Hello and welcome back to TrustWorks On Call—here’s our healthcare business and strategy 411 for the week (100 percent prank-free despite the holiday). We’ve enjoyed seeing our readership grow with each new edition, so thanks to everyone who has forwarded our newsletter along or told a friend to subscribe. And if you ever want to pick our brains on the stories of the week or the state of healthcare, don’t hesitate to reach out!
In this week’s edition, we discuss the rising interest in direct-to-employer models, share a graphic on private equity’s physician strategy, and muse on the Tooth Fairy’s business prospects in an era of fluoride bans. But first, the news:
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Behind the Headlines
Unpacking the forces driving healthcare's biggest stories
1. Top FDA vaccine advisor resigns, and HHS announces mass layoffs.
- Dr. Peter Marks, leader of the Food and Drug Administration (FDA)’s Center for Biologics Evaluation and Research since 2016 and architect of Operation Warp Speed, submitted his resignation on Friday.
- Marks was reportedly pushed out amid a conflict with Health and Human Services (HHS) Secretary Robert F. Kennedy, Jr., whom Marks accused in his resignation letter of wanting “subservient confirmation of his misinformation and lies.”
- Also last week, HHS announced a planned reduction in force (RIF) for 10K more employees, on top of the roughly 10K workers already let go through buyouts and dismissals, together amounting to a culling of nearly 25 percent of the HHS workforce since Trump took office.
- The RIF, which impacts staff at the FDA, Centers for Disease Control and Prevention (CDC), National Institutes of Health, and Centers for Medicare and Medicaid Services, is part of a broader reorganization that will reduce the number of divisions at HHS and cut federal spending by almost $2B annually.
TrustWorks Take: By ousting top officials from and gutting the bureaucracy of our federal health agencies, the “Make America Healthy Again” agenda is hamstringing public healthcare for years to come. This swift, top-to-bottom brain drain of the federal workforce, representing a massive loss of institutional knowledge, will significantly undermine any future administration’s attempt to rebuild administrative capabilities—the next Dr. Marks, and the people who would train the next Dr. Marks, may be let go in this haphazard rush to downsize. Nor will we need to wait long for this administration's healthcare policies to produce negative consequences, as evidenced by the CDC reportedly quashing a report that emphasized the importance of vaccination to counter the continued growth of this measles outbreak. Every presidential administration brings with it new policy goals and governing philosophies, but career civil servants, normally the executors of policy change, have become the direct targets of policy in an unprecedented way.
2. Trump administration cancels scores of state public health grants.
- Last week, HHS cancelled $12B of federal grants designated for state and community public health programs that were authorized in response to the COVID pandemic.
- The $11.4B of rescinded grants, appropriated by Congress to the CDC, were initially focused on COVID treatment and prevention, but grant recipients had pivoted recently to using these funds for other public health initiatives, such as suppressing the ongoing measles outbreak and supporting childhood vaccinations.
- About $1B of grants from the Substance Abuse and Mental Health Services Administration (SAMHSA), meant to address overdose deaths and mental health programs, were also revoked.
- The SAMHSA grants were set to expire in Sep. 2025, but some CDC grants included funding through 2027.
TrustWorks Take: The spreadsheet savings generated by this move depend on what share of the grant funding had already been spent, but the abrupt cancellation of these grants generates significant waste in the form of unfinished projects. An HHS spokesperson justified the cuts by saying these grants were a waste of “taxpayer dollars responding to a non-existent pandemic,” but—leaving aside whether the COVID pandemic is truly over—this reasoning ignores the reality that underfunded public health departments will exacerbate future pandemics. Less money for free clinics, vaccines, substance abuse treatment, and public health monitoring translates to more problems for providers, who will be left treating a sicker and poorer population of patients.
