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Healthcare megadeals may have major long-term impact, Moody’s says
Dive Brief:
- CVS Health’s plan to buy Aetna could have a significant impact on hospitals, health insurers and pharmacy benefit managers (PBMs), according to Moody’s Investors Service’s Healthcare Quarterly.
- Payers’ vertical integration strategies are credit negative for hospitals, but hospitals’ plans to make generic drugs and other new strategies are positives, Moody’s said.
- On the payer side, Moody’s said mergers between health insurers and PBMs are credit negative in the short-term because of increased debt and risk associated with integration. However, in the long run, these deals may lower costs.
Moody’s said hospitals may feel the impact of UnitedHealth’s Optum buying DaVita Medical and Humana investing in Kindred Healthcare. However, Cigna’s purchase of Express Scripts won’t have much of an effect on hospitals.
Payers’ vertical integration strategies, such as buying physician groups and non-acute care providers, are credit negative for nonprofit and for-profit hospitals and put more pressure on hospital volumes and margins, Moody’s said.
The issue comes from payer vertical integration being able to offer preventive, outpatient and post-acute care for lower costs than acute care hospitals. These initiatives will have an increasingly disruptive impact to hospitals’ credit quality, according to the report.
“These strategies would place insurers in direct competition with hospitals, which offer the same services and are also seeking to align with physician groups,” Moody’s said.
On the payer side, two recently announced megadeals, CVS-Aetna and Cigna-Express Scripts, are both designed to control rising medical costs and target drug prescriptions, which now account for nearly one-fifth of total health spending. While payers have been able to limit growth in utilization, medical inflation and sources of medical care, prescription drug costs continue to rise, Moody’s said.
Though Moody’s expects both deals to be credit negative in the short-term, they have the potential to turn credit positive in the long run, especially CVS-Aetna. “The combined company has the potential to lower medical costs as Aetna will be better able to engage with its members as they purchase drugs at CVS retail pharmacies or through its prescription drug programs,” Moody’s said.
These deals will result in most payers having to contract with a PBM owned by a competitor. Moody’s expects PBM competition to remain high. Payer-owned PBMs must still offer the same cost savings to competitors to keep customers.
Out of the recent megadeals, only CVS buying Aetna is expected to have “more significant impact” for payers. The other announced transactions aren’t expected to cause many problems for insurance companies, Moody’s said.
Looking at initiatives that are in development, Moody’s said none of the big-name plans are expected to have much of an impact on the healthcare segments. These include the Amazon, Berkshire Hathaway and J.P. Morgan Chase’s partnership, Apple opening medical clinics and entering the medical record business or nonprofit hospitals forming a generics company.
Federal Appeals Court Puts Chill On Maryland Law To Fight Drug Price-Gouging
https://khn.org/news/federal-appeals-court-puts-chill-on-maryland-law-to-fight-drug-price-gouging/
States continue to battle budget-busting prices of prescription drugs. But a federal court decision could limit the weapons available to them — underscoring the challenge states face as they, in the absence of federal action, go one-on-one against the powerful drug industry.
The 2-to-1 ruling Friday by the U.S. 4th Circuit Court of Appeals invalidated a Maryland law meant to limit “price-gouging” by makers of generic drugs. The measure was inspired by cases such as that of former Turing Pharmaceutical CEO Martin Shkreli, who raised one generic’s price 5,000 percent after buying the company.
The law, which had been hailed as a model for other states, is one of a number of state initiatives designed to combat rapidly rising drug prices. It gave the state attorney general power to intervene if a generic or off-patent drug’s price increased by 50 percent or more in a single year.
If dissatisfied with the company’s justification, the attorney general could have filed suit in state court. Manufacturers would have faced a fine of up to $10,000 and potentially have to reverse the price hike. The generics industry was fiercely critical of the law.
“We are evaluating all options with regard to next steps,” said Maryland Attorney General Brian Frosh in a statement. His office would not elaborate further.
The state could appeal to have the case heard “en banc,” meaning by the full 4th Circuit, with jurisdiction over five states.
Such appeals aren’t commonly granted, but this law could be a strong candidate, suggested Aaron Kesselheim, an associate professor at Harvard Medical School who researches drug-price regulation.
The Friday ruling looms large as other state legislatures grapple with ever-climbing drug prices.
Similar price-gouging legislation has been introduced in at least 13 states this year, though none of those measures became law, according to the National Conference of State Legislatures (NCSL). Three other bills failed to gain passage.
The NCSL also cited the law in a March advisory for states seeking new approaches to regulating drug prices.
