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Centene to Buy WellCare for $17B to Create Big Medicaid, ACA Player
Centene Corp. on Wednesday said it will buy fellow Medicaid insurer WellCare Health Plans in an estimated $17.3 billion deal. The two insurers would cover nearly 22 million people in Medicare, Medicaid and the ACA exchanges. Centene CEO Michael Neidorff will serve as chairman and CEO of the merged company. Combined, the merged company would boast $80.5 billion in revenue and $1.3 billion in net income. It would include more than 12 million Medicaid beneficiaries and almost 1 million Medicare members, along with a Medicare prescription drug plan WellCare is acquiring from Aetna. The company’s joint venture with the North Carolina Medical Society, Carolina Complete Health, scored a contract to serve Medicaid beneficiaries in two regions in North Carolina starting in 2020. Centene had been gunning for a statewide contract. Centene saw its ACA exchange membership swell to almost 2 million during the latest open enrollment, giving it about a 20% market share across the country. WellCare’s recent growth focused on Medicaid, where it has million members, is thanks in large part to its $2.5 billion acquisition of Meridian Health Plan that closed in September.
Takeaway: WellCare has been in discussions with both Molina and Centene, and it’s a good move for Centene. It diversifies Centene’s business and allows Centene to build their Medicare Advantage business to compete with the big players: UnitedHealth, Humana and the Blues. Additionally, Centene has a large Medicaid business so they can start to build their dual eligible population (Medicare and Medicaid) to offer dual eligible special needs plans (D-SNPs). A Leerlink Partner analyst said the deal has about a 60% likelihood of being approved by antitrust regulators, and Centene believes they can close the deal in 2020. Due to the overlapping business in Florida and George, if the deal is approved, expect divestitures in both states to ensure there is enough competition.
Justice Department Sides with Court Ruling ObamaCare is Invalid
In December, U.S. District Judge Reed O’Connor ruled that the Affordable Care Act’s individual mandate is unconstitutional and that the rest of law is therefore invalid. On Monday, the Department of Justice (DOJ) announced that it is siding with a district court ruling that found the Affordable Care Act unconstitutional. The move is an escalation of the Trump administration’s legal battle against the health care law. The DOJ previously argued in court that the law’s pre-existing condition protections should be struck down. Now, the administration argues the entire law should be invalidated. The DOJ said Monday that it agrees the decision should stand as the case works its way through the appeals process in the U.S. Court of Appeals for the 5th Circuit. “The Department of Justice has determined that the district court’s judgment should be affirmed,” the department said in a short letter to the appeals court. Many legal experts in both parties think the lawsuit, which was brought by 20 GOP-led states, will not ultimately succeed. The district judge who ruled against the law in December is known as a staunch conservative. The case centers on the argument that since Congress repealed the tax penalty in the law’s mandate for everyone to have insurance in 2017, the mandate can no longer be ruled constitutional under Congress’s power to tax. The challengers then argue that all of ObamaCare should be invalidated because the mandate is unconstitutional. Most legal experts say legal precedent shows that even if the mandate is ruled unconstitutional, the rest of ObamaCare should remain unharmed, as that is what Congress voted to do in the 2017 tax law that repealed the mandate’s penalty.
Takeaway: On Tuesday, House Democrats responded by rolling out a proposal to build up ObamaCare. Democrats agree that ObamaCare isn’t perfect, but they are trying to fix, or reverse, the changes the Trump Administration made to weaken it. Healthcare is going to continue to be a campaign platform for the 2020 Presidential Election, and we will continue to see partisan counterattacks for and/or against ObamaCare.
Judge Strikes Down Association Health Plan Rule as ACA Runaround
A federal judge on Thursday rejected the Trump administration’s attempts to expand access to association health plan (AHP) rules. U.S. District Judge John Bates in Washington said the administration’s final rule allowing associations and employers to band together to create AHPs goes beyond its authority under the Employee Retirement Income Security Act (ERISA). Under the Department of Labor’s final rule, employers can form associations solely for the purpose of creating these health plans, which don’t have to follow many Affordable Care Act market rules. Insurance experts warned they would siphon younger and healthier groups and individuals out of the ACA-regulated market, driving up rates. “The final rule was intended and designed to end run the requirements of the ACA, but it does so only by ignoring the language and purpose of both ERISA and the ACA,” the judge wrote. The judge said this change ran counter to “Congress’s clear intent that ERISA cover benefits arising out of employment relationships.” The Trump administration will likely appeal the judge’s decision. Health policy experts don’t think the ruling will stop those groups from moving forward with the plans they have established, which are set to start on Jan. 1, 2020.
Takeaway: The Trump Administration created AHPs and Short Term Limited Duration (STLD) plans as cheaper, alternative health insurance options to circumvent ObamaCare’s Market Place Exchange and the ACA’s 10 essential benefits. To date, approximately 30 AHPs have been formed with plans to offer plans in 2020. Before AHPs, consumers had, and continue to have, alternative options through health-share plans, which are cooperatives where members cover predetermined portions of each other’s medical costs. Expect the Trump Administration to appeal the Judge’s decision while Democrats support it. Meanwhile as previously noted, the Energy & Commerce Committee are launching their investigation into STLDs and hope to overturn the expansion of STLDs as well because of the reports of skimpