Bob Herman

Wall Street loves Senate GOP health care bill

Richard Drew / AP

Health care companies' stocks soared Thursday after Senate Republicans released the text of their bill to repeal portions of the Affordable Care Act and overhaul Medicaid.

The driving forces behind the rally: the GOP bill would repeal the ACA's taxes and change individual insurance markets. Wall Street, often focused on the short term, also appears content with ignoring large cuts to Medicaid in the long term. Here's how each sector is faring:

  • Pharmaceutical and medical device companies: Rising drug prices are not addressed at all, and medical-device companies would get a full repeal of the ACA's tax on their products. Those are clear victories for two powerful industries. Stock prices rose especially high for drug companies Gilead Sciences, Bristol-Myers Squibb, Eli Lilly and Pfizer.
  • Large health insurance companies: The Senate bill would repeal the ACA's health insurance tax, a top lobbying goal for the industry. Companies would also have a lot more leeway in charging older Americans more for coverage, leading to higher stock gains for Aetna, Anthem, Cigna, Humana and UnitedHealth Group. However, they would be negatively affected by Medicaid cuts, as states likely would cut their payments in managed-care contracts.
  • Hospitals: If the Senate bill ends up facing estimated coverage losses similar to the House version, hospitals are in trouble. But hospital companies like HCA, Tenet Healthcare and Community Health Systems traded higher because of the slight extension to the ACA's Medicaid expansion — even though there will be bigger Medicaid cuts over time in the Senate bill.
  • Medicaid insurers: Stock prices at Centene, Molina Healthcare and WellCare Health Plans rose sharply. These companies get the same benefits as the big insurers, but also could see their Medicaid payments cut more in the future.
The bottom line: Wall Street favors short-term gains, and the Senate bill would repeal the ACA's taxes almost immediately.

How the ACA exchanges are looking for 2018

Alex Brandon / AP

Health insurance companies that want to sell Affordable Care Act plans in 2018 in states that rely on the federal marketplace have to file rate requests today. Some insurers have already signaled their intent to exit some markets, while others plan on expanding.

The biggest news so far: Anthem is pulling out of Indiana and Wisconsin — two states that will get a ton of political attention, given that they're the home states of Vice President Mike Pence and Paul Ryan. But the nightmare scenario — a total withdrawal from all of the states it serves — isn't happening.

Here's how the ACA markets are shaping up.

  • Anthem, the large, for-profit Blue Cross Blue Shield brand, is withdrawing almost all of its ACA plans in Indiana (where it is headquartered) and Wisconsin. But it still intends to sell plans in 11 other states.
  • Health Care Service Corp., another big Blues brand, filed rates in the five states it operates (Illinois, Montana, New Mexico, Oklahoma, Texas). But a spokesperson said "no final decisions have been made regarding products or participation."
  • Kaiser Permanente said it remains "very committed to the individual coverage market" and will offer coverage in every region where it currently operates (California, Colorado, D.C., Georgia, Hawaii, Maryland, Oregon, Virginia, Washington)
  • Molina Healthcare submitted initial filings in all nine states it currently operates (California, Florida, Michigan, New Mexico, Ohio, Texas, Utah, Washington, Wisconsin).
  • Centene, a Medicaid-based insurer that has had profitable ACA plans, is entering more markets.
  • Oscar Health Insurance is expanding and will offer plans in California, New Jersey, New York, Ohio, Tennessee and Texas.
  • MDwise, a small not-for-profit carrier in Indiana, is pulling out of the state. Health Tradition, a plan owned by Mayo Clinic, is leaving Wisconsin.
  • Medica expects to be in Iowa's exchange.
  • Blue Cross Blue Shield of Alabama, the only ACA insurer in the state, will offer individual and small-group plans in every county next year.
  • Aetna, Humana and UnitedHealth Group, three of the largest health insurers in the country, previously decided to stop selling ACA plans in all or nearly all of their markets.
  • Other states that operate their own insurance exchange, like Connecticut, have shown that returning insurers are requesting sizable premium hikes next year, mostly due to the uncertainty in Washington.

Caveats: These are preliminary filings. Insurers can still decide to leave by September, and there's no guarantee their requested rate increases will look anything like what the state approves. A lot right now depends on if the government terminates cost-sharing subsidies for low-income people or stops enforcing the individual mandate to buy coverage.