The court’s finding could have a chilling effect on such efforts, especially as more state legislatures wrap up business for 2018.
“A negative court ruling will put a damper or a pause on state activities,” said Richard Cauchi, NCSL’s health program director. “Unless this topic is your No. 1 priority of the year, your legislators are juggling multiple bills, multiple strategies. When bill three gets in trouble, they move to bill four.”
The appeals court held that Maryland’s law overstepped limits on how states can regulate commerce — specifically, a constitutional ban on states controlling business that takes place outside their borders. The majority ruling argues that since most generics manufacturers and drug wholesalers engage in trade outside Maryland, the state cannot control what prices they charge.
In a dissenting opinion, the panel’s third judge argued Maryland can regulate the drug prices charged within the state since the law is meant to affect only medications being sold to its own residents.
Kesselheim, in an article published last month in the journal JAMA, argued a similar point.
Regardless, striking down a law on constitutional grounds can be particularly discouraging, suggested Rachel Sachs, an associate law professor at Washington University in St. Louis who researches drug regulations.
“If it had been a rejection on vagueness grounds, that’s something you can cure with a more specific statute,” she said. “But the fact that they said this is unconstitutional poses real concern for other states.”
That’s important. While the federal government has talked a big game on bringing down drug prices, it has done little. Instead, states have taken the lead — spurred by the budget squeeze pricey prescriptions impose on their Medicaid programs and on state employee benefits packages.
But states have far fewer tools at their disposal than does Congress. Most state laws so far tackle only pieces of the problem — targeting a specific drug or particular practice, experts said.
“We’ll get more broad and better evolution on this issue if the federal government decides to take it seriously — which it hasn’t so far,” Kesselheim said.
To be fair, Maryland’s law is only one of a bevy of approaches.
Other states have focused on price transparency laws. In California, drug companies must disclose in advance if a price might increase by more than a set percent and that they justify the increase. Industry has sued to block the California law.
New York has limited what the state will pay for drugs, establishing a process to review if expensive drugs are priced out of step with their medical value.
A number of states have since 2017 passed laws regulating pharmacy benefit managers — the contractors who negotiate discounted drug coverage for insurance plans, but who rarely reveal what level of discount they actually pass on to consumers.
Experts expect that activity to continue, especially as escalating drug prices show little sign of letting up.
“The states are going to keep trying and experimenting,” Sachs added. “This is a problem that isn’t going away.”
Even efforts such as Maryland’s — which targeted price-gouging — will likely remain at the forefront.
“I don’t think this is the end of states trying to do something on price-gouging,” said Ellen Albritton, a senior policy analyst at the left-leaning advocacy group Families USA who consults with states on drug-pricing policy. “It’s such an issue that offends people’s sensibilities. It’s crazy people can do this.”
Congress Urged To Cut Medicare Payments To Many Stand-Alone ERs
https://khn.org/news/congressional-advisers-urge-medicare-payments-to-many-stand-alone-ers-be-cut/
The woman arrived at the emergency department gasping for air, her severe emphysema causing such shortness of breath that the physician who examined her put her on a ventilator immediately to help her breathe.
The patient lived across the street from the emergency department in suburban Denver, said Dr. David Friedenson, who cared for her that day a few years ago. The facility wasn’t physically located at a hospital but was affiliated with North Suburban Medical Center several miles away.
Free-standing emergency departments have been cropping up in recent years and now number more than 500, according to the Medicare Payment Advisory Commission (MedPAC), which reports to Congress. Often touted as more convenient, less crowded alternatives to hospitals, they often attract suburban walk-in patients with good insurance whose medical problems are less acute than those who visit an emergency room located in a hospital.
If a recent MedPAC proposal is adopted, however, some providers predict that these free-standing facilities could become scarcer. Propelling the effort are concerns that MedPAC’s payment for services at these facilities is higher than it should be since the patients who visit them are sometimes not as severely injured or ill as those at on-campus facilities.
The proposal would reduce Medicare payment rates by 30 percent for some services at hospital-affiliated free-standing emergency departments that are located within 6 miles of an on-campus hospital emergency department.
“There has been a growth in free-standing emergency departments in urban areas that does not seem to be addressing any particular access need for emergency care,” said James Mathews, executive director of MedPAC. The convenience of a neighborhood emergency department may even induce demand, he said, calling it an “if you build it, they will come” effect.
