In Search of Value: The Context for Healthcare in 2023

Hospitals in the U.S. continue to face thinning financial margins, higher labor expenses and clinician burnout at the end of 2022, still in the wake of the COVID-19 pandemic.

Digital health investors are planning for lower valuations in 2023, scrutinizing more clinical evidence and seeking proof of return on future investments.

Employers will face greater health insurance costs for workers dealing with postponed care, driving up medical spending trend in and beyond 2023.

And patients will continue to morph into health consumers, facing tighter household finances, looking at medical bills and out-of-pocket spending baked into kitchen table budgets.

Welcome to 2023, where all healthcare stakeholders will be in search of value through their respective lenses.

 In 2023, Health Economics Challenges Impact All Stakeholders

 Consider that every stakeholder from health systems to medical device companies will be impacted by “reduced yield.”

That overall economic context for 2023 comes from the analysis of Sanula Jain, a health economist and Chief Research Officer at Trilliant Health. Jain has assessed umpteen trends shaping the U.S. health economy to come to her conclusion that each sector serving healthcare in America will face fewer patients and less revenue, or “yield” in her words.

Part of the challenging healthcare revenue picture will be inflation. In Deloitte’s estimation, “inflation may make consumers and the healthcare system sicker,” signaling “unrest” for the entire healthcare industry.

Health insurance plans will feel inflation in the next couple of years due to the lag that rate-setting in advance has on the business: We can expect health insurance premiums to rise along with deductibles and consumers’ out-of-pocket spending.

In its trend projections for health insurance pricing in 2023, WTW expects higher pricing across the healthcare system due to uncertain pandemic risks, changes in utilization patterns, medical cost inflation and health plans re-contracting with providers and systems in the U.S. Wages and supply of healthcare labor will contribute significantly to contract negotiations.

For employers covering health insurance, improving healthcare affordability for workers is a top priority for 2023, according to Mercer’s 2023 health benefit strategies forecast. Employers cover about 160 million non-elderly people in the U.S. and will continue to do so in 2023. To deal with affordability, companies that cover healthcare intend to offer a variety of services and novel “front doors” to channel workers to lower-cost and more accessible sites of care such as virtual primary care, behavioral health care, and specialty services for dermatology and musculoskeletal conditions, Mercer identified. Employers will balance costs and employee well-being, WTW projects for 2023, migrating toward “virtual first” delivery models.

For health technology developers, GSR Ventures’ survey of digital health investors identified key challenges facing healthcare stakeholders in 2023 that address the value imperative: provider shortages and clinician burnout, changing reimbursement, and interoperability for IT, among other issues. Each of these has a direct impact on healthcare providers’ finances entering 2023 and, per Jain’s point on “yield” reducing for stakeholders, GSR Ventures’ consensus is that valuations for digital health companies will be depressed in the coming months.

Hospitals will continue to face difficult headwinds based on the read of the end-of-year Kaufman Hall National Flash Hospital Report. U.S. hospitals and health systems continue to deal with expenses outpacing revenues, especially for labor (nursing in particular), along with engaging outside services for IT (think “digital transformation” projects and continued enhancements to EHRs). Since 2019, per patient labor expenses grew by nearly 20%, Deloitte reported, as labor comprises about one-half of a hospital’s budget.

The nursing shortage will continue to be a core element in hospitals’ (and the health system at large’s) financial stressors. Robert Wood Johnson Foundation and other philanthropies will be dedicating resources to supporting the nursing supply. RWJF has been working with AARP and the AARP Foundation to bolster nursing capacity and influence throughout the U.S.

Value is top of mind for healthcare consumers, taking the form of concerns about the costs of care along with the ability to access medical services when needed. Inflation is the top reason 1 in 3 U.S. consumers feels less prepared to handle their healthcare costs, Deloitte learned.

Healthcare affordability is an ongoing issue for U.S. households, as “cost desperate Americans lack confidence in their ability to pay for their healthcare as they age [and] suffer daily stress from a high-priced health system,” Gallup-West Health assessed in their Healthcare Affordability Index study. The “cost-desperate” and “cost-insecure” tend to be women and Hispanic Americans.

Compounding Americans’ healthcare-related financial stress, at the close of 2022, patients were still getting hit with surprise medical bills, notwithstanding the No Surprises Act that went into effect on January 1.

Delaying Care Will Be a Normal and Worrisome Choice for Many U.S. Patients

Consumers are facing a “Great Uncertainty” regarding the economy, as McKinsey has coined peoples’ lack of fiscal confidence in inflationary times. More households are making spending trade-offs, with the high cost of healthcare services (46%) and higher costs of living overall (43%) the most common reasons U.S. consumers delayed getting care.

Costs replaced pandemic-related health concerns as the top reason Americans deferred healthcare, Qualtrics found in their consumer study fielded in August and September 2022.

Jain wrote that “deferral of primary care signals a troubled future for America’s health.”

With primary care visits declining on average by more than 10% in 2022 across the U.S. compared with pre-pandemic utilization, Trilliant forecasts that consumers will not return to primary care to catch up with the visits they missed between 2019 and 2022.

