A federal judge has sided with hospitals in the ongoing battle over cuts to 340B drug discount payments, saying the Department of Health and Human Services’ rule slashing money to the program overstepped the agency’s authority.
District Judge Rudolph Contreras from the District of Columbia has issued an injunction (PDF) on the final rule, as requested by the American Hospital Association, the Association of American Medical Colleges and America’s Essential Hospitals.
Contreras also denied HHS’ request for the hospital groups’ ongoing litigation against the 340B payment cuts to be dismissed.
The Centers for Medicare & Medicaid Services finalized the payment changes late last year, cutting the rate in 340B from up to 6% more than the average sales price for a drug to 22.5% less than the average sales price of a drug, slashing $1.6 billion in payments.
Hospital groups have warned that the cuts could substantially hurt their bottom lines, especially for providers with large populations of low-income patients. Higher cost for drugs in 340B could also lead to access problems for these patients.
Contreras said in his opinion (PDF) that the payment changes overstepped HHS’ authority.
Because the payment changes affect many drugs—any in the 340B program—and the payment cuts are a significant decrease, the agency bypassed Congress’ power to set those reimbursement rates with the rule, Contreras said.
But simply siding with the hospital groups could prove disruptive, he said, as retroactively adjusting payments and reimbursing hospitals for lost money over the past year would impact budget neutrality, requiring cuts elsewhere to offset the payments. So both parties will have to reconvene to determine the best way forward, Contreras said.
The AHA, AAMC and AEH issued a joint statement praising the ruling.
“America’s 340B hospitals are immeasurably pleased with the ruling that the Department of Health and Human Services unlawfully cut 2018 payment rates for certain outpatient drugs,” the groups said.
“The court’s carefully reasoned decision will allow hospitals and health systems in the 340B Drug Pricing Program to serve their vulnerable patients and communities without being hampered by deep cuts to the program.”
An HHS spokesperson said in a statement emailed to FierceHealthcare that the agency is “disappointed” in Contreras’ ruling, but said it looks forward to addressing the judge’s concerns about potential disruption to payments.
“As the court correctly recognized, its judgment has the potential to wreak havoc on the system,” the agency said. “Importantly, it could have the effect of reducing payments for other important services and increasing beneficiary cost-sharing.”
Chip Kahn, president of the Federation of American Hospitals, said Contreras’ ruling puts lowered drug costs, that benefit all hospitals, at risk.
“The DC Federal District Court’s ruling to stop reforms to Medicare payment for drugs acquired under the 340B drug discount program is unfortunate because it undermines HHS efforts to cut drug costs and promote fairer payments,” Kahn said in a statement.
28 pharmaceutical companies will raise their drug prices next year going back on the price freezes that they instituted this summer after public shaming from Administration officials, according to press reports.
Allergan, Bayer, Novartis, Amgen, AstraZeneca, Biogen, and GlaxoSmithKline are among the companies who filed disclosures with California earlier this year that they planned to raise prices within at least 60 days, in accordance with the state’s 2017 notification law.
Payers have reported that they anticipate drug price increases about 20 percent higher than previous years with the average price increase for a pharmacy-dispensed drug to be in the high single digits and the increase for physician-administered drugs to be around 3 percent.
Earlier this week, Congresswomen Rosa DeLauro (D-CT) and Jan Schakowsky (D-IL) introduced legislation, the Medicare for America Act, that would greatly expand Medicare coverage while maintaining employer-sponsored health insurance for those who have it and want to keep that coverage, employers would have an option to pay for their employees to be in the new system.
Under the proposal Medicare plan beneficiaries would still be required to pay premiums and insurance deductibles however, those costs would be capped, with premiums set at a maximum of 9.69 percent of the individual’s income. The plans would also be required to cover prescription drugs, dental, vision, and hearing services, as well as long-term supports and services for seniors and Americans with disabilities.
The bill is funded by phasing out the GOP tax cuts put in place last year as well as creating a 5 percent capital gains tax on high income earners, raising Medicare payroll and net investment income taxes, and increasing taxes on goods like tobacco, beer, liquor and sugar-sweetened drinks. Additionally, states would be required to pay into the system.
Click here for the legislation, and here for a summary.
A new paper published in Milbank Quarterly examines the up and coming industry seeking to manage accountable care organizations and what these companies do and why certain ACOs have choosen to partner with them.
