Top of the Funnel: Macro + Earnings
PPI. BMY (+), JNJ (+), ABBV (+), PFE (+), MRK (+) While inflation in pharmaceuticals is manifest in PCE and CPI, input prices have decelerated from 5.0% in April to 3.23% in this week’s print. Meanwhile, PCE is running just under 10% YoY. CPI – which only measures cost-sharing legged up in August to 2.82%.
Inflation is running hot in pharmaceuticals mostly because it can. The Inflation Reduction Act ties the rebate provisions to CPI-U, which means pharmaceutical companies, all other things being equal, can feel pretty good about price increases very close to the national inflation rate.
Regulation, unfortunately, often acts as a permission slip rather than a deterrent.
CONGRESS.
CR or Bust. Few things matter in Washington more than the approaching end of the fiscal year. By October 1, Congress must pass 12 appropriations bills or a Continuing Resolution to keep the government operating.
Government shutdowns aren’t what they used to be, but they have always been more of a non-event for the health agencies, which are usually deemed essential. For example, about 64% of the FDA’s employees are exempt from furlough.
The challenge over the next couple of weeks is to convince the House to go along with the Senate, which has been dutifully passing appropriations bills at the spending limits previously agreed to.
It is certainly not a good thing to shutdown the federal government but I doubt it has the power it once did after President Bill Clinton emerged victorious from his scuffle with Speaker Newt Gingrich. Afterall, the government shut down large segments of the economy so perhaps turn around is now fair play?
We should know more next week.
Minimum Staffing Rule. ENSG (+), WELL (+) Sen. Bob Casey of Pennsylvania has drawn attention to the shortage of state surveyors and auditors to ensure compliance with the recently reduced preliminary rule on minimum staffing at long term care facilities.
Sen. Casey’s move is important because he is recognizing that most people on the ground know. Minimum staff enforcement falls to the states. State surveyors are notoriously understaffed so the system depends largely on the honor system.
For a large PE owned or publicly-traded REIT or operator, the reputational damage for violations probably keep them on the straight and narrow for the most part. The lack of meaningful enforcement does introduce some “flexibility.” It also tends to punish the bad actors, leveling the playing field for all.
THE WHITE HOUSE.
COVID Shots. PFE (+), MRNA (+) The FDA provided full approval of the COVID vaccines and the CDC seconded with a broad recommendation for anyone 12 and over. The FDA also approved an EUA for the same vaccine for anyone under 12.
PFE and MRNA are apparently locked and loaded to deliver shots this week but we are hearing insurance systems are not quite running yet.
Phenylephrine Suspension. An FDA advisory committee ruled that decongestant that contain phenylephrine like Sudafed PE do not do anything to reduce nasal decongestion.
The problem is the oral administration which reduces the active ingredient’s level of circulation in the body to “very low” according to the advisory panel.
The decision should not come as a surprise to anyone who has used these drugs and the follow-up question for the FDA is, “what else doesn’t work?”
Medicaid Disenrollment. About 6M people have been disenrolled from Medicaid which has caused some consternation at CMS. Hawaii announced this week they would be pausing procedural disenrollments until 2024.
We have yet to see any ill effects in the services sector but rumors swirl about hospital systems that might withdraw from Medicaid. Politically, that seems like a bad idea but for some non-profits with little cost controls, it may be necessary.
OTHER STUFF.
340B. Inflation in pharmaceuticals notwithstanding, manufacturers are moving to limit diversion of revenue. One of the most obvious places to do that has been the 340B program which is badly in need of reform.
For the drug manufacturers, the issue has been the proliferation of contract pharmacies. The law and the oversight never envisioned the vast networks of contract pharmacies. Manufacturers have moved to limit the number of pharmacies from which their drugs can be dispensed, typically one located in-house.
Jazz Pharmaceuticals is the latest company to limit dispensing to one in-house pharmacy. If the hospital does not have one, then it can designate one contract pharmacy in the community.
The drip-drip from the drug companies is bad news for the non-profit hospital sector, particularly the academic medical schools that have leaned hard on these 340B sales to underwrite growth.
Have a great weekend.
Emily Evans
Managing Director – Health Policy
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