|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
The midterm elections have major consequences for healthcare
Voters delivered a mixed result in the midterm elections on Tuesday, returning control of the House and several key governorships to Democrats while preserving Republicans’ hold on the Senate. While the election was widely viewed as a referendum on the first two years of the Trump administration, healthcare topped the list of concerns cited by voters in exit polls. Democratic candidates campaigned heavily on preserving the coverage protections in the Affordable Care Act (ACA), and their victory in the House means that repeal of the health law is off the table, at least for the next two years. Rep. Nancy Pelosi (D-CA), who will likely return to her role as Speaker of the House, told supporters on election night that her party’s objective was “stopping the GOP and Mitch McConnell’s assault on Medicare, Medicaid and the Affordable Care Act”. House Democrats will take charge of appropriations and oversight activities in January, and are expected to try to put the brakes on the Trump administration’s ongoing efforts to chip away at the ACA through regulatory rule-making, such as attempts to limit coverage of contraception and women’s health services, and waivers to allow states to reduce mandatory insurance benefits.
Meanwhile, the midterm elections had major implications for healthcare at the state level as well. Voters in Utah, Nebraska and Idaho voted in favor of Medicaid expansion, clearing the path for more than 300,000 residents to gain access to Medicaid coverage. Maine’s Governor-elect Janet Mills vowed to find funding to go ahead with Medicaid expansion, Kansas’s Governor-elect Laura Kelly promised to make expansion a top priority, and the ousting of Wisconsin Governor Scott Walker opened the door to possible Medicaid expansion there as well (although the conservative-leaning legislature will surely block the attempt). At the same time, election results in Alaska and Montana threatened to unwind Medicaid expansions in those states. If the Democrats’ recapture of the House ruled out further efforts to reduce Federal spending on Medicaid and turn the program into a block grant (a centerpiece of Republican legislative plans), then the state-level results further bolstered what has quickly become the most popular component of the Obama-era coverage expansion.
Voters delivered verdicts on other closely-watched healthcare issues on the ballot across the country. In California, where Governor-elect Gavin Newsom cruised to victory in part on the promise to pursue single-payer healthcare, a hotly-contested ballot initiative to limit the profits of dialysis companies was defeated, after record spending by providers DaVita and Fresenius. Mandatory nurse staffing ratios were rejected by voters in Massachusetts, after a bitter fight between the hospital industry and nursing unions. In general, election news was favorable for healthcare industry players, and was reflected in stock market gains for hospital, insurer, and other related equities. Even pharma stocks were up, despite concerns that a bipartisan consensus on reducing drug prices might emerge early in the new Congress.
With the midterm elections behind us, attention will now turn to the 2020 Presidential campaign, in which healthcare is shaping up to be a centerpiece issue as well. As we wrote this week in our piece on implications of the midterm elections, the coming debate on healthcare is likely to shift from a debate about “repeal and replace” and entitlement reform to one centered around affordability of care for individuals, and the financial burden of healthcare on American households. Democrats seem to have discovered their own slogan to rally their base on this issue: “Medicare for All”. Both sides will spend the next two years attempting to define that concept to their advantage and as the debate unfolds, we’ll have a better sense of whether the idea has legs. As a vague concept however,“Medicare for All” is overwhelmingly popular with voters, which will allow Democrats in Washington, coming off their electoral victory this week, to fight the battle on their “home court” of universal coverage.
[Click here to read our in-depth analysis of what the 2018 midterms mean for healthcare]
Mandatory bundled payments make a comeback
Speaking at the Patient-Centered Primary Care Collaborative conference yesterday, Secretary of Health and Human Services (HHS) Alex Azar announced that the Trump administration plans to reimplement mandatory bundled payment programs, reversing a decision made by previous HHS Secretary Tom Price. “We need results,” Azar said, “American patients need change, and when we need mandatory models to deliver it, mandatory models are going to see a comeback.” The move follows last week’s announcement of a new, mandatory pilot to test changing the way Medicare reimburses physicians for drugs administered in outpatient clinics. The new bundled payment pilot would target radiation oncology, an area of high spending highlighted in an HHS report to Congress last year. According to that report, Medicare Part B spending for radiation treatments increased by 217 percent over the last decade and is expected to increase even more rapidly as the Medicare population grows. The report highlighted the explosive growth in use of intensity-modulated radiation therapy (IMRT) and suggested that existing fee-for-service incentives lead physicians to self-refer to their own radiation services, particularly for patients with prostate cancer. HHS proposed the implementation of a 90-day episode for radiation oncology.
Reaction from the cancer community was predictably wary. In a statement responding to Azar’s comments, the American Society of Radiation Oncology (ASTRO) pointed to its collaboration with HHS in developing alternative payment approaches for radiation treatments, but expressed concern about making the change mandatory, even for a pilot group. “Care must be taken to protect access to treatments for all radiation oncology patients and not disadvantage certain types of practices,” said the statement. Azar did not disclose when proposed rule-making would be released, or when the administration would begin to gather industry comments. We expect pushback against this proposal to be fierce, as radiation treatments are very profitable for providers in the current model, and health systems have made huge investments in oncology as a growth area. This new proposal, coupled with the earlier announcement targeting Part B drug spending (which will also disproportionately impact oncology providers), is sure to create controversy. It’s another indication of a more aggressive posture at HHS toward reining in high healthcare spending—we’d anticipate other mandatory bundled payment models to be developed in the coming years.
[Click here to read our advice to providers on participating in bundled payment programs.]
CVS talks up its new care model
In an earnings call with Wall Street analysts this week, CVS Health CEO Larry Merlo announced plans to launch a handful of “Health Hub” concept stores across the coming year. The stores will bring together pharmacy operations, clinic services, and an expanded range of care management offerings for consumers. According to Merlo, the Health Hubs will offer “new services to better address the cost-quality-access challenges of consumers and identify the most effective and scalable solutions, so they can be rolled out more broadly across our footprint.” The announcement comes as CVS nears completion of its $69B acquisition of health insurer Aetna, which it said was expected to close later this month. Although Merlo noted that the new Health Hubs would not be restricted to Aetna enrollees, the combination of Aetna’s risk model with CVS’s growing suite of care management services is clearly at the center of the retailer’s strategy moving forward. Said Merlo, “Medical cost savings will come from new programs that are only made possible through the combination and close integration of our two companies…One example is the better management of five common chronic conditions: diabetes, cardiovascular disease, hypertension, asthma and behavioral health…Another example is the optimization and extension of primary care, by expanding the scope of services available at MinuteClinics to help with the early identification and ongoing management of chronic disease.”
Merlo suggested that CVS was planning a “hub and spoke” approach to rolling out this new vision, with broader care services only available at a subset of retail locations. “We would have [Health Hubs] in a set number of stores within a given market, and the balance of the stores would have a core set of offerings that would serve as a referral source to those hub stores.” As we’ve suggested before, CVS will need to significantly improve the consumer experience of its care services if it expects to lure customers away from traditional providers. The hub-and-spoke model could allow them to do that, by focusing investment in new services and a higher-skilled labor force in a select number of locations—an upgrade from the “broom closet-card table” experience it now offers in its MinuteClinics. The newly-integrated care services of CVS-Aetna could prove to be a formidable competitor to traditional primary care providers, with an access-forward approach to serving consumers. As CVS begins to kick the tires on new ways to deliver care, now would be an ideal time for health systems to seek partnership opportunities with the retailer, as many have already done. The risk for incumbents of being displaced by CVS, Walmart, and other disruptors is growing by the day.
[Click here to read our thoughts on what to watch for as CVS-Aetna begins to transform care delivery.]