Three Major Policy Shifts in the 2022 Healthcare Regulatory Environment

For the past three months, Congress has been paralyzed by partisan bickering with few issues garnering bipartisan favor. Despite voter majority support for drug price containment, constraints on Big Tech and attention to climate change among headliners, bipartisan actions vis a vis laws or regulations that address them are rare.

It’s no surprise, then, that the Infrastructure and Build Back Better (BBB) plans are stalled: there are legitimate concerns on both sides. In the end, both will pass with significant concessions made and each side claiming victory.

The provision of dental benefits for Medicare enrollees, expansion of home care services and drug pricing constraints will be among several healthcare-related cuts in the final version.

With Campaign 2022 underway, the fifth wave of the pandemic in check and divided Congress, big shifts in the regulatory environment for every industry including healthcare are unlikely. Instead, administrative actions taken by federal/state agencies, legal challenges in the courts, oversight reports from government watchdogs prompting actions and executive orders issued by the White House and Governors will drive changes in the regulatory climate. So, here’s what to expect:

The givens are these:

• Equity and diversity will be central themes. The Biden administration and each of its cabinet-level major departments that have healthcare oversight (Health & Human Services, Justice, Federal Trade Commission, Veterans Affairs, Commerce) have been forthright in prioritizing equity as a priority consideration for participation in federal programs.

• Budget constraints and the debt ceiling complicate matters. The federal government hits the budget ceiling (again) December 3 and there’s growing concern in corporate America for the burgeoning federal debt. Campaign 2022 will likely be a referendum on the economy, so both parties will avow responsible spending and long-term debt avoidance. While GDP growth in 2021 will be robust (4% or higher), concerns about consumer prices and ‘transitory inflation’ will play into policies and politics. Healthcare spending, affordability and price transparency will loom large as part of the U.S. economic landscape with hawks asserting waste and inefficiency and doves arguing for a government-run alternative that removes profit-motives.

• States will play a bigger role in health policy. Regardless of the Biden administration’s directives and Congressional actions, states will play a bigger role in U.S. policy this year and next. Consider: From January 1 to August 25, state legislatures passed 6139 about healthcare second only to education (8686) per Ballotpedia. States control licensing for most health professions, certification of health insurance plans sold in-state, marketplaces where individuals and small businesses can purchase coverage that’s often subsidized and abortion rights to name a few. But there’s wide variability in how healthcare is regulated in states: 38 expanded their Medicaid programs, 35 and the District of Columbia have Certificate of Need laws that govern competition (to a limited extent), 30 states have interstate compacts to credential physicians and other providers, and so on. Per the CDC, 29 states that had orders broadly requiring residents to wear masks in public have lifted them. Two states that previously lifted mandates, Louisiana and Oregon, have reimposed them amid the delta spike and 11 have not imposed mandates at any point during the pandemic. And a few- Arkansas, Florida, Iowa, Montana, Tennessee and Texas- have moved via legislation or executive action to prevent local governments and school districts from mandates. The partisan impasse in DC has enabled states to enact their policy preferences even when federal authorities pursue alternative paths.

And notably, there will be three major policy shifts of consequence in healthcare:

1-Alternative payment models (APMs) will be Simpler, Fewer, Mandatory and Require Greater Financial Risks for Participants

‘Alternative payment fatigue’—that’s how one health system official described the federal government’s effort to shift provider incentives from fee for service to value as a means of reducing Medicare spending. CMS officials have advised that only 6 of the 50 pilots tested since 2013 merits continuation: ACO Investment Model; Home Health Value-Based Purchasing Model; Medicare Care Choices Model; Maryland All-Payer Model; Pioneer ACO Model; and Repetitive, Prior Authorization of Repetitive, Scheduled Non-Emergent Ambulance Transport Model. Four models have met the requirements to be expanded in duration and scope: Home Health Value-Based Purchasing Model; Pioneer ACO Model; Repetitive, Prior Authorization of Repetitive, Scheduled Non-Emergent Ambulance Transport Model (expanded under MACRA, not section 1115A, authority); and Medicare Diabetes Prevention Program Expanded Model. And the rest are in limbo.