And a reminder: The ACA individual marketplaces represent just a sliver of all health coverage. Employer plans, Medicare and Medicaid cover the bulk of the population.


Anthem pulls ACA plans in two more states

Michael Conroy / AP

Anthem will not sell Affordable Care Act plans next year in Indiana or Wisconsin, the company said Wednesday. It'll sell just a couple plans outside the exchanges in those states, to keep a minimal footprint in case it wants to re-enter.

Why it matters: Anthem has now more or less bailed on three ACA marketplaces, including Ohio, blaming the volatility and uncertainty around those markets. But Anthem still presumably will sell ACA plans in 11 other states. It's not good news for the ACA exchanges — but it's not doomsday, either.


How coal (yes, coal) fuels one drug company's earnings

Pablo Martinez Monsivais / AP

Reuters reports a bizarre story today that details how Mylan, the pharmaceutical company that has been lambasted for drastically raising prices of EpiPens, also earns a decent chunk of money from...coal operations.

Why Mylan invests in refined coal: Tax credits. The coal operations lose money, but Mylan is able to claim hefty clean energy tax credits. In 2016 alone, that gave Mylan "an effective tax rate of negative 294 percent" and boosted earnings by at least $40 million, Reuters reports. Mylan already enjoys a low corporate tax rate after it parked its headquarters in the Netherlands in 2015.

Why it matters: It's another instance of financial engineering that hangs over Mylan, which will face angry investors at its shareholder meeting tomorrow.


Humana is holding up the Walgreens-Rite Aid merger

Charles Krupa / AP

Health insurer Humana is trying to kill a subpoena from the Federal Trade Commission tied to the agency's review of Walgreens Boots Alliance's $7 billion acquisition of Rite Aid. But the FTC is demanding the D.C. district court require Humana to cough up the documents by June 26, according to court filings.

Why the urgency: Walgreens proposed buying Rite Aid in October 2015 to create the largest pharmacy chain in the country. The FTC is worried the deal would lead to higher drug prices for consumers because Walgreens would have a lot more negotiating power over insurers and employers. But Walgreens and Rite Aid have already agreed to divest some stores and provided other necessary information to the FTC, and therefore legally can finish the deal by July 7.

What the FTC is still examining: Whether Humana's Medicare prescription drug plans, which feature Wal-Mart as the preferred in-network pharmacy, would be a viable plan while excluding the combined Walgreens-Rite Aid giant. Humana is pushing back against the FTC, arguing the subpoena is irrelevant, costly and "unduly burdensome."

What the FTC is saying: "Time is of the essence. Any delay in the resolution of this petition may force the FTC to assess the competitive effects of the transaction with information that is less than comprehensive or to take extraordinary steps to address the merger after it is complete, at which point the prospect of effective relief is far more difficult." Read the full petition.

Looking ahead: If the deal falls through, Amazon could entertain the idea of acquiring Rite Aid (or other small pharmacy and grocer chains like Kroger) as a way to jump fully into the pharmacy market.


The potential for gaming the ACA exchanges

Zoom CEO Dave Sanders

The Affordable Care Act created a program called risk adjustment to help steer funding from health insurance companies with healthier customers to companies that attract sicker people. But an FBI investigation into allegations that Oregon-based health care system Zoom fraudulently tinkered with the codes and medical claims of its insurance customers is causing concern that the program is ripe for widespread gaming.

The takeaway: Many experts believe Zoom likely is an aberration in the ACA marketplaces. But risk adjustment has a history of abuse, particularly in Medicare Advantage.

Coding games: Several former Zoom employees told Axios that the company was rigging the system so it wouldn't have to pay into the risk adjustment pool. In this case, Zoom allegedly changed the codes on medical claims so people have higher "risk scores." Instead of a person just having high blood pressure, for instance, it could have been changed to a more serious condition, like congestive heart failure.

The point of risk adjustment is to prevent insurance companies from cherry-picking the healthiest people. The ACA made this program permanent to provide some stability to insurers that wanted to participate in the new exchanges. In a good-faith system, "every carrier is focused on making sure the coding accurately captures their risk," said Dave Dillon, a fellow at the Society of Actuaries.

But as one insurance industry expert said, "The amount of money that can be moved around with risk adjustment can be fairly high."

Not just the ACA: Fred Schulte of Kaiser Health News wrote an investigative series on how insurers have overcharged the federal government through aggressive coding in the Medicare Advantage risk adjustment program.

