THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
- 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.
- 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.
- 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”, sky–high 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.
Plus—what we’ve been reading.
- 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.