July 03, 2018

Good morning … Vitals and I are both taking the rest of this week off for a prolonged celebration of July 4, which is the best holiday of the year. But my colleagues Bob Herman and Caitlin Owens will have you covered at axios.com.

1 big thing: What the SCOTUS vacancy means for Medicaid

Photo: Zach Gibson/Getty Images

The next Supreme Court justice could usher in significant changes to Medicaid, giving states far more power to cut the program, Caitlin reports.

The issue: Many conservative lawyers and judges say private entities — like health care providers — shouldn't be able to sue over Medicaid's coverage decision. If that view ultimately prevails, states could make much bigger cuts without the threat of a lawsuit.

Where it stands: Retiring Justice Anthony Kennedy “was willing to leave the courthouse doors open in Medicaid cases, whereas the conservative majority is willing to shut it — I mean, really slam it," said Sara Rosenbaum, a George Washington University law professor.

  • Kennedy dissented from a 1990 ruling that said providers could sue over their payment rates, and he subsequently voted to narrow their ability to sue.
  • But the court never closed the door entirely, despite a push to do so from conservatives like Justice Clarence Thomas and the late Antonin Scalia.

The impact: If the right to sue goes away, “it's certainly possible that a state would start hacking away at its program. There would be no deterrence at all," Rosenbaum said.

What to watch: Kansas, Louisiana and Arkansas are all in the midst of litigation over whether Planned Parenthood can sue them for kicking it out of their Medicaid programs.

Go deeper: Read Caitlin's full story.

2. Mid-year drug price hikes are here

So much for voluntary drops in drug prices.

Many pharmaceutical companies this week trotted out fresh price increases on existing products, a common mid-year occurrence that has not abated despite the Trump administration’s assertions that prices are coming down.

  • Pfizer raised list prices on more than 100 drugs as of July 1, David Crow of the Financial Times scooped.
  • Seattle Genetics and Sanofi also instituted mid-year hikes on some products, Meg Tirrell of CNBC reported.
  • Several other companies followed suit with large and small increases, others in the industry tell Axios.

Why it matters: As we’ve reported over and over again, the pharmaceutical industry’s practices have not changed one iota even with the administration’s pricing blueprint, and drug companies still have every incentive to raise prices.

3. Unsubsidized ACA enrollment is falling

The Trump administration yesterday confirmed some of the trends we had all suspected about enrollment in the individual insurance market: It’s way down among people who don’t receive the Affordable Care Act’s premium subsidies, but basically stable for people who do.

The details, per the Centers for Medicare & Medicaid Services report:

  • Unsubsidized enrollment fell by 20% between 2016 and 2017.
  • Enrollment in subsidized plans fell by 3% over the same period.
  • This is all happening because premiums in the individual market have skyrocketed. People with subsidies are largely insulated from those increases, but the unsubsidized enrollees are facing premiums they simply can’t afford.

The big picture: This is more evidence that the ACA is becoming a vastly scaled-back version of what it was intended to be.

  • It has successfully expanded coverage to the lowest-income people it serves, but has not succeeded in its goal of creating a more competitive market even for people who are too wealthy for its financial assistance.

Go deeper: The ACA is smaller, weaker and more liberal than former President Obama intended.

4. Amazon needs to do more than buy PillPack

Amazon is buying PillPack for $1 billion. Photo: PillPack

Amazon may be buying PillPack, but it still has a long way to go if it wants to drastically change the drug supply chain, Bob reports this morning.

The unresolved issue: Payment. Uninsured people or patients willing to pay cash for their prescriptions can easily switch to PillPack, but that is a tiny part of the market.

  • Pharmacies need to be in the networks of pharmacy benefit managers — the middlemen of the drug supply chain — if they want to dispense drugs to most people.
  • The big PBMs often steer insured patients to their own mail-order pharmacies.
  • PillPack is an in-network pharmacy for all of the major PBMs, but its contract with Express Scripts may be discontinued by the end of July.

The bottom line: Pharmacies are tethered to PBMs. That means Amazon will have to play ball with the big guns that often create favorable contracts for themselves, or "Amazon needs to buy a PBM (which is possible) to have a meaningful impact on market share," Ann Hynes of investment bank Mizuho Securities USA wrote in a note to Wall Street.

Yes, but: Amazon has 100 million Prime members who very well could demand their prescriptions be covered through Amazon's pharmacy.

  • "This is a multiyear, if not decade-long, chess game," pharmaceutical supply chain expert Stephen Buck said.

5. Juul is wildly profitable

Illustration: Lazaro Gamio/Axios

Axios' Dan Primack scooped some financial information yesterday about Juul, the vaping company whose products are incredibly popular with young people, that helps explain investors' interest in the company.

Driving the news: Juul is raising $1.2 billion at a valuation of around $15 billion.

By the numbers:

  • 2017 revenue was around $245 million, with a 54/46 split between product (devices) and subscription (pods). This is up from around $60 million in 2016, and projected 2018 revenue was $940 million.
  • Gross margins are 70%.
  • 2018 EBITDA projection (or projected earnings before interest, taxes, depreciation and amortization) is approximately $250 million.

Behind the numbers, via Dan: These numbers would normally make Juul a no-brainer for venture capital and growth equity types, particularly given that the San Francisco-based company hasn't yet tapped overseas markets other than Israel.

  • But this one is complicated: Each Juul pod is the nicotine equivalent of an entire pack of regular cigarettes. And that has earned the company some very close scrutiny from the Food and Drug Administration.

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Happy 4th! Eat a hot dog. Drink a beer. Admit that fireworks are cool. Hurrah. See you next week.