Many people believe Zoom is an anomaly: Richard Lieberman, an industry consultant and early pioneer of designing risk adjustment, works with ACA insurers. He has not seen or heard of any gaming like the allegations surrounding Zoom. Instead, insurers are having more trouble simply submitting their data to the government, he said.

Zoom would have had an easier time adjusting claims retroactively because it was allegedly doing this for its own insurance members that were going to its own clinics. Any provider-owned insurer would be in a position to do this. But the latest data from the Centers for Medicare and Medicaid Services, which oversees the ACA's risk adjustment, show many other provider-based insurers paid big amounts into the program for 2015:

  • Kaiser Permanente's main California insurance company shelled out $169 million for the individual and small-group programs.
  • The University of Arizona's insurance division had to pay $10 million.
  • Several provider-owned plans in Texas (such as Baylor Scott & White Health and Memorial Hermann) and Wisconsin (such as Dean Health) had to cough up money.
What to watch: The next CMS report, which should be released later this month.

Medicare lifts sanctions on Cigna

Matt Rourke / AP

Cigna received clearance Friday from the Centers for Medicare and Medicaid Services to start marketing and selling its Medicare Advantage plans again. The federal agency sanctioned Cigna in January 2016 after discovering Cigna inappropriately denied care and prescription drugs to its Medicare Advantage customers.

Why it matters: Medicare Advantage, the private, narrow-network version of Medicare that enrolls almost 20 million seniors and disabled people, is a goldmine for health insurers. It's also a safe investment since the program has bipartisan support and will grow as more baby boomers age. The sanctions cost Cigna more than $500 million, including 107,000 lost Medicare members, but now it can re-enter the program now that the feds deemed the problems were fixed.


Largest South Carolina hospital systems will merge

Palmetto Health Baptist Hospital in Columbia, S.C. (Chuck Burton / AP)

Palmetto Health and Greenville Health System, the two largest hospital systems in South Carolina, will merge. The resulting not-for-profit system will be the biggest private employer in the state and own 20% of the state's hospital beds. It also will have nearly $4 billion of annual revenue, or about "half of the annual state budget," the Post and Courier reported.

Why it matters: Hospitals continue to consolidate at rapid rates to offset declining Medicare and Medicaid payments and lower numbers of hospital visits. Palmetto and Greenville justified the merger in part by saying "for-profit health systems, motivated by shareholder returns and high profit expectations, are shredding the health care safety net." But many studies have shown hospital deals of any kind usually lead to higher prices and lower quality.

Money watch: Palmetto and Greenville both posted lower operating margins in their latest fiscal years. Palmetto has lost money from operations so far this year.


McKesson CEO's $98 million pay comes amid U.S. opioid crisis

George Nikitin / AP

McKesson CEO John Hammergren took home $98 million during the drug distribution conglomerate's 2017 fiscal year — the same time federal and state officials went after McKesson for its role in the nation's opioid epidemic.

More than 90% of Hammergren's pay last year came from the actual realized stock gains, according to a federal filing released Friday. Hammergren, one of the highest-paid health care executives, made $104 million the year before.

The bottom line: The feds slapped McKesson with a $150 million settlement in January over allegations it did not closely watch its distribution of oxycodone and hydrocodone pills to pharmacies. Several counties in West Virginia also sued McKesson and other drug distributors for allegedly flooding the state with painkillers. But those events did not affect Hammergren's incentive pay or cashed-out stock. The International Brotherhood of Teamsters is proposing Hammergren lose his chairman title "in the midst of such scrutiny."


Oscar, Cleveland Clinic partner on ACA plans

Cleveland Clinic

The Cleveland Clinic and Oscar Health Insurance have formed a new co-branded health plan that will sell coverage next year on and off the Affordable Care Act exchange in five counties in Ohio — where Anthem recently said it was leaving.

The details: Oscar, a startup that has lost a lot of money, and the academic medical center will split all profits and losses. People who buy the plan are buying a narrow network. They will have access to the Cleveland Clinic facilities and doctors and can use Oscar's technology to coordinate care. But if they venture outside the Cleveland Clinic system for nonemergency care, they will be on the hook for the costs.

Some business perspective: Cleveland Clinic has considered starting its own insurance company for years, but like other hospital systems that want to minimize the risk of offering health insurance, it chose a partnership instead.

One fun thing: One of Oscar's three co-founders is Josh Kushner — Jared's brother.