Welcome to the "Lessons from the C-suite" series, featuring Advisory Board President Eric Larsen's conversations with the most influential leaders in health care.
In this edition, Chip Kahn, President and CEO of the Federation of American Hospitals, talks with Eric about leading the organization through four presidential administrations, the role that the Federation has played in legislative history, and how virtual meetings have changed lobbying—for the better.
Question: Chip, you've had a storied career on Capitol Hill and this June will celebrate your 20th anniversary as CEO of the Federation of American Hospitals (FAH) representing more than 1,000 tax-paying community hospitals and health systems throughout the United States. Fun fact—you are one of just two people to have been on Modern Healthcare’s Most Influential list since its inception in 2002—and considering that Wayne Smith, who stepped down from his CEO role at CHS earlier this year, is the other person, you're soon to be the one-and-only. I’d love to start our discussion with a retrospective on your four decades in healthcare policy. Any high-level reflections to start?
Chip Kahn: The thing that stands out, Eric, is how fortunate I've been to have had a really wonderful team that has been with me for many, many years—even before the Federation. When I reflect back on my time at the Health Insurance Association of America (HIAA), or when I worked on Capitol Hill—particularly when I was staff director on the Ways and Means Health Subcommittee—I'm so pleased and proud of the people who have worked with and for me. Jack Benny used to say that it was all the people who were in his ensemble who made him, and in a sense, I feel that way.
The health policy landscape
Q: Let’s jump right into the Washington D.C. fray. What is top of mind these days from a policy and advocacy perspective for the Federation?
As I think about the current advocacy and policy agenda, the first imperative is, of course, the Covid-19 pandemic. And there are really two key priorities for us: payment and funding assistance from the government and telehealth. We fought really hard to get the 2% Medicare sequester moratorium extended so that hospitals wouldn't see those penalties return while many are still in the throes of the pandemic. We haven't been quite as successful in getting the money sitting in the Provider Relief Fund over at HHS released, but we're working on it.
And then there are the telehealth waivers put in place by the executive branch during the pandemic. Hopefully, there will be a time soon when we'll be heading out of the pandemic, and the public health emergency will be withdrawn. But when that happens there won't be authority for the executive branch to continue with those telehealth waivers, and legislatively, telehealth is going to become a priority.
The second part of our agenda is coverage. We have stood by the Affordable Care Act (ACA) since its passage in 2010. Obviously, to say that there were headwinds during the Trump years is an understatement. But we're now through that period and the new administration has signaled its intent to build on the ACA. Congress passed the American Rescue Plan, which for a limited time, enhanced subsidies for the ACA exchanges, and the administration is doing other things to promote coverage, like temporarily adding financial incentives for states to expand Medicaid. So, I'd say that our next priority is to do whatever we can to make all those things permanent.
Now, in the coverage area, there are some poison pills. Medicare for All is a big one, but even Medicare buy-ins or proposals to lower the eligibility age are poison pills because what makes hospitals work is the great hydraulic of private payment and public payment. If we were to see private payment flattened out by public policy, it would be potentially catastrophic. It might begin as a leaky ship, but it would end up completely sinking us.
And then you get to the third part, which is the real defensive side. The downturn in the economy has impacted the Medicare Trust Fund, which, on the one hand is an artifact, but many consider it a sort of moniker or a leading indicator of overspending. And right now the federal government is spending money left and right, and we are hurtling towards deficits of untold levels. So we have to worry about attempts to mitigate federal spending by curtailing payment—whether by site-neutral payment reforms, cutting in Medicare, or cutting back on payment for bad debt. There are all kinds of reduction possibilities and that's one of the things that we focus on a lot.
And then there's the push for value-based purchasing from a policy standpoint. For my entire 40-year career I've heard people say, "well, fee-for-service is dead." But it's very strong now. You've got CMMI, CMS, and the private sector all looking at different ways to pay providers, tying payment to outcomes or different things, and adding in risk even before you get to real managed care or real capitation. So, I don't know if I see that as an opportunity or a challenge—but we have to be engaged with it.
Pivoting to a remote work environment
Q: Every one has adjusted – with a lot of improvisation – during the pandemic to their new hybrid work world; what was lobbying and advocacy like during a pandemic, especially given the full array of high-consequence debates and topics we’re discussing?
