Navvis Right Now: Issue 12 – February 23, 2019

February 23, 2019

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National Health Expenditure Projections

This week CMS released their annual National Health Expenditures projections for the next decade. Growth in national health spending remains similar from last year’s projected average annual growth of 5.5% annually from 2018-2027, reaching nearly $6.0 trillion by 2027. Growth in national health spending is projected to be faster than projected growth in Gross Domestic Product (GDP) by 0.8% points over the same period.  As a result, the report projects the health share of GDP to rise from 17.9% in 2017 to 19.4% by 2027. Increases in prices for medical goods and services are projected to grow 2.5% over 2018-2027 compared to 1.1% during the period of 2014-2017. Medicare spending growth is projected to average 7.4% over 2018-2027, Medicaid 5.5% in 2019 and then 6% 2020-2027, and private health insurance 4.8% with out of pocket expenditures projecting to represent 9.8% of total spending by 2027 (down from 10.5 percent%). Spending growth for prescription drugs is projected to generally accelerate over 2018-2027 (and average 5.6%) mostly as a result of faster utilization growth. Hospital spending growth is projected to average 5.6% and physician and clinical services spending is projected to grow an average of 5.4% per year over 2018-2027.

Takeaway: The report found that Medicare spending is growing the fastest among payors. The underlying reason for it are baby boomers who are projecting a sustained strong growth in enrollment as well as their use and intensity of covered services. Similar to the findings in last year’s report, by 2027, federal, state and local governments are projected to finance 47% of national health spending, an increase of 2% points over 2017.  This report will reinforce both the move towards alternative payment models to bend Medicare’s cost curve as well as adding support to the 2020 elections and healthcare reform platforms. Additionally, it was reported that the insured share of the population going from 90.9% in 2017 to 89.7% in 2027.

Nearly a Quarter of Rural Hospitals are on the Brink of Closure

More than a fifth of the nation’s rural hospitals are near insolvency, according to a new report. Twenty-one percent of rural hospitals are at high risk of closing, according to Navigant’s analysis of CMS data on 2,045 rural hospitals. That equates to 430 hospitals across 43 states that employ about 150,000 people and generate about $21.2 billion in total patient revenue a year. As rural populations decline, inpatient admissions fall, more beds sit vacant, and the number of people covered by government-sponsored plans rises, which doesn’t cover the cost of care. Rural hospital closures means communities are left to grapple with the ramifications of losing a hospital, loss of income generated from it and resulting unemployment. To determine financial viability, researchers used a benchmark of an average 1.4% operating margin over the past three years, 78.5 days cash on hand and 49.8% debt-to-capitalization ratio. They also broke the impact down by state, revealing that half of Alabama’s rural hospitals are in financial distress, the highest percentage in the country. At least 36% of the hospitals in Alaska, Arkansas, Georgia, Maine and Mississippi are also in financial jeopardy. The greatest financial burden to many rural hospitals is supporting a 24/7 emergency department, where standby staffing costs are high, volumes are relatively low, and reimbursement comes nowhere near to covering expenses.

Takeaway: There is no easy fix to the problem. Included in Navigant’s research were some suggestions to help mitigate the forecasted closures including restructuring or resize to reduce inpatient footprint. Passing Senators Grassley, Lobuchar and Gardener’s bipartisan Rural Emergency Acute Care Hospital Act would help or creating a new Medicare classification that would allow rural hospitals to offer emergency and outpatient services with no inpatient beds.  Additionally, telehealth  is an important tool that can help rural providers maintain certain services, industry observers said. But broadband internet access and the current reimbursement model create limitations. Modern Healthcare created an interactive map that shows the total number of rural hospitals and the number and percentage at risk. Understanding the rural hospitals at risk may help identify changes needed or impact on future referral flows that result from hospital closures.

