United States: "May You Live In Interesting Times" – Some Healthcare Predictions For The Trump Administration's First Year

The ancient Chinese curse – "May you live in interesting times" – certainly springs to mind these days. What does the election of Donald Trump mean for the healthcare industry, the Affordable Care Act (ACA) and current healthcare market trends? Let's take a quick look at the likely effects of the election, but first let's set the stage:

Background Data:

  • Per a July 2016 federal Department of Health and Human Services study, it is estimated that 18% of 2016 personal income in aggregate will be spent on healthcare, with 5% of the population accounting for nearly half of the estimated $3.3 trillion 2016 healthcare spending and 50% of the population spending less than $3,000 each.
  • The healthcare cost reduction effect of the Great Recession has dissipated, with an anticipated healthcare cost increase of over 5% per year projected through 2025. The economic drag on the U.S. economy of healthcare spending has returned to almost pre-recession levels, and accountable care organization (ACO) savings to date have been relatively nominal.
  • Once aged in, Medicare will have over 70 million Baby Boomer generation seniors to care for...and with rising life expectancy comes greater lifetime healthcare costs.
  • The United States will have a shortfall of doctors before 2025, with a significant primary care shortfall expected, a significant shortage of doctors available who accept Medicaid and the U.S. ranked as the 24th of 28 countries by the number of doctors per thousand people among the Organization for Economic Development countries.
  • 20 million people were afforded insurance under ACA programs, including over 9 – 11 million (varies depending on source studies) in 2016 through the insurance exchanges and the remainder through Medicaid expansion in 32 states (as of September 2016).
  • Approximately 73 million Americans were covered by Medicaid or CHIP. Federal subsidies for Medicaid expansion are to trend downwards to 90% by 2020. A growing number of states are moving toward managed Medicaid programs in an effort to contain costs that, in some instances, previously threatened to bankrupt state budgets in the absence of further tax increases.

Will anything happen quickly with healthcare anti-reform efforts in the first year of the Trump administration? My guess is no. This is a highly charged area that can pit the federal government against the states and can engage all of the healthcare industry's and U.S. population's interests (and special interests). This frankly will be a food fight of gigantic size if the Trump administration chooses to fully re-open either or both of the tax code or the ACA. Incremental change, however, certainly can be effected more expeditiously. More on this below, as we look at interesting trends and issues.

Trend – The Move Toward Financial Risk and Population Health Management: The above numbers tell the same story that drove the enactment of the ACA in the first place – healthcare spending in the US is higher than the American business community and population want it to be and we are still facing the demographic juggernaut of the Baby Boomer generation. Given the fragmentation of the current healthcare delivery system, the move toward global risk (with providers being responsible for managing both the hospital (institutional) cost and the professional (doctor and ancillary services) cost), or similar or transitional methods, is the only real tool in the current toolbox. Plus, when properly implemented, it can both reduce cost of care, improve outcomes and generate profitability for providers and health plans...unlike the current fee-for-service environment. Insurance companies and hospitals both can support this initiative for their own reasons. As to population health management, the thesis of managing people earlier, preventively and in a coordinated approach to keep them healthier and avoid or defer the burdens of illness continues to make sense regardless of the administration, especially in light of the aging of America. This is the best opportunity to reduce the cost of care in the long term.

Bottom Line: Expect the current move toward risk and population health management to continue. There's too much opportunity and money in this new "Wild West" sector of healthcare for it to disappear, especially in the absence of other proven alternatives.

Trend – Consolidation and Convergence: Absent a stock or debt market disaster, the current consolidation and convergence trends in the health plan, hospital, physician, post-acute and other sectors likely will continue. In the face of uncertainty (such as the possible repeal of some or all of the ACA, it is better to be a larger company than a smaller one. Also, as Republican administrations, and "business-friendly" administrations, have tended to be less proactive in healthcare antitrust enforcement, we likely will see a continued arms race in size and scale between the payor and provider sectors of the healthcare industry. Plus, we don't expect technology or regulation burdens to ease on the industry in the near term, all of which can be spread at scale to result in a lower cost per unit.

Bottom Line: Expect the consolidation trend that started prior to 2010 to continue until industry scale is reached across the sectors and reimbursement system stability is in place. We may even see acceleration of the trend currently if antitrust enforcement is relaxed from the higher work rate under the Obama administration.

Trend – Technology Changes Healthcare: Healthcare lags behind other industries in technology adoption and, while the cost of technology acquisition and implementation can be high, it is essentially a prerequisite for taking on financial risk and operating population health management structures. Additionally, technology, such as smartphones, can facilitate patient engagement and also can be seen as a brand differentiator for healthcare organizations. Telemedicine/telehealth also is beginning to show promise for care delivery improvement and reducing healthcare spending.

Bottom Line: Expect the continuing technological transformation of healthcare delivery, but the pace may be slower if the federal government does not fund healthcare technology at the same levels as it did with the "meaningful use" program. Not necessarily a bad thing, though, if technology has to show its own return on investment, rather than be adopted solely to meet governmental prescriptive mandates and to garner the "brass ring" incentive payments.

Issue – Prescription Drug Pricing: The largest opportunity for a quick decrease in healthcare spending, the American patient has no love for the high prices charged by many pharmaceutical companies or the poor customer service and opaque systems of the pharmacy benefit management companies. This is quintessential "low hanging fruit" for the new Trump administration to try to negotiate lower pricing arrangements for Medicare (and even Medicaid) drugs, although one has to question whether a pro-business administration will view the pharmaceutical companies as targets or as allies.

