Inflation slowing as Wall Street looks bullish on healthcare sector

Wall Street’s roil has stabilized somewhat in recent days, with the S&P 500 brushing up against its 200-day moving average and rising more than 10 percent since its October lows, as of publication time.

The index’s 50-day moving average is trending up, according to financial data firm Refinitiv. But it still must climb another 7.4 percent to form a “golden cross,” which is when a stock or index’s short-term moving average rises above one of its longer-term moving averages. The S&P 500’s 20-day and 100-day moving averages are closer to the milestone, only needing increases of 5 percent and 1.2 percent, respectively.

The Dow Jones Industrial Average has already formed a small golden cross: its 20-day moving average is 1.2 percent higher than its 200-day moving average.

Investors Optimistic about Healthcare Sector

 Investors are most optimistic about the Healthcare sector, which is trading close to its 3-year average “price to earnings-per-share” ratio of 48.1x, according to Simply Wall Street.

 Analysts are expecting an annual earnings growth of 13.4 percent, higher than the sector’s past year earnings growth of 5 percent.

 Merck and Johnson & Johnson were among last week’s top gainers driving the market.

Inflation Appears to be Slowing

 The recent lower-than-expected inflation figures could indicate it is slowing.

 The Fed may continue raising rates, considering the strength in recent labor market and retail sales data.

Pharmacy chains rapidly expand into primary care

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Retailers and insurers are building out their primary care strategies in a bid to become the new front door for patients seeking healthcare services, especially seniors on highly profitable Medicare Advantage (MA) plans. In the graphic above, we examine the capabilities of three of the largest pharmacy chains—CVS Health, Walgreens, and Walmart—to deliver full-service primary care across in-person and virtual settings.

CVS pioneered the pivot to care provision in 2006 with its acquisition of MinuteClinic, which now has over 1,000 locations. The company has further expanded its concept of pairing retail and pharmacy services with primary care by opening over 100 HealthHUBs, which provide an expanded slate of care services. However, CVS lags competitors in the rollout of full-service primary care practices, with its proposed physician-led Super Clinics still stuck in the planning stages.

Walgreens, with its majority stake in VillageMD (on track for 200 co-branded practices by the end of the year) and the recent acquisition of Summit Health (which operates another 370 primary and urgent care clinics) has assembled the most impressive primary care footprint of the three companies. 

Walmart, the largest by number of stores but also the newest to healthcare, has opened more than 25 Walmart Health Centers, a step up from earlier experimentation with in-store care clinics, offering more services and partnering with Epic Systems to integrate electronic health records. 

CVS’s key advantage over its competitors comes from its payer business, having acquired Aetna in 2018, now the fourth-largest MA payer by membership. Walgreens and Walmart have both aligned themselves with UnitedHealth Group (UHG) to participate in MA, with Walmart having struck a ten-year partnership to steer UHG MA beneficiaries to Walmart Health Centers in Florida and Georgia. 

While aligning with UHG expands the reach of these retail giants into MA risk, UHG, whose OptumHealth division is by far the largest employer of physicians nationwide, remains the healthcare juggernaut most poised to unseat incumbent providers as the home for consumers’ healthcare needs.

House expected to vote to pass healthcare and climate reform bill, sending it to President Biden for signature

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The $740B Inflation Reduction Act (IRA) includes significant reforms for Medicare’s drug benefits, including capping seniors’ out-of-pocket drug spending at $2,000 per year, and insulin at $35 per month. Medicare plans to fund these provisions by requiring rebates from manufacturers who increase drug prices faster than inflation, and through negotiating prices for a limited number of costly drugs. Drug prices are consistently a top issue for voters, but seniors won’t see most of these benefits until 2025 or beyond, well after this year’s midterms and the 2024 general election. 

The Gist: While this package allows Democrats to deliver on their campaign promise to allow Medicare to negotiate drug prices, the scope is more limited than previous proposals. Over the next decade, Medicare will only be able to negotiate prices for 20 drugs that lack competitors and have been on the market for several years.

Still, because much Medicare drug spending is concentrated on a few high-cost drugs, the Congressional Budget Office projects the bill will reduce Medicare spending by $100B over ten years. However, these negotiated rates and price caps don’t apply to the broader commercial market, and some experts are concerned this will lead manufacturers to raise prices on those consumers—creating yet another element of the cost-shifting which has been the hallmark of our nation’s healthcare system. 

The pharmaceutical industry also claims that this “government price setting” will hamper drug development (although there is limited to no evidence to support this proposition), signaling that they will likely spend the next several years trying to influence the rulemaking process as the new law is implemented.

Critics say Mark Cuban’s pharmacy isn’t tackling the big issue: brand-name drugs

Mark Cuban’s pharmacy, Cost Plus Drug Co., has hundreds of drugs marked at discounted prices, but some pharmacy experts say there’s a larger problem that needs fixing, CNBC reported July 28. 

