Top of the Funnel: Macro + Earnings
UHS. The company beat the street on EPS and top line, but the street didn’t think much of that. Two things to note. First, the company intimated that their admissions may be affected by the insurance coverage of a patient. This disclosure is nothing new as the Mayo Clinic said something similar a few years ago. EHC has also suggested the same with respect to Medicare Advantage and Fee-for-Service.
However, in the world of mental health care, policy and regulation do not favor insurers. For the near future. UHS and ACHC are going to be setting price and letting insurers face the wrath of regulators for inadequate coverage and networks.
PCE. June was a quiet month for the Federal Reserve’s favorite inflation indicator. PCE increased 0.17bps in June versus May while the price index barely moved at 0.08 bps. Even pharmaceuticals were tamed. Do not expect it to last. Medicare payment updates are being revised upward as more inflation gets baked into CMS' models.
Health Care’s contribution to the 2.4% GDP print was .31 bps or about 13%.
ECI. The Employment Cost Index released quarterly revealed a significant QoQ% deceleration (5.3% in 4Q to 1.7% in 1Q). Yesterday’s news, I know, but not if you are modeling the prospective payment systems down at Medicare.
These high labor costs should remain in the CMS model through payment update rule in 2024 for 2025 which suggests more upward revisions in the Office of the Actuary’s estimates.
CONGRESS.
PBM Reforms. The Energy and Commerce Committee, having completed its health care efforts, has turned things over to the Ways & Means Committee. The Health Care Price Transparency Act was reported out on party lines.
The bill would establish site neutral payments in Medicare for hospital outpatient departments located separately from the primary hospital campus. The bill also includes enhanced reporting by Pharmacy Benefit Managers, requirements of Medicare Advantage plans regarding prior authorization and limits on Part D cost-sharing. The bill also makes some price transparency requirement for clinical tests.
As previously discussed, the fate of these bills in the Senate is unknown and, given the partisan vote count on the House side, are probably going to need a change in control. If that happens next year, the House would be prepared to move.
THE WHITE HOUSE.
Another Behavioral Health Proposal. UHS (+). ACHC (+) The White House unveiled a proposal to improve mental health services. It is fundamentally an effort to, once again, improve parity. The announcement indicated that a forthcoming rule would:
- Provide clearer guidance on what health plans can and cannot do with respect to mental health services. The White House cited use of more restrictive prior authorizations and narrow networks as examples of bad practices.
- Require grandfathered self-insured plans to comply with federal mental health parity laws. Currently, they are able to waive these requirements.
- Enhanced reporting on outcomes of mental health services as compared to medical benefits.
The trick is going to be staffing these services. There is a shortage of qualified behavioral health workers and a significant paucity of recognized standards of care. We can probably expect more Prozac utilization though.
Medicaid Inflation Rebates. PhaRMA says inflation rebates are causing drug shortages and urged exemptions this week. Meanwhile Health and Human Services’ research division, the Office of the Assistant Secretary for Research and Evaluation warned waivers for inflation rebates would increase shortages.
ASPE’s argument is that manufacturers would create shortages to avoid paying the rebate. I guess that is possible. Another indicator of how screwed up the drug channel is.
Medicare Rule-A-Rama
Inpatient Rehabilitation Facilities. EHC (+) CMS finalized a 4% increase for IRFs, a 100bp increase over the proposed level.
Inpatient Psychiatric Facilities. ACHC (+), UHS (+) CMS finalized a 2.3% Medicare reimbursement increase. CMS also requested information on changes to the IPF rule as required by the FY 2023 spending bill.
OTHER STUFF
Labs Leaks. ILMN (-) The Wall Street Journal reported that the White House pressured Meta's Facebook to remove posts that implied the Coronavirus running rampant in 2020-21 was man-made. Their reporting follows release of certain documents - under pressure, I might add, from a contempt order - to the House Select Committee on Weaponization of the Federal Government. The committee has also uncovered emails that suggest federal scientists thought a lab leak was a distinct possibility.
This disclosure, of course, follows similar revelations at Twitter - or X - and the subject of a federal lawsuit.
What matters, for our purposes, are the knock-on effects for federal scientific agencies. Congress is already going to be under pressure to cut spending in 2024, these bombshells are only going to make it easier.
Have a great weekend.
Emily Evans
Managing Director – Health Policy
Twitter
LinkedIn
