The Affordable Care Act Under Fire
Donald Trump and the ACA
The big news of 2016 is, of course, the outcome of the November election. To say that Donald Trump’s unexpected win caught the health care sector off guard is an understatement. Had Hillary Clinton won, as anticipated, business would have continued as usual. Now, though, with President-elect Trump as an ally, it’s likely that the Republican-led Congress will proceed with a long-awaited opportunity to dismantle the Affordable Care Act (ACA).
What’s in store for consumers, physicians, hospitals, insurers, the pharmaceutical industry and other stakeholders is anybody’s guess at this point, but most policy analysts believe that a complete and immediate repeal of the ACA probably won’t happen.
For one thing, a total repeal would require a 60-vote majority by Congress and Republicans only hold 51 seats, although other tactics can be used to hobble the controversial law. For another, repealing the ACA with nothing to replace it would leave an estimated 20-22 million individuals without health insurance coverage, and it’s not hard to envision the fallout of such a scenario. Example: a recent analysis commissioned by the American Hospital Association and the Federation of American Hospitals estimates that hospitals could lose $165.8 billion in net income between 2018 and 2026.
Devising a replacement will take time, even if Republicans and Democrats can find a way to work toward a solution together. In addition, certain provisions of the ACA are popular with the public, providers, insurers—and even Donald Trump himself—but, because of the complex structure of the legislation, it’s impossible to cherry pick the provisions that are well-liked and eliminate the ones that are less so. Moreover, some of the ACA reforms already undertaken are so deeply entrenched throughout the health care system, they can’t be undone overnight.
So, it’s far more likely that Trump and congressional Republicans will set about modifying, and perhaps renaming, the ACA.
Big insurers exit the Marketplace exchanges
Three of the nation’s top insurers—UnitedHealth Group, Humana and Aetna—announced plans to drastically reduce their presence in the ACA’s Marketplace exchanges in 2017, consequently driving down competition and driving up premiums.
UnitedHealth Group, the nation’s largest insurer, announced in April that it would continue to offer insurance coverage through the exchanges in only a “handful” of states, noting at the time that it anticipated losing $650 million in 2016 on exchange plans. By early June, UnitedHealth said it would only participate in Marketplace exchanges in Nevada, New York and Virginia next year.
In May, Humana echoed UnitedHealth’s intent to severely scale back its participation in the exchanges and confirmed the decision in August, stating that it would offer plans in no more than 156 counties across 11 states in 2017. By comparison, Humana offered plans in 1,351 counties across 19 states this year.
Aetna jumped on the bandwagon, announcing in August that it would reduce its exchange participation from 15 to four and citing losses of $430 million on individual plans since January 2014. Of note, however, Aetna’s CEO, Mark Bertolini, told the U.S. Department of Justice (DOJ) in July that Aetna would reduce its exchange participation if the proposed merger with Humana was not permitted. Conversely, he said if the merger was allowed to proceed, Aetna would consider supporting additional exchange coverage in the future.
We feel that large payers like these were never the right fit for the ACA exchanges, and didn’t really embrace the exchanges from the start. Their business is designed to spread risk across large groups and major commercial customers. Other payers have figured out a way to offer an exchange product profitably. While pundits may claim that the exits by the big players is proof that the ACA is failing, a look behind the curtain reveals reasons for the departures that are far more subtle than lost revenue.
But the fact remains that in order to have competitive markets you need players to compete. In some states there may only be a single option on the exchange, and in those cases, consumers are facing substantially higher premiums. Would a Trump administration dare to push for a public option that would level the playing field?
Big Pharma: Calibrating its business model
Pharma wades further into value-based contracts
Novartis agreed in February to pay-for-performance compensation from Cigna and Aetna for Entresto (sacubitril/valsartan), a drug approved in 2015 for treating heart failure with reduced ejection fraction. The agreement with Cigna tied compensation to how well Entresto improves the relative health of Cigna’s commercial plan members, as measured by the reduction in the proportion of members hospitalized with heart failure. The agreement with Aetna called for Entresto to deliver results similar to those achieved in clinical trials.
Cigna then secured value-based contracts in May for Sanofi and Regeneron’s Praluent (alirocumab) and Amgen’s Repatha (evolocumab). Both drugs are PCSK9 inhibitors used for cholesterol therapy and are the only ones approved thus far in that class. Like the contract with Novartis for Entresto, Cigna tied compensation for the cholesterol drugs to how well they perform for Cigna’s members in comparison with clinical trial results.
Biosimilars creating new opportunities (and threats)
The Food and Drug Administration approved the first biosimilar for a monoclonal antibody in April. Celltrion’s Inflectra (infliximab-dyyb) was approved to treat rheumatoid arthritis (RA), ankylosing spondylitis (AS), psoriatric arthritis (PsA), plaque psoriasis and inflammatory bowel disease. Pfizer has the U.S. commercialization rights Inflectra, which is a biosimilar to Janssen Biotech’s Remicade (infliximab), but the two are not considered interchangeable.
Pfizer said in October that it planned to begin U.S. shipments of Inflectra by late November at a 15 percent discount to J&J’s wholesale price for Remicade. J&J is appealing an August ruling by a district court judge that struck down a Remicade patent.
Novartis’ Sandoz unit received FDA approval in August for Erelzi (etanercept-szzs), a biosimilar to Amgen’s Enbrel (etanercept) for the treatment of RA, polyarticular juvenile idiopathic arthritis, PsA, AS and plaque psoriasis, and Amgen’s Amjevita (adalimumab-atto), a biosimilar to AbbVie’s Humira (adalimumab) was approved in September for RA, PsA, AS, plaque psoriasis, polyarticular juvenile idiopathic arthritis and inflammatory bowel disease.