The online pharmacy launched in January with about 100 drugs, and by its one-year anniversary, plans to have more than 1,500 medications, according to the company’s website. The business model, which allocates for a $3 pharmacy dispensing fee, $5 shipping fee and a 15 percent profit margin with each order, aims to uproot the pharmaceutical industry, which has faced criticism for years about its opaque business practices

Gabriel Levitt, the president of PharmacyChecker, a company that monitors the cheapest drug prices, told CNBC there’s more to be done.

“As much as I support the venture, what they’re doing does not address the big elephant in the room,” Mr. Levitt said. “It’s really brand-name drugs that are increasing in price every year and forcing millions of Americans to cut back on medications or not take them at all.”

Brand-name drugs are 80 percent to 85 percent more expensive than generics since brand-name drugs have to repeat clinical tests to prove efficacy, according to the FDA. Cost Plus Drug Co. only offers generics. Mr. Cuban told CNBC he hopes to sell brand-name medications “within six months,” but added that it’s a tentative timeline.

Lawmakers urge HHS to fine drugmakers restricting 340B drug discounts

Dive Brief:

  • More than 180 members of the House of Representatives are urging the Biden administration to crack down on drugmakers restricting drug discounts in the 340B program.
  • Enforcement actions should include fines, the letter from a bipartisan group of House members to HHS Secretary Xavier Becerra and other administration officials said.
  • Currently, 18 drug manufacturers are limiting 340B discounts dispensed through pharmacies that contract with 340B providers, according to the letter.

Dive Insight:

The 340B program requires drugmakers to charge hospitals only the statutory ceiling prices for eligible outpatient drugs. The goal of the three-decade-old program is to have savings flow into care for low-income patients and underserved communities. But critics — notably, drugmakers and some lawmakers — argue the program doesn’t have enough oversight, as hospitals don’t need to account for what they do with any savings.

Drug manufacturers began imposing restrictions on 340B discounts as early as summer 2020, sparking legal challenges from regulators. The HHS sent nine warning letters to pharmaceutical companies, referring seven of them to the Office of the Inspector General for investigation and potential enforcement.

However, eight months later, the OIG has yet to take enforcement action, the new letter from 181 House members reads.

The letter asks the OIG to finish its ongoing review of seven drug manufacturers for potential noncompliance with federal law on 340B discounts “as soon as possible.”

The law allows the OIG to impose fines up to $6,000 per drug claim on companies that intentionally overcharge 340B providers, according to the Health Resources and Services Administration, which oversees the program.

Regulators should begin imposing civil monetary penalties against pharmaceutical companies found in violation, the congresspeople said.

The letter also argues that the Biden administration should pursue enforcement action against 11 drug companies restricting 340B pricing, which either haven’t received notice from the HHS that they’re in violation of law yet, or have received a notice but haven’t been referred to OIG for enforcement.

“Every day that drug manufacturers violate their obligation to provide these discounted drugs, vulnerable communities, federal grantees, and safety net health care providers are deprived of resources Congress intended to provide,” the letter reads.

A number of hospital associations came out in support of the letter, including the National Rural Health Association, the American Hospital Association, America’s Essential Hospitals and the National Association of Community Health Centers.

340B Health, which lobbies on behalf of hospitals in the 340B program, thanked the House members for the letter in a statement Monday, and reiterated calls for fines.

“HHS should impose steep financial penalties on all the companies that are ignoring their legal commitments to the health care safety net,” said Maureen Testoni, CEO of 340B Health, in a statement.

A survey of more than 500 hospitals by 340B Health released in May estimated that the annual financial impact from drug company restrictions has doubled since the end of 2021, costing hospitals millions of dollars per year.

Drugmakers that have imposed or announced restrictions on 340B discounts for drugs dispensed at community and specialty pharmacies include AbbVie, AstraZeneca, Johnson & Johnson, Merck and Pfizer.

The 340B discounts can range from 25% to 50% of the cost of the drugs.

More pharmaceutical companies look to restrict discounts to 340B hospitals using contract pharmacies

Johnson & Johnson became the 16th drugmaker to limit 340B discounts for hospitals dispensing drugs at contract pharmacies. These manufacturers have taken issue with the proliferation of contract pharmacies in the 340B program, alleging high rates of fraud and duplicative billing. Several court battles between these drug companies and the federal government are ongoing. 

The 340B program, which requires pharmaceutical companies to provide 20 to 50 percent discounts for drugs participating hospitals purchase (see our explainer on the mechanics of the program here), has grown rapidly in recent years.

The Gist: Over 40 percent of hospitals now qualify for 340B discounts, and 340B drug sales totaled $38B in 2020. According to a recent surveyparticipating hospitals have lost 25 to 40 percent of their contract pharmacy savings since drugmakers began restricting discounts in 2020. 

Many hospitals have used savings from the program to subsidize other areas of patient care; some tell us that losing 340B revenue would erase their entire margin. Health systems should plan for a future in which their bottom lines are not dependent on this increasingly at-risk revenue source. 

