Medicare to scrutinize prescription drug plans
Many Medicare drug plans have relatively awful track records.
The Centers for Medicare & Medicaid Services may hire a contractor to track whether the companies that sell Medicare prescription drug plans are doing a good enough job, according to a document that outlines potential contractor tasks.
Between the lines: Many Medicare drug plans have been reprimanded for some serious violations, and CMS wants to figure out what's going on. Seniors and disabled people who buy the plans often complain about bad service and inappropriate denials of drug coverage.
The details: There's no guarantee CMS will hire a contractor, but the agency is testing the waters to see if an outside company can help determine "whether the Part D formulary and benefit offerings are being administered as approved" by law.
Why now: A handful of Medicare Part D companies have faced federal penalties for lousy compliance.
Context: Taxpayers funneled $95 billion toward Medicare Part D plans in 2016. That's roughly 12 times the budget of the Environmental Protection Agency.
Illustration: Lazaro Gamio / Axios
The health care industry has leapt into an arms race of mergers and acquisitions — but it's not clear whether, or how much, those deals would ultimately benefit patients.
Why it matters: Executives say the deals will save money and improve care. But independent research does not support those claims, and the deals raise questions about whether some companies are gaining excessive power or undermining rivals. "If it goes too far, the whole concept of competition gets eroded," said Tim Greaney, a former Department of Justice antitrust official who's now a health law professor at the University of California, Hastings.
Where it stands: Five major deals have been announced just within the past few weeks.
Between the lines: The rapid-fire pace comes roughly 18 months after the Department of Justice rejected two massive health insurance deals. However, most of these deals involve providers of care, meaning the Federal Trade Commission will handle most of these antitrust reviews.
The FTC has criticized several hospital deals over the past few years, including Advocate's prior merger attempt, but those targeted local systems with a lot of overlap in services. Greaney said the latest deals likely will go through because they are "vertical" mergers of separate companies and they don't present the overt overlap problems of past hospital and insurance transactions.
Why now: Medicare and Medicaid are covering more people, as the Baby Boomers get older and more low-income people qualify for Medicaid through the Affordable Care Act. Those programs pay less than commercial insurance, where the health care industry has made its outsize profits.
Getting bigger ultimately gives health care systems the upper hand in price negotiations with insurers, to compensate for taking on more publicly funded care.
Looking ahead: Christopher Raphaely, a lawyer who used to work at Jefferson Health System in Philadelphia, said health care companies want to become bigger because new payment models will increasingly tie their bottom lines to their patients' health outcomes. Size limits risk.
Yes, but: For consumers, the most important questions are how these mergers will affect their wallets — especially as more people enroll in plans with higher out-of-pocket costs.
Jefferson Health System is no stranger to mergers. When asked whether its recent deals are leading to lower prices, Raphaely said the consolidation didn't happen on his watch. "I probably shouldn’t answer that question," he said.
The risk to the broader system is that health care companies might see savings from mergers, but people won't feel the benefits.
What's next: Layoffs, at least to some degree. The health care industry has been on a hiring spree, and pruning salaries and benefits (especially for hospitals) is the easiest way to get to merger "cost savings."
Alabama will send letters to parents around Christmas notifying them that 84,000 kids stand to lose health coverage next year as funding for the Children's Health Insurance Program evaporates, Cathy Caldwell, director of Alabama's Bureau of Children's Health Insurance, confirmed to Axios.
Why it matters: Congress has failed to extend CHIP funding even though the program has bipartisan support. Democrat Doug Jones supports renewing CHIP money; Republican Roy Moore has not committed to funding CHIP, according to the Montgomery Advertiser.
More details: Alabama shares its CHIP funding among 84,000 children in its ALL Kids program and the 77,000 children in the regular Medicaid program. Only those in the ALL Kids program would be affected if Congress doesn't extend CHIP funding.
Aetna is lifting copays for Narcan. Photo: John Minchillo / AP
Aetna will waive copays for Narcan, a medication that reverses opioid overdoses, starting Jan. 1. Narcan copays could be as much as $150 for some Aetna enrollees, but the company said $30 to $40 has been a more common range.
Why it matters: Health insurers have been spotlighted as enabling the opioid epidemic and now are focusing on ways to prevent or manage addiction. The other major national health insurers — Anthem, Cigna, Humana and UnitedHealthcare — did not immediately respond when asked whether they would copy Aetna's policy.
