September 8, 2023

The Weekly Gist: The Don’t Let Him Steer Edition

by Chas Roades and Lisa Bielamowicz MD

We’ve been dealing with HOV restrictions on major thoroughfares in the DC area for many years, so we’ve heard all the creative arguments for what constitutes a “passenger” during rush hour. But we’ve never seen anything like what Lee Meyer, from a small town in Nebraska, has been doing. For the past several years, he’s been driving around with his one-ton longhorn steer (named “Howdy Doody”) in the passenger seat of his (heavily) modified Crown Victoria. While chauffeuring the Watusi-longhorn to a fairground in nearby town, Meyer was pulled over by police, who had been alerted to “a vehicle driving down the road with a cow in it.” The police let Meyer go with a warning, which doesn’t seem to have deterred him from letting Howdy Doody keep calling shotgun. “They’re going to have to do a lot more to stop me,” said Meyer. No bull.

THIS WEEK IN HEALTHCARE

What happened in healthcare this week—and what we think about it.

  1. First ten drugs selected for Medicare’s drug price negotiation program. Last week, the Centers for Medicare and Medicaid Services (CMS) released the list of the first round of prescription drugs chosen for Medicare Part D price negotiations. The 2022 Inflation Reduction Act (IRA) granted CMS the authority to negotiate directly with pharmaceutical manufacturers, establishing a process that will ramp up to include 20 drugs per year and cover Part B medicines by 2029. The majority of the initial 10 medications, including Eliquis, Jardiance, and Xarelto, are highly utilized across Medicare beneficiaries, treating mainly diabetes and cardiovascular disease. But three of the drugs (Enbrel, Imbruvica, and Stelara) are very high-cost drugs used by fewer than 50k beneficiaries to treat some cancers and autoimmune diseases. Together the 10 drugs cost Medicare about $50B annually, comprising 20 percent of Part D spending. Drug manufacturers must now engage with CMS in a complex negotiation process, with negotiated prices scheduled to go into effect in 2026.

The Gist: Most of the drugs on this list are not a surprise, with the Biden administration prioritizing more common chronic disease medications, with large total spend for the program, over the most expensive drugs, many of which are exempted by the IRA’s minimum seven-year grace period for new pharmaceuticals. However, pharmaceutical companies are threatening to derail the process before it even begins. Several companies with drugs on the list have already filed lawsuits against the government on the grounds that the entire negotiation program is unconstitutional. While President Biden is already touting lowering drug prices as a key plank of his reelection pitch, it will take years before these negotiations translate into lower costs for beneficiaries and reduced government spending. There also may be adverse unintended consequences, as drug companies may raise prices for commercial payers while increasing rebates to stabilize net prices, leading to higher costs for some consumers. Still, it’s a step in the right direction for the US, given that we pay 2.4 times more than peer countries for prescription medications. 

  1. CMS to pilot global health budgets for states. On Tuesday, CMS announced the States Advancing All-Payer Health Equity Approaches and Development (AHEAD) Model, a new payment model that will give up to eight states or sub-state regions the ability to test global hospital budgets across an 11-year period. Participating states will assume responsibility for managing healthcare costs for traditional Medicare and Medicaid populations, while encouraging private payers to pay hospitals under a similar relationship. Primary care practices will have the option to participate in a primary care component of the model, called Primary Care AHEAD, in which they will receive a Medicare care management fee and be required to engage in state-led Medicaid transformation initiatives. CMS is hoping that the AHEAD model will reduce healthcare cost growth, improve population health, and reduce health outcome disparities. It builds upon existing Innovation Center state-based models, including the Maryland Total Cost of Care Model, the Vermont All-Payer Accountable Care Organization Model, and the Pennsylvania Rural Health Model, which have all shown promise in lowering Medicare spending while improving patient outcomes. Program applications will open late this year, and the first states selected would begin a pre-implementation period in summer 2024.

The Gist: Shifting to a total-cost-of-care model will be a difficult undertaking for even the most motivated states. Though a stable annual budget may be a welcome prospect to struggling hospitals, large regional systems may balk at the idea, especially as the Maryland Hospital Association has claimed that their state’s regulated rates have lagged hospital cost inflation by 1.3 percent per year. With the Medicare Shared Savings Program (MSSP) saving only one quarter of one percent of Medicare’s total spending in 2022, CMS has good reason to explore other ways to reduce Medicare cost growth—but these Innovation Center models will only achieve their goals if they can first induce sufficient participation. 

  1. Biden admin proposes new staffing minimums for long-term care facilities. Last Friday, CMS released a proposed rule that would require nursing homes and other long-term care facilities to provide a minimum 2.5 hours of care per patient per day from nursing aides and 33 minutes of care from registered nurses, at least one of whom must be on site at all times. The standards are lower than many industry experts were expecting, but CMS still estimates that 75 percent of nursing homes will have to increase staffing to meet these minimums. CMS will also allow facilities a temporary hardship exception if they can prove their region has a local worker shortage, and they have made good faith efforts to hire and retain staff.

