Top of the Funnel: Macro + Earnings
PCE. Personal Consumption HCA (+). THC (+). SGRY (+) Expenditures October increase in current dollars owes its life to health care. A $53.1B in services spending was partially offset by $11.9B decrease in goods spending. The largest contributor was health care, as expected.
Inflation in health care rolls through slowly and on a significant lag. And it has only just begun. The PCE increase reflects October payment updates, something that will be repeated in January as both Medicare and commercial continue to take into account wage and supply inflation.
HUM – CI Merger. The Street hates the idea and the dilutive could be real, assuming the rumors are true. Another talking point – that the Federal Trade Commission will slow things down – does not make as much sense.
The overlapping businesses are small and easily divested. Could there be a theory about the PBM business? As I have conceded, possibly. But what is it? The PBM business will give the Medicare Advantage segment more insight into the drug channel which could make them more formidable post-benefit redesign. That is true, however, of UNH and ELV’s vertical stack as well.
We will never underestimate the FTC’s irrationality after decades of being a being too laissez faire but still waiting to hear a more cogent argument on the anti-trust issues.
UNH Investor Day. The headline that UNH now employs about 10% of US physicians rattled the policy folks a bit. We are working on these data but a key question is how these doctors are distributed geographically and across specialties.
Another trend to watch is how UNH encourages these practices to sell/affiliate with UNH. The company is known for its sophisticated claims review process. Is a reduction in administrative burden a factor/ If so, there could be some CVS style risk anti-trust risk that warrants monitoring.
Other notable highlight is the growth in commercial. As with CI, I suspect UNH is going to take share form Blues plans as they also benefit from growth in the commercial lives.
CONGRESS.
More AI. HCA (+) Energy and Commerce’s Health Subcommittee held a hearing on the use of Artificial Intelligence. For all the hype and gloom over this tool, the hearing was quite informative.
Witnesses, one of whom uncharacteristically hailed from HCA, offered a distinction between indirect and direct AI categories. Michael Schlosser, Vice President of Transformation and Innovation at HCA disclosed the company’s use of AI to reduce administrative burden through charting, scheduling and coordination.
While some witnesses thought AI and Machine Learning might improve patient care through better diagnosis and avoidance of medical errors, no one is looking for it to replace practitioners any time soon.
Data privacy loomed large as an issue. The irony is that AI and ML don’t work without large, complete and accurate data sets. Deidentifying only takes you so far as it must almost always exclude edge cases that are the ones most likely to benefit from an AI copilot.
Of course, HCA has loads of their own data in house and that will mean a first mover advantage we now see the early signs of.
WHITE HOUSE.
There They Go Again. CNC (-), MOH (-), ELV (-) This week former President Donald Trump suggested repeal of the Affordable Care Act needed another look-see. This, of course, was music to the White House’s ears. Nothing motivated Democrats more that threat to the law from 2010 to 2017. Then repeal failed, and no one wanted to talk about it anymore.
As the former president is prone to do, he left out of his commentary the policy work that has been developing in various forms on the Republican side of the aisle. These things include the resurrection of some policy ideas considered in the run-up to passage of the ACA. Things like a bridge program that reduced the friction of people moving from Medicaid to subsidized exchange plans had bipartisan support but no agreement from the Obama White House.
Reducing the federal match for Medicaid expansion population is also in the mix which would reduce the incentives to categorize beneficiaries as expansion when they meet criteria for traditional benefits albeit with a lower match from the U.S. Treasury.
So Long Janet. Dr. Janet Woodcock, Deputy Commissioner at the FDA is retiring. Her replacement Dr. Namandjé Bumpus, the FDA’s Chief Scientist. Her appointment is not great news for the government transparency crowd due to her advocacy against “misinformation.”
Supply Chain Fixes. Facing continued shortages of generic drugs that had been predicted for years, the White House has released its plan to address shortages and further harden the supply chain.
One tool, apparently, is going to be the use of the Defense Production Act to encourage manufacturing of generics. Most active ingredients in generics are manufactured abroad, in China and India as two examples, so it really isn’t clear how or which manufacturing capacity will be deployed for this purpose.
OTHER STUFF.
Freedom is Just Another Word for Nothing Left to Lose. PFE (-), MRNA (-), BNTX (-) Texas Attorney General Ken Paxton has filed a lawsuit against PFE alleging violations to the Texas Deceptive Practices Act. Paxton’s press release claims that PFE misled the public about the efficacy of the company’s COVID vaccine and that it later sought to intimidate those who pointed it out.
Recall that General Paxton was impeached by the Texas House earlier in the year and survived a Senate trial with a significant majority. Paxton claims that the pharmaceutical industry was influential. Which means he is probably now just a little bit more than vindictive, but he may also be right.
We have called out PFE as a charter member of the Bad for America club in part due to their heavy-handedness and selling what is clearly a poor performing product for which the world spent billions.
Look for them to deny it all but if the case makes it past summary judgement, the discovery is going to be lit. Also, assume Florida will follow suit perhaps some other states.
The hope for a GLP-1 rescue has not been dashed. All PFE has is the SGEN acquisition which is not much to hang a $65B-ish revenue hopes for next year.
Have a great weekend.
Emily Evans
Managing Director – Health Policy
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