Although nothing compares to the operational challenges of 2020 as COVID swept the nation, 2025 was as difficult a year for healthcare strategy as any in recent memory. Nearly every organization we work with put their big decisions on hold for the first half of the year, as we watched the Trump administration reshape the federal government, impose and revise massive trade restrictions, and slash federal healthcare spending. Since then, the second half of the year has felt like a mad scramble to prep for an oncoming hurricane, as we can see the consequences of cutting Medicaid, ACA funding, and research grants on the horizon, but for now the air is still relatively calm and dry. The one good thing about living in such cloudy times is the presence of so many silver linings. Vaccines are under attack, but public health officials are standing up for them. Research grants are being cancelled, but we’re still finding new and amazing ways to save patients’ lives. Congress can’t agree on much of anything with healthcare, except that hospital-at-home programs are working and worth extending. Focusing on the small victories doesn’t make our big problems go away, but it does make them more bearable.  

Starting with the FDA’s approval of Ozempic to treat Type 2 Diabetes in 2017, the hype around and demand for GLP-1 drugs has skyrocketed, driven by the breadth of conditions they can treat and the impressive results they return, especially for weight management. In addition to Type 2 Diabetes, GLP-1 drugs have now received FDA approval to treat obesity, cardiovascular disease, chronic kidney disease, serious liver disease, and sleep apnea, and they’ve shown promise with other conditions like substance use disorder and osteoarthritis. (There’s also been hope that GLP-1s could treat Alzheimer’s, but Novo Nordisk just announced unsuccessful early trial results on that front.) List-price sales of GLP-1s increased from $14B in 2018 to $72B in 2023, with sales growth accelerating over that period as obesity-indicated GLP-1s started hitting the market.

Every fall, KFF publishes perhaps the authoritative account of commercial group-coverage price growth with its Employer Health Benefits Survey. Its lookback on 2025 found that family premiums grew by over 6 percent this year, with employers contributing over $20K to annual family premiums, which now total nearly $27K. That equates to an astounding 32 percent of median household income. 
 
It didn’t use to be like this. Since 2010, employer premium contributions have more than doubled and worker contributions have increased 71 percent, whereas the Consumer Price Index has only risen 48 percent and household income just 22 percent in that time. The result of health insurance costs outpacing inflation growth for so many years is the suppression of profit margins for businesses and wages for workers, putting American firms at a competitive disadvantage to companies abroad. Americans say that “costs” are the most urgent health problem facing this country, so it’s no coincidence that opinions on the state of US healthcare coverage are at a fifteen-year low. With each successive year, we ask the question with new urgency, when will employers reach their breaking point? 

Medicare’s embrace of site-neutral payments could significantly reshape how hospital outpatient services are reimbursed, with major implications for provider revenue, care delivery strategy, and regulatory planning. Between Congress considering site-neutral payment reforms that could reduce Medicare hospital reimbursements by upwards of $150B over a decade, and the Centers for Medicare & Medicaid Services (CMS) proposing to equalize payments for drug administration at hospital outpatient departments (HOPDs) and physician offices, it is clear that momentum toward site neutrality is accelerating. Our Site-Neutral Payment Calculator simulates payment differentials under one version of site-neutral payment reform, in which Medicare payments to HOPDs would equal the lower of Physician Fee Schedule (PFS) Facility rate and PFS Non-Facility rate, applied to the combined professional and technical payment for each. For a simulated HOPD orthopedic practice, the impact of this reform would be devastating, leading to a potential loss of 86 percent of Medicare revenue. Much of this revenue loss comes from CPT 29881 (Knee Arthroscopy), which would see its reimbursement fall from $3,602 to $518, an 85 percent reduction driven by the removal of the technical payment of $3,084. Of course, instead of this worst-case scenario, CMS could lower the HOPD technical payment to the ambulatory surgery center (ASC) facility rate, which would still incur a significant revenue hit. No matter which version of site-neutral reform takes hold, high-technical surgical services will face the greatest exposure, as site neutrality would align total reimbursement to a much-lower benchmark than HOPD facility costs.

Despite consistent bipartisan support, Congress allowed the Acute Hospital Care At Home waiver program to expire after four years and three extensions when it failed to avert a government shutdown. Over 330 hospitals had used this Medicare waiver to start or expand their own hospital at home program to promising results. One such success story, which has been paused until the waiver is reauthorized, comes from UMass Memorial Health in Worcester, MA. We interviewed its Hospital at Home program’s Medical Director, Dr. Taki Michaelidis, to learn how he, his team, and the UMass Memorial system have responded to sudden loss of regulatory approval. 

According a recently released Bain and KLAS report, both providers and payers are focusing on the AI investments “most likely to improve profit margins.” Profit generation is only one way to judge AI tools, which are already being used to reduce clinician burnout and improve health outcomes. These kinds of applications will surely help providers’ bottom lines, but it might take a while for the financial impact to be measurable. Revenue cycle management, which is the top AI priority for providers this year, offers “hard-dollar ROI” more directly. Meanwhile, payers’ top priority is to automate utilization management and member care coordination. These efforts will often work against each other.
 
Providers want to use AI to generate cleaner claims and fewer denials. Payers want to manage medical spend by automating prior authorizations and steering patients toward high-value care. Whichever side develops the best AI applications the fastest will generate some portion of its profits at the other’s expense. Given that payers tend to have an edge on providers in terms of scale and technological sophistication, their AI tools may prove more effective at rationalizing care than providers’ tools at billing for care. However, the real winners of the payer-provider AI arms race could end up being the AI developers and tech platforms that get to sell their services to both sides.

