Hello, and welcome to this week’s edition of the Gist Weekly. As always, we appreciate your continued readership and invite you to forward this email to friends and colleagues—please encourage them to subscribe as well!
In the News
What happened in healthcare recently—and what we think about it.
- HRSA threatens to fine Johnson & Johnson over 340B restrictions. On Tuesday, the Health Resources & Services Administration (HRSA) sent Johnson & Johnson (J&J) a letter warning that the drugmaker’s proposed rebate model for the sale of certain 340B drugs violates J&J’s obligations under the 340B statute. In late August, J&J informed disproportionate share hospitals that, starting Oct. 15, it will not provide upfront 340B discounts for Stelara, a plaque psoriasis treatment, and Xarelto, a blood thinner. Instead, J&J plans to offer rebate payments, upon “validation” and only after the fact, to align with 340B ceiling prices. As this plan did not receive HRSA approval, the agency has requested J&J to publicly cease its implementation by Sep. 30. Otherwise, the drugmaker could be subject to fines of about $7K per violation or even the termination of its pharmaceutical pricing agreement, which allows J&J to participate in Medicare and Medicaid.
- The Gist: J&J’s attempt to restrict 340B coverage for two of its most-popular drugs is the latest salvo in the ongoing war between drugmakers and 340B covered entities. HRSA and its parent agency, the Department of Health & Human Services (HHS), have often been caught in the crossfire, facing a multitude of lawsuits from drugmakers and providers concerning 340B oversight. In this case, HRSA is decisively aligning itself with the position of hospital associations, offering a potential boon for safety-net providers, many of which have come to rely on the 340B program to maintain a positive operating margin.
- Hospitals sue HHS over changes to DSH payments. Last week, 80 hospitals joined to file a lawsuit in US District Court against HHS for failing to follow proper rulemaking procedure when, in June 2023, it updated how Medicare Advantage (MA) patients factor into disproportionate share hospital (DSH) payments. The hospitals allege that these changes, which retroactively incorporated hospital inpatient days from MA patients into the Medicare fraction used to calculate DSH payments, have resulted in $3B-4B of revenue loss over a nine-year period. The plaintiffs, including Cleveland Clinic, Providence, and Mercy Health among many others, are seeking to overturn the 2023 rule, reverse their denied appeals, and remove MA days as a DSH payment factor.
- The Gist: Hospitals have been litigating the inclusion of MA days in DSH payments since 2004, claiming HHS has repeatedly violated rulemaking procedures. Both plaintiff hospitals and HHS have received favorable verdicts along the way, yet the issue remains far from settled, as a slate of cases is currently progressing through the courts, including one set to be heard by the Supreme Court next term. DSH payment policy is also not the only area in which hospitals have accused HHS of improper rulemaking, with one notable case resulting in the Supreme Court’s 2022 ruling that HHS had violated the law by adjusting 340B payments without first conducting a survey of acquisition costs.
- CHS subsidiary to buy 10 urgent care centers from Carbon Health. On Monday, Tucson, AZ-based Northwest Urgent Care, part of Northwest Healthcare and a subsidiary of Community Health Systems (CHS), announced its agreement to acquire 10 Arizona-based urgent care centers from Carbon Health, a primary and urgent care chain based in San Fransisco, CA. Northwest Healthcare has invested $200M in the greater Tucson area over the past five years, including opening two hospitals, and this purchase expands its regional footprint to more than 80 care sites. The terms of this deal were not disclosed, but a Carbon Health spokesperson said it will support the company’s “renewed focus on stability and growth.”
- The Gist: A variety of players have made recent moves to acquire or expand urgent care offerings, including health systems, payers, physician groups, and private equity firms, the latter of which have counted on interest from these other entities as buyers of the platforms they’re assembling. For health systems, urgent care centers serve as a low-cost front door for their access strategies, providing downstream care referrals while diverting lower-acuity patients from emergency departments. Health systems looking to expand their urgent care footprints without making full-sale acquisitions could also consider partnering with private equity firms on urgent-care joint-ventures.
Plus—what we’ve been reading.
- A closer look at the utility of dialysis. Published earlier this month in the New York Times, this piece dives into the benefits and costs of various treatments for chronic kidney disease, a condition affecting about one third of seniors. A recent study on these treatments among older individuals found that patients who started dialysis right after their kidney failure diagnoses only lived 77 days longer than those who never started dialysis. The author highlights the multitude of challenges older adults with kidney failure face, as they are often poor candidates for surgery and have other chronic diseases. Although most older patients will continue to select traditional dialysis, the author details how this treatment can be deleterious to patients’ quality of life and may not always be the best choice compared to other treatments, like conservative kidney management or peritoneal dialysis at home.
- The Gist: The utility of dialysis must account for its significant costs, both to the healthcare system and patients alike. Dialysis and kidney transplants consume 7% of Medicare’s budget, and patients must bear not only their share of the $90K average annual price, but also the significant toll it can take on quality of life. Conservative kidney management offers patients an alternative with less intensive care at lower treatment costs, but many patients do not even discuss this option with providers (at least without intervention). Most patients will still likely opt for the life extension offered by dialysis, but providers can play an important role by educating patients about their options as part of a shared decision-making process.
Graphic of the Week
A key insight illustrated in infographic form.
Median health system size by the numbers
This week’s graphic uses health system size and performance data from the Agency for Healthcare Research and Quality to illustrate what it means to be an average health system. Overall, the median health system has two hospitals, 550 beds, 17.5K annual discharges, and $700M in net patient revenue. In 2022, more than one third of all health systems reported a net patient revenue of less than $500M, whereas less than 8% of health systems reported a net patient revenue greater than $5B. The median health system is therefore more similar to smaller systems than to their larger counterparts. For example, health systems in the 25th percentile operate one hospital while those above the 75th percentile operate at least six hospitals. As health system mergers remain challenging in the current regulatory environment, it is noteworthy that the health system sector remains significantly less concentrated than other sectors in healthcare, such as insurers.
Kaufman Hall Insights
What our experts are saying about key issues in healthcare.
Of the many disruptions resulting from the Covid pandemic, one of the most serious for healthcare teams has been the disruption of communication pathways and relationships between team members. High turnover rates of locums and traveling staff, remote work, and masking were all contributing factors. At many organizations, the disrupted pathways and relationships have not yet been fully restored. This disruption has contributed to the increased length of stay that many health systems are grappling with.
Length-of-stay issues may be particularly acute if hospitalists have been disengaged from care teams. In a recent article, Bonnie Proulx and Jill Rogers discuss the need to re-engage hospitalists in a “back to the basics” reinvigoration of care teams, supported by the staffing models and metrics required to manage length of stay. With these teams in place, hospitals can make real improvements that benefit both patient care and financial performance.
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:
- Express Scripts sues the FTC over its pharmacy benefit manager report
- Rural hospitals aren’t taking advantage of free cybersecurity supports
- Two ACA exchange platforms suspended over data security concerns
To stay up to date, be sure to tune in each weekday morning. Subscribe on Apple, Spotify, Google, or wherever fine podcasts are available.
Thanks for reading! We’ll see you next Friday with a new edition. In the meantime, check out our Gist Weekly archive if you’d like to peruse past editions. We also have all of our recent “Graphics of the Week” available here.
Best regards,
The Gist Weekly team at Kaufman Hall