Kahn: Well, the feel is completely different. I probably talk to more senators during this pandemic period than I have in any other previous major legislative processes because sometimes it's just easier to get them on the phone than to get the visit in the first place, carve time out to go to the Hill, wait, do the visit, etc. I'm old-fashioned, in my opinion there's nothing better than face to face, but I'll tell you, the lobbying still worked remotely. And then so much was moved to social media in terms of the advocacy effort that in some ways, lobbying has really been modernized.
Q: One of the insights we've observed is that if you had a strong business and personal network going into the pandemic, you were at an advantage—you didn't miss a beat in terms of impact and productivity. In other words, Zoom is great when you've already got a relationship, but it's not terribly good if you're trying to create a relationship. I have to think this is especially true for you, Chip. How did your decades-long career and contacts better position you going into the pandemic?
Kahn: You're making a very good point, Eric. If I had been starting out in this industry or starting out on a specific issue, I wouldn't be nearly as confident about the ability to carry it off. I've been in this industry, in this town, 40 years. I mean, there isn't somebody that didn't work for me or I didn't have some interaction with or some member that I knew when they were in the House before they went to the Senate.
And so, my operation is really advantaged. I don't know what I would have done if we had been starting out fresh. I also have a very organized and structured strategic planning process that we adapted for the environment we're in now and that really kept us on focus.
Understanding FAH and its members
Q: Let's deconstruct the Federation a bit, Chip, and try to better understand your constituents and members. I think we should start with the basic (and erroneous) assumption that the for-profit side is pretty monolithic—that your members all look the same. But we know that HCA, UHS, Encompass, Tenet, etc. are all very different companies with nuanced and important variations in strategies. Can you talk about the composition of your group?
Kahn: When Mike Bromberg started the Federation in 1966, he did so with the notion that the for-profit hospitals needed to work together and, he believed, they needed a central organization to represent their interests in Congress. Now, some of the hospitals today have one or two people in Washington D.C., but basically, we serve as their Washington D.C. offices.
We're sort of a guerrilla organization, in a sense, in terms of how we fight for their interests. And what enabled the Federation to play this role from a political and public policy standpoint is we have generally been able to be very, very focused on four to six specific issues where there's usually complete unanimity between hospitals. Physician ownership and referral in terms of the predominance of the association is one example.
But it's also interesting how little the diversity of the marketplace defines the Federation. For example, HCA Healthcare chose not to take money from the Provider Relief Fund. But others did and we have to work through the differences. The Federation strives on the commonalities between companies that may have different marketplace strategies and approaches.
Q: I like that characterization—different marketplace strategies and approaches, but commonalities (especially on the policy and advocacy front). Overall, though, this is a highly consequential group—and very significant from a revenue and market share perspective. Your eight largest members have more than 1,000 hospitals and $127B in revenue.
Kahn: Yes, very fair. I think about it this way, Eric: roughly 20% of hospitals are investor-owned, tax-paying, for-profit companies; about 65% are tax-exempt non-profit; and the remaining 15% are government-owned public hospitals. But in my time here, we've gone way beyond the Sun Belt in terms of our penetration. We are in 46 states, Puerto Rico, and the District of Columbia. There are some states like New York that basically prohibit for-profit hospitals. That would sort of describe at least the hospital part in the Federation.
Q: Talk about the non-hospital part of the Federation, especially in post-acute.
Kahn: In post-acute, the two companies we represent are primarily Inpatient Rehabilitation Facilities and Long-Term Acute Care companies. The majority of the Federation's focus is on hospitals, but our members play in a lot of different parts of the markets beyond hospitals. For example, the ambulatory surgery center side is a big business for Tenet Healthcare and HCA. But, frankly, I don't know how the hospital is going to evolve over time. There are a lot of possibilities there, I think.
Q: An additional, interesting bifurcation in your membership is between the publicly traded companies (HCA, Tenet, UHS, etc.) and the private equity-backed players (Ardent, LifePoint, etc.). How does that factor—or does it factor at all—into the deliberations around priorities? Is it a significant divide for your membership?
Kahn: At least in my experience, it has not been all that significant. From a policy standpoint, we focus on payment, compliance, quality measurement, and the array of policy issues that matter to organizations regardless of whether they are public or private. And frankly, if you look at our largest public company—HCA—I believe it has been taken private three times and taken public three times over the life of that company. They are looking for the best way to manage their capital, which can vary over time, but in terms of revenue maximization and compliance management, it doesn't really vary that much between a profit company and a nonprofit company, at least when it comes to my interface with the government and Congress.