As we discussed last week, the news of Rite Aid’s final closure comes in context of the broader struggles faced by retail pharmacy chains. This week’s graphic quantifies those trends, which go as far back as 2018. That year, the total number of pharmacies began to decline, specifically driven by chain pharmacy closures, which coincided with “reported increases in planned chain pharmacy closures, mergers and acquisitions, and the integration of [pharmacy benefit managers] with large pharmacy chains.” Since then, these closures have only picked up steam, with CVS closing almost 1,200 locations between 2022 and 2025, Walgreens planning to close 1,200 of its own locations by 2027, and Rite Aid shutting down all locations after operating over 2,000 stores as recently as 2023. The unsuccessful pivot to broader care provision, which Walgreens tried most ambitiously with its purchase of VillageMD, and which CVS teased but abandoned, has also failed to pan out, helping trigger this latest wave of closures. 
 
Suffering from a vicious cycle of closures and declining revenues, chain drug stores have become consumers' least-favorite type of pharmacy, with the greatest decline in customer satisfaction since 2017 (although all pharmacy settings have declined in this measure). Compared to mail-order, mass-merchandiser, and supermarket pharmacies, chain pharmacies offer an inferior consumer experience, and their front-of-store retail offerings lack the selection or prices of their competitors. Still, when they close, their former customers often find that a bad pharmacy was preferable to no local pharmacy at all. 

The 2026 Hospital Outpatient Prospective Payment System (OPPS) Proposed Rule picks up where the first Trump administration left off, proposing to eliminate over three years Medicare’s Inpatient Only (IPO) List, which identifies procedures that Medicare only reimburses in the hospital inpatient setting. The proposed rule is very similar to the 2021 OPPS Final Rule, which was promulgated under Trump but implemented under Biden. The rule initiated a three-year phase-out of the IPO List, only for the Biden administration to reverse course and restore the IPO List in 2022. If this year’s rule is finalized, almost 300 procedures, mostly musculoskeletal, will move off the IPO List in 2026, and over 500 procedures, about half of which were on the IPO List, will be added to the Ambulatory Surgery Center Covered Procedures List (ASC CPL). 
 
Departing from precedent, the Trump administration is indicating that it no longer recognizes a patient-safety distinction between the inpatient and outpatient procedures, and that it will be far more permissive toward procedures performed at ASCs. This has huge implications for hospitals because, as evidenced by knee and hip replacements, procedures tend to migrate quickly to their lowest-cost allowable settings. And once Medicare covers something on an outpatient basis, commercial payers are quick to follow. Many health systems are still holding onto inpatient procedural revenues as an important cross subsidy, but the march toward site neutrality feels inevitable. The transition can be slowed down or sped up, but it’s going in only one direction.

During the upcoming open enrollment season for Medicare Advantage (MA), a record 28 percent of MA members are expected to switch plans, driven by payers cancelling unprofitable plans and paring back benefits. The loss of supplemental benefits is even inspiring some enrollees to leave MA for traditional Medicare, with MA’s share of Medicare enrollment projected to fall from 50 to 48 percent next year. The largest MA payers are pivoting from membership growth to margin control because rising medical costs and slowed federal reimbursement growth have taken the wind out of MA’s profitable sales. CVS-Aetna and Humana have led this charge since 2024, while payers like UnitedHealth Group (UHG) are playing catchup by promising to cut 600K members’ plans in 2026, after picking up too many members shed by Aetna and Humana in the year before. Although fewer plan options could be a problem for MA beneficiaries, the individuals and small businesses purchasing insurance on the Affordable Care Act exchanges are facing a catastrophe. Average premium increases of 18 percent are the result of higher utilization and medical costs hitting at the same time as the expiration of enhanced subsidies. For a family of four making $85K, the premiums they pay each month could go up by 94 percent, unless Congress acts to extend the enhanced subsidies. The expiration of these subsidies could cause 2.9M people to lose health insurance in 2026 alone, which is why Congressional Democrats have made it a top issue in ongoing budgetary negotiations to avoid a government shutdown. This crisis can still be avoided, but we are running out of time.

Against the backdrop of unprecedented threats to the health system business model, we’d like to offer an organizing principle for health system strategy: health systems should strive to serve as the trusted “anchor” for consumers across their health journey. To do so, they must move beyond episodic encounters and build comprehensive, relationship-based care anchored in four core components: hospital and procedural care, primary and specialty care, care personalization, and care coordination. These components may be delivered directly or through curated partnerships, but always within a health system-connected network. Episodic care alone won’t sustain loyalty, revenue, or long-term viability. The “anchor” role requires health systems to deliberately curate a connected ecosystem of services, whether owned or partnered, that keeps patients inside their orbit. That means making trust, continuity, and personalization as core to the strategic plan as capital investments. The real differentiator requires evolving from just providing care to orchestrating the entire healthcare journey in a way that consumers and families feel supported over time and across life. That’s where health systems can translate their legacy of clinical credibility into durable consumer relationships, which is our bet for the future’s true competitive advantage.

