| THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
- CMS softened proposed rate changes, but strengthened prior authorization rules for MA plans. Last Friday, the Centers for Medicare and Medicaid Services (CMS) announced that it will begin phasing in major Medicare Advantage (MA) risk-adjustment changes over a three-year period, slower than previously anticipated. Thanks to this delay in full implementation, MA plans will see an average 3.3 percent payment increase in 2024, up from the one percent projected in the earlier draft notice. CMS also finalized regulations this week that aim to limit MA prior authorizations and denials by requiring that coverage decisions align with traditional Medicare.
The Gist: After CMS began proposing changes to MA payment formulas last year, aimed at reining in pervasive abuses and fraud, the insurance industry responded with a $13M marketing blitz to oppose the changes. The ads, one of which aired during the Super Bowl, tied Medicare Advantage “cuts” to the time-tested “Hands Off My Medicare” messaging directed at seniors. With MA enrollment projected to overtake traditional Medicare this year, the federal government finds itself walking a tightrope in clamping down on overpayments to MA plans, given that any reductions will impact a growing number of seniors.
- States begin Medicaid redeterminations. April 1st marked the start date of a one-year window for state Medicaid offices to reassess their beneficiary rolls, as Medicaid’s continuous enrollment policy sunsets. Since the early days of the pandemic, the federal government has boosted state Medicaid funding by 6.2 percent, in exchange for a requirement that current Medicaid beneficiaries maintain eligibility, regardless of changes to their income or other qualifiers. This policy helped grow national Medicaid enrollment to a record 90M, but a projected 15M may now lose coverage through the redetermination process.
The Gist: After the US uninsured rate recently hit a record low, millions of Americans will now lose insurance coverage, at least temporarily. Of those no longer eligible for Medicaid, an estimated 2.7M will qualify for subsidized exchange plans, while around 400K in non-expansion states will have incomes too high for Medicaid and too low for exchange subsidies. The impact will vary in each state, both in terms of how quickly and how many Medicaid beneficiaries are disenrolled. But in over half of states, at least one-fifth of those who will lose Medicaid coverage are projected to remain uninsured—a significant step backward in the effort to ensure universal coverage. Communication from Medicaid offices and exchange plan navigators will be key to preventing as many people as possible from becoming uninsured.
- Mark Cuban’s drug company to sell name-brand diabetes drugs. On Monday, the Mark Cuban Cost Plus Drugs Company (MCCPDC) announced via Twitter that it will begin to offer two branded diabetes drugs, Invokana and Invokamet, produced by Janssen, a Johnson & Johnson subsidiary. A month’s supply of these drugs, the first non-generics it has offered, will cost patients around $244, over 60 percent less than average retail prices. Prescriptions for these diabetes drugs fell from nearly 2M in 2020 to under 1M in 2022, and a key Invokama patent will expire next year, both factors that may have influenced Janssen’s decision to partner with MCCPDC.
The Gist: MCCPDC estimates that as many as 1M people who use these or similar drugs could benefit from the lower prices—not only the uninsured but also those considered “underinsured” due to high deductibles. Even though the deal is for two drugs with declining revenues, selling brand-name drugs from a pharmaceutical heavyweight is a notable step for the company. As Congress continues to investigate PBMs for driving up drug spending through their pricing tactics, MCCPDC’s move offers a path to PBM disruption through direct competition. By cutting out the rebates retained by health plans and PBMs, MCCDPC can potentially offer better net payments to pharmaceutical companies, as well as reduced cost-sharing for patients—an arrangement that benefits both parties at the expense of traditional PBMs.
Plus—what we’ve been reading.
- Eli Lilly sets its sights on the lucrative weight-loss drug category. A piece published this week in the Wall Street Journal describes how internal changes at pharmaceutical giant Ely Lilly paved the way for the development of Mounjaro, a weight-loss drug that could prove to be an even bigger blockbuster than Novo Nordisk’s Wegovy and Ozempic, and able to produce even greater weight loss in patients. During early research trials, some leaders at Lilly had opposed the development of Mounjaro, fearing that it would cannibalize sales of Trulicity, an older diabetes drug that had become a major profit center for Lilly. Eventually choosing to prioritize clinical innovation over protecting existing profit pools, Lilly green-lit the accelerated development of Mounjaro, streamlining internal review and cutting development times nearly in half, in order to speed the drug to market. Mounjaro is expected to produce annual sales of over $25B for Lilly, compared to last year’s $10B in sales for Novo Nordisk’s two drugs.
The Gist: Lilly’s willingness to embrace the potential for a costly cannibalization of one lucrative drug (Trulicity) to favor even quicker introduction of a more promising one (Mounjaro) demonstrates just how attractive the burgeoning weight-loss segment is for pharmaceutical companies. Given the size of the addressable market, and the seeming effectiveness of these new drugs (despite concerns about potential side-effects), employers, insurers, and the federal government will soon be grappling with a serious financing dilemma. Beyond the necessary debate of whether and how much to pay for these weight-loss therapies, they must also consider the societal cost-benefit analysis of a pharmaceutical-led approach to addressing the nation’s obesity problem.
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