Emergency care is more expensive than a visit to a primary care doctor or urgent care center, in part because emergency departments have to be on standby 24/7, with expensive equipment and personnel ready to handle serious car accidents, gunshot wounds and other trauma cases. Even though free-standing emergency departments have lower standby costs than hospital-based facilities, they typically receive the same Medicare rate for emergency services. The Medicare “facility fee” payments, which include some ancillary lab and imaging services but not reimbursement to physicians, are designed to help defray hospitals’ overhead costs.
The proposal would affect only payments for Medicare beneficiaries. But private insurers often consider Medicare payment policies when setting their rules.
According to a MedPAC analysis of five markets — Charlotte, N.C.; Cincinnati; Dallas; Denver; and Jacksonville, Fla. — 75 percent of the free-standing facilities were located within 6 miles of a hospital with an emergency department. The average drive time to the nearest hospital was 10 minutes.
Overall, the number of outpatient emergency department visits by Medicare beneficiaries increased 13.6 percent per capita from 2010 to 2015, compared with a 3.5 percent growth in physician visits, according to MedPAC. (The reported data doesn’t distinguish between conventional and free-standing emergency facility visits.)
“I think [the MedPAC proposal] is a move in the right direction,” said Dr. Renee Hsia, a professor of emergency medicine and health policy at the University of California-San Francisco who has written about free-standing emergency departments. “We have to understand there are limited resources, and the fixed costs for stand-alone EDs are lower.”
Hospital representatives say the proposal could cause some free-standing emergency departments to close their doors.
“We are deeply concerned that MedPAC’s recommendation has the potential to reduce patient access to care, particularly in vulnerable communities, following a year in which hospital EDs responded to record-setting natural disasters and flu infections,” Joanna Hiatt Kim, vice president for payment policy at the American Hospital Association, said in a statement.
Independent free-standing emergency departments that are not affiliated with a hospital would not be affected by the MedPAC proposal. These facilities,which make up about a third of all free-standing emergency facilities, aren’t clinically integrated with a hospital and can’t participate in the Medicare program.
The MedPAC proposal will be included in the group’s report to Congress in June.
Even though stand-alone emergency facilities might not routinely treat patients with serious trauma, they can provide lifesaving care, proponents say.
Friedenson said that for his emphysema patient, avoiding the 15- to 20-minute drive to the main hospital made a critical difference.
“By stopping at our emergency department, I truly think her life was saved,” he said.
UnitedHealth’s Evolution From Traditional Insurer Into Multifaceted Business Pays Off
http://www.startribune.com/unitedhealth-group-sees-profit-jumps-boosts-outlook/479981613/
UnitedHealth Group hikes outlook after quarterly profit easily beats estimates
Strong first quarter, new growth opportunity have the health insurer hiking its yearly outlook.
After chalking up another quarter of better-than-expected profits, UnitedHealth Group officials on Tuesday described the potential for growth through a new venture fund the company is using to invest in innovative health care startups.
Minnetonka-based UnitedHealth first described the venture fund to investors in November and announced in March that Larry Renfro, the chief executive of the company’s Optum division, would lead the effort.
Syria’s health care system is in crisis
Syria’s health care system is in crisis
The Syrian civil war has taken a devastating toll on the country’s health care system.
What’s happening:
- More than half of its public hospitals are closed or operating at a diminished capacity, and 75% of Syrian health care workers have fled the country, per a Wall Street Journal video filmed on the ground in Raqqa.
- “No doctors, no hospitals, no nothing. No water, no electricity, nothing. It’s the wilderness, like living in the forest,” says one father who traveled over two hours to seek treatment for his son.
- The people who have died from a lack of health care aren’t included in official death tallies, and those effects could last for years after the fighting ends (if it ever does).
Go deeper: Watch the video.
Would Americans Accept Putting Health Care on a Budget?
If you wanted to get control of your household spending, you’d set a budget and spend no more than it allowed. You might wonder why we don’t just do the same for spending on American health care.
Though government budgets are different from household budgets, the idea of putting a firm limit on health care spending is far from unknown. Many countries, including Canada, Switzerland and Britain, pay hospitals entirely or partly this way.
Under such a capped system, called global budgeting, a hospital has an incentive to deliver less care — including reducing hospital admissions — and to increase the efficiency of the care it does deliver.
Capping hospital spending raises concerns about harming quality and access. On these grounds, hospital executives and patient advocates might strongly resist spending constraints in the United States.
And yet some American hospitals and health systems already operate this way, including Kaiser Permanente and the Veterans Health Administration. To address concerns about access and quality, these programs are usually paired with quality monitoring and improvement initiatives.
That brings us to Maryland’s experience with a capped system. The evidence from the state is far from conclusive, but this is a weighty and much-watched experiment for health researchers, so it’s worth diving into the details of the latest studies.
