Thought of the Day – Leaving Things Better Than You Found Them
Author Archives: henrykotula
General Omar Bradley – On Leadership
Value of the Day – On Success with Honor
Quote of the Day – On the Consequences of Anger
Thought of the Day – On Strength
Thought of the Day – On Fundamental Values
Leadership Thought of the Day – Character Matters
Thought of the Day – On Leadership Honesty & Integrity
Insurers and Private Equity Look to Join Forces to Further Consolidate Control of Americans’ Access to Health Care
With both Republicans and Democrats taking on these Goliaths individually, this could be a watershed moment for bi-partisan action.
The push and pull between providers and insurance companies is as old as our health payment system. Doctors have long argued insurers pay too little and that they too often interfere in patient care.
Dramatic increases in prior authorization, aggressive payment negotiations and less-generous reimbursement to doctors by Medicare Advantage plans show there’s little question the balance of power in this equation has swung toward payers.
These practices have led some doctors to look for outside investment, namely private equity, to keep their cash flow healthy and their operations functional. The trend of private equity acquisitions of physician practices is worthy of the federal scrutiny it has attracted. Insurers have noticed this trend, too, and appear ready to propose a profitable partnership.
Bloomberg recently reported that CVS/Aetna is looking for a private equity partner to invest in Oak Street Health, the primary care business CVS acquired for $9.5 billion last year. Oak Street is a significant player in primary care delivery, particularly for Americans on Medicare, with more than 100 clinics nationwide. CVS is said to be exploring a joint venture with a private equity firm to significantly expand Oak Street’s footprint and therefore also expand the parent corporation’s direct control over care for millions of seniors and disabled Americans across hundreds of communities.
Republicans have led scrutiny of pharmacy benefit managers on Capitol Hill. And Democratic attacks on private equity in health care have recently intensified. I hope, then, that both parties would find common ground in being watchful of a joint venture between private equity and one of the country’s largest PBMs, Caremark, also owned by CVS/Aetna.
The combination of health insurers and PBMs over the last decade – United Healthcare and Optum; CVS/Aetna and Caremark, and Cigna and Express Scripts – has increasingly handed a few large corporations the ability to approve or deny claims, set payment rates for care, choose what prescriptions to dispense, what prescriptions should cost, and how much patients must pay out-of-pocket for their medications before their coverage kicks in.
As enrollment in Medicare Advantage plans has grown to include a majority of the nation’s elderly and disabled people, we have seen insurers source record profits off the backs of the taxpayer-funded program. But in recent months, insurers have told investors they have had higher than expected Medicare Advantage claims – in particular CVS/Aetna, which took a hammering on Wall Street recently because its Medicare Advantage enrollees were using more health care services than company executives had expected.
It is natural, then, that one of the largest insurer-owned PBMs is looking to expand its hold on primary care for older Americans. Primary care is often the gateway to our health care system, driving referrals to specialists and procedures that lead to the largest claims insurers and their employer customers have to pay. By employing a growing number of primary care providers, CVS/Aetna can increasingly influence referrals to specialists and therefore the care or pharmacy benefit costs those patients may incur.
Control of primary care doctors holds another benefit for insurers: determination of what primary care doctor a patient sees.
People enrolled in an Aetna Medicare Advantage or employer-sponsored plan may find that care is easier to access at Oak Street clinics. Unfortunately, while that feels monopolistic and ethically alarming, this vertical integration has received relatively little scrutiny by lawmakers and regulators.
No law prevents an insurance company or PBM from kicking doctors it does not own out of network while creating preferential treatment for doctors directly employed by or closely affiliated with the corporate mothership.
In fact, the system largely incentivizes this. And shareholders expect insurers to keep up with their peers. As UnitedHealth Group has become increasingly aggressive in its acquisitions of physician practices – now employing or affiliated with about one in ten of the nation’s doctors – it has also become increasingly aggressive in its contract negotiations with physicians it does not control, particularly the specialists who depend on the referrals that come from primary care physicians.
That’s another area where looking to expand Oak Street Health makes smart business sense for CVS/Aetna. Specialist physicians are historically accustomed to higher compensation than primary care doctors and are used to striking hard-fought deals with insurers to stay in-network.
By controlling the flow of primary care referrals to specialists, CVS/Aetna can control what insurers have long-desired greater influence over: patient utilization. As a key driver of referrals to specialists in a specific market, CVS/Aetna will have even more power in contract negotiations with specialists.
