Bob Herman
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Steward Health Care buys Iasis for $1.9 billion

St. Elizabeth's Medical Center in Massachusetts, owned by Steward Health Care (Wikimedia Commons)

Boston-based Steward Health Care is acquiring Iasis Healthcare, creating the largest privately owned, for-profit hospital chain with about $8 billion of annual revenue. The two hospital companies didn't disclose financial terms, but the Wall Street Journal is reporting a $1.9 billion price tag. Medical Properties Trust is also buying Iasis' real estate for $1.4 billion.

Why this matters: Steward's latest acquisition exemplifies the hospital industry's appetite to bulk up wherever possible. Hospitals want more market power to offset declining federal reimbursements, but that strategy often comes at the expense of higher prices for patients.

More context: If the deal closes later this year, Steward, backed by private-equity firm Cerberus Capital Management, would own 36 hospitals as well as a health insurance company. A major winner of the transaction is private-equity firm TPG Capital, which owns about 75% of Iasis.

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States to Trump: Keep the ACA insurance subsidies flowing

Cathy Bussewitz / AP

Here's a twist in the push to stabilize the Affordable Care Act's insurance exchanges: The National Association of Insurance Commissioners has sent a letter to President Trump's administration that asks for the quick, continued funding of the cost-sharing reduction subsidies that help lower out-of-pocket costs for low-income people.

Why this matters: Trump and congressional Republicans love to tout the rights of states. And now the group representing the leaders of state insurance departments is urging them to keep the subsidies they have threatened to cut off. This puts Republicans in a spot where they either swallow their pride and fund an ACA program, or they selectively ignore the requests of a group that makes up the foundation of their policymaking.

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Activist investor Paul Singer goes after Athenahealth

John Minchillo / AP

Shares of the electronic health record company Athenahealth soared by more than 17% this morning after Paul Singer, the activist investor who runs the hedge fund Elliott Associates, bought more than 9% of Athenahealth's stock, according to a Securities and Exchange Commission filing. Athenahealth has about $1 billion of revenue and sells most of its cloud-based technology to doctors and small hospitals.

The filing says Singer is willing to shake up the board of directors, push for a sale or make changes to the management team, which is led by CEO Jonathan Bush — the cousin of Jeb and George W. Bush. Investors recently hammered Athenahealth after the company registered a poor first quarter.

Between the lines: Changes usually occur after an activist investor like Singer takes a hostile stake, and this could lead to some fireworks given Bush's candid personality. Athenahealth and Elliott Associates did not immediately respond.

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The Medicare Advantage power players

The Department of Justice is digging in its heels against UnitedHealth Group, alleging in a second lawsuit that the health insurance giant has knowingly scammed the government by inflating the medical codes of its Medicare Advantage members.

But UnitedHealth is not the only Medicare Advantage insurer under the federal microscope — it's just the largest, covering about one-fourth of all people in the program. The DOJ also is investigating Humana, Centene and other insurers for their coding practices.

Data: Centers for Medicare and Medicaid Services; Chart: Lazaro Gamio / Axios

Medicare Advantage is the private version of Medicare that has more limited networks of doctors and hospitals but cheaper premiums, and it is heavily consolidated. The four biggest companies — Aetna, Humana, Kaiser Permanente and UnitedHealth Group — control 56% of the market. Any scrutiny or changes in payment policies will affect those insurers most.

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DOJ pursues UnitedHealth in second Medicare fraud suit

Jim Mone / AP

The Department of Justice is intervening in a second whistleblower lawsuit that alleges UnitedHealth Group, the largest health insurance and services company in the country, has defrauded the Medicare Advantage insurance program by exaggerating people's medical diagnoses to obtain more federal dollars.

Why this matters: These lawsuits have some explosive allegations and threaten a company that dominates a growing and lucrative Medicare industry. In addition, the Center for Public Integrity and a federal watchdog agency have reported numerous instances of insurers manipulating a Medicare patient's "risk score" to get more money.

The bottom line: This will be one of the most closely watched federal court cases in health care considering billions of taxpayer dollars are on the line.

UnitedHealth is fighting back: "The complaint shows the Department of Justice fundamentally misunderstands or is deliberately ignoring how the Medicare Advantage program works. We reject these claims and will contest them vigorously," spokesman Matt Burns said. The company also said it has pursued administrative action to resolve what it views are unclear policies.

Context: Nearly 20 million seniors and disabled people are enrolled in a Medicare Advantage plan, and UnitedHealth covers almost a quarter of them, or about 4.7 million.

The back story: The latest whistleblower allegations come from the company's former director of finance who oversaw the Medicare Advantage business — someone with deep knowledge of the "risk adjustment" coding practices in question. Here are some eye-catching claims from the lawsuit:

  • UnitedHealth looked at medical charts to add patient diagnoses where possible, but it did not always delete invalid diagnoses.
  • Top executives, all the way up to UnitedHealth CEO Stephen Hemsley, were aware of an internal program that verified medical claims and wanted to know how it would affect the company's financial performance.
  • The Medicare Advantage issues are as recent as April 2014. Top executives had a call with Marilyn Tavenner, the former administrator of the Centers for Medicare and Medicaid Services, to discuss their "legal obligation" to verify all medical claims.