There have been periods in which there was probably more interest in private equity in terms of hospitals. Some major private equity firms are very engaged in some of our members, but I think there probably has been more interest over time than there has been in recent years from private equity because it's a complicated business—and it's a high revenue business.
But one thing that I've learned is that to be successful in the hospital area, the company has to have leadership that has a deep understanding of operations as well as a strategic view into the vision. The companies that have been consistently successful are the ones that understood the basics; at the end of the day, how good a job you do blocking and tackling, dealing with your physicians, dealing with supply, etc., is what matters. And one of the key differences between our systems and, at least historically, most nonprofit systems is that our organizations could choose (geographically) where they wanted to be. Most CEOs of nonprofit systems, inherited an organic history that was defined years before and now they're stuck in a footprint. Now, obviously, with many of the very large Catholic systems and others, that's changing, but our members really came from a different tradition.
Covid-19's impact on FAH priorities
Q: In terms of the regulatory and legislative priorities for your group, how are you seeing the for-profit hospital sector evolve? How did the pandemic accelerate, decelerate, or change course for that evolution?
Kahn: First, I think it's too early to tell how the pandemic will impact our hospitals for a number of reasons. Despite the shutdowns and the supply issues, it hasn't significantly affected operations with patient mix.
Second, they've largely come through it financially, particularly with the government's assistance. For the for-profits I can say that most appear to be strategically back on track. I can't say the same is true for all nonprofit hospitals, and especially for rural hospitals, many of which are located in states hard hit by the pandemic shutdowns. Recovery for those hospitals is likely going to take much longer.
The third we touched on a little earlier, and that's telehealth and hospital-at-home care. Both of these were sped up by the pandemic and the payment system and how medical care is delivered has been completely changed. The role of the hospital is going to be changing and how it'll be accommodated I think is another big question. I think we're still in the midst of these changes and I don't know what's going to stick and what isn't. Hospitals aren't going anywhere, but the role and what defines success in hospitals is going to change.
Post-pandemic growth (and a new headwind)
Q: From at least a financial perspective, it seems the for-profits have weathered the pandemic relatively better than some not-for-profits. So a couple questions on this front: First, what does this portend, going forward, for the post-pandemic period from an M&A and growth perspective? And second, we've seen the percentage of for-profit beds stay relatively consistent over the last few years. Do you expect there's going to be more consolidation within the for-profits?
Kahn: This is a vast generalization, but if you go back a decade or particularly earlier decades, one of the advantages of the investor-owned, tax-paying hospitals was, as I said earlier, they could choose where they wanted to be. Whether it was on the rural side or the urban side of town, they figured out the locations and then bought as many hospitals as they could.
And their objective was to buy hospitals and then they could collapse the costs as a result of their sophisticated central management systems and get to very good margins. Today, when companies are expanding, they do it very, very carefully. Back then, you could take more risks when you added. If you got a lemon, then you could shift it or eventually maybe even close it because your model was to build and build and build. Now, they home in on the real opportunities that are low risk and generally a pretty good bet. And while there's still a few things that could happen in terms of mergers, it's becoming sort of limited.
Q: I'd like to ask about one of the real industry headwinds now, which is unionization activity. Staff are exhausted and depleted after a year fighting on the front lines, and labor organizers are mobilizing. I suppose this was predictable—after every economic dislocation (dot-com burst, global financial crisis, etc.), labor organization tends to intensify, but the tone and narrative lately have gotten very acrimonious. And this is not confined to your stakeholders, of course—this is on the not-for-profit side as well.
Kahn: Yes, you're exactly right, Eric. And let's be clear—this is the first administration in decades that is pro-unionization—going all the way back to Truman and FDR. There's a new generation of labor leadership and we're at a point where there's a lot of disruption. For a number of years, there were some marriages of convenience between labor and large employers in the health care field—and I think we're nearing a point of those marriages running out.
Key policy questions before Congress
Q: Chip, let’s do a rapid-fire policy and legislative round of Q&A. Would love to ask about some broader Washington issues that have implications not just for healthcare, but for everything on the politics and policy front. So let’s start with the filibuster—is the saber-rattling real? Is there really a chance that the Democrats seek to get rid of it? Or do you think it’s safe for now but depending on what happens in the 2022 midterms, it could become vulnerable?
Kahn: I think it is safe for now because at least two Democratic senators have come out against it. But if it looks like the Biden agenda is really being held up on issues like voting rights and things like that six months from now or five months from now, I am not confident that the filibuster is solid. I think the next election could really threaten it if the Democrats win enough seats.