As Oak Street’s clinics grow market share in the communities they serve, specialists in that market will feel even more pressured to stay in-network with Aetna and to refer prescriptions to CVS pharmacies. That has the dual benefit for CVS/Aetna of helping to predict what patients will be treated for once they go to a specialist and control over what the insurer will have to pay that specialist.
With different corporate owners, this sort of model could easily run afoul of the federal Anti-Kickback Statute and Stark Law.
No doctor or physician practice is allowed to receive anything of value for the referral of a patient. But that law only applies when there is separate ownership between the referring doctor and the specialist.
CVS/Aetna would clearly be securing value – in the form of lower patient utilization and effective reimbursement rates – under this model. But with Oak Street owned by CVS/Aetna and specialists forced to agree to lower reimbursement rates through negotiations with an insurer that appears separate from Oak Street, there’s no basis for a claim under the Stark Law. There may be antitrust implications, but those are more difficult and take longer to prove – and the fact the federal government cleared CVS/Aetna to acquire Oak Street Health last year wouldn’t help that argument.
This model is already of concern, which is why I continue to urge examination of increasing insurer control of physicians across the country. Their embrace of private equity to accelerate this model is truly alarming. And given Democrats’ recent focus on private equity in health care, they should work with their Republican colleagues who are rightly alarmed about the increasingly anti-competitive, monopolistic health insurance industry.
The CBO Health Insurance Status Report: Four Reasons it’s Overly Optimistic
In the Congressional Budget Office’ latest report on the status of health insurance coverage from the 2023 National Health Interview Survey released last week, a cautiously optimistic picture of coverage is presented:
- “In 2023, 25.0 million people of all ages (7.6%) were uninsured at the time of interview. This was lower than, but not significantly different from 2022, when 27.6 million people of all ages (8.4%) were uninsured. Among adults ages 18 64, 10.9% were uninsured at the time of interview, 23.0% had public coverage, and 68.1% had private health insurance coverage.
- The percentage of adults ages 18-64 who were uninsured in 2023 (10.9%) was lower than the percentage who were uninsured in 2022 (12.2%).
- Among children ages 0–17 years, 3.9% were uninsured, 44.2% had public coverage, and 54.0% had private health insurance coverage.
- The percentage of people younger than age 65 with exchange-based coverage increased from 3.7% in 2019 to 4.8% in 2023.”
That represents the highest level of coverage in modern history. Later, it adds important context: The percentage of adults ages 18–64 who were uninsured decreased between 2019 and 2023 for all family income groups shown except for adults in families with incomes greater than 400% FPL. Notably, a period in which the Covid-19 pandemic prompted federal government’s emergency funding so households and businesses could maintain their coverage.
- “Among adults with incomes below 100% FPL, the percentage who were uninsured in 2023 (20.2%) was lower than, but not significantly different from, the percentage who were uninsured in 2022 (22.7%).
- Among adults with incomes 100% to less than 200% FPL, the percentage who were uninsured decreased from 22.3% in 2022 to 19.1% in 2023.
- Among adults with incomes 200% to 400% FPL, the percentage who were uninsured decreased from 14.2% in 2022 to 11.5% in 2023.
- No significant difference was observed in the percentage of adults with incomes above 400% FPL who were uninsured between 2022 (4.1%) and 2023 (4.3%).”
- In 2023, among adults ages 18–64, the percentage who were uninsured was highest among health insurance coverage of any type was higher for those with higher household income but decreased coverage in 2023 correlated to ethnicity, non-expansion of state Medicaid programs: From 2019 to 2023.”
- And decreases in the ranks of the uninsured were noted across all ethnic groups:
- Among Hispanic adults, from 29.7% to 24.8%
- Among Black non-Hispanic adults, from 14.7% to 10.4% in 2023
- Among White non-Hispanic adults, decreased from 10.5% to 6.8%
- Among Asian non-Hispanic adults, from 8.8% to 4.4% in 2023.
The New York Times noted “The drops cut significantly into gaps between ethnic groups. The uninsured rate among Black Americans, for example, was almost 8% higher than for white Americans in 2010, and was only 4%higher in 2022. The data points to the broad effects of the Affordable Care Act, the landmark law President Barack Obama signed in 2010 that created new state and federal insurance marketplaces and expanded Medicaid to millions of adults. National uninsured rates have continued to drop in recent years, hitting a record low in early 2023.”