Yet, Wall Street is largely unconcerned: Financial analysts are not overly worried about what happens to UnitedHealth, which says more about the size of the company than the allegations. UnitedHealth has so much cash at its disposal that even if it paid a significant settlement to make everything go away, it would not "impact the financial condition of UnitedHealth," according to one analyst.

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Startup insurer Oscar is still losing money

Oscar Health Insurance

Oscar Health Insurance lost $25.8 million in the first quarter of this year, based on its financial documents filed in California, New York and Texas on Tuesday. That was an improvement over the $48.5 million loss from the same period last year.

Our thought bubble: Oscar was able to slow the financial bleeding after exiting several Affordable Care Act individual markets last year and decreasing its membership to 90,000. But Oscar is still hemorrhaging a lot of money — more than most people expected from a startup that attracts a younger and potentially healthier member base, and a company that has promised to change how health insurance works through its technology.

More numbers to chew on: Oscar, an investor-backed startup that uses a narrow network of doctors, now has lost more than $350 million since 2015. The insurer also continues to struggle with high administrative costs, ranging from 25% to 56% of revenue.

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Health care execs are sweating over pricing pressure

Public outcry over high prices for drugs and health care services has caught the attention of the people who decide those prices. But that doesn't mean there will be any immediate action. A new survey from investment bank Lazard found that more than half (57%) of 300 U.S. and European health care executives and investors said pricing and reimbursement was the top challenge for them right now.

Data: Lazard Global Healthcare Leaders Study, 2017; Note: September 9 and December 20, 2016 with 213 C-level executives and 87 investors; Chart: Andrew Witherspoon / Axios

The problem is even more acute for the drug industry, especially in light of President Trump's occasionally harsh words. About 88% of U.S. pharma executives view pricing as the top pressure. David Gluckman, the co-head of health care at Lazard, told me that survey respondents believe pricing actions will be "driven by the government, but also significantly influenced by health insurers."

Some other snippets from the survey:

  • The next biggest concern was the cost and quality of health care, cited by 39% of respondents.
  • In the United States, 80% of investors and 55% of executives believe most health care payments will be based on clinical outcomes or "value" instead of volume.
  • More than half of respondents expect an uptick in mergers and acquisitions in the next 18 months.
  • They expect more partnerships with companies that aren't based in the health care sector, like Apple, Google and IBM.
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Clover Health adds Alphabet in new $130 million round

Clover Health

Clover Health, a Medicare Advantage insurance company, has raised $130 million from Greenoaks Capital, GV (Alphabet's venture-capital arm formerly known as Google Ventures), and several other exiting investors. The news was reported first by Bloomberg. Clover, which now has a valuation around $1.2 billion, confirmed the funding round to Axios Friday.

Why this matters: Clover gets a new big-name backer and more cash to expand its tech-based health plans. The company just ended the recent Medicare Advantage annual enrollment period with about 25,500 members, but Clover is still losing a lot of money.

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The gloves are coming off between Anthem, Cigna

Darron Cummings / AP

Health insurer Anthem ended its merger agreement with Cigna on Friday, a day after a Delaware judge ruled Cigna could walk. Now there's going to be a fight over whether Anthem has to pay Cigna a $1.85 billion break-up fee.

Anthem said Cigna isn't owed a dime: "Cigna's repeated willful breaches of the merger agreement and its successful sabotage of the transaction has caused Anthem to suffer massive damages." Cigna didn't respond, but it has already demanded the $1.85 billion payout as well as $13 billion in damages in a separate lawsuit.

What to watch: Whether a judge believes Cigna actively undermined the deal or Anthem has to pay up because that's what it says in the legal documents. The merger has been ugly from the start, when Cigna CEO David Cordani demanded the corner office but was never given any assurances. This will add to the lofty costs of the now-dead health insurance mega-mergers.

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Aetna CEO encourages single-payer debate

Jacquelyn Martin / AP

Vox obtained video of an Aetna company meeting, where CEO Mark Bertolini said this when asked if the Republican health care bill would lead to a single-payer system:

"Single-payer, I think we should have that debate as a nation."
— Aetna CEO Mark Bertolini

What this means: Bertolini certainly wasn't advocating for a traditional single-payer system, in which everyone has health coverage like Medicare, the system is funded through taxes, and the federal government operates as the sole financing agent. Private health insurers would basically be eliminated in that scenario, so Bertolini isn't looking to put himself out of a job.

However, the Vox video makes it clear that Bertolini is willing to debate a system where taxpayers fund most if not everything, and then private insurers run the operations — kind of like Medicare Advantage, a major (and profitable) program for Aetna. In fact, last year, Bertolini said Medicare Advantage was "the solution to entitlement reform around health benefits" at a Wall Street conference.