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Good morning.

Situational awareness: Anthem has agreed to pay a $16 million settlement with the federal government over a series of 2015 hacks that exposed the records of nearly 80 million people.

  • It was the largest breach of its kind, and this is the largest health-privacy settlement ever reached, according to the Justice Department.
1 big thing: Drug ads will have to include prices
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The Department of Health and Human Services formally rolled out a proposal yesterday that would require drug companies to include their products’ list prices in their TV ads, similar to the way they disclose side effects.

The big picture: There’s a legitimate debate about how this would work and how big a difference it will make. But it is, notably, the first real showdown with the pharmaceutical industry since the administration released its drug-pricing plan earlier this year.

  • "It has taken them five months ... to start skating to where the puck is going," HHS Secretary Alex Azar said yesterday.

Details: Drugmakers will have to disclose the list prices — the wholesale acquisition cost, to be specific — in TV ads for every drug reimbursed by Medicare or Medicaid, as long as the price is more than $35 for a month’s prescription.

  • The regulation ended up coming from Medicare and Medicaid, rather than the FDA, because those agencies have a mission to control costs — which may help put the rule on more solid legal footing.
  • Price disclosures will only have to be in text, not voiceover. Officials said that would make the rules less onerous for drug companies.
  • HHS would enforce the rules by publishing a list of companies and products that didn’t comply, and noncompliance could also trigger lawsuits.

What’s next, from the industry side: The pharmaceutical industry suggested yesterday that it's likely to challenge the rules in court once they're finalized, alleging a First Amendment violation.

What's next, from the reg side: The administration is considering more rules cracking down on pharmacy benefit managers (PBMs). The White House is reviewing a proposal to rein in their lucrative rebates.

  • “We believe today's rebates, which helped drive list prices skyward, are not necessary to a strong negotiating ecosystem,” Azar said yesterday. “They could be replaced with fixed-price up-front discounts.”
2. "List prices matter"

One big sticking point in the debate over price disclosures is whether a drug's list price is useful information, or even the right price to disclose, if you're going to disclose a price.

How it works: List prices are essentially sticker prices. Insurance plans negotiate discounts, and then the specifics of each consumer's plan determine how much of that price they actually have to pay out of pocket.

  • Because insured patients often don't pay the full list price, PhRMA President Steve Ubl told reporters yesterday, a mandate to include them in drug ads would be “very confusing, misleading, lacks appropriate context, and isn’t what patients want or need."

The other side: Drug pricing is enormously complex. But the sticker price for any product is obviously correlated to the final cost of that product.

  • As Azar noted yesterday, patients with high deductibles often pay list prices for drugs until they hit those deductibles.
  • Medicare drug plans also require seniors to pay a percentage of the list price for specialty drugs.

"List prices matter to American patients," Azar said.

3. Hello, Q3 earnings

Johnson & Johnson and UnitedHealth Group are reporting third-quarter numbers this morning, batting leadoff per usual for the health care industry.

What we're watching, per my colleague Bob Herman:

  • The major pharmaceutical companies likely will continue to post the biggest profit margins in the industry, but watch for any comments about the Trump administration’s drug blueprint and 2019 price increases.
  • Wall Street surveys show hospital admissions are still generally flat. More people are getting care in an outpatient office. But the second half of the year is still usually positive for providers, because more people get tests and procedures after meeting their deductibles or out-of-pocket maximums.
  • It’s extremely difficult to find an industry analyst who isn’t bullish on health insurance companies, which have consistently beaten profit expectations the past several quarters.
  • First glimpses of 2019 profits are expected. Health insurers likely will have juicy forecasts based on Medicare Advantage growth and a break from the Affordable Care Act’s industry tax.

The bottom line: Expect most health care companies to keep posting gigantic earnings because the broader system hasn’t really changed (and because of lower corporate taxes).

Follow along with our updated health care earnings tracker. Give feedback and complaints to Bob: bob@axios.com.

4. Former LePage aide is running Medicaid

Mary Mayhew. Photo: Derek Davis/Portland Press Herald via Getty Images

Mary Mayhew, a former health commissioner under Maine Gov. Paul LePage, started yesterday as the director of the federal office that directly oversees Medicaid.

Why it matters: The Trump administration is focused intently on reframing Medicaid as something closer to a welfare program, and has arguably made more significant conservative policy changes to Medicaid than to any of the other programs it oversees.

  • Mayhew shared LePage’s staunch opposition to expanding Medicaid, and under her leadership the state proposed some of the most aggressive eligibility rollbacks of any state.
  • Maine sought permission to impose work requirements, as well to limit how long people could maintain Medicaid coverage and to mandate drug testing for Medicaid beneficiaries.

Seema Verma, who oversees Medicare and Medicaid and is now Mayhew’s boss, came from a similar background — she was a consultant who helped red states write their proposed Medicaid waivers.

5. DOJ defends short-term plans

If the Obama administration had the legal authority to curtail “short-term” insurance plans, then the Trump administration has the power to expand them, according to the Justice Department via a new legal brief.

Where it stands: Judge Richard Leon is slated to hear oral arguments next week in a lawsuit over the Trump administration’s move to let consumers keep skimpy, inexpensive “short-term” plans for up to three years.

  • A group of provider organizations and consumer advocates is asking the court to block those new rules from taking effect.
  • DOJ filed its response yesterday.

What they’re saying: The expansion of short-term plans “falls comfortably within [HHS’] authority,” the government's brief says.

  • It argues that the new rules don’t violate the ACA because short-term plans existed before the ACA, and the ACA preserved them.
  • The Obama administration also changed the rules governing those policies after the ACA had passed — setting a precedent for the changes the new administration made, DOJ argues.

To the extent consumers and insurers face premium increases, DOJ states, they can’t say for sure how much “will be attributable to the rule, as opposed to Congress’s recent decision to reduce the tax penalty to $0 for people who opt out of the ACA’s coverage mandate.”

6. More health care uses for the Apple Watch

Hip and knee replacements may be the next health care frontier for the Apple Watch, now that it can monitor users’ heart rates.

What's new: Reuters reports that 4 hospitals and a handful of other providers are working with Zimmer Biomet, a medical device company, to test an app that would transmit patients’ heart rate, steps taken and standing hours to their doctors.

  • The project is focused on patients who are either waiting for or recovering from a hip or knee surgery — two of the most common procedures in the country.

Why it matters: There are plenty of concerns about just how effective Apple’s heart monitoring will be, and whether the risk of false warning signs outweighs the potential to catch legitimate irregularities.

  • But if the information collected here is accurate and reliable, it will help doctors know whether their patients are following the physical therapy regimens they’re supposed to — which can help avoid complications that would land patients back in the hospital after their surgeries.