SCOTUS Decisions open a Can of Worms for Healthcare

Five recent Supreme Court rulings have reset the context for U.S. jurisprudence for years to come and open a can of worms for healthcare operators.

• Last year’s SCOTUS decision ruling in Dobbs v. Jackson Women’s Health (June 24, 2022) set the tone: in its 6-3 decision, the high court determined that that access to abortion is a state issue, not federal thus nullifying the 50-year-old legal precedent in Roe v. Wade and reversing 2 lower court rulings.
• On June 1, 2023, in the United States v. Supervalu, petitioners sued SuperValu and Safeway under the False Claims Act (FCA) alleging they defrauded the Medicare and Medicaid by knowingly filing false claims. Essentially, the plaintiffs sought financial remedy because the retailers’ prices were not explicitly and specifically “usual and customary” prices. In its unanimous ruling, SCOTUS agreed that “the phrase ‘usual and customary’ is open to interpretation, but reasoned that “such facial ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false.”
• On June 29, 2023, in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, the court ruled 6-3 that affirmative action policies at Harvard and the University of NC that consider an applicant’s race in college admissions are unconstitutional.
• On June 30, 2023, in 303 Creative LLC v. Elenis (June 30, 2023) By a vote of 6-3, SCOTUS ruled that the First Amendment right of free speech prohibits Colorado from forcing a website designer to create expressive designs speaking messages with which the designer disagrees.
• On June 30, 2023, in Department of Education v. Brown: By a unanimous vote, SCOTUS ruled that the 2 plaintiffs lacked standing to “Article III standing to assert a procedural challenge to the student-loan debt-forgiveness plan adopted by the Secretary of Education pursuant to Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act).” In effect, the court vacated and remanded the judgment of the United States Court of Appeals for the 5th Circuit because it felt Myra Brown and Alexander Taylor (plaintiffs) did not prove that any injury suffered from not having their loans forgiven. Therefore, the court had no jurisdiction to address their procedural claim.

Each of these is specific to a circumstance but collectively they expose industries like healthcare to greater compliance risk, potential court challenges and operational complexity. Here’s an example:

The 58-year-old Kennedy-era legal precedent of affirmative action to redress racial inequity was the focus in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College. SCOTUS essentially sided with plaintiffs who argued affirmative action violates the 14^th Amendment’s Equal Protection guarantee. In healthcare, research shows access to the healthcare system is disproportionately inaccessible to persons of color, especially if they’re poor. They improve when individuals are treated by clinicians of the same race but only about 5% of doctors in America are Black, compared to 12% of the general population and only 6% of doctors in the U.S. are Hispanic while the group accounts for nearly almost 20% of the general population.

Notwithstanding the uncanny similarities between higher education and healthcare (both have raised prices above GDP and overall inflation rates for 2 decades, both jealously protect their reputations against outside transparency and unflattering report cards, both feature competition between public and private institutions and both face questions about the value of their efforts), the issue of diversity is central in both. Affirmative action is a means to that end, but at least for now and in higher education, it’s not constitutional.

Might workforce diversity and clinician training efforts be stymied by the prospect of court challenges? Might “affirmative action” in healthcare be replaced by “holistic review” to enable consideration of an applicant’s life or quality of character as some conservative jurists have suggested?  

My take:

Affirmative action per the example above is only one of many constructs widely accepted in healthcare today where court challenges may alter the future. Individual rights and free speech including online medical advice, the role of state governments, fraud and abuse and other domains are equally exposed.

It’s clear this court is not threatened by legal precedent nor cautious about public opinion on touchy issues. Thus, immediate imperatives for healthcare organizations are these:

Revisit legal precedents on which the ways we operate are based: Roles and responsibilities in US healthcare are sacrosanct and protected by legal precedent: Physicians diagnose and treat; others don’t. Insurers pay claims but don’t practice medicine. Not for profit hospitals serve community needs in exchange for tax-exemption. Public health programs that serve the poor are funded by local and state governments. Employer sponsored benefits underwrite the system’s profitability and fund its hospital Part A obligations and so on. Might a conservative court revisit these in the context of the constitution’s “general welfare” purpose and redirect its focus, roles and structure?

