TOP OF THE FUNNEL
PCE. Personal Consumption Expenditures for health care did exactly what you would expect based on earnings commentary from the MCOs. March was a little softer than January and February. However, PCE for health care remains well above the pre-Public Health Emergency trendline which is especially dramatic after 4Q 2021.
CNC. Notwithstanding market reaction which probably has more to do with inflation than fundamentals, the company turned in a batter than expected quarter, joining most of the other MCOs.
At the same time, HCA also turned in a nice quarter which is another data point to suggest the negative correlation between payers and providers is being defeated by the tricks of the Medicaid system which can support providers outside of the claims/PMPM system.
Additionally, the Advance Premiums Tax Credits distort the historical relationship between premiums and benefit costs, especially since the program has expanded to people with incomes over 400% of the federal poverty threshold and as carriers have gained experience with the program.
Only Medicare retains more or less the historic relationship between premiums and benefits. At least for now.
CONGRESS.
GLP-1 Investigation. LLY (-) NVO (-) Coming off pricing victories for Albuterol inhalers and insulin, Sen. Bernie Sanders is doubling down on his concerns over pricing of GLP-1 drugs like Wegovy and Ozempic.
This week he opened an investigation with a letter to NVO asking for information on pricing, sales and research costs, among other things.
The inquiry comes as the American Society of Health System Pharmacists circulated a report that suggested weight-loss drugs drove a nearly 14% increase in drug spending in 2023.
The trade organization PhaRMA accused Sen. Sanders of having a personal animus toward NVO which may be true. More likely he is just latching onto a very popular drug and a very unpopular price.
Hepatitis C Drugs. The Congressional Budget Office is considering expanding the period of analyzing the cost of Hep C. drugs, according to a presentation they gave this week.
The idea, one that many would like expanded to anti-obesity medications, is that the benefits of these drugs do not appear in total or at all in the traditional 10-year budget window at the CBO.
Hep. C drugs make a compelling case due to their success in eliminating Hep. C in patients with access to the medications. As we have pointed out anti-obesity medications like GLP-1 drugs have a less clear cost/benefit conclusion, something that could change with time.
WHITE HOUSE.
As we approach the trigger date for Congressional retrospective review of the Biden administration’s rulemaking, the White House has been very busy. Many of their efforts have a strong scent of survival politics which may mean reversals regardless of what the Congressional Review Act says if power in the White House shifts this fall.
Minimum Staffing Rule. ENSG (-) WELL (-) The White House released a final rule requiring 3.48 hours of staffing by registered nurses and nursing home aides. The final requirement is higher than originally proposed – 3.30 hours – but one put forth for consideration and included in a June 2023 technical report.
Left unchanged is the minimum requirement of 0.55 hours per resident per day by an Registered Nurse. Also left unchanged is the requirement that an RN being on staff 24/7.
The final rule included a process for claiming a hardship exemption and, in so doing, acknowledges that about half of American nursing facilities will not be able to comply.
Particularly hard hit are rural facilities and Sen. Jon Tester of Montana has expressed concerns. An override bill has been filed and could be part of lame duck activities.
Non-Compete Agreements. UNH (-) HCA (+) The Federal Trade Commission announced a national ban on non-compete agreements. In their release they note that non-competes in health care were a focus.
The ban would extend to non-profit enterprises which has inspired some controversy because one reading of the law says it is prohibited.
In many states non-competes are unenforceable but the possibility of litigation where the process is the punishment is enough to deter job hopping especially among highly valued professionals in medicine. A federal ban provides more certainty and a higher degree of labor liquidity.
The consensus view is that the FTC’s ban will be eliminated by the courts. To this argument, I suggest that non-competes in some markets and in some practice areas can, in fact, amount to restraint of trade.
The courts are going to have to figure this one out but I tend to think non-competes will not the tool they once were. That result calls into question the Private Equity roll-up model and UNH’s Optum Health approach. Is suspect that is part of the point.
Medicaid Home Care Margins. ADUS (-) Another rule destined for Waterloo at the courts is one that mandates, within six years, that 80% of Medicaid payments to home care agencies be used for labor. In effect, CMS is going to mandate an operating margin similar to the ACA’s requirements for health insurers.
The difference between the MLR for health insurers and the opex margin in home care is that in the first case the mandate came from Congress. It is hard to see how a court would not find this rule to be stepping far outside the boundaries of the law, especially in light of the way it singles out one type of provider.
The point of this rule and that for minimum staffing is to encourage political support from organized labor seeking to expand its membership. The need to do so is driven by the tightness of the November election. Once the election is over and the implications of these rules on access become more obvious, cooler heads should prevail. One hopes.
LDT Rule. DGX (+) LH (+) Expected today or early next week is a rule giving authority to the FDA to regulate Laboratory Developed Tests. This rule too is likely to be challenged in court over the long standing legal consensus that Laboratory Developed Tests do not qualify as a drug or device and thus exceed the FDA’s authority.
The issue because a partisan battleground when the Trump administration revoked the FDA’s authority to regulate LDTs, which at that point had been subject to the agency’s enforcement discretion.
Congress attempted to develop a new pathway for regulating LDTs through the VALID Act but failed to appease constituencies like hospital systems. The FDA will no attempt to shoehorn regulation of a technology not contemplated by the law.
Have a great weekend.
Emily Evans
Managing Director – Health Policy
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