Mega mergers with mega concerns
- Combined, the new big three will capture 47% of the commercial market. Many remain concerned about the massive consolidation in the insurance industry.
- Insurance companies can capture significant cost savings that in theory will lead to lower prices and better care for customers. Plans have to be competitive, especially on the exchanges, and under the ACA, profits are capped by the MLR.
- But people aren’t questioning the benefit for insurers but are worried that consumers will end up worse off. If insurance companies have more negotiating power, they can increase prices. And if there is less competition in a market, consumes have historically ended paying more in premiums. AHA is lobbying to look at the Anthem and Cigna merger. Based on their analysis, there are 817 geographic markets at-risk for lack of competition and sharp price increases.
The behemoth we call healthcare
- Healthcare spending climbed 4.9% compared to Q2 2014 vs the overall economy growing at 2.3%. The second-quarter growth of 2.3% was up sharply from the 0.6% revised growth in the first quarter of 2015, and is significantly below the 4.6% growth in last year’s second quarter, which was a high mark since the fourth quarter of 2011.
- Spending is expected to rise 5.8 percent over the next decade and reach about $5.5 trillion by 2024
- Factors behind accelerated growth: more people have insurance coverage, aging of Baby Boomer generation and stronger economic growth, prescription drug spending significantly increased in 2014 is projected to continue grow another 7.6% in 2015
- The increase in drug spending is a growing concern for the nation. Insurers and PBMs are fighting back to get bigger and better price discounts. For instance, CVS has stopped covering drugs that have viable, cheaper alternatives. Either way, the PBMs have been able to reap significant savings either by utilizing cheaper generics or forcing drug manufacturers to provide great discounts.
- Fun fact: Number of innovative medicines, or new molecular entities, launched globally in 2014 hit a 17-year high of 46, up from 29 in 2013. By focusing on specialty drugs, many are able to progress through clinical development faster than mass-market treatments.
- Medicaid turns 50, and now provides coverage for nearly 1 in 4 Americans. It has become one of the largest items in state budgets.
- More than half of Medicaid enrollees now get care through private managed care.
- Sadly, majority of hospitals will face penalties again for failing to improve readmission rates. Nearly 2,600 hospitals will collectively lose $420M.
- This actually presents an interesting dilemma. All but 209 of the hospitals penalized in this round were also punished last year, which means that the ones who are struggling to lower readmissions are continuing to struggle. How much of this is because of the patient case mix index versus hospitals not providing adequate care?
Post ACA: Insurance and exchanges
- State-run health insurance marketplaces are costly to run, resulting in many states to turn to the federal exchange. Nearly $5B in grants from federal taxpayers have gone towards states to help finance these marketplaces. For instance, Hawaii spent $139M on their state-run exchange but only enrolled 8,2000 customers.
- With the King v. Burwell decision ruling in favor of the ACA, subsidies can be given through the federal exchange, there is in essence no downside for states to switch to federal exchanges.
- Private insurance exchanges are becoming popular with employers. In 2015, about 6M workers selected their health plans through private exchanges, which is double 2014.
- Estimates predict 40M of the 150M people with employer health insurance will be choosing through private exchanges by 2018.
- The ONC has awarded an additional $38M in federal grants to continue to expand statewide health information exchanges.
- I’m cautiously optimistic about the role of these statewide health information exchanges. For example, Cal Index has claims and clinical data for approximately 9M members. By gathering, consolidating, and sharing data, providers and insurers have more data to determine patient care plans and treatments. Moreover, it provides an opportunity to understand population level trends. But these exchanges require insurers and providers to participate to work, which their businesses are currently not incentivized to do if switching costs diminish.
Playing nice in the sandbox
- The House passes the 21st Century Cures Act. This will provide an additional $9.3B in mandatory funding over the next five years to NIH and additional $550M to support the FDA. The goal of this initiative is to help accelerate drug development.
- Over the last two weeks, there was quite a bit of pushback from Republicans around passing mandatory spending vs. discretionary spending.
- CMS softens the two-midnight rule that determines whether it pays hospital stays as inpatient or outpatient visits. This increase flexibility and improved review process will help healthcare providers with more decision-making power about providing the patient the best care and worrying less about financial penalties. CMS will also remove oversight of review from RACs to quality improvement organizations.
- Why is this such a big deal? Well a lot of money and care is on the line. Medicare pays for inpatient services and outpatient services under separate payment systems, which can produce substantially different payment amounts for similar patients receiving similar services. And this heavily influences cost-sharing for the patient (co-pays, deductibles).
- Novartis plans to link payment to outcomes for their new heart-failure treatment. Insurers would initially pay a lower price, followed by an additional payment if Entresto succeeds in keeping patients out of the hospital and reducing associated costs. The drug could cost as much as $4,500 a year and would be taken daily for a patient’s lifetime. CVS is also exploring pay-for-performance plans.
- It’s finally happening… but not everyone is optimistic that it’ll work. CMO at Express Scripts is skeptical. The U.S. lacks infrastructure for data collection on patients, and it’s not clear who would be responsible for tracking their outcomes. And perhaps a more difficult challenge to performance-linked pricing is isolating factors that a drug company’s reimbursement should be tied to because so many things can affect a patient’s outcome.
- Fun fact: Delaware became the 29th state to have telehealth parity laws
Not-for-profit hospitals at risk?
- New Jersey tax court ruled that Atlantic Health System (AHS) will no longer be exempt from taxes. The court was unable to distinguish between non-profit activities of the hospital vs. the for-profit activities carried about partner/private entities. For example, AHS has relationships with for-profit physician practices on their sites.
- This ruling could have implications for the NFP health systems across the nation of state tax courts decide to revoke tax-exemption from them, which brings us back to the central question whether or not NFP health systems provide enough “charity care” to justify tax exemptions?
- The value of the tax exemption varies by state, but hospitals across the country received a collective $24.6 billion tax break in 2011. These hospitals provided “$62.4 billion” in community benefits, the study found, but 92% of that number encompassed charity care for indigent patients, Medicaid payment shortfalls, research and training. Only 8% supported ways to improve community health. Additionally, previous studies have shown that nearly half of the community benefit spending is going into residency programs. Is this enough to keep NFP health systems? Perhaps the more pertinent question is if the alternative is any better? After all, of the 50 highest-charging hospitals, 49 were for-profit institutions, most of them operated by management companies such as Community Health Systems and Hospital Corporation of America.
Tag, you’re IT
- Hospitals are beginning to purchase health IT solutions to help them launch their own Medicare Advantage or commercial health plans. IT challenges continue to be a key challenge. Provider-owned plans covered less than 10% of the private insurance market, but we definitely expect this to grow.
- Enterprise wellness solutions continue to receive funding ($128M in H1), which makes sense given the potential market size. 70% of US employers offer wellness programs. Penetration rates are not too shabby either with company-provided fitness bands or activity trackers and company-organized fitness competitions and challenge have employer participation of 13% and 34%, respectively.
- According to a RAND Corporation study, every $1 invested in overall wellness efforts yields a return on investment of $1.50. When the investment is in programs targeting chronic diseases, such as diabetes and obesity, the ROI increases to $3.80.
- AMA and CMS have worked together to address the challenges with prematurely tying reimbursement to ICD-10. According to the CMS, for one year after October 1, Medicare will not deny physicians or other practitioners Part B claims “based solely on the specificity of the ICD-10 diagnosis code” as long as the provider used a valid code “from the right family.”
- This buys physicians some time to transition over to using ICD-10 codes, which presents additional infrastructure challenges. ICD-10 requires software updates to Version 5010 messaging when communicating with clearinghouses, but about 25% of providers still use Version 4010.