Yesterday, we talked about the impact of the election on the PPACA, as well as the implications of the PPACA for employers. Today, we'll delve into the implications for healthcare industry sectors with our final post in the series.
Lynn kicked it off by saying that before we go into each sector individually, she wanted to make an introductory comment. There are people who have asked why did the stock market reach bullish about healthcare stocks following the decision, but then not bullish about it, and whether anything can be read into this. Lynn said that whenever she reads these kinds of articles, she has to laugh, because each company is in their own relationship with entitlement programs and private health insurance, and they have different starting points and are in different states.
She said there is the number one issue - what she calls the "elephant in the room" - which is whether the penalty is strong enough to get people to buy health insurance, in which case, you'll have a different set of winners and losers, versus whether the penalty does not. Will employers drop people into the exchange, or will they stay self-funded and keep the insurance that they have?
Lynn commented that all of these pressure points are making it not always clear who the winners and losers really are.
Manufacturers - Pharmaceutical Companies
Beginning with the manufacturers, Lynn said that in terms of the drug industry, as we may know from the original law, the Medicaid rebates were expanded to include more rebates from the drug industry. Therefore, if you're a manufacturer of outpatient drugs that are affected by the Medicaid drug rebate law, you should definitely be watching the states as to who is going to be expanding Medicaid, and whether they'll be expanding in a managed care context versus fee-for-service context. Lynn thinks that most of them will be expanding it as managed care.
She asked whether there are differences in the various Medicaid populations across the states, and said that additionally, one of the questions that has come up that does affect it is if a state chooses not to do Medicaid, is there a movement of the population from one state to the other? Lynn said that we've seen that before, when certain states are more generous with their Medicaid coverage than others, and that will affect the drug rebate issue as well.
The other piece is that if a state chooses not to do the Medicaid expansion, there's still a sub-population that would have been eligible for Medicaid that will still be eligible for some of their subsidies and tax credits through the exchanges - in this case, at least for those area, a person who would otherwise have been part of the Medicaid expansion, subject to drug rebates, will now be part of the private health insurance under the state exchange. That has implications, potentially positive for a branded pharmaceutical company in particular. But Lynn said that you never know, because you don't know what rebates have been negotiated with the private payors in those states.
She added that we still don't know whether or how the negotiations are going to happen at the state level when it comes not only to drug rebates, but in the Medicaid allowable, and the allowables for providers under the private health insurance. Lynn invited Mark to add his comments, and he said he would agree with her. The decision keeps in place the trade-offs that accompanied the PPACA for pharmaceutical companies. In other words, it has the financial impact of being priests in the Medicaid drug rebate and certain industries' fees. But it's tough to compute the dollar impact of such things. as the increased access to insured lives to the extent the states expand Medicaid eligibility in line with the PPACA, and to work through the rebate questions that Lynn identified.
Mark said that in the exchange market, new payor and retail constellations will also be there to deal with for pharmaceutical companies. Further out, are the challenges for maintaining the value proposition for branded products in a world where physicians - at the instigation of CMS and CMMIT - are being incented to participate in the reduction of spend on Medicare beneficiaries and we certainly have follow-on efforts by commercial payors in their quality scorecard-type contracting.
A value proposition that works in an era of bundling and accountable care will require new thinking and having such a value proposition will be important if the much-criticized Patient Centers Outcome Research Institute ends up surviving, although that may be one that Bill would say might get a bipartisan look at the chopping block in the next period of legislation. Finally, Mark said, all of these pressures could increase. Congress may look again to pharma during the lame duck session, and when the first session of the new Congress convenes, as it deals with that fiscal cliff that Bill mentioned of expiring tax cuts, SGR, entitlement reform, sequester, etc. There is no time for complacency from a government relations perspective.
A value proposition taht works in an era of bundling and accountable care will require new thinking and having such a value proposition will be important if the much-criticized patient centers outcome research institute ends up surviving, although that may be one that Bll will tell us might get a bipartisan look at the chopping block in the next period of legislation.
Finally, all of these pressures could increase. If congress looks again to pharma during the lame duck session and whne the first session of the new congress convenes, as it deals with that fiscal cliff that Bill has spoken so eloquently of today of expiring tax cuts, SGR and entitlement reform, sequester and everything else that goes with it. There's no time for complacency from a government relations perspective.
Manufacturers - Medical Devices
Lynn asked Bill to speak about medical devices, saying that she knows that there's a tax for medical device companies, but that it's pending on the hill for repeal. Bill said that he thinks that in the current Congress, there is very little likelihood that anything will be done, except in the lame duck session when they are sitting down and trying to figure out an overall fix. His guess is that it really won't get done in 2012 and it will be put off in some way until some time in 2013m but said we'll have to wait and see.