Last Wednesday, the Center for Medicare and Medicaid Services (CMS) issued its strategy refresh signaling its direction for the alternative payment models overseen by its Innovation Center (CCMI) “Driving Health System Transformation – A Strategy for the CMS Innovation Center’s Second Decade.” Its direction for APMs is clear: expansion of payer participation to include Medicaid and private insurers, modification of risk adjustment and benchmarking methodologies to prevent “gaming” of savings by APM participants, and heightened emphasis on primary care as a gatekeeper to care coordination and savings.

Implications: The technical specifications for participation in APMs will change: its accountable care (MSSP), bundled payment (BPCI) and direct contracting models will be modified and continue, requiring greater risk sharing and mandatory participation for some. Likely, these changes will be effective in 2023.

2-Medicare Advantage Enrollment will Increase but Margins for Sponsors will Shrink

The Office of the Inspector General (OIG) in HHS has called out systemic ‘upcoding’ on the part of Medicare Advantage sponsors accounting for more than $140 billion in overpayments in the last decade. Just last week, the OIG identified UnitedHealth as the number one offender among 142 plans suspected of over-billing. Nonetheless, Medicare Advantage enrollment is increasing: per the Congressional Budget Office, total enrollment is expected to increase from 37% to 50% of all Medicare eligible adults by 2029 or sooner. And competition in the MA market is expected to intensify as new technology-enabled models challenge incumbents like Humana and United. This year, for instance, at least three plans have launched (Clover Care, Troy and Zing Health) backed by private equity funds and provider organizations like Ochsner Health announced sponsorship of its their new MA plan.

From its inception in 1997 as the Medicare+Choice program, Medicare Advantage has been scrutinized by regulators. Benefits provided through MA plans vary widely, member turnover is low and 73 new plans entered the market last year because senior health is opportunistic for innovators. Case in point: Devoted Health, the Boston-based e-Medicare Advantage plan founded by the Park brothers completed its Series D funding October 8 landing $1.15 billion from SoftBank, GIC, Andreessen Horowitz, Premji Invest, Maverick, Frist Cressey Ventures, NextView ICONIQ Growth, General Catalyst, the Base10 Advancement Initiative, and Emerson Collective. Despite growing regulatory scrutiny, the role of Medicare Advantage plans will increase on the national stage.

Implication: MA is becoming the lab for senior health innovation by integrating social determinants of health more directly in care management. It is also the vehicle whereby primary care service organizations become gatekeepers to specialty care in homes, hospitals and post-acute settings. But margins will thin under Medicare spending pressure enabling advantages for plans with big enrollment, low administrative costs, aggressive medical management protocols and a strong primary care front door. Regulators will be watching closely to make sure MA enrollee medical risks are accurately reported and care coordination appropriate.

3-Vertical and Horizontal Consolidation will get Heightened Scrutiny from Regulators

Horizontal consolidation has been a traditional focus of the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ). The Herfindahl-Hirschman Index (HHI) has been widely used to measure market concentration that limits competitive choices for consumers. Combinations like the Spectrum-Beaumont (MI) and UnitedHealth-Change Healthcare fall in that bucket.

But generally there’s no HHI to gauge the impact of vertical integrations when a given “market” is often loosely defined. Take, for instance, Optum’s ownership of 60,000 medical practices which sit inside the UnitedHealth juggernaut. Competition for medical care is defined by local choices, but competition for insurance by online and regional options.

In healthcare, almost half of all practicing physicians are employed by hospitals. More than 300 hospitals own/sponsor a health insurance plan. Health insurers own medical practices, outpatient facilities and care management organizations. National retail drugstore chains operate clinics and so on.

Consolidation and diversification are necessary to scale efficiencies and growth in healthcare. Private equity funding is readily accessible to finance acquisitions. So, lawmakers are increasingly sensitive to “too big to fail” concerns and likely to challenge combinations more aggressively.