Q: Along this vector, what is your political and policy radar on Medicare for All and lowering the eligibility age? Where does it stand? Does the rhetoric match reality?
Kahn: Well, at this point in time, the number of co-sponsors on the bill in the House, have been declining. Not greatly, but declining so I don't think the votes are there for Medicare for All.
Q: Chip, I'd also like to get your view of the pharmaceutical policy and legislation debate. That one felt dormant for a while and now suddenly it is back. Your assessment?
Kahn: Well, I think both with Republicans and Democrats, there is a consumer issue that they're responsive to, which is the cost of drugs. Most people feel that it’s in their cost-share, either directly or as we go to higher cost-sharing on health plans. And frankly, the thing about health care that is often overlooked by policymakers is that few people are sick at any given time, so most of the health care dollars are spent on very few people. But it also means that the political base around health care coverage and other things sometimes isn't as great or strong as the advocates for coverage like myself would like it to be.
So, it's a broad consumer issue. It's also an issue of the elderly, even with Medicare coverage. It's a compelling topic and at least the moderate Republicans in the Senate are willing to do something about it. Now, the H.R.3, which was the House Bill from last year, had government negotiation for Medicare, but it wasn't much negotiation because it was capped out at a couple of percentage points and it was based on, at least for the key drugs, some kind of European index, so basically using other people's regulation to help determine payment. It was a regulated price however you want to define it, with the appearance of negotiation because negotiation sounds good. I don't want to be too cynical about it but I don't think there's much negotiation there.
In the Senate, there was a bill that, describing it superficially, mostly looked at limiting increases. I don't know where the middle ground is between those kinds of approaches but I don't believe that it's possible to pass in the Senate the kind of bill they had in the House—which saved hundreds and hundreds of billions of dollars for Medicare. Pharma is very vulnerable. And I do worry about whether there could be implications for our drug payment policy under Part B.
Q: Pharma as an industry received an enormous—and deserved—boost in goodwill because of the vaccine development. I presumed that pharma would get a hall pass in 2021 and suddenly, just in the last few weeks, it seems that may have dissipated. How would you decode that?
Kahn: I would explain it in two ways. First, going back to my initial point, you still have many consumers who vote with an eye towards drug cost, even if they have coverage. Second, there's been frustration over the distribution of the vaccines—which isn't drug companies' fault. The drug companies made sure that the medical miracles took place and the distribution was left to the local governments. But to some extent, the challenges of infrastructure and distribution affected the halo, even though that's really unfair.
The future telehealth landscape
Q: Shifting gears back to telehealth, what is your assessment of how we legislate and determine policy from here? You noted at the start of our conversation this would be a key priority for the Federation. What are you watching for in this area?
Kahn: Well, most telehealth is prohibited under Medicare because the law is pretty clear that you can't pay for telehealth from the person's house when the person is in their house. I'm simplifying it down to the essence of it. But under the Public Health Emergency, the CMS administrator had the prerogative to waive those requirements so now if you need a telehealth visit and you're on Medicare, the physician gets paid for it. I mean, it's been manna from heaven for seniors staying at home and for physicians who couldn't get the patient even to come into the office if they wanted to.
Once the Public Health Emergency goes away, then the authority that allowed them to do this goes away and I think a lot of people have become accustomed to this approach and it's convenient. I mean, behavioral health, it's not just convenient, it may be just as effective. So, that's part of it. And then when you get to our interest in it, whether it's on the rural side, there is now allowed health care activity in terms of diagnosis and treatment, and then it gets into some of the monitoring and other issues. We want to be up to date, have all this technological capacity to monitor and care for people, and be on the cutting edge—but the payment system simply doesn't match up.
My prediction is the waivers will go as long as they can go but ultimately, there will have to be legislation. The policymakers I talk to are very warm to it and think it has great utility but it's not gonna be that easy.
Q: And not at parity?
Kahn: I'm not arguing with you there, Eric. The devil's in the details and you're getting into one of the details. I'm just speaking the authority to do it and then I think the question is going to be what's the best way to, over time, pay for it and have a regulatory framework.
Unforgettable health care legislative battles—and one powerful TV ad
Q: Fair assessment. Now let me pull up because we only have a few minutes left. I'd like to shift tracks a bit now and ask you to take a retrospective look at your career—you've been a central protagonist in every single health care legislative battle for the past four decades. Which stand out in particular?
