Category Archives: CVS Health

The Misadventures of Primary Care

Posted on by • Posted in Amazon Care, Amazon Clinic, Amazon Pharmacy, Amazonification of Healthcare, CVS Health, Health System, Hospital, Hospital Industry, Primary Care, Primary Care Delivery Model, Primary Care Strategy, Primary Care Workforce, Private Equity, Walgreens, Walmart • Leave a comment

https://www.kaufmanhall.com/insights/thoughts-ken-kaufman/misadventures-primary-care

Innovation in the American economy over the past 30 years has been nothing short of stunning—one remarkable technological advance after another. Industry by industry and product by product, corporate innovation has profoundly changed the way we navigate our economic and consumer lives. From this context of technological and innovative change came the corporate belief that healthcare could be “significantly improved” through the same application of aggressive corporate strategy and innovation.

So along came Walmart, Walgreens, CVS, and Amazon with all the resources in the world and with the best intentions to contemporize primary care.

The goals of all this were front and center: change the definition of the healthcare gatekeeper, lower costs, improve quality, and create a much more consumer-friendly care experience. Yet here we see that American business has proven—once again—that the best intentions, the smartest ideas, and a lot of money are still no guarantee of commercial success. How quickly the corporate retail re-invention of primary care all came apart.

Between 2017 and 2022, retail clinic claims grew 200%, spiking particularly during the pandemic, according to Healthcare Finance. And yet now, Walmart has abandoned its primary care strategy, Walgreens is pulling back significantly—even after announcing significant expansion plans as little as a year ago—and CVS is facing uncertainty after a leadership shakeup.

Under corporate leadership and strategy, primary care has become a catalog of woes. Let’s unpack that catalog.

Walmart opened its first health center in 2019, offering a range of basic services with prices posted. At first, it focused on patients who could pay cash, but eventually evolved to accept a range of insurance plans. Walmart brought a level of strategic aggression to its primary care initiative by announcing in 2023 it would nearly double the number of clinics it operated. But in an abrupt about face, the megaretailer shuttered all 51 primary care locations in April, citing an unsustainable business model with an inability to maximize revenue and adequately control expenses.

Walgreens, on the other hand, opted to invest in existing providers. In 2020 and 2021, Walgreens spent $6.2 billion on the primary care clinic chain VillageMD, establishing it as the majority owner. In 2022, Walgreens sunk another $3.5 billion, through a mix of debt and equity, into VillageMD’s $8.9 billion acquisition of Summit Health. Walgreens, like Walmart, suffered for its primary care investments. The company was forced to take a $5.8 billion write-down on Village MD in the second quarter of this year.

During an October 15 earnings call, Walgreens CEO Tim Wentworth said the company “is reorienting to its legacy strength as a retail pharmacy-led company,” according to the Wall Street Journal. “We are in the early stages of a turnaround that will take time.” And that comment came with the potential closure of 1,200 Walgreens retail locations, following on the heels of 160 primary care clinic closures earlier this year.

CVS, too, has not been immune to primary care turbulence, as CVS Health CEO Karen Lynch was forced to step down last month after presiding over an expansion of healthcare clinics but then closing dozens of them in California and New England. CVS’s strategic approach revolved around its $10.6 billion acquisition of Oak Street Health in 2023 and its intention to expand primary care in 1,100 MinuteClinics. That strategy now seems to be up in the air with the departure of Ms. Lynch. The CVS board is now suggesting an approach that may involve a spinoff of its insurance and pharmacy benefits manager units, Aetna and Caremark.

Amazon, however, at the moment shows no signs of abandoning its foray into primary care. Rather than focusing its efforts on solely brick-and-mortar locations, Amazon organized its primary care strategy around the 2023 $3.9 billion acquisition of One Medical, a concierge-style service designed to facilitate both in-person and virtual visits. While Amazon’s primary care strategy remains somewhat opaque, it seems to revolve around partnering with employers and health systems to cultivate primary care patient loyalty through a membership program that builds on the Amazon Prime brand.

Each company took a slightly different approach to primary care, but all four planned to leverage their exceptional size to achieve profitability.

Interestingly, scale has not been sufficient to solve the challenges of primary care. American Medical Association President Bruce A. Scott wrote recently: “If retail giants can’t make today’s care delivery model work financially, how on earth can physicians in private practice?” It’s no wonder the ongoing shortage of about 20,000 primary care physicians is expected to persist. A recent AAMC report found that by 2036, that number could double.

Primary care has been unsuccessful as a transactional business; retailers sell goods at a set price and send customers on their way. In healthcare, payment models are nowhere near as straightforward. Patients, particularly in areas where access to care is limited, may have continuous, rather than episodic, needs. All of this complexity has seemed to add up to higher costs and lower margins. Primary care seems to require a much more complex business model, one robust enough to remain patient as that business model experiments with various approaches or is vast enough to offset losses with other lines of revenue.

So where does all of the above lead us? Are there any useful conclusions or lessons to be learned? Maybe so.

  1. Primary care is an essential component of any hospital system of care. Done right, it acts as both an important gatekeeper and as a trusting component of the continuity of healthcare service.
  2. At the moment, there is not enough primary care to meet the demand. Stories abound of patients whose longtime primary care physicians retire and said physicians cannot be replaced without a great effort—or often not at all.
  3. Right now, the economics of primary care don’t work as a standalone service. Many have tried and—regardless of whether they were big or small, for profit or not-for-profit—this essential patient-centered service can only operate when subsidized by a larger enterprise. Walmart, Walgreens, and CVS have all tired of those subsidies.
  4. The overall healthcare system and its quality of care and delivery is significantly damaged by the current state of primary care. Too many patients receive delayed diagnosis and treatment and slow or little necessary follow-up. Patients that should be seen in the office are instead funneled to the emergency room. Care, of course, remains well-intentioned but often is instead inconsistent and chaotic. Conditions that might have been deftly managed instead become chronic.
  5. All this leads to the importance of not giving up on primary care. Patients prefer to be seen in the primary care ecosystem. They tend to trust that level of care and attention. Patients also prefer to be seen in-person when they are feeling particularly poorly, and they appreciate prompt answers about concerning health issues. What this all suggests is that we are at a moment when hospitals need to double down on the primary care dilemma. Primary care needs to be examined as an essential component of the overall enterprise-wide strategic plan both clinically and—especially—financially.

Corporate America, with all of its economic power and resources and scale, has found primary care to be a confounding and, so far, unsuccessful business model. So, after all of the recent noise and promises and slide decks, the problem and promise of primary care is back in the mission-driven hands of America’s not-for-profit hospitals—exactly where it should have been all along.

The Humana Wall Street/Medicare Advantage Love Story Seems to Be Ending

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Back in February, Dr. Philip Verhoef and I wrote an op-ed for STAT News warning both patients and investors to steer clear of the health insurance industry’s private version of Medicare, which the government continues to allow insurers to market as Medicare Advantage. 

As we enter the open enrollment period in which America’s seniors and disabled people are able to choose between the traditional Medicare program and a bewildering array of private plans, it’s a good time to remind you why you need to steer clear of Medicare Advantage. 

Millions of people enrolled in those private plans are now getting notices from their insurers that their plans will not be available in 2025 because

three of the biggest insurance corporations (Humana, CVS/Aetna and Cigna) – and probably several smaller insurers – have decided to stop selling MA plans in hundreds of communities across the country, which means that MA enrollees in all those places are going to have to go through the agonizing chore of finding a replacement. 

Why? Because Wall Street, which until this year was head-over-heels in love with Medicare Advantage, is now filing for divorce.

Investors have been running for the exits since they began seeing danger signs in for-profit insurers’ earnings reports in the last quarter of 2023. For at least two of the biggest players in MA – Humana and CVS – that exodus has in recent weeks turned into a stampede. The stock prices of those two companies have been in steep decline all year, and you can be certain the top executives of those companies are now in panic mode. 

People who’ve been following my work since I blew the whistle on the health insurance racket know I’ve been trying to educate seniors – and policymakers – for at least a dozen years, going back to my time at the Center for Public Integrity, about the many shortcomings of what I’ve often called Medicare Disadvantage. I’ve also called Medicare Advantage the biggest heist of taxpayers’ dollars in American history. It’s truly epic.