Trust, Money, and Power: Life Cycle Dynamics in Alliances Between Management Partners and Accountable Care Organizations focused on two Medicaid ACOs, finding that tensions typically emerged over power and financial issues.
Using data collected between 2012 and 2017, revealed that management partners brought specific skills and services and also gave providers confidence in pursuing an ACO but, difficulties generally emerged over decision‐making authority, distribution of shared savings, and conflicting goals and values.
Sen. Marco Rubio (R-FL) jumped into the disproportionate-share hospital funding debate this week with the State Accountability, Flexibility, and Equity (SAFE) for Hospitals Act that would overhaul the billions distributed by the program. Florida receives one of the lowest allotments in the country the Rubio bill would tweak the DSH funding formula so a state’s allotment is based on its overall population of adults below poverty level leading to hospitals that care for higher amounts of poor patients receiving more money. Additionally, the bill would redefine the hospital costs that count as uncompensated care to include some outpatient physician and clinical services.
Under current law substansive DSH cuts go into place on Sept. 30, 2019 unless Congress acts. The Medicaid and CHIP Payment and Access Commission discussed proposed recommendations on DSH allotment reductions at its December meeting which included –
Phasing in reductions more gradually over a longer period of time -$2B in FY 2020, $4B in FY 2021, $6B in FY 2022 and $8B a year in FYs 2023-2029;
Applying reductions to unspent DSH funding first; and
Distributing reductions in a way that gradually improves the relationship between DSH allotments and the number of non-elderly, low-income individuals in a state.
MACPAC The Commissioners are expected to vote on the recommendations at the January 24-25 meeting.
Hawaii reclaimed its title as the healthiest state in United Health Foundation’s 29th annual America’s Health Rankings report, which placed Louisiana as the least healthy state in the nation.
The report is the longest-running annual assessment of the nation’s health on a state-by-state basis from United Health Foundation, an arm of UnitedHealth Group.
Here are seven takeaways from the latest 188-page report, which calculates state health by analyzing five categories: health outcomes, health behaviors, community and environment, policy and clinical care. (Specific information on ranking methodology can be found here.)
1. The five healthiest states in the U.S. are Hawaii (No. 1), Massachusetts, Connecticut, Vermont and Utah, in ascending order. These same states ranked among the top five in 2017.
2. The five states with the most room for improvement are Arkansas (No. 46), Oklahoma, Alabama, Mississippi and Louisiana, in ascending order. Last year, Mississippi ranked as the least healthy state.
3. Maine experienced the greatest improvement in the past year, moving up seven spots from No. 23 to No. 16. Maine saw the most improvement in the categories of health behaviors and community and environment measures, with specific progress in smoking and the rate of children in poverty.
4. California and North Dakota each climbed five spots to the No. 12 and No. 13 ranks, respectively.
5. Oklahoma saw the greatest decline in rank, falling four places from No. 43 to No. 47. The downturn was largely driven by changes in health behaviors in the past year, including an 11 percent uptick in obesity rates and a 14 percent uptick in physical inactivity.
6. The report highlights some major setbacks for health of Americans. More are dying prematurely than in prior years, and suicide, drug deaths, occupational fatalities and cardiovascular deaths all increased. Obesity increased nationally and in all 50 states since 2017. The report also finds self-reported frequent mental distress and frequent physical distress increased in the past two years.
7. At the same time, several improvements are worth noting. The number of mental health providers per 100,000 population increased 8 percent since 2017, and the percentage of children in poverty decreased 6 percent in the same time frame. Stark differences by state still exist, however.
Here are the overall health rankings for each state in 2018. The full report contains breakdowns of the determinants for each state’s rank.
Vertical integration is all the rage in healthcare these days, with Aetna, Cigna and Humana making notable plays.
If the proposed CVS-Aetna, Cigna-Express Scripts and Humana-Kindred deals are cleared by regulators, the tie-ups will have to immediately face UnitedHealth Group’s Optum, which has been ahead of the curve for years and built out a robust pharmacy benefit manager (PBM) business already along with a care services unit, employing about 30,000 physicians and counting.
UnitedHealth formed Optum by combining existing pharmacy and care delivery services within the company in 2011. Michael Weissel, Group EVP at Optum, told Healthcare Dive the company began by focusing on three core trends in the industry: data analytics, value-based care and consumerism.
