Welcome to another edition, and thanks for your continued readership! We invite you to forward this edition to friends and colleagues, and encourage them to subscribe as well.
In the News
What happened in healthcare recently—and what we think about it.
- Judge orders partial, preliminary injunction of FTC’s noncompete ban. Last week, US District Court Judge Ada Brown temporarily halted the noncompete ban issued by the Federal Trade Commission (FTC) with a preliminary injunction that applies only to the named plaintiffs in the case. These include the tax services provider Ryan LLC and a small collection of business groups led by the US Chamber of Commerce. The plaintiffs argued that the FTC had exceeded its statutory authority in issuing the rule. In her interim ruling, Judge Brown states that “the FTC lacks substantive rulemaking authority with respect to unfair methods of competition” and that the “plaintiffs are likely to succeed on the merits.” Judge Brown committed to ruling by the end of August on the plaintiffs’ request that the ban—which is set to take effect on September 4—be permanently enjoined.
- The Gist: Although this is a preliminary injunction that only applies to the plaintiffs in the case, the court’s interim ruling strongly suggests that the noncompete ban will ultimately be overturned. Should the FTC pursue an appeal, the Supreme Court’s recent decision to overturn the Chevron doctrine, which granted federal agencies more authority to interpret ambiguous statutes, further dampens the agency’s prospects of success. In absence of the FTC rule (which may not have applied to not-for-profit organizations anyway), employee noncompete agreements, which are especially common for physicians, will continue to be governed via a patchwork of state laws.
- Sanford Health and Marshfield Clinic announce plans to combine. On Wednesday, Sanford Health, a $7B, 45-hospital system based in Sioux Falls, SD, and Marshfield Clinic Health System, a $3B, 11-hospital system based in Marshfield, WI, announced a nonbinding memorandum of understanding to create an integrated health system serving the rural Midwest. The combined system, uniting under Sanford’s name and headquartered in Sioux Falls, would operate in the Dakotas, Minnesota, Iowa, Wisconsin, and Michigan’s Upper Peninsula. Marshfield would maintain its regional brand and leadership. The two systems also intend to combine their health plans, which together serve more than 425K members. Sanford and Marshfield expect to complete the deal by the end of the year, subject to regulatory processes and closing conditions.
- The Gist: Both Sanford and Marshfield Clinic have made attempts to find merger partners in recent years, but this pairing appears to be a strong match between large systems serving similar rural populations in non-overlapping markets. Similar to other recent health system M&A activity, the two systems are aiming “to combine their complementary assets and capabilities.”
- CMS proposes a nearly 3% cut to Medicare physician pay for 2025. On Wednesday, the Centers for Medicare & Medicaid Services (CMS) issued its proposed annual changes to physician payments in its 2025 Medicare Physician Fee Schedule Proposed Rule. Required by statute to maintain budget neutrality, CMS is proposing to reduce the conversion factor—which translates the cost of providing medical services into physician payments—by 2.8%. This is expected to lower physician payments by 2.93% on average. The proposed rule also includes new telehealth flexibilities, changes allowing eligible accountable care organizations access to a quarterly advance on their earned savings, and new payments for providers that help patients at high risk of overdose or suicide.
- The Gist: With CMS proposing to reduce physician payments for the fifth straight year, the American Medical Association and other physician groups are once again calling on Congress to avert these cuts. Congress has previously responded with “Band-Aid” solutions to temporarily reduce or eliminate reductions for the next calendar year, but physician groups are demanding a more comprehensive fix that ties Medicare payment updates to the Medicare Economic Index, a measure of practice cost inflation. Medicare physician pay has declined 20% relative to practice costs from 2000 to 2021, and post-COVID inflation has only worsened the issue. Although lawmakers on Capitol Hill have explored various means of doing so, structural changes to Medicare budgetary policy face an uphill legislative battle in a presidential election year.
Plus—what we’ve been reading.
