Friday afternoon, President Biden signed the “Executive Order on Promoting Competition in the American Economy”, the 51st of his administration and most consequential to healthcare since signing the “Strengthening Medicaid and the Affordable Care Act” January 28 (EO 14009).
This order is broad targeting business practices and merger/acquisition activity deemed anti-competitive that limit competition, contribute to higher prices for consumers and lower wages for employees. Included in the Order’s 72 directives are 10 directed to key federal agencies (U.S. Department of Justice DOJ, U.S. Federal Trade Commission FTC, U.S. Department of Health and Human Services HHS, U.S. Food and Drug Administration FDA):
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DOJ and FTC to review and revise their guidelines on hospital mergers to limit harm to patients.
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FTC and DOC to strengthen antitrust guidance and prevent employers from collaborating to suppress worker wages and benefits.
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HHS to support hospital price transparency rules and implement surprise hospital billing legislation.
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HHS to standardize plan options in the national health insurance marketplace, which he said are too complicated and make it hard for people to choose a health plan.
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HHS to increase support for generic and biosimilar drugs and to create a plan within 45 days to address high drug prices and price gouging.
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HHS to issue a rule on the matter within 120 days that would allow hearing aids to be sold over the counter.
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HHS to issue a comprehensive plan within 45 days to combat high prescription drug prices and price gouging including “pay for delay” practices and others.
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FDA to work with states and tribal programs to import prescription drugs from Canada per the Medicare Modernization Act of 2003.
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FTC to ban “pay for delay” agreements, under which brand-name drugmakers pay generic drugmakers to keep out of a market.
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FTC to ban or limitation on noncompete clauses and some licensing requirements for workers (including physicians, mid-level professionals).
Ironically, a few of these reflect policy consonance between the Trump and Biden administrations i.e., the push for price transparency, prescription drug pricing controls, surprise medical bills and hospital consolidation. Some require inter-departmental collaboration: for example, consolidation. (The FTC historically addressed hospital consolidation while the DOJ managed insurer consolidation since insurers are exempted from antitrust rules via the McCarren Ferguson Act). All appear to have broad voter appeal and bipartisan support, and, in most cases, they can be implemented fairly quickly.
MY TAKE
While this order is no surprise, its timing is significant: the FY 2022 federal budget is being finalized with partisan impasse over the infrastructure bill and tax reforms. Merger/acquisition activity in healthcare, especially in digital health, ambulatory and physician services, is proceeding at a record pace as private investors and Special Purpose Acquisition Corporations compete for deals (there are approximately 93 active healthcare related SPACs with varying status- Pre IPO, Definitive Agreement, etc.). And public anxiety about healthcare affordability is palpable.
Against that backdrop, this EO is a continuation of the Biden Presidential Campaign pledge to “Tackle market concentration across our health care system… that’s driving up prices for consumers.” The EO signals a more aggressive posture toward industry consolidation, especially among hospitals. Per the Federal Trade Commission, hospital markets in 90% of Metropolitan Statistical Areas (MSAs) are highly concentrated, using the Herfindahl-Hirschman Index (HHI), and insurers are highly concentrated in 57- 73% of MSAs using the same measure. Studies have shown consolidation among hospitals has resulted in more services being provided, 15-30% lower costs but 6-18% higher prices. Regulators and legislators believe hospital consolidation has been more about market leverage and less about community benefit– a rare bipartisan consensus.
What’s ahead for hospitals? Accounting for promised benefits of horizontal and vertical integration will be scrutinized. Policies around Certificates of Public Advantage, Community Benefit and Uncompensated Care will be revisited. Concepts like rate setting for hospitals aka Maryland will get fresh attention. And methodologies for calculating market concentration will be refreshed in light of the expanding role of digital health.
Every sector in healthcare is consolidating horizontally and vertically. This executive order targets drug makers and hospitals more directly than other sectors but its impact will be significant across all.
Paul
P.S. Update from last week’s Keckley Report: Last Thursday, under fire for approving a questionable drug for all Alzheimer’s patients, the Food and Drug Administration narrowed its previous recommendation and is now suggests that only those with mild memory or thinking problems should receive it. The reversal reduces the approximate number of Americans who are eligible for the treatment to 1.5 million from six million. Friday, the Food and Drug Administration’s acting commissioner, Janet Woodcock, called for an HHS watchdog probe of her agency’s dealings with Biogen to establish “whether any interactions that occurred between Biogen and FDA review staff are inconsistent with FDA policies and procedures.”
