| THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
- Mark Cuban’s pharmacy company announces employer offering. The Mark Cuban Cost Plus Drug Company (MCCPDC)—formed by the business mogul to sell prescription drugs for low, transparent prices—and the Purchaser Business Group on Health (PBGH)—a nonprofit coalition of around 40 large employers—announced a partnership to deliver prescription medications through employer health benefit plans. The partnership will rely on EmsanaRx, a pharmacy benefit manager (PBM) launched by PBGH last year, to handle prescription fulfillment and pharmacy data management for self-funded employers. This service, expected to be available to employers in March 2023, will take MCCPDC beyond its original model of direct-to-consumer, cash-pay pharmaceuticals. However, the scope of the new venture is not yet clear, as EmsanaRx has not announced how many employers have signed up.
The Gist: Mark Cuban’s company is showing it’s not afraid to disrupt the incumbent PBMs driving up overall drug prices for employers and their employees. While the value proposition of transparently low-markup pharmaceuticals is clear, MCCPDC is not the only one attempting to unseat traditional PBMs, whose hold on employer benefit design has proven difficult to shake so far. (Case in point: Amazon’s slow moves in the space, despite its 2018 acquisition of online pharmacy PillPack). Given his celebrity profile, Cuban’s planned rollout will be closely watched—and more developments are expected soon, as he recently signaled that he hopes to start selling low-cost insulin directly to consumers.
- Atrium and Advocate Aurora complete merger. Charlotte, NC-based Atrium Health and Downers Grove, IL- and Milwaukee, WI-based Advocate Aurora Health have formally combined to become the nation’s fifth-largest nonprofit health system. Taking the name Advocate Health, the $27B system will control 67 hospitals across six states in the Midwest and Southeast. The merger, announced in May of this year, unites the systems on even footing, with equal representation on a new board of directors, and a co-CEO arrangement for the first 18 months. The Atrium, Advocate, and Aurora brands will continue to be used in their respective local markets.
The Gist: Structuring Advocate Health as a joint operating agreement, and creating a new superstructure atop the two legacy systems, should allow the combined entity more flexibility in local decision-making, while still potentially generating cost savings from back-office efficiencies. While we expect these kinds of mega-mergers between large regional systems to continue, it remains to be seen whether the newly combined systems can successfully create value by building larger “platforms” of care to win consumer loyalty, deploying digital capabilities, attracting talent, and becoming more desirable partners for nontraditional players.
- CMS proposes new prior authorization requirements for payers. On Tuesday, the Centers for Medicare and Medicaid Services (CMS) announced a proposed rule that aims to streamline the prior authorization process by requiring certain payers to establish a method for electronic transmission, shorten response time for physician requests, and provide a reason for denials. This rule replaces one proposed in December 2020 that was never finalized. In addition to applying to Medicaid and Affordable Care Act exchange plans, the new rule would also apply to Medicare Advantage plans, which the previous rule did not. If finalized, it will take effect in 2026.
The Gist: Managing prior authorization requests is one of providers’ greatest sources of frustration, with over 80 percent of physicians rating it as “very or extremely burdensome” in a recent Medical Group Management Association survey. Not only would patients would benefit from faster turnarounds, but even major payers agree that the status quo is suboptimal, and payer advocacy organization AHIP has signaled support for transmitting prior authorization requests electronically. The challenge for regulators will be to strike a balance that satisfies the competing interests of payers and providers—turnaround time is likely to be a sticking point—but the one good thing about a system that no one likes is that there’s plenty of room for improvement.
Plus—what we’ve been reading.
- Why large health insurers are buying up physicians. An enlightening piece published this week in Stat News lays out exactly how UnitedHealth Group (UHG) is using its vast network of physicians to generate new streams of profit, a playbook being followed by most other major payers. Already familiar to close observers of the post-Affordable Care Act healthcare landscape, the article highlights how UHG can use “intercompany eliminations”—payments from its UnitedHealthcare payer arm to its Optum provider and pharmacy arms—to achieve profits above the 15 to 20 percent cap placed on health insurance companies. So far in 2022, 38 percent of UHG’s insurance revenue has flowed into its provider groups, up from 23 percent in 2017. And UHG expects next year’s intercompany eliminations to grow by 20 percent to a total of $130B, which would make up over half of its total projected revenue.
The Gist: The profit motive behind payer-provider vertical integration is as clear as it is concerning for the state of competition in healthcare. UHG now employs or affiliates with 70K physicians—10K more than last year—seven percent of the US physician workforce, and the largest of any entity. Given the weak antitrust framework for regulating vertical integration, the federal government has proven unable to stop the acquisition of providers by payers. Eventually, profit growth for these vertically integrated payers will have to come from tightening provider networks, and not just acquiring more assets. That could prompt regulatory action or consumer backlash, if the government or enrollees determine that access to care is being unfairly restricted. Until then, the march of consolidation is likely to continue.
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