Will the healthcare labor shortage fuel more consolidation?

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Editor’s note: Bret Schiller is head of healthcare corporate client banking for J.P. Morgan, with more than 20 years of healthcare-finance and investment-banking experience.

Physician groups across the U.S. continue to consolidate at an accelerating pace, with integrated delivery networks and health systems absorbing small independent practices, or private equity firms, public corporations and larger practice groups buying them.

Between January 2019 and January 2022, 4,800 physician practices were acquired by hospitals and 31,300 were acquired by corporate entities, according to a report from the Physicians Advocacy Institute/Avalere Health. And a study by the American Medical Association found that 2020 was the first year in which fewer than half of physicians (49%) worked in private practice or a physician-owned practice. It marked an 11-percentage-point decline from eight years prior. Still, the field remains fragmented with a majority of physicians (54%) working for practices with 10 or fewer doctors.

Physician groups face pressure to streamline their operations and protect margins — tasks that are more easily done at scale. Even the smallest practice groups face growing demand for sophisticated EHR upgrades and enhanced IT solutions that strain resources.

These demands could drive even more doctors toward consolidation opportunities as they look for back-office support. Given the fragmented landscape, private equity firms are investing in every type of physician group. Here are a few of the key trends to consider.

The healthcare workforce is aging

The healthcare industry is grappling with a shrinking labor market and a looming wave of retirements.

More than 40% of active doctors will reach retirement age in the next decade, according to a study by the Association of American Medical Colleges. Unless medical schools graduate more students soon, the U.S. will face a shortage of between 37,800 and 124,000 physicians by 2034, the AAMC found.

This labor landscape makes private equity and other consolidation moves attractive as exit strategies for owners looking to sell their practices. Private equity can offer the technology solutions that can make physicians more productive while reducing their operating costs.

The newer generation of doctors prizes efficiency, flexibility

Consolidated practice groups could present the right incentives to recruit and retain younger associates who are more likely to place a high value on technology, efficiency, connectivity and flexibility. A lot of graduates would rather join an up-and-running company than get saddled with administrative responsibilities on top of their clinical duties.

Aggregator models offer an added retail aspect

Dentists’ offices and veterinary clinics have seen a similar influx of consolidation and their evolution could foretell what’s ahead in healthcare more broadly. Private equity investors have long integrated smaller dental and veterinary practices into aggregator models that scale up into larger networks, but many go a step further by adding a retail aspect and national branding. Other medical specialties are consolidating into similar, multistate practices (e.g., allergy, orthopedics and others) and rolling out national branding and retail channels as well. This trend is expected to continue unabated.

Different structures require different decision processes

The shift toward consolidation has its critics, chiefly among physicians who see larger corporate models interfering with doctors’ judgment and patients’ best interests. Others see the model as a valuable trade-off to gain better technology, easier operations and a more seamless experience for patients.

In any future scenario, it’s important to work with a partner who can help you gain a better understanding of your financial situation and how it shapes your future plans, both efficiently and effectively.

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HHS ‘roadmap’ aims to tackle nation’s mental health crisis

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Dive Brief:

  • The HHS released an issue brief detailing its “Roadmap for Behavioral Health Integration” intended to better incorporate mental health and substance use care into the larger healthcare system. The roadmap includes feedback HHS Secretary Xavier Becerra received from patients and providers during a recent national tour.
  • The plan would coordinate behavioral healthcare with social service and early childhood systems, with a focus on improving equitable access. The roadmap’s initiatives will be advanced alongside other efforts underway to address the nation’s mental health crisis, including the agency’s overdose prevention strategy and the new 988 crisis hotline, the HHS said.
  • The HHS roadmap builds on President Joe Biden’s plan for strengthening behavioral healthcare that includes building up system capacity, connecting Americans to care by leveraging health financing arrangements and investing in health promotion, prevention and recovery efforts.

Dive Insight:

Biden identified the country’s worsening mental health crisis as a top national priority during his State of the Union address this year. Nearly 53 million Americans in 2020 were affected by mental illness, and substance use disorders affected 15% of U.S. adults, according to the HHS.

The COVID-19 pandemic compounded the crisis, with a rising rate of overdose deaths and an increase in self-reported symptoms of anxiety, the HHS said. Yet utilization of mental health and substance use disorder services fell sharply at the beginning of the pandemic and has been slower to rebound than other types of healthcare, the report said.

The roadmap places a priority on integrating behavioral care into broader healthcare and social systems in a coordinated way. The strategy aims to include behavioral health services not only in primary care settings, but in specialty areas such as OB/GYN care and in educational and early childhood settings.

To strengthen system capacity, the HHS said it has identified opportunities to build a more diverse workforce prepared to practice in integrated settings. Examples of new investments in infrastructure to support behavioral health integration include the Substance Abuse and Mental Health Services Administration’s Minority Fellowship Program and the Health Resources and Services Administration’s $155 million initiative to fund primary care medical residency programs that include psychiatry residents.

The HHS said it has identified opportunities to make behavioral health services more affordable for Medicare and Medicaid beneficiaries, noting that inability to afford care was the most commonly cited reason for patients not receiving mental health services in a 2020 survey.

The department is also working to expand outreach efforts targeting high-risk populations and to integrate prevention programs into community-based settings such as schools, where more children can be reached.

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Centene to pay Texas $166M in latest state settlement

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Centene reached an $166 million agreement with Texas to settle an investigation into Medicaid fraud, state Attorney General Ken Paxton said this week.

The Texas settlement is just the latest in a string of agreements the health insurance carrier has made with states over allegations it overcharged Medicaid programs for prescription drugs. 

Centene admitted no fault and said the Texas agreement “reflects the significance we place on addressing their concerns.”

The St. Louis-based insurer provides coverage to more than 1.3 million low-income people, including children, in Texas, according to state records from May 2022. There its plan is known as Superior Health Plan. 

As of July 26, Centene said it had reached no-fault agreements with 11 states, according to a filing with the U.S. Securities and Exchange Commission. The settlements are related to services its subsidiary Envolve Pharmacy Solutions provided during 2017 and 2018, Centene said. 

Documents obtained by Kaiser Health News show Centene’s general counsel signed a settlement deal dated July 11 with Texas.

Of the settlements made public, Centene settlements so far total at least $462.7 million. Settlements have been made public in nine states, including Texas, Ohio and Illinois.

Centene has so far paid states nearly $463 million

Nine states have publicly disclosed settlements with Centene while the insurer said in July it had reached deals in 11 states.

Centene set aside $1.25 billion in a reserve during the second quarter of last year to pay for future settlements. The filings do not name the states Centene has agreed to pay, though it did disclose that the settlement reserve includes deals reached with Ohio and Mississippi.

Prior to Texas, the most recent deal was announced in June when New Mexico’s attorney general said the insurer agreed to pay $13.7 million to the state. There Centene provides coverage to 1 million New Mexico residents and is known in the state as Centennial Care.

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Doctor, hospital lobbies move to dismiss lawsuit over surprise billing ban

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The American Medical Association and the American Hospital Association are seeking to dismiss their own lawsuit against the federal government over its implementation of The No Surprises Act.

The two lobbying groups filed a motion on Tuesday in federal court seeking to dismiss their claims, along with co-plaintiffs Renown Health, UMass Memorial Health Care and physicians Stuart Squires and Victor Kubit. The motion comes before a status hearing Wednesday.

The groups filed suit over the interim file rule, which was released last year.

In their original complaint, the AMA and the AHA said they didn’t take issue with the law Congress passed in 2020 to ban surprise medical bills. Instead, they took issue with how the federal government chose to implement the law through the rulemaking process and alleged it deviated from Congress’ original intent and placed “a heavy thumb on the scale” that favored insurers during the independent arbitration process.

The lobbying groups believe the lawsuit became moot when the final rule on surprise billing was released last month, although the two said the final rule still departs from Congress’ original intent.

However, the two lobbying groups hinted another lawsuit may be on the way despite their bid to dismiss their claims.

The No Surprises Act takes patients out of the middle of payment disputes by setting up a process by which payers and providers can settle disputes through arbitration.

In the rule-making process, to give arbiters a place to start in thinking about payments, the CMS put weight on the qualifying payment amount, or the median in-network rate for a specific service in a specific region.

The interim final rule instructed arbiters that they “must begin with the presumption that the [qualifying payment amount] is the appropriate [out-of-network] amount.” It’s this instruction that has generated pushback from providers.

The QPA effectively sets a ceiling on prices, former AMA President Gerald Harmon told Healthcare Dive.

The final rule released last month nixes that contested language.

