Volume 25
So what’s the big deal in healthcare?
Top 10 Things You Need to Know in Healthcare.
#1 Envision Files for Chapter 11. KKR Exits Ownership.
On May 15, Envision Healthcare submitted a Chapter 11 bankruptcy filing to the U.S. Bankruptcy Court for the Southern District of Texas. As a result, nearly all of the organization's financial obligations, with the exception of a revolving credit line designated for operational capital, will be eliminated. This amounts to an approximate debt reduction of $5.6 billion for the company.
So What’s the Big Deal? In a recent MedPage Today article, I discussed the market forces affecting businesses like Envision Healthcare and warned Envision is not alone. It’s a canary in the coal mine. In fact, as reported in Bloomberg, TeamHealth is facing similar headwinds.
Envision, unlike typical healthcare private equity investments, focused primarily on hospital-based services like emergency medicine and anesthesia. Additionally, the company exploited regulatory loopholes, deploying some ambiguous business practices with reimbursement strategies. The company lobbied against the No Surprises Act, and when that law went into effect, it took its toll, contributing to the bankruptcy. Though Envision’s financial problems will add to existing public scrutiny of private equity, this case really is a warning against other companies who employed similar business practices and should not be taken as a broader signal about the viability of private equity investment in physician groups overall.
#2 Senate Scrutinizes Claims Denials
As insurance company profits keep rising, U.S. senators are increasingly interested in Medicare Advantage plans' (private payers who manage Medicare patients) use of third-party algorithms to determine coverage. These practices include the utilization of artificial intelligence. On May 17th, lawmakers argued action is needed to reduce onerous prior authorization prerequisites, which permit insurers to postpone or refuse medical treatments that would be covered by conventional Medicare. Healthcare executives should pay attention.
So What’s the Big Deal? The implications of placing guardrails around the denial process could be enormous. The latest congressional activity comes after federal investigators discovered 13% of prior authorization requests and 18% of payment denials were incorrectly denied, and should have been approved in accordance with Medicare coverage regulations. The costs to patients’ health and the financial cost to providers are simply too high for the current state to continue.
#3 House Bipartisan Bills Focus on PBMs, Price Transparency, and Site-Neutral Pricing
The U.S. House Energy and Commerce Subcommittee on Health recently approved seven pieces of legislation, including bills concerning price transparency, site-neutral payment policies, modifications for pharmacy benefit managers, and revisions to the 340B drug discount program. Again, healthcare executives need to pay attention.
So What’s the Big Deal? These bills have the potential to reshape several costly aspects of healthcare. For pharmacy benefits managers (PBM), there seems to be bicameral and bipartisan interest in controlling the role they have in determining and influencing prescription drug costs. (For more PBM analysis, see #6.) Site-neutral pricing also has large implications for hospital systems since it could potentially drive down Medicare reimbursements. If enacted into law, this legislation would mean hospitals with large revenues from outpatient practices would be prevented from charging in-patient, hospital-based pricing. While these bills passed the subcommittee in a bipartisan fashion, they still have a long way to go before passing both houses of Congress. That said, they could present an opportunity for the two parties to show progress going into an election year. That makes them especially attractive to congressional leadership.
#4 AI Leaders Request Regulation
At a remarkable Senate subcommittee session on May 16, U.S. senators advocated for stringent oversight of advanced AI technologies – and industry stakeholders agreed! OpenAI CEO Sam Altman emphasized the essential role of government regulation in mitigating risks associated with increasingly potent AI models. Altman even suggested the U.S. government could employ a strategic mix of licensing and testing prerequisites for AI systems exceeding certain capability benchmarks.
So What’s The Big Deal? The integration of AI into healthcare systems has the potential to revolutionize patient care, research, and diagnostics but without proper oversight, the risks of unregulated AI could lead to severe ethical, privacy, and safety concerns. Congress must establish a comprehensive regulatory framework that addresses these concerns, promotes transparency, and ensures the responsible development and deployment of AI in healthcare, ultimately safeguarding the well-being of patients and upholding the highest standards of medical practice.
#5 The No-Surprises-Act Is, Unsurprisingly, Not Working for Providers.
Almost a year after the inception of the Independent Dispute Resolution (IDR) process under the No Surprises Act (NSA), filings have exceeded 330,000, a number that is 14 times higher than the initial projections by the Departments of Health and Human Services (HHS), Labor, and Treasury. A recent status update published by the Centers for Medicare and Medicaid Services (CMS) sheds light on the latest figures related to initiated disputes, eligibility determinations, and payment outcomes. Besides acknowledging the persistent backlog of IDR cases, the report also highlights a notable success rate for initiating parties, with providers primarily leading the charge.
So What’s the Big Deal? Implementation of the NSA and IDR process has been nothing short of a disaster with the process clearly favoring insurers. If not addressed soon, we could see further harm done to both providers and hospital groups. Since the implementation of the NSA, provider groups have seen a 13% reduction in reimbursement rates from in-network insurers.