Revisit terms and phrases where consensus is presumed but specific definition is lacking: Just as SCOTUS recognized ambiguity in applying terms like “usual and customary” in its Supervalu-Safeway ruling, it is likely to challenge other widely used phrases used in healthcare that often lack specific referents i.e., quality, safety, efficacy, effectiveness, community benefit, charity care, evidence-based care, cost-effectiveness, not-for-profit, competition, value” and many others. Might SCOTUS force the industry to more specifically define its most widely used phrases in order to justify its claims?

For everyone in healthcare, these rulings open a can of worms.  Compliance risk assessments, scenario plan updates required!

Paul

PS: Please watch PBS’ 43^rd  “A Capitol Fourth” concert tomorrow night. It’s not only a reminder we’re “One Nation Under God” but a special note: the American Hospital Association (AHA) will air a 30-second television spot at the top and bottom of the concert broadcast featuring stories of health care workers as well as Northwell Health’s nurse choir.

Quotable: My Top 5 Quotes from Last Week

AHA’s Pollack on July 4: “On Tuesday, we will celebrate the 247th birthday of the United States. Many people will do so with picnics, barbeques, fireworks and other hallmarks of our Fourth of July celebrations. While these occur, the dedicated team members who work at America’s hospitals and health systems will be doing what they do best — caring for patients and families. Health care workers embody the best in human nature. They are the front-line angels, the reminder of the good that comes when people recognize their common humanity and care for one another. “

“Giving Thanks for Our Nation, Our Freedom and Our Caregivers” Rick Pollack, President and CEO, the American Hospital Association

Enekwechi on role of private equity in healthcare: “There are very few (if any) studies in health care or business literature that fully interrogate a truism in health care investing: higher quality, better leadership, stronger technological infrastructure, engaged physicians and providers, and better patient experiences translate to better financial returns. Objective, empirical assessments of whether PE-sponsored health care companies deliver on these expectations are warranted…. Incentives should be based on the value created for communities and populations, and the efficient use of resources towards health, health outcomes and patients’ experiences. Smart policies should focus on moving us away from fee-for-service, a movement that has been far slower than anticipated a decade ago.”

Adaeze Enekwechi “Private Capital Is A Key Component To Improving Health Equity” Health Affairs June 29, 2023 www.healthaffairs.org

Khan on FTC oversight of generative AI: “Generative AI depends on a set of necessary inputs. If a single company or a handful of firms control one or several of these essential inputs, they may be able to leverage their control to dampen or distort competition in generative AI markets. And if generative AI itself becomes an increasingly critical tool, then those who control its essential inputs could wield outsized influence over a significant swath of economic activity.

The FTC’s Bureau of Competition, working closely with the Office of Technology, is focused on ensuring open and fair competition, including at key inflection points as technologies develop. Generative AI represents one of these paradigm shifts. Accordingly, it is especially important that firms not engage in unfair methods of competition or other antitrust violations to squash competition and undermine the potential far-reaching benefits of this transformative technology. Unfair methods of competition can distort the rate and direction of innovation. By contrast, open and competitive markets can pave the way for emerging technologies, such as generative AI, to yield their maximum potential benefit.”

Generative AI Raises Competition Concerns Federal Trade Commission June 29, 2023 www.ftc.gov

Pearl on private equity practice monopolization: “From 2013 to 2016, private equity firms acquired 355 physician practices (many with hundreds of doctors). In the four years that followed, private equity acquired 578 additional physician practices. Those numbers continue to grow.

To doctors, PE firms offer an attractive value proposition: promising to ease physician dissatisfaction by increasing income and reducing insurance hassles. In exchange, physicians agree to relinquish significant control of their practice. Once the deal is done, PE firms leverage that control to generate sizable profits…

The goal is to exit the market in three to five years, selling the medical group to an even larger private equity firm at a huge profit. Only time will tell whether this Faustian bargain becomes the physician’s salvation or a nightmare for the profession.”

