April 1, 2022

The Weekly Gist: The AARP-Real Fools Edition

by Chas Roades and Lisa Bielamowicz MD

By now you’ve read a thousand hot takes and think pieces about the Slap Heard ‘Round the World, so we won’t burden you with ours. But it is reassuring to know that, even as we enter our AARP-eligible years, Gen Xers are still able to generate the most disappointing cultural moments possible. (See also: Woodstock 99, the BH90210 reunion, etc.) “53-Year-Old Man Slaps 58-Year-Old for Rude Remark About Wife’s Hair” belongs in a country club newsletter, not the national zeitgeist. Bet the good folks at The Villages can’t wait until we show up.

THIS WEEK IN HEALTHCARE

What happened in healthcare this week—and what we think about it.

  1. $5.4B acquisition dramatically expands Optum’s home healthcare footprint. UnitedHealth Group’sOptum announced plans to acquire publicly traded, postacute care behemoth LHC Group for $5.4B. The Lafayette, LA-based company, which had $2.2B in revenue last year, operates more than 550 home health locations, 170 hospice sites, and 12 long-term acute care hospitals across 37 states, reaching 60 percent of the country’s Medicare-eligible seniors. LHC also has more than 430 hospital joint venture partners.

The Gist: This deal will greatly expand Optum’s ability to provide home-based and long-term care, with the goal of moving more care for the insurer’s Medicare Advantage enrollees to lower-cost settings. The acquisition puts Optum’s home healthcare portfolio on par with competitor Humana, which has been the leader in amassing home-based and postacute care assets, and recently moved to take full control of home health provider Kindred at Home. LHC will be part of a growing portfolio of care assets managed by Optum Health, which also includes the company’s owned physician assets. Success in lowering cost of care will require Optum to integrate referrals and care management across a rapidly expanding portfolio—and ensure its physician base has confidence in these new models of care.

  1. More pharmaceutical companies look to restrict discounts to 340B hospitals using contract pharmacies. Johnson & Johnson became the 16th drugmaker to limit 340B discounts for hospitals dispensing drugs at contract pharmacies. These manufacturers have taken issue with the proliferation of contract pharmacies in the 340B program, alleging high rates of fraud and duplicative billing. Several court battles between these drug companies and the federal government are ongoing. The 340B program, which requires pharmaceutical companies to provide 20 to 50 percent discounts for drugs participating hospitals purchase (see our explainer on the mechanics of the program here), has grown rapidly in recent years.

The Gist: Over 40 percent of hospitals now qualify for 340B discounts, and 340B drug sales totaled $38B in 2020. According to a recent survey, participating hospitals have lost 25 to 40 percent of their contract pharmacy savings since drugmakers began restricting discounts in 2020. Many hospitals have used savings from the program to subsidize other areas of patient care; some tell us that losing 340B revenue would erase their entire margin. Health systems should plan for a future in which their bottom lines are not dependent on this increasingly at-risk revenue source.

  1. Tennessee nurse convicted of negligent homicide for fatal medication error. A jury found former Vanderbilt Health nurse RaDonda Vaught guilty of negligent homicide and gross neglect of an impaired adult after she committed a fatal drug error in 2017. Vaught, who gave a patient a lethal dose of the paralytic agent vecuronium rather than the sedative Versed, overlooking several warning alerts, now faces up to six years in prison.

The Gist: Criminal charges for unintentional medical errors like this one are very unusual; discipline is normally the purview of licensing boards and civil courts. While Vaught certainly made an egregious mistake that directly led to a patient’s death, there’s a delicate line between holding caregivers accountable and making them criminally liable for unintentional errors.The American Nurses Association warns this verdict could set a dangerous precedent, and have a chilling effect on providers’ reporting errors. Health systems have worked diligently over decades to promote a culture of quality improvement and transparency—central to that is an environment that encourages providers to report all medical errors in order to improve patient safety. Many providers are now concerned that this conviction could reverse that progress.

Pluswhat we’ve been reading.

  1. Physician departures from Mission Health continue years after HCA Healthcare takeover. Since the for-profit system acquired six-hospital, Asheville, NC-based Mission Health in February 2019, there has been a series of reports about cascading community impacts, including a large physician exodus from the system. Local news outlet Asheville Watchdog counts 223 doctors who are no longer included in the system’s online directory, which currently lists about 1,600 physicians; HCA has also reportedly reduced health system staff by over 12 percent since the acquisition. Former Mission doctors say that patient care at the system is suffering, and that HCA doesn’t place the same value on primary care that Mission Health physicians historically did.