Since then, the company has been on an acquisition spree to position itself as a leader in integrated services.
“For the longest time, the market assumed that they were building the Optum business [to spin it out] and what is interesting in the evolution of the industry is that that combination has now set a trend,” Dave Windley, managing director at Jefferies, told Healthcare Dive.
“United has now set the industry standard or trend … to be more vertically integrated and it seems less likely now that United would spin this out … because many of their competitors are now mimicking their strategy by trying to buy into some of the same capabilities,” he said.
Weissel said Optum will continue to push on the three identified trends in the next three to five years, with plans to invest heavily in machine learning, AI and natural language processing.
The question will be whether and how the company can keep its edge.
What Optum is
Optum is a company within UnitedHealth Group, a parent of UnitedHealthcare. Optum’s sister company UnitedHealthcare is perhaps more well known within the industry and with consumers.
However, Optum, a venture that encompasses data analytics, a PBM and doctors,has been gradually building its clout at UnitedHealth Group.
In 2017, the unit accounted for 44% of UnitedHealth Group’s profits.
In 2011, UnitedHealth Group brought together three existing service lines under one master brand. Services are delivered through three main businesses within a business within a business:
OptumHealth – the care delivery and ambulatory care capabilities of OptumCare, as well as the care management, behavioral health, and consumer offerings of Optum;
OptumInsight – the data and analytics, technology services and health care operations business; and
OptumRx – its pharmacy benefit service.
The company focuses on five core capabilities, including data and analytics, pharmacy care services, population health, healthcare delivery and healthcare operations. Services include but are certainly not limited to OptumLabs (research), OptumIQ (data analytics), Optum360 (revenue cycle management), OptumBank (health savings account) and OptumCare (care delivery services).
The Eden Prairie, MN-headquartered company has recently expanded its care delivery services, with much of the growth coming from acquisitions. The past two years have seen Optum expand its footprint into surgical care (Surgical Care Affiliates), urgent care (MedExpress) and primary care (DaVita Medical Group).
It’s a wide pool, but the strategy affords UnitedHealth the opportunity to grab more revenue by expanding its market presence. For example, the DaVita acquisition, which is still pending, allows OptumCare to operate in 35 of 75 local care delivery markets the company has targeted for development, Andrew Hayek, OptumHealth CEO, said on an earnings call in January.
Optum’s strategy of meeting patients where they are and deploying more ambulatory, preventative care services works in concert with its sister company UnitedHealthcare’s goal of reducing high-cost, unnecessary care services, when applicable. If Optum succeeds in creating healthier populations that use lower levels of care more often, that benefits the parent company UnitedHealth Group as UnitedHealthcare spends less money and time on claims processing/payout.
The strategy has been paying off so far.
Three charts that show UnitedHealth’s financial health as it relates to Optum
Optum’s presence has grown as it has steadily increased its percentage of profits for UnitedHealth Group.
Credit: Healthcare Dive / Jeff Byers
In 2011, the first year Optum was configured as it looks today, the company contributed 14.8% of total earnings through operations to UnitedHealth Group with $1.26 billion. That’s about 29 percentage points lower than in 2017, when Optum brought in $6.7 billion in profits on $83.6 billion in revenue.
Broken down, it’s clear that pharmacy services make up the lion’s share of the company’s revenue. In 2017, OptumRx earned $63.8 billion in revenue, fulfilling 1.3 billion prescriptions. OptumRx’s contributions to the company took off in 2015 when Optum acquired pharmacy benefit manager Catamaran.
Credit: Healthcare Dive / Jeff Byers
In recent years, OptumHealth has grown due to expansion in care delivery services, including consumer engagement and behavioral and population health management. The care delivery arm served 91 million people last year, up from 60 million in 2011.
OptumInsight has grown largely due to an increase in revenue cycle management and operations services in recent years.
On Wall Street, UnitedHealth Group is performing well and has seen healthy growth since 2008. The stock peaked in January and took a dive when Amazon, J.P. Morgan and Berkshire Hathaway — industry outsiders yet financial giants — announced they would create a healthcare company.
Credit: Healthcare Dive / Jeff Byers
While these charts suggest a dominant force, the stock activity shows that investors believe there’s still more room for competition, if the new entrants play their cards right.
Where Optum could lock out and rivals could cut in on competition
UnitedHealth started down this strategic path many years ago and the rest of the industry just now seems to be catching up.