Robert Pearl, M.D. “Private Equity and The Monopolization of Medical Care” The Official Site of Robert Pearl, MD (robertpearlmd.com)

Gostin on societal role in public health: “Elections and voting influence multiple health outcomes. It is thus no coincidence that the populations facing the greatest barriers to voting also face the highest health risks and poorest health outcomes, and are most in need of equitable health policies. Public health goes hand-in-hand with historic power imbalances and long-lasting inequities. While the Supreme Court’s recent decisions are a breath of fresh air, it’s unlikely to last. And we still have a long way to go where political leaders give precedence to people’s health and the general welfare.”

Lawrence O. Gostin, JD, LLD, and Sarah Wetter, JD, MPH “Threats to Democracy Are Threats to Health” June 29, 2023 www.medpagetoday.com/opinion/the-health-docket

Consumers, Public opinion polling

Survey: consumer self-monitoring device use increasing: Atlanta-based AnalyticsIQ surveyed 8,000 Americans in the spring of 2022 to describe how they use various devices. Findings:

• 46% reported using at least one type of consumer health technology over the past six months.
• Men used consumer health technology more frequently than women. Black and Latino groups had the highest usage of all ethnicities surveyed, and Gen X consumers reported significantly greater adoption than other age groups.
• Use of wearable healthcare devices, including smartwatches, wearable monitors and fitness trackers, doubled between 2020 and 2021. Among wearable monitors, blood pressure devices were the most popular (59%) sleep monitors (21%) and ECG monitors (11%). Biosensors such as glucose monitors, hormone monitors, fall detectors and respiratory monitors (8%) and smart clothing (6%).

AnalyticsIQ June 14, 2023 www.analytics-iq.com

Pew: Inflation, Health Costs, Partisan Cooperation the Nation’s Top 3 Problems: The Pew Research Center polled 5,115 U.S. adults June 5-11, 2023. Highlights:

• The top issues of concern are inflation (65%), healthcare affordability (64%) and partisan acrimony (62%). “The share saying health care affordability is a very big problem is up 9 % since May 2022.”
• Inflation remains the top concern for Republicans and Republican-leaning independents, with 77% saying it is a very big problem. The state of moral values, illegal immigration and the budget deficit also are seen as top problems by at least two-thirds of Republicans.
• For Democrats and Democratic leaners, gun violence is the top concern, with 81) saying it is a very big problem. The affordability of health care ranks second (73% say this).
• Democrats are more than four times as likely as Republicans to say that climate change is a very big problem in the country (64% vs. 14%). Democrats are also much more likely to say gun violence and racism are very big problems.

Pew Research Center June 28, 2023 www.pewresearch.org

Physicians

Study: physician practice acquisitions by private equity: Per the AHA commissioned study:

“Physician Private equity makes up the majority of physician acquisition at 65%, followed by physician groups at 14%, insurers at 11%, and hospitals and health systems at 4%. Additionally, the data shows that in deals where payers acquire physician practices, the average number of acquired physicians per deal was more than 10 times higher for insurers than for any other acquiring group. To this point, the report highlights acquisitions by CVS Health of Oak Street Health and Signify Health in deals that were valued at nearly $20 billion.”

Setting the Record Straight: Private Equity and Health Insurers Acquire More Physicians than Hospitals Infographic /www.aha.org/infographics/2023-06-26-setting-record-straight-private-equity-and-health-insurers-acquire-more-physicians-hospitals

AMGA study: reimbursement for primary care better than specialists in 2022: Per the AMGA survey of 446 medical groups representing 193,000 physicians:

• Primary care physician wRVUs increased 4.0%, compared to a 1.7% increase for medical specialties and a 1.4% increase for surgical specialties.
• Net collections outstripped clinician compensation growth. Overall median net collections increased 5.2%.
• Primary care clinician compensation increased 6.1% from 2021 to 2022, compared to a 1.5% increase for medical specialties and 1.6% increase for surgical specialties.

