The Medliminal Washington Report 4.2.18

The U.S. House and Senate remain on Easter recess, but return to Washington on April 9. The Centers for Medicare and Medicaid Services boosted Medicare Advantage payments and the Secretary of Health and Human Services named a new advisor for drug price reforms. Also, health care consolidation looks continue with Walmart reportedly considering an acquisition of Humana. Meanwhile, Aetna announced plans to become the second major insurer to offer more direct pharmacy rebates to its members. Finally, a handful of studies show the ever increasing cost of prescription drugs and the effects that higher costs are having on people’s decisions to seek out health care services and treatments. We break it all down in our weekly health care review.

The Administration

Former CVS Executive Tapped to Lead Federal Efforts to Lower Prescription Drug Prices

On March 29, Health and Human Services (HHS) Secretary Alex Azar announced the appointment of Daniel Best, a former executive at CVS Caremark, as Senior Advisor for Drug Pricing Reform Mr. Best to lead the agency’s initiative to lower the high price of prescription drugs.

“Daniel Best recognizes what President Trump and I, and every American know: prescription drug prices are too high,” Azar said in a press statement announcing the appointment. “He has the deep experience necessary to design and enact reforms to lower the price of medicines that help Americans live healthier and longer lives.”

The Trump administration has outlined a number of policy changes it believes can drive down drug prices, and the president predicted during his State of the Union address that drug costs “will come down substantially.” But many of the recommendations did not directly target drug makers, and some —like making generic drugs free for Medicare patients, or moving expensive drug coverage out of Part D plans—would merely shift the cost and raise premiums.

Best, who will help oversee some of those efforts, worked at Pfizer for 12 years prior to his time at CVS. HHS highlighted his expertise in the pharmaceutical industry generally, and his familiarity with Medicare Part D specifically, as critical to the task of trying to reduce prescription drug costs.

CMS Boosts Medicare Advantage Payments by 3.4 Percent, Double Initial Proposed Hike

On April 2, the Center for Medicare and Medicaid Services (CMS) finalized changes to Medicare Advantage (MA) and Medicare Part D payment policies for 2019 that increase MA plan payments by 3.4 percent, and set new pharmacy limits for Medicare Part D beneficiaries deemed at risk of opioid misuse. In an accompanying statement, CMS Administrator Seema Verma said the MA payment bump, which is nearly double the 1.8 percent increase that the agency proposed in February, reflects a projection of higher-than-expected medical cost growth

Other actions that CMS is finalizing to lower the cost of prescription drugs include:

  • Allowing for certain low-cost generic drugs to be substituted onto plan formularies at any point during the year, so beneficiaries immediately benefit and have lower cost sharing.
  • Increasing competition among plans by removing the requirement that certain Part D plans have to “meaningfully differ” from each other, making more plan options available.
  • Increasing competition among pharmacies by clarifying the “any willing provider” requirement, to increase the number of pharmacy options that beneficiaries have.

In total, the final rule is expected to result in $295 million in savings a year for the federal government over the next five years.

“The Trump Administration is taking steps for seniors with Medicare to save money on prescription drugs,” CMS Administrator Seema Verma said. “The steps we are taking will drive more competition among plans and pharmacies to meet the needs of seniors and lower costs.”

Industry News

Aetna Announces Plans to Pass on Drug Rebates to Consumers at Point of Sale

On March 27, Aetna announced that it would begin passing along drug rebates directly to a portion of its members starting in 2019. The policy will be applied to Aetna’s employer-sponsored group health plans, benefiting an estimated 3 million people – a small sliver of the company’s 22.2 million medical members. UnitedHealth Group announced a similar move in March.

Aetna had previously passed “the majority of rebates” to plan sponsors and their employees through lower premiums, but is making the change in the hope that “additional transparency will encourage [drug] companies to rationalize their prices and end the practice of annual double-digit price increases,” Chief Executive Mark Bertolini said in a statement.

Drug rebates have become a focus of criticism in light of reports that insurers and PBM’s do not pass those savings along to consumers, especially consumers with high-deductible health plans. Aetna’s decision was praised by HHS Secretary Alex Azar, who tweeted “glad to see Aetna lowering drug costs for patients and families. Transparency is key to lowering healthcare costs and putting Americans in charge of their own care.”

Aetna’s policy change will not necessarily lower overall health care or drug costs, as many health plans apply the rebates to lower aggregate drug spend. Aetna already allows self-insured employers to pass drug rebates along at the time of sale, and will continue to offer that.