“Optum’s been the leader in showing how a managed care organization with an ambulatory care delivery platform and a pharmacy benefit manager all in house can lower or maintain and bend cost trend and then drive better market share gains in their health insurance business,” Ana Gupte, managing director of healthcare services at Leerink, told Healthcare Dive. “I think they have been the impetus in the large space for the Aetna-CVS deal.”
Because the company is multi-dimensional, Optum’s competition will be varied. If all the mergers making news — including the Walmart’s rumored buyout of Humana — close, here’s what competition could look like:
Perhaps oddly, its largest revenue contributor, OptumRx, seems to have the largest vulnerability for competition in the coming years.
Optum’s competitive advantage in the PBM space is driven largely by already realized integration. Merging data across IT systems is no easy task, and Optum has spent years harmonizing pharmacy data across platforms to assist care managers in OptumCare to see medical records for United members.
Anyone with experience implementing EHR systems can tell you such integration doesn’t happen over night.
If the Cigna-Express Scripts deal closes, the equity can compete with OptumRx, but the technology investment needed to harmonize data and embed Cigna’s service and pharmacy information into Express Scripts servers will take time, Windley said. Optum, on the other hand, has invested in the effort and integration for years.
Gupte says the encroaching organizations in the PBM space have the ability to realize the efficiencies and savings and the integrated medical that Optum has been realizing across OptumRx and the managed care organization.
Optum’s leg up in PBM space could last two to three years over the competition, she said.
On the care delivery side, OptumHealth has been purchasing large physician groups for a variety of services. There are only so many large physician groups putting themselves on the market, and Optum has been making bids for them.
There’s still a bit of white space to fill in its 75 target markets, but analysts note Optum may have the competition on lock in this space
Even if CVS-Aetna closes, OptumCare is a $12 billion business with many urgent and surgery care access points. If CVS-Aetna is finalized, the company will have about 1,100 MinuteClinics capable of realizing efficiencies with Aetna, but, as Windley notes, they likely won’t have primary care or surgery care elements.
There’s also a lot of time and capital needed for building out and retrofitting retail space to medical areas.
On the surgical care services, “I don’t see either Cigna, Aetna or Humana getting into that business,” Gupte said. “That will be one element of their footprint on care delivery that will be unique and differentiated for them.”
Urgent care has the potential for outsider competition, she added. However, Optum is using its MedExpress business to treat higher acuity conditions and have an ER doctor on staff in each center. Compared to the typical types of conditions treated in retail clinics or those that would be feasible over time, Gupte believes services that could be seen in CVS or Walmart would be lower acuity, chronic care management services.
“[Optum has] been so proactive and so strategic I don’t think there’s going to be a lot of reactive catchup they have to do,” Gupte said. “I think it’s going to be hard for the other entities to play catch up, outside of the PBM.”
One potential issue will be harmonizing the disparate businesses so patients can be effectively managed across the various organizations, Trevor Price, founder and CEO of Oxean Partners, told Healthcare Dive.
“I think the biggest challenge for Optum is operationalizing the combined platform,” Price said. “The biggest question is do they continue to operate as individual businesses or do they merge into one.”
What’s next?
Optum will continue to explore ground in the three core trends it has identified.
Out of the three, consumerism has the longest path to maturity in healthcare, Weissel said, adding he believes consumerism is going to change healthcare more than any other trend over the next decade.
“There is a wave coming, and this expectation that we will move there,” he said. “Increasingly, this aging of people who become very comfortable in a different modality is going to tip the balance with how people will want to interact with healthcare. I know there’s pent up demand already.”
That means the company is putting bets into the marketplace around consumer building and segmentation models as well as thinking about how to connect data to allow patients to schedule appointments, view health records, sign up for insurance, search for providers or renew prescriptions online.
Consumer-centric projects currently underway include digital weight loss programs — including streaming fitness classes — and maternity programs to track pregnancy. The company is also experimenting with remote patient monitoring to understand the impacts on those with heart disease or asthma and to search for service opportunities.
Optum will pursue investments as well as acquisitions to push into the consumer space.
“When it comes to acquisitions to Optum overall, we’re always in the marketplace looking to extend our capabilities, to extend our reach in the care management space to fill in holes or gaps that we have,” Weissel said. “That’s a constant process in our enterprise.”
HENRY KOTULA 