Top of the Funnel | Macro Data + Policy Position Monitor
CPI. ((HCA (+), THC (+)) The Biden administration’s inflation headaches are not subsiding after today’s print. The durability of inflation threatens not just the power of Congress but the presidency itself. Don’t say we didn’t warn you. For those of us old enough to remember the powdered milk days of our youth, we know nothing destroys a presidency faster than higher prices for life’s essentials.
Just ask Richard Nixon. Yes, Watergate was the pretext but the inquiry that followed may not have happened, or may not have mattered, if we were drinking glasses of nice, cold whole milk out of a jug.
Saving Joe Biden will be Kamala Harris who no one, including her staff, thinks should be president of the United States. If power shifts in November, the president may wish he could depart on Marine One as many questions, including the causes of inflation, are going to get a careful look.
In the health care context, hospital CPI accelerated 3.96% YoY; outpatient services slowed slightly but still 3.65% YoY. Pharmaceutical reaccelerated 2.0 % YoY.
Hospital CPI is especially worth mentioning because it expresses increased cost-sharing by patients. Higher cost-sharing can mean a change in the insurance benefit design – unlikely mid-year – or higher and more intense services.
Inflation Workbook is here.
Policy Position Monitor is here.
CONGRESS
LDT Legislation. ((MYGN (-), NVTA (-), et al (-)) The House passed their version of the FDA user fee bill on Wednesday. Unlike the pending house version, it did not include regulation of Laboratory Developed Tests. However, the pending Senate version does so. Assuming the LDT provisions are retained in the – now delayed until next week – markup, the two houses will have to work it out in conference.
I tend to favor the view that some regulation of LDTs is preserved. The capricious way the FDA has stepped in to enforce their claimed regulatory authority (something that is not exactly agreed upon) over LDTs for Zika and then COVID has created a difficult regulatory environment, resulting in costly delays.
Build Back Better. ((UNH (-), HUM (-), CLOV (-) The most powerful Democrat in Washington, Joe Manchin, spent part of his air-time this week urging his colleagues to move forward on drug price legislation. In an interview with CNN, Manchin described caps on prescription drugs as “easy to do.”
Manchin appears to be talking about the Medicare Part D reforms that are included in the Build Back Better bill and include a cap on out-of-pocket spending. There is and has been for quite sometime bipartisan, bicameral support for a bill crafted in the last Congress.
Passage has been hung up on demands from progressives for a more assertive policy that links drug price increases to inflation, something, after today’s CPI print, is not aging well.
Also not aging well are the politics of the uber-progressive wing of the Democratic party. San Francisco District Attorney, Chesa Boudin, was successfully recalled this week. Recall, for the non-political, is the single most humiliating thing that can happen to an elected official outside of a sex scandal.
It is not likely the to be the last of the electorate’s rejection of the more extreme demands of progressives and that includes aggressive price regulation of pharmaceutical drugs. Manchin knows this and is urging his colleagues to moderate their ambitions in the face of a changing national mood.
The White House
The FTC and the PBMs. ((UNH (-), ANTM (-), HUM (-), PFE (+), ABBV (+), MCK (+/-)) The FTC agreed this week to launch an inquiry into the practices of pharmacy benefit managers. Recall that a few months ago a vote on the issue was rejected, mostly for process issues and the absence of any consideration for consumer harm. These objections having been addressed; the Commission has agreed to move forward.
The implication of the FTC’s interest is that Congress will have a better understanding about how significantly certain practices like drug rebates and pharmacy fees affect list prices of drugs.
They may or may not come to appreciate that drug rebates subsidize Medicare Advantage premiums. The insurer talking point is that they pass all rebates on to plan sponsors. The follow-up question, “aren’t YOU the plan sponsor?” almost never gets asked.
If the FTC determines rebates are anti-competitive, the most benign outcome is those practices cease. When they do, and coupled with Part D reform and demographic headwinds, the days of MA plans sponsors being an easy long will be over.
Over COVID Testing. ((CVS (-), WBA (-), DGX (-), LH (-)). The White House announced it was reallocating federal funds away from testing to support purchase of COVID vaccines for the fall. That move will only accelerate what is inevitable. Reimbursement for testing will normalize. That means insurers will pay for COVID testing when ordered by a doctor and used for the purpose of making a diagnosis.
Novavax EUA. ((PFE (-), MRNA (-), NVAX (+/-)) The FDA AdComm approved NVAX recombinant protein vaccine for an Emergency Use Authorization. The first curiosity is that NVAX requested an EUA in the waning days of the Public Health Emergency. The second and probably more important is the AdComm remains focused on myocarditis in young people as an adverse event.
As time marches on the impact of the hubris-driven “Zero-COVID” strategy continues to make itself known. Vaccine administration of health young people, often under federal or state mandate, will turn out to be one of the bigger mistakes.
Dr. Paul Offit, who has urged his own adult children not to get vaccinated, was the leading voice for a warning. The company defended itself by insisting there was no causal relationship. It is likely, however, that the FDA and NVAX will reach agreement on a warning for the fact sheet.
Unfortunately, because physicians can be left out of a vaccination decision as the federal government is the payer and often the dispenser, the impact of a fact sheet warning may prove to have little impact.
Other Stuff
Trends in Drug Prices. It is a duh kind of moment. Regulating markets, especially one as dysfunctional as health care, can often induce very counter-productive behavior.
In another blow to the aforementioned diminution of uber-progressives’ influence, a research letter published in JAMA this week suggests drug makers have increasingly used drug launch prices to overcome both demands from PBMs for higher rebates and inflation-linked limits on annual price increases.
Put Away the Pen and the Phone. The Supreme Court is expected any day to rule on Obama-era EPA rules that required coal plants to limit greenhouse gasses. This case and one on the 340B program have the potential to rein in major administrative initiatives devoid of Congressional authorization.
The Trump administration had revised the 340B program by reducing reimbursement for 340B drugs to non-profit hospitals and redistributing the savings, in a budget neutral way, to all hospitals, including the for-profits which are not eligible for discounts under the 340B program. It was quite the stretch and it would not be too much of a surprise if they find the Trump administration overstepped its bounds as they did with the eviction moratoria.
Pharmaceutical Mergers. The FTC has planned a workshop on pharmaceutical mergers for next week. Agenda is here.
Recent Events. Venture View with Marcus Whitney. If you need a quick primer on the state of venture investing and the coming mark downs, this video is for you.
Calendar. You can find 2022 here with searchable ticker list.
Have a great weekend.
Emily Evans
Managing Director – Health Policy
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