Top of the Funnel | Macro Data + Policy Position Monitor+ Earnings.
Employment. ((HCA (+), THC (+), DVA (-)) After a dismal March when non-COVID cases were not backfilled quickly enough to satisfy the finance office, health care demand, as measured by employment, found its footing in April and has been accelerating since.
Job Openings in June signal healthy demand with a MoM% increase. Hospital employment is near pre-pandemic levels. Even women appear to be reconsidering and returning to the health care workforce.
These things are true even in the face of higher average hourly rates.
The ability of the health care industry to navigate inflation and labor shortages the likes of which we have not seen since the 1980s, probably rests on the mix shift toward commercial. Nearly all reporting companies have cited it as a tailwind. The good news is that the ACA tax credits that made some of that possible are probably going to be extended for another three years.
Saying the quiet part out loud, some providers may be triaging patients to protect margins. Factors under consideration would certainly include acuity but payor seems to be coming into play as we listen to earnings commentary and anecdotes around town.
Employment workbook is here.
Earnings.
DVA. (-) Employment at dialysis clinics dropped in June, reaching a new low since 2017. The company's earnings call reflected the concerns we have had since earlier in the year. The company reported a leverage ratio of 3.80, which is getting close to the 4.0 that seems to have triggered sale of the Davita Health Partners a few years ago.
EHC. (+) A chronic underperformer but a great call for commentary on labor. Contract labor plus bonuses declined from $63M to $56.9M QoQ. In absolute terms, still higher than the $28.7M in 2Q 2021. An improvement, nonetheless. The decline is, in part, less contract labor utilization. However, lower rates are also playing a role.
CONGRESS
Drug Prices. ((PFE (-), BMY (-), MRK (-), ABBV (-) MCK (-), CAH (-), CI (-)) The text of the “Inflation Reduction Act of 2022” was released. Industry lobby, PhRMA is freaking out about the provisions that authorize Medicare to “negotiate” prices. Because everyone knows Medicare cannot negotiate anything, the bill includes a provision to apply a 95% excise tax to sales of the relevant drugs. In effect, the bill would apply price controls on drugs that meet certain criteria.
The threat of a 95% excise tax does not lend itself to a negotiation, but it will take a while for the courts to see it that way. Between now and then, chaos. Big BioPharma won’t know what to buy, biotech doesn’t know what they are worth, and the public has grown to mistrust the entire industry.
The silver lining to all this – until the courts rule – is that all the margin that has been so freely distributed to wholesalers, pharmacy benefit managers, insurance plans and God only knows how many consultants, gets squeezed. The pressure should send the industry in a direction it has long needed to go - toward greater transparency and accountability.
THE WHITE HOUSE.
Medicare-Rule-A-Rama. ((HCA +), THC (+), UHS (+)) Inpatient Acute Care hospitals will get a 4.3% reimbursement increase in FY2023. The proposed amount was 3.2%, which the industry lobby argued would amount to a pay count after considering DSH and outlier payments.
The change is the result of updates to the Medicare PPS model that incorporates compensation costs, but on a lag. The lobby insists it is still too low, and they are right, but the law just does not allow the flexibility the industry is demanding.
Long COVID. ((PFE (-))Health and Human Services issued two reports on Long COVID. They do not cover much new groups because the state of the science is in bad shape. Studies to date have relied on EHR data. Studies produced by the CDC fail to separate populations between vaccinated and non-vaccinated.
Work at NIH has failed to attract study subjects. Less than 5,000 people have enrolled in the Recover program. The problem cannot be access as there are over 200 plus study sites. It may be that long COVID is not a thing or it could be that people are done with talking to their government about health care.
We wait to see more.
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Have a great weekend.
Emily Evans
Managing Director – Health Policy
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