#6 More Focus on PBMs
The Senate Health, Education, Labor, and Pensions (HELP) Committee brought together leaders from three major pharmaceutical companies – Eli Lilly, Novo Nordisk, and Sanofi – along with top executives from the three largest pharmacy benefit managers (PBMs) – CVS Health, Express Scripts, and OptumRx. The HELP Committee's legislative agenda focuses on promoting transparency within the pharmaceutical supply chain and enhancing access to generic medications. Proposed PBM reforms include the elimination of spread pricing models and the removal of clawbacks from pharmacies.
So What’s the Big Deal? PBMs drive up prices artificially due to the absence of transparency in the drug pricing process. These firms also provide little-to-no benefits to consumers. The top three PBMs, responsible for nearly 80% of the country's prescriptions, are each owned by health insurance companies, which presents a significant conflict of interest. It’s unclear what exactly Congress will do, however, if Congress steps in, we could see shifts in the pharmaceutical pricing for consumers and guardrails on vertical integration of PBMs with insurers.
#7 HCA Buys 41 Urgent Care Facilities in Texas
HCA Healthcare has purchased 19 FastMed and 22 MedPost-branded facilities, situated in the regions of Dallas, Austin, San Antonio, Houston, and El Paso. During earnings calls and banking conferences, HCA executives have routinely pointed to Texas as a crucial area for ongoing market expansion through network development. The for-profit organization aims to bolster outpatient sites that can channel patients into network hospitals, thereby increasing volumes.
So What’s the Big Deal? Vertical integration and control. As hospitals face pricing pressures from inside the walls of the hospital, they are identifying outpatient strategies to maintain profitability. This strategy is a smart one since CMS and private payers are shifting reimbursement incentives to outpatient practices and more integrated care networks. Purchasing urgent care facilities expands a hospital’s catchment area and diversified revenue streams.
#8 Cigna Financials Improve
In its first-quarter earnings announcement, Cigna Group revealed a positive uptick in key financial metrics, prompting the company to raise its full-year guidance for adjusted earnings per share, revenue, and customer growth. The insurer's first-quarter results showcased a 6% year-over-year increase in total revenue, reaching $46.5 billion. Additionally, net income experienced a boost, rising from $1.2 billion in the previous year to $1.3 billion. Contributing factors included reduced COVID-19-related expenses as well as lower-than-anticipated claims for COVID, flu, and respiratory syncytial virus. During an investor call, executives noted non-viral care demand has returned to more normalized levels.
So What’s the Big Deal? Cigna, United Healthcare, Aetna, Humana, and Elevance are all rinsing and repeating their quarterly earnings and financial reports. They are profitable … very profitable. Each of these companies have layered, strong vertical integration strategies that tie together their PBMs, providers, and insurance networks. Furthermore, they have extensive cost mitigation strategies thanks in part to the No Surprises Act and by denying care through prior-authorizations. As a society, we should not be surprised by their profitability since the regulatory environment has been asleep at the wheel to control the flow of finances from patients and providers into payers coffers. I offered additional thoughts on this issue at MedPage Today.
#9 Women’s Health Deserts Will Get Bigger
In 2023, the American Association of Medical Colleges witnessed a 10.5% decline in obstetrics and gynecology residency applicants in states with abortion bans. This decrease may have far-reaching consequences for the availability of physicians providing pregnancy care and childbirth in the southern and midwest regions since medical residents often opt to continue their practice in the regions where they received training. Similarly, abortion bans are influencing where emergency physicians practice and where they chose to do residency.
So What’s The Big Deal? In the short and long-term, there could be significant ramifications for access to both women’s and emergency healthcare. Physicians are weary of putting their licenses and lives at risk. In many states, performing abortions (even in cases such as ectopic pregnancies where the life of the mother hangs in the balance) could carry a felony charge against the physician. Physicians in states where abortion is legal may also face criminal charges if they perform abortions on patients who crossed state lines. With more recent abortion bans, the definition of what constitutes an abortion (elective versus emergent) and what the gestational age is for a legal abortion, has created significant confusion and fear for physicians. For example in Texas, an “attempted” abortion at any gestational age carries a 20-year prison sentence. The result is a chilling effect on the care of pregnant women.
#10 Medical "Conscience" Law Risks Patients' Lives
Healthcare professionals in Florida can decline any medical service based on moral objections, following the passage of SB 1580 and signage by Gov. Ron Desantis (R). The Florida law protects medical providers from civil liability should they choose to deny treatment to patients on the grounds of conscientious objections. It also permits insurance companies to withhold payment for services that conflict with their explicitly stated, conscience-driven policies.
So What’s the Big Deal? This legislation enables discrimination by medical professionals, potentially affecting individuals from the LGBTQIA+ and other communities. While the bill explicitly bars discrimination on race, sex, gender, religion, and national origin, the bill excludes “disability, gender identity, sexuality and marital status.” The law puts emergency medicine providers and emergency departments in a quandary since the Federal Emergency Medical Treatment and Labor Act requires medication stabilization and evaluation for emergency conditions. A single violation of the law could cost physicians $119,000.
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