Monthly Archives: October 2017

Aetna’s profits rise 39% despite revenue shortfall

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https://www.beckershospitalreview.com/payer-issues/aetna-s-profits-rise-39-despite-revenue-shortfall.html

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Aetna saw revenues dip 5 percent in the third quarter of fiscal year 2017 compared to the year prior, but cost containment allowed the insurer to boost net income.

The insurer reported revenue of $15 billion in the third quarter ended Sept. 30, down from $15.8 billion in the same period a year prior. Aetna cited lower premiums in its healthcare segment, fewer members in its ACA exchange business, and temporary suspension of the health insurer fee as contributors to the decline.

However, tapering expenses offset revenue losses. Aetna witnessed expenses drop 7 percent from $14.7 billion in the third quarter of 2016 to $13.7 billion in the same period this year. The insurer attributed the decline to temporary suspension of the health insurer fee, expense management efforts and lower transaction-related cost following the collapse of its proposed merger with Humana in February.

Overall, the payer achieved net income of $838 million in the third quarter of 2017, up 39 percent from $604 million in the same period last year. Aetna also saw its commercial medical loss ratio, or the amount of money it spends on medical claims, shrink year over year from 83.8 percent to 81.4 percent.

Aetna’s earnings report did not mention CVS Health’s proposed $66 billion bid to acquire the company.

Trinity Health’s operating income climbs 76% to $266M

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https://www.beckershospitalreview.com/finance/trinity-health-s-operating-income-climbs-76-to-266m.html

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Livonia, Mich.-based Trinity Health’s operating income before other items increased 76 percent year over year to $266.1 million in fiscal year 2017, as the 93-hospital health system benefited from acquisitions, according to bondholder documents.

Trinity Health said revenues increased 7.9 percent year over year to $17.6 billion in the most recent fiscal year. The revenue was largely attributable to the acquisition of health systems in Connecticut, as well as volume growth, revenue cycle initiatives and payment rate increases. The system also benefited from ACO and bundled payment improvement initiatives and premium revenue from the system’s Medicare Advantage plans.

After factoring in expenses, which increased 7.3 percent year over year, as well as restructuring and impairment charges, Trinity ended the fiscal year with net income of $1.3 billion, up from $41.3 million for the year prior. The net income growth was primarily attributable to an increase in nonoperating items.

These Hospital Bonds Are on Life Support

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https://www.bloomberg.com/gadfly/articles/2017-10-27/a-49-billion-hospital-emergency-heads-toward-junk-bonds

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Junk-bond buyers appear to have a blind spot when it comes to for-profit health care companies.

They’ve snapped up bonds of Tenet Healthcare Corp. and Community Health Systems Inc. despite the drastically souring outlook for both hospital operators. Some of this may be idiosyncratic or the result of specific investors’ strategies (or unwillingness to sell). Franklin Resources Inc., for example, now owns nearly 20 percent of Community Health’s total debt and more than half of its $1.9 billion of bonds maturing in 2019, according to recent filings compiled by Bloomberg.

In general, however, as credit investors plow into broad indexes of riskier assets, it appears they’re simply turning a blind eye to the ugly balance sheets of hospital operators amid an increasingly difficult backdrop. Federal programs like Medicaid are clamping down on costs. And the Trump administration’s various efforts to weaken the individual insurance market will potentially put hospitals on the hook for more uncompensated care as fewer people sign up for health care coverage.

Meanwhile, Tenet and Community Health made some questionable decisions in recent years to borrow billions of dollars to make acquisitions that now look pricey. These companies don’t generate a ton of cash at the best of times, and much of what they do have now goes to debt service rather than much needed hospital improvements.

CIRCLING THE DRAIN

It’s hard for companies to confront mountainous piles of debt when they don’t generate consistent cash flow.

These hospital operators have a narrowing field of options right now. Tenet recently tried, and failed, to sell itself, which sent its shares plunging on Thursday. Both hospitals report earnings within the next few weeks. If HCA Healthcare is any guide — the company pre-announced worse-than-expected third-quarter earnings last week — they won’t be pretty.

But still, no one in the bond market seems to care. Tenet’s bonds have soared 7.8 percent so far this year, even though its stock has fallen 13.3 percent. Community Health debt has gained 16.5 percent, four times the 4.1 percent gain in its shares.

DIVERGING FATES

Bond investors seem to be turning a blind eye to difficulties recognized by stock investors

This seems sort of ludicrous. One hedge fund manager, Boaz Weinstein of Saba Capital Management, sees this as an opportunity to short some of these companies’ junior bonds. Weinstein pointed out at a conference this month that Community Health’s $14 billion pile of debt is 20 times the value of its equity.

Unless the company’s fortunes turn around, it will be forced to reckon with its debt in painful ways for its business as well as the returns of creditors. It’s hard to see how the business could get better with President Donald Trump’s continuing attempts to torpedo health care insurance subsidies, which is widely expected to hurt hospital profitability.

Credit investors at some point are going to have to come to grips with this. Community Health and Tenet, along with HCA, account for $49 billion of debt in a broad U.S. high-yield bond index. This pile is looking increasingly vulnerable to a day of reckoning.

Editorial: Trump’s response to opioid epidemic is more pep talk than plan

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http://www.stltoday.com/opinion/editorial/editorial-trump-s-response-to-opioid-epidemic-is-more-pep/article_d87072e3-4a28-5cae-a0aa-9c000eff82b7.html

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President Donald Trump promised to come out swinging with Thursday’s emergency declaration on opioid abuse. Swing, he did, but he failed to make contact.

