December 15, 2023

The Weekly Gist: The Double Whammy Edition

by Chas Roades and Lisa Bielamowicz MD

For those not following the goings-on in, ahem, smaller-market sports, you may have missed the bombshell that dropped in our home city this week. Ted Leonsis, the billionaire owner of both the NBA’s Washington Wizards and the NHL’s Washington Capitals, announced plans to abandon the teams’ home in the District in favor of a new sports complex to be built across the Potomac River in Alexandria, VA. It’s a terrible development all the way around, but a particular blow to DC’s leaders, who seem to have figured out a way to lose two storied franchises in the course of a Wednesday morning. Prospects are also looking dim for the long hoped-for return of the NFL’s Washington Commanders to the city from the Maryland suburbs, where they currently pretend to play football. Losing two major contributors to the city’s economic base and civic pride is a devastating blow, one that has area residents feeling as though the Grinch came early this year. Bah, humbug.

THIS WEEK IN HEALTHCARE

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

  1. Cigna abandons Humana merger talks. Following rumors of a potential merger reported last month by the Wall Street Journal, the paper shared this week that Bloomfield, CT-based Cigna is no longer pursuing an acquisition of Louisville, KY-based Humana. According to insiders, the $140B merger was scuttled when the two health insurance giants couldn’t agree on price and other terms. Instead, Cigna announced that it will be focusing on smaller, bolt-on acquisitions, and is reportedly still considering divesting its Medicare Advantage business. Cigna also announced $10B of stock buybacks to assuage shareholders, who reacted negatively to the rumored deal, dropping the company’s stock price by nearly 10 percent since merger rumors surfaced.

The Gist: While there are several reasons why this deal may have been called off—Wall Street’s adverse reaction, antitrust concerns, leaking of the talks before the parties were ready—this likely isn’t the end of either payer’s pursuit of greater scale, as both stand in UnitedHealth Group’s giant shadow. Given Cigna and Humana have each had potential mergers with other payers blocked by the courts, and federal antitrust scrutiny is only increasing, we’re wondering if each may be also looking at nontraditional partners (as Humana explored with Walmart in 2018), though the universe of companies with an interest in a vertically-integrated insurance and care business—and deep enough pockets—is small.

  1. House passes legislation aiming to lower healthcare costs and increase transparency. This week, the US House of Representatives passed the Lower Costs, More Transparency Act of 2023 with broad bipartisan support. The wide-ranging bill would ban spread pricing by pharmacy benefit managers (PBMs), delay payment cuts to disproportionate share hospitals (DSH), institute Medicare site-neutral payment provisions for administering drugs, and require extensive new price transparency disclosures across the healthcare industry. Hospital groups have expressed opposition to the bill’s site-neutral payments provision, while the PBM industry claims the measures targeting it will undermine its efforts to lower drug costs for employers. None of these provisions is guaranteed to become law, as the Senate is advancing its own bipartisan legislation, with the goal of crafting a consolidated healthcare bill by early next year.

The Gist: We can expect to see a flurry of lobbying and legislative dealmaking to iron out the details of the final legislation in the coming weeks. This bill clarifies a set of bipartisan priorities of lawmakers, namely, to curtail dubious PBM pricing practices and continue to rein in Medicare spending growth. Health systems may be heartened that the Senate appears less interested than the House in imposing site-neutrality requirements, but all provider groups will be concerned that a separate House bill to undo the 2024 Medicare physician pay cut has yet to gain traction.

  1. FDA approves landmark sickle cell gene therapy treatment. Last week, the Food and Drug Administration (FDA) approved two gene therapy treatments for sickle cell disease, Casgevy and Lyfgenia. Casgevy, jointly developed by Boston, MA-based Vertex Pharmaceuticals and Switzerland-based CRISPR Therapeutics, is the first approved treatment of any kind available to US patients that uses CRISPR’s gene-editing capabilities. Lyfgenia, made by Somerville, MA-based Bluebird Bio, uses a more common retrovirus technique for genetic modification. The FDA estimates that about 20K Americans with sickle cell disease will be eligible for the therapies, limited to those patients 12 and older who have had episodes of debilitating pain. Both treatments will only be available at a small number of facilities nationwide, priced between $2-3M, and require a patient to endure months of hospitalization as well as intensive chemotherapy. Around 100K mostly Black Americans suffer from sickle cell disease, which causes intense pain, organ damage, and reduced life expectancy. Previously, the only curative treatment was a bone marrow transplant.

The Gist: The approval of these drugs represents a milestone moment for those suffering from sickle cell disease, while Casgevy also fulfills the revolutionary promise scientists have seen in CRISPR since it first received broad attention in 2005. However, now that gene-editing therapies have graduated from the domain of scientific possibility into the realities of our healthcare delivery system, the new challenge becomes ensuring accessibility and equity, as many Americans who most stand to benefit from it also experience barriers in access to care and insurance coverage. (We’d expect insurer pushback similar to that seen when the first highly effective, but extremely costly, hepatitis C treatments like Solvaldi hit the market a decade ago this month.) While the clinical trial patients who received Casgevy report having “a new lease on life”, skyhigh costs, questions of insurance coverage, and the arduous, time-intensive nature of the procedure stand in the way of a population-wide cure for sickle cell disease. 

Pluswhat we’ve been reading.

