Plenty of memorable healthcare news took place in the first quarter of 2019, but we’ve gathered our picks for the top healthcare stories from the six months. First, though, here’s an update on healthcare’s sector performance:
Healthcare under-performed the broader market in the 1st quarter.
- XHS (S&P Healthcare Services Index) Q1 Total Return: 3.35%
- XLV (S&P Healthcare Sector) Q1 Total Return: 7.69%
- S&P 500 Q1 Total Return 13.00%
Story 1: Medicare For All and the 2020 Election.
Buzzworded to Death.
Get used to the phrase ‘Medicare For All.’ You’re gonna be hearing a lot about it. The concept, named and popularized by candidate Bernie Sanders, involves creating a single-payer healthcare system for the US where the government, in the form of Medicare, covers everything.
As the presidential election and campaign trail unfolds this year, Medicare for all is all but GUARANTEED to be at the forefront of every major Democratic candidate’s 2020 campaign message. A recent poll indicated that 56% of the public supports Medicare for All. I find that a bit fishy, though, considering another poll indicates that 46% of people haven’t even heard of Medicare for All. Maybe we just shouldn’t pay attention to polls? More interestingly, people’s support for Medicare for All drastically decreased when they learned that it would result in…ahem…higher taxes.
The heck is Medicare For All?
As we’ve talked about before, Medicare for All means different things to different people. Basically, a lot of politicians have varying views as to what Medicare for All actually looks like – from a fully-fledged universal, single-payer system 100% run by Uncle Sam (think Bernie Sanders, socialists) to simply making Medicare more widely accessible. For instance, a popular proposed alternative to a full-on healthcare policy assault currently would lower the Medicare eligibility age to say, 50.
What does this mean for us?
Nobody really knows what the TRUE cost of Medicare for All would be, but that hasn’t stopped some from guessing. Current estimates for Bernie Sanders’ Medicare for All would amount to $32.6 trillion over 10 years. But that’s before offsetting costs from removing the current system. Still, the report shows that the economics of such a drastic shift in healthcare policy is just way too difficult to estimate. All we know is that any such policy would most definitely mean higher taxes for, well, everyone.
Will this actually happen?
Considering that Republicans and the healthcare industry as it stands today also exist, a fully baked single payer system probably won’t happen anytime soon. At the absolute most, it would probably be phased in incrementally over a very, very long period of time. Many industry players (shout out UnitedHealth) want to work within the existing system to find solutions that would be less disruptive. The issue remains – is it possible at all to create a healthcare system where a single public program funds everything, but delivery is still controlled by privately managed doctors and hospitals?
Things you should know.
As the 2020 election heats, up, it’ll be important to keep straight the various healthcare terms tossed around. For instance, many have joined the ‘Medicare for All’ rally cry without knowing whether or not they specifically support what that means. Here’s a little cheat sheet for you:
- Medicare For All – Medicare is expanded to cover everyone; not just those aged 65+. This healthcare system would be run by the government publicly, presumably abolishing all private healthcare plans. This would be a type of single-payer system.
- Universal Coverage – Everyone in the healthcare system is covered regardless of income or job status. Note that this doesn’t necessarily mean ‘free.’ Multiple payers could exist in this system. By requiring healthcare coverage, this term implies that healthcare is seen as a fundamental right.
- Single Payer – The entirety of healthcare is covered under one payer, whether that payer is Medicare or managed by a private company. Again, not free.
- Medicare/Medicaid Buy-in – A current proposal where regular U.S. citizens who are not currently eligible for Medicare or Medicaid could buy into these coverages, functioning as a regular health plan.
- Medicaid work requirements – Another proposal where proof of work must be given in order to be covered under Medicaid. Kentucky is one of the most recent states to pass such a proposal.
Story 2: The Drug Pricing Conundrum
Go see the Principal.
Some of Big Pharma’s largest drug companies received a good ole’ talking to from Uncle Sam in January. Congressional leaders heard testimonies from top executives from AbbVie, AstraZeneca, Bristol-Meyers-Squibb, Johnson & Johnson, Merck, and Sanofi as they discussed and dissected the problem of rampant, belligerent drug prices.