As Phil and I wrote for STAT: 

The truth is that MA has been a broken system since the beginning, especially for patients. The business worked only as long as insurers were able to extract inappropriately large payments from the Medicare fund through methods like upcoding, where plans list false or exaggerated diagnoses on patient charts to get more money while providing no additional care.

In fact, the MA model relies on providing as little care as possible in general, with insurers putting care approval behind a wall of delays and denials to save money and leaving patients suffering without necessary treatment. 

We wrote that op-ed just as the government began taking long-overdue steps to rein in some of those abuses and, to Wall Street’s shock, announced at the end of February that it would not be giving MA plans as much money going forward as the industry had expected. That announcement, coupled with the reins-tightening, really spooked investors.

But that wasn’t all that soured them on Medicare Advantage. The big MA insurers had to admit to Wall Street when they released quarterly earnings that despite their best efforts to delay and deny as much care as possible, seniors nevertheless were using more health care than before.

The insurers’ medical loss ratios were ticking up, meaning they were having to use more of their customers’ premiums (and Medicare fund money) paying claims than they had anticipated. And folks, Wall Street HATES it when insurers do that. 

Phil and I wrote that:

Before, investors had assumed MA plans could keep the business humming along, that private insurers would always be able to keep their enrollees’ use of medical goods and services in check, and that policymakers would always look the other way as the government doled out billions in overpayments annually. They now see that these assumptions are failing, and many have sold their holdings in these companies as a result. 

The selling has continued apace throughout 2024, and the biggest loser on Wall Street has been Humana, which currently has an 18% share of the MA market, second behind UnitedHealth’s 29%. CVS/Aetna’s shares have also been dropping like a rock.  

Humana got another kick to the stomach from investors this week when it admitted that it likely will lose billions of dollars in payments in the future because far fewer of its MA enrollees will be in so-called four-star rated MA plans – 25% in 2025 compared to 94% in 2024. The feds give four-star rated MA plans a lot more money than lower-rated plans. 

When the New York Stock Exchange closed yesterday, Humana’s share price had fallen to $241.37. That’s down more than 54% since the 52-week high of $530.54 it reached in October 2023. But get this: on Wednesday the share price reached a 52-week low of $213.31 before inching back up later in the day as some investors apparently saw a way to make money at some point down the road by buying at that low price. 

And folks, that was not just a 52-week low. The last time Humana’s share price was in that territory was on April 25, 2017, when the low for the day was $214.51. 

All this turmoil has led Bank of America Securities to downgrade the stock to “underperform,” another word for sell. Piper Sandler also downgraded the company yesterday. Those downgrades – and possibly more to come –  could cause the stock price to sink even further.

Having worked closely with Humana’s C-suite and investor relations people when I headed corporation communications there before going to Cigna, I can assure you the company’s top brass are grasping at any levers they can get their hands on to stop the freefall. I would not want to be one of them, and I certainly would not want to be one of their customers or investors. 

As I mentioned, Humana, UnitedHealth and CVS/Aetna are by far the biggest players in the MA game. Earlier this year, those three companies captured 86% of the 1.7 million new MA enrollees, thanks to spending untold millions of federal dollars on deceptive TV ads and other marketing schemes.

Humana is now dumping hundreds of thousands of its MA enrollees because they somehow managed to get the care they needed. The company is doing that for one single reason: to try to get back into Wall Street’s good graces. 

Next week we’ll look at how the other two big players in Medicare Advantage, UnitedHealthcare and CVS/Aetna, are faring on Wall Street. It is a tale of two cities, as you’ll see.

CVSHealth Eyes Breakup: A Reckoning for Corporate Health Care’s Vertical Empire

Posted on by • Posted in Antitrust, Complex, CVS Health, Federal Trade Commission, Federal Trade Commission (FTC), Health Insurance Industry, Healthcare Economics, Market Consolidation, Market Power, Market Trends, Retail Clinic, Retail Healthcare, Retail Pharmacy, Unwind, Vertical Consolidation, Vertical Integration, Vertical Merger, Vertical Mergers, Wall Street • Leave a comment
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In a surprising turn of events, sources say that CVS Health is exploring the possibility of breaking up its business empire — a move that could unravel years of aggressive vertical integration, including its $70 billion acquisition of health insurer Aetna back in 2017.

While details are still slim, such a move signals just how dire the situation has become for CVSHealth as it navigates mounting financial and regulatory pressures on multiple fronts.

It’s yet another chapter in a story that has seen CVSHealth evolve from a retail pharmacy chain into a health care behemoth — but perhaps one that grew too big, too fast. And to be honest, I’m not surprised. I’ve seen this movie before. In fact, I saw it many times – although each time with different stars – during my 20 years in the health insurance business. One of the most memorable featured Aetna, which in the late 1990s and early 2000s had to retrench, at Wall Street’s insistence, after a buying spree of smaller health insurers that brought the company a ton of unprofitable accounts and disappointing bottom lines. Aetna followed its buying spree with a purging spree, dumping as many as eight million health plan enrollees in short order to get back into Wall Street’s good graces.

It seems that CVSHealth also bought too much too fast. The results? Rising expenses, frustrated patients, and now potential cracks in the corporate structure itself.

CVS: A Cautionary Tale of Vertical Integration

Large corporations like CVS and its peers have used their size to dominate various aspects of health care—whether it’s insurance, retail pharmacy, physician practices and clinics, and controlling the drug supply chain. But as these mega-corporations continue to grow, they also become harder to manage, and their inefficiencies start to become evident. 

CVS’s acquisition of Aetna was hailed at the time as a strategic masterstroke — a way to streamline health care by bringing together the different parts of the system under one corporate umbrella. It was supposed to deliver “efficiencies” that would benefit both the company and patients. 

But it’s not just the purchase of Aetna. From pharmacy benefit manager Caremark to Aetna to health care providers Signify Health and Oak Street Health — CVS’s business model has become increasingly complex, making it difficult to navigate regulatory scrutiny, rising costs and fierce competition in the retail pharmacy space.

The latest reports suggest that CVS’s board is trying to figure out where Caremark would land in the event of a breakup. Would it stay with the retail side or with the insurance arm?

This isn’t just an internal debate; it’s emblematic of the broader issue—CVS has built a vertically integrated structure that was supposed to work together to improve care, but investors are now questioning how and even if these pieces should fit together. 

It’s Been a Hard Few Years for CVS

Federal Trade Commission’s Legal Action Against CVS’s Caremark and Other PBMs

Instead, those supposed efficiencies have largely translated into higher costs for consumers and increased scrutiny from regulators, especially with CVS’s Caremark at the center of anti-competitive practices allegations by the Federal Trade Commission (FTC). PBMs like Caremark control the drug pricing landscape in ways that lack transparency and disproportionately affect patients and independent pharmacies.

Now, as CVS grapples with rising medical costs within its Aetna business — just like its biggest competitors, UnitedHealth and Humana —the company’s management appears to be in damage control mode. While nothing is certain, discussions about splitting the business have reached the boardroom level, according to sources familiar with the matter. This comes as activist investors, like Glenview Capital, push for structural changes to improve CVS’s declining financial performance.

CVS’s Aetna Medicare Advantage Loss in New York City

New York City Mayor Eric Adams had a plan to force city municipal retirees out of traditional Medicare and into a corporate Aetna Medicare Advantage plan. The NYC Organization of Public Service Retirees vehemently opposed the move and spent months fighting it.

In August, a Manhattan Supreme Court judge permanently halted the mayor and Aetna’s attempts.

Wall Street Woes

For CVS Health, 2024 started off bad. CVS missed Wall Street financial analyst’s earnings-per-share expectations for the first quarter of 2024 by several cents. Shareholders’ furor sent CVS’ stock price tumbling from $67.71 to a 15-year low of $54 at one point. 

An astonishing 65.7 million shares of CVS stock were traded that day. The company’s sin: paying too many claims for seniors and people with disabilities enrolled in its Medicare Advantage plans. 