Medical Group Compensation & Productivity www.amga.org/amgaconsulting/our-data/medical-group-comp-productivity

Study: SDOH interventions in primary care:  Researchers calculated costs addressing social needs using a sample of 19,225 noninstitutionalized children and adults of all ages seen in primary care practices between 2015-2018. Simulated evidence-based interventions of primary care–based screening and referral protocols, food assistance, housing programs, nonemergency medical transportation, and community-based care coordination. Finding:

“The cost of providing evidence-based interventions for these 4 domains averaged $60 per member per month (including approximately $5 for screening and referral management in clinics), of which $27 (45.8%) was federally funded. While disproportionate funding was available to populations seen at FQHCs, populations seen at non-FQHC practices in high-poverty areas had larger funding gaps (intervention costs not borne by existing federal funding mechanisms).”

Basu et al “Estimated Costs of Intervening in Health-Related Social Needs Detected in Primary Care” JAMA Internal Medicine May 30, 2023. doi:10.1001/jamainternmed.2023.1964

Hospitals

Study: positive correlation between hospital price transparency compliance and penalties: The Georgetown researchers analyzed CMS data to quantify the association between financial penalties and acute care hospital compliance with the 2021 Price Transparency Rule. The final sample included 4377 hospitals. Findings:

• Compliance increased from 70.4% (n = 3082) in 2021 to 87.7% (n = 3841) in 2022, with 90.2% of hospitals (n = 3948) reporting prices in at least 1 year.
• Noncompliance penalties increased from $109 500/y in 2021 to a mean (SD) of $510 976 ($534 149)/y in 2022. Penalties in 2022 were substantial, averaging 0.49% of total hospital revenue, 0.53% of total hospital costs, and 1.3% of total employee wages.
• Compliance increases were significantly positively correlated with penalty increases: a $500 000 increase in penalty was associated with a 2.9%) increase in compliance. Results were robust to controlling for observable hospital characteristics.

Edward Kong, Yunan Ji,  “Provision of Hospital Price Information After Increases in Financial Penalties for Failure to Comply With a US Federal Hospital Price Transparency Rule” JAMA Network Open June 28, 2023;6(6):e2320694. doi:10.1001/jamanetworkopen.2023.20694

AHA opposition to site neutral payments: “Between 2019 and 2022, Medicare payment rates for hospital outpatient care rose 7.2%, while total hospital costs increased at more than double that, at 17.5%. This has in large part contributed to combined underpayments from Medicare and Medicaid totaling $100.4 billion in 2020 alone.

Unsurprisingly, these gross underpayments have consistently left hospital margins deep in the red. Hospitals’ average Medicare outpatient margins have significantly declined since 2015, with the latest data from 2021 showing Medicare outpatient margins at a staggering negative 17.5% (See Figure 1). The impact is perhaps even more acute for rural hospitals whose total Medicare margins were negative 17.8% in 2021. This is particularly alarming given the fact that 152 rural hospitals have closed or converted to another type of provider since 2010, with 11 occurring so far in 2023.”

Proposals to Reduce Medicare Payments Would Jeopardize Access to Essential Care and Services for Patients  ww.aha.org/guidesreports/2023-06-26-proposals-reduce-medicare-payments-would-jeopardize-access-essential-care-and-services-patients

Health insurers

Avalere: Medicare Advantage beneficiary utilization vs. fee for service: Highlights of the analysis:

• Among beneficiaries with 1 or more of the 3 conditions studied, MA had a higher proportion of beneficiaries who identify as racial and ethnic minorities than FFS (28.1% in MA vs. 12.8% in FFS) or who were enrolled in Medicare due to a disability (27.0% in MA vs. 21.6% in FFS).
• Beneficiaries in MA had lower rates of inpatient utilization and ER visits, and higher rates of physician visits. The average length of inpatient stay was higher for beneficiaries in MA than in FFS.
• Total spending was consistently higher among FFS beneficiaries, across all subgroups. MA PMPM spending ranged from $1,532 for beneficiaries with diabetes to $1,276 for beneficiaries with hyperlipidemia, compared to $2,204 and $1,834, respectively, for FFS beneficiaries.