Bottom Line: Uncertain, but interesting times ahead for prescription drug pricing. It may be tough to resist this attractive "sound bite" of St. George (aka Donald Trump) slaying the Big Pharma dragon for the benefit of the American consumer.

Issue – Repeal of Medicaid Expansion and/or the Public Insurance Exchanges: The primary target of the Republican congressional initiative, it is generally accepted that the effect of the ACA has been to increase access, although much has been said about the rising pricing and efficacy of the exchange health plan products and about the recent exit from the exchanges of many insurance companies. Can the exchanges survive though without the federal subsidy or the employer mandate? What will approximately 20 million people afforded healthcare through the ACA do for their healthcare needs? And, as interesting, if the employer mandate and federal subsidies are removed, the burden of Medicaid expansion costs falls upon the state governments, many of which may be unable to shoulder such increased financial burden. Can the Trump administration allow a repeal or truncation of the ACA without first creating a dialogue with the state governors as to how to achieve the national agenda without sinking the states? Many people like parts of the ACA such as the removal of the "pre-existing conditions" exclusion. Also, consider that, as we saw with the enactment of the ACA, all of the special interests vociferously appear at the table when the healthcare system is being redesigned. Expect a large amount of lobbying dollars to be spent, coalitions formed, interest groups mobilized.

Bottom Line: Repealing the insurance exchanges or Medicaid expansion sounds satisfying, but figuring out how to effect that without adversely re-shifting the federal/state allocation of responsibility and financing will take significant time. Expect this effort to consume much of the first two years of the Trump administration – unless we see a "summary execution" firing squad for the ACA that lets the chips fall where they may. If that happens, expect to see increased state taxes in many places, decreased state public services and a lot of political sound and fury. And if we just see a movement against the employer mandate, that's the string that unravels the sweater and potentially increases the cost burden further on the federal government, which is clearly contrary to the intended consequences. A most interesting Rubik's cube of politics that will take longer than expected and will require much more political capital. Also, neither changes to Medicaid expansion or the public insurance exchanges in my view will directionally change the move of the healthcare system toward risk-based reimbursement and population health management.

Issue – The Physician Sector and MACRA: It is unlikely that we will see significant reimbursement cuts coming in the next year or two, given where Medicare and Medicaid fee-for-service reimbursement rates are currently. There's frankly not a lot left there before we drive further opt-out by doctors of the Medicare and Medicaid programs. However, I believe that we will see, absent a directional shift from the Trump administration, the continuing push toward growth of Medicare Advantage, so as to gain the benefits noted above for risk-based reimbursement systems, population health management and provider delivery system coordination and alignment.

That said, it is clear that the Trump campaign and many Republicans did not like the prescriptive nature of the ACA, especially with regard to items like the employer mandate. Given that desire to move away from federal regulatory prescriptions, what is the future of the recent MACRA regulation that was dropped on the U.S healthcare system in the past month with more than 2,400 pages? Also, will the CMS leadership that designed and implemented MACRA remain for the Trump administration? If they go, will MACRA go too?

Bottom Line: Given that 2017 is a transitional (non-binding) year for MACRA, expect many physicians and physician organizations to defer MACRA to the maximum extent possible and also to potentially target MACRA for elimination or revision by the Trump administration. That said, putting together a MACRA strategy as a contingency is wise business planning as there is a long lead-time for effective response to MACRA's multiple demands.

Issue – Hospitals: Hospitals have faced significant whiplash recently with negative effects from increased regulatory enforcement and burdens, readmissions and other quality mandates and the move toward more coordinated care (with many hospitals participating in ACOs and clinically integrated networks (CINs)), but also positive financial results on average with reduced amounts of indigent care spending by hospitals given the insurance funding available from Medicaid expansion and public exchange insurance products. Since approximately half of the country's 5,000+ hospitals are losing money or at approximately break-even, the withdrawal of the funding from Medicaid expansion and exchange coverage could well push many hospitals into the red – or further into operating losses that already exist. Hospitals are being pulled in many directions, and the thin operating margins will be at risk if there is more disruption of the current healthcare system. That being said, many geographic areas are over-bedded and much more private equity and strategic investment money exists now for purchasing and turning around under-performing hospitals. Also, population health management techniques focus on reducing hospital admissions and length of stay, which can (and should) have the effect of decreasing hospital revenue and profitability under the current fee-for-service operating model. We also have seen significant hospital consolidation over recent years, so as to achieve scale, brand and operating efficiencies. At the same time, much of hospital in-patient profitability has been carved out as hospital in-patient services move toward an out-patient setting, such as with the increasing complexity of services delivered by the over 5,000 ambulatory surgery centers in the country.

Bottom Line: The uncertainty of the healthcare system under the Trump administration may in the short-term freeze or limit hospital capital spending and certainly will accelerate the current trend toward mergers, acquisitions and strategic alliances. Hospitals will be fighting for their lives in many instances in efforts by the Trump administration to redesign healthcare insurance and delivery once again, so expect significant lobbying efforts to occur (but to be countered to some degree by the lobbying efforts of the insurance companies). Expect to see a significant relook by hospitals at their role in the healthcare system and even more efforts than we are already seeing today to move upstream with the healthcare premium dollar waterfall through creation of provider sponsored health plans.

Of course, the above are crystal ball predictions and may be no more accurate than last night's exit polling, but, given that healthcare reform is this decade's fire hydrant, it will be difficult for the newly elected administration not to leave its own mark. Anyone up for a big Thanksgiving helping of political predictability and healthcare business certainty? If you're serving that, please let me know, as I will take a double serving...

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