Also in August, CVS Health cut its 2024 forecast for a third time, citing troubles covering seniors via the company’s private Medicare Advantage business. Operating income for CVS Health’s insurance arm, Aetna, dropped a whopping 39% in Q3, which forced the company to shake up its leadership – moving CEO Karen Lynch into the role of managing insurance and publicly firing one of her lieutenants, Executive Vice President Brian Kane.

What’s Next?

The notion that CVS could split its operations would effectively unwind one of the most high-profile health care mergers in recent memory. A split up of the company would mark the end of an era in which health care conglomerates could grow unchecked. CVS’s struggle isn’t happening in isolation—other companies, like Walgreens and Rite Aid, are facing similar financial difficulties and structural questions.

CVS’s potential breakup could signal a broader industry trend toward unwinding massive, vertically integrated health care corporations. 

Whether CVS breaks up or not, it’s clear that the model of health care mega-mergers, designed to consolidate power and increase corporate profits, is facing serious headwinds. Cigna recently announced that it is getting out of the Medicare Advantage business and Humana is getting out of the commercial insurance market. UnitedHealth, meanwhile, so far seems to be weathering those headwinds, but it, too, will be facing even more scrutiny by lawmakers and regulators in the months and years ahead.

Retail clinic failures show collaboration may work better than competition

Posted on by • Posted in Amazon Care, Amazon Clinic, Amazon Pharmacy, Amazonification of Healthcare, CVS Health, Disruption, Primary Care, Primary Care Delivery Model, Retail Clinic, Retail Healthcare, Retail Pharmacy, Walgreens, Walmart • Leave a comment
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CVS has fared better because of its ability to scale and coordinate its other business model resources, Aetna and Signify, analyst says.

The disruption promised by the retailization of healthcare hasn’t materialized as planned.

Walmart and Walgreens recently announced the closing of retail clinics.

“The news is a significant setback for retail health players, some of whom are now realizing that delivering retail-driven primary care may not be economically viable and certainly isn’t causing the disruption in local healthcare markets that many predicted,” said Emarketer senior analyst for digital health Rajiv Leventhal.

Reimbursement for primary care is a major challenge, as are labor shortages and higher costs. Retailers that are not able to scale their clinics through synergies with other parts of their business models, as CVS has done, will find costs rising above their ability to make money.  

Walmart is closing all 51 of its health centers across five states, saying the business model was unsustainable.

“Healthcare is very difficult and very challenging,” said Innocent Clement, cofounder and CEO of Ciba Health and a physician by training. “Walmart (was) very disappointing news. I expected a lot. It’s embedded in all of our communities.”

Retail clinics help make healthcare affordable and the convenience of pharmacies creates access for vulnerable populations, Clement said.  

Retail based clinics and urgent care clinics play a role in controlling healthcare costs by diverting approximately 30% of cases from much higher-cost emergency rooms. 

“Walmart Health’s decision to shut down its health centers and telehealth services is a sudden pivot from its recent plans to expand but not surprising given retailers’ overall struggles in the care delivery space,” Leventhal said.

“It’s not Walmart’s first failed attempt at operating medical clinics, but it will likely be its last crack at it considering how badly it went – going from signing off on a plan in 2018 to build 4,000 primary care clinics to shutting down in 2024 after opening just 51. The latest effort was littered with red flags throughout, from struggling with basic billing and payment functions to leadership changes and other operational obstacles.”

Walgreens suffered a $6 billion loss in its second quarter due to its struggles to make VillageMD profitable. It announced it was closing 60 VillageMD clinics and that number is expected to rise.

Walgreens invested $1 billion in VillageMD and then dumped in $5.2 billion more, Leventhal said. The plan was to keep expanding and co-locating VillageMD clinics with a Walgreens pharmacy. As of last year, Walgreens had 680 clinics with an estimated 200 co-located with a drugstore. Now 140 are already closed with 20 more to close, many of those are co-located with a Walgreens drugstore.

“They’re still leaning into VillageMD investments where they’re succeeding,” Leventhal said. However, “the investment just has not paid off at all. That led to a significant jaw dropping loss.”

Walgreens’ $1 billion cost-cutting strategy should put it in a better position going forward, Leventhal said.

“What many people don’t realize is that urgent care clinics are experiencing a level of extreme financial pressure that endangers their availability, range of services, and continued existence,” said longtime healthcare executive Web Golinkin, a former CEO of RediClinic and FastMed Urgent Care. He recently published a book about his experiences in “Here Be Dragons: One Man’s Quest to Make Healthcare More Accessible and Affordable.”

Reimbursements from third-party payers on services at clinics have been relatively flat over the past recent memory, Golinkin said. This includes both commercial and government payers, Medicare and Medicaid. At the same time, operating costs have increased dramatically.

“It’s difficult for providers to have leverage in a retail health setting. It’s harder than it looks,” Golinkin said. “The reason we were disruptive, we were open seven days a week for extended hours and co-located with a pharmacy.”

But supply and labor costs increased during the pandemic and have not reset, he said. There’s already a shortage of primary care physicians.

RediClinic began inside retail clinics such as Walmart and Walgreens before being sold to Rite Aid in 2014, Golinkin said. FastMed was sold off piecemeal to HCA Healthcare, HonorHealth in Arizona and others.

The bigger picture is the lack of access in this country to primary care, Golinkin said. CMS needs to shift dollars to primary care, he said, a statement backed by the American Medical Association, which has been banging the drum for greater physician reimbursement.

Healthcare has narrow margins to begin with, Golinkin said, but may be able to offset losses in one area with profits from another.

Retail clinics may be able to offset losses through pharmacy sales, with the clinics acting somewhat as a loss leader to getting customers in the store, Leventhal said.

But what’s really needed is the ability to scale and a business model that brings consumers from retail pharmacy sales and the clinic to drug purchases and other care needs, as CVS has done.

The struggles for Walmart and Walgreens are a cautionary tale for other retailers, Leventhal said. 

“It’s difficult to operate a primary care startup,” he said.

There are nearly 14,000 urgent care clinics in the United States, Golinkin said, adding that most are under sole ownership and all are under the same financial pressure that caused Walmart to shut down.

“This is not just about Walmart. It’s an access issue,” Golinkin said. “What happened to Walmart is symptomatic.”

The answer may lie in partnerships between providers and retailers.

There are many examples of partnerships between retail medical providers and health systems. Prominent health systems such as Advocate Health Care, Providence, Kaiser Permanente and Cleveland Clinic either provide care in retail pharmacies or are clinically affiliated with one, according to Golinkin. 

Walgreens has a partnership with Advocate Health Care.

It makes a lot of sense from a continuity of care perspective, Golinkin said. If someone goes into a clinic in a retail space and sees a clinician associated with a hospital or physician practice, and that doctor or PA or nurse says the consumer needs further care, that person goes to the provider.

Most clinics and urgent care centers are tied now to an EHR for a clinically integrated network.

“This approach will boost referrals for health systems while saving them the costs of maintaining their own outpatient practices,” he said. “That’s the model we’re really going to see going forward, more collaboration.”

WHY THIS MATTERS

CVS Health has created the scale to make its clinics successful, according to Leventhal.

Amazon is also lurking as a potential competitor through its expansion with primary care startup One Medical. Amazon bought One Medical for $3.9 billion last year.

CVS took a hit to its bottom line as well, but that was mostly due to high MA utilization through its insurer, Aetna.

CVS is in a much better position strategically, because it has an insurer, a pharmacy benefit manager and also Signify Health, said Leventhal. 

CVS’s Aetna business makes it the most imposing retail health disruptor, he said. This combination of a payer and provider has substantial power in local markets and can influence patient decisions on where to get care.

The company’s acquisition of Oak Street Health and Signify Health gives it a full circle strategy. CVS is leaning into opening more Oak Street clinics within CVS drugstores, Leventhal said. 

CVS has the ability to synergize Aetna with Oak Street Health and Signify operations, as outlined in its 2023 Investor Day Presentation, according to Leventhal. 

For example, over 650,000 Medicare beneficiaries (not all of them Aetna members) visit CVS stores in Oak Street geographies each week, CVS data said. 

