Editor’s Note:

Effective January 1, 2016, Darwin Research Group will become Darwin Health—a reflection of the growing diversity of services we offer. We’re entering the new year with a fresh look and a simpler name. Over the holiday season we will be updating our website with an expanded suite of products and improved user experience.

We will continue with our Action Brief series after the holidays on Monday, January 4.

The Affordable Care Act Turns Five 

“A fair reading of legislation demands a fair understanding of the legislative plan.  Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.” 

- Chief Justice John Roberts on the King v. Burwell decision

Challenging the ACA: Supreme Court, Round Two
In the fifth year of implementation of the ACA, the health care law was tested once more by the Supreme Court in a case that appeared to some observers as a last-ditch effort to kill Obamacare on constitutional grounds. But in late June, Roberts sided with the majority in a 6-3 decision to uphold the law, which some pundits said signaled to future attempts at repealing the law: stop wasting our time.

Accountable Care Organizations
Medicare ACO performance was mixed in 2015. Several more Pioneer ACOs left the program, with today half of the original 32 remaining in the program. The shock of the year was Dartmouth-Hitchcock’s exit from the program. But according to one analysis, Dartmouth-Hitchcock lost more than $28 million in the first two years of the program compared to near market non-ACO Medicare beneficiaries; it simply couldn’t meet the aggressive benchmarks set for health system that was already performing at a high level.

Yet CMS called the Pioneer program a success. In May, it announced the expansion of the Pioneer ACO model into other Medicare programs, following certification by CMS’ Office of the Actuary that the program saved Medicare $384 million in its first two years. CMS previously announced a new ACO model known as the Next Generation ACO, designed for existing or new ACOs who are able to take on significantly higher risk than previously available. Dartmouth announced its intent to participate in the Next Generation ACO at the time it submitted its withdrawal from the Pioneer program.

In July, CMS announced a value-based reimbursement pilot program for Medicare home health care agencies. The model is part of the 2016 Home Health Prospective Payment System proposed rule and is set to begin after the first of the year. Nine states were randomly selected to be part of the pilot: Arizona, Florida, Iowa, Maryland, Massachusetts, Nebraska, North Carolina, Tennessee and Washington.

Gaining Access for Medicaid Patients
The Henry J. Kaiser Family Foundation published results in April from a multi-state hospital system, Ascension Health, revealing a marked decline in visits by uninsured patients in states that expanded Medicaid under the ACA. Researchers found that states that expanded Medicaid saw a 32 percent decline in hospital visits, compared with a four percent decline in hospital visits in visits in non-expansion states. Charity care costs plummeted 40 percent in Medicaid states, versus six percent in non-expansion states.

The Kaiser-Ascension data are the strongest evidence that we’ve seen of the positive effect of providing insurance access to the uninsured population stemming from the Affordable Care Act. Fewer visits and a declining spend on charity care means better margins for Ascension and lower taxpayer expenses, even with the marginal increase in state Medicaid costs.

How Employers Have Responded to the ACA

In late September, the Kaiser Foundation also reported that average annual health insurance premiums rose at a rate of about four percent in 2015. We saw that while there has been a steady decline in insurance coverage from smaller companies over the years, in 2015, 57 percent of companies offered health insurance, a rate not statistically different from 2014. 

Kaiser also offered evidence that employers weren’t gaining the system, and in fact in some cases acted with benevolence: in larger firms, four percent changed job classifications from full-time to part-time to avoid paying health benefits, while ten percent changed classifications from part-time to full time to increase eligibility in their firm. Only four percent reduced the number of full-time employees because of the cost of health benefits.

The Kaiser data suggests an undesirable effect of the ACA from the consumer perspective—cost-shifting is a very real phenomena that consumers are experiencing. The adjusted average annual deductible for all covered workers is $1,077, up from $646 in 2010 and $303 in 2006. 

While the general effect of the ACA on employers has been minimal, it doesn’t mean that change isn’t taking place. In companies with at least 200 employees, 50% offer biometric screening for risk factors such as body weight, cholesterol, stress and nutrition. Similarly, about a third of companies are offering wellness programs, disease management programs and health risk assessments and have an incentive or penalty to participate. As major insurers continue to emphasize ACO products like Aetna Whole Health to large employers, companies are increasingly asking their employees to be accountable too.

Our Take on the ACA Five Years In
Seeing so much misinformation published in the lay press—as well as comments from ambitious politicians—we attempted to set the record straight on some common misperceptions with actual data. We have a sophisticated readership, yet we assume that our readers don't have the time to hunt down data from the Bureau of Labor Statistics and other objective, comparable statistics to assess the impact of the ACA.

Considering the data available to date, we found no evidence that the ACA has caused insurance premiums to rise faster than the historical trend; no evidence that it has affected employment, job creation, or full-time job cannibalization for part-time labor; and no evidence that it has stifled the economy in any way. We did find evidence of cost-shifting in private insurance and a potential for cost-shifting in government-funded insurance programs like Medicare.

We did not find evidence of a systemic decline in the quality of care or patient satisfaction, either in public or private insurance markets.

This is, of course, an aggregate view of the data. Individuals may have experienced significant insurance rate hikes or lesser quality care, but at a systemic level this hasn't been the case.