Starting in 2010 with eight rural hospitals, and expanding its plan in 2014 to the state’s other hospitals, Maryland set global budgets for hospital inpatient and outpatient services, as well as emergency department care. Each hospital’s budget is based on its past revenue and encompasses all payers for care, including Medicare, Medicaid and commercial market insurance. Budgets for hospitals are updated every year to ensure that their spending grows more slowly than the state’s economy.
Because physician services are not part of the budgets, there is an incentive to provide more physician office visits, including primary care. According to some reports, Maryland hospitals are responding to this incentive by providing additional support outside their walls to patients who have chronic illnesses or who have recently been discharged from a hospital. Greater use of primary care by such patients, for example, could reduce the need for future hospital admissions.
In 2013, early results found, rural hospital admissions and readmissions were both down from their levels before the system was introduced.
In the first three years of the expanded program, revenue growth for Maryland’s hospitals stayed below the state-set cap of 3.58 percent, saving Medicare $586 million. Spending was lower on hospital outpatient services, including visits to the emergency department that do not lead to hospital admissions. In addition, preventable health conditions and mortality fell.
According to a new report from RTI, a nonprofit research organization, Maryland’s program did not reap savings for the privately insured population (even though inpatient admissions fell for that group). However, the study corroborated the impressive Medicare savings, driven by a drop in hospital admissions. In reaching these findings, the study compared Maryland’s hospitals with analogous ones in other states, which served as stand-ins for what would have happened to Maryland hospitals had global budgeting not been introduced.
But a recent study, published in JAMA Internal Medicine, was decidedly less encouraging.
Led by Eric Roberts, a health economist with the University of Pittsburgh, the study examined how Maryland achieved its Medicare savings, using data from 2009-2015. Like RTI’s report, it also compared Maryland hospitals’ experience with that of comparable hospitals elsewhere.
However, unlike the RTI report, Mr. Roberts’s study did not find consistent evidence that changes in hospital use in Maryland could be attributed to global budgeting. His study also examined primary care use. Here, too, it did not find consistent evidence that Maryland differed from elsewhere. Because of the challenges of matching Maryland hospitals to others outside of the state for comparison, the authors took several statistical approaches in reaching their findings. With some approaches, the changes observed in Maryland were comparable to those in other states, raising uncertainty about their cause.
A separate study by the same authors published in Health Affairs analyzed the earlier global budget program for Maryland’s rural hospitals. They were able to use other Maryland hospitals as controls. Still, after three years, they did not find an impact of the program on hospital use or spending.
Changes brought about by the Affordable Care Act, which also passed in 2010, coincide with Maryland’s hospital payment reforms. The A.C.A. included many provisions aimed at reducing spending, and those changes could have led to hospital use and spending in other states on par with those seen in Maryland.
A limitation of Maryland’s approach is that payments to physicians are not included in its global budgets. “Maryland didn’t put the state’s health system on a budget — it only put hospitals on a budget,” said Ateev Mehrotra, the study’s senior author and an associate professor of health care policy and medicine at Harvard Medical School. “Slowing health care spending and fostering better coordination requires including physicians who make the day-to-day decisions about how care is delivered.”
A broader global budget program for Maryland is in the works. The U.S. Centers for Medicare and Medicaid Services is reviewing a state application that commits to global budgets for Medicare physician and hospital spending. An editorial that accompanied the JAMA Internal Medicine study noted that a few years may be insufficient time to detect changes. It suggests that five to 10 years may be more appropriate.
“Maryland hospitals are only beginning to capitalize on the model’s incentives to transform care in their communities,” said Joshua Sharfstein, a co-author of the editorial and a professor at the Johns Hopkins Bloomberg School of Public Health. “This means that as Maryland moves forward with new stages of innovation, there is a great deal more potential upside.” As former secretary of health and mental hygiene in Maryland, he helped institute the Maryland hospital payment approach.
Global budgets are unusual in the United States, but their intuitive appeal is growing. A California bill is calling for a commission that would set a global budget for the state. And soon Maryland won’t be the only state using such a system. Pennsylvania is planning a similar program for its rural hospitals.
Can this system work across America?
How much spending control is ceded to the government is the major battle line in health care politics. An approach like Maryland’s doesn’t just poke a toe over that line, it leaps miles beyond it.
But the United States has been trying to get a handle on health care costs for decades, spending far more than other advanced nations without necessarily getting better outcomes. A successful Maryland experiment could open an avenue to cut costs through the states, perhaps one state at a time, bypassing the steep political hurdle of selling a national plan.
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HENRY KOTULA 