Congress.
Build Back Better. In case you were doing something more productive over the holidays than watching C-SPAN, the White House’s signature piece of legislation, Build Back Better Act hit the skids when Sen. Joe Manchin of West Virginia announced on Dec. 19 that he would not be a “yay.”
Congress immediately turned its attention to matters related to the action at the Capitol Building on Jan. 6 last year, which probably does not forward the cause of any legislative efforts in the near term.
In any event, we still have some optimism that a bill will emerge that includes those bicameral, bipartisan provisions in BBB such as a benefit redesign of Medicare Part D. Fixing the Medicaid gap is also a priority. It remains to be seen if the toxicity on The Hill can subside enough to generate genuine interest. Negotiations are paused and the Parliamentarian has stopped work on Byrd Rule analysis for BBB.
We are in the realm of raw power plays not deliberative legislation, and we could be here through midterms.
Hearings Next Week.
Addressing New Variants: A Federal Perspective on the COVID-19 Response| Tuesday, Jan. 11, 2022 at 10 a.m.
The White House.
Drug Price Policy. Last night, CMS issued a proposed rule that, among other things, requires pharmacy price concessions – paid by pharmacies to Pharmacy Benefit Managers and/or Part D plan sponsors – are to now be included when calculating the “negotiated price.” The negotiated price is the basis for cost sharing by Medicare Part D beneficiaries.
CMS estimates that, in 2020, these pharmacy price concessions amounted to $10B. They estimate the new rule will save beneficiaries $20B over 10 years.
The rule, if finalized, is a negative for Plan D sponsors, especially those that have pursued a rebate-based model aggressively like CVS. It should also have some impact on UNH, although they have been moving away from their dependency on rebates to reduce beneficiary costs. The impact on GDRX is also likely a negative. No matter how you spin it, taking $20B out of the drug supply chain over a decade is going to matter.
Medical Loss Ratio Reform. The same proposed rule included a reinstatement of detailed reporting of the underlying data that supports a plan sponsors Medical Loss Ratio. In the interests of reducing administrative burden, CMS eliminated much of the detailed reporting effective in 2018. In recent years they have noted – as have Members of Congress – that larger plans have developed sophisticated strategies to burn MLR, which was not the intent of minimum MLR rules.
One of those strategies is intra-company transfers from an insurance subsidiary to other provider/vendor affiliated companies. We would expect this strategy to persist under the guise of a “value-based strategy” but with risks, as CMS can now see more clearly the intra-company transfers.
CDC v. Anthony Fauci. The Centers for Disease Control and Prevention has become more assertive regarding relaxation of COVID-19 protocols, giving rise to a little bit of intra-party warfare. On the one hand, the practical realities of commerce, education, available test supplies and public opinion polls is driving the administration toward more relaxed mitigation policies. On the other hand, tradition blocks of support, primarily unions, have vigorously argued for retaining stricter controls.
That dynamic has created a bit of messaging inconsistency between the White House’s ever-present representative, Dr. Anthony Fauci and the federal health agencies. For months he has helped front run policy development (often, in fairness, with a bland caveat that usually gets edited out) on boosters, testing and nonpharmaceutical interventions. Because the doctor commands such an audience, his perceived policy musings have pushed agencies into positions they might not take otherwise.
The Centers for Disease Control’s Rochelle Walensky appears to have put her foot down. Dr. Fauci’ s suggestion that the definition of “fully vaccinated” might soon include a booster shot was tabled this week. Pressure to mandate a negative test requirement to end isolation/quarantine was also reduced to a mere suggestion.
Hiding Behind Inflation. Last week the White House unveiled its plan to address meat and poultry prices. Using commodity inflation as the excuse, the USDA announced $1B to expand and diversify meat and poultry processing capacity. The DOJ and FTC are also pledging to investigate the dominant market players.
As everyone should know by now, food prices in the U.S. are low because producers are price takers. If that were to change, prices will rise. The White House knows this too but the risk of continued reliance on a small number of meatpackers has proven to be significant. Their story may not be true, but the goal is a good one.
The Judiciary
Vaccine Mandate. The Supreme Court has agreed to take up the Biden Administrations vaccine mandate for health care workers. Oral arguments will be presented today. Meanwhile CMS is trying to implement the mandate in about half the states.
Pending Rules
Other Stuff
Employment. The employment situation remains bleak especially for the lower wage sectors like nursing facilities and substance abuse hospitals. It is this employment report that probably marks the point at which The Street realizes a paradigm shift for health care is both necessary and underway. You can access entire employment chart book here. If you happen to be a MSFT Power BI user, let me know and I will share the workbook and underlying data.
HUM. The Company lowered guidance on enrollment this week citing unexpected terminations. They also claim the terminations were not due to death and relocations but plan switching. I am going to see if share loss appears in data. Until then color me skeptical.
Florida Man. Governor Ron DeSantis announced that Florida would be releasing new guidance on COVID-19 testing. The preliminary description is that the State of Florida will encourage high-value testing and discourage low value testing. Presumably, high value testing would be that used in clinical settings where a diagnosis for COVID-19 is important. Low value testing would likely be that for the asymptomatic who wish to assuage relatives before a visit.
Insurers are going to love it and are likely to implement benefit policies in Florida as a result. Other Governors may follow suit. It is a convenient development for the White House also, as they work to de-emphasize COVID case counts that have become meaningless during the Omicron wave. Bad news, of course, for DGX and LH, the former of which does not seem to have leveraged this opportunity as much as they should have.
Recent Events
Replay | Sequestration, More Sequestration & Medicare Payments | DVA, EHC, CHE
Replay | In Their Own Words: Silly Things CEOs Say TDOC, UHS, DVA, SHCR
IPO + SPAC Corner
Interesting IPOs: Applied UV, Inc. Sanitation has already been an issue in health care. You do not want to know how many people in health care settings do not wash their hands as long as they should. Post-COVID, compliance has become more critical. This company probably falls into the industrials sector but health care should care too.
Nexalin Technology, Inc. “We have developed an easy-to-administer medical device — referred to as Generation 1 or Gen-1 – that utilizes bioelectronic medical technology to treat anxiety and insomnia, without the need for drugs or psychotherapy. This device emits our original waveform at 4 milliamps during treatment and is classified by the FDA as a Class II device.”
We start the year with $28.B in SPACs that have closed or are pending. Say what you will about SPACs but there are a lot of capital needs post-COVID and money does have a way of getting spent. Here is updated SPAC spreadsheet.
Hedgeye Health Policy Publication/Event Calendar. Click here for searchable calendar.
Have a great weekend.
Emily Evans
Managing Director – Health Policy
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