October 7, 2022

The Weekly Gist: The Zombie Chocolate Bunnies Edition

by Chas Roades and Lisa Bielamowicz MD

Just in time for Spooky Season, a Swiss court issued a haunting ruling that managed to combine the eldritch Halloween themes of mass slaughter and delicious chocolate. The Federal Supreme Court of Switzerland ordered Lidl, a discount grocery chain, to destroy its entire stock of gold-foil wrapped chocolate bunnies because they bear a trademark-infringing resemblance to the bunnies of legendary Swiss chocolatier Lindt. The court was not swayed by Lidl’s contention that its bunnies bear a green ribbon and bell around their necks, while Lindt’s hoppers sport a red ribbon and bell. (No way those Swiss justices were going to fall for the old “bell and ribbon” trick!) In its infinite mercy, however, the court ruled that Lidl could melt down its entire inventory of bunnies and remold them into something else (chocolate zombies, maybe?). Mercifully for rabbit lovers everywhere, no bunnies will actually be destroyed in the wake of the landmark ruling: with Easter is months away, Lidl currently has none of the critters in inventory. A true Halloween miracle.


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

  1. Congress passes short-term spending bill—without additional COVID funding. Late last week, both chambers agreed to an interim funding bill to keep the government open through mid-December. In what is likely the last major piece of legislation before the midterm elections, the bill included an extension of two key Medicare payment programs for rural hospitals, but excluded any new funding for vaccines, testing, or treatment for either COVID-19 or monkeypox. It has been more than 560 days since the Department of Health and Human Services last received federal COVID funding, and its free COVID vaccination program only has enough money to last through the end of 2022.

The Gist: Ever since President Biden declared the pandemic “over”, prospects for the White House’s requested $22B to support the continued pandemic response have diminished. While most hospitals had already given up hope of any additional direct COVID aid coming their way, this bill was the last good chance for the lagging bivalent booster campaign to receive a needed shot in the arm. A recent Commonwealth Fund study found that if Americans got the new bivalent COVID booster at a rate similar to seasonal flu shots this fall, we could prevent 75K deaths and $44B in medical spending by March 2023—but unfortunately most Americans know little about the boosters, with less than four percent of eligible Americans receiving them so far.

  1. New, expensive ALS drug receives approval. On Thursday, the Food and Drug Administration (FDA) announced that Relyvrio, a combination drug produced by Amylyx Pharmaceuticals, had passed an expedited approval process to become the third drug on the market to treat amyotrophic lateral sclerosis (ALS), the debilitating neurological condition diagnosed in around 5K Americans annually. The list price for Relyvrio is set at $158K per year (higher than experts had anticipated), and the drug has yet to fully prove efficacy in clinical trials—adding to ongoing skepticism from critics of the FDA’s drug approval process. The FDA justified its decision based on the life-threatening nature of ALS, and the substantial unmet need for treatment options.

The Gist: Though Relyvrio differs from controversial Alzheimer’s medication Aduhelm in key ways—including lacking serious negative side effects and targeting a smaller population of patients—this is another example of the FDA approving an expensive drug on scant evidence. We expect this to become increasingly common, and we may be entering a new era of high-cost pharmaceuticals that target devastating diseases needing urgent intervention, creating a push to lower the bar for approval. Striking the balance on experimental treatment options is difficult even without considering astronomical per-patient costs, but many of these drugs, which must be taken in perpetuity, are priced so high they could restrict patient access or threaten to permanently balloon Medicare spending. As long as the FDA and other government regulators have no input into the pricing of new drugs, this challenge will continue.

  1. Federal Trade Commission (FTC) probing large anesthesia group. The FTC is investigating US Anesthesia Providers (USAP), a private equity (PE)-backed group with 4.5K physicians working in nine states, over concerns of monopoly power in certain markets. The inquiry is focused on USAP’s acquisition history, which has followed the PE “playbook” of rolling up small anesthesiology groups into a single entity large enough to exert leverage in contract negotiations. USAP’s presence in Texas and Colorado is likely to be of particular interest, as it controls at least 30 percent of the anesthesiology market in both states.

The Gist: Like many other PE-backed physician groups, USAP achieved market power mostly through myriad acquisitions too small to warrant regulatory attention on their own. The probe is in line with recent government scrutiny of private equity influence in the healthcare sector, and will no doubt be closely watched by investors and PE-backed groups. If USAP is forced to divest from certain markets, the precedent could prove especially damaging to other rapidly growing investor-backed physician groups, particularly those staffing hospital functions, who are already being rocked by ramifications of the No Surprises Act.

Pluswhat we’ve been reading.