But the report also flags a reversal of the trend: “The uninsured share of the population will rise over the course of the next decade, before settling at 8.9% in 2034, largely as a result of the end of COVID-19 pandemic–related Medicaid policies, the expiration of enhanced subsidies available through the Affordable Care Act health insurance Marketplaces, and a surge in immigration that began in 2022. The largest increase in the uninsured population will be among adults ages 19–44. Employment-based coverage will be the predominant source of health insurance, and as the population ages, Medicare enrollment will grow significantly. After greater-than-expected enrollment in 2023, Marketplace enrollment is projected to reach an all-time high of twenty-three million people in 2025.”
My take:
A close reading of this report suggests its forecast might be overly optimistic. it paints a best-case picture of health insurance coverage that under-estimates the realities of household economics and marketplace trends and over-estimates the value proposition promoted by health insurers to their customers. My conclusion is based on four trends that suggest coverage might slip more than the report suggests:
- The affordability of healthcare insurance is increasingly problematic to lower- and middle-income households who face inflationary prices for housing, food, energy and transportation. The CBO report verifies that household income is key to coverage and working age populations are most-at risk of losing its protections. Subsidies to fund premiums for those eligible, employer plans that expose workers to high deductibles and increased non-covered services are likely to push fewer to enroll as premiums become unaffordable to working age adults and unattractive to their employers. As outlined in a sobering KFF analysis, half of the adult population is worried about the affordability of their healthcare—and that includes 48% who have health insurance. And wages in the working age population are not keeping pace with prices for food, shelter and energy, leaving healthcare expenses including their insurance premiums and out-of-pocket obligations at greater risk.
- The value proposition for health insurance coverage is eroding among employers, consumers and lawmakers. To large employers that provide employee insurance, medical costs are forcing benefits reduction or cessation altogether. Insurance has not negated their medical costs. To small employers, it’s an expensive bet to recruit and keep their workforce. To government sponsors (i.e. Medicare, Medicaid, VHA, et al), insurance is a necessary but increasingly expensive obligation with growing dependence on private insurers to administer their programs. State and federal regulators are keen to limit public spending and address disparities in their public insurance programs. All recognize that private insurers play a necessary role in the system and all recognize that confidence in health insurance protections is suspect. Thus, increased regulation of private insurers is likely though unwelcome by its members.
- Public funding for government payers will be increasingly limited increasing insurer dependence on private capital for sustainability and growth. Funding for Medicare, Medicaid, Veterans and Military Health, Public Health et al are dependent on appropriations and tax collections. All are structured to invite private insurer participation: all are seeing corporate insurers seize market share from their weaker competitors. The issues are complex and controversial as evidenced by the ongoing debates about fairness in Medicare Advantage and administration of Medicaid expansion among others. And polls indicate widespread dissatisfaction with the system and lack of confidence in its insurers, hospitals, physicians or the government to fix it.
- Access to private capital for private health insurers is shrinking enabling corporate insurers to play bigger roles in financing and delivering services. Private investments in healthcare services (i.e. hospitals, physicians, clinics) has slowed and momentum has shifted from sellers to buyers seeking less risk and higher returns. Capital deployment by corporate insurers i.e. UHG, HUM et al has resulted in vertically-integrated systems of health inclusive of physician services, drug distribution, ASCs and more. And funding for AI-investments that lower their admin costs and increase their contracting leverage with providers is a strategic advantage for corporate insurer that operate nationally at scale. Unless the federal government bridles their growth (which is unlikely), corporate insurers will control national coverage while others fail.
Thus, no one knows for sure what coverage will be in 2034 as presented in the CBO report. Its analysis appropriately considers medical inflation, population growth and an incremental shift to value-based purchasing in healthcare, but it fails to accommodate highly relevant changes in the capital markets, corporate insurer shareholder interests and voter sentiment.
P.S. This is an important week for healthcare: Today marks the two-year anniversary of the Supreme Court’s Dobbs decision that overturned Roe v. Wade, ending the constitutional right to an abortion that pushed reproductive rights to states.
And Thursday in Atlanta, President Joe Biden and former President Donald Trump will make history in the first presidential debate between an incumbent and a former president.
Reproductive rights will be a prominent theme along with immigration and border security as wedge issues for voters.
The economy and inflation are the issues of most consequence to most voters, so unless the campaigns directly link healthcare spending and out of pocket costs to voter angst about their household finances, not much will be said.
Notably, half of the U.S. population have unpaid medical bills and medical debt is directly related to their financial insecurity. Worth watching.
HENRY KOTULA 