The year 2023 will be a consequential one for healthcare finance professionals. With the near certainty that the COVID-19 public health emergency will come to an official end, three convergent trends will have a heightened impact on the solvency and liquidity of provider organizations.
1. Implementation of federal policies to lower inflation
The Federal Reserve’s monetary policy focus is expected to slow inflation to less than 2.3% by 2024.a In the process, interest rates for debt will increase for borrowers, wage growth will slow and the job market in healthcare will tighten. In tandem, consumer spending for healthcare services will slow, medical debt will increase and affordability and government spending for healthcare will get increased attention among policymakers, media and consumer advocates.
2. Increased opportunism among private investors
Private equity funds have $1.3 trillion of cash on hand even as valuations of acquisition targets have slipped and the IPO and special purpose acquisition company (SPAC) exit portals have slowed. Amazon, CVS, Walmart, Optum and Walgreens are expanding their health services portfolios in targeted areas of opportunity (e.g., self-care, senior services, mental health). Early-stage venture funding has become concentrated in technology-based, data-dependent cost-reduction solutions that have demonstrated value, and deal activity has become more concentrated in adjacencies and scale-driven M&A. In 2023, private capital deployment by nontraditional players will take advantage of incumbent financial insecurity and increase their footprint in key sectors of delivery and financing.
3. Eroding public support for the healthcare system
Polls show voters are concerned first and foremost about the economy and inflation. Abortion follows. Beyond these areas, polls also have shown that the public has concerns about the U.S. healthcare system overall: The majority think it is expensive, complicated, too focused on profits and wasteful.b
Implications of the trends
Given political discord in Congress and the certainty of robust 2023 campaigning by White House aspirants in 2024, two things are certain.
First, we will see heightened criticism of the U.S. healthcare industry. The industry is a soft target for campaigners for state and federal offices. Candidates on both sides offer moonshot solutions that rarely become policy. Nonetheless, the political spin about the industry will erode voter confidence. The solvency of Medicare, access to abortion services, prices for prescription drugs and hospital services and unequal healthcare access will be frequent targets.
Second, any future legislation regarding healthcare will be incremental. The last major non-COVID-related legislation pertinent to healthcare was the Inflation Reduction Act of 2022 (IRA), passed Aug. 7 on a 50-50 vote in the Senate. On Sept. 7, the Congressional Budget Office (CBO) estimated the bill will reduce the deficit by $58 billion over the period of 2022-2031, resulting from a $50.6 billion increase in direct spending and $108.7 billion in direct revenues. CBO also estimated that the decrease in the on-budget deficit over that period would be $53.5 billion.c
Predictably, skeptics think the phase-in of the IRA’s prescription-drug out-of-pocket spending cap for seniors ($2,000) and the legislation’s provisions for deficit reduction will be ineffectual in slowing government spending in healthcare.
What providers can expect
Thus, no major legislation about healthcare is likely to pass Congress in 2023. Rather, federal agency administrative rules, court decisions and White House executive orders will drive regulatory changes, primarily guided by principles of equity, transparency and affordability.
For provider organizations, the following actions at the federal level are likely:
- The Federal Trade Commission (FTC) will increase scrutiny of hospital consolidation.
- The FTC will intensify its enforcement of privacy and security compliance.
- The U.S. Department of Health and Human Services (HHS) will provide hospitals with concessions for maintaining the 340B drug discount program.
- HHS will incorporate specific goals and measures of diversity, equity and inclusion (DEI) in its assessment of the healthcare workforce, care management and community services.
- The Center for Medicare and Medicaid Innovation will simplify and otherwise modify alternative payment models that require participants to accept downside risk.
- The Office of the National Coordinator for Health Information Technology will monitor provider compliance with the core-data anti-blocking interoperability requirement for electronic health information.
- Congress will extend the temporary 3% Medicare payment boost for physicians through 2023.
Meanwhile, states will play a larger role. Legislator action in states will focus on Medicaid expansion, abortion services, scope of practice for mid-level providers, rural health services, expansion of interstate compacts for physicians, hospital and drug price-setting and the integration of public health with local health systems, among other issues. In some cases, the federal government will create stimuli for states to promote federally supported initiatives such as Medicaid expansion.
What it means for finance leaders
Finance executives must face the reality that there will be no additional bailout funding from the federal government in 2023. Their teams therefore should give attention to the following key areas of concern:
- Adding resources to monitor changes in rules and regulations
- Considering opportunities to partner with private equity/strategic investors
- Acknowledging the growing importance of scale and scope of operations in their ability to secure capital cost-effectively
- Responding to ongoing and unabated workforce pressures
- Revisiting efficiency and care management processes to optimize fixed and direct cost reduction
- Implementing strategies to redeploy capital to areas that fall outside of core businesses
a. Denean, A., “Inflation won’t return to normal until 2024, CBO predicts,” The National Desk, May 26, 2022.
b. See, for example, West Health-Gallup, 2021 healthcare in America report, 2021.
c. CBO, “Estimated budgetary effects of public law 117-169, to provide for reconciliation pursuant to Title II of S. Con. Res. 14,” Sept. 7, 2022.