There are over 300,000 Signify Home visits annually in Oak Street geographies. Approximately one in six CVS customers end up scheduling a visit at an Oak Street clinic. CVS promotes this by setting up tables within their drugstores that have material on Oak Street.

Ten percent of Aetna seniors educated by Signify about Oak Street as a primary care option scheduled a Welcome Visit, the presentation said.

CVS was in a competitive battle to acquire Signify Health last year for $8 billion. Signify does risk assessments that are billed to the insurer, which connects them with services, specifically with Oak Street Health.

Even CVS would acknowledge delivering primary care through a retail entity is challenging due to low margins, Leventhal said. 

In theory, clinics appeared to be the perfect one-stop shop model. In reality, they faced a bunch of challenges, especially during and after COVID-19, Golinkin said.

THE LARGER TREND

Pharmacies, particularly independents, are also dealing with the cost pressures of reimbursement. 

Pharmacies are paid by pharmacy benefit managers a reimbursement fee for dispensing drugs, and over the course of the last 10 years those fees have materially declined, squeezing pharmacy margins, according to Seeking Alpha.

This squeeze is in part why Walgreens Boots Alliance’s cash flows have declined so precipitously and why rivals such as Rite Aid have been forced into bankruptcy, the report said.

The newest model for pharmacies is the cost-plus drug model. CVS, Walmart and Walgreens all have offerings and Walgreens is soon expected to roll out its own cost-plus drug model to create a more sustainable model for pharmacies to be reimbursed.

Walgreens CEO Tim Wentworth, who came aboard in October 2023, recently said that the company is ready to adopt a cost plus drug model, which is similar to the one used by Mark Cuban’s online pharmacy, Cost Plus Drugs. 

Cost Plus Drugs, which launched in 2022, works directly with drug manufacturers to avoid PBM middlemen. It lowers prices on medications by basing costs on the manufacturing fee, plus a 15% markup, a $3 pharmacy handling fee and a $5 shipping fee. Cost Plus also transparently displays what it pays for its medicines. 

As a Nightmare Brews on Wall Street for CVS, Executives Scramble to Quell Investors

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I wrote Monday about how the additional Medicare claims CVS/Aetna paid during the first three months of this year prompted a massive selloff of the company’s shares, sending the stock price to a 15-year low.

During CVS’s May 1 call with investors, CEO Karen Lynch and CFO Thomas Cowhey assured them the company had already begun taking action to avoid paying more for care in the future than Wall Street found acceptable.

Among the solutions they mentioned: 

Ratcheting up the process called prior authorization that results in delays and denials of coverage requests from physicians and hospitals; kicking doctors and hospitals out of its provider networks; hiking premiums; slashing benefits; and abandoning neighborhoods where the company can’t make as much money as investors demand.

On Tuesday at the Bank of America Securities Healthcare Conference, Cowhey doubled down on that commitment to shareholders and provided a little more color about what those actions would look like and how many human beings would be affected. As Modern Healthcare reported:

Headed into next year, Aetna may adjust benefits, tighten its prior authorization policies, reassess its provider networks and exit markets, CVS Chief Financial Officer Tom Cowhey told investors. It will also reevaluate vision, dental, flexible spending cards, fitness and transportation benefits, he said. Aetna is also working with its employer Medicare Advantage customers on how to appropriately price their business, he said. 

Could we lose up to 10% of our existing Medicare members next year? That’s entirely possible, and that’s OK because we need to get this business back on track,” Cowhey said.

Insurers use the word “members” to refer to people enrolled in their health plans. You can apply for “membership” and pay your dues (premiums), but insurers ultimately decide whether you can stay in their clubs. If they think you’re making too many trips to the club’s buffet or selecting the most expensive items, your membership can–and will–be revoked.

That mention of “employer Medicare Advantage customers” stood out to me and should be of concern to people like New York Mayor Eric Adams, who was sold on the promise that the city could save millions by forcing municipal retirees out of traditional Medicare and into an Aetna Medicare Advantage plan. A significant percentage of Aetna’s Medicare Advantage “membership” includes people who retired from employers that cut a deal with Aetna and other insurers to provide retirees with access to care. Despite ongoing protests from thousands of city retirees, Adams has pressed ahead with the forced migration of retirees to Aetna’s club. He and the city’s taxpayers will find out soon that Aetna will insist on renegotiating the deal.

Back to that 10%. Aetna now has about 4.2 million Medicare Advantage “members,” but it has decided that around 420,000 of those human beings must be cut loose. Keep in mind that those humans are not among the most Internet-savvy and knowledgeable of the bewildering world of health insurance. Many of them have physical and mental impairments. They will be cast to the other wolves in the Medicare Advantage business.

Welcome to a world in which Wall Street increasingly calls the shots and decides which health insurance clubs you can apply to and whether those clubs will allow you to get the tests, treatments and medications you need to see another sunrise.

As Modern Healthcare noted, Aetna is not alone in tightening the screws on its Medicare Advantage members and setting many of them adrift. Humana, which has also greatly disappointed Wall Street because of higher-than-expected health care “utilization,” told investors it would be taking the same actions as Aetna.

But Aetna in particular has a history of ruthlessly cutting ties with humans who become a drain on profits. As I wrote in Deadly Spin in 2010:

Aetna was so aggressive in getting rid of accounts it no longer wanted after a string of acquisitions in the 1990s that it shed 8 million (yes, 8 million) enrollees over the course of a few years. The Wall Street Journal reported in 2004 that Aetna had spent more than $20 million to install new technology that enabled it “to identify and dump unprofitable corporate accounts.” Aetna’s investors rewarded the company by running up the stock price. 

I added this later in the book:

One of my responsibilities at Cigna was to handle the communication of financial updates to the media, so I knew just how important it was for insurers not to disappoint investors with a rising MLR [medical loss ratio, the ratio of paid claims to revenues]. Even very profitable insurers can see sharp declines in their stock prices after admitting that they had failed to trim medical expenses as much as investors expected. Aetna’s stock price once fell more than 20% in a single day after executives disclosed that the company had spent slightly more on medical claims during the most recent quarter than in a previous period. The “sell alarm” was sounded when the company’s first quarter MLR increased to 79.4% from 77.9% the previous year.

I could always tell how busy my day was going to be when Cigna announced earnings by looking at the MLR numbers. If shareholders were disappointed, the stock price would almost certainly drop, and my phone would ring constantly with financial reporters wanting to know what went wrong.

May 1 was a deja-vu-all-over-again day for Aetna. You can be certain the company’s flacks had a terrible day–but not as terrible as the day coming soon for Aetna’s members when they try to use their membership cards.

Speaking of Lynch, one of the people commenting on the piece I wrote Monday suggested I might have been a bit too tough on Lynch, who I know and liked as a human being when we both worked at Cigna. The commenter wrote that:

After finishing Karen S. Lynch’s book, “Taking Up Space,” I came to the conclusion that she indeed has a very strong conscience and sense of responsibility, not totally to shareholders, but more importantly to the insured people under Aetna and the customers of CVS.”

I don’t doubt Karen Lynch is a good person, and I know she is someone whose rise to become arguably the business world’s most powerful woman was anything but easy, as the magazine for alumni of Boston College, her alma mater, noted in a profile of her last year. Quoting from a speech she delivered to CVS employees a few years earlier, Daniel McGinn wrote: 

Lynch began with a story to illustrate why she was so passionate about health care. She described how she’d grown up on Cape Cod as the third of four children. Her parents’ relationship broke up when she was very young and her father disappeared, leaving her mom, Irene, a nurse who struggled with depression, as a single parent. In 1975, when Lynch was 12, Irene took her own life, leaving the four children effectively orphaned. 

During her speech, several thousand employees listened in stunned silence as Lynch explained how her mom’s life might have turned out differently if she’d had access to better medical treatment, or if there’d been less stigma and shame about getting help for depression. She then talked about how an insurance company like Aetna could play a role in reducing that stigma, increasing access to care, and helping people live with mental illness. 

I’m sure when she goes home at night these days, Lynch worries about what will happen to those 420,000 other humans who will soon be scrambling to get the care they need or to find another club that will take them. Their lives most definitely will turn out differently to appease the rich people who control her and the rest of us.

