TrustWorks On Call: Our Salad Days Are Over

Behind the Headlines

Unpacking the forces driving healthcare's biggest stories.

1. CMS proposes cutting physician pay, limiting RPM billing, and more.

On Wednesday, the Centers for Medicare and Medicaid Services (CMS) issued its 2027 Physician Fee Schedule (PFS) proposed rule, which would lower the PFS conversion factor by 1.7 percent, due to the expiration of a one-time pay boost included in last year’s budget reconciliation package.
Among the many reforms in the 1,600-page rule, CMS’s proposal to ban third-party vendors from billing Medicare for remote patient monitoring (RPM) services has received the most industry pushback.
The proposed rule also includes sunsetting the traditional Merit-based Incentive Payment System (MIPS) and improving the Medicare Shared Savings Program (MSSP) by adding financial incentives and simplifying technology requirements.

TrustWorks Take: We are tired of seeing the same song and dance every year, where the proposed PFS scares doctors with a pay cut, only for the final rule or a post-hoc Congressional intervention to soften the blow. The fundamental problem is that the PFS’s budget-neutrality requirement is not tied to inflation. Even a one percent pay increase is a loss for doctors in the face of rising practice costs, producing a shortfall that has compounded over many years. Instead of one-year patches, a better functioning Congress would set a reasonable growth target that accounts for rising practice costs without contributing to runaway spending.

The healthcare industry is still digesting the contents of this mammoth proposed rule, but the initial consensus on the proposal to ban vendor-provided RPM services, which are the industry norm, is that it could be “potentially cataclysmic” and “kill [RPM] in Medicare.” Perhaps CMS, which claims to be concerned over RPM fraud, is using a similar tactic of proposing something excessive to set up a favorable compromise, knowing that the industry would push back on any billing restrictions. This could be a record-setting comment period for the PFS, and we are planning to revisit this proposed rule next week to examine its other provisions.

2. HCA hit with $400M loss from ACA coverage decline.

In a preview of its Q2 2026 earnings, HCA Healthcare shared that an increase in uninsured volume, driven primarily by patients who lost coverage on the Affordable Care Act (ACA) exchanges, has resulted in a $400M income reduction for the quarter.
The Nashville, TN-based for-profit system lowered its 2026 net-income guidance from $6.5-7B to $6.3-6.7B, reflecting an updated estimate on full-year exchange losses from $600-900M, as of April 24, to $1-1.2B, as of July 14.

TrustWorks Take: HCA’s updated guidance confirms that enrollment declines from the expiration of the enhanced ACA subsidies have been worse than expected. The projected revenue losses are now equivalent to about 17 percent of HCA’s net income for the year. HCA, with its highly efficient operations producing consistently healthy margins, still expects to clear an eight-percent net margin this year, down only slightly from last year’s nine percent. Other systems, with less room to breathe and fewer financial levers to pull, will not be so fortunate.

Another advantage HCA possesses to weather the coming storm of policy changes is that its Medicaid payer mix (12.7 percent) is less than the national average for hospitals (14.6 percent). Medicaid work requirements have only begun to roll out, and states have to curtail their provider taxes (an important Medicaid funding source) generally by 2027, meaning that the uninsured population will keep growing by millions in the next few years. Responding to these policy changes will require significant capital and operating resources, which will widen performance gaps and reinforce the market dynamic that rewards the strongest-performing systems and punishes those that are already struggling.

3. Memorial Hermann winds down commercial insurance business.

Last Friday, Houston, TX-based Memorial Hermann shared it will cease operating its commercial health plan after 2027, due to insurance headwinds preventing it from “achiev[ing] the scale required to sustainably provide value for enrollees.”
The nonprofit system’s commercial plan covered about 36K people and had been operating at a loss; its 14K-member Medicare Advantage plan is not affected by this decision.

TrustWorks Take: The number of health systems shuttering their health plans over the last 18 months is a reflection of an industry-wide change in strategy. The dream of being a value-oriented, integrated delivery system has been difficult to realize, even for the most motivated systems, leading health systems to double down on their core care-delivery business. Although Memorial Hermann’s health plan was stuck at subscale, it was not for lack of trying, as the system has been meaningfully committed to value-based care. In the wake of provider-sponsored health plans pulling back, the business of operating an insurance arm only seems viable for the largest, most established, provider-owned plans.

Beyond the Whiteboard

Visualizing key trends from the healthcare industry

340B Program Hits $100B Milestone
Purchases made through the 340B drug discount program reached $100B last year, more than double their total in 2021. Disproportionate Share Hospitals (DSHs), which qualify for 340B by serving a significant share of low-income patients, are responsible for about 80 percent of these purchases, a figure that has remained consistent over time. The single greatest explanation for the rapid growth of 340B seems to be the proliferation of contract pharmacies. The 13K covered entities participating in 340B are now contracted with over 32K pharmacy locations, about 60 percent of all US pharmacies, compared to fewer than 2K locations in 2011. But 340B also has also grown along with the overall prescription drug market and taken advantage of the outpatient shift (only outpatient drugs are 340B-eligible), meaning both the size of the pie and 340B’s slice of it have been increasing.

The headwinds against 340B’s growth have also been strengthening. Drugmakers have been trying various strategies for years to limit 340B purchases, leading to endless litigation. They may find more success under the Trump administration, which is attempting to cut Medicare payments for 340B drugs and was recently stopped by the courts from implementing a rebate model that would reimburse covered entities later, rather than providing them upfront discounts. The program has clearly ballooned past Congress’s original intentions, but too many hospitals now heavily depend on 340B as a financial lifeline, making the stakes of reform existential.

Dialing In

Sharing insights from our work with clients

Smart Tech, Dumb Design
A friend of ours is a physical therapist working at a health system-affiliated clinic that implemented a “smarter, AI-powered scheduling software,” and she had some notes on the rollout. The software functions as advertised, smoothly replacing cancellations and reschedules with the next patient on the waiting list. “The problem is,” she told me, “it takes another month for me to see these replacement patients for their second session,” because they go right back to their original place in line. Since physical therapy is best performed weekly, she complained that these one-off visits were a waste of everyone’s time and only designed to preserve clinic revenue.

Initial implementation phases often uncover glitches like this, which could likely be solved by reserving a few slots a week for these “line-cutting” patients. But this episode reminds us of the lessons we should have learned from electronic health records. Smarter technology layered on top of bad processes improves very little, and the introduction of AI does not relieve the need for human design or provider input. Instead, we should be using the rollout of new technologies like AI schedulers as the impetus to improve workflows and enhance the patient (and provider) experience. Ideally, these problems are anticipated and avoided, or else quickly detected and corrected, but once implementation has progressed far enough in the wrong direction, you will be stuck with another imperfect tech layer that would take too much effort to unwind.

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Our Salad Days Are Over