Bob Herman

The value of hospitals' tax exemptions

Not-for-profit hospitals say their tax exemptions are justified. Photo: Carolinas HealthCare

Sen. Chuck Grassley recently had sharp words for not-for-profit hospitals, following a Politico investigation that looked at how hospitals have cut back on charity care since the Affordable Care Act went into effect but still reap major financial benefits by not paying federal, state and local taxes.

The latest: The American Hospital Association released a report last week that said the benefits not-for-profit hospitals provide to their local communities far outweigh foregone federal tax revenue. But experts say the AHA's report has flaws and omissions that exaggerate hospitals' community roles and understate the power of their tax exemptions.

The AHA's report says hospitals provided $67.4 billion worth of community benefits in 2013 — including free charity care for their poorest patients, underpayments from Medicare and Medicaid, and "community building activities." The government missed out on collecting $6 billion that same year in federal taxes from tax-exempt hospitals, the report said.

There are some holes in the report:

  • The AHA did not account for the giant tax break hospitals get on their property, "which is just a joke," said Craig Garthwaite, a health economist at Northwestern University. "Exclusion of property taxes would be a very major problem," added Gary Young, a health policy professor at Northeastern University who has studied tax exemptions for not-for-profit hospitals.
  • Calculating shortfalls from Medicare as a community benefit also raises a red flag. For-profit hospitals that pay taxes treat Medicare patients. The IRS doesn't acknowledge Medicare shortfalls as a community benefit. And research shows hospitals often lose money from Medicare because of their high fixed costs and inefficiency, not because payments are too low. "That's really just trying to get that (community benefits) number as high as possible," Garthwaite said.
  • The AHA used 2013 data for its report. The outdated data don't reflect how the ACA's coverage expansions in 2014 eased some financial burdens on hospitals, said Garthwaite, who has studied how the ACA has reduced hospitals' uncompensated care.
AHA's response: Mindy Hatton, the American Hospital Association's top lawyer, responded with a statement to Axios. The report did not include property tax values, she said, because the analysis only covered federal exemptions, which "Congress has jurisdiction over." Hatton also said 2013 "is the most recent year for which tax information is available." When it was mentioned there are much more recent tax forms available at GuideStar, Hatton said her group collects data directly from hospitals "rather than rely on outside sources."

America is spending more on doctors and less on hospitals

Health care spending continues to grow faster than the rest of the U.S. economy, albeit at a slower rate than in past years, according to the latest data from Altarum's Center for Sustainable Health Spending. The Affordable Care Act's expansion of insurance, along with the continued rise of deductibles, has pushed more patients (and dollars) into outpatient settings and doctors' offices instead of hospitals.

Data: Altarum's Center for Sustainable Health Spending; Chart: Andrew Witherspoon / Axios

Two more trends: Prescription drug spending also is slowing down, but people are still feeling the sting at the pharmacy counter. The area where spending has grown the fastest in the past year, other than health insurance administration: home health.


Oregon fines Zoom, drops investigation

Oregon fined Zoom $285,000 for misstating its finances. Photo: Zoom

Oregon has fined Zoom, a health care startup funded with venture capital, and its two co-founders $285,000 for violating insurance rules and misstating finances.

The key phrase: Oregon "agreed to not investigate whether or not the misstatement on the filing was intentional." Our previous reporting, based on interviews with former Zoom employees, indicated Zoom knowingly falsified numbers to avoid paying into an Affordable Care Act program called risk adjustment and knew it would affect its cash reserve.

One former employee, when asked about the fine and settlement, reiterated that Zoom's actions were "absolutely intentional." Zoom did not respond to a request for comment. It's unclear whether the federal government will take any action.


Pfizer may sell off its consumer health unit

Pfizer is soliciting offers for its unit that sells over-the-counter products like Advil and Robitussin. Photo: Mark Lennihan / AP

Drug giant Pfizer is opening the process for a possible sale of its consumer health business, which makes over-the-counter products like Advil, ChapStick, Nexium and Robitussin. Wall Street analysts predict Pfizer could get around $15 billion for the business, which had global revenue of $3.4 billion in 2016.