Every year, we see the same song and dance play out: the proposed Medicare physician fee schedule (PFS) includes an unacceptable cut, lobbying groups work frantically to either change the final rule or get Congress to intervene, and when the net result is essentially the maintenance of last year’s levels, physicians almost feel like they’ve won. What that process obscures is how, over the last 25 years, the Medicare PFS conversion factor, used to assign dollar values to the services for which physicians bill Medicare, has declined 9 percent, while the Medicare Economic Index, which measures practice cost inflation, has increased 59 percent. Health Secretary Kennedy has signaled a willingness to reform how Medicare pays its physicians, but it seems unlikely this administration would do away with relevant budget neutrality requirements in order to make physicians feel whole. Instead, physician groups have been left to sort out rising costs and flat-lined payments on their own, leading to workforce instability, widening specialty shortages, and downstream access problems for patients, especially in rural and safety-net settings where Medicare is the dominant payer. These issues of cost and revenue may seem operational on the surface, but they have deep implications for strategy and governance. Such a threat to the survival of the physician group, and the viability of its underlying operating model, should demand the entire organization’s attention, from the C-suite and boardroom down to the clinic floor, back office, and supply room. 

Healthcare job growth is showing signs of weakness in 2025, but it’s one of the only sectors of the economy with any job growth at all. The healthcare and social assistance sector has been responsible for 93 percent of the net employment gains this year, after making up almost half the net employment gains in the two years prior. Despite this, or more likely because of it, healthcare companies have struggled to be profitable amid high labor costs, and the largest publicly traded healthcare companies have provided poor returns for investors. In contrast, big tech stocks have been market darlings for years, and the likes of Google, Microsoft, and Meta are pouring billions into AI infrastructure to maintain this advantage. 
 
These two trends are more connected than they appear. AI’s great promise is to improve productivity, in large part by replacing human labor. AI innovations will surely transform the healthcare system, including its relationship to labor. Compared to other industries, however, healthcare will remain relatively dependent on human labor, especially for jobs at the bedside that face relatively low risk of disruption by AI. This divergence between healthcare and tech illustrates a structural risk for the U.S. economy: labor growth concentrated in a sector with limited productivity upside, and capital growth concentrated in a sector that generates profits but few jobs. Without intentional policies that bridge these two poles and investments that plug AI innovation into healthcare operations and workforce models, the country risks entrenching an economy where healthcare functions as the nation’s jobs program, while tech captures the value. That’s neither sustainable nor equitable.

The US has the worst maternal mortality rate of any high-income nation in large part due to the socioeconomic and racial disparities. The urban-rural divide is one such example, as rural-dwelling mothers suffer nearly double the mortality rate as those who live in urban areas. In particular, mothers giving birth at rural hospitals with low-volume obstetrics departments experience the greatest rates of morbidity, as these hospitals are less equipped to deal with complicated pregnancies and less able to transfer high-risk patients to better-resourced hospitals nearby, compared to urban hospitals. However, the closure of obstetric service lines, especially in rural areas, is also associated with worse maternal outcomes. Rural mothers are therefore caught in a vicious cycle, in which rural hospitals with low-volume obstetrics departments that produce poor outcomes for mothers choose to shutter their underperforming service lines to help with their thin margins. In the last twenty years, nearly 200 rural hospitals have closed altogether, an undeniable crisis that is only expected to worsen with impending Medicaid cuts. Those that manage to stay open may join the more than half of rural hospitals without obstetrics departments.
 
This dynamic is not unique to rural obstetrics, although it presents there acutely. Rural health is fundamentally about infrastructure and access. The clinicians, facilities, and systems are what make care possible across every service line. Without that foundation, maternal health can’t improve and neither can cancer outcomes, mental health, or chronic disease management in rural populations. Rather than helplessly witnessing further disinvestment from rural populations, we should be doubling down on clinician training, finding ways to improve basic access through mobile clinics and telehealth, and connecting rural “spokes” to larger “hub” centers for specialty access. But even these steps may only be salves to rural healthcare’s ailing system of payment and provision, which is in need of a complete overhaul. 

The aging of America, driven by the relative size of Baby Boomer generation, has us hurtling toward a “gray trap” (or staring down a “silver tsunami," if you prefer). We stand at a precipice in 2025, with 75 percent of Boomers aged 65 or older. From thirty years ago (1995) to projections of thirty years from now (2055):

Each of these figures is interrelated and indicative of a distinct challenge. The growing number of seniors will require a growing population of caregivers, which takes away labor from the rest of the economy. Payroll taxes are a significant funding source for Medicare, so as more people exit the workforce for their own retirement or to care for their retired parents, Medicare funding will depend more on general taxation to cover its increasingly large expenditures. And these expenditures will grow not only because more people are on Medicare, but because the average age of Medicare enrollees is going to increase rapidly in the coming decades. Boomers are expected to live longer but with worse health than previous generations, which is a product of and a driver for more medical care.
 
The aging of America is predetermined (give or take net migration), but our strategic decisions are not. For providers, now is the time to figure out how to get by on Medicare (and Medicare Advantage) margins, because the share of Medicare patients will only grow, while the generosity of Medicare reimbursements will be perpetually targeted for cuts. At the same time, policymakers are likely to push for greater personal contributions to healthcare whether through higher premiums, cost-sharing, or means-testing of benefits as public financing strains under demographic pressure. The future may seem dark and gray, but this may prove to be the crisis that spurs innovation toward a better system of care. 