But she is stuck in a job whose real bosses–investors and Wall Street financial analysts–care far more about the MLR, earnings per share and profit margins than the fate of human beings less fortunate than they are.

CVS CEO to Wall Street: People in Medicare Advantage Are in for a World of Hurt as We Focus on Profits

Posted on by • Posted in 2024 Election Issues, CVS Health, Health Insurance Coverage Adequacy, Health Insurance Denial, Health Insurance Industry, Health Insurance Premiums, High Deductible Health Plans, Investor Expectations, Medicare, Medicare Advantage, Out of Pocket Expenses, Privatization, Wall Street • Leave a comment
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ALSO: We’re premiering our Magic Translation Box to help you decipher corporate jargon and understand what’s coming down the pike.

If you are enrolled in an Aetna Medicare Advantage plan, now might be a good time to get more nervous than usual.

Wall Street is not happy with Aetna’s parent, CVS Health. In response to that unhappiness, triggered by the company’s admission that it has been paying more claims than usual, CVS execs have promised to do whatever it takes to get profit margins back to a level investors deem suitable. 

That means the odds have increased that Aetna will refuse to cover the treatments and medications your doctor says you need. It also means CVS/Aetna likely will increase your premiums next year and might dump you altogether. The company has a long history of doing just that, as you’ll see below. 

Medicare Advantage companies in general are facing what Wall Street financial analysts call headwinds, and those winds are now coming from several sources: increased Congressional scrutiny of insurers’ business practices, Biden administration efforts to end years of overpayments that have cost taxpayers hundreds of billions of dollars, enrollee discontent, and a gathering storm of negative press. 

To understand the pressures CVS CEO Karen Lynch and her C-Suite team are under to satisfy the company’s remaining shareholders (many have fled), you need to know and understand what they told them in recent weeks–and what she undoubtedly will have to say again, with conviction, this coming Thursday when CVS holds its annual meeting of shareholders. You can be certain Lynch’s staff has prepared a binder chock full of the rudest questions she could face from rich folks (mostly institutional investors) who’ve become a little less rich in recent months as the golden calf calf called Medicare Advantage has lost some of its luster. (My former colleagues and I used to put together such a CEO-briefing binder during my Cigna days, which coincided with Lynch’s years at Cigna.)

To help with that understanding, we’re introducing the HEALTH CARE un-covered Magic Translation Box (MTB). We’ll fire it up occasionally to decipher the coded language executives use when they have to deal with analysts and investors in a public setting. We’ll start with what Lynch and her team told analysts on May 1 when CVS announced first-quarter 2024 results that caused a stampede at the New York Stock Exchange.

Lynch: We recently received the final 2025 (Medicare Advantage) rate notice (from the Center for Medicare and Medicaid Services), and when combined with the Part D changes prescribed by the Inflation Reduction Act, we believe the rate is insufficient. This update will result in significant added disruption to benefit levels and choice for seniors across the country. While we strive to deliver benefit stability to seniors, we will be adjusting plan-level benefits and exiting counties as we construct our bid for 2025. We are committed to improving margins.

Magic Translation Box: Can you believe it? CMS did not bend to industry pressure to pay MA plans what we demanded for next year. We only got a modest increase, not enough, in our opinion, to protect our profit margins. To make matters worse, starting next year we won’t be able to make people enrolled in Medicare prescription drug plans (Part D) pay more than $2,000 out of their own pockets, thanks to the Inflation Reduction Act President Biden signed in 2022. So, to make sure you, our most important stakeholder, once again have a good return on your investment, we will notify CMS next month that we will slash the value of Medicare Advantage plans by reducing or eliminating some benefits, like dental, hearing and vision, that attract people to MA plans in the first place. And, for good measure, we’ll be dumping Medicare Advantage enrollees who live in zip codes where we can’t make as much money as we’d like. For them: too bad, so sad. For you: more money in your bank account. And for extra good measure, to keep seniors from blaming greedy us for what we have in store for them, our industry will be bankrolling dark money ads to persuade voters that Biden and the Democrats are the bad guys cutting Medicare. 

Later during CVS’s earnings call, CFO Thomas Cowhey reiterated Lynch’s remarks about reducing benefits.

Cowhey: So, we’ve given you all the pieces to kind of understand why we think it (Medicare Advantage) will lose a significant amount of money this year. But as you think about improvement there, obviously there’s a lot of work that we still need to do to understand what benefits we’re going to adjust and what ones we can and can’t…To the extent that we don’t believe we can credibly recapture margin in a reasonable period of time, we will exit those counties…(And) as we’ve all mentioned we’re going to be taking significant pricing actions and really it’s going to depend on what our competitors do.

Magic Translation Box: We’re under the gun to figure this out because we have to notify CMS by June 3 how much we will increase Medicare Advantage premiums and cut benefits next year and which counties we’ll abandon altogether. We’ll also be watching what our competitors do, but we know from what they’ve been telling you guys that they, too, will be dumping enrollees, hiking premiums and slashing benefits. 

To make sure investors couldn’t miss what they were saying, Lynch jumped back into the conversation to make clear they knew they were #1 in her book:

Lynch: I’m just going to reiterate what I said in my prepared remarks. (You can bet what follows were prepared, too.) We are committed to improving margin in Medicare Advantage [emphasis added] and we will do so by pricing for the expected trends. We will do so by adjusting benefits and exiting service counties. And we are committed to doing that.

Magic Translation Box: Have I made myself clear? We will do whatever it takes to deliver the profits you expect. We will keep a closer eye on how much care people are trying to get and we’ll swing into action faster next time if we see evidence of an uptick. There will be carnage, but you guys rule. You mean a lot more to us than those old and disabled people who don’t have nearly as much money as you do in their bank accounts. 

This will not be the first time Aetna has dumped health plan enrollees who were a drain on profits. In 2000, when Medicare Advantage was called Medicare+Choice, Aetna notified the Clinton administration it would stop offering Medicare plans in 14 states, affecting 355,000 people, more than half of Aetna’s total Medicare enrollment at the time. Other companies, including Cigna, did the same thing. My team and I wrote a press release to announce that Cigna would be bailing from almost all the markets where we sold private Medicare plans.

We of course blamed the federal government (i.e., the Democrats) for being the skinflints that made it necessary to bail. Our CEO at the time, Ed Hanway, said the government just couldn’t be relied upon to be a reliable “partner.” 

Back then, just a relatively small percentage of Medicare beneficiaries were in private plans. Today, more than half of Medicare-eligible Americans are enrolled in a Medicare Advantage plan, which means the disruption could be much worse this time. Some people in counties where Aetna and other companies stop offering plans likely will not find a replacement plan with the same provider network, premiums and benefits.

But in most places, those who get dumped will be stuck in the volatile, often nightmarish Medicare Advantage world, unable to return to traditional Medicare and buy a Medicare supplement policy to cover their out-of-pocket obligations.

That’s because in all but a handful of states, seniors and disabled people will not be able to buy a Medicare supplement policy as cheaply as they could within six months of becoming eligible for Medicare benefits. After that, Medicare supplement insurers, including Aetna, get their underwriters involved. If your health isn’t excellent, expect to pay a king’s ransom for a Medigap policy.

Wall Street Yawned as Congress Grilled UnitedHealth’s CEO but Went Ballistic on CVS/Aetna Over Medicare Advantage Claims

Posted on by • Posted in Citizens United vs Federal Election Commission, CVS Health, Federal Trade Commission (FTC), Health Insurance Industry, Lobbyist, Market Consolidation, Market Power, Market Share, Medicare Advantage, Monopoly Behavior, Pharmaceutical Industry, Pharmacy Benefits Management, UnitedHealth Group, UnitedHealthcare, Vertical Consolidation, Vertical Integration • Leave a comment
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After UnitedHealth Group CEO Andrew Witty’s appearances at two congressional committee hearings last week, I had planned to write a story about what the lawmakers had to say. One idea I considered was to publish a compilation of some of the best zingers, and there were plenty, from Democrats and Republicans alike. 