3. Fitch Ratings says average nonprofit hospital margin turned positive in 2024.
- Credit agency Fitch Ratings released a preliminary analysis last Wednesday noting that the median nonprofit hospital margin rose from -0.5 percent in 2023 to 1.2 percent in 2024, although margins remain well-below pre-pandemic levels of 2.3 percent in 2019.
- Fitch credited margin improvements to an average revenue growth of over 9 percent and a reduction in contract labor usage, but the agency warned that high base salary rates and the risk of federal budget cuts could threaten the nonprofit sector’s financial stability going forward.
TrustWorks Take: Nonprofit hospitals have worked incredibly hard to get their heads above water after some perilous years, but now is not the time for complacency. Federal cuts to public health programs (as discussed above) and potentially Medicaid will result in more uncompensated care, as an increasing number of uninsured patients will have fewer sources of care. These challenges present two paths forward for hospitals and health systems: continue weathering the storm, as they have since COVID, or commit to leveraging resource scarcity as a driver of innovation. Those that embrace a culture of advancement over mere survival see this environment as an impetus for lasting transformation. This culture of advancement involves redesigning care models, the partnerships that comprise them, and the economics that underly them, while reconfiguring the nature, placement, and capitalization of traditional care delivery assets.
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Dialing In
Sharing insights from our work with clients
The Sisyphean Shift to Direct-to-Employer
Another month, another direct-to-employer (DTE) “retreat”, as an IPA network sought to satisfy the desires of two large state-wide employers, who felt constrained by the current framework, legacy players, and conflicting incentives. These employers are fed up with being on the hook for rising health expenditures—2025 is the third-straight year with employer costs increasing over 5 percent—have resulted in more enterprise spending and less generous employee benefits, without any appreciable quality improvements. Cutting through their search for alternatives is a fundamental need not just to reduce costs but to also lower the cost trajectory.
The concern is these frustrations are not new, and promoting DTE models often feels like pushing a boulder up a mountain. Providers, especially hospitals with their notoriously high prices, haven’t exactly earned the trust of employers to deliver cost-savings. Underinvestment in the talent and capabilities needed to make DTE work, let alone scale, has led to watered-down offerings that barely differ from traditional insurance services. The risks associated with switching to a radically different DTE model demand significant returns—one broker said she’s looking for 10-15 percent savings to greenlight a DTE offering. However, the good news for providers is that the status quo of employer-sponsored healthcare is so inefficient and stagnant that it creates space for deals to be made. Providers who can prove they’re up to the task—delivering measurable results in employee health, fewer barriers to care, and financial models that make sense—will be the ones that redefine healthcare delivery in the coming years.
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Beyond the Whiteboard
Visualizing key trends from the healthcare industry
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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.
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Weighing In
Offering our thoughts on a notable topic
The Tooth Fairy, Fluoride, and a Small-Town Standoff
In the misty highlands of northern Arkansas, something curious is happening. It's not a fairy tale, but the Tooth Fairy might have a few things to say about it.
For over a decade, the Ozark Mountain Regional Public Water Authority has refused to add fluoride to the community’s water supply, despite a state law requiring it. Their reason? A deep distrust of government mandates and a firm belief that people should choose what goes into their bodies, even if it means brushing up against the consequences. As reported by NPR, the water authority’s resistance has racked up over $130K in unpaid state fines, which reportedly sit untouched in a cardboard box. (Maybe the Tooth Fairy should try that trick with her tax filings.)
The fluoride debate—balancing public health science with personal freedom—has now reached a fever pitch, culminating last week in Utah becoming the first state to ban fluoride in drinking water. One thing we don’t want left out of that debate: in rural communities where dental care is scarce, fluoride in water has long been a quiet hero, helping to protect teeth from decay. But if fluoride disappears from the picture, the Tooth Fairy may need to budget for a lot more visits. And it’s not just teeth in trouble: the same mistrust fueling fluoride resistance may be showing up in the form of measles outbreaks in places like Ohio, Florida, Washington, and California. Looks like public health, much like the Tooth Fairy, could use a little more belief these days.
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