Analysis of Medicare Advantage Enrollee Demographics, Utilization, Spending, and Quality Compared to Fee-for-Service Medicare Among Enrollees with Chronic Conditions Avalere June 2023 https://avalere.com/wp-content/uploads/2023/06/MA-FFS-Report

Study: value-based program results: “During the past two decades in the United States, all major payer types—commercial, Medicare, Medicaid, and multipayer coalitions—have introduced value-based purchasing (VBP) contracts to reward providers for improving health care quality while reducing spending… Higher-intensity VBP programs are more frequently associated with desired quality processes, utilization measures, and spending reductions than lower-intensity programs. Thus, although there may be reasons for payers and providers to opt for lower-intensity programs (for example, to increase voluntary participation), these choices apparently have consequences for spending and quality outcomes.”

Pandey et al “Value-Based Purchasing Design and Effect: A Systematic Review and Analysis” Health Affairs June 2023 No Access https://doi.org/10.1377/hlthaff.2022.01455

States

Georgia implements Medicaid work requirements:Saturday, Georgia launched its Pathways to Coverage program, which partially expands its Medicaid program to enroll individuals with incomes up to 100% of the federal poverty line (FPL) if they demonstrate at least 80 hours a month of work, education, job training, or community service. The program is projected to extend coverage to an additional 50K state residents vs. of the 400K that full Medicaid expansion (without work requirements, to individuals earning up to138% of the FPL) would have covered.

Georgia launches Medicaid expansion in closely watched test of work requirements ABC News June 30, 2023 https://abcnews.go.com/US/wireStory/georgia-launches-medicaid-expansion-closely-watched-test-work

Study: health spending targets in states:” Eight states have established health care spending growth target programs to advance affordability initiated by Massachusetts in 2013 to set spending growth targets. 5 of the 8 states (Connecticut, Delaware, Massachusetts, Oregon, and Rhode Island) publicly reported their performance against their targets for 2020–21.“ Highlights of  analysis::

• 4 of the 5 Exceeded Targets: Among these states, only Rhode Island, with a per capita spending growth of 3.2%, managed to meet its cost growth target. Oregon’s spending growth was 3.5%, slightly exceeding its 3.4% target, while the other three states surpassed their targets by 3 to 8 percentage points.
• Double-Digit Growth In Commercial Spending Fueled Overall Spending Growth: All states followed a similar pattern: Per capita spending growth was highest in the commercial insurance market, followed by Medicare and then Medicaid…In contrast, Medicaid experienced the slowest growth in all states, with per capita spending on the program even declining in Massachusetts, Oregon, and Rhode Island.
• Outpatient Hospital Services Continued to Drive Spending Growth: In Connecticut, Delaware and Massachusetts, spending on outpatient hospital services grew between 15 and 21% Rhode Island, which has a hospital price growth cap for the commercial market, and Oregon experienced the smallest growth in outpatient hospital services at around 10%.

January Angeles  “States Setting Health Care Spending Growth Targets Experienced Accelerated Growth in 2021” Health Affairs June 29, 2023 10.1377/forefront.20230621.112337

Healthcare Investing

Analysis: 1Q sector financial performance, insurers lost ground vs. other sectors: “Large hospital systems reported strong growth in patient visits during the first quarter, device manufacturers reported higher sales related to more surgeries, but insurance companies are telling investors that utilization has been below expectations…

As of June 29, health insurance stocks are down an average 12.6% since the start of the year, while shares of leading for-profit hospitals are up nearly 24%. The Standard & Poor’s 500 has delivered an 8.9% rate of return in 2023… Still, the health insurance industry’s pandemic heyday may have come to an end.”

Nona Tepper Utilization dispute among providers, payers stokes anxiety Modern Healthcare July 3, 2023 www.modernhealthcare.com

Pitchbook: Near term conditions for PE, venture investing challenging:  Key takeaways from June-ending Pitchbook Reports:

• Private Equity: The US PE industry is facing a new normal of stunted exit activity. Quarterly US PE exit value declined significantly in Q1 2022 and is now well-below the pre-COVID-19 (2017 to 2019) median. A maturity wall is fast approaching for PE funds that are nearing the end of their term life to distribute their capital back to investors through exits. PE investors will need to pick up their exit pace or will be confronted with 20% to 26% of the capital initially invested by funds to hit the maturity wall. The cumulative amount of still- held investments could grow to over $360 billion in the next 12 years. Note: Per Pitchbook, from pre-pandemic 2019 to 2022, PE funds responded to market conditions by holding assets longer: average hold period increased from 5.5 to 5.9 years and median increased from 6.3 to 6.8 years.
• Venture Capital: 2023 has created a VC market that is nearly the antithesis of 2021, as slower conditions make that year’s exuberance seem like a distant memory. The narrative of this year’s venture ecosystem has jumped around quickly, however. Generative AI is surrounded by hype reminiscent of crypto and Web3, but on the other hand, the broader VC market is experiencing a significant lack of capital availability, with deal values down roughly two-thirds on a quarterly basis from past highs. Emerging US VC managers secured only $2.3 billion through the first third of this year, putting them on track to close less than $20 billion in annual commitments for the first time since 2016.

Excerpts of Pitchbook Reports week of June 26, 2023 www.pitchbook.com

Bain: Investor challenges ahead as PE, Venture markets reposition: “… even with the slowdown in the second half, 2022 was still the second-best year on record for healthcare private equity by many measures. Total disclosed deal value reached around $90 billion, down from $151 billion in 2021 but still over $10 billion more than the next-closest year. Deal volume in North America and Europe was the second highest on record. Asia-Pacific reached new heights for disclosed deal values, despite the slowdown in China.

The uncertainty from these macroeconomic and geopolitical dynamics—and now mounting turbulence in the banking sector—is far from resolved, but rising asset valuations and scale corporate merger and acquisition (M&A) deals late in 2022 suggest continued faith in healthcare investments.”

2023 Global Healthcare Private Equity and M&A Report Bain April 10, 2023 www.bain.com/insights

Regulatory Advisories

FTC widens consolidation considerations: Last Tuesday, the FTC announced proposed changes to reporting requirements for larger mergers (minimum transaction size is $111.4M in price paid for the acquired entity). The rule would mark the first changes to the Hart-Scott-Rodino Act’s premerger disclosure form in 45 years, requiring details on merging parties’ other investments (aimed at private equity firms), previous transactions, overlapping product or service areas, and impact on labor markets. The FTC expects the new requirements will add over 100 hours to the filing process, which currently takes approximately 37 hours per the agency. The proposed rule is now subject to a 60-day public comment period, before the FTC and DOJ publish a final version, expected later this year.

Note: Per the FTC’s latest data, of 3520 transaction reviews/actions taken in 2021, 165 involved health services entities—double 2020. FYI: the FTC has a budget of $430 million, a workforce of 1200 and operates as the independent enforcement mechanism to protect competition and consumers applying 70 laws authorized by Congress. Its website provides info on 503 hospital merger activities dating back to 1945. The current Chair is Lina M. Khan, appointed in 2021 by President Biden,

FTC www.ftc.gov.

CMS announces home health reimbursement cuts: The Centers for Medicare and Medicaid Services has proposed cutting reimbursements to home health providers by 2.2% in fiscal 2024 in a draft regulation published Friday. The proposed rate change is the product of a 3% market basket update minus a 5.1% adjustment related to the Patient-Driven Groupings Model (2020) and other factors.

Calendar Year (CY) 2024 Home Health Prospective Payment System Proposed Rule (CMS-1780-P) CMS June 30, 2023 www.cms.gov

Medicare issues revised guidance on Medicare Drug Price Negotiation Program: Friday, Meena Seshamani, M.D., Ph.D., CMS Deputy Administrator and Director of the Center for Medicare, issued revised guidance. “The changes include, for example:

• Clarifications of how CMS will identify selected drugs (e.g., CMS will only consider active designations and approvals when evaluating a drug for the orphan drug exclusion);
• Revisions to and clarifications of the process applicable for participating drug companies of selected drugs (e.g., confidentiality policy revised to state that CMS will release information about the negotiation when the explanation of the maximum fair price is published and that drug companies may choose to publicly discuss the negotiation at their discretion)…”

CMS Releases Revised Guidance for Historic Medicare Drug Price Negotiation Program CMS June 30, 2023 www.cms.gov