In December 2023, the Wall Street Journal ran the headline, “The Medicare Gold Rush Is Slowing Down.” It followed this up one month later with, “It Is Going to Be a Bad Year (or More) for the Medicare Business.” Finally, last week we got the punchline: "Insurance Companies’ Medicare Pullback Is Here.” MA appears to be shifting from its rapid growth phase into a more mature and constrained market. Its enrollment and share of the Medicare population will likely keep rising for years, but the program’s economics, incentives, and experience are poised to tighten, leaving payers, providers, and patients with fewer gains to share. 
 
For payers, medical costs driven by higher utilization are already hitting their bottom lines. Sooner than later, Congress and CMS are likely to get serious about payment reform such that MA actually saves money compared to traditional Medicare, as it was intended. And before long, Baby Boomers will be entering their “breakdown years,” the final years of life where healthcare expenditures are most highly concentrated. All the prior authorizations and utilization management tactics that have providers fed up with MA plans are likely to worsen as payers struggle to maintain margins for an increasingly expensive, decreasingly capitated population of aging seniors. Patients, for their part, will first feel the sting of losing access to $0 premiums, supplemental benefits, and relatively broader networks that enticed them to sign up for MA plans. Then, should they ever get frustrated with their increasingly limited-network MA plan as their health needs grow, they’ll discover that they missed their six-month window to sign up for Medigap upon turning 65, meaning they’d face significant cost-exposure by switching over to traditional Medicare. If and when we find these stressors plaguing our seniors, their providers, and the MA payers, we may look back and realize we took what was a well-regarded Medicare program and managed to ruin it for everyone.

Local markets for Medicare Advantage (MA) plans are almost always dominated by a couple of insurers, according to analysis by KFF. In 44 percent of counties, one insurer covered a majority of MA enrollees, and in 90 percent of counties, two insurers combined to cover a majority. More often than not, at least one of these two insurers is UnitedHealthcare, which leads enrollment in 41 percent of counties, or Humana, which leads in 25 percent. An uncompetitive insurance market can undermine many of the supposed benefits of privatized Medicare, as payers have less incentive to compete on costs and benefits for a pool of consumers who lack quality alternative choices of plans. Despite these theoretical problems with highly uncompetitive markets, MA plans have delivered continuously lower premiums and better supplemental benefits to enrollees, at the expense of narrower networks for enrollees and greater per-enrollee spending than traditional Medicare. One explanation for this trend is that the primary competitor for a UnitedHealth MA plan is not a Humana MA plan but rather traditional Medicare coverage.

We discussed last week how MA carriers have marketed cost-sharing protections and supplemental benefits to fuel MA’s explosive enrollment growth. However, a new strategy appears to be taking hold. As reported in the Wall Street Journal, insurers like CVS and Humana are starting to scale back MA benefits, and “Wall Street is cheering them on.” Their stocks rose, and their earnings beat expectations even as Humana projected a 500K loss in MA membership. In contrast, UnitedHealthcare expanded its MA rolls this year resulting in a “disappointing” financial performance, so it plans to raise prices and rollback benefits next year.

First introduced as Medicare+Choice in 1997, Medicare Advantage took just 25 years to become the coverage choice of a majority of Medicare enrollees, and its momentum is still building. In 2020, MA’s share of Medicare enrollment was 42 percent; in 2025, it’s now 54 percent; and in 2030, it’s projected to reach 61 percent. Despite the rapid change in MA penetration over time, the age distribution of MA vs. traditional Medicare (TM) is extremely balanced. In 2022, just as MA enrollment was on the verge of the majority, the Medicare population ages 65-84 was split evenly between MA and TM. Only among the oldest enrollees did TM prove more popular, while those with qualifying disabilities under age 65 were opting more for MA.
 
Seniors’ growing preference for MA plans over traditional Medicare (TM) can be attributed to MA’s supplemental benefits, prescription drug coverage savings, and cost-sharing limits (i.e. $0 premiums and copays), although aggressive marketing tactics and brokers’ financial incentives are also helping drive seniors’ decisions. A fully informed decision between MA and TM often comes down to a tradeoff of affordability and access, constrained by utilization management and network availability. TM offers virtually no limitations on physician choice and enables ease of specialty access, but with more cost-sharing. MA plans offer narrower networks but more cost protections. Because of this, perhaps the most significant difference between MA and TM enrollees is income. 47 percent of TM enrollees report an annual income of $40K or more, compared to only 32 percent of MA enrollees. If the choice between MA and TM is almost entirely financial, it raises important questions about whether a policy shift toward further privatization genuinely reflects consumer choice.

Healthcare coverage of the One Big Beautiful Bill Act (OBBBA), including ours, has rightfully focused on the massive cuts to federal healthcare spending, with the final Congressional Budget Office score coming in at $1.1T over ten years. As detailed by KFF analysis, 37 states will see over 13 percent of their 10-year federal Medicaid outlays cut, and Medicaid expansion states that have larger rural populations will bear the worst brunt. However, there are other direct and indirect healthcare policy changes that have significant care delivery implications. Two pieces of relief for providers relate to an expansion of reimbursement permissions for employer-based plans with health savings accounts (HSAs). As introduced during COVID but briefly allowed to expire, high-deductible health plans can (now permanently) pay for telehealth services before the deductible is reached without affecting HSA eligibility. Similarly, direct primary care arrangements, in which a subscription fee covers a set of primary care services outside of insurance, are now compatible with HSA-eligible plans. These changes should broaden the patient pool for direct primary care and telehealth, providing marginal, but welcome, relief.
 
