By Calvin Glidewell
After a tough 2022 rife with pandemic-related challenges, provider burnout, cyberattacks, supply chain issues, disruptive competition, and regulatory upheaval, healthcare executives are scratching their heads and wondering what is around the corner. Unfortunately, the end of the tunnel is a bit cloudy and hard to see. Constant change is now part of the fabric of healthcare. If history is any indicator, we can expect even more change—more digital transformation, more labor challenges, more reimbursement pressures, and, potentially, a grimmer environment with a negative financial outlook. Let’s take a look at some of the major trends, one at a time.
Healthcare financial pressures will remain. “Triple-demic” (COVID, flu, and RSV) issues are driving healthcare costs and threatening hospital capacity. In addition, many patients who delayed care during the pandemic have exacerbated their chronic conditions and may further drive up costs and stretch resources. To add insult to injury, the federal government is increasingly saying that it will end the public health emergency early next year. This will have a double-whammy effect: 1. drying up the Provider Relief Fund it had provided for safety net hospitals and federally qualified clinics during the pandemic and 2. no longer requiring Medicaid plans keep patients enrolled. HHS estimates that as many as 15 million Medicaid and CHIP beneficiaries will lose coverage when the public health emergency does end, likely adding to providers’ uninsured burden.1 Hospitals and other providers are already facing an unprecedented healthcare worker shortage and are having to dramatically increase wages to retain talent. And with high inflation fueling steep increases in supply and equipment costs, the financial picture for healthcare in general is not very rosy. The American Hospital Association has stated that more than half of all hospitals are operating at a loss,2 and bankruptcy filings by hospitals are expected to increase by more than 30%.3 Interestingly, though, not all providers seem to be experiencing the same pandemic-related effects. Not-for-profit hospitals may need to learn some lessons from their investor-owned counterparts. Hospital operators HCA, Tenet and CHS, with their enhanced purchasing power, labor pools, solid supply chains, and generally lower uninsured rates, have all reported operating margins which exceed pre-pandemic (pre-2019) levels.4
Healthcare is becoming more retail-oriented. The American healthcare consumer is becoming more impatient and more demanding, and some of the largest retailers in America are responding. Retail clinics provide near-immediate access to care for many Americans, and major chains such as CVS, Walgreens, and Walmart now routinely offer retail healthcare clinics for their customers. These blue-chip companies are savvy competitors which often offer superior and more timely care at a lower cost than what could be accessed at a hospital emergency department or urgent care center. Consumer interest in preventive healthcare (for example, immunizations), wellness, and early intervention to treat basic illness have stimulated demand for retail services; in fact, some retail providers are now even including behavioral health treatments in their portfolio of services. The compound annual growth rate of retail clinics is anticipated to be over 10% over the next several years. Pharmacy chains and grocery stores will increase their retail presence, and the number of independent operators and hospital-owned clinics will undoubtably grow as well.5
The digital transformation of healthcare will continue. Healthcare has finally come of age—the digital age, that is. The pandemic jumpstarted digitally-enabled care, particularly in telemedicine and virtual health delivery; in fact, digital health investment nearly doubled in 2021 from the prior year. Although we saw a slight decline to about $15 billion in 2022, the level of investment is expected to continue at about $15 to $25 billion annually over the next several years. Computer-aided artificial intelligence, asynchronous telemedicine, remote patient monitoring, digital therapeutics, and use of augmented reality in chronic pain treatment are just a few of the digital opportunities in healthcare. And that‘s just on the treatment side of things. On the administrative side, simplifying digital access and patient self-scheduling, optimizing patient portals, and using AI to assist in nurse staffing and scheduling as well as to triage patients to the right venue of care, are just a few of the applications which will inevitably grow in the healthcare field.6,7
Non-traditional Merger and Acquisition (M&A) activity will be the norm, and industry competition will increase. 2022 was an especially tumultuous year in Healthcare M&A. The pace of change was dizzying. Consider Amazon’s $3.9 billion acquisition of primary care group One Medical; CVS’s acquisition of home health company Signify Health; Cano Health’s decision to go public in a $4.4 billion merger with special purpose acquisition company (SPAC) Jaws Acquisition Corp; Walgreen’s diversification by acquiring Summit Health ($9 billion), CareCentrix ($330 million), and Village MD ($5.2 billion); Humana’s $5.7 billion acquisition of Kindred at Home and its $ 1.2 billion joint venture with private equity firm Welsh, Carson, Anderson & Stowe to grow its Conviva and CenterWell primary care lines of business; and United Health Care/Optum’s $5.4 billion acquisition of LHC Group, a home care company. Although 2023 may not see the same level and scope of M&A activity as last year, the days when “horizontal integration,” or hospital-to-hospital mergers, as the predominant type of integration activity are long gone. Instead, primary care has become the hot new commodity, and hospitals are now competing with health plans, drug store chains, national big tech firms, and private equity groups for this critical access point to the healthcare delivery system. But it’s not just primary care groups which serve as acquisition targets; other digital care companies and pre- and post-acute members of the delivery system will either be acquired or enter into provider and payer partnerships. Primary care may hold the golden key to the healthcare delivery system, but control of healthcare costs and the ability to divert patients to a lower cost setting are also important and will drive more integration and disruption in 2023.
