be very careful. And many are going to pay a higher operating cost for their debt simply because the Fed is going to push that to kind of slow down inflation. So it’s going to be a complicated time.
Mike: And of course, we’re recording that here at the end of December, so we’ll see what they ultimately do and how things play out, but it’s going to be probably a turbulent year ahead economically it feels like.
Paul: Yeah, at least for six months. We have to imagine that interest rates bump up at least 25 basis points or more. And we have to assume that inflations going to continue in the three to five percent range. UBS and others have forecast it might be as high as seven. So we’re going to have a bumpy at least first half.
Mike: All right. Well, let’s talk about something you mentioned before, and that’s the No Surprise Billing Act. Enforcement is supposed to begin January 1st. What will that look like and what should providers be doing about it if they’re not doing something already?
Paul: [laughter] Well, it’s really interesting because it’s a popular bill with Congress and with consumers. The notion that you shouldn’t be surprised when, for instance, your emergency room doctor is out-of-network, but the hospital emergency room is in-network and that you can get billed for the out-of-network difference. So what the bill basically does is it said, “We’re going to create a mechanism for making consumers aware of the network status for their providers and a remedy where they’re hit with a bill they didn’t expect.” And that remedy is based on how insurers have set payments for in-network rates. Well, where doctors and hospitals have pushed back is they’ve said, “The insurance companies don’t pay enough for this stuff to start with.” So they oppose the No Surprises Act, not because they don’t acknowledge that the surprises need to be at least limited, but because what they’re going to be reimbursed is set by insurance companies rather than by something that the docs and hospitals think they should be paid.
Now, what this is going to do, it’ll go through a court proceeding and it’ll delay implementation, I suspect, but not by much. This is not a law, like the price transparency rule, that’s going to get pushed back very far. So what people have to do is recognize the protocols for alerting patients to your network status for both emergency and non-emergency utilization have to be in place by January 1. You have to have that mechanism in place to alert them, and you have to provide good faith estimates of what that difference of cost might be to them. It’s likely that this is going to stand as written. I doubt the hospitals and doctors will win their challenge because the insurance companies provide a bona fide basis for that median in-network rate, which many in the third-party payer world would say is adequate to pay services. So it’s again Shia-Sunni conflict. It’s insurers versus providers.
Mike: Well, nothing new there, I suppose.
Paul: Nothing new.
Mike: [laughter] So my last question for you, Paul, and unfortunately, it’s still kind of hangs over us a bit and that’s COVID. How do you see that impacting health care in 2022?
Paul: Yeah. I mean, we crossed 800,000 deaths plateau this week. And Delta is still a variant with a certain amount of unknown complexity. So what we know for sure is that hospitalization is now highly regionalized, the Northeast and the Great Lakes getting hit hardest right now, but the variant tends to move aggressively. I believe the variant will be manageable through the current vaccine cocktails that we have by the second quarter of the year. That’s when we would expect north of 70% of the population to have all three shots. And now we’re in a management mode. What does it mean for the health care system? We knew in the first three months of COVID-19 wave one, elective procedures were down 46%. But by the end of the year 2020, all of that volume was recovered. So I think there’ll be a dip in cash flow, but we’ll recover.
I think the bigger questions about the pandemic preparedness and the next variants is whether we learned any lessons. The communication in the first and second waves has been horrible. There’s been confusion between NIH, CDC, the FDA. And we’re going to face kind of a moral imperative to play a much bigger role in the world’s availability of vaccines and tests, which we have not done. We’ve not been an active participant as other countries have been. So I’m expecting that we’re looking at it through the second quarter of the year as an active part of the public health strategy. But at a policy level, we’re stepping back and doing things like, how do we step up our interventions in developing countries? How do we integrate public health programs with local health systems much more effectively? And how do we get the CDC, the NIH, the FDA to be on the same page and speak with one voice?
Mike: Paul, I always learn something new when you and I chat. And wanted to thank you so much again for coming back to the show today.
Paul: Thank you, Mike. Always enjoy it.