RESOURCES
“Executive Order on Promoting Competition in the American Economy”; July 09, 2021; The White House
“Healthcare Consolidation: Major Contributor to Rising Costs”; 2021; West Health
Rebecca Robbins, Pam Belluck “In Reversal, F.D.A. Calls for Limits on Who Gets Alzheimer’s Drug”; July 8, 2021; New York Times
Capps, Cory, David Dranove and Christopher Ody, “The Effect of Hospital Acquisitions of Physician Practices on Prices and Spending,”; 2018; NIH
“FDA chief calls for probe of relationship between agency and Biogen”; July 9, 2021; Politico
CORONAVIRUS NEWS
Fact File Update (CDC, WHO, Johns Hopkins, Kaiser Family Foundation)
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67% of American adults have had at least one shot, and 58% are fully vaccinated.
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The nationwide average has fallen to about 500,000 shots/ day vs. peak of 4.4 million in April.
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The rate of new daily cases in urban/suburban communities has fallen below 3 per 100,000 residents in large cities vs. 16/100,000 in worst/non-urban states.
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The Delta variant now makes up 52% of US coronavirus cases. The CDC estimates that between June 20 and July 3, the Delta strain caused more than 80% of new cases across Iowa, Kansas, Missouri and Nebraska.
INDUSTRY NEWS
Fair Health: Telehealth Use Down
In April, telehealth utilization fell 12.5%, according to FAIR Health’s Monthly Telehealth Regional Tracker. Claims for telehealth services went down from 5.6% in March to 4.9% with a 12.2% decline in Southern states.
Mental health conditions are the top diagnoses treated via telehealth: mental health telehealth claims rose from 57% of all mental health claims in March to 58.6% in April.
“Monthly Telehealth Regional Tracker” Fair Health
Wall Street Journal: Half of Hospitals Non-Compliant with Price Transparency Requirement
The Wall Street Journal reviewed hospital pricing disclosures collected by Turquoise Health Co., a startup that has been gathering the data from hospital websites since the hospital price transparency regulations went into effect in January. Findings:
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As of June 18, 1,671, or 34%, of hospitals hadn’t posted any usable pricing data, while an additional 570, or 12%, had posted data that fell well short of the requirements.
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1,550 (33%) hospitals reported both negotiated rates and the cash, or self-pay, price for at least one of the 17 services in the Journal’s analysis.
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392 (12%) of the 3,144 nonprofit hospitals cut off free care as soon as a patient’s income exceeds the poverty level.
Tom McGinty, Melanie Evans, Anna Wilde Matthews “Hospitals Often Charge Uninsured People the Highest Prices, New Data Show”; July 6, 2021; Wall Street Journal
Tom McGinty, Melanie Evans, Anna Wilde Matthews “Methodology: How the WSJ Analyzed Hospital Pricing Data”; July 6, 2021; Wall Street Journal
Modern Healthcare Physician Compensation 2021: Modest Income Gains in 2020
Physicians experienced modest salary gains in 2020, according to Modern Healthcare’s 28th annual Physician Compensation Survey, which analyzes data from surveys of 10 placement firms.
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In 2020, the overall average of the reported median physician compensation inched upward less than 0.5% from the previous year to $416,966 vs. an overall average increase of 2.7% in 2019.
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In 2020, medical oncology saw the largest year-over-year gains, recording a 5.6% increase to an average compensation of $458,127. Pediatricians’ compensation, meanwhile, took the biggest hit, falling 3.3% to an average of $245,783 and family practitioners saw their compensation fall 1% to $259,622.
Ginger Christ “Physician compensation plateaus during pandemic”; July 5, 2021; Modern Healthcare
KFF Analysis: US Health System Falling Behind Developed Systems of the World
Kaiser Family Foundation researchers analyzed the performance of health developed health systems in the world over a 25-year (1991-2016) period. Findings:
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Americans saw their life expectancy rise by 3.1 years during that period vs. 5.2 years gained in comparable countries.
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Disease burden: U.S. saw 12% improvement versus an average of 22% elsewhere.
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Medical errors. Americans are roughly twice as likely to experience an error in their medical care as their counterparts the world over.
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The US still spends more on health care than other countries: nearly 18% of its GDP versus about 11%, on average, in comparable nations.