The Gist: A proposal to strengthen long-term care staffing standards was expected, as COVID’s toll on nursing homes included over 200k deaths among residents and staff, as well as a mass exodus of its workforce. But many facilities will struggle to meet these new standards, as nursing home employment is still down 11 percent from pre-pandemic levels. Staffing shortages at long-term care facilities have been even more severe than those experienced by hospitals. The need to ramp up staffing levels will not only raise the cost of nursing home care, but will also exacerbate shortages for nursing talent in other care settings. Facilities that decide to close rather than comply will impact other parts of the care continuum, including exacerbating acute hospital discharge delays.

Pluswhat we’ve been reading.

  1. An unexpected reprieve from Medicare cost growth. A piece published this week in the New York Times documents how Medicare spending per beneficiary has flattened since the early 2010s, coming in below projections by nearly $4T. While the authors run through possible explanations, including changes made by the Affordable Care Act and to the Medicare Advantage program, the proliferation of effective cholesterol and blood-pressure medications, and fewer breakthroughs in new, expensive drug classes, they acknowledge that scholars have not reached a consensus on the primary drivers of this trend. Beyond academic debate, there is also no agreement on how long the flattened spending pattern will hold—or what factors might reignite rapid cost growth.

The Gist: Whatever the causes of this phenomenon, it has helped avert the kind of Medicare austerity measures that dominated political debates on the program in past decades. We assume some of this flattening has to do with the fact that the average age of Medicare beneficiaries has dropped as Baby Boomers have entered the program in droves, given that younger beneficiaries are much less costly to insure. In coming decades, the average age of Medicare beneficiaries will increase, along with their care costs, and the total number of Medicare beneficiaries will continue to rise. By 2053, seniors will make up over 22 percent of the population and over 40 percent of the projected federal budget will be spent on programs for them.


GRAPHIC OF THE WEEK

A key insight or teaching point from our work with clients, illustrated in infographic form.

Private equity-backed practices flexing market share muscle 

This week we showcase data from a recent American Antitrust Institute study on the growth of private equity (PE)-backed physician practices, and the impact of this growth on market competition and healthcare prices. From 2012 to 2021, the annual number of practice acquisitions by private equity groups increased six-fold, especially in high-margin specialties. During this same time period, the number of metropolitan areas in which a single PE-backed practice held over 30 percent market share rose to cover over one quarter of the country. These “hyper-concentrated” markets are especially prevalent in less-regulated states with fast-growing senior populations, like Arizona, Texas, and Florida. The study also found an association between PE practice acquisitions and higher healthcare prices. In highly concentrated markets, certain specialties, like gastroenterology, were able to raise prices rise by as much as 18 percent. While new Federal Trade Commission proposals demonstrate the government’s renewed interest in antitrust enforcement, it may be too little, too late to mitigate the impact of specialist concentration in many states. 


INTERMISSION

A recommendation from our weekly diet of music, movies, TV, and other good stuff.

Telemarketers (HBO Max)—A three-episode gem of gonzo documentary filmmaking, powered by footage captured by a ninth-grade dropout from New Jersey who went to work for one of the seediest (and largest) telemarketing firms, only to become disillusioned and spend 20 years digging into the greed and corruption rife in the industry. If you’ve ever fallen for a solicitation from the Fraternal Order of Police, this one’s a must watch. (Also features one of the most captivating, bizarre characters you’ll see on television this year: Patrick J. Pespas. You’ll see.)


THIS WEEK AT GIST—ON THE ROAD

What we learned this week from our work in the real world.

Is there a silver lining for the systems who had the highest contract labor use?

Across the hospital industry, heavy reliance on contract labor in 2021 and 2022 caused a significant challenge for profitability. However, a chief financial officer recently posited that his system’s large contract labor load has had unexpected benefits. “Other hospitals [in our market] thought we were crazy to keep staffing with high contract rates until recently,” he shared. “But by keeping the agency nurses around a little longer, we were able to avert raising base salaries quite as much, and are in a better place today now that the labor market has softened.” It’s a story we’ve heard several times now. While market rates for nursing and other clinical labor have undoubtedly been rebased, salary increases are sticky—it’s hard to adjust wages downward when the labor market loosens. Systems who were able to avert large wage increases by increasing bonuses and other non-salary benefits, or forestalled permanent hiring at higher salaries by extending contract labor, now find themselves with more flexibility and potentially lower staffing costs in the long-term.


THIS WEEK AT GIST—ON THE PODCAST

All the headlines in healthcare policy, business, and more, in ten minutes or less every weekday morning.

Last Tuesday, JC spoke with Steven Lane, MD, Chief Medical Officer at Health Gorilla, about a recent survey the data-sharing platform conducted to gauge consumer opinions around health data privacy.

This Monday, JC will talk with Rob Moskowitz, MD, Chief Medical Officer for hospital-at-home company Contessa, about the evolution of the care model and what pieces need to be in place to ensure its long-term success.

[Subscribe on Apple, Spotify, Google, or wherever fine podcasts are available.]


It’s great to be back after a much needed, end-of-summer respite. September finds us ready for back-to-school, cooler temperatures, and a welcome return to our routine of healthcare roundups each Friday. Thanks for taking the time to read the Weekly Gist and remember to tell your friends and colleagues about us, and encourage them to subscribe.

As always, please let us know if we can be of assistance in your work. You’re making healthcare better—we want to help!

Best regards,

Chas Roades
Co-President and Managing Director
chas@gisthealthcare.com

Lisa Bielamowicz, MD
Co-President and Managing Director
lisa@gisthealthcare.com