By labeling the crisis a public health emergency, Trump skirted a legal definition that would have prompted emergency federal funding and placed the drug epidemic on a scale similar to major disaster response. He should have pledged a dollar amount equal to the challenge of combating an addiction epidemic that, by his own assessment, contributed to at least 64,000 U.S. overdose deaths last year.

Trump clearly grasps the magnitude of the problem, outlining it in the starkest terms: “Citizens across our country are currently dealing with the worst drug crisis in American history and even, if you really think about it, world history. … Drug overdoses are now the leading cause of unintentional death in the United States by far. More people are dying from drug overdoses today than from gun homicides and motor vehicles combined,” he said.

The driving force behind this epidemic is heroin and opioid abuse among an estimated 12 millions Americans. Trump labeled the United States as “by far the largest consumer of these drugs” in the world. “Opioid overdose deaths have quadrupled since 1999 and now account for the majority of fatal drug overdoses.”

Surely, a problem of this magnitude deserves a gargantuan plan of action. Trump’s speech Thursday contained no plan at all. He said the administration planned to announce a new policy to help relax restrictions that limit the number of beds in treatment facilities. He called for greater resolve.

He said he awaited a report from New Jersey Gov. Chris Christie, the head of a presidential commission on opioid abuse, to address the problem. Trump reiterated the previous administration’s program to alert doctors about the dangers of over-prescribing opioids. He promised lawsuits against “bad actors.”

As if invoking First Lady Nancy Reagan’s “just say no” campaign in the 1980s, Trump said, “One of the things our administration will be doing is a massive advertising campaign to get people, especially children, not to want to take drugs in the first place because they will see the devastation and the ruination it causes to people and people’s lives.”

Trump did outline expenditures for programs already in place to boost law enforcement, border security, addiction treatment and pain management. None of those programs, however, has stemmed the addiction tide.

“We’re going to do it. We’re going to do it,” Trump insisted.

This was Trump’s moment to go big and bold in confronting a crisis that kills more Americans in a single year than all the hurricanes, earthquakes, floods and fires the nation has suffered in the past decade. America needs a plan of action, not a pep talk.

CMS to allow states to define essential health benefits

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http://www.modernhealthcare.com/article/20171027/NEWS/171029872/cms-to-allow-states-to-define-essential-health-benefits

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The CMS proposed a rule late Friday aimed at giving states more flexibility in stabilizing the Affordable Care Act exchanges and in interpreting the law’s essential health benefits as a way to lower the cost of individual and small group health plans.

In the 365-page proposed rule issued late Friday, the agency said the purpose is to give states more flexibility and reduce burdens on stakeholders in order to stabilize the individual and small-group insurance markets and improve healthcare affordability.

The CMS said the rule would give states greater flexibility in defining the ACA’s minimum essential benefits to increase affordability of coverage. States would play a larger role in the certification of qualified health plans offered on the federal insurance exchange. And they would have more leeway in setting medical loss ratios for individual-market plans.

“Consumers who have specific health needs may be impacted by the proposed policy,” the agency said. “In the individual and small group markets, depending on the selection made by the state in which the consumer lives, consumers with less comprehensive plans may no longer have coverage for certain services. In other states, again depending on state choices, consumers may gain coverage for some services.”

However, the CMS acknowledged it’s unclear how much money the new state flexibility will save. States are not required to make any changes under the policy.

The CMS urged states to consider the so-called spillover effects if they choose to pick their own benefits. These include increased use of other services, such as increased used of emergency services or increased use of public services provided by the state or other government entities.

The agency in 2017 proposed standardized health plan options as a way to simplify shopping for consumers on the federally run marketplaces. The CMS said it would eliminate standardized options for 2019 to maximize innovation. “We believe that encouraging innovation is especially important now, given the stresses faced by the individual market,” the proposed rule states.

The CMS proposes to let states relax the ACA requirement that at least 80% of premium revenue received by individual-market plans be spent on members’ medical care. It said states would be allowed to lower the 80% medical loss ratio standard if they demonstrate that a lower MLR could help stabilize their individual insurance market.

The CMS also said it intended to consider proposals in future rulemaking that would help cut prescription drug costs and promote drug price transparency.

The Trump administration hopes to relax the ACA’s requirements and provide as much state flexibility as possible through administrative action, following the collapse of congressional Republican efforts this year to make those changes legislatively.

The proposed rule comes after months of calls from health insurers and provider groups for the federal administration to help stabilize the struggling individual insurance market. The fifth ACA open enrollment is slated to begin Nov. 1, and experts have predicted fewer sign-ups in the wake of a series of actions by the Trump administration to undercut the exchanges.

In the proposed rule, the CMS also proposes to exempt student health insurance from rate reviews for policies beginning on or after Jan. 1, 2019. The CMS said student health insurance coverage is written and sold more like group coverage, which is already exempt from rate review, and said the change would reduce regulatory burden on states and insurance companies.

The ACA requires that insurers planning to increase premiums by 10% or more submit their rates to regulators for review. The CMS proposed to increase the rate review threshold to 15% “in recognition of significant rate increases in the past number of years.”

The rule also tweaks a requirement that enrollees need to have prior coverage before attempting to get coverage via special enrollment after moving to a new area. Under the proposal, a person who lived in an area with no exchange qualified health plans will be able to obtain coverage.