I reconsidered that idea because I know from the nearly half-century I have spent on or around Capitol Hill in one capacity or another that those zingers were carefully crafted by staffers who know how to write talking points to make them irresistible to the media. As a young Washington correspondent in the mid-to-late’70s, I included countless talking points in the stories I wrote for Scripps-Howard newspapers. After that, I wrote talking points for a gubernatorial candidate in Tennessee. I would go from there to write scads of them for CEOs and lobbyists to use with politicians and reporters during my 20 years in the health insurance business. 

I know the game. And I know that despite all the arrows 40 members of Congress on both sides of the Hill shot at Witty last Wednesday, little if anything that could significantly change how UnitedHealth and the other big insurers do business will be enacted this year. 

Some reforms that would force their pharmacy benefit managers to be more “transparent” and that would ban some of the many fees they charge might wind up in a funding bill in the coming months, but you can be sure Big Insurance will spend millions of your premium dollars to keep anything from passing that might shrink profit margins even slightly.

Money in politics is the elephant in any Congressional hearing room or executive branch office you might find yourself in (and it’s why I coauthored Nation on the Take with Nick Penniman).

You will hear plenty of sound and fury in those rooms but don’t hold your breath waiting for relief from ever-increasing premiums and out-of-pocket requirements and the many other barriers Big Insurance has erected to keep you from getting the care you need.

It is those same barriers doctors and nurses cite when they acknowledge the “moral injury” they incur trying to care for their patients under the tightening constraints imposed on them by profit-obsessed insurers, investors and giant hospital-based systems. 

Funny not funny

Cartoonist Stephan Pastis captured the consequences of the corporate takeover of our government, accelerated by the Supreme Court’s 2010 landmark Citizens United vs. Federal Election Commission ruling, in his Pearls Before Swine cartoon strip Sunday. 

Rat: Where are you going, Pig?

Pig: To a politician’s rally. I’m taking my magic translation box.

Rat: He doesn’t speak English?

Pig: He speaks politicianish. This translates it into the truth. Come see.

Politician: In conclusion, if you send me to Washington, I’ll clean up this corrupt system and fight for you everyday hard-working Americans. God bless you. God bless the troops. And God bless America.

Magic translation box: I am given millions of dollars by the rich and the powerful to keep this rigged system exactly as it is. Until you change that, none of this will ever change and we’ll keep hoping you’re too distracted to notice. 

Politician’s campaign goon: We’re gonna need a word with you.

Magic translation box: This is too much truth for one comic strip. Prepare to be disappeared.

Rat: I don’t know him.   

Back to Sir Witty’s time on the hot seat. It attracted a fair amount of media coverage, chock full of politicians’ talking points, including in The New York Times and The Washington Post. (You can read this short Reuters story for free.) Witty, of course, came equipped with his own talking points, and he followed his PR and legal teams’ counsel: to be contrite at every opportunity; to extol the supposed benefits of bigness in health care (UnitedHealth being by far the world’s largest health care corporation) all the while stressing that his company is not really all that big because it doesn’t, you know, own hospitals and pharmaceutical companies [yet]; and to assure us all that the fixes to its hacked claims-handling subsidiary Change Healthcare are all but in.

Congress? Meh. Paying for care? WTF!

Wall Street was relieved and impressed that Witty acquitted himself so well. Investors shrugged off the many barbs aimed at him and his vast international empire. By the end of the day Wednesday, the company’s stock price had actually inched up a few cents, to $484.11. A modest 2.7 million shares of UnitedHealth’s stock were traded that day, considerably fewer than usual. 

Instead of punishing UnitedHealth, investors inflicted massive pain on its chief rival, CVS, which owns Aetna. On the same day Witty went to Washington, CVS had to disclose that it missed Wall Street financial analyst’s earnings-per-share expectations for the first quarter of 2024 by several cents. Shareholders’ furor sent CVS’ stock price tumbling from $67.71 to a 15-year low of $54 at one point Wednesday before settling at $56.31 by the time the New York Stock Exchange closed. An astonishing 65.7 million shares of CVS stock were traded that day. 

The company’s sin: paying too many claims for seniors and disabled people enrolled in its Medicare Advantage plans. CVS’s stock price continued to slide throughout the week, ending at $55.90 on Friday afternoon. UnitedHealth’s stock price kept going up, closing at $492.45 on Friday. CVS gained a bit on Monday, closing at $55.97. UnitedHealth was up to $494.38.

Postscript: I do want to bring to your attention one exchange between Witty and Rep. Buddy Carter (R-Ga.) during the House Energy and Commerce committee hearing. Carter is a pharmacist who has seen firsthand how UnitedHealth’s virtual integration–operating health insurance companies with one hand and racking up physician practices and clinics with the other–and its PBM’s business practices have contributed to the closure of hundreds of independent pharmacies in recent years. He’s also seen patients walk away from the pharmacy counter without their medications because of PBMs’ out-of-pocket demands (often hundreds and thousands of dollars). And he’s seen other patients face life-threatenng delays because of industry prior authorization requirements. Carter was instrumental in persuading the Federal Trade Commission to investigate PBMs’ ownership and business practices. He told Witty: 

I’m going to continue to bust this up…This vertical integration in health care in general has got to end.

More power to you, Mr. Carter. 

CVS slashes 2024 outlook — again — as Medicare seniors drive spending

Posted on by • Posted in CVS Health, Health Insurance Industry, Medical Loss Ratio (MLR), Medicare Advantage, Utilization Trends • Leave a comment
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Runaway inpatient spending in particular caused CVS’ insurance costs to snowball after returning “to patterns we have not seen since the start of the pandemic,” its CFO said.

Dive Brief:

  • CVS had a significantly worse first quarter than the healthcare giant — or Wall Street — expected, after its insurance arm failed to adequately prepare for seniors’ high use of medical care, especially in inpatient facilities.
  • The Rhode Island-based company’s health services segment — usually a reliable driver of growth — also saw its revenue and income fall in the quarter as its pharmacy benefit manager adjusted to the loss of a major contract with insurer Centene.
  • CVS slashed its earnings expectations for 2024 on Wednesday following the results. It’s the second time the company has lowered financial expectations this calendar year. “Clearly this is a disappointing result for us,” CFO Tom Cowhey said on a Wednesday call with investors, after which CVS’ stock fell more than 19%.

Dive Insight:

CVS brought in revenue of $88.4 billion in the quarter, up 4% year over year but significantly below analysts’ expectations. Net income was slashed by almost half compared to the prior-year quarter, to $1.1 billion.

The quarter was “burdened by utilization pressures in Medicare Advantage,” CEO Karen Lynch said on the call.

Starting last year, MA seniors began using higher levels of medical services after a long dry spell during the COVID-19 pandemic. The trend has continued into this year, leaving private insurers that manage the plans scrambling to contain costs.

CVS assumed utilization would moderate somewhat coming into the first quarter, but instead it was “notably above” expectations, according to Lynch.

Outpatient services, like mental health and medical pharmacy, along with supplemental benefits like dental continued to be elevated in the first quarter. However, inpatient utilization was particularly to blame for runaway spending.

Inpatient admissions per thousand in the quarter were up “high-single digits” compared to the same time last year, Cowhey said. A small portion of the growth was expected due to implementation of the CMS’ two-midnight rule that’s resulted in insurers having to cover more inpatient admissions. But overall, admissions “meaningfully exceeded” expectations for the quarter, according to the CFO.

“Inpatient seasonality returned to patterns we have not seen since the start of the pandemic,” Cowhey said.

Executives stressed that some of those costs appear to be seasonal and shouldn’t carry into the rest of the year. Inpatient utilization patterns are similar to what CVS’ insurance arm Aetna saw in normal years before the COVID-19 pandemic, and appear to be moderating in April, according to Lynch.

Still, the higher utilization caused the insurer’s medical loss ratio — a marker of spending on patient care — to soar to 90.4% in the first quarter, compared to 84.6% during the same time last year.

Overall, medical costs in the quarter were about $900 million higher than CVS expected, Cowhey said.

CVS’ results suggest the insurer “severely underestimated utilization of new members,” TD Cowen analyst Charles Rhyee wrote in a Wednesday morning note. “Investors already had lowered expectations for MA, but actual results and impact to guidance is likely way worse than expected.” 