Three of the law’s other statutory changes are decidedly less generous. Charitable giving to health systems and other nonprofits may decline, as itemizers now face a one-percent net-income floor for claiming charitable deductions, and the top tax bracket now has a lower cap on the benefit of charitable deductions. The pipeline of future physicians will be affected by the new $200K lifetime cap on federal student loans for graduate students, as prospective students may choose not to pursue a medical education or take on private loans that alter their career choices after graduation. And finally, cuts to the Supplemental Nutrition Assistance Program (SNAP) will worsen food insecurity for millions of families, many of whom are also affected by Medicaid cuts, resulting in a less healthy population with worse health outcomes.  

For years if not decades, UnitedHealth Group (UHG) and CVS Health have both pursued and exemplified the vertical integration model for healthcare. For UHG, that strategy best dates back to the launch of the unified Optum brand in 2011, while for CVS, its acquisitions of MinuteClinic in 2006, pharmacy benefit manager (PBM) Caremark in 2007, and insurer Aetna in 2018 serve as key milestones. However, an examination of UHG's and CVS's annual financial reports reveals how widely these two companies’ strategies have diverged. 
 
UHG has a bit (or a lot) of everything: it is the largest insurer, the third-largest PBM, and employs (or affiliates with) more physicians than anyone by a significant margin. Its revenue and net earnings are roughly evenly distributed between its UnitedHealthcare insurance arm and its Optum provider and PBM businesses. In contrast, CVS is largely a PBM and pharmacy services company, with a struggling insurance business and a surprisingly small care delivery arm. In 2024, Aetna posted a 0.2 percent operating margin (UnitedHealthcare had a 5.2 percent margin), and the non-pharmacy services portion of its Health Services Segment, which houses Oak Street Health and its other provider assets, generated just $11B in revenue. 
 

In an earlier edition of TrustWorks On Call, we shared a graphic detailing the decline of physician independence and the tradeoffs that come with health system or corporate employment. This week, we’re highlighting analysis of the American Medical Association’s Physician Practice Benchmark Survey to provide a new lens on this trend: that payer relations are the problem, and scale—whether through health system or corporate employment, or through practice size aggregation—is increasingly seen as a primary solution. Three of the top five reasons physicians reported for why their private practices were sold in the last decade relate to payers, with sellers seeking higher reimbursement, more capacity to manage administrative burdens, and easier participation in value-based contracts. Affiliating with a health system has the potential to help with all three of these concerns, but so too does joining (or becoming) a larger practice. From 2012 to 2024, the share of physicians in practices of fewer than five people dropped eleven points, while the share in practices of 50 or more increased by six points, nearly equal to the growth of direct hospital employment. The most drastic change in physician employment across the last decade isn’t just the decline of physician independence in general, but rather the near disappearance of small, independent practices. Instead, the ranks of large, multispecialty groups (whether allied with or independent from health systems) are growing because they can boast a scale and market essentiality worthy of payers’ respect at the negotiating table.

Amid the whirlwind of policies the Trump administration has adopted in the name of government efficiency, from laying off federal workers to championing legislation that slashes Medicaid benefits, the defunding of scientific research has at times flown under the radar. Thankfully, the private efforts of a team of researchers behind Grant Watch have been tracking the impact. Since February, the administration has terminated about 2,500 grants issued by the National Institutes of Health, amounting to over $3B of lost funding. For context, publicly reported biomedical grant funding totaled $37B globally in 2022, and the NIH was responsible for over 80 percent of that figure. As reported by the New York Times and ProPublica, most of these grants are being cancelled for arbitrary and capricious reasons, such as the detection of flagged words in their proposals. Some of these words and phrases range have partisan or political connotations (e.g. LGBTQ, sex assigned at birth, health disparity), while others seem completely anodyne—“bias” has emerged as a particularly egregious example of a flagged word frequently used in science outside of any political context. The impact of these cancelled grants, let alone the future projects that will not receive funding, could set the world of science and biomedical research back for years, if not decades. 
 
Then, last week’s news offered up a bright spot. A district court judge (appointed by Reagan) ruled that the termination of NIH contracts was “void and illegal” and ordered the reinstatement of grants identified by the plaintiffs. Furthermore, he went on to say, “This represents racial discrimination, and discrimination against America’s LGBTQ community … I would be blind not to call it out. My duty is to call it out.” As with all judicial actions short of the Supreme Court, questions of scope, appeal, and enforcement remain, but it’s heartening to see a federal judge stand up for scientists and marginalized communities so strongly.

The health insurance industry in 2024 experienced its least profitable year since 2015. Just as care avoidance in early COVID brought insurers a record-high profitability in 2020, high utilization rates and medical costs were responsible for payers’ financial struggles in 2024. In fact, the industry was only profitable in aggregate due to investment income, as cash flow from operations was -$1.4B in aggregate. As profit margins have shrunk, payers’ use of utilization management tactics has increased. In 2024, almost 12 percent of hospital claims were initially denied or delayed by insurers, even though 97 percent of these claims were eventually paid following appeal. This represents a 2.4 percent increase in denials from 2023, even though (much-maligned) prior-authorization-related denials fell almost 8 percent. In their place, more claims were denied for lacking medical necessity or faced requests for more information, which even after successful appeal, can result in difficult payment delays for providers.