Some of the “trouble” Jain suggests will come to U.S. healthcare are the delays of routine care that compel patients to go to higher-cost settings: for example, emergency departments to deal with chronic conditions. “These costs—some of which could be prevented,” Deloitte noted, “could ripple through the healthcare ecosystem and push future healthcare spending higher” in and beyond 2023.

Wolters Kluwer learned that Americans, particularly younger people, are bullish on the shift of primary care from traditional PCP offices to novel models of care. While most Gen Z, Gen X, and Millennial consumers envision this trend, even 43% of Boomers see this transition away from PCPs in their healthcare futures.

Embedded in this vision is value in the eye of the patient-as-the-payer: At least half of U.S. consumers see savings on medical expenses as incentives to seek care beyond the primary care office, turning to pharmacies and retail and/or pharmacy clinics instead, and  trusting pharmacists, nurse practitioners and physician assistants to provide services (including prescribing medicines) at a lower cost.

In patients’ search for value, Wolters Kluwer’s consumer research found that 44% of people chose not to fill a prescription because of its cost. This shows consumers’ search for value in their healthcare household budgets also hits the bio-pharmaceutical sector along with hospitals, physicians and health insurance.

Given households’ healthcare affordability issues, there is likely to be continued scrutiny of drug prices among both consumers and legislators at the Federal and state level in 2023. The language codified in the Inflation Reduction Act will pressure prescription drug manufacturers to lower prices of medicines in the new year.

A Continued Shift of Care Toward Virtual and the Home

Value in the eyes of patients-as-consumers also takes the form these days of convenience via digital access to the continuum of care, from identifying a doctor and scheduling an appointment, through to bill payment and financial plans to pay the bill off over time. New research from PYMNTS and Lynx discovered that “consumers see unified platforms as key to better health.”

Health insurance plans and payers—namely, employers sponsoring health plans on behalf of employees—are redesigning benefits to incentivize enrollees to receive care in lower-cost settings, especially via telehealth modes. Virtual delivery is shifting many flavors of care across the continuum, to address caring for people with chronic conditions, mental and behavioral health, and specialty care.

Telehealth use among commercially insured people “remained vibrant” in year two of the pandemic, an AHIP-NORC survey discovered, with women 1.6 times more likely to use virtual care than men in the past year.

And telehealth use continues to span generations. Independa has found that more older people are embracing virtual care and digital health tools. In their third annual study into telehealth, Independa focused on the behaviors of people over 70 years of age, finding an upward trend in older peoples’ adoption of and satisfaction with telehealth experiences. Over 9 in 10 older people said they would like to have a telehealth option for care going forward.

In their look into health consumers’ experiences with virtual care, AHIP-NORC also found consumers value telehealth. Three-quarters of people covered by commercial health plans told AHIP that Congress should make permanent the provisions that allowed for coverage of telehealth services before paying their full deductible, which health consumers benefited from during the pandemic.

Consumers’ value of and appreciation for telehealth, though, is sometimes limited by a continued digital divide, discussed in an important study recently conducted in the Commonwealth of Massachusetts. The availability of technology in healthcare often lags behind public policy. In 2023, we can expect more legislation to be drafted that addresses the barriers to virtual care (including broadband connectivity), parity for telehealth payment and affordability (including mental/behavioral health), and professional licensure for interstate consultations.

Post-pandemic Weariness and the Threat of a Triple-demic

In early December 2022, CDC Director Dr. Rochelle Walensky warned of the additional strain a “triple-demic” of COVID-19, flu and RSV could put on an already-stressed U.S. healthcare system. Dr. Walensky and other public health officials acknowledged “vaccine fatigue” and the relatively low uptake of vaccinations for fending off the coronavirus and the flu as well as other infectious diseases.

“We are much closer to being able to say that the emergency phase of the pandemic is over—but we’re not there yet,” World Health Organization Director-General Dr. Tedros Ghebreyesus cautioned in December 2022. In the U.S. (and globally), ongoing gaps in surveillance, testing and vaccination could cause significant mortality.

Many of these gaps are rooted in distrust of governments and media, as the Edelman Trust Barometer has reported throughout 2022, asserting that, “Trust is a key determinant of health.”

The Need to Build Back Trust in Healthcare in 2023

Perhaps the most impactful call-to-action for healthcare stakeholders in 2023 is to build back trust.

Deloitte’s “prescription” for addressing inflation’s ongoing impact on consumers was to “offer(ing) hybrid (virtual and in-person) care delivery options and focusing on trust.”

To be sure, trust has eroded among patients in the past two years, as called out by the Beryl Institute’s look into consumer perspectives on patient experience in the U.S. Two in three patients said their trust in healthcare declined in the past two years. The top reason patients felt less trust was the feeling that “the healthcare system acts out of self-interest rather than mine as a patient.”

This trust deficit is compounded by Wolters Kluwers’ finding that consumers’ perception of healthcare quality slid 6 points between December 2019 to September 2022. Patient experience, too, slipped to an all-time low. At the same time, cost was the healthcare issue that topped all others for consumers in Wolters Kluwers’ study, well above quality of care.

So value is centered in the eye of the health consumer for 2023 … and value must be in the eyes of all healthcare industry stakeholders.