Top of the Funnel: Macro + Earnings
SVB. Bank failures are never a good thing. They are also nearly always predictable. That is especially true when interest rates are rising. Despite SVB being highly levered to the no longer growthy biotechnology industry, the bank still deployed debt investment to shore up some of its portfolio companies.
Denial is a powerful thing.
The macro implications for health care, however, are probably overstated as demonstrated by a raft of filings from the biotech sector making assurances of liquidity . The sector is so vast and complex the business failures that may result are not likely to implicate the industry at large. The runway for some starts-ups just got shorter that much is certain, but for many the inevitable is simply arriving a little earlier than expected.
Capital flows into venture are and will slow and – most important – the funding targets are going to be more serious. For health care services that is good news. As the industry faces labor challenges, some of which can be met only with innovation.
Marcus Whitney of Jumpstart Health Investors will be discussing all the angles on SVB and health care venture broadly on Thursday, March 16th at 10am. Link here. Add to out look calendar here.
PMI. The ISM Report on Hospitals PMI rose 1.8% sequentially to 53.5 while the case mix index declined from 56.5 to 51.5.
Employment. HCA (+), THC (+) Health care contributed to that strong employment number. The sector added 44k jobs sequentially in Feb. . Wage growth decelerated from 4.7% in Dec. to 4.2%. All mostly good news for the sector.
CONGRESS.
Select Subcommittee on Coronavirus Pandemic Begins Hearings. ILMN (-), PACB (-) (Trigger warning for those of you in the proven-for-sure zoonotic origins camp.) The focus of the first hearing was on the origins of the SARS-CoV-2 virus. While it will be easy to dismiss the House’s efforts as partisan, it might be a mistake.
The witnesses did not paint a particularly flattering picture of the federal and global scientific agencies which, according to former Centers for Disease Control and Prevention Director Robert Redfield, worked to limit debate on research's role in developing a global pandemic.
Everyone likes a whodunit, so the hearings are worth some of your time. More pertinent to our purposes are the implications for future funding of federal scientific agencies and their public-private partnerships.
THE WHITE HOUSE.
Medicare Solvency. President Biden, in conjunction with the launch of his FY 2024 budget, announced a few proposals to extend the solvency date for the Medicare trust fund. In terms of concrete proposals, the White House is calling for an increase of the 3.8% Medicare tax to 5% for earners over 400k.
The plan also calls for expanding the Medicare drug negotiation provisions in the Inflation Reduction Act.
To support the delay of insolvency, the White House is also proposing the saving associated with drug negotiation be credited to the Medicare Trust Fund. Of course, the savings have already been credited to the budget deficit but what is a federal budget without a little hokum?
Insulin Cap. Following LLY’s voluntary move, the White House budget extends the Medicare limit of $35/mo for insulin to all payers. This provision was previously stripped out of the Inflation Reduction Act by the Senate.
Insulin is the best expression of how all the fingers in the drug channel pie have distorted the market beyond recognition. The net price to drug manufacturers has been declining for years while the gross price has been driven up by rebates, 340B discounts and other diversions that make for some eyepopping list prices.
The net impact, then, is not to the drug manufacturers but the beneficiaries of all the revenue diversion. Topping the list are nonprofit hospitals and Medicare Advantage plan sponsors.
Medicaid MCO MLR. CNC (-), MOH (-) Another deficit reduction idea from the Biden administration’s budget is to required states to apply a Medical loss ratio to its Medicaid plans and require rebates as Medicare Advantage plans are required to do.
The Biden budget is unlikely to become law, except selectively, but it tells you what the priorities are for the next year or so.
Other Stuff.
Health Care Exchanges. Texas is now following Georgia in developing its own ACA health insurance exchange. It is an interesting move for a state (like Georgia) that has hated all things ACA since 2010.
However, it might be time to consider a long game. If there is some entitlement reform that gives states greater autonomy over their Medicaid programs, a natural next step is to integrate it with ACA exchange plans. It was contemplated early in the days of Medicaid expansion but the Obama administration threw cold water on the idea. Another president in 2024 might feel differently.
Upcoming Evans
CNC: Overcoming Medicaid Redetermination. March 15 @ 10 a.m. ET (add to outlook). Finally. Power and internet have once again returned to Nashville. I apologize for the delays.
Have a great weekend.
Emily Evans
Managing Director – Health Policy
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