Politics. Since the founding of Virginia Colony as a business venture by the 17th century’s 1%, followed quickly by populating of the Massachusetts Bay Colony by Puritans making a one-way mission trip to New England, America has careened between the two poles of a secular asceticism and hedonism.
The Puritans’ intolerance for moral compromises led them first, to find slavery incompatible with Christianity which, in turn, led to the abolitionist movement. The people of Virginia, on the other hand, faithful followers of the Church of England had no trouble accommodating the horrific injustice of slavery in the interest of raising and exporting tobacco and other cash crops.
It was over 200 years before that debate was settled in favor of the Declaration of Independence’s proclamation: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness.”
Since then, in ways large and small, the self-restraint of the Puritan tradition has jockeyed for position in the American psyche against the desire for unfettered commerce. The Civil War’s quest to end institutionalized violations of inalienable rights gave way to the Gilded Age, made possible, in part, by the influx of cheap labor from the south. The exploitation of labor eventually ceded power to the Labor Movement and ultimately, the Trust Busting of the early 20th century.
The pendulum’s arc for the last 40 years has centered firmly above the head of the American consumer. Trade policies favoring cheap goods drove consolidation and eventually, offshoring. Where business practices fall far short of American ideals, auditors are summoned to say it ain’t so. If all else fails, arguments so effectively rebutted by Judge Samuel Sewall’s The Selling of Joseph: A Memorial in 1700, are resurrected and updated.
The COVID-19 pandemic will get the credit, but the latest shift has been underway for half a decade as demonstrated by the improbably candidacies of Donald Trump and Bernie Sanders. Indeed, it will be yet another of the great ironies of our times that Donald Trump was vanquished by a guy whose trade and economic policies differ more in style than substance.
Until last week, President Biden’s worker-focused economic policies had been largely confined to communiques, reports and policy statements. On July 1, the FTC rescinded a 2015 policy that confined its work to violations of the Sherman Anti-Trust Act and the Clayton Act. Simultaneously, it established seven enforcement priorities for the next decade of which health care, specifically pharmacy benefit managers, hospitals and pharmaceutical companies, is one. Other priorities include investigating harms to workers and small businesses.
In short, as far as the FTC is concerned and as demonstrated by their ILMN complaint, there are other things to worry about than the American consumer and the prices they pay.
The pendulum swings. Don’t get hit on the head.
Policy. The consolidation of health care, something I would argue is confined to certain geographies, has given rise to market failures in the form of “surprise billing,” which led to Congressional intervention last year and rulemaking last week.
Surprise billing is nothing more than the result of labor disputes. In this case anesthesiologists’, neonatologists’ and emergency room physicians’ refuse to work for the price insurance companies demand, sending them out-of-network. In markets where these practice types are highly concentrated like Middle Tennessee and Western North Carolina, the wage demands may be unreasonable. In markets were insurers have a monopoly or duopoly, like Alabama, the price insurers are willing to pay may be too low.
Physicians or their practice management companies have turned to the patient for compensation, often resulting in eye-popping bills dutifully collected and published by health care reporters. Since no one in Congress wants to ask if the current model of health insurance is sustainable, they legislated “surprise bills” out of existence.
At least, that was the idea.
The first of two rules was released last week and does exactly what Congress asked. It limits financial exposure of patients by de facto making certain physician types in-network. Providers will be paid by the insurance plan the lesser of the billed amount or the Qualified Payment Amount, assuming no other state law mandates. The Qualified Payment Amount “is the median of the contracted rates recognized by the plan or issuer on January 31, 2019…. increased for inflation.”
Additionally, emergency services are to be provided without prior authorization and regardless of whether the provider or the facility is in-network. The statute also created an Independent Dispute Resolution process to address situations where the QPA is deemed insufficient but rules governing that process have not yet been released.
In effect, the No Surprises Act puts emergency room physicians and certain other practitioners in-network unless they wish to go through a mediation process. Except for the next 12-24 months or so the inflation adjustment is likely to fall below the medical cost trend, as has historically been the case.
Depending on the market, a few outcomes are possible. In markets where physicians’ practices are highly concentrated, the 2019 rate probably represents a satisfactory baseline. In markets were physicians’ practices are not highly concentrated, the 2019 rate, adjusted for inflation, will likely represent the rate ceiling.
The set-up is for insurers to move aggressively to cancel network contracts with practice groups whose rates are historically above the 2019 rate – and we have already heard some anecdotes in that regard – while retaining agreements with practices below it.
Other tactics are in evidence. UNH’s announcement that it would conduct retrospective reviews of emergency department claims and deny payment if the service was not deemed necessary creates an escape route around the prior authorization and coverage requirements.
With the consumer protected, in this case at nearly any cost, it becomes a battle for market power which almost inevitably leads to consolidation or anti-competitive practices. Just in time, we suppose, for the FTC to show up.
Power. Rich with irony, WMT’s announced last week it was getting into the pharmaceutical business. Consumer welfare that has so preoccupied federal trade and anti-trust practices, never extended to health care. It now falls to a retail behemoth whose “low prices, every day” were made possible by globally sourcing much of what they sell. In conjunction with Nova Nordisk, WMT will offer a cash price for insulin, cutting out the insurers, the pharmacy benefit manager and all the dysfunction that comes from that pair.
Not really a generic despite being a very old drug, insulin is an ideal candidate and WMT the ideal outlet to reveal the terminal end of the rebate game that made cash pay, especially for chronically ill Part D beneficiaries, more cost effective than insurance. The scale and scope of WMT, especially in underserved areas, means there is little insurers can do but watch rebates associated with insulin disappear.
It seems like an inflection point. Despite years of expanding Medicaid and funding grant programs for health centers, it falls to a retailer who serves millions of rural Americans to meet their needs. WMT’s health initiatives won’t be the only response. The Medicare Direct Contracting Program, CMS’s CHART model all offer hope that rural communities may find more low-cost options in the coming years. (Programming note: Brad Smith, former Director of the Innovation Center at CMS will be joining is on HedgeyeTV to discuss Direct Contracting and his new venture Main Street Health.)
If, in fact, some of the mission critical manufacturing identified by the Biden administration is repatriated, it will be from whence it departed, rural communities with low wage expectations, industrial zoning and affordable housing. For many states, health care becomes an economic development priority.
Enjoy the rest of this unique holiday weekend celebrating the American ideal, far from perfect but better than anything else.
Emily Evans
Managing Director – Health Policy
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