Top of the Funnel: Macro + Earnings
ELV. (+) Elevance reported a loss of 135k members driven primarily by Medicaid disenrollment. However, they made up for it in premium revenue. The membership losses in the Employer Group Risk-based segment, however, indicate not everyone is able to absorb ELV’s premium increases.
A factor here could be ELV's control of the drug channel. CI, the proud owner of ExpressScripts, can pull on the rebate and spread pricing levers to accomplish a desired benefit cost and, hence, premium price, barring any resistance from the manufacturers. We will have more to compare when CI reports on Aug 3rd.
Nonetheless, a good quarter as the magic moment fueled by loads of cash sloshing about buffers the increased cost and demand for services.
For now.
Medicaid Unwinding. UNH (+), ELV (+), MOH (+), CNC (+) The Director of Medicaid and CHIP Services, Dan Tsai held a media call on Wednesday on Medicaid unwinding. The policy shops in Washington have focused on disenrollment that results for procedural reasons and he needed to respond.
Some of this disenrollment is because the Medicaid beneficiary has other insurance through an employer.
However, CMS is pressuring states that have high levels of procedural termination to stop or slow down. The released a letter this week assessing state of compliance and disclosing that nine states would pause redeterminations for procedural reasons.
Redeterminations on 90M people was always a tall order, CMS’s concerns could slow things down which will keep the PMPM flowing. It does put pressure on states because the federal increased match runs out at the end of the year. How they may react is an unknown risk factor.
CONGRESS.
First Shots. One of the few legislative vehicles related to health care expected to pass this year is the Pandemic and All-Hazards Preparedness Act. This week the House Energy and Commerce Committee managed to strip out any funding increases for the Centers for Disease Control.
It was a surprise move as higher levels of funding had made to through subcommittee work. The sponsor of the amendment to flat funded the CDC indicated the agency did not spend its money responsibly during the Public Health Emergency.
Flat funding the CDC is probably not going to survive the Senate but it does establish a starting point for negotiations the Agency's new leader, Mandy Cohen will not enjoy.
THE WHITE HOUSE.
SNF Staffing. ENSG (+/-) We have been watching the debate over staffing minimums for nursing facilities closely as it is driven more by politics and power than by policy. Organized health care labor has been pressing the White House since 2020 to support staffing of home health agencies, an area they hoped to organize. When a large expansion of funding for Home and Community-based Services was left out of the Inflation Reduction Act, labor organizers successfully lobbied for a proposed rule that would mandate a minimum staffing expenditure.
The nursing and long term care industries are another area of focus, hence CMS's consideration of minimum staffing levels. It is a tough policy to develop. If CMS gives labor everything they wish, access could be limited. If CMS produces a rule that is more friendly to the industry, they risk political trouble with a core part of President Biden's base.
This week, National Consumer Voice launched an effort to support staffing minimums. Meanwhile the ACHC, the long term care's largest lobby group, has sent a letter to the White House asking that any minimum standard be covered with additional reimbursement.
Reading those tea leaves it would appear union demands are not a slam dunk at the White House. There has been some speculation that staffing minimums would be targeted based on acuity (Hello! low acuity volume) or some other compromise. It is a very tough call but we tend to be biased toward protection of Biden's base as the national political situation gets, well, more uncertain.
The War of the Roses. The FDA and CMS continue their little cold war over the newly approved Alzheimer’s drug, Leqembi. If you missed it, CMS is a bit verklempt over the price of Alzheimer’s drugs and has moved to limit access. In the case of Aduhelm, they limited coverage to the clinical research setting. They promised, however, that they would cover any drug with full FDA approval (as opposed to accelerated approval.)
Behold, full approval of Leqembi. At $26k/year, CMS again balked, and this time made registry participation a requirement of coverage. They even launched their own registry.
The internecine battle continued this week when the FDA left participation in CMS’ registry out of its post-market requirements. In government-speak, that move is code for “CMS doesn’t know what it is doing.” Instead, the FDA is requiring post market safety studies.
The source of this rather unseemly behavior – by government standards – is the political pressure on CMS to limit drug prices while at the same time meeting the requirements of the law that requires coverage of any FDA approved drug or device.
Merger Guidelines. Demographics will demand some consolidation of health care in the coming years. Just in time, the FTC, which has not exactly been hitting it out of the park with the court system, released new merger guidelines this week.
Their announcement includes a retraction of 2011 waivers that applied a more relaxed review to Accountable Care Organization.
Unlike the technology industry, the FTC and DOJ have had some success with insurer and provider mergers in the past and they could again. Paul Glenchur and I will be in the studio on Sept. 6th to discuss. Watch for invite.
OTHER STUFF.
Medical Cost Trend. HCA (+), THC (+), SGRY (+), UNH (-), ELV (-) PwC released their medical cost trend report with an estimate of 7% for 2024 due to drug prices and general inflation. That estimate represents a 100bp acceleration from their 2023 estimate.
PwC cites higher drug prices and inflation, generally. As we noted in our analysis of CI, there are few incentives to keep drug prices low when Medicare and Medicaid inflation rebates are tied to the June 2022 CPI-U.
The incentives are to run the prices up as a way to buffer against lower inflation in the future.
Pfizer Plant Down. PFE’s Rocky Mount, NC plant was hit by a tornado this week taking out some of the supply for sterile injectables used by hospitals. Some estimates are that they supply 25% of the market, which is bad news for the already stressed supply chain.
And Then There Was Six. JNJ jumped into the mix and is asking the courts to declare the Inflation Reduction Act’s drug negotiation provisions unconstitutional. The cases are being filed in a plethora of jurisdictions to force an appeals court split which ultimately needs to be reconciled at SCOTUS.
At issue is the Fifth Amendment prohibiting the taking of property without just compensation. The drug companies allege that the 95% excise tax the government would impose in the event it fails to reach a Negotiated Fair Price, violates the Fifth Amendment.
Have a great weekend.
Emily Evans
Managing Director – Health Policy
Twitter
LinkedIn
