|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
The Trump administration is evaluating Medicaid block grants
Late last week, Politico reported that the Trump administration is considering using waiver authority granted by a provision of the Affordable Care Act (ACA) to allow states to receive Federal “block grants” for Medicaid, a key component of the 2017 Republican healthcare legislation that was ultimately rejected by the Senate. The move would mark a significant expansion of the Trump team’s ongoing effort to use its regulatory authority to advance conservative policy objectives in healthcare. The administration has already moved forward with “1115 waivers” to allow the implementation of work requirements for Medicaid coverage, although that strategy is being challenged in the courts. The new, more aggressive approach currently being evaluated by the Centers for Medicare & Medicaid Services (CMS) would place spending caps on state Medicaid programs in exchange for flexibility in program design and implementation. CMS Administrator Seema Verma is reportedly a strong advocate of such an approach, which has been a long-standing aim of Republican health policy advocates but has encountered pushback from agency lawyers over the degree of latitude the administration has to make such changes in the absence of legislation from Congress.
News of the planned effort brought swift condemnation from Democrats in Congress, as well as from many of the industry and consumer lobbying organizations who were strongly opposed to the failed 2017 legislation to move Medicaid to a system of block grants. Modern Healthcare reported that lobbyists from the American Hospital Association and the Federation of American Hospitals expressed their strong objection to the maneuver. The chairman of the House Energy and Commerce Committee, Rep. Frank Pallone (D-NJ), bluntly stated that the Trump administration lacks the legal authority to implement block granting, according to reporting by The Hill. Other legal analysts agreed; for example, University of Michigan law professor Nick Bagley told reporters that “The administration would certainly face lawsuits and might run into the same sorts of legal problems that it’s encountered in approving work requirements.” Should CMS pursue the strategy, it’s sure to encounter tough questions from Democrats in Congress, who are eager to exercise their newly-gained oversight authority over the Trump administration. We’d expect this story to repeat itself many times over the coming two years, as the Trump team tests out the boundaries of what it can do to reshape the healthcare industry by fiat and regulation, while keeping clear of the courts and Congressional scrutiny.
A week-long border war between Walmart and CVS
A contracting dispute flared up this week between retailer Walmart and pharmacy benefits manager CVS Caremark, as Walmart sent a letter of termination to CVS stating that it would no longer fill prescriptions for patients covered by CVS’s drug plans. Walmart runs one of the largest retail pharmacy operations in the country and was dissatisfied with the amount CVS was willing to pay it to serve CVS Caremark customers. By the end of the week, the two sides reached an agreement that will maintain access to Walmart pharmacies for CVS Caremark enrollees for multiple years. While CVS’s position was that Walmart had asked for higher reimbursement from CVS Caremark to serve its enrollees, sources inside Walmart told the Wall Street Journal that the retailer was trying to keep rates steady, resisting a cut in payments by the drug plan. The termination would have impacted consumers whose employers provide drug coverage through CVS Caremark, as well as Medicaid recipients enrolled in CVS Caremark plans. Participants in CVS’s Medicare Part D plans would not have been affected, nor would customers who get their prescriptions filled at Sam’s Club rather than at pharmacies in Walmart’s main stores.
The dispute highlights the often-murky financial transactions between retail pharmacies and the drug plans that pay for the medications they dispense. In 2012 a similar dispute between benefits manager Express Scripts and retail pharmacy chain Walgreens dragged on for months before being settled, forcing thousands of patients to change pharmacies. Given the broad footprint of Walmart stores, many of which provide the only pharmacy services in rural areas, this latest battle could have proven very disruptive for consumers across the country. Meanwhile, as we’ve discussed before, Walmart has its own drug plan, and is poised to play an even more expansive role in healthcare care coverage and delivery. While the dust has settled for now, we’d expect to see similar issues arise in the future, as large retailers, insurers, and health systems continue to pursue vertical strategies that allow them to “own” the healthcare consumer. There will be more border skirmishes between these competing entities, whose “value-creating” vision entails building fully-integrated healthcare platforms to provide end-to-end services to consumers. How “closed” those platforms are, and how aggressively the vertically-integrated companies defend their perimeters, will bear careful attention—especially for those citizens who find themselves living near the borders.
Sign up for Medicare, get an Apple Watch?
It was reported this week that Apple is in talks with three unidentified Medicare Advantage (MA) insurers to provide discounted Apple Watches to at-risk seniors enrolled in the plans. Apple already has partnerships with UnitedHealthcare and Aetna to subsidize the cost of the device for plan members who walk at least 10,000 steps per day, and it has a deal with life insurance provider John Hancock to provide discounted Apple Watches to customers that meet healthy-lifestyle goals. The growing MA market is particularly alluring for Apple, and the company has targeted some of the new capabilities of its wearable device—including fall detection and heart monitoring—directly toward seniors. Apple CEO Tim Cook recently told CNBC host Jim Cramer that the company was planning to announce even more health-related services soon, saying that “Apple’s most important contribution to mankind” will be in the area of healthcare. As it faces slowing revenue from its flagship iPhone products, Apple clearly views the lucrative, device-savvy Baby Boomer market as an attractive target for its $400+ Apple Watch and is making a cost-avoidance argument to insurers to gain their cooperation as a sales channel. “Avoiding one emergency room visit would more than pay for the device,” Bob Sheehy, CEO of insurer Bright Health and former UnitedHealthcare CEO told CNBC this week.
There is reason to be somewhat skeptical of the actual health benefit provided by Apple Watches and other “wearables”, at least to date. Attempts to use Fitbits to monitor step count and physical activity as part of a broader care management strategy have been challenged by the rapid “time-to-drawer” phenomenon exhibited by many Fitbit owners, as well as ongoing concerns about privacy and the use of personal health data by insurers and employers. Whether Apple Watch wearers will be as quick to abandon their devices remains to be seen, especially for consumers who “earn” their watches through enrollment in an insurance plan rather than paying for the device themselves. Doctors have also expressed concerns about false positives and overdiagnosis as a result of widespread use of the Apple Watches for monitoring heart activity. That said, as a perk for enrollees, providing a free or discounted Apple Watch seems like a no-brainer for an MA plan that stands to earn tens of thousands of dollars in premium payments for each new customer, and a smart way for Apple to drive penetration of its watches in the Baby Boomer population. Not that he asked, but one piece of healthcare advice we’d tell Tim Cook to ignore completely? The suggestion from CNBC’s Cramer this week that Apple buy EHR vendor Epic Systems. Dumb!