Implication: With uncertainty about possible increases in corporate and capital gains taxes in DC, and with private equity flush with capital to invest, the landscape for competing in healthcare will change significantly in the next 12-24 months. Markets and competition in key sectors will be redefined and the FTC and DOJ more assertive in challenging deals. So, horizontal and vertical consolidation will continue in the near-term and deal justification will require more attention to verifiable public benefits.

MY TAKE

The fundamental structure of the U.S. healthcare market is changing at warp speed. The pace of change is accelerating as the availability of private investment grows. A cursory look at last week’s notable deals reflects effectively where the healthcare puck is going (See Notable deals last week in Industry News below).

So, each of the three above is a consequential shift; together, they’re a fundamental re-set for health providers, insurers and supply chain participants at least in the near-term. Stay tuned.

Paul

RESOURCES

“Composition of State Legislatures”; Ballotpedia

Chiquita Brooks-LaSure, Elizabeth Fowler, Meena Seshamani, Daniel Tsai “Innovation At The Centers For Medicare And Medicaid Services: A Vision For The Next 10 Years”; August 12, 2021; Health Affairs

“Innovation Center Strategy Refresh”; October 20, 2021; CMS

“Feds: UnitedHealthcare pocketed $3.7 billion in questionable Medicare Advantage payments”; October 21, 2021; Modern Healthcare

“Some Medicare Advantage Companies Leveraged Chart Reviews and Health Risk Assessments To Disproportionately Drive Payments”; September 20, 2021; OIG

CORONAVIRUS NEWS

Key Data as of 10/23 (CDC, FDA, WHO)

CDC Issues Booster Guidance

Last Thursday, the CDC issued booster guidance: “For individuals who received a Pfizer-BioNTech or Moderna COVID-19 vaccine, the following groups are eligible for a booster shot at 6 months or more after their initial series:

• 65 years and older

• Age 18+ who live in long-term care settings

• Age 18+ who have underlying medical conditions

• Age 18+ who work or live in high-risk settings

For the nearly 15 million people who got the Johnson & Johnson COVID-19 vaccine, booster shots are also recommended for those who are 18 and older and who were vaccinated two or more months ago.”

“CDC Expands Eligibility for COVID-19 Booster Shots”; October 21, 2021; CDC

White House Announces Plan to Vaccinate Children

Last Wednesday, the White House released its plan to vaccinate children between the ages of five and 11, pending authorization from the Food and Drug Administration of the first COVID-19 shot for that age group. To vaccinate the 28 million kids in this group, the White House said it has secured enough vaccine supply to equip more than 25,000 pediatric and primary care offices, hundreds of schools and community health clinics, as well as tens of thousands of pharmacies, to administer the shots.

“Press Briefing by White House COVID-⁠19 Response Team and Public Health Officials”; October 20, 2021; The White House

Study: Majority of Covid Hospitalizations Involved Patient out of Pocket Spending

Researchers analyzed 4075 COVID-19 hospitalizations in 2020. Findings:

• 71.2% of hospitalized privately insured patients and 49.1% of Medicare Advantage patients had cost sharing for any hospitalization-related service, including those billed by clinicians

• 4.6% of privately insured and 1.3% of Medicare Advantage had cost sharing for facility services billed by hospitals, with mean out-of-pocket spending of $3840 and $1536, respectively.

“Assessment of Out-of-Pocket Spending for COVID-19 Hospitalizations in the US in 2020”; October 18, 2021; JAMA Network Open

School-Based Alliance Calls Children’s Mental Health an Emergency as a Result of the Pandemic

Last week, the American Academy of Pediatrics, along with the American Academy of Child and Adolescent Psychiatry, and the Children’s Hospital Association declared a national emergency in children’s mental health and asking for more federal funding for school-based care.

Nationwide, the number of mental-health related emergency department visits rose by 24% among children ages 5 to 11 and by 31% among youth ages 12 to 17 from March through October of 2020 compared to the same period in 2019, according to a November 2020 Centers for Disease Control and Prevention report.