At the heart of this dynamic is the persistent tension for payers between utilization management and profit optimization. On the one hand, insurers use utilization management to control costs and ensure appropriate care through deploying tools like prior authorization, denials, step therapy, and case reviews to prevent unnecessary or duplicative services. On the other hand, these same tools can be leveraged to delay or deny care, raising concerns that profit motives are overriding clinical judgment. When financial incentives reward reduced utilization, payers risk prioritizing cost containment over patient outcomes, fueling distrust among providers and their patients, while inviting increased regulatory scrutiny. And as cost pressures mount and public funding recedes, premium increases are likely to follow, placing additional financial strain on employers and individuals alike. Providers, meanwhile, bear the brunt of delayed reimbursements and growing administrative burdens, further destabilizing their already thin margins and contributing to workforce burnout.

As we discussed in our last edition of TrustWorks On Call, the two largest for-profit health systems, HCA Healthcare and Tenet, posted double-digit operating margins in 2024, far surpassing the margins of their nonprofit competitors, half of which were in the negative. As their name suggests, for-profit systems possess structural advantages and face different incentives than nonprofit systems, much of which is captured by for-profits being responsive to shareholders versus nonprofits being responsive to community stakeholders. For-profits not only can but must make strategic decisions, such as which markets to operate in and which services to provide, that maximize shareholder returns, whereas the local boards of nonprofits govern with a variety of factors in mind beyond profitability. That being said, the “no margin, no mission” motto means that nonprofits with sufficient scale and unsustainable margins could learn something from the success of HCA and Tenet.

Both HCA and Tenet owe their operating success to effective cost control. In HCA’s case, it is not only the largest health system by hospital count but also uniquely capable at capturing efficiencies from this scale—in part by choosing which markets and services to enter and prioritize. Over the last three years, it has expanded its footprint while reducing its relative labor expenses, cost-to-charge ratios, and average length of stay. HCA serves as the gold-standard example of the hospital subcontractor, content to be neither a platform nor organizer of care and capable of finding a margin from nearly any service and payer. Tenet’s hospital business is slightly less efficient than HCA’s, but that margin is more than made up for by its prolific ambulatory surgery center (ASC) chain, United Surgical Partners International (USPI). In 2024, USPI posted a remarkable EBITDA margin of nearly 40 percent. Despite earning only 22 percent of Tenet’s total revenue, it produced 45 percent of its total margin. Where the outmigration of lucrative orthopedic procedures to lower-revenue settings has spelled trouble for many systems, Tenet’s pivot to maximizing efficiencies and volumes in the ASC setting has become the engine of its success. Other systems have taken notice, as Ascension, which suffered significant operating losses last year, is rumored to be closing in on a purchase of Amsurg, one of the largest ASC chains in the country. Whether Ascension or other nonprofits can emulate the success of Tenet and HCA ultimately depends on their ability to control costs—an evergreen challenge for hospital chains, but something at which for-profit ASC chains like Amsurg have excelled.

Even though last year saw “notable improvement” in the median financial performance of nonprofit hospitals and health systems, the largest nonprofit health systems by revenue continued to struggle. Nonprofits comprise eight of the ten largest health systems, and four of those eight—Advocate Health, Ascension, Providence, and UPMC—lost money on operations (although UPMC’s losses stem from its insurance services, which were hit by high volumes and pharmacy costs). Meanwhile, Kaiser Permanente, by far the largest health system due to its insurance offerings and now Risant Health, barely broke even. Two systems, HCA Healthcare and Tenet, stand out among the rest as the only for-profit systems on the list and the only systems posting double-digit operating margins. It’s not a shock that for-profit systems, which are obliged to maximize shareholder profit, have the healthiest operating margins, but the gap between them and the nonprofits is remarkable. Nonprofits and for-profits alike have faced rising expenses and revenue pressures, but the for-profits have proven nimbler in their responses to these challenges. In our next edition, we’ll dig into HCA and Tenet’s financial reports to illustrate how and why.

Following up on last week’s graphic covering the public’s declining view of US healthcare quality, this week’s graphic illustrates recent trends and changes to the consumer healthcare shopping experience. Under a standard consumer choice model, prospective patients weigh the available financial and quality information about their provider options against their own preferences and cost constraints. In theory, cost-exposed consumers will shop for higher-value care, inducing competition from providers to offer the highest-quality or most-affordable services. Based on this theory, and to minimize their own liability for healthcare expense growth, employers have shifted increasing shares of their covered workers to high-deductible health plans—60 percent of covered workers faced single-coverage deductibles of at least $1K in 2024, up from 22 percent in 2009. The unfortunate flaw in this model is that healthcare consumers lack full information about the price and quality of healthcare services. Even with improvements to price transparency, fewer than one in five adults are aware of their healthcare costs before they receive care.

As for quality, consumers care about a provider’s licensure, years of experience, and reputation, but these are only proxy measures for the quality of a given care experience. Instead, patients often rely on other factors like convenience and access to select their providers, which are important aspects of quality shopping experience more so than a quality healthcare experience. And while quality information about providers remains underutilized, patients have embraced the tracking of their personal healthcare data through wearables and other health tech, which has further altered the patient-provider relationship. More than ever before, patients are coming to healthcare services with opinions and data about their own health, while paying for more of their care themselves. In this sense, they’re becoming not just consumers of care but customers—who are (supposedly) always right.

