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Hospitals vs. GLP-1s | Medicare Negotiations
August 19, 2024
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Together with
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“It stands to reason that if one drug can change the trajectory of health outcomes, it can change how hospital care is delivered over the long term.”
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Kaufman Hall Managing Director Lisa Goldstein
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When a new drug class bursts onto the scene as fast and furious as GLP-1s, hospitals start wondering whether a single medication can force them to rethink their entire model.
Norman Regional Health System in Oklahoma is blaming the diabetes management and weight loss drugs for prompting it to shutter its bariatric surgery center after patient volumes plummeted 30% within just the last year.
- A Philadelphia system recently cited similar reasons for canceling its own bariatric surgery unit expansion plans, and other providers are actively revisiting where they want to allocate their growth capital.
- Direct-to-consumer marketing and expanded coverage has led to roughly 1 in 8 U.S. adults reporting GLP-1 use, with analysts predicting that 30M Americans could be taking the drugs by 2030.
The roaring appetite for these medications adds to a number of other trends already impacting hospital footprints, such as new care delivery models and a post-pandemic shift to remote care.
- Hospitals are now faced with the unenviable task of recalculating utilization forecasts for everything from diabetes and cardiac care to orthopedics and joint replacements.
Although it might still be too early for long-term capital planning, hospitals can turn to other recent advances like statins to glean some important lessons.
- Statins were originally projected to make a massive impact on cardiovascular care volumes, but it turned out that patients were just older before needing those services.
- Statins also contributed to longer life expectancies, and while the jury’s still out on whether GLP-1s will do the same, more people living past 65 would cause Medicare’s role as the country’s largest healthcare consumer to grow, meaning less price elasticity for many hospitals.
Hospitals don’t yet have answers to the long-term effectiveness of GLP-1s for managing chronic conditions or increasing life expectancy, but they do have the questions:
- Which service lines will lose volume?
- Which service lines will see more volume as the population ages?
- How would these volume shifts affect payor mix?
- What operational changes have to happen to sustain financial performance?
The Takeaway
GLP-1s have arrived in a big way, raising important questions about the changes hospitals will need to make to adapt. Those questions will take time to answer, but now’s the time to start thinking about them.
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- Hospital Performance Gap: Hospital year-to-date operating margins held steady at 4.1% for the second month in a row, according to Kaufman Hall’s June data. As with the previous update, the story beneath the surface-level margin stabilization is that the performance gap continues to widen, with larger systems more able to weather pandemic-era headwinds due to better throughput management, contract labor utilization, and investment in outpatient services.
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