So what happened?
Congress asked Big Pharma about drug prices and even shot some flack at the industry’s practices. Their concerns (putting it mildly) included rapid drug price hikes (in the order of thousands of percentages), patent-protecting strategies to try and extend drug monopolies (therefore delaying competition/supply for these drugs), and scapegoating other parts of the healthcare industry rather than taking any of the blame themselves (namely, insurers and PBMs).
Pointing Fingers.
Drugmakers responded by – you guessed it – deflecting. Essentially, the executives blamed the system as a whole for the drug pricing problem and explained that there were various incentives implicit within the healthcare system to price drugs higher.
When asked why other countries paid less than the U.S. for drugs, the execs claimed that America foots the bill for other countries and that the world would have much less drug innovation if this were not the case. They pointed out that the costs of research and development, along with bringing drugs to market, can be quite high, and quite risky. The drugmakers also made clear that any over-regulation of U.S. prices could potentially threaten patient access to drugs, along with future breakthrough drug innovations.
Alright…what now?
Good question. Not sure. Right now there are a few proposals being floated around in Capitol Hill. The first would force PBMs (think CVS, Walgreens) to return 100% of the rebates that they negotiate to the patient. Drug makers LOVE this idea. A second proposal – one that Big Pharma doesn’t like nearly as much – would tie drug payments to a ‘basket’ of international country drug payments.
Another idea being floated around would involve Medicare directly negotiating with drugmakers on price. The bottom line is that everyone simply wants more transparency when it comes to healthcare prices in general.
Pharmacy Benefit Managers go to Testify.
The Senate wants to ask PBMs some questions about their drug rebate practices and whether they’re ACTUALLY saving patients money on drugs. Companies like CVS, UnitedHealth, and Cigna were grilled on drug pricing a few months after the drug-makers made the trek. PBMs have been in defense mode, especially as Congress prepares potential legislation around abolishing drug rebate practices for good (paywall)
Story 3: The Potential End of Surprise Emergency Bills
Emergency Care Costs.
The countless stories of patients receiving extravagant bills from the ER for simple care (like a flu shot) gives bad optics to the healthcare industry. The issue has gotten so out of hand, in fact, that Vox started asking individuals to submit their emergency room bills to create an online database.
Balance Billing Bonanza.
The problem of Balance Billing emerged from a few sources, including payor-provider scuffles over emergency care coverage, and the increased prevalence of freestanding emergency rooms (think urgent cares, but for emergency services). Because these emergency rooms were freestanding and not connected to a hospital, patients 1) initially did not understand the difference between this facility and an urgent care, and 2) were billed emergency room rates, instead of what they thought were urgent care rates. Imagine receiving a $20,000 bill from a small bike accident.
What Balance Billing Is.
Needless to say, a lot of people were confused by emergency care billing practices. Insurers stopped paying the exorbitant rates charged by emergency care providers. Naturally, the emergency care providers then simply would pass on the rest of the bill to the patient, hence the name ‘Balance Billing.’
Patients grew confused – “Wait,” they thought. “I thought my insurance covered an emergency room visit?” Well, yes, Timmy – your insurance might cover the facility portion of the bill, but the emergency physician treating you (who is separately contracted and probably works in an emergency physician practice) might not be covered at all. Which would put YOU on the hook for the rest of the bill.
Seeking a Solution.
Now, emergency physicians and bi-partisan lawmakers are looking for solutions to the problem to end Balance Billing once and for all. Intermountain Healthcare in Utah is already ahead of the game and striking deals with insurers to avoid surprise medical bills.
Congress Takes Action.
‘Surprise Billing’ is one of the rare public policy problems that has both bipartisan support and active solutions working through Congress. Insurance companies (think United Health) and providers (i.e., physicians) have been spatting for months about who’s to blame when a patient receives an exorbitantly large bill after an emergency visit. At the beginning of April, panelists met with Congress to work through potential solutions to the issue – one that states have been working on for a while now.
So…any progress?