The medical lab industry's lobbying group, the American Clinical Laboratory Association, is suing the Department of Health and Human Services over a new reimbursement system that would drastically slash what Medicare pays for labs. The cuts would total about $670 million in 2018.
Between the lines: Some experts say Medicare has overpaid for lab services for a long time. The new payment system was supposed to rectify that, but the labs say Medicare used flawed data to implement that system. This lawsuit is a microcosm of why altering health care policy is so difficult: Any changes ultimately threaten one industry's bottom line.
Large health insurance companies would be among the biggest winners under Republicans' tax overhaul bill. Nearly all of their business is based in the U.S. and they consequently pay close to the full 35% corporate tax rate.
The bottom line: Cutting the corporate tax rate to 20% would instantly boost insurers' profits. Some of that benefit could result in lower premiums for anyone who has health coverage, but insurers would also find ways to keep as much of that money as possible.
The details: Cowen's health care equity research team modeled how tax reform would affect earnings per share for the biggest for-profit insurers. Cowen assumed the tax cuts would go into effect for 2018, though the House and Senate are deciding whether to push it to 2019.
Here's how much earnings per share projections for insurance companies would rise next year if Republicans agreed to a 20% corporate tax rate starting in 2018, per Cowen:
State Medicaid programs and employers likely would demand some of that money be passed back to them in the form of lower Medicaid rates and cheaper premiums.
The big question: Medical loss ratios, or MLR. These ratios require health insurers to spend so much of their premium dollars (minus taxes) on medical care or activities that try to improve health quality. For most types of health insurance, companies have to spend at least 85% of premiums on patient care, and the remainder can go toward administrative expenses, salaries and profits.
Insurers have to issue rebates back to consumers if they don't meet their MLR. And a tax windfall would inherently lower the ratios to the point where insurers may have to issue rebates. But it's possible companies could "increase spending on quality initiatives in order to avoid triggering the minimum MLR or lower price points to customers," Cowen analysts said in a report.
Ascension and Providence St. Joseph Health are in discussions to merge, which would create the largest hospital system in the U.S., the Wall Street Journal reports citing people familiar with the merger talks. The combined system would have 191 hospitals, numerous clinics and roughly $45 billion in annual revenue.
Why it matters: Although the Ascension-Providence deal is not guaranteed, it shows how health care has turned into the Wild West for mega-mergers. CVS Health is buying Aetna, Catholic Health Initiatives and Dignity Health are merging, and Advocate Health Care and Aurora Health Care are combining, among other deals. Yet, research shows mergers don't lower health care costs or improve care for patients.
Paul Singer's Elliott Management has amassed an undisclosed stake in $24 billion biotech Alexion Pharmaceuticals, according to The NY Times:
"If Alexion's management does not take action — from offering more aggressive financial performance guidance to considering strategic alternatives such as selling itself — Elliott could end up taking actions like beginning a proxy fight."
Why it matters: The pressure from Elliott to juice profits comes almost a year after Alexion admitted executives pressured employees to sell its flagship blood disorder drug, Soliris, to meet financial projections. Present day, meet history. It's also worth noting Paul Singer has aggressively targeted other healthcare companies this year (e..g, Athenahealth and Mednax).
Broader context: This news comes less than 24 hours after Fortune published a profile of Ellliott Management, including disturbing claims about how the activist investor has tried to gather dirt on target company executives. For example, it reports that executives' children have been pulled into the fray (Elliott would not reply on-the-record, but seems to have denied on background).
Hospital systems Catholic Health Initiatives and Dignity Health are merging. Photo: Jordangruener / Wikimedia Creative Commons
Catholic Health Initiatives and Dignity Health have agreed to merge into the nation's largest not-for-profit health system, pending antitrust and church approval. The combined health system will create new headquarters in Chicago and rename itself by next year.
Why it matters: The merger has been in the works for months and will create a behemoth not-for-profit, Catholic-based system that will own 139 hospitals in 28 states and control more than $28 billion of revenue — making it bigger than companies like McDonald's or Macy’s.
Illustration: Lazaro Gamio / Axios
"If you had told me 40 years ago that AIDS would be a treatable disease and we would have [no FDA-approved drugs] for food allergies, I would have totally laughed at you. But here we are." -James Baker Jr., CEO of the consumer advocacy group Food Allergy and Research and Education
Editor's note: We updated the quote in the third graph to clarify that Baker was talking about FDA-approved drugs.