|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
The state of the union was…long
On Tuesday night, President Trump delivered his delayed State of the Union address to a joint session of Congress, in a lengthy 83-minute speech that included only a handful of proposals related to healthcare. The President again addressed the issue of rising drug prices, urging Congress to pass legislation that “delivers fairness and price transparency for patients,” while citing data that in 2018, drug prices “experienced their single largest decline in 46 years” as evidence that the Administration’s focus on pharmaceutical spending is already having an impact. Trump also urged Congress to force hospitals and insurance companies to disclose “real prices” to foster greater competition. Not coincidentally, these two areas of focus—drug pricing and healthcare transparency—have garnered the greatest interest as potential areas of bipartisan cooperation in healthcare, and bring some hope for legislative action in the new Congress. Both are issues that have seen a flurry of new regulatory proposals from the Trump administration, and the President seemed to be using the speech to build momentum for those efforts.
President Trump also urged action on two major research initiatives, asking Congress to allocate $500M over the next ten years for pediatric cancer research, and setting the goal of eliminating the spread of HIV by 2030. Although the proposed new funding for childhood cancer research is relatively meager compared to earlier government cancer research campaigns, the additional spending was hailed by the pediatric oncology community as a helpful new investment that could jumpstart research on immunotherapy, targeted therapies, and other key areas. The President’s proposal on HIV represents an aggressive new strategy by the Federal government to dramatically reduce new infections by targeting key “hot spot” communities to encourage greater use of antiretroviral drugs to reduce HIV in those already infected, and to increase the use of pre-exposure prophylaxis drugs to prevent further spread.
Two health policy phrases were notably absent from the President’s speech: “repeal and replace” and “Medicare for All”. Although the President again touted the landmark 2017 tax reform law for eliminating penalties associated with the individual insurance mandate, there was no further mention of dialing back the Affordable Care Act (ACA)—rather, the President declared it a “major priority” to “protect patients with pre-existing conditions”, a cornerstone of the ACA. Nor did the President directly address Democrats’ growing calls for “Medicare for All”, instead only vaguely alluding to “new calls to adopt socialism in our country.” Regardless of the lack of real estate given to the ongoing debate over coverage expansion in the President’s speech, it’s clear that coming months will witness a no-holds barred fight over the issue, with the 2020 Presidential election and the continuing Texas court battle over the constitutionality of the ACA providing impetus for both sides to engage.
Texas titans call off plans to merge
This week Dallas-based Baylor Scott & White Health and Houston-based Memorial Hermann announced in a brief joint statement that they would discontinue discussions about a proposed merger between the two systems. The potential deal, announced in October, would have created the largest health system in Texas and one of the ten largest nonprofit systems in the country, with 68 hospitals and nearly $15B in revenue. While there has been little public comment from leaders on either side about the stumbling blocks in negotiations, media have speculated that Memorial Hermann may not have been willing to stomach the degree of cost cutting laid out in the merger, and raised questions of incompatibility between the systems’ physician organizations and academic models. Other reports cited concerns about a “big brother, little brother” relationship dynamic between the two systems. Although board seats were slated to be evenly divided, the new organization was to be based in Dallas and led by Baylor CEO Jim Hinton, with the combined Office of the CEO weighted toward Baylor Scott & White leadership.
Regardless of the specific reasons given for the breakup, all signs point to concerns over control and cultural fit, which would have created barriers in achieving the vision outlined by Hinton and Memorial Hermann CEO Chuck Stokes for a combined system that would deliver care that is convenient, affordable and consumer-centric. Some policy experts hailed the breakup as “a relief”, and a “step in the right direction for consumers”, citing historical evidence that hospital mergers have tended to raise prices and deliver little value to patients or purchasers. We disagree that health system mergers are incapable of creating value but acknowledge that few in the past have done so. Any merger on the scale of the one proposed by these systems must be held to a high standard for creating a more efficient, lower-cost, consumer-centered organization. But to achieve that, systems must pursue a degree of operational integration, streamlined leadership and cost-cutting that has not been a part of most health system combinations. If due diligence revealed conflicts that would impede that level of integration, the decision by these two Texas systems to remain separate was probably a good call.
North Carolina Medicaid writes health systems out of the script
Four years after its state legislature mandated a major overhaul of its Medicaid program, North Carolina announced that it planned to award contracts valued at $6B per year to four managed care insurers and one payer-provider organization. Citing years of mismanagement and cost overruns, the 2015 legislation required North Carolina to move to a managed Medicaid framework, and contract with private organizations to manage the 2.1M enrollees in the state’s Medicaid program. The legislation envisioned two types of arrangements: traditional contracts with “prepaid health plans” (PHPs) of the sort commonly used in other states, and contracts with “provider-led entities” (PLEs), in which hospital systems and doctors could participate as joint owners. In moving to a managed Medicaid framework, North Carolina joins a large and growing majority of states that contract with private insurers to control the cost of care for low-income residents. Four PHPs were awarded state-wide contracts: AmeriHealth Caritas; Blue Cross Blue Shield of North Carolina (BCBS-NC); UnitedHealthcare; and WellCare. One PLE, Carolina Complete Health (a partnership between the North Carolina Medical Society and national insurer Centene Corp.), was awarded a regional contract covering two of the state’s six regions. The five entities will now begin to contract with hospitals and doctors to provide services for the 1.6M enrollees to be covered by managed Medicaid, leaving about 500K medically-complex Medicaid patients with traditional Medicaid coverage until a later date.
Notably excluded from participation was My Health by Health Providers, a consortium of twelve major North Carolina health systems who have partnered with Presbyterian Healthcare Services, a New Mexico-based payer-provider organization with expertise in Medicaid managed care. That coalition was assembled in the wake of the reform legislation, and was widely expected to be included, given its extensive footprint across the state and the fact that it represents most of the major provider systems in North Carolina, positioning it as a prototypical provider-led entity. Another PLE, Optima Health (the health plan arm of Virginia-based Sentara Healthcare), was also excluded from the Medicaid award. We’re surprised by the relatively limited success of the payer-provider organizations in garnering Medicaid contracts. As proponents of provider-led approaches to risk, we were (tangentially) involved in offering input to legislators in North Carolina during the drafting of the legislation and were keen to see the evolution of the state’s Medicaid program to include PLEs. By heavily favoring traditional managed care insurers in its award, North Carolina’s Medicaid program seems to be signaling that it views providers as part of the problem, rather than part of the solution, in its effort to transform care. We certainly hope that’s not the case.