  1. Large health systems accused of valuing “profits over patients.” In an explosive two-part series published late last month, New York Times reporters Jessica Silver-Greenberg and Katie Thomas cast a spotlight on the revenue collection tactics used by two of the nation’s largest not-for-profit health systems, Renton, WA-based Providence and Cincinnati-based Bon Secours Mercy Health. The articles detail how Providence leveraged help from consulting firm McKinsey & Company to collect sums as small as $2 from patients pressured to pay anything they could for their care, even if many were actually eligible for free care under state law. Bon Secours was scrutinized for conduct in its Richmond, VA market, where it was portrayed as leveraging safety-net facility Richmond Community Hospital for its 340B license, while stripping out essential services required by the surrounding lower-income community. Both health systems have responded to the Times investigation, Providence by refunding payments collected from hundreds of low-income patients, saying they were charged due to an “unintended error,” and Bon Secours by claiming the allegations in the article were “baseless” and stating that it has invested millions into its Richmond Community Hospital.

The Gist: Providence and Bon Secours Mercy Health are far from the only health systems accused of pursuing patient collections though any means available, which makes these articles especially worrisome to many system executives: the tactics deployed by the two systems are relatively common across the industry. Given current margin pressures, health systems are already beginning to double down on aggressive revenue cycle management. But as most are also not-for-profit organizations who anchor their missions in providing community benefit, their tactics must also pass muster when judged in the court of public opinion.


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

A rough year so far for health system finances

As everyone in our industry knows, sluggish volumes amid persistently rising costs, especially for labor, have sent health system margins into a downward spiral across 2022. Using the latest data from consultancy Kaufman Hall, the graphic below shows that by the end of this year, employed labor expenses will have increased more than all non-labor costs combined. While contract labor usage, namely travel nursing, is declining, the constant battle for nursing talent means travel nurses are still a significant expense at many hospitals. Through the first six months of this year, over half of hospitals reported a negative operating margin, and the median hospital operating margin has dropped over 100 percent from 2019. Larger health systems are not faring better: all five of the large, multi-regional, not-for-profit systems we’ve highlighted below saw their operating margins tumble this year, with drops ranging from three points (Kaiser Permanente) to nearly seven points (CommonSpirit Health and Providence). While these unfavorable cost trends have been building throughout COVID, health systems now have neither federal relief nor returns from a thriving stock market to help stabilize their deteriorating financial outlooks. Health system boards will tolerate negative margins in the short-term (especially given that many have months’ worth of days cash on hand), but if this situation persists into 2023, pressure for service cuts, layoffs, and restructuring will mount quickly.


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

The Empress (Netflix)—For those suffering withdrawal symptoms after last month’s dose of royal pageantry, here’s a quick shot of prestige castle drama. This six-episode German production sumptuously retells the origin story of the enigmatic and tragic 19th century Austrian empress Elisabeth, known as Sisi to her still-adoring admirers. The strong cast and gorgeous production make this Viennese confection a perfect weekend binge. All hail Die Kaiserin!


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

Will agency labor needs become permanent? 

“A few months ago, I was confident we would be able to wean our system off travel nurses. But now I’m not so sure,” a chief nursing officer recently shared with us. Like most health systems, they had seen their use of agency nurses decline from peaks during the Delta and Omicron waves of the pandemic, and were encouraged by anecdotes of nurses returning to staff after stints as travelers. But today they remain “persistently stuck with a quarter of the agency nurses we needed at the peak”.

Seeing nurses returning from travel roles makes sense. It’s naturally a time-limited job—eventually the desire to be home wins out over the earning potential on the road. But another nursing leader shared his fear that a stint as a traveler could become an expected part of the arc of a nurse’s career. And from a hospital operations perspective, agency nursing needs are no longer connected to COVID, but are instead driven by general capacity needs in a tight labor market, keeping the operating rooms, emergency department, and ICUs open. Health systems and physician groups continue to face labor costs that are up to 40 percent higher than 2019. A permanent need for agency nurses will frustrate efforts to rein in labor costs, through both the dollars spent on premium labor, and the resulting need to boost staff nurse salaries when a portion of their colleagues’ pay is anchored at the “traveling rate”.

That’s all for now! We’re glad to be back to our writing duties, and grateful you’ve taken the time to read the Weekly Gist. Stay tuned for exciting news about the relaunch of our daily podcast later this month! Meanwhile, we’d love to hear from you—drop us a line and let us know what’s on your mind. And don’t forget to share the Weekly Gist with friends and colleagues and encourage them to subscribe.

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

Lisa Bielamowicz, MD
Co-Founder and President