Key trends for payers and providers in 2023
Providers will be forced to navigate a challenging year as they try to rein in expense growth fueled by pandemic-driven labor shortages.
This year’s outlook for a large chunk of the healthcare sector remains negative as inflation and pricier labor create difficult operating conditions for nonprofit providers, Moody’s Investor Service said.
As a result, health systems and hospitals are likely to clash with insurers over desired rate increases to offset higher expenses and providers will look to increase their revenue as much as possible by bargaining for higher rates.
Even though insurers have fared better than their provider counterparts, companies are still expected to face some headwinds this year. Still, Fitch Ratings says the 2023 outlook for the insurance sector is neutral.
A recession could also take a bite out of enrollment at the same time the government is poised to roll back consumer protections that kept millions enrolled in government-sponsored plans during the COVID-19 pandemic.
Losing members could put downward pressure on both the top and bottom line for insurers, analysts said.
Providers likely to push for rate increases
How much will healthcare prices increase in 2023?
“That's by far and away the number one thing that we all want to know about,” said Kevin Holloran, senior director of U.S. Public Finance at Fitch Ratings.
Providers feeling the pinch are going to fight for rate increases in contracts that come due this year, Holloran said, adding that the two sides are “wildly apart” so far, according to his discussions with providers.
This year will be contentious as providers may opt to play hardball in bargaining for better prices and may walk away during negotiations, leading to out-of-network periods for patients, he said.
“It's going to be very bumpy, very contentious this year,” Holloran said, characterizing 2022 as a terrible year for most providers.
Unlike other industries, many healthcare providers were unable to raise rates as inflation soared to record highs. Providers are locked into multi-year payment deals with insurers, bolstering their desire for higher rates in coming years.
Labor pains continue
Labor shortages and pricey contract rates are continuing to strain providers, contributing in large part to mounting financial pressures.
High labor costs have made it harder for hospitals to post positive margins, Erik Swanson of hospital consultancy Kaufman Hall recently said in the firm’s latest flash report.
“The big push is to get the agency contract labor costs out,” said Suzie Desai, senior director at S&P Global Ratings.
Some of the nation’s most recognized health systems were dragged into the red last year, weighed down by increased labor costs, including Mass General Brigham, Cleveland Clinic and Intermountain Healthcare.
The shortage is driven in part by burned out nurses who have left the bedside for other positions — or the industry entirely. Providers have had to turn to staffing firms to help fill the gap, with agencies commanding high rates amid demand to fill openings.
Hospitals are not the only facilities short on workers. Effects of nursing home shortages are rippling throughout the sector. Patient hospital stays are unnecessarily longer as nursing homes struggle to take on more patients without more staff, serving as an added financial burden for hospitals.
Eyes on utilization and commercial enrollment as possible recession looms
Some eonomists are expecting a recession to squeeze the U.S. economy this year and potentially spur job losses.
As a result, insurers may see a dip in enrollment, leading patients to think twice about seeking out healthcare services.
Health insurance coverage in the U.S. is tightly linked to employment, so job losses could pose a financial headwind for insurers if they result in coverage losses.
Patients may be reluctant to spend money on copays and deductibles for healthcare services as the threat of a recession looms, especially as record-high inflation grabs a larger chunk of American paychecks.
“Healthcare dollars are getting squeezed out of peoples’ budgets,” Jefferies Analyst Brian Tanquilut said.
Consumer confidence will also influence healthcare utilization, he added.
At one of the largest hospital chains, HCA Healthcare, volumes for this year are expected to be lower than historical averages, Tanquilut said.
However, the so-called tridemic — RSV, the flu and COVID-19 — could inflate volumes, especially if outbreaks are more severe.
Medicaid enrollment expected to drop after pandemic protections end
Pandemic protections shielded millions from losing health insurance at the onset of the COVID-19 pandemic.
As a result, enrollment in Medicaid soared, increasing 27% to cover more than 90 million people, with states barred from removing people from the program due to the public health emergency.
Those pandemic protections are set to end in 2023, threatening to cut off access to care for millions. An estimated 5 million to 14 million are expected to lose coverage as states resume eligibility checks, according to the Kaiser Family Foundation.
For insurers like Centene and Molina, prior revenue gains, as a result of the pause on eligibility checks, are expected to deflate.
Analysts are keeping a close eye on how many members insurers will be able to convert from the Medicaid program to Affordable Care Act exchange plans.
Home health push continues
Health insurers continued to place bets on the home health sector, an area that will remain a key focus in 2023.
“The crux of health insurance is keeping costs down,” said Dean Ungar, an analyst at Moody’s Investors Service.
Home health aides have a unique advantage to temper costs by working in a member’s home, enabling them to ensure people are taking needed medications and checking on other factors that influence a person’s health.
“They can identify things that can prevent emergency room visits by just being proactive,” Ungar said.
Some of the largest payers placed big bets on home health in 2022.
UnitedHealth Group signed a $5.4 billion deal to acquire home health provider LHC Group. The transaction is expected to close early this year.
CVS signed an $8 billion deal to acquire home health provider Signify, beating out other potential acquirers, including Amazon.
These moves follow Humana’s bid for home health giant Kindred. Humana acquired the remaining stake of Kindred in 2021 for $5.7 billion.
Medicare Advantage expected to surpass enrollment milestone
Medicare Advantage enrollment is expected to reach a milestone this year, exceeding 50% of the total Medicare population in 2023.
This change impacts providers too, as reimbursements rates can vary.
Enrollment in MA plans has more than doubled since 2007, according to the Kaiser Family Foundation. Still, the program has faced continued criticism over financial incentives to make members appear sicker in order to increase monthly capitation rates.
“I think the reason this is important is because it’s really a restructuring of the Medicare program,” said Jeannie Fuglesten Biniek of Kaiser Family Foundation. “As Medicare Advantage Plans play a bigger role, we see that there’s just a lot more variation introduced into what it means to have Medicare coverage.”
Illustration: Yann Bastard for Industry Dive