Between the lines: Over-the-counter brands are profitable, but Pfizer wants to steer more of its business into the much higher margins of prescription drugs, an area where it has had few breakthrough therapies lately. Pfizer also has two valuable drug patents expiring soon (Viagra and Lyrica), which means the company could buy a biotech firm with money it gets from a sale.


Express Scripts buys medical benefits firm for $3.6 billion

Express Scripts is buying out a medical benefits firm for $3.6 billion. Photo: Jeff Roberson / AP

Express Scripts is acquiring EviCore Healthcare for $3.6 billion in yet another case of consolidation in the health care industry. EviCore is a medical benefits management company that attempts to reduce costs by routing patients to less expensive facilities.

Why it matters: Express Scripts is about to lose its lucrative pharmacy contract with Anthem, and pharmacy benefit managers in general have faced a lot of scrutiny over their role in the rising prices of prescriptions. This acquisition appears to try to offset those pressures, and it's also an attempt for Express Scripts to pair its pharmacy services with broader medical services.

Winners: EviCore's private-equity backers General Atlantic, TA Associates and Ridgemont Equity Partners, as well as six banks and law firms advising the two companies.


New California law will require drug makers to disclose price hikes

California Gov. Jerry Brown signed a law that requires drug price transparency. Photo: Rich Pedroncelli / AP

California Gov. Jerry Brown signed a bill into law Monday that requires pharmaceutical companies to disclose price increases of 16% or more to state officials. Industry groups hate the bill, but consumer groups have hailed the measure as a needed step to address high drug prices.

Point to consider: As the industry has mentioned, California's law does not require insurance companies or pharmacy benefit managers to disclose rebates and discounts they get from drug companies — meaning the prices drug makers disclose could be higher than what many consumers actually pay.


AMA's doctor panel still operates behind closed doors

The American Medical Association still requires RUC attendees to sign confidentiality agreements. Photo: Bob Herman / Axios

An influential committee of doctors who helps determine Medicare's payment rates met in Chicago last week. But Axios was not allowed to enter the formal Friday meeting without signing a confidentiality agreement that said no payment recommendations or direct quotes from attendees could be released.

Why it matters: The group, known as the RUC, has opened up more than it has in the past. But Medicare said this summer it will accept nearly every payment recommendation from the committee going forward — which means tens of billions of taxpayer dollars for physician services still hinge on meetings that can't be discussed publicly.

The details: The confidentiality agreement presented to Axios is what attendees have signed for years, and has been chronicled in stories by the Center for Public Integrity, the Wall Street Journal and The Washington Post. The point of the agreements is to prevent any market speculation from the new technologies and procedures that are being discussed and to protect "proprietary" medical codes, RUC chair and Duke University heart surgeon Peter Smith said in a statement to Axios.

The American Medical Association, which convenes the RUC, posts minutes and recommendations of the RUC meetings, which it started doing a few years ago. But those documents aren't available until well after the meetings occur. The details from these latest October meetings, which cover 2019 payment policies, won't be available online until next July, according to Smith's statement.

The challenge: The AMA said these committee meetings are open to the public and media. But requiring nearly all of the meeting material and discussion remain confidential is a major obstacle, especially because the information will be almost the sole basis for how Medicare pays physicians for their time and services.

  • "Given that (the Centers for Medicare and Medicaid Services) has said they are going to accept everything from the RUC, they really should not be tolerating a secret process," said Paul Ginsburg, a senior fellow at the Brookings Institution and expert in Medicare payment policies.

Go deeper: The uproar behind the AMA's panel of doctors, and the AMA's views on drug price controls.