- The promise of leveraging AI in drug development. Recently published in the New York Times, this piece explores the burgeoning potential of artificial intelligence (AI)-assisted drug development. Biotech start-ups are utilizing generative AI in the pre-clinical development stage to better predict how molecules and proteins will interact with one another and more quickly identify the drug candidates with the best chance of success. Should AI shorten the lengthy and expensive drug development process that frequently ends in failure, it could dramatically shift drug research and development “from a painstaking artisanal craft to more automated precision.”
- The Gist: Although this advancement is just getting underway, and it may be years before we see tangible effects, the application of generative AI to drug development reminds us of the potential for AI to completely transform aspects of the healthcare industry. AI-designed drugs may one day expedite the drug development process, which may bring new, more effective drugs to the market that hopefully benefit more individuals. However, whether lower drug production costs will extend to lower drug prices remains an open question.
Graphic of the Week
A key insight illustrated in infographic form.
Outpatient shift turning to new specialties
Using the latest data forecast from Sg2, a Vizient company, the graphic below illustrates how the outpatient shift will continue to accelerate through 2034. Home-based care and outpatient services, including ambulatory surgery centers, are projected to be the fastest growing care sites over the next decade, with volumes increasing 22% and 14% respectively. Sg2 forecasts that physician offices, emergency departments, and inpatient settings will experience more modest volumes increases, whereas skilled nursing facilities and retail care volumes are predicted to decline. Additionally, although the initial outpatient procedural shift was largely focused on orthopedics, the next wave of outpatient volume growth will come from other service lines. Driven by regulatory changes, as well as patient demand, outpatient cardiovascular volumes are expected to increase by 25% over the next decade, closely followed by neurosciences at 23%. Continued health system investment into higher-acuity outpatient care remains crucial.
On the Road
What we learned from our work in the real world. This week from Lisa Goldstein, Managing Director, at Kaufman Hall.
Proactively informing rating agencies about strategic decisions
I was recently on the phone with a health system CEO who shared that her system is rethinking its Medicare Advantage (MA) payer strategy. “With all the difficulties around prior authorizations and denials, our losses are escalating with MA. Traditional Medicare is actually a good payer, comparatively speaking. We’re reassessing our MA book of business to identify the payers we want to maintain—but that reassessment may also mean walking away from other MA plans. If that happens, in addition to concerns about inconveniencing our patients, I am worried about how this may look to the rating agencies.”
This CEO was right to be concerned about rating agencies when weighing big strategic decisions like this, but, if managed properly, difficult decisions like terminating an MA contract may not necessarily affect a system’s rating negatively, especially if they support financial stability. I told the CEO to expect a lot of questions, but none different than the questions the Board would ask. Rating agencies will have far more confidence in a system that informs and discloses strategies, whether great news or not-so-good news, proactively. Transparency builds credibility, which is key to effective ratings management. The best surprise is no surprise, and the messaging will be important. I advise systems exploring major strategic decisions to reach out to their lead ratings analyst and inform them of significant moves before they are made public, as well as the expected impact of the decision on the system’s financial stability. Ratings analysts will keep this information confidential and will look to unpack it at the system’s next annual rating meeting. If your system is approaching a tough strategic decision and needs guidance about how or when to inform the rating agencies, I’m more than happy to chat with you. Please don’t hesitate to reach out.
On Our Podcast
Gist Healthcare Daily—all the headlines in healthcare policy, business, and more, in ten minutes or less every weekday morning.
In addition to the news discussed above, our Gist Healthcare Daily podcast covered many of the week’s other big stories, including:
- The FTC releases an interim report scrutinizing PBMs
- CMS releases its proposed rule for Medicare outpatient and ASC payment
- CMS revises star ratings for more than 60 MA plans
Subscribe on Apple, Spotify, Google, or wherever fine podcasts are available.
The Gist Weekly will not be published next Friday, July 19, but we’ll be back with a new edition on Friday, July 26. Until then, please listen to our podcast to keep abreast of healthcare news and check out our Gist Weekly archive if you’d like to peruse past editions.
Best regards,
The Gist Weekly team at Kaufman Hall
