Mid-Term Post Mortem: What Should the Healthcare Industry Take Away?

With a record voter turnout of 114 million and a record spend of $5.2 billion, the table is set for what will, no doubt, be the most significant period in the history of U.S. healthcare. Healthcare figured prominently in results last week:

• U.S. Senate: with winners of Senate races in Florida and Arizona going through a recount and a run-off in Alabama, the Senate will have 46 Democrats and 51 Republicans—a net gain of 2 for the GOP. (Note: there were 35 Senate races in the mid-term).

• U.S. House of Representatives: with 424 of 435 winners known, Democrats will have 231 seats and Republicans will have 198 seats—a net gain of 31 for Democrats.

• Governors: Of the 36 races and results from Georgia pending, Democrats will control 23 Governors’ offices and Republicans will control 26—a net gain of 7 for Dems.

• State Legislatures: 6069 of the 7383 state legislative seats decided last week, Democrats posted a net gain of 320 seats. For the first time in 104 years, only one state legislature is divided: going in 32 states had Republican and 14 Democratic majorities in both of their houses. Per NCSL, 61 chambers will be in GOP control—down from 66, and 37 will be controlled by Democrats, up from 31. Now, the GOP will control 30 states and Democrats will control 18.

• Popular vote: 51.1% of votes were for Democratic candidates vs. 47.2% for Republicans.

• Turnout: 114 million or 48% of eligible voters; highest mid-term since 1966

• State Referenda: Among the 155 state referenda, 3 states approved Medicaid expansion (NE, UT, ID) and MT voters decided against a referendum to fund their expansion with a tobacco tax. CA voters rejected a bid to control dialysis center profits and MA voters rejected mandatory nurse staffing ratio’s.

Most pundits have labeled these results a ‘Blue Wave’ forecasting gridlock in the months ahead as posturing for Campaign 2020 begins. Looking at them through a healthcare lens, here’s what we know:

• Healthcare is not one issue: it’s several and Americans are divided on each one. Per NORC’s online survey of 85,000 voters, opinions were split: Those believing healthcare should be a responsibility of the federal government were 59% vs. those thinking it shouldn’t be (40%). Those believing the federal government’s role in healthcare has hurt (50%) outnumbered those who thought it helped (39%) or made no difference. The only healthcare issues on which there is widespread voter consensus is opposition to restrictions about pre-existing conditions and the need to reduce drug prices…and solutions on each of these drive division.

• Because healthcare literacy is low, voters are influenced by campaign advertising, especially negative ads. The National Institutes of Health estimates that only 12% of the U.S. population is health literate defined as “having the capacity to obtain, process, and understand basic health information and services needed to make appropriate health decisions.” Health literacy is associated with lower costs, improved outcomes (preventable hospitalizations and lower unnecessary emergency visits) and better management of chronic conditions. In an IPSOS survey, the majority were unfamiliar with terms like open enrollment and 38% said the Affordable Care Act was no longer in effect.

• Healthcare issues helped elect Democrats while Republican winners focused on taxes and immigration. 60% of all ads sponsored by Democratic campaigns featured healthcare vs. 21% for Republicans. Moderate GOP candidates lost in almost every red state race. (Wesleyan Media Project). Healthcare is considered a primary concern for Democrats; Republican voters less so.

The Federal Agenda

So, the table is set. In Congress, bipartisan agreements for opioid addiction, drug cost containment and price transparency are possible but, on most issues, there’s little common ground. Here’s what to expect:

• At a federal level, the GOP will look to CMS, HHS and the Veterans Administration to accelerate policies and strategies that reduce spending for Medicare and Medicaid. Opposition will come through Congressional Committees led by Democrats i.e. Budget led by Rep. John Yarmuth (D-KY), Ways and Means led by Rep. Richard Neal (D-MA), Oversight and Government Reform led by Rep. Elijah Cummings (D-MD), Appropriations led by Rep. Nita Lowey, (D-NY) and Energy and Commerce led by Rep. Frank Pallone (D-NJ).

The focus of party posturing in DC will be primarily around these issues:

• Medicare Cuts: The primary vehicle will be reimbursement cuts that do not require Congressional approval. The 2019 Medicare Outpatient Prospective Payment (November 2) includes a 1.35% cut to outpatient rates in 2019, 60% cuts to hospital outpatient clinic visits provided at off-campus provider-based departments and 340B reimbursement cuts for hospital outpatient payments. The secondary vehicle will be expansion of alternative payment models that require providers to take financial risk. As HHS Secretary Azar signaled last Thursday, mandatory bundled payment programs are likely along with changes in accountable care organizations and primary care.