Pharma’s Lamentable Year
Pharma had a resurgence in drug discovery this year. Amgen’s Repatha (evolocumab) and Sanofi’s Praluent (alirocumab) for high cholesterol were widely covered in the popular media, but this year there were 18 new drug approvals in oncology, compared to ten approvals in 2014 and twelve approvals in 2013.

But the industry won’t be remembered for its achievements in 2015. Turing Pharmaceuticals made news in September when its CEO, previous hedge fund manager Martin Shkreli, raised the price of a 62-year old drug used to treat toxoplasmosis in immunocompromised patients an astonishing 5,000 percent. The move drew attention from lawmakers, consumer advocates and presidential candidates. Shkreli was called the “Most Hated Man in America” by so many news outlets that we had a hard time finding its origin (it was the BBC). 

On Friday, Shkreli resigned as CEO of Turing Pharmaceuticals after being arrested earlier in the week on charges of securities fraud related to a previous company he led.

The combination of Shkreli’s high-profile arrogance and new high-priced specialty pharmaceuticals exacerbated an image problem for the industry. This problem—the disconnect between the value of treatment and perceived price-gouging—isn’t new. What’s different today is the environment in which pharma is operating, where buyers are expecting maximum value from the healthcare products and services they pay for.

  • Express Scripts reported earlier this year that nearly 140,000 people had more than $100,000 in prescription drug costs in 2014—nearly three times as many as in the year before. Hepatitis C and cancer medications, as well as compounded therapies, comprise nearly two-thirds of the cost within this patient population.

  • As reported, the AMA recently called for a ban on drug advertising, suggesting that the marketing practice increases drug prices and offers little public benefit. The association has also said it would “encourage actions by federal regulators to limit anticompetitive behavior” and that it would closely watch mergers and acquisitions to assess the impact of such actions on drug prices.

  • In August, the Kaiser Health Tracking Poll showed most Americans favor legislation that curbs the cost of prescription drugs, 72% say the cost of prescription drugs is unreasonable, and 73% say drug companies make too much profit and are more concerned with profits than patients (74%).

  • Presidential candidates from both parties have come out against pharmaceutical pricing practices and if the bad press continues, pharmaceutical pricing and regulation could become a bipartisan presidential campaign issue.

We’ve been covering drug pricing issue not because the story is new, but because the media continues to cover it. Unless the public is made aware of the costs and benefits associated with each portion of their care, Pharma should be concerned about a backlash beyond PBMs and other payers, including consumers who are paying higher out-of-pocket costs for every aspect of their healthcare.

Market Consolidation: Bigger is Better
Blue Shield of California kicked off the year by completing its acquisition of Care1st Health Plan for $1.2 billion. We saw six more significant acquisitions, but the Anthem and Aetna deals set the media afire—as well as consumer organizations, lobbyists, trade associations and other interest groups.

    •    Anthem acquiring Cigna — $54.2 billion

    •    Aetna acquiring Humana — $37 billion

    •    UnitedHealth Group. Inc. acquiring Catamaran — $12.8 billion

    •    Centene acquiring HealthNet — $6.8 billion

    •    Kaiser Permanente acquiring Group Health — $1.8 billion

    •    Right Aid acquiring Envision RX — $1.8 billion

As of today, federal regulators have yet to approve the Anthem or Aetna deals.

Pharma posted a few large transactions this year. In November, Pfizer Inc. and Allergan PLC announced their intent to merge in a deal valued at $155-$160 million. The takeover would result in the largest inversion recorded to date as Pfizer would move its headquarters to Ireland.

Other noteworthy pharma/device deals in 2015:

    •    Abbvie acquiring Pharmacyclics — $21 billion

    •    Valeant acquiring Salix Pharmaceuticals — $10.1 billion

    •    Shire Plc acquiring NPS Pharmaceuticals — $5.2 billion

    •    Mallinckrodt acquiring Ikaria — $2.3 billion

    •    Cardinal Health acquiring Cordis — $1.9 billion

In December, Clearwater, Fla.-based Lincare Holdings said it was acquiring American HomePatient, creating the largest home respiratory company in the United States.

What’s Ahead?
We see industry consolidation continuing in 2016 particularly on the delivery side—hospitals, health systems, home health care and long term care. Our independent research with home health and health system executives supports this prediction.

In 2016, we’ll see the Next Generation ACO in action. We will have another year of data on ACO performance and expect some ACOs to surge, while other MSSPs will struggle. Look for as much as 20 percent of MSSP ACOs to drop out of the Medicare program, either because of consecutive years of poor performance or moving to the Next Generation model. 

With the increased participation of home health and other Medicare providers, 2016 will be a challenging year for suppliers learning to work with ACOs in a risk-based environment. But the lessons learned will be invaluable for creating the right partnerships in 2017. Now is the time for home health and other providers outside the hospital to prove their ability to improve care and lower costs.

We’ve talked to enough ACO and health systems executives recently to know that behavioral health is a priority for many providers in 2016. Patients with serious mental illness and substance abuse issues have high comorbidities and cost up to 50 percent more than patients without a behavioral health issue. As many ACOs and health systems have learned to control other high-cost populations, behavioral health is the logical next population to focus on.

Increased scrutiny on drug manufacturers is probably unavoidable, if past behavior is any predictor of the future. As more high-priced specialty drugs inflate CMS budgets, a Medicare Part D formulary has a greater chance of being taken up in 2016 than since the Medicare Modernization Act was passed in 2003. At a minimum, expect drug prices to be an issue in the general presidential election campaign.

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