Main takeaways and ideas from the testifying witnesses included removing the incentives in place for doctors to remain out of network with insurers, forcing arbitration between the insurer, patient, and provider to find a reasonable payment solution, pinning out of network payments to Medicare rates, and implementing a bundled payment for all services rendered.
Most witnesses honed in on limiting the out-of-network status of physicians administering care at hospitals, ESPECIALLY in an emergency setting where patients have little to no say in where they receive care. Once they figure out the kinks, expect some sort of solution to come from Congress. Everyone is on board for some change, but the issue is figuring out a surprise billing solution that everyone can agree upon.
Story 4: Major M&A Activity in Healthcare
Bristol Myers Squibb Spends a Chunk of Change on Celgene
Biotech Kraken Bristol-Myers Squibb announced the acquisition of biotech giant Celgene for a hefty $74 billion in the first quarter. Maybe they can finally change their name to something that rolls off the tongue a bit easier…that is if they’re actually able to close the deal.
Both of the companies are particularly focused on the development of cancer drugs, and, if approved, the new biotech behemoth would be in position to bring specialized cancer drugs to market AND would have significant leverage to negotiate for better rates for their new drugs. The deal is expected to close in Q3 2019.
Anyone else hot in here?
Not so fast, though: Apparently Starboard, who is a big shareholder in BMY, is NOT on board with the $74 billion decision. They think the deal is super risky and told BMY management so. Citing expiring patents (especially on Celgene’s biggest moneymaker, Revlimid), a risky drug pipeline, a large debt load, and historically poor management execution on BMY’s operations (talk about a kick to the pants), Starboard claimed that BMY doesn’t have the right or the track record to close the biggest biotech acquisition of all time.
All aboard!
They’re not the only ones, either. Other activist investors with large stakes are now hopping on the ‘no-go’ train. Wellington Management, who owns 8% of BMY, thinks they’re getting a raw deal. BMY responded to the pushback, claiming that they’re paying a fair price for Celgene, which includes access to very specialized cancer drugs and new experimental gene therapies. Now, they’re trying to smooth out the wrinkles with their investors to make sure the deal still gets done. As of this writing, it looks like BMY made it through the choppy waters and will close the Celgene deal.
Altria Gets Be-Juuled
Teen vaping has been a huge hit (pun intended), so much so, that Altria is shelling out almost $13 BILLION for a little over a third of the trendy company.
Juul has a massive market share in the vaping space (a whopping estimated 75%), and Altria is looking to cash in on that by placing Juul products in premier locations on the infamous tobacco wall. Despite all odds, tobacco lives on…
Cigna / Express Scripts Merge and CVS / Aetna Latest
As if the Juul acquisition weren’t enough to rustle up some jimmies, several mergers are scheduled to close by year-end, including Cigna and Express Scripts, which was approved and finalized. The deal took conspicuously less time than CVS-Aetna, which is still stuck in legal purgatory (but looking to close soon), as some judge got offended when he felt like the companies were treating him like a “rubber stamp.” Seriously, lesson learned – don’t mess with judges. He’s still delaying the merger as of this writing.
Civitas Solutions bought for $17.75 a share
Around the public sector corner, Civitas Solutions (think home care type stuff) was bought out for $17.75 by private equity firm Centerbridge..a whopping 27% premium to its average 30 day share price and $1.4 billion transaction. Cha-CHING.
Cambia and BCBS North Carolina Link Up
Two large not for profit healthcare companies, Cambia (which could be described as something of a healthcare ‘conglomerate’) and Blue Cross Blue Shield of North Carolina (a health insurance company) are joining forces to create a $16 billion behemoth (yeah, look at that alliteration). The joint company, retaining the name Cambia, will cover over 6 million people. The merger is a bit interesting, considering most of the companies under the Blue Cross Blue Shield umbrella haven’t participated much in healthcare consolidation. Still, this merger is the latest culprit in the vertical integration trend.
Centene buys WellCare
Centene secured plans to purchase its main competitor, WellCare, in a $17.3 billion deal (a 32% premium to their share price). The merger comes at a time when mega-sized healthcare firms are joining forces pretty frequently (think CVS / Aetna, Cigna / Express Scripts, and a whole host of others). What’s different about these firms, though, is that they’ve made their killing mainly by managing Medicaid programs for states. Their businesses really took off under the Affordable Care Act, which allowed for the expansion of Medicaid, and thus, the expansion of Centene’s and WellCare’s businesses.