Steven Ross Johnson “Pediatric Groups Declare ‘National Mental Health Emergency”; October 19, 2021; Modern Healthcare

Study: State Vaccine Lotteries Ineffective

Background: In the United States, the COVID-19 vaccination rate slowed from a peak of 3.6 million vaccinations per day during the week of April 5, 2021, to fewer than 2 million vaccinations per day by the week of May 3, 2021. To boost vaccine uptake, 19 states announced large cash lotteries by July 1, 2021, that were tied to COVID-19 vaccination.
Researchers analyzed daily state-level COVID-19 vaccination data between April 28 and July 1, 2021. Findings:

• There were 37.2 million first doses of COVID-19 vaccine administered in the United States between April 28 and July 1, 2021, including 19.2 million in states that announced cash drawings.

• “Lottery-style drawings may be less effective than incentives that pay with certainty.”

Dave et al “Association Between Statewide COVID-19 Lottery Announcements and Vaccinations” JAMA Health Forum October 15,.2021; JAMA Health Forum

INDUSTRY NEWS

Notable Recent Deals

• BrightSpring Health Services, a Louisville, Ky.-based home-based health care services company, filed for an IPO.

• Sofinnova Partners closed €472 million ($548 million) for its 10th early-stage health care VC fund for Europe.

• Marley Medical announced $9 million Series A funding for its technology-based chronic care management platform.

• Medicaid primary care operator Cityblock Health raised $400 million raising its valuation to approximately $5.7 billion.

• Hybrid primary care company Carbon Health announced acquisition of two virtual chronic care operators to expand its home-based care offering.

• Teladoc Health launched Primary360, a stepped-up primary care offering that gives users ongoing access to a chosen provider

• Workit Health raised $118 million in Series C funding for its telehealth addiction care program,

• UnitedHealth announced NavigateNOW, its virtual-first plan and estimated its premiums will be about 15% cheaper for enrollees

• Wayspring, formerly known as axialHealthcare, received a $75 million cash infusion to fund its transformation to a value-based care organization focused on substance use disorder.

• Oak Street Health said it acquired RubiconMD, a startup that provides telehealth specialty consults to primary-care doctors, in a $130 million transaction.

• 7wireVentures announced it led a $43 million Series B investment in Zerigo, a dermatology startup that makes a UVB light-therapy device to treat conditions like psoriasis and eczema.

• Microsoft announced its cloud offering with Cerner’s electronic health record.

• Pfizer, Merck and Amgen are pooling $430 million with the Carlyle Group and other life sciences investors to acquire a majority stake in Saama Technologies, a company that collects patient data and offers analytic solutions to help speed along the drug development process.

• MVP Health Care, which counts 700,000 individuals as members, has partnered with Belong Health to launch a joint venture that creates the first Special Needs Plan available in upstate New York and Vermont.

• 23andMe is acquiring telemedicine platform company Lemonaid Health for $400M.

• Telehealth platform Babylon has gone public through a special purpose acquisition corporation merger valued at $460 million.

Study: Half of Nurses Consider Quitting

A March 2021 Trusted Health online survey of over 1,000 travel nurses found that almost half said they were considering leaving the profession. Seven months, later a ShiftMed survey found 49% of US nurses said they may leave the profession within the next two years. More than 90% of respondents in the ShiftMed survey said staffing shortages were negatively impacting them. The Cornell School of Industrial and Labor Relations Tracker found reports 35 strikes in the Healthcare and Social Assistance industry as of Friday.

“Over 500,000 healthcare workers quit in August and thousands more have gone on strike as the industry deals with burnout and staff shortages”; October 23,2021; Business Insider

Study: Hospital Quality-Market Share Correlation Varies by Condition, Stronger for Total Joint

Yale researchers analyzed the correlation between hospital quality and market share for acute myocardial infarction (AMI), coronary artery bypass graft (CABG), and hip/knee replacement. Findings:

• For AMI readmission, each percentage point increase in a hospital’s risk-adjusted complication rate was associated with a 1.7% decrease in its market share.