• Drug Costs: In recent months, HHS has initiated measures requiring drug manufacturers to advertise prices in TV ads, lifted the gag rule to permit pharmacists more latitude in discussing prescriptions with customers, and last week a proposal to use an International Pricing Index to cap what U.S. purchasers pay for drugs (126% of the blended rate paid by other developed systems). The FDA has also accelerated approvals for generics to stimulate competition. These “name and shame” efforts will continue, but Dems will seize on the drug industry’s lobby muscle and pursue additional measures including price controls.

• Medicaid: Total Medicaid spending increased 4.2% in FY 2018 ($517 billion) and is projected to increase 5.3% in FY 2019 because of higher costs for prescription drugs, long-term services and supports and behavioral health services, and policy decisions to implement targeted provider rate increases. CMS will encourage states to pursue Medicaid waivers aka work requirements, cuts in the federal funding formula (feds fund 68% of total), and block grants to states. Dems will network adequacy requirements for states that contract with private MCOs and work requirements that limit coverage. Partisan differences about Medicaid will be intense, especially in the 17 states that did not expand their programs post-ACA.

• Opioid addiction: 2.1 million Americans suffer from opioid abuse disorder; 115 die every day. Last week’s approval of hyper potent Dsuvia by the FDA for use by hospitals for inpatient is the latest in bipartisan efforts to address the problem. The Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act, passed with strong bipartisan support in October providing funding for medical professional continuing education, prescription drug monitoring programs, research in pain management therapies and convenient ways for consumers to dispose of their unused medications. But the parties will part company on funding: Republicans will push back; Dems will seek more including punitive measures directed at drug manufacturers and distributors who have profited from the opioid crisis.

• Administrative Simplification: 25% of what’s spent in the U.S. health system is administrative costs—3 times the average of other develop systems of the world (OECD). The catch is this: the U.S. system’s payment scheme is complicated: private insurers, employers, Medicaid, Medicare. The administration has advanced initiatives that include reduced administrative hassle i.e. the simplification of codes as part of the recently passed Hospital Outpatient Quality Reporting Program and Ambulatory Surgery Center Quality Reporting Program. Efforts to reduce administrative costs are supported by both parties but Dems will push for “Medicare for A” as an alternative. Note: administrative costs for Medicare are 7% vs. up to 13% for private insurers.

• Consolidation: The Department of Justice approved the CVS-Aetna and Cigna-Express Scripts mega-deals and seems poised to approve others. For the 15th consecutive quarter, more than 200 deals were announced as providers seek access to capital for growth. In approving these deals, Dems believe the justice system puts the interests of Wall Street above main street. Watch for the positions taken by new leadership in the Department of actions taken by the Justice and House Oversight and Government Reform Committee as consolidation of the industry gets more attention.

• Veterans Health: In June, President Trump signed into law The VA Mission Act that authorized expanded access to private health care for vets, but the bill did not reserve federal money to pay for it. Though virtually unmentioned in mid-term races, veterans’ health is a burgeoning issue. In 2017, of the 18.2 million living veterans, 15.5 million veterans were insured through military health and 9 million used one of the VA’s 1,076 clinics or 176 hospitals. But funding is the issue: President Trump requested an appropriation of $198.6 billion for the department in the 2019 Budget, a $12.1 billion increase over 2018. Veterans Health did not surface as an issue in the mid-terms but is likely to be major focus when the 116th Congress convenes January 3, 2019.

• Court Challenges: The federal healthcare agenda will be punctuated by decisions in the Circuit and Supreme Courts. There are too many to list but the headliner will be Texas vs. Azar—a suit brought by 20 attorneys general that challenges the severability of the individual mandate and effectively invalidates the ACA. Republicans hope the Texas ruling invalidates the ACA; Dems will counter that many aspects of the law are working i.e. the healthcare marketplaces, Medicaid expansion and others and offer “fix and repair” instead of “repeal and replace” as their position on the “Obamacare.”

In Congress, healthcare will be a spotlight issue the next two years because it offers clear contrasts between the two major political parties. With the budget deficit increasing 17% over 2017 and government shutdown pending December 7, the lame duck session that starts next week is unlikely to tackle any of these issues. They will be left to the 116th Congress when it convenes January 3.