A 180-day waiting period imposed upon manufacturers of biosimilars means that neither drug is likely to launch before March, and Amgen said during an earnings call in October that an Amjevita launch is probably not going to happen until sometime in 2018. Meanwhile, Amgen is fighting to protect its Enbrel sales through patent litigation, and AbbVie is likewise battling with Amgen over possible patent infringement of Humira.
Payers and PBMs forge partnerships, fight it out in the courts
Walgreens and CVS form retail alliances with PBMs
Walgreens formed a partnership in March with UnitedHealth Group’s OptumRx, a freestanding pharmacy care services business, to offer a new pharmacy program that will permit OptumRx members to fill their 90-day maintenance prescriptions at the same copay level whether they use OptumRx’s home delivery service or go to a Walgreens drugstore.
The collaboration will also enhance both companies’ ability to share health data and analytics, and members will have access to a pharmacist around the clock. The companies anticipate making the program available to commercial clients in early January.
Walgreens also announced a long-term strategic alliance with St. Paul, Minn.-based Prime Therapeutics in September. Prime is the fourth-largest pharmacy benefits manager (PBM) in the U.S. and is owned by 14 Blue Cross/Blue Shield health plans. The agreement combines the companies’ specialty pharmacy and mail order pharmacy business, and creates a new retail pharmacy network. The new entity is part of Walgreens Boots Alliance (WBA), Walgreens’ parent company.
Not to be outdone, CVS Pharmacy announced earlier this month that it, too, had formed a pharmacy partnership with OptumRx. Like the arrangement with Walgreens, the agreement OptumRx has with CVS allows eligible OptumRx members to fill their 90-day maintenance prescriptions at the same copay level whether they use OptumRx’s home delivery service or go to a CVS retail drugstore.
The program, which will launch in July, also allows CVS and OptumRx to share their pharmacy platforms.
The Anthem-Express Scripts battle wages on
Anthem filed a $15 billion lawsuit against Express Scripts in March, claiming that it is overpaying the PBM for prescription drugs. Anthem also wants the right to terminate its contract with Express Scripts, should it decide it wants to take that step.
Anthem sold its in-house pharmacy benefits business to Express Scripts in 2009 and agreed to use Express Scripts for 10 years. The contract between the two companies calls for periodic pricing reviews, but the last review took place in 2012. Anthem alleged in the lawsuit that Express Scripts deliberately delayed the repricing and refused to negotiate. Express Scripts promptly filed a counterclaim against Anthem.
The troubles between the two were compounded in June when a class-action suit was filed against them in the U.S. District Court for the Southern District of New York. According to Kaiser Health News, the lawsuit alleges that insured workers overpaid for prescription drugs because Express Scripts charged “above competitive pricing levels,” and Anthem permitted those higher prices as part of its 10-year contract with the PBM. The class action reportedly could involve tens of thousands of Americans.
Fate of mega-mergers among insurance giants unknown
In July, the DOJ sued to block Anthem’s $48 billion acquisition of Cigna and Aetna’s $37 billion acquisition of Humana, with Principal Deputy Associate Attorney General Bill Baer stating that the deals pose “unacceptable risk to competition.” Baer had told a Senate subcommittee in March that the proposed payer mega-mergers have the potential to reshape the insurance industry, given the fact that the number of large payers would shrink from five to three. Multiple states joined the DOJ’s challenge of the mergers, as did the District of Columbia. At the time this ActionBrief was written, a U.S. District judge was set to rule on whether the Anthem-Cigna merger should be blocked. A decision on the Aetna-Humana merger is expected in January.
Baer, a rising star in the DOJ, has been a key figure in the fate of these deals—but, truth be told, it’s not really a difficult political position to hold. Everyone is against the mergers except for the insurance giants themselves, and even Cigna appears less than enthusiastic about the prospect of uniting with Anthem. Anthem, on the other hand, is facing a $1.85 billion termination fee if the merger with Cigna doesn’t close by Jan. 31, 2017.
Community Health Systems goes off the rails
Franklin, Tenn.-based Community Health Systems (CHS), one of the largest publicly traded hospital operators in the U.S., hasn’t stopped paying for its 2014 acquisition of Health Management Associates. The $7.6 billion deal has cost CHS far more than it anticipated at the outset.
The company spun off 38 hospitals in April, along with Quorum Health Resources, a hospital management business CHS acquired in 2007, into a separate, publicly traded company called Quorum Health Corp. That transaction and the sale of a stake in a joint venture in four Las Vegas hospitals raised nearly $1.25 billion, but the health system still reported a second-quarter loss of $1.43 billion from continuing operations after taking a noncash write-down on the value of its hospitals.
The company revealed in September that it was considering options to alleviate its financial woes, including selling off more—and possibly all—of its assets. At the time of that announcement, CHS said it had letters of intent to sell a dozen of its hospitals.
In October, a hedge fund associated with Q Investments LP asked the board of Quorum Health Corp. to conduct an independent investigation, alleging that CHS used inflated financial projections to woo investors in the Quorum spinoff. Also in October, CHS agreed to sell 80 percent of its home health and hospice division to Almost Family for $128 million. At the end of October, CHS provided an earnings preview of its third-quarter financials that included an estimated loss from continuing operations of $83 million before income taxes. In response to the news, CHS’ stock closed down nearly 50 percent from the previous day’s close.
Earlier this month, CHS was ordered to pay $1.9 million to a former employee in a wrongful termination lawsuit. Last week the company signed a definitive agreement to sell two hospitals in Washington for approximately $45 million. Who knows where it all will end.