• There was no significant association between a hospital’s performance score and market share for AMI mortality, CABG readmission and CABG mortality.

• For hip/knee replacement, each percentage point increase in a hospital’s risk-adjusted complication rate was associated with a 4.2% decrease in its market share.

“The findings of this cross-sectional ecological study suggest that better hospital performance score was associated with larger market share for hip and/or knee replacement and AMI procedures but not for CABG. “

Oddeifson et al “Association Between Hospital Performance Metrics and Market Share”; October 21, 2021; JAMA Network Open

Study: Suicide Risk after Cancer Diagnosis Higher in Rural, Low-Income Populations

Key findings in this cohort study that included 5,362,782 people with a cancer diagnosis between 2000 and 2016:

• People with cancer living in the lowest-income counties had a significantly higher suicide risk than those in the highest-income counties.

• Those living in rural counties also had significantly higher suicide risk than those in urban counties.

• Among people living in the lowest-income counties, the risk remained significantly high even after 10 or more years following cancer diagnosis.

Ruk et al “Analysis of Suicide After Cancer Diagnosis by US County-Level Income and Rural vs Urban Designation, 2000-2016”; October 19, 2021; JAMA Network Open

Altarum October 2021 Report: Annualized Healthcare Spending Hits $4 trillion, Slows in September

Highlights of Altarum’s October Health Sector Economic Indicators (HSEI) brief:

• National health spending in August 2021 was 7.2% higher than in August 2020, reflecting the continued recovery from the effects of the COVID-19 pandemic.

• Since January 2020, net growth in national health spending was 3.6% through August 2021. As of June 2021 exceeding annualized spending of $4 trillion for the first time in history.

• Spending on hospital care and home health care showing the greatest growth since January 2020, at 4.9% each, while net change in spending on dental services still lags other categories at -10.7%.

• Growth in the overall Health Care Price Index (HCPI) increased 2.0% in September compared to the consumer price index (CPI) at 5.4% and producer price index (PPI)at 8.6% in September.

Altarum’s October Health Sector Economic Indicators (HSEI) October 19, 2021; Altarum

REGULATORY NEWS

FDA Approves Humira Biosimilar

Last week, the FDA approved Boehringer-Ingelheim Cyltezo, a biosimilar version of AbbVie’s Humira used to treat rheumatoid arthritis. BI will not be able to sell its biosimilar version in the U.S. until mid-2023, because the company settled patent litigation with AbbVie (ABBV), which sells Humira. And its version will only be available in low-dose concentrations, while 80% of the market is for high-dose concentrations.

“FDA Approves First Biosimilar Alternative to Arthritis Drug Humira”; October 19, 2021; Kaiser Health News

FDA Issues Proposed OTC Hearing Aid Rule

Last Tuesday, the FDA issued a proposed rule to implement the sale of over the counter (OTC) hearing aids to patients with mild-to-moderate hearing loss. The rule would implement the Over-the-Counter Hearing Aid Act, passed by Congress in August 2017 as part of the FDA Reauthorization Act which gave the FDA 3 years to issue regulations establishing a category of OTC hearing aids to be sold online and in retail stores to adult patients with mild-to-moderate hearing loss.

FDA

FDA Considers Mandatory Education for Opioid Prescribers

In the last year, there were 97,000 American opioid-related overdose deaths in the U.S. The FDA said it’s reconsidering the need for mandatory prescriber training through a REMS given the current situation with overdoses and is seeking input on the aspects of the opioid crisis.

Cumulatively, from the end of February 2013 through May 15, 2021, FDA said more than 350,000 doctors have completed prior education courses–one-third of the approximately 1 million prescribers of opioid analgesics in 2019.

Zachary Brennan “Senators back FDA’s plan to require mandatory prescriber education for opioids”; October 21, 2021; EndPoints News