|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
Reducing penalties for hospitals in low-income areas
Starting next week the Centers for Medicare & Medicaid Services (CMS) will implement a change to the way it penalizes hospitals with excessive rates of readmissions, an adjustment announced as part of the final 2018 Inpatient Prospective Payment System (IPPS) rule a few weeks ago. As reported by Kaiser Health News in a new analysis of the change, the change will benefit safety-net hospitals and other facilities that disproportionately serve low-income patients. The Hospital Readmissions Reduction Program (HRRP) has been one of the more successful provisions of the Affordable Care Act’s payment reforms, and since 2012 has docked hospitals with higher-than-expected rates of 30-day readmissions for an expanding set of diagnoses, which now includes heart failure, heart attack, pneumonia, chronic obstructive pulmonary disorder, open heart surgery, and hip and knee replacement. Analysis by the independent Medicare Payment Advisory Commission estimates that the program resulted in reductions in readmission rates that were nearly twice as large for targeted conditions as for those not included, indicating that the program has been effective in motivating hospitals to work on reducing readmissions.
A frequent complaint about the program, however, has been that it unfairly punishes hospitals that serve low-income patients, whose lack of access to medications or follow-up visits after discharge contribute to higher readmission rates. Starting Monday, hospitals will be grouped into one of five categories, depending on the extent to which they treat low-income Medicare beneficiaries (as measured by the rate of “dual-eligible” patients, enrolled in both Medicare and Medicaid). Rather than comparing all hospitals to a single national benchmark for readmission, facilities will now be judged against those serving similar numbers of dual-eligibles. The change is expected to have no impact on the overall amount of readmissions penalties paid but will redistribute those penalties so that the burden is reduced—and in some cases, eliminated—for some hospitals. The change is a welcome recognition that many of the factors that cause readmissions are not directly controllable by hospitals, but instead driven by social determinants of health. While hospitals can partner with other community organizations to address some of these drivers, holding them financially liable for their impact has long been a flaw in an otherwise successful payment policy.
Aetna looks to ease regulatory concern over the CVS merger
As part of its ongoing effort to convince the Department of Justice to approve its proposed merger with pharmacy giant CVS, Aetna announced this week that it planned to sell the entirety of its Medicare Part D drug plan business to WellCare Health Plans, contingent on the CVS-Aetna merger being finalized. The plan is estimated to have about 2.2M enrollees and will triple the size of WellCare’s Part D business. Concerns arose during the Aetna-CVS merger approval process about market concentration in the Part D segment, in which CVS has a 24 percent market share and Aetna controls nine percent of the market, according to analysis by Citi. In a filing with the Securities and Exchange Commission (SEC), CVS stated that it believes Aetna’s divestiture of its Part D plan is “a significant step toward completing the DOJ’s review” of the proposed Aetna-CVS deal. For WellCare, this marks the third major deal in the past two years, coming on the heels of its acquisitions of Universal American Corp in 2016 and Meridian Health Plans earlier this year, both of which bolstered WellCare’s position in the burgeoning Medicare Advantage (MA) market.
Notably, the divestiture will not impact Aetna’s core MA business, or its related MA drug plans. As we have noted elsewhere, gaining a foothold in the MA marketplace is one of the main motivations for CVS’s interest in Aetna. With the DOJ clearing the Cigna-Express Scripts merger earlier this month, signaling that it is willing to take a more sanguine view of cross-sector, vertical merger activity, the remaining concerns holding up DOJ approval of the CVS-Aetna deal reportedly have more to do with overlapping businesses (such as Medicare Part D), than with the overall market power that the combined entity might wield. Aetna’s move to clear up those concerns and WellCare’s ongoing efforts to build up its position in the MA market both signal a growing urgency among healthcare companies to position themselves for strategic advantage in the Medicare marketplace. With Baby Boomers continuing to swell the ranks of MA plans, and MA penetration expected to hit 50 percent of the overall Medicare population in the next few years, we’d expect jockeying for position in MA to continue to accelerate in the near future.
United’s battle with Envision heats up
The ongoing dispute between insurance giant UnitedHealthcare and Nashville, TN-based physician staffing firm Envision Healthcare intensified this week, as United sent a letter to more than 250 hospitals warning them that it intended to drop Envision from its networks starting in January. The two firms have been engaged in a contracting battle for more than a year, centered on the rates the insurer pays to Envision’s emergency room doctors. In April, United filed notice in court that it intended to terminate its contract with Envision, in an attempt to force the firm into arbitration. The filing was in response to Envision’s earlier complaint that United was forcing it to accept unreasonably low rates for its doctors’ services. (Although UnitedHealth Group, the parent company of UnitedHealthcare, had earlier been a rumored suitor to acquire Envision’s ambulatory surgery unit, Envision was ultimately acquired earlier this year by private equity firm KKR.) In the letter, UnitedHealthcare network president Dan Rosenthal told hospitals, “You know better than most how Envision’s rates are driving up the cost of health care for the people we all serve.”
The contracting dispute could prove tricky for United, as cutting Envision’s large group of emergency doctors out of its networks runs the risk of exacerbating the problem of “surprise billing”, in which a patient unexpectedly receives a large bill for out-of-network services received at a hospital that is part of their covered network. Surprise billing has been a hot political topic lately, with a bipartisan group of Senators last week proposing new legislation to address the issue. Federal legislation is necessary to bring change in self-insured health plans, which represent the majority of plans that cover Americans and are not regulated by state law. The Senate bill would require health plans to pick up more of the cost of out-of-network services provided at in-network facilities. The latest move by United is likely to put additional pressure on Envision, by encouraging hospitals to re-evaluate their contracted relationships with Envision doctors. Caught in the middle of this dispute, as always, are consumers, for whom the burden of out-of-pocket health spending continues to mount, and who could be forgiven for feeling like pawns in the continuing power struggle between payers and providers.