Mark Cuban’s pharmacy started with a cold email

A Dallas-based generic drug startup bearing Mark Cuban's name just came out  of stealth

The Mark Cuban Cost Plus Drug Co. launched its online pharmacy in January, offering low-cost versions of high-cost generic drugs. And it all started with a cold email. 

Alex Oshmyansky, MD, PhD, fired off an email to Mr. Cuban with a simple subject line: “Cold pitch.” The then 33-year-old radiologist told Mr. Cuban about work he was doing in Denver with a compounding pharmacy and the business plan behind a company he founded in 2018, Osh’s Affordable Pharmaceuticals. 

I asked him a simple question, because this was when the whole pharma bro thing was going down,” Mr. Cuban said on NPR podcast The Limits, referring to convicted felon Martin Shkreli. “I was like, ‘Look, if this guy can jack up the prices 750 percent for lifesaving medicines, can we go the opposite direction? Can we cut the pricing? Are there inefficiencies in this industry that really allow us to do it and really make a difference?'”

Dr. Oshmyansky answered yes. Their weekly email correspondence continued for months. The Mark Cuban Cost Plus Drug Co. was quietly founded in May 2020, and Dr. Oshmyansky now serves as its CEO. The company is organized as a public-benefit corporation, meaning it is for-profit but claims its social mission of improving public health is just as important as the bottom line.

“We basically created a vertically integrated manufacturing company that will start with generic drugs,” Mr. Cuban told NPR. A major component of the strategy is to bypass pharmacy benefit managers, which Mr. Cuban likens to bouncers at a club.

They’re the ones who say, ‘Hey, I’m controlling access to all the big insurance companies. If you want this insurance company to sell your drug, you’ve got to pay the cover charge. All these drugs pay the cover charge to these PBMs through rebates, and because they’re paying the cover charges, the prices are jacked up,” Mr. Cuban told NPR. “We said we’re going to create our own PBM, we’re going to work directly with the manufacturers, and we’re not going to charge the cover charge.”

The Mark Cuban Cost Plus Drug Co. marks the prices of its drugs up 15 percent, charges a $3 pharmacy fee to pay the pharmacists it works with, and a fee for shipping. “That’s it,” Mr. Cuban said on NPR. “There’s no other added costs. The manufacturers love what we’re doing for that reason.”

Others have set out before to disrupt pharma the way Mr. Cuban and Dr. Oshmyansky intend, but their downfall is cooperating or giving in to the PBMs, the entrepreneur noted

“People always ask, well why didn’t somebody do this before? The reality is there’s so much money there, it’s hard not to be greedy,” Mr. Cuban said on the podcast. “If you get to any scale at all, those PBMs will start throwing money at you and saying, ‘Look, just play the game.’” 

Mr. Cuban has indicated he has no intention to play the game. 

“I could make a fortune from this,” Mr. Cuban told Texas Monthly last fall. “But I won’t. I’ve got enough money. I’d rather f— up the drug industry in every way possible.”

FDA fully approves Moderna’s COVID vaccine

A health care worker preparing a dose of  Moderna's coronavirus vaccine.

The Food and Drug Administration fully approved Moderna’s mRNA COVID-19 vaccine on Monday, saying it meets its safety and manufacturing requirements.

Why it matters: Moderna’s vaccine, which will now be marketed as Spikevax, is the second coronavirus vaccine to receive full approval after the FDA approved Pfizer-BioNTech’s vaccine in August.

What they’re saying: “The public can be assured that Spikevax meets the FDA’s high standards for safety, effectiveness and manufacturing quality required of any vaccine approved for use in the United States,” acting FDA Commissioner Janet Woodcock said in a statement.

  • “The totality of real-world data and the full [Biologics License Application] for Spikevax in the United States reaffirms the importance of vaccination against this virus,” Moderna CEO Stéphane Bancel said.

The big picture: The rise of the Omicron variant forced vaccine makers to reevaluate the effectiveness of their vaccines, which were developed based on eaarlier forms of the virus.

  • Studies show that Moderna and Pfizer-BioNTech’s vaccines still overwhelmingly prevent severe disease and hospitalizations, especially when the first two doses are reinforced with a booster shot.

The prescription drug pricing paradox

Net prices of brand-name drugs have increased significantly over the last decade. But savings from generics have driven average prescription prices down in Medicare and Medicaid, Axios’ Caitlin Owens writes about a new analysis by the Congressional Budget Office.

Why it matters: The analysis reiterates that the generic market is largely working as it’s intended to.

By the numbers: The average net price of a prescription fell from $57 in 2009 to $50 in 2018 in Medicare Part D, and from $63 to $48 in Medicaid.

  • The drop is largely attributable to the growing use of generics, which jumped from 75% to 90% of all prescriptions nationally during that time frame. The average price for a generic prescription also fell in both programs.
  • But the average net brand-name prescription price more than doubled in Part D and increased by 50% in Medicaid, per the analysis. These increases were driven by higher launch prices for new drugs and price increases for drugs already on the market.