CVS added more MA members coming into 2024 than any other U.S. health insurer, according to an analysis by consultancy Chartis. That growth caused CVS’ membership to grow 1.1 million members in the first quarter compared to the end of 2023, to 26.8 million individuals.

Revenue in CVS’ health benefits segment, which houses its insurer Aetna, subsequently inflated to $32.2 billion, up 21% compared to the fourth quarter of 2023.

Despite the boom, higher medical costs slashed the segment’s operating income, as did the impact of lower quality ratings in MA.

Lower quality or “star” ratings for 2024 cut steeply into CVS’ reimbursement. Aetna’s largest contract fell from 4.5 stars to 3.5 stars for 2024, causing the payer to lose out on about $800 million in revenue.

As a result of the pressures, “we think [MA] will lose a significant amount of money this year,” Cowhey said.

Following the quarter, CVS lowered its full-year financial expectations for earnings per share on a GAAP and adjusted basis, and for cash flow from operations.

CVS expects to notch an MLR of 89.8% in 2024, up 2.1 percentage points from its previous guidance, because of continued medical utilization pressures, Cowhey said.

Moving into 2025, CVS does expect to recover most of what it lost this year from the star ratings changes. But the insurer faces another setback: MA payment rates recently finalized for 2025 that insurers are slamming as a cut, despite only a modest decrease in base rates.

On the call, Lynch maligned the rates as “insufficient” and a “significant added disruption” in the program.

Like its other peers with major MA footprints, CVS plans to focus on improving profits at the potential expense of members. That includes hiking premiums and exiting counties where Aetna thinks it can’t improve profits in the near term. Aetna could lose members as a result, but the size of eventual losses will in large part depend on what the insurer’s competitors do, according to CVS executives.

Other major MA payers have said they will take similar steps to hike profits.

CVS also dealt with lower visibility into its claims in the quarter because of the massive cyberattack on claims clearinghouse Change Healthcare earlier this year. Change took its systems offline as a result, hamstringing providers’ payments across the U.S. and making it harder for insurers to predict how much they might have to spend on their members’ medical costs.

CVS established a reserve of nearly $500 million for claims it estimates were lodged in the quarter but it has yet to receive. Cowhey said the insurer is “confident” about the adequacy of its reserves.

Nightmare on Wall Street for Medicare Advantage Companies

Posted on by • Posted in Center for Medicare and Medicaid Services (CMS), CVS Health, Elevance Health, Health Insurance Industry, Health Policy, Lobbyist, Medicare Advantage, UnitedHealth Group, UnitedHealthcare, Wall Street • Leave a comment
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Wall Street has fallen out of love with big insurers that depend heavily on the federal government’s overpayments to the private Medicare replacement plans they market, deceptively, under the name, “Medicare Advantage.”

I’ll explain below. But first, thank you if you reached out to your members of Congress and the Biden administration last week as I suggested to demand an end to the ongoing looting by those companies of the Medicare Trust Fund.

As I wrote on March 26, the Center for Medicare and Medicaid Services was scheduled to announce this week how much more taxpayer dollars it would send to Medicare Advantage companies next year. On January 31, CMS said it planned to increase the amount slightly to account for the increased cost of health care, based on how much more the government likely would spend to cover people enrolled in the traditional Medicare program. It uses traditional Medicare as a benchmark.

Big insurers like UnitedHealthcare, Humana and Aetna, owned by CVS, howled when CMS released its preliminary 2025 rate notice that day. They claimed they wouldn’t be getting enough of taxpayers’ dollars. So they launched a high-pressure campaign to get CMS to give them more money. They demanded extra billions because, they said, their Medicare Advantage enrollees had used more prescription drugs and went to the doctor more often in 2023 and January of this year than the companies had expected.

The industry’s pressure campaign has been going on for years, and CMS usually caves to insurers’ demands. But this time, tens of thousands of taxpayers and Medicare enrollees sent letters and signed petitions demanding that CMS hold the line. And CMS did, to Wall Street’s shock.

CMS announced after the market closed Monday that it was sticking to its plan to increase payments to Medicare Advantage plans by 3.7% – more than $16 billion –from 2024 to 2025. That would mean that it would pay companies that operate MA plans between $500 and $600 billion next year, considerably less than insurers wanted.

Shocked investors began running for the exits right away. When the New York Stock Exchange closed at 4 p.m. ET on Tuesday, more than 52 million shares of the companies’ stock had been traded–many millions more than average–driving the share prices of all of them way down. And the carnage has continued throughout this week.

By the end of trading yesterday, UnitedHealth, Humana and CVS/Aetna had lost nearly $95 billion in market capitalization. To put that in perspective, that’s more than the entire market cap of CVS, which fell to $93 billion yesterday.

All seven of the big for-profit companies with Medicare Advantage enrollment had a bad week, although Cigna, where I used to work and which announced recently it is getting out of the Medicare Advantage business next year, suffered the least. Its shares were down a little more than 1% as of yesterday afternoon.

Humana, the second largest MA company, which last year said it was getting out of the commercial insurance business to focus more fully on Medicare Advantage, by contrast, was the biggest loser of the bunch–and one of the biggest losers on the NYSE. Its shares fell more than 13% on Tuesday. As of yesterday, they were still down nearly 12%.

The headline of Josh Nathan-Kazis’s story in Barrons was an apt summary of what happened: Humana Stock is Down. Wall Street’s Love Affair Is Ending in Tears.

Noting that Humana’s stock has fallen 40% this year, he wrote:

Last fall, the insurer Humana was on top of the world. The stock was trading above $520 per share, as the company’s major bet on Medicare Advantage—the privately-run, publicly-funded insurance program for U.S. seniors—seemed to be paying off.

Long a darling of Wall Street’s analyst class, the stock had returned nearly 290% since the start of 2015, handily outperforming the S&P 500 over the same period.

Over the past five months, that position has crumbled. Humana shares were down to $308 Tuesday morning, as the outlook for Medicare Advantage and, by extension, for Humana’s business, has grown dimmer and dimmer.

Humana shares dived 12.3% early Tuesday, after the latest blow to the future prospects for the profitability of the Medicare Advantage business. Late Monday, the Centers for Medicare and Medicaid Services announced Medicare Advantage payment rates for 2025 that fell short of investor expectations.

The other companies also had a disastrous week. Shares of UnitedHealth, the biggest of the group in terms of Medicare Advantage enrollment (and overall revenues and profits), had fallen by 7% by the end of the day yesterday. CVS/Aetna’s shares were down 7.1%; Elevance’s were down 3.37%; Molina’s were down 7.15%; and Centene’s were down 7.33%.

When I was at Cigna, one of my responsibilities was to handle media questions when the company announced quarterly earnings, mergers and acquisitions, and whenever there was a major event like the CMS rate notice. The worst days of my 20-year career in the industry were when some kind of news triggered a stock selloff. I had to try to put the best spin possible on the situation. But my job was relatively easy compared to what the CEO, CFO and the company’s investor relations team had to do.

You can be certain they have been on the phone and in Zooms all week with Wall Street financial analysts, big institutional investors and even the company’s big employer customers in attempts to persuade them that the sky has not fallen.

You can also be certain that the companies will now shift their focus to the political arena. To keep this from happening again, they will begin pouring enormous sums of your premium dollars into campaigns to help elect industry-friendly candidates for Congress and the presidency this November. We provided a glimpse of where they’re already sending those donations in a story last November. We will continue to monitor this in the months ahead.

Value-vased care battle: Kaiser-Geisinger vs. Amazon, CVS, Walmart

Posted on by • Posted in Amazon, Amazon Care, Competition, CVS Health, Disruption, Fee for Service Reimbursement, Geisinger Health, Health System, Hospital, Hospital Industry, Innovation, Innovative Care Models, Kaiser Permanente, Risant Health, Transformation, Transformation Strategy, Transformation Sustained, Transformational Change, Value-Based Healthcare, Walmart • Leave a comment

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For decades, research studies and news stories have concluded the American system is ineffective,

too expensive and falling further behind its international peers in important measures of performance: life expectancy, chronic-disease management and incidence of medical error.