Amazon pharmacy services a "matter of when, not if"

Amazon could enter the pharmacy management space soon. Photo: Rich Pedroncelli / AP

Amazon getting into pharmacy services is more a "matter of when, not if," according to a new report from the investment bank Leerink Partners. Leerink previously indicated Amazon appears to be in talks with pharmacy benefit managers, the middlemen that negotiate with drug companies, insurers, employers and pharmacies.

Get smart: Leerink, basing its information on calls with people who work in the pharmacy and drug industries, expects an announcement from Amazon in the next one to two years. The news on Friday hammered pharmacy stocks like CVS Health, Walgreens and AmerisourceBergen, because those companies would immediately face competitive and cost pressures from Amazon.

What's next: Amazon could take four routes, Leerink told investors:

  • Partner with a smaller pharmacy benefit manager as a way to ship drugs and be an online face to those customers.
  • Buy a middle-market pharmacy benefit manager or specialty pharmacy and sell those services to employers or health insurers.
  • Become an online hub that works with pharmacy players to show where people can get drugs for the best prices (especially relevant as more people struggle to afford the cost of their medications).
  • Partner with Express Scripts to build up and capture a lot of people in employer plans.

Why the AMA doesn’t support federal drug price controls

The American Medical Association convened doctors this week. Photo: Bob Herman / Axios

The American Medical Association says it supports the idea of the federal government negotiating lower prices for prescription drugs. But a top AMA leader made it clear to a roomful of doctors Wednesday that the group will never accept "price-fixing" — and suggested that's largely because of economic self-interest.

Key quote: "What we are very concerned about at the AMA level, if we advocated for the price-fixing of pharmaceuticals, we have no leg to stand on if we say we don't like price-fixing for physicians." — Barbara McAneny, AMA president-elect

Why it matters: The question was about negotiating drug prices, but McAneny answered it with an argument against government-set price controls — and in doing so, sounded like she viewed them as one and the same. An AMA spokesman insists the organization hasn't changed its official policy, which says it supports negotiating Medicare Part D drug prices.

Between the lines: Many health care industry groups are united in opposing government price-setting because, they argue, it would contradict free-market principles and could stifle innovation. But don't look past the obvious: Groups are protecting their incomes.

Context: McAneny, an oncologist, made her comments in Chicago at a meeting of the AMA's Relative Value Scale Update Committee, an influential panel known as the RUC. A crowd member asked her if the AMA was "missing an opportunity to throw the weight of our collective influence" behind asking the federal government to negotiate drug prices, which Medicare cannot do by law.

  • The AMA has been outspoken about rising drug prices and the factors behind them. "There's a lot of places where we can look at significant amounts of waste," McAneny said after calling out pharmacy benefit managers, insurance companies and specialty pharmacies.
  • However, official AMA policy currently "opposes the use of price controls in any segment of the health care industry, and continues to promote market-based strategies to achieve access to and affordability of health care goods and services." Instead, it backs transparency measures like requiring drug companies to post prices in ads.

Looking ahead: The RUC's main business of examining new payment rates for physician services starts Thursday. Medicare has said it would adopt nearly all of the RUC's recommendations for the upcoming year.

Correction: The headline and story have been updated to clarify the AMA's distinction between drug price negotiations and government price controls.


Congress probing Allergan's new patent scheme

Reps. Trey Gowdy (left) and Elijah Cummings (right) want answers about Allergan's new patent deal with a Native American tribe. Photo: Evan Vucci / AP

Drug maker Allergan is under growing congressional scrutiny for transferring the patents of its blockbuster eye drug, Restasis, to a Native American tribe and paying the tribe millions of dollars to fend off patent challenges.

Who's fired up: House Reps. Trey Gowdy and Elijah Cummings on Tuesday demanded information on the deal, arguing Allergan's "unconventional maneuver" could "impair competition across the pharmaceutical industry." Sen. Claire McCaskill said Allergan's deal is "one of the most brazen and absurd loopholes" and should be illegal. Other senators are calling for a review of the patent system.

Déjà vu: Members of Congress have frequently chided the drug industry for its pricing and patent practices, but almost nothing has come from the hearings that occurred.