Top of the Funnel
We reviewed our current thesis on Managed Care on Wednesday. See replay here: MCOs: The 2024 Outlook and These Unusual Times
Inflation. There will be surprises, I said a few months ago regarding inflation. Not that I am that smart, just old enough to remember the 1980s when Congress learned that monetary policy will not fix fiscal excesses. Those fiscal excesses in the 1970s cannot hold a candle to health care’s hold on the economy since the passage of the Medicare Modernization Act in 2003. The Public Health Emergency coupled with the long lever provided the U.S. Treasury via the Affordable Care Act has poured trillions into the industry. It takes a year to 18 months for inflation in the health care sector to wash through, as it is now doing.
CPI. The 0.50% YoY increase in CPI for health care services contributed to the overall services number but represented higher consumer costs last year. CPI for commodities is more reliable and it dipped to 3.0% YoY. Still high, driven by the temporary effect of drug price policies.
PPI. Producer Prices are timelier reported. The most interesting series is PPI for the care of Medicare patients in hospitals. This series attempts to measure the varying costs of patients in the acute care setting. In Jan. it continued its Dec. acceleration to 2.91% YoY.
Thus, PPI is endorsing what Medicare Managed Care Organizations are saying about higher costs in 4Q carrying over to 1Q.
CONGRESS.
Factor: China. ILMN (+) The Select Committee on the Chinese Communist Party, following a little hang up in garnering bipartisan support for the BioSecure Act, issued a letter to the Biden administration that takes more direct aim at WuXi AppTec, the CRO.
(The text of the identifies BGI, WuXi, Complete Genomics and MGI by name which is unusual.)
The letter asks for an investigation and raises issues of unfair competition and use of genetic testing to target Uyghur populations in China. The letter was followed by an event in Boston Wednesday that included discussions on unfair competition.
This issue – weirdly – seems to be vacillating between a national security focus and an American competitiveness concern. The most cogent explanation has been that, were a national security event to occur, biotech research would be exposed to shortages of study animals, equipment and the like. At times like these, I generally assume the complete reason is not being fully articulated, either because it isn't a good one or because it has broader implications than anyone wants to admit.
The health care committees are not involved and not surprisingly, questions are arising about the implications for academic research centers which are integrated with the international biotech industry. Part of their concern may be real as elimination of an international supplier could drive up research costs. Part could be that long standing geopolitical naivety that runs through the international scientific community. Your guess is as good as mine.
As these questions to get posed it could slow the bill’s roll but it would be prudent to understand exposure to China’s biotech industry regardless of what happens. Often the threat of a prohibition is enough to change behavior. No legislation actually required.
Site-neutral Policies. The House’s modest effort at site neutral payment policies – one that levels the price paid for drug administration between hospitals and outpatient or physicians offices – is getting a lot of expected heat from hospitals. The American Hospital Association calls it the “site neutral pay cut.”
One response being floated is a rural hospital exception which could neutralize part of the objections.
Doc Fix. As the March deadline approaches for the current Continuing Budget Resolution, pressure is on to alleviate the statutorily required pay cuts for physicians. It appears something will make it into the extension/agreement/whatever.
At some point and given demographic shifts, policymakers are going to have to reckon with providers who have lost interest in the Medicare program.
WHITE HOUSE.
Investigating the Drug Channel. MCK (-), CAH (-), PINC (-) Together with Health and Human Services, the Federal Trade Commission has launched an inquiry into Group Purchasing Organizations and Wholesalers.
The joint Request for Information asks interested parties to submit information on the effect market concentration has on the availability of drugs, among other things. The theory is that the concentration of wholesalers and/or GPOs has pushed the price of certain generic drugs so low there is little incentive to produce them.
Press release here. RFI is here.
Other Stuff.
Food, the New Drug Industry. NVO (-) At an event at the National Press club a couple of weeks ago, but just recently reported, Food and Drug Administrator Robert Califf, SecHHS Xavier Becerra and Sen. Bernie Sanders. The subject was nutrition. Sen. Sanders has pivoted slightly from his pharma jihad – well sort of.
Dr. Califf, Secretary Becerra and Sen. Sanders promoted a more holistic approach to weight loss and metabolic disease. In other words, they are not quite down with a broad reimbursement for drugs like Wegovy.
It also suggests some interest in labeling ultra processed foods. The FDA is set to propose front of package labeling for certain foods with a rule this spring. It is still early days but part of the swing in sentiment against the drug industry almost necessarily asks what other factors may be contributing to chronic illness.
Have a great long weekend.