“Hospitals and doctors intend to make our voices heard in the courts very soon about these continued problems,” the two said in a joint statement provided to Healthcare Dive.

The case is currently before Judge Richard Leon of the District Court of Columbia and was consolidated into one case alongside the Association of Air Medical Services.

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Fitch cuts Lifespan’s outlook to negative after weak Q3

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Dive Brief:

  • Fitch Ratings lowered its outlook for Lifespan to negative from stable, citing the Rhode Island-based healthcare system’s “notably” weaker operating results through the third quarter, in the latest sign of financial distress facing hospitals.
  • Elevated labor costs, reduced patient volumes due to staffing shortages and closed beds and inflationary pressure on non-labor expenses contributed to Lifespan’s operating loss in the nine months ended June 30, the credit rating agency said Friday.
  • Fitch said it affirmed Lifespan’s BBB+ issuer default rating, as well as the BBB+ rating on the Rhode Island revenue refunding bonds issued on behalf of Lifespan, due to the hospital system’s still-sound liquidity position and leading market position, and a detailed recovery plan that is expected to support improvement in operations.

Dive Insight:

The rating downgrade comes seven months after Lifespan and Care New England, Rhode Island’s two biggest health systems, called off merger plans after the Federal Trade Commission and the state’s attorney general sued to block the deal.

The FTC, which has challenged several hospital deals this year, alleged the combination in Rhode Island would have increased prices and diminished the quality of care, with the two systems controlling 70% of the state’s inpatient services.

Fitch said the merger could have created synergies and an opportunity to rationalize some services but also had the potential to dilute Lifespan’s operating and financial profile. Lifespan holds a 57% market share in Rhode Island, twice that of Care New England.

Going forward, Lifespan’s rating stability will depend on how well management can execute its operating recovery plan in fiscal 2023, Fitch said. The strategy includes targeted cost reductions, revenue cycle transformation and other initiatives. Management is very focused on reducing losses, but staffing shortages and significantly higher operating expenses are expected to persist, the ratings agency said.

Another downgrade is possible if operating EBITDA margins do not stabilize at 5% or better, the agency warned. Ratings also could be pressured if liquidity declines further and cash-to-adjusted debt levels weaken materially, Fitch said.

Lifespan’s board is conducting a national search for a permanent CEO after Timothy Babineau stepped down from the helm in May. Arthur Sampson, who has spent 35 years with Lifespan hospitals, was named to the CEO post in the interim.

Lifespan is hardly alone in its struggle to stem deteriorating margins. Hospitals are projected to post billions of dollars in losses this year, driven by rapidly rising costs, especially for labor, according to a report out last week from Kaufman Hall. The American Hospital Association recently cautioned that worsening financial conditions could put more rural hospitals out of business, leaving patients with fewer options for quality care near home.

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Healthcare saw less job loss than other industries during pandemic, research finds

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Reported unemployment rates among healthcare workers didn’t rise as much as those for workers in other fields during the pandemic, according to research published Monday in JAMA.

Healthcare workers reported unemployment rates of 2.28% compared to 3.82% among non-healthcare workers just before the pandemic. During the pandemic, unemployment rates among healthcare workers rose to 3.18% while those for non-healthcare workers rose to 6.13%, according to the study.

When the COVID-19 pandemic hit the U.S. in March 2020, workers across all industries suffered major job losses. The U.S. lost 1.4 million healthcare jobs that April, representing about 7% of the nation’s total monthly losses, according to data from the Bureau of Labor Statistics.

Most of those lost healthcare jobs have since been recovered. Employment in the sector is down 0.2%, or 37,000 jobs, from February 2020, according to the latest monthly data from the BLS.

But still, health systems are facing widespread burnout and problems recruiting and retaining enough staff after those who worked the front lines of the pandemic reassess their roles.

To gauge unemployment rates during the pandemic among healthcare workers, JAMA researchers looked at current population survey data from January 2015 to April 2022 among a sample of more than 500,000 respondents working in a hospital or health services role. The majority of those surveyed were female, non-Hispanic White and held bachelor’s degrees.

Among different kinds of those workers, therapists, technicians, aides and other healthcare workers in lower-paying roles saw larger increases in reported unemployment rates relative to physicians, the study found.

Reported unemployment rises among women, Hispanic, non-Hispanic Black and older cohorts were not significantly different than those among men, non-Hispanic White and younger cohorts, researchers found.

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