As patients and healthcare professionals search for viable alternatives to the status quo, a recent mega-merger is raising new questions about the future of medicine.

In April,  Kaiser Permanente acquired Geisinger Health under the banner of newly formed Risant Health. With more than 185 years of combined care-delivery experience, Kaiser and Geisinger have long been held up as role models of the value-based care movement.

Eyeing the development, many speculated whether this deal will (a) ignite widespread healthcare transformation or (b) prove to be a desperate attempt at relevance (Kaiser) or survival (Geisinger).

Whether incumbents like Kaiser Permanente and Geisinger can lead a national healthcare transformation or are displaced by new entrants will depend largely on whether they can deliver value-based care on a national scale.

In Search Of Healthcare’s Holy Grail

Value-based care—the simultaneous provision of high quality, convenient and affordable medical care—has long been the aim of leading health systems like Kaiser, Geisinger, Mayo Clinic, Cleveland Clinic and dozens more.

But results to-date have often failed to match the vision.

The need for value-based care is urgent. That’s because U.S. health and economic problems are expected to get worse, not better, over the next decade. According to federal governmental actuaries, healthcare expenditures will rise from $4.2 trillion today to $7.2 trillion by 2031. At that time, these costs are predicted to consume an estimated 19.6% of the U.S. Gross Domestic Product.

Put simply: The U.S. will nearly double the cost of medical care without dramatically improving the health of the nation.

For decades, health policy experts have pointed out the inefficiencies in medical care delivery. Research has estimated that inappropriate tests and ineffective procedures account for more than 30% of all money spent on American medical care.

This combination of troubling economics and untapped opportunity explain why value-based care has become medicine’s holy grail. What’s uncertain is whether the transformation in healthcare delivery and financing will be led from inside or outside the healthcare system.

Where The Health-System Hopes Hang

For years, Kaiser Permanente has led the nation in clinical quality and patient outcomes based on independent, third-party research via the National Committee for Quality Assurance (NCQA) and Medicare Star ratings. Similarly, Geisinger was praised by President Obama for delivering high-quality care at a cost well below the national average.

And yet, these organizations, and many other highly regarded national and regional health systems, are extremely vulnerable to disruption, especially when their strategy and operational decisions fail to align.

Kaiser, for its part, has struggled with growth while Geisinger’s care-delivery strategy has proven unsuccessful in recent years. Failed expansion efforts forced KP to exit multiple U.S. markets, including New York, North Carolina, Kansas and Texas. More recently, several of its existing regions have failed to grow market share and weakened financially.

Meanwhile, Geisinger has fallen on hard times after decades of market domination. As Bob Herman reported in STAT News: “Failed acquisitions, antitrust scrutiny, leadership changes, growing competition from local players, and a pandemic that temporarily upended how patients got care have forced Geisinger to abandon its independence. The system is coming off a year in which it lost $240 million from its patient care and insurance operations.”

Putting the pieces together, I believe the Kaiser-Geisinger deal represents an industry undergoing massive change as health systems face intensifying pressure from insurers and a growing threat from retailers like Amazon, CVS and Walmart. This upcoming battle over the future of value-based care represents a classic conflict between incumbents and new entrants.

Can The World’s Largest Companies Disrupt U.S. Healthcare?

Retail giants, including Amazon, Walmart and CVS, are among the nation’s 10 largest companies based on annual revenue.

They have a broad geographic presence and strong relationships with almost all self-funded businesses. Nearly all have acquired the necessary healthcare pieces—including clinicians, home-health services, pharmacies, insurance arms and electronic medical record systems—to replace the current medical system.

And yet, while these companies expand into medical care and financing, their core businesses are struggling, resulting in announced store closures and layoffs. As newcomers to the healthcare market, they have been forced to pay premium dollars to acquire parts of the delivery system. All have a steep learning curve ahead of them.

The Challenge Of Healthcare Transformation

American medicine is a conglomerate of monopolies (insurers, hospitals, drug companies and private-equity-owned medical practices). Each works to maximize its own revenue and profit. All are unwilling to innovate in ways that benefit patients when doing so comes at the sacrifice of financial performance.

One problem stands at the center of America’s soaring healthcare costs: the way doctors, hospitals and drug companies are paid.

The dominant payment methodology in the United States, fee-for-service, rewards healthcare providers for charging higher prices and increasing the number (and complexity) of services offered—even when they provide no added value.

The message to doctors and hospitals is clear: The more you do, and the greater market control you have, the higher your income and profit. This is the antithesis of value-based care.

The alternative to fee-for-service payments, capitation, involves paying a single, up-front sum to the providers of care (doctors and hospitals) to cover the total annual cost for a population of patients. This model, unlike fee-for-service, rewards effectiveness and efficiency. Capitation creates incentives to prevent disease, reduce complications from chronic illness, and diminish the inefficiencies and redundancies present in care delivery. Capitated health systems that can prevent heart attacks, strokes and cancer better than others are more successful financially as a result. 

However, it’s harder than it sounds to translate what’s best for patients into everyday decisions and actions. It’s one thing to accept a capitated payment with the intent to implement value-based care. It’s another to put in place the complex operational improvements needed for success. Here are the roadblocks that Kaiser-Geisinger will face, followed by those the retail giants will encounter.

3 Challenges For Kaiser-Geisinger:

  1. Involving Clinical Experts. Kaiser Permanente is a two-part organization and when the insurance half (Kaiser) decided to acquire Geisinger, it did so without input or involvement from the half of the organization responsible for care-delivery (Permanente). This spells trouble for Geisinger, which must navigate a complex turnaround without the operational expertise or processes from Permanente that, in the past, helped Kaiser Permanente grow market share and lead the nation in clinical quality.
  2. Going All In. To meet the healthcare needs of most its patients, Geisinger relies on community doctors who are paid on a fee-for-service basis. Generally, the fee-for-service model is predicated on the assumption that higher quality and greater convenience require higher prices and increased costs. With Geisinger’s distributed model, it’ll be very difficult to deliver consistent, value-based care.
  3. Inspired Leadership. Major improvements in care delivery require skilled leadership with the authority to drive clinical change. In Kaiser Permanente, that comes through the medical group and its physician CEO. In Geisinger’s hybrid model, independent doctors have no direct oversight or central accountability structure. Although Risant Health could be an engine for value-based medical care, it’s more likely to serve the role of a “holding company,” capable of recommending operational improvements but incapable of driving meaningful change.

3 Challenges For The Retail Giants:

  • More Medical Offerings. Amazon, Walmart and CVS are successfully acquiring primary care (and associated telehealth) services. But competing with leading health systems will require a more wholistic, system-based approach to keep medical care affordable. This won’t be easy. To avoid ineffective, expensive specialty and hospital services, they will need to hire their own specialists to consult with their primary care doctors. And they will have to establish centers of excellence to provide heart surgery, cancer treatment, orthopedic care and more with industry-leading outcomes. But to meet the day-to-day and emergent needs of patients, they also will have to establish contracts with specialists and hospitals in every community they serve.  
  • Capitalizing On Capitation. Already, the retail giants have acquired organizations well-versed in delivering patient care through Medicare Advantage, a capitated alternative to traditional (fee-for-service) Medicare plans. It’s a good start. But the retailers must do more than dip a toe in value-based care models. They must find ways to gain sufficient experience with capitation and translate that success into value-based contracts with self-funded businesses, which insure tens of millions of patients.
  • Defining Leadership. Without an effective and proven clinical leadership structure, the retail giants will be no more effective than their mainstream competitors when it comes to implementing improvements and shifting the culture of medicine to one that is customer- and service-focused.

Be they incumbents or new entrants, every contender will hit a wall if they cling to today’s failing care delivery model. The secret ingredient, which most lack and all will need to embrace in the future, is system-ness.

For all of the hype surrounding value-based care, fragmentation and fee-for-service are far more common in American healthcare today than integration and capitation.

Part two of this article will focus on how these different organizations—one set inside and one set outside of medicine—can make the leap forward with system-ness. And, in the end, you’ll see who is most likely to emerge victorious.