Not so fast.
Because this transaction is a huge ‘horizontal’ merger in a highly regulated area, this deal is highly likely to raise antitrust concerns. Also, as we just covered above, any existential threat to the ACA would probably REALLY hamstring any further growth available to the new company. If the deal does go through, look for these companies to leverage their size and aggressively target the Medicare Advantage market. Like we talked about in our February 11th 3rd story, Medicare Advantage is growing like a weed.
Baylor and Memorial Hermann Call Off Merger
Out of the not for profit sector, big news from Texas made headlines when the two largest health systems, Baylor Scott & White, and Memorial Hermann, called off their previously planned merger. While there was no official word why the two called it quits, Baylor announced that the organization believed it could achieve its healthcare objectives without the need for a state-wide merger. The canceled deal comes at a time when large health systems are consolidating more frequently at the state level, with increasing levels of regulatory scrutiny. Interestingly enough, the long-awaited Dignity Health and Catholic Health Initiatives merger finally closed. Say an official hello to CommonSpirit Health!
Story 5: The (However Slow) Push for Healthcare Price Transparency
Hospitals may be forced to disclose ACTUAL prices.
Buried deep in a 700-page report published last month (kinda sounds like the intro to an Indiana Jones film), HHS dropped a major proposal that would force physicians and hospitals to disclose publicly how much they get paid by insurers.
This proposal would expose the entire pricing negotiation between healthcare providers and insurers and potentially up-end the entire pricing system that the industry has grown so accustomed to. Right now, HHS is only requesting comments on the said proposal, but it shows the way that the current admin is thinking about changing the healthcare industry. Also, expect major lobbying efforts.
The Price is Right.
Note that this would be COMPLETELY different from the rule that went into effect at the beginning of 2019, where hospitals were required to disclose their chargemasters (which is the price they charge for procedures, not the price they’re paid from insurers). If this current proposal goes through in any form, everyone in the country would know every single healthcare provider’s negotiated rates of payment for all procedures.
Providers and insurers hold rates in extreme secrecy, so this is definitely something to keep an eye on. I know it’s just a comment period on a potential proposal, but this news doesn’t seem to be getting the type of attention I’d expect for something that would probably cause a massive landslide.
Read the WSJ feature article here (paywall), and expect future initiatives (however slow-moving) to continue around healthcare price transparency.
Honorable Mention: Quick Hits
Dialysis companies (DaVita, Fresenius) took a hit this quarter as HHS looks to revamp the kidney care industry. Specifically, HHS is pushing for a higher level of home care in the industry (instead of dialysis clinics).
FDA Commissioner Scott Gotlieb announced his resignation after tweeting a few months ago that he wasn’t “going anywhere.”
Biogen’s much-hyped Alzheimer’s drug failed in late-stage clinical trials in March. It’s bad news all-around – no more groundbreaking treatments for this debilitating disease are in their pipeline, and investors in the biotech giant were hammered as well. The drug seemed poised for potential success after a promising Phase II study, but that hope came crashing down when an independent firm concluded that it was no more effective than the placebo at preventing the development of a brain protein that eventually leads to Alzheimer’s.
Medicare and Medicaid committees are taking an alarming note of proposed DSH cuts currently pushed by Congress (we touched on this debate in our January 11th edition’s 5th story as well).
There are 2,000 rural hospitals nationwide, and, according to new data, about 430 of those are considered at risk of closing/bankruptcy in 43 different states. For our math majors out here (thanks for following a healthcare newsletter) that’s about a fifth of all rural hospitals, which is a pretty big deal.
About the Healthy Muse.
The Healthy Muse is a healthcare newsletter created for the purpose of simplifying healthcare news.
Every week, the Healthy Muse sends out a newsletter with the 5 biggest healthcare news stories from that week, along with other minor relevant news stories – those we call “Quick Hits.”
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Thanks for reading!