Walmart Reportedly in Preliminary Merger Talks with Humana

On March 29, The Wall Street Journal reported that Walmart and Humana are involved in early-stage talks about strengthening their existing partnership, and that as part of those discussions, an acquisition has also been discussed, but those talks are very preliminary and may not happen. Walmart is the nation’s largest retailer and single largest employer (1.5 million employees), while Humana is the second-largest provider of Medicare Advantage plans. Humana is also the largest PBM remaining, managing $26 billion annually.

The two companies already offer a co-branded Medicare Part D prescription drug plan that steers members toward any of Walmart’s 4,700 pharmacies in the U.S., but a deal between the two could potentially boost Humana’s group market offerings to compete on the national stage with other major insurers. The Journal did not provide a potential price tag on a deal, but Humana currently has a market value of roughly $41 billion. In January 2017, a federal judge blocked Aetna’s attempted $37 billion acquisition of Humana, arguing the deal was “likely to substantially lessen competition” in health insurance markets nationwide.

A deal between the two companies would be the latest in a series of mergers and acquisitions that have rocked the health care industry in recent months. In December, CVS Health announced plans to buy Aetna for $69 billion. In March, Cigna said it would buy pharmacy benefits manager Express Scripts for $54 billion. All of this comes on the heels of Amazon’s announcement in January that it was teaming up with Berkshire Hathaway and JPMorgan Chase to form an independent company to address health care for the U.S. employees of their companies.

Health Policy

Nearly Half of Americans Forgo Medical Care Because of Cost

Due to high costs of health care, 44 percent of Americans avoid visiting the doctor’s office when sick or injured, and approximately 40 percent skip necessary medical tests or treatment, according to a new West Health Institute/NORC at the University of Chicago national survey.

The survey revealed that approximately 30 percent of Americans reported having to choose between paying for medical bills or basic needs, including food, housing and heating. More Americans reported fearing medical bills and the costs associated with a serious illness than the illness itself (40% vs. 33%), according to the survey. The odds of fearing getting sick (47% vs. 24%) and fearing the costs of care (60% vs. 27%) were doubled in individuals who skipped recommended tests or treatment.

The poll also found that 53 percent of respondents say they have had a least one of the following situations occur because of healthcare costs in the last year:

36 percent report depleting their savings
32 percent say they racked up credit card debt
30 percent believe they had to decide between paying medical bills and basic necessities
41 percent report they couldn’t save any money because of their spending on healthcare.

The West Health-NORC poll is the latest national survey showing Americans continued frustration with high healthcare costs. Several recent polls have indicated healthcare ranks at or near the top of voters’ concerns as they prepare to head to the polls this November. A Kaiser Health Tracking poll published last month ranked “health care costs as the top health care issue mentioned by voters when asked what they want to hear 2018 candidates discuss.” In what could be a troubling sign for incumbents of both parties, roughly half of Americans disapprove of the way their member of Congress is addressing the high cost of healthcare, while only 15 percent approve.

Urgent-care Claims Jump More than 1700 Percent in Last Decade

A new white paper by Fair Health found that insurance claims for urgent-care centers soared by 1,725 percent from 2007 to 2016 — more than seven times the 229 percent rate of growth for emergency department claims. The study found that the median billed hospital charge for professional evaluation and management services rose 28 percent from 2012 to 2016, while the median billed charge for surgery rose just 3 percent over that period. Median charges for 30-minute new patient visits were $109 at retail clinics, $242 at urgent-care centers and $294 for physicians.

The findings show that acute respiratory infections, including the common cold, were the number one diagnostic category in retail clinics in urgent care centers. In telehealth, mental health-related diagnoses topped the list. People between 31 and 40 years old were most likely to visit urgent care centers, while people between 41 and 60 years old were most likely to use telehealth services.

Senate Report Finds Skyrocketing Prices on Common Brand-Name Prescriptions for Seniors

On March 26, Senator Claire McCaskill (D-MO) released the findings of a report by the minority staff of the Senate Homeland Security and Governmental Affairs Committee, which found that prices for many of the 20 most commonly prescribed brand-name drugs for Medicare Part D beneficiaries rose nearly 10 times faster than the rate of inflation over the last five years.