  1. Is the Medicare Advantage “gold rush” ending? Published last week in the Wall Street Journal, this piece predicts that the era of immense profitability for Medicare Advantage (MA) insurers may be drawing to a close. MA has experienced rapid growth over the past decade, due both to the pace of Baby Boomers aging into Medicare, and the increasing numbers of beneficiaries choosing MA plans. In 2023, MA surpassed 50 percent of total Medicare enrollment. Payers readily embraced the MA market because they found they could earn gross margins two to three times higher than from a commercial life. However, as the rate of enrollment growth begins to slow (the last of the Boomers will turn 65 in 2030), competition between payers increases, and government payments become less generous, the MA business—while still profitable—is poised to become less of a jackpot.

The Gist: While MA has been an outsized driver of profits for insurance companies in recent years, the nation’s two largest MA payers, UnitedHealth Group (UHG) and Humana, have been signaling growing concerns to the market. UHG announced late last month that its 2024 MA enrollment growth will be less than half of its 2023 rate, and Humana has been engaged in merger talks with Cigna. As the “gold rush” period ends, MA payers will have to earn their keep by better integrating their various care and data assets, and more carefully managing spending for an aging cohort of seniors with increasingly complex needs, both much harder than riding a demographic wave to easy profits.


GRAPHIC OF THE WEEK

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

Providers threaten to leave MA networks amid contentious negotiations  

This week’s graphic highlights increasing tensions between health systems and Medicare Advantage (MA) plans as they battle over what providers see as unsatisfactory payment rates and insurer business practices. On paper, many providers have negotiated rates with MA plans that are similar to traditional fee-for-service Medicare, but find MA patients are subject to more prior authorizations and denials, as well as delayed discharges to postacute care, which increases inpatient length of stay and hospital costs. A number of health system leaders have reported their revenue capture for MA patients dropped to roughly 80 percent of fee-for-service Medicare rates due to an increase in the mean length of stay for MA patients, caused by carriers narrowing postacute provider networks. As a result, a growing number of health systems and medical groups have either already exited, or plan to exit, MA networks due to what they see as insufficient reimbursement. Health systems with a strong regional presence may be able to leverage their market share to get MA payers to play ball. But for health systems in more competitive markets, these hardline negotiation tactics run the risk of payers merely directing their patients elsewhere. Regardless of market dynamics, providers exiting insurance plans is extremely disruptive for patients, who won’t understand the dynamics of payer-provider negotiations—but will feel frustrated when they can’t see their preferred physicians.


INTERMISSION

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

The Curse (Showtime)—This dark comedy series, the latest creation from meta-fiction auteurs Nathan Fielder and Benny Safdie, takes us inside the deeply flawed marriage of the stars of an HGTV house-flipping show, exposing both the seedy underbelly of reality TV and the desperate striving of the personalities who populate it. Emma Stone is particularly brilliant, and Fielder is his usual cringe-inducing self. A sleeper candidate for comedic series of the year.


THIS WEEK AT GIST—ON THE ROAD

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

Sweeping health reform takes a back seat for this election cycle

After a presentation this week, a senior physician from the audience of our member health systems reached out to discuss a well-trod topic, the future of health reform legislation. But his question led to a more forward-looking concern: “You talked very little about politics, even though we have an election coming up next year. Are you anticipating that Medicare for All will come up again? And what would the impact be on doctors?” As we’ve discussed before, we think it’s unlikely that sweeping health reform legislation like Medicare for All (M4A) would make its way through Congress, even if Democrats sweep the 2024 elections—and it’s far too early for health systems to dedicate energy to a M4A strategy. Healthcare is not shaping up to be a campaign priority for either party, and given the levels of partisan division and expectations that slim majorities will continue, passing significant reform would be highly unlikely.

Although there is bipartisan consensus around a limited set of issues like increasing transparency and limiting the power of PBMs, greater impact in the near term will come from regulatory, rather than legislative, action. For instance, health systems are much more exposed by the push toward site-neutral payments. How large is the potential hit? One mid-sized regional health system we work with estimated they stand to lose nearly $80M of annual revenue if site-neutral payments are fully implemented—catastrophic to their already slim system margins. Preparing for this inevitable payment change or the long-term possibility of M4A both require the same strategy: serious and relentless focus on cost reduction. This still leaves a giant elephant in the room: the long-term impact on the physician enterprise. As referral-based economics continue to erode, health systems will find it increasingly difficult to maintain current physician salaries, further driving the need to move beyond fee-for-service toward a health system economic model based on total cost of care and consumer value, while building physician compensation around those shared goals.


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 Monday, JC spoke with Washington Post national healthcare reporter Dan Diamond about a recent article he co-authored that investigates how hospitals and physicians in states with significant abortion restrictions or bans are navigating those laws.

This coming Monday and Tuesday, JC will talk with Micky Tripathi, head of the Office of the National Coordinator for Health IT (ONC), about information blocking and the recently proposed monetary penalties for healthcare providers that engage in the practice.

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


That’s all for this week—and for this year! Thanks for hanging out with us across 2023, and for your loyal readership and engagement with our work. It’s been a heck of a year! We’re excited to see what the new year will bring, but for now it’s time to enjoy a relaxing holiday break with family and friends. Hope you’ll be doing the same! See you back here in January.

Best wishes,

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

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