Federal healthcare policy change will be incremental at best. Perhaps the fuzziest and most obscure piece of the healthcare outlook for 2023 is the regulatory/legislative agenda. One of the federal government’s major priorities—control of inflation—is not per se a healthcare issue at all, but will nonetheless have a tremendous impact on healthcare. As the Fed increases interest rates, the fallout effect will be that the labor market will continue to tighten, consumer spending for healthcare will be cautious, and medical debt will increase. In addition, the 2023 Congress and the Executive Branch are responding to greater consumer criticism and mistrust of the healthcare industry, which will lead to greater scrutiny of healthcare pricing transparency compliance, more hearings on Medicare Advantage billing practices and payment denials, and heightened interest in healthcare M&A activity.8
There was substantial movement on several healthcare issues last year; at the federal level, Congress passed major legislation related to price transparency, surprise billing, and prior authorizations. Next year, however, a divided Congress almost guarantees more gridlock on issues like abortion, healthcare costs and access, despite the fact that politicians have taken note that the Supreme Court’s Dobbs v. Jackson Health Organization abortion decision was a fundamental factor in the midterm elections. There does seem to be some bipartisan agreement on a few issues: the importance of telehealth in improving access to healthcare (particularly for underserved or vulnerable populations), the imperative to protect heath data privacy, the interest in providing greater interoperability of health data, and the criticality of keeping healthcare affordable. Even if bipartisan minds can’t prevail in Congress, it is likely that court decisions and White House executive orders rather than substantive legislation will drive incremental changes in healthcare.9
Local and statewide jockeying among providers and payers will continue. In Florida, both providers and payers will see more changes in 2023. The local market is already seeing the effect of the legislature’s decision a few years ago to eliminate the Certificate of Need (CON) requirement for new healthcare facilities. CON repeal has spawned more competition (and, in at least a few cases, more collaboration) in the South Florida market. In Palm Beach County, new acute care hospitals are planned by Universal Health Services (150 beds in the Alton district of Palm Beach Gardens) and by Jupiter Medical Center in partnership with the University of Florida (a “neighborhood” hospital with emergency and ancillary services in Health Park at Avenir). A 24-bed orthopedic specialty hospital is planned by Legent Health in partnership with Texas-based Physicians Surgical Network in Delray Beach. A new LTAC/rehabilitation hospital is planned by Vibra Healthcare in Boynton Beach and another rehabilitation hospital by Encompass Health in Palm Beach Gardens. In Broward County, both Baptist Health South Florida and a Broward Health/Memorial Healthcare partnership are pursuing separate acute care hospitals in Sunrise. Within the last year, Miami-Dade County has already seen the opening of the 100-bed Jackson West Medical Center and a 15-bed Baptist Health Hospital, both in Doral.
Another significant development for 2023, this time on the payer side of the industry, is that the State of Florida, through its Agency for Healthcare Administration, will be issuing a Request for Proposals to managed care plans who want to provide care to the state’s 4.24 million Medicaid beneficiaries. The 6-year, $100 billion dollar initiative will likely result in geographic-specific awards to several health plans.10 It will undoubtably stimulate interest among dozens of payers and, likely, will also result in several challenges by those who are not selected for participation.
Even though the healthcare crystal ball is a bit murky, the South Florida regional healthcare providers and payers have always shown remarkable resiliency as well as dogged determination to succeed and provide excellent care to their community. And although the national, state, and local healthcare environments are sure to change, I don’t anticipate that the dedication, perseverance, and pursuit of excellence by South Florida’s healthcare players will. Any way you look at it, it should be a very interesting year.
Calvin Glidewell is President of inspirEx Healthcare Strategies.
Footnotes:
- https://www.politico.com/news/2022/02/02/medicaid-states-pandemic-loss-00004153
- https://www.bloomberg.com/news/articles/2022-09-15/us-hospitals-to-face-heart-wrenching-decisions-as-losses-mount
- https://www.beckershospitalreview.com/finance/hospital-closures-bankruptcies-expected-to-spike-in-2023
- https://www.fiercehealthcare.com/providers/kff-profit-hospital-system-margins-surge-past-pre-pandemic-levels
- https://www.forbes.com/sites/forrester/2022/12/01/retail-health-and-wellness-are-on-the-front-lines-for-healthcare-in-2023/?sh=2e238ead67a9
- https://medicalfuturist.com/the-top-10-digital-health-stories-of-2022/
- https://www.fiercehealthcare.com/digital-health/digital-health-vcs-eye-healthcare-workforce-oncology-tech-hot-markets-2023
- https://www.hfma.org/topics/hfm/2022/december/paul-keckley—3-trends-to-watch-for-in-the-2023-healthcare-regu.html
- https://www.cmhealthlaw.com/2022/12/top-healthcare-policy-developments-in-2023-register-for-crowell-health-solutions-webinar/
- https://floridapolitics.com/archives/572967-the-mother-of-all-contracts-a-seismic-shift-in-medicaid-program-could-be-ahead/