It’s not news that Americans are perpetually dissatisfied with our healthcare system, but it’s more notable that we continue to reach new lows. Only 44 percent of Americans rate the quality of the US healthcare system as at least “good,” a measure that has declined for four straight years and is at its lowest since Gallup began tracking the question in 2001. Opinions on healthcare coverage are even bleaker, although not as negative as they were in the pre-ACA, preexisting conditions era. The good news for providers is that, in a phenomenon perhaps comparable to hating Congress but liking one’s Congressperson, Americans have always viewed the healthcare they receive far more favorably than what they think of the system. However, ever since COVID, people’s opinions on the quality of their personal healthcare have steadily declined. While individual providers can’t do anything about the ills of the US healthcare system writ large, they can respond to the pains patients are feeling in their own offices. When surveyed as to what would get them to switch providers (a proxy for service quality), patients answers tended to fall into three categories—affordability, convenience, and virtual adoption. In other words, the quality of the care itself was a far rarer complaint than the quality of the customer service around the care. Accessibility is the new sign of quality.

Trump’s tariff policies have the potential to be the most impactful aspect of his transformative agenda. In typical Trump fashion, they’re a contradictory combination of good policy and negotiating posture, to be imposed, paused, and redoubled at will. As the details of specific tariff policies for certain goods or countries are liable to change at any moment, our graphic this week instead captures the general economic consequences for providers of blanket tariffs, such as the minimum 10 percent tariff currently in effect for all countries. The first and most obvious impact of this tariff is higher drug, medical device, and supply costs, which together amount to roughly $250B of US imports annually. Who absorbs these costs is complicated by the long-term, fixed-price nature of healthcare contracts, but the market will readjust via occasional shortages, margin hits along the supply and care delivery chains, and higher prices for patients. Economists say those ingredients are a recipe for stagflation, which is the root of the secondary problem for providers. Inflation calls for higher interest rates, which makes debt more expensive, and strategic planning goes on pause when you can’t price future goods, so capital projects are put on hold. Before long, corporate struggles will translate to a pullback in consumer spending, including on healthcare. Providers, who have recently been enjoying robust care volumes, don’t want to find out if healthcare is still “recession-proof,” nor do their (increasingly cost-exposed) patients, but care avoidance would likely increase. The only potential advantage of tariffs comes in the quaternary tier (not pictured), in which domestic manufacturing delivers us a more secure supply chain in the face of crisis. Somehow. In the Distant Future. It could be a difficult present until then.

The market volatility and general chaos unleashed across the first few months of the Trump administration may take years to fully assess, but health system M&A activity in Q1 2025 provides us an early indication of the chilling effect this instability can have on strategic planning. According to Kaufman Hall, after three straight years of increasing activity, only five hospital M&A deals were announced in Q1 2025, undercutting the seven transactions announced in Q3 2021 to become the least active quarter in at least ten years. Although there’s reason to believe that the pace of deals will pick up in the back half of 2025 if the market settles, we’re currently on pace for just 17 M&A transactions in 2025, a 75 percent reduction from last year. This sharp drop comes as a surprise, relative to expectations that the Trump administration would take a friendlier antitrust stance than Biden, but a variety of forces, both temporary and lasting, have contributed to the slowdown. Some systems may be waiting for the Federal Reserve to cut interest rates, which would reduce the cost of debt needed to finance transactions, but the Fed has indicated that planned rate cuts are now delayed amid market volatility. The Trump administration has also opted to continue implementing Biden-era reforms to M&A review, which have made mergers more burdensome and costly, and state governments have likewise increased their healthcare M&A scrutiny. However, even if we were in a different policy environment, the business logic behind hospital mergers has been evolving in a new direction. After years of heightened M&A activity, the hospital market has become highly concentrated, leaving fewer independent hospitals and small systems ripe for acquisition. The lack of desirable targets and the integration struggles of some recent mergers have left more boards unconvinced by the argument of scale for scale’s sake. Instead, more systems are exploring flexible or targeted partnerships, like joint ventures and clinical affiliations, as ways to expand capabilities without confronting the cultural and operational challenges of a full merger.

Independent physicians—those neither employed nor affiliated with health systems and integrated delivery networks, or other corporate entities like payers, private equity firms, and large umbrella corporations—are becoming an endangered species. From 2019 to 2024, the percentage of US physicians remaining independent fell by about 40 percent, driven by a sharp increase in corporate employment during the pandemic’s peak and a steady growth in health system employment throughout the post-pandemic period. Although COVID served as a flash point, the forces driving the trend are not new—it’s increasingly expensive and administratively burdensome to operate a practice, rival providers and payers continue to amass scale, and the bidding war for physician talent has more buyers and fewer sellers than ever. Employment offers a reprieve, although not a panacea—there are still tradeoffs to giving up independence, which can differ based on one’s employer. As a general rule, health system employment offers stability and institutional support, while corporate employment comes with the aspiration of higher compensation generated by an increased emphasis on growth and profitability. Both options involve relinquishing some autonomy—but neither requires nor should result in forfeiting influence. In a market where physician scarcity is rising, clinicians have more than just economic value—they have leverage. That leverage can be used to structure true partnerships, not only to shape care delivery models and resulting compensation structures, but also influence governance, clinical priorities, and culture. As employment becomes the norm, physicians shouldn’t just settle for a seat at the table—they should insist on a voice that carries weight.