The Gist: The cultural shift from 130 years as a nonprofit community fixture to for-profit health system subsidiary has been rocky for Mission. Even before the HCA deal had been finalized, Mission physicians expressed concerns about how the company would implement its lean staffing and operational “playbook”. These expected changes were surely compounded by COVID-related staffing challenges. Physician stakeholders who feel uncertain about the impact of an impending merger can sometimes use their voice to stymie health system combinations (see Beaumont Health’s failed merger with Advocate Aurora Health), but may also vote with their feet when dissatisfied with new ownership, leaving critical gaps in patient care.


INTERMISSION

A recommendation from our weekly diet of music, movies, TV, and other good stuff.

Carpe Diem by Saxon and Earth Infernal by Satan—Two of the O.G. metal bands of the early 80s releasing killer new material, forty years after the storied New Wave of British Heavy Metal? Yes, please! Replete with galloping bass lines, two-guitar attacks, and lyrical bombast, neither of these grand old bands seem to have lost a step. Memo to the aging Iron Maiden: it’ll take more than a new outfit for Eddie to keep pace with these guys, who slap harder than…well, you know. (Bonus rec: Michael Hann’s new oral history of the NWoBHM, Denim and Leather. A must read for greying metalheads.)


GRAPHIC OF THE WEEK

A key insight or teaching point from our work with clients, illustrated in infographic form.

Rising turnover, agency costs compound hospital labor problems

Even as COVID admissions continue to wane, hospitals report that workforce shortages persist. The impact on hospital finances is stark: as shown in the graphic below, there has been an eight percent increase in clinical labor costs per patient day since the start of the pandemic, amounting to an additional $17M annually for an average 500-bed hospital. Two of the primary factors driving this increase—higher turnover among clinical staff and a continued reliance on travel nurses—are mutually reinforcing. Quarterly turnover rates for some nursing positions doubled from Q4 2019 to Q2 2021, as hospitals turned to expensive agency labor to fill resulting vacancies. Spiking demand for travel nurses, still running nearly three times higher than the pre-pandemic baseline, fueled more turnover, as more nurses left for these lucrative roles. It’s unclear how long increased labor costs will persist. Some HR tactics, like signing and retention bonuses, are one-time expenditures. But total hospital employment is still down two percent from pre-pandemic levels, pointing to a diminished healthcare labor supply. Permanent wage increases may end up being unavoidable, especially for lower-wage jobs, where a new compensation baseline for talent is being set by the market, both inside and outside the healthcare industry.


THIS WEEK AT GIST—ON THE ROAD

What we learned this week from our work in the real world.

Saying farewell (for now) to a terrible financial quarter

Judging from our recent conversations with health system executives, we’d guess CEOs across the industry woke up this morning glad to see the first quarter in the rearview mirror. Almost everyone we’ve spoken to has told us that the past three months have been miserable from an operating margin perspective—skyrocketing labor costs, rising drug and supply prices, and stubbornly long length of stay, particularly among Medicare patients. In the words of one CFO, “I’ve never seen anything like this. For the first time, we budgeted for a negative margin, and still didn’t hit our target. I’m not sure how long our board will let us stay on this trajectory before things change.” Yet few of the drivers of poor financial performance appear to be temporary. Perhaps the over-reliance on agency nursing staff will wane as COVID volumes bottom out (for how long remains unknown), but overall labor costs will remain high, there’s no immediate relief for supply chain issues, and COVID-related delays in care have left many patients sicker—and thus in need of more costly care. Plus, the lifeline of federal relief funds is rapidly dwindling, if not already gone. Expect the next three quarters (and beyond) to bring a greater focus on cost cutting, especially as not-for-profit systems struggle to defend their bond ratings in the face of rising interest rates. Buckle up, it’s going to be a bumpy landing.


THIS WEEK AT GIST—ON THE PODCAST

All the headlines in healthcare policy, business, and more, in ten minutes or less every weekday morning.

Last Monday, we heard from Matt Kurth, Deputy Chief People Officer at NY-based Northwell Health, about why the system co-founded Evolve Health Alliance, a six-system collaboration, to address workforce challenges.

Over the last few years, momentum has been growing to repeal Certificate of Need (CON) laws, currently in effect in 35 states. Coming up on Monday, we’ll hear from Matthew Mitchell, Senior Research Fellow at the Mercatus Center at George Mason University, about the catalysts and effects of CON reform.

[Subscribe on Apple, Spotify, Google, or wherever fine podcasts are available.]


That’s all for this week. We hope the rest of your April Fools’ Day is prank-free! Thanks for taking time to read the Weekly Gist—now share it with a friend or colleague, and encourage them to subscribe, and to listen to our daily podcast. No pranks from us, we promise!

As always, please let us know if we can be of assistance in your work. You’re making healthcare better—we want to help!

Best regards,

Chas Roades
Co-Founder and CEO
chas@gisthealthcare.com

Lisa Bielamowicz, MD
Co-Founder and President
lisa@gisthealthcare.com