Dylan Scott “The US health system was already falling short. Then Covid-19 happened”; July 6, 2021; Vox
Study: Medicare Pays 43% More for Generic Drugs than Costco Customers
Background: 88% of Medicare Part D prescriptions dispensed were for generic medications in 2018. Researchers analyzed 200 generic products prescribed in 2017 Medicare Part D claims, by drug name, strength, and dosage form and matched them to their member prices, including all fees and taxes, at Costco pharmacies nationwide. Findings:
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Medicare overspent relative to the Costco member price on 43.2% of all 30-day and 90-day prescription fills for these products, with overspending more common on 90-day fills (52.9%).
Trish et al “Comparison of Spending on Common Generic Drugs by Medicare vs Costco Members“; July 6, 2021; JAMA Network
Rock Health: 1st Half Deal Activity in Healthcare Strong
In the first half of 2021, start-ups secured $14.7B in digital health funding, already surpassing all of 2020’s funding. The half closed with 372 deals and an average deal size of $39.6M, spearheaded by 48 mega deals which accounted for 59% of total H1 2021 funding. Public exit activity ballooned with 11 closed IPOs and SPACs, with another 11 SPACs expected to close in 2021. Funders are also investing more capital in later-stage rounds, as median deal sizes of Series C and D rounds increased by 1.1x and 1.7x compared to 2020.
Adriana Krasniansky, Megan Zweig, Bill Evans, “H1 2021 Digital Health Funding: Another Blockbuster Year…In Six Months”; Rock Health
Study: Hospital CEO Compensation Not Correlated to Hospital Value Performance
Mayo Clinic researchers analyzed 21 major teaching hospitals in the U.S. comparing total compensation for each hospital’s CEO with 2017 performance scores from the Medicare value-based purchasing program. Findings:
Even after adjusting for beds, the researchers found no link between hospital CEO pay and value. They even found the CEO helming the hospital with the worst value score reported pay that was twice as high as the hospital ranked third in value.
Puri et al “Tying CEO Compensation To Value-Based Purchasing Scores “July 6, 2021; Health Affairs
OIG Study: Drug Makers Spend More on Stock Buybacks than R&D
From the OIG’s seventh staff report based on its analysis of financial data of the 14 largest drug companies: “This report shows that leading drug companies have spent more on stock buybacks, dividends to investors, and executive compensation than on research and development (R&D). Specifically, the Committee’s analysis shows:
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From 2016 to 2020, the 14 leading drug companies spent $577 billion on stock buybacks and dividends—$56 billion more than they spent on R&D over the same period.
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Assuming the same rate of spending, these 14 companies are projected to spend $1.15 trillion on buybacks and dividends from 2020 through 2029– twice the amount the Congressional Budget Office projected would be saved by H.R. 3 over the same period.
“Drug Pricing Investigation Industry Spending on Buybacks, Dividends, and Executive Compensation” Staff Report Committee on Oversight and Reform”; July 2021; U.S. House of Representatives
Dollar General Expands Healthcare Offerings
Last Wednesday, Dollar General announced it has hired a chief medical (Albert Wu, a former McKinsey Consultant) as it pushes into health care adding cough medication, dental supplies and other OTC offerings. The discounter has more than 17,400 stores across the country, including many in rural areas that don’t have many other grocers or major pharmacies nearby. In recent years, it has added fresh produce and meats (1300 stores) and offered free Covid testing in Virginia. Notably, Dollar General prices tend to be 40% cheaper than drugstores, 20% cheaper than grocery stores and in line with mass-market retailers, according to the firm’s research.
Melissa Repko “Dollar General hires chief medical officer as it looks to become a health-care destination in rural areas “July 7, 2021; CNBC
REGULATORY / POLICY NEWS
NCHS: 1 in 3 Adults Lack Routine Dental Care
Data from the National Health Interview Survey:
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In 2019, 65.5% of adults aged 18−64 had a dental visit in the past 12 months–higher among those residing in urban areas (66.7%) than those in rural areas (57.6%).
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In both urban and rural areas, women were more likely than men to have had a dental visit in the past 12 months.
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In urban areas, non-Hispanic white adults (70.2%) were more likely than Hispanic (59.4%) and non-Hispanic black (61.8%) adults to have a dental visit. In rural areas, non-Hispanic white adults (59.1%) were more likely than Hispanic adults (45.7%) to have a dental visit.
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In 2019 about 35% of adults aged 18 and over did not have a dental examination or cleaning.
Amy Cha, Robin Cohen et al “Urban-rural Differences in Dental Care Use Among Adults Aged 18−64”, July 2021; NCHS Data Brief No. 412