The State Agenda

For Governors, healthcare issues hit closer to home. Budget battles pit healthcare appropriations against teacher pay, potholes, parks and other pocketbook issues in every state. While Congress and the administration set direction, create laws and provide funding for some programs, Governors must win legislator and voter support as healthcare programs are addressed while balancing their budgets. In addition to playing major roles in the formulation of federal policies for each issue above, Governors play leadership roles on each issue below:

• Medicaid Expansion: In 7 states, Democrats won Governor’s races vowing to expand their Medicaid programs (IL, KS, ME, MI, NV, NM, WI). Three red states passed referenda to expand their Medicaid programs (NE, UT, ID) though UT’s referendum was the only one that included a source of funding (UT raised sales tax on non-food items from 4.7 to 4.85%). Two states elected Democratic Governors will appear to have legislative support to expand (KS, WI) and the newly elected Democratic Governor in ME plans to implement expansion that its legislature already passed. So, up to 800,000 low income adults and kids are likely to join 15.6 million who have gained coverage as a result of expansion.

• Insurance Coverage and Oversight: Since the ACA passed, 11.7 million have gained coverage through state health exchange and premiums for silver plans have stabilized increasing only 1.9% on average this year compared to double digit increases in prior years. States bear primary responsibility for determining how health insurers compose and charge for their services. Federal policies around short-term and association health plans are a guide, but it is the state oversight that determines solvency requirements, premium increases, provider credentialing, claims approval and denials, network adequacy and other features that rile voters if out of sync with their expectations.

• State employee health costs: States cover healthcare costs for 5.4 million workers. All face rising costs. All are testing value-based purchasing models, sponsoring wellness programs and encouraging employees to opt for high deductible plans. Many will follow North Carolina’s plan to cap payments to providers for its 727,000 employees at 177% of Medicare rates—down from 213%. Governors must address state employee health costs expected to increase more than 5%: they will pursue more aggressive means of slowing the cost spiral.

• Opioid addiction: The federal government provides states unusual latitude in managing opioid treatment. Enhanced services in rural health, integration of alternative therapies, crackdowns on provider fraud, standardization of prescribing patterns et al. are on the table for Governors.

• Public Health: Public health is more than disease surveillance and immunization. It is a patchwork of healthcare and social services programs that serve a fourth of a state’s population. Connecting social services programs with healthcare programs is challenging to states but necessary to improving the health of under-served populations cost-effectively. Governors must take the lead in integrating federal, state and local programs that improve the health status of their citizenry.

And in each of these, expanded telehealth and broadband access are keys to delivery, especially in rural settings. For Governors, these efforts require a concerted effort to educate legislators and voters.

My take:

Total federal, state and local government spending in 2019 will be $7.6 trillion. Of this, healthcare programs will be $1.7 trillion (22%) which does not include social services programs that assist low income and disadvantaged populations. It’s a big deal—more than any other spending category.

Like most data geeks, I am still dissecting the results: who voted, why, where campaigns got their money and most importantly, what it means to the industry. On reflection, a few things are clear:

Gridlock works for healthcare investors and incumbents. Wednesday, the Dow increased 2%. HCA increased 5%. Humana was up 6.5%. Eli Lilly was up 4%. And so on. Medicaid expansions means lower bad debt for hospitals and continued earnings growth for Managed Medicaid plans.

Collaboration between federal and state policymakers will be challenging. Partisanship aside, the aims for states and the federal government are not aligned: that creates tension. The feds seek to lower federal spending primarily through reimbursement cuts that shrink federal deficits; states seek to manage their costs by improving population health to balance their budgets as required by their laws.

Healthcare will be the key issue in Campaign 2020.

Like many, I found myself frustrated that meaningful discussion about healthcare issues was not a feature in the mid-terms. I bristled at the hyper-partisanship and lack of civility now a staple of modern politics. I lament that growing food insecurity, social isolation, and societal stress and depression escaped notice. I wish the efforts of doctors, nurses and hospitals to care for victims of senseless gun violence were recognized. And I hope the media coverage and campaign posturing about healthcare in Campaign 2020 is more about public understanding and less partisan posturing.

What are my key takeaways for healthcare? If our future as a system is defined through an elective process like the 2018 mid-term, we will fail to make meaningful improvement toward the triple aim (IHI): Improving the patient experience of care (including quality and satisfaction); improving the health of populations; and reducing the per-capita costs.

Healthcare stakeholders must step up. The next two years will be pivotal to how healthcare will be financed and delivered for generations to come. It’s a defining period in the history of our system.

Paul

PS: Two conflicting public health findings from the CDC in the last week: The Good News: the rate of adult smoking fell to a modern-day low of 14% vs. 40% forty years ago. The Bad News: In 2017, gun-related homicides were up 21% erasing a 20-year decline. Little solace to a dozen Thousand Oaks CA families who will bury loved ones this week—victims of the 307th mass shooting in the U.S. this year.