New Details of Amazon, Berkshire Hathaway, JPMorgan Health Venture Emerge

Amazon, Berkshire Hathaway, JP Morgan Chase revealed through court testimonies that their venture is looking at how to redesign health insurance for their combined 1.2 million employees. The venture is looking for a health plan design that provides clarity to employees about what their plans cover; makes primary-care access easier and focusing on the importance of primary care; and addresses pharmacy costs by making maintenance drugs cheaper. They also reported that the venture wants to make it easier for doctors to provide good care and to spend more time, not less time, with patients. The venture is starting first by analyzing where there is variation in care, quality and where prices do not match value or where and how doctors are performing. The companies plan to deploy smaller-scale tests of ideas to see what works.

Takeaway: When the three companies announced their venture last year, they stated their goals of trying to improve health care and rein in costs for their employees. Atal Gawande, MD, who is leading the venture across the three companies has an extremely diverse workforce which uniquely positions him to test ideas across all levels of geography, income and education levels as well as physical activity in their jobs. (Think warehouse fulfillment workers to bank tellers to railroad workers and dairy farmers to financial analysts and highly paid executives.) With the new details released, the company announced that they are looking to find a partner who can offer a new benefit design that they want, or they will design a plan for their employees.

Kaiser Medical School to Offer Free Tuition to First Five Classes of Students

California-based health-care company Kaiser Permanente announced Tuesday that it will provide free tuition to the first five classes of students who attend its new medical school in Pasadena, CA. The Kaiser Permanente School of Medicine plans to begin offering classes in the summer of 2020 after recently receiving its preliminary accreditation. Students will then go on to do their clinical work at hospitals and clinics in the Kaiser Permanente network. “The school will help shape the future of medical education and train physicians for medical excellence and the total health of their patients,” Kaiser Permanente Chairman and CEO Bernard Tyson said in a press release Tuesday.

Takeaway: By 2030, the Association of Medical Colleges (AAMC) reports a shortage of up to 120,000 physicians. Kaiser is taking proactive steps to address both the physician shortage and the high cost of medical school with its new school and offer of free training. (The AAMC reports that the average medical school debt is $192,000.) This gives Kaiser a chance to train future physicians with a focus on population health and shape them to be future Kaiser Permante physicians. Earlier this year, NYU surprised its med students with news that donors funded the classes full cost of tuition enabling students to pick their specialty based on their passion and not be driven by the salary needed to pay off their tuition.

The Medical Tech that Helps You When Your Doctor Can’t:

new breed of tech company wants to fill the gaps between you, your doctor and your health insurance. Health insurance has gaps in the system that your provider may not want to pay for, which include hearing aids, glasses and a number of other needs. Now, a wave of medical start-ups want to fill in those gaps. For example, in the United States, hearing aids are rarely covered by health insurance and 48 million people in the country suffer from some form of hearing loss. As people age, hearing deteriorates, and Medicare does not cover hearing aids. The average cost for a pair of hearing aids is $4,700, or about $2,350 per ear. A mere six companies make up 98% of the worldwide hearing aid market. Eargo, is an example of a new company that walks the line between medical firm and tech start-up, who wants to make the process easier and more affordable. Eargo sells a pair of hearing aids for $1,450 or for $2,559 for their premium product, which is half of the cost of traditional hearing aids and more comfortable, faster charging and much smaller than the traditional models.

Takeaway: According to Forbes, more than $2.8 billion worth of venture capital was invested in health care start-ups in September 2018 alone. An increase of 70 percent over the previous year. With the increase on price transparency, it’s easy to predict that these companies will be profitable in these niches because they are finding ways to produce a better product at a lower price. The competition that the new entrants produce will also create pricing pressures on the traditional companies, which should drive down prices as well benefiting all consumers.


Disclaimer: This blog includes content gathered from other published sources, not authored by Navvis, and is presented as information only. As with any news story, this information may have changed since its publication date. Commentary included with the information is the opinion of its authors, and is not indented to provide legal or regulatory advice or guidance to the reader. Navvis does not represent the accuracy of or assume liability for the content presented herein.