Three companies—McKesson, Cencora (formerly AmerisourceBergen), and Cardinal Health—control 98 percent of the drug wholesaler market, but they’ve demonstrated ambitions to evolve beyond their roles as pharmaceutical middlemen. In their quests for vertical integration, each company now owns a generic manufacturer, a group purchasing organization, a retail pharmacy chain, and a variety of provider groups. Oncologists have become subjects of a recent wholesaler bidding war, with the “Big Three” having spent a collective $5.7B acquiring large groups in the last two years. While there are specific interplays between wholesalers and oncologists—e.g. capturing more margin from drug administration, monetizing direct referrals, enabling value-based care contracts with accountable are organizations—this phenomenon exemplifies more broadly the progressive fragmentation of care delivery. Payers, pharmacies, retailers, and even ambulatory surgery center operators have spent billions over the last decade building care delivery businesses in pursuit of controlling greater shares of a patient’s care journey. For patients, this manifests as an overwhelming menu of siloed channels serving individual needs, in contrast to the omnichannel offerings of health systems. For providers folded into these vertically integrated organizations, the much-needed capital infusions can come at the cost of mission misalignment and inexperienced management. As best evidenced by Walgreens’ potential divestment of VillageMD, these companies can lack the strategic and operational expertise required to capitalize on the theoretical value of these transactions. Compared to retailers, the wholesalers have more experience with managing physician assets and stronger connections to their core business; however, the bidding war for physician talent could still turn out to be a bubble if enough high-profile acquisitions end up as flops.

Private equity (PE) firms have been active in healthcare for long enough that their pattern, or “playbook,” has become clear. Buy up specialty groups, restructure operations to improve revenues and cut costs, increase the value of their acquired assets, and sell to the highest bidder after several years. The specialties of interest have evolved in waves as markets become saturated or regulatory conditions change (case in point: emergency medicine roll-ups took a significant hit due to the No Surprises Act), but using debt-leveraged buyouts to generate economies of scale is a formula that could work for any specialty. The emergent problem for PE firms, and more crucially their physician platforms, is that the highest bidder is almost always another PE firm. In a study of 807 dermatology, ophthalmology, and gastroenterology practices acquired by PE firms between 2016-2020, 52 percent underwent a secondary sale to another (usually larger) PE firm, while only one percent were sold to a strategic buyer. This is unsustainable because these secondary sales rely on a more aggressive form of the same playbook. Physician partners may enjoy a further boost to their equity, but younger physicians will cede more of their autonomy and patients eventually face even higher prices. It comes down to how one defines value, an existential question in healthcare. PE firms are very successful at creating financial value, which appeals to other likeminded PE firms, but they have been less interested in generating the transformative value that leads to a final strategic exit. The cycle of secondary sales will continue to play out for some time, but we’re approaching a ceiling that may require a new playbook to deliver the ultimate return on investment.

Of the many ways our healthcare system is still feeling the effects of COVID, the loss of trust in healthcare, public health, and scientific leaders looms as a systemic threat undermining the entire system. After an initial surge in support for scientists and healthcare workers in the early days of the pandemic, dissatisfaction with lockdown policies metastasized into a general mistrust of healthcare and public health authorities, a growing skepticism toward vaccines, and a burgeoning interest in alternative medicines. Good-faith concerns around the profit motives and quality of healthcare services have been coopted by a movement to discredit the authority of the scientific community altogether. Medical mistrust has also become a partisan issue—Democratic voters continue to trust scientists and public health officials (although the latter less than they used to), while Republican voters now place greater faith in healthcare leaders in the Trump administration, like Robert F. Kennedy Jr. and Dr. Mehmet Oz. Even though most healthcare practitioners are not responsible for this loss of trust, they serve on the frontlines of the effort to rebuild it.

The current state of the US economy depends on where you look and whom you ask. Starting with the positive, the Federal Reserve’s policies appear to have stuck the “soft landing”, with February inflation numbers coming in lower than expected, while the unemployment rate has remained relatively stable. However, markets were not given a chance to celebrate this, as President Trump’s escalating trade war has sent stocks tumbling and produced the first market “correction” since 2023. Despite these tariffs impacting a variety of crucial medical products, investor confidence in the largest public healthcare companies has ticked up, in contrast to the American tech sector. Healthcare may not be recession-proof, but as long as people remain employed and can cover the necessities, they will continue to seek healthcare services. However, if the most pessimistic predictions, such as the Atlanta Fed’s 2.4 percent GDP contraction for Q1 2025, come true, the broader economic fallout will surely find its way into healthcare, as consumers will spend less on healthcare, capital will be harder to come by, and public funding will diminish.

The Trump administration has wasted no time reducing and reshaping the federal government. Comprising 27 percent of annual federal outlays, healthcare programs and services are an inevitable target for Department of Government Efficiency reforms and budgetary offsets. President Trump has said that entitlements such as Social Security, Medicare, and Medicaid should be protected, but Medicaid appears to be the most vulnerable to spending cuts. On the provider side (beyond a potential increase to the uninsured population), site-neutral payment reforms, uncompensated care cuts, and changes to the Medicare Physician Fee Schedule could further undermine care delivery businesses. Amid the federal government rolling back oversight and encouraging privatization, states will play an increasingly pivotal role, either by countering federal actions where possible or doubling down on deregulatory initiatives. One item in particular to look out for: state governments conditioning not-for-profit hospital tax breaks on compliance with price ceilings or other outcomes and factors.