Medical devices is the only thing that Bill's seen where there is truly bipartisan support - liberals (because you look where the device manufacturers are located) are now in favor of repealing the 2.6% tax. So you'll have both Senators in Massachusetts, if Elizabeth Warren or Brown gets elected, if favor of repealing it. Both Senators from Minnesota - Al Franken and Amy Klobuchar - are in favor of repealing it. So there will be an effort to do that. It's $26 billion, which is a small number when dealing with the overall issues, and it will be used as a bargaining chip to try to get a bigger deal, Bill thinks.
He added that he thinks that pharmaceutical companies stand some risk, and that there will be an argument to try to cut costs there in some way. There will be a whole variety of industry risk, along with just overall cuts. Right now though, although the insurance company stocks went down after the Court's decision, Bill still thinks that some insurance companies will do very well, because you're going to have a totally new market and Medicaid Advantage, or other types of care that they'll get into.
Lynn noted that this was a good segue into the next category, the payors. She said that the two big issues for payors are the premiums being reviewed now at the federal level when there is an increase greater than 10%, and the states being able to look at premium increases. Then you have those plans which are very deep in the Medicare Advantage space, and of course, the related one, Medicaid managed care. So there really are three industries here. Lynn asked Bill to talk about the Medicare Advantage piece of the equation and asked him whether he still sees their payments being reduced.
Bill said that he thinks that Medicare Advantage in larger states will be reduced as put forward by the PPACA. It's very hard to undo that because the numbers are so large, and there's no way to really pay for it. Lynn interjected that it's much larger than the medical device tax, and Bill agreed. They're in the hundreds and hundreds of billions - closer to $700-800 billion if you restore all of them. So Bill doesn't think that's practical.
However, he thinks there are ways - what we've seen with Medicare Advantage is that it's still very viable and people are still looking towards it. People have increased their market share in various states, and so he thinks that the people who are really going to lose out on this are actuaries in insurance companies. But as far as the companies themselves. he thinks they're going to find a way to deal with this law as written, and do quite well over a period of time.
Mark agreed that payors can't be treated as a single group. He said that PPACA implementation means very different things for payors depending on the class or classes of business that that they're pursuing. For instance, he said, if a payor's current sweet spot is coordinated care for Medicaid populations, reaffirmation of the expansion of that population is reaffirming their business plan. He added that they're no doubt redoubling their efforts in the states where they do or intend to play to participate in those states' efforts to frame the playing field, to influence and to prepare for state plan amendments, and to build their networks and those fairly unique management capabilities that allow a company to be successful in managing risk for the Medicaid populations.
Mark said that you're also likely to be pointing if you are a payor actor in that space to successes in controlling costs and increasing quality at this point, and educating health staffers and members in advance of the lame duck session as how those cost-containment tools might be deployed even more widely among the Medicaid and dual populations in support of further savings in these programs as Congress in the lame duck session and later wrestles with the difficulties of the fiscal cliff it's facing.
Likewise, if you're a payor that plans to compete in one or more exchange-mediated individual or small group markets, the decision is also affirming. It's a second volley for the starters gun. Those payors are going to be redoubling their efforts to work with local stakeholders and regulators to design and submit plans for state-run exchanges. In places where the state will not be pursuing the lead role in the exchange, the payors are likely to be working with regulators there to encourage them to play a delegate-type role in a federally facilitated exchange environment. They're going to want regulators that understand them to be judging qualification, as to being a qualified health plan on such exchanges and in establishing marketing rules, etc. Mark said that you'll want to be thinking very carefully about how to compete in these new direct-to-consumer markets, and with whom. Whether it be retail or financial partners, you will partner in order to access these consumers.
If you're a payor that's deploying care management tools in support of providers and in shared savings with Medicare, the decision is again obviously an affirming one for the business line. It doesn't change those plans, and those plans and those companies will be turning their governmental relations efforts towards expanding Medicare's use of this cost control tool as Congress again tackles entitlement reform in the lame duck and beyond sessions.
Stuart commented that when you're looking at these sectors, there are at least three natural consequences of any large new program where the government intervenes in the economy:
- Regulation: all of these entities are going to be facing, particularly on the rate side, a substantial scrutiny.
- Anti-fraud enforcement: the ACA itself contains amendments to the False Claims Act. Stuart said that fraud is a dumbed-down concept - it's not fraud as you classically understand it - intentional activity as applied to corporations - it's much more like a tax. But one can see much more of that as well.
- Desire for concentration: that's what you're seeing in the deal market, that's what you're seeing on the stock markets as companies try to get to the optimum size to get optimum efficiency. What that means is plenty of deals - hospital mergers, etc. - the ACO movement is going to take that ahead. Counterveiling that thouth would be in a different part of the government - attention/scrutiny by anti-trust regulators.
So, Stuart concluded, you're going to see all of those things, and they're going to affect all of these sectors. We haven't gotten to providers yet, but we'll start talking about them. For doctors, there seems to be an impetus to increase individual physician reimbursement rates, but where is that money going to come from? How is that going to affect the deals that the hospital and pharma sectors made in order to gain their support for the ACA? There is a lot that's in play.
Tomorrow, we'll look at the final part of this webinar, the implications for providers and service providers, in our last post of this series.