|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
Fallout from the Texas court ruling
Reactions to last Friday’s controversial ruling by a Texas district court judge, which held the Affordable Care Act (ACA) to be unconstitutional in its entirety, continued to reverberate across healthcare this week. In court, 16 Democratic state attorneys general petitioned Judge Reed O’Connor, who delivered the ruling in the case of Texas vs. Azar last Friday evening, to clarify whether he intended it to have “any immediate legal effect,” concerned about the widespread impact of overturning the landmark health reform law. The group also set in motion steps to begin the appeals process, asking the judge to certify his ruling by the end of the week so that they could file an appeal with the Fifth Circuit. Meanwhile, a spokesperson for the Department of Health and Human Services (HHS) said that the Trump administration would continue “administering and enforcing all aspects of the ACA”, despite a tweet from the President hailing the ruling as a victory. Democratic lawmakers in congress vowed to fight the ruling “tooth and nail”, although Senate Republicans shot down an attempt to intervene in the case.
The ruling appeared to have only a muted impact on the final day of open enrollment on the ACA exchange, although final signup numbers lagged last year’s tally, as had been anticipated. Financial markets reacted more negatively to the ruling, with shares of hospital and health plan stocks down sharply on Monday. Meanwhile, political observers began to analyze the longer-term consequences of the ruling on the 2020 Presidential campaign, with many pundits suggesting that the news could be a mixed blessing for Republicans, who have spent much of the past eight years campaigning against the Obama-era law. Others policy experts offered stopgap solutions for Democrats to defend the ACA, focused on amending—or perhaps abandoning—the largely toothless individual mandate. As some have pointed out, the ruling may provide added impetus for Democrats to pursue “Medicare for All” as a key element of their policy platform. As the year draws to a close, stakeholders across healthcare find the industry drawn again into political and legal uncertainty. While it would be a mistake to simply assume that the Texas ruling will be overturned—stranger things have happened and continue to happen with alarming frequency—the prudent reaction is to press ahead with the hard work of transforming American healthcare in ways that improve value for consumers, employers and taxpayers. No court ruling, legislative maneuvering, or regulatory action will eliminate the imperative to build a better, more sustainable healthcare system.
A tale of two mergers
Meanwhile, in other courtroom news with big implications for healthcare, US District Court Judge Richard Leon expressed satisfaction this week with a voluntary plan put forward by pharmacy retailer CVS to keep certain of its operations separate from those of newly-acquired insurer Aetna, while the court determines whether the merger can be finalized. Earlier this month, following the consummation of the deal, Judge Leon voiced concern that his court, which is required to oversee antitrust agreements between the Federal government and private companies, was being treated as a “rubber stamp”, indicating that he might call a halt to the merger. While CVS continues to insist that the two companies are now one entity, and Justice Department lawyers maintain that the judge lacks the authority to reverse the merger, the latest proposal from CVS appears to have bought the company some breathing room. Under likely supervision from a court-appointed monitor, CVS pledged to maintain Aetna’s traditional insurance pricing practices, and to restrict the flow of sensitive data between the two companies for a period of up to six months while the court reviews the case. In the interim, the $70B combination, which has captured the attention of traditional healthcare providers and payers as a potentially disruptive threat to the industry, appears to be in a state of suspended animation.
Also this week, another cross-sector mega-merger that has been a focus of attention across 2018 finally drew to a conclusion, as insurer Cigna closed its $54B deal to purchase pharmacy benefit manager Express Scripts. The deal puts Cigna on level pegging with rivals UnitedHealth Group and CVS-Aetna in bringing together a full suite of health insurance and pharmacy benefit services. The company announced its intention to begin rolling out new offerings, initially focused on managing high-cost specialty pharmaceuticals for its corporate clients, as soon as next year. Cigna CEO David Cordiani pointed to data integration as one key source of value creation in the wake of the deal, telling CNBC that “there’s a lot of data that’s available today, but it’s either not aggregated…or coalesced in a way that’s intuitive.” That’s likely to be a key area of focus for CVS as well, once its merger with Aetna clears this latest legal hurdle—indeed, one of the most “disruptive” aspects of the new round of vertical mergers reshaping healthcare is the ability to reconfigure the flow of consumers, and their information and care delivery, across a variety of settings. While the promise of that kind of coordination is obvious, it’s one that’s proven difficult to realize for fragmented incumbents with misaligned incentives. Capturing the value of integration will require a relentless focus on breaking down traditional silos—an execution challenge that will make clearing today’s legal hurdles seem like a walk in the park.
CMS finalizes ACO rule, cracking down on upside-only “squatters”
Today the Centers for Medicare & Medicaid Services (CMS) completed its overhaul of the Medicare Shared Savings Program (MSSP). The final rule, released this morning, is largely consistent with the earlier proposed regulation, and is aimed at encouraging accountable care organizations (ACOs) to shift into more aggressive, downside-risk contracts to care for Medicare beneficiaries.
As a refresher, the rule creates two ACO tracks, “BASIC” and “ENHANCED”, each with a five-year contract term, and both requiring participants to take on downside risk. BASIC track participants would be required to assume downside risk after the first two years of participation, while ENHANCED participants would take on downside risk immediately. The proposal further distinguishes between “high-revenue” ACOs, hospital-based organizations which typically have greater combined spend across Medicare Parts A and B, and “low-revenue” ACOs, most made up solely of physician practices. In effectively eliminating the upside-only Track 1, the new program is designed to force high-revenue ACOs into the ENHANCED track more quickly, thus discouraging them from “squatting” in upside-only arrangements. After one stint in the BASIC track, new hospital-based participants would be required to move along into the more advanced version or exit the program entirely.
One significant change in the final rule: CMS set the sharing rate for ACOs in the BASIC track who are not taking downside risk at 40 percent, compared to 25 percent in the proposed rule, addressing concerns that the lower initial sharing rate would dissuade new ACOs, particularly physician groups, from joining. The rule contains a number of other important changes for providers. (For highlights of some of the key details, we’d recommend checking out the excellent “tweetstorm” analyses of Aledade executives Dr. Farzad Mostashari and Travis Broome.) Pulling up from the weeds, our take on the ACO program remains the same. By moving ACOs more quickly to downside risk, the new approach will likely generate more savings for CMS compared to the MSSP’s lackluster performance so far. However, we continue to expect the continued shift to private, Medicare Advantage (MA) coverage to provide the bulk of the opportunity to reduce spending growth in the Medicare program, with the ACO program providing little more than a transition path to enable providers to move toward full Medicare risk.