Kahn: I look at seminal issues rather than seminal moments. One issue that was always of high priority to our membership was, as I noted earlier, the physician ownership and referral issue. It was a complex issue for us but the major players in the Federation felt that it was a conflict of interest, that it was inappropriate, and that there needed to be a public policy intervention. So, in 2003, we got the original moratorium placed in the Medicare Modernization Act and then the full ban—which, to be clear, was on being paid when they refer a patient—was enacted as part of the ACA in 2010.
While other trade associations and the hospital community spent a lot of energy on it, I'd say the current ban on physician-owned hospitals wouldn't be there if it wasn't for the Federation. I don’t think I’ve ever admitted this publicly, but I can remember emailing one of the staffers, literally sending in talking points to some of the senators as the process was taking place. If we hadn't been there, history might have been different.
Q: That was indeed one of the key health care policy moments of the past 20 years. Let's go a decade earlier and talk about another moment that was arguably just as—if not more—consequential, and one that you were the central architect of. Take us back to 1993, ‘Hillarycare,’ and that iconic television advertisement you dreamed up, Harry and Louise.
Kahn: So, in late 1992, Bill Clinton had just been elected president, and began to develop his health plan. [Editor’s Note: Chip served as EVP and later President and CEO of HIAA between 1998-2001.]
Carl Schramm (the previous CEO of the HIAA) worked out a deal with Judi Feder, on the Clinton transition, where the HIAA would break with the business community—and support the employer mandate. But the deal fell through from the Clinton side when The First Lady and Ira Magaziner were given the lead on health reform.
CEO Carl Schramm then left HIAA to be replaced by, Bill Gradison—a congressman from Ohio whom I worked for on the Ways and Means Committee—became the CEO of HIAA and asked me to join. We took over, Bill and I, an association that had a position that was pro-reform, pro-coverage, and was for the employer mandate. The reason I lay this background is because this is not well understood historically and frequently, there's an assumption that the Harry and Louise campaign that was undertaken by the HIAA was simply there to stop Clinton Care. It really wasn't, it was simply designed to get us a seat at the bargaining table.
Unfortunately, the First Lady and Ira Magaziner, were not interested in engaging us seriously, so Harry and Louise over an 18 month period kept asking questions about the health plan, questions that contributed to stopping its passage by the Congress.
The genesis of Harry and Louise occurred in August 1993, we got together with our advertising team and began to develop a campaign to get the administration's attention.
Bill Gradison had been going around, making speeches talking about health reform being decided around the kitchen tables of America. So, I told our advertising team, "Let's test the kitchen table." So, they tested the concept and the reason it became Harry and Louise was because, literally, the two actors were Louise Clark and Harry Johnson. The rest is history.
Q: It was such a deadly effective TV spot. I don't think it's an exaggeration to say that Harry and Louise was the ad that stopped Clinton Care.
Kahn: Harry and Louise set a standard for public opinion advertising.
It was clear they weren't going to work with us and between us and the National Federation of Independent Businesses (NFIB) on the ground game, we really did kill Clinton Care.
Q: Now, you’ve been in the seat for 20 years at the Federation and in that time, you've seen four presidents—Bush, Obama, Trump, and now Biden—and you've even got a longer kind of lens if you think through the other advocacy roles that you've had in the ecosystem. I'd be curious for your thoughts on the zeitgeist of each administration. How would you characterize each of those shifts and what's the characterization for the Biden administration?
Kahn: Both the Trump and Biden administrations will be defined by Covid-19. Clearly, the Trump administration's record on Covid-19 is very mixed. I think on the Biden administration has taken Covid-19 incredibly serious, seeing Covid-19 as a critical path—and that’s a fundamental difference.
That said, Biden does have the advantage of being way down the line in terms of vaccine availability. And the clinicians who have been working throughout both administrations have figured out a lot of things to mitigate catastrophe. Whether it's the steroids or other drugs or putting people on their back or the modulation of ventilators, they figured out the best way to treat people. It's a miracle. It’s still a tremendous tragedy that hundreds of thousands of people have died, but they are doing a better job with Covid-19 today than they could have ever imagined—and it didn't take that 17 years or whatever the time is typically required to perfect a new treatment. They move really rapidly.
So, that is an advantage that Biden has. Trump would have preferred to never have anything to do with health care. Health care is at the root of Democratic DNA. And for some of the folks working in the administration—CMS, HHS—this sucked some of the oxygen out of them developing completely their healthcare agenda because their healthcare agenda is Covid-19. It has to be.