In a statement, Senator McCaskill, the top-ranking Democrat on the committee, said “can you imagine if you went to an auto dealership and last year’s exact model was being sold at a 20 percent mark-up, and then you went back the next year and it had happened again? That’s exactly what’s happening in the prescription drug industry, where the cost of identical drugs skyrockets year after year.

The report’s key findings include:

  • Prices increased for every brand-name drug of the top 20 most-prescribed brand-name drugs for seniors in the last five years. On average, prices for these drugs increased 12 percent every year for the last five years—approximately ten times higher than the average annual rate of inflation.
  • Twelve out of the 20 most commonly prescribed brand-name drugs for seniors had their prices increased by over 50 percent in the five-year period. Six of the 20 had prices increases of over 100 percent. In one case, the weighted average wholesale acquisition cost for a single drug increased by 477 percent over a five-year period.
  • Although 48 million fewer prescriptions were written for the top 20 most commonly prescribed brand-name drugs for seniors between 2012 and 2017, total sales revenue resulting from these prescriptions increased by almost $8.5 billion during the same period.

The report also notes that Medicare beneficiaries’ spending on drugs is expected to continue to grow over the next several years. Prior research projects that that spending on medications will rise from 41 percent of per capita Social Security income to 50 percent by 2030

In The States

Iowa Governor Signs “Association Plan” Bill Into Law

On April 2, Iowa Governor Kim Reynolds (R) signed a controversial bill allowing sales of health coverage exempt from state and federal regulations, including the ACA. The bill (SB 2349), will allow Wellmark Blue Cross & Blue Shield to partner with the Iowa Farm Bureau Federation to sell a new type of health policy. The bill does not specifically mention Wellmark or the Farm Bureau by name, but it is written in such a way that only they could qualify for the exemption from state and federal oversight.

The controversy centers on the fact that the bill deems the new coverage as not technically being health insurance, so it would not be regulated by the state insurance department. The bill also allows small businesses to band together to sell “association health plans” to their employees.

Iowa’s health insurance market is struggling. The state has one individual insurer, Medica, and started the year with a 69 percent premium increase from 2017 – the highest in the country. As a result, the state has one of the lowest exchange enrollment figures, at roughly 53,000. In her signing statement, the governor placed the blame squarely on ACA regulations. “Many Iowans faced a choice of going broke or going without insurance. And that’s not a real choice,” she said. About 26,000 Iowans who previously bought health insurance on the individual market dropped out this year, she said.

Last month, the Trump administration shot down a plan from Idaho to sell health insurance that doesn’t comply with ACA regulations. “If a state fails to substantially enforce the law, the Centers for Medicare & Medicaid Services (CMS) has a responsibility to enforce these provisions on behalf of the State,” wrote CMS Administrator Seema Verma in her rejection letter. Iowa legislators are confident that CMS will approve of their bill because the association health plans are not technically considered “health insurance” by federal law, and they believe the Farm Bureau plan falls under that umbrella.

California AG Sues Hospital System for Anticompetitive Practices, High Costs

California Attorney General Xavier Becerra announced his office has filed an antitrust lawsuit against Sutter Health, alleging the hospital system used its dominance in Northern California to unlawfully raise prices for services, and then used the profits reaped from these practices to grow even larger.

The suit, filed in San Francisco County Superior Court, alleges that the company employs a variety of improper tactics – gag clauses on prices, punitively high out-of-network charges and “all-or-nothing” contract terms that require all of its facilities to be included in insurance networks – and asks the court to prevent Sutter from engaging in anticompetitive practices and “overcharges.”

“Sutter thereby gains the power to illegally insulate itself from the price competition that otherwise would be present in an unfettered free market,” the complaint said. “As a result, Sutter’s competitors cannot effectively compete based on price or quality, allowing Sutter to charge and maintain system-wide prices at levels that are significantly higher than the prices currently charged by its competitors and substantially higher than those that could be charged in a competitive market that is unconstrained by Sutter’s illegal conduct.”

This high-profile suit caught the attention of employers, consumer advocates and policymakers across the country amid growing alarm about the financial implications of industry consolidation. Large health systems are gaining market clout and the ability to raise prices by acquiring more hospitals, outpatient surgery centers and physicians’ practices. If successful, the California suit may portend more litigation at the state level, in addition to legislative or regulatory efforts to broaden provider networks and increase greater competition.

The Week Ahead

The U.S. House of Representatives and Senate will stand in recess the week of April 2-April 6.

April 5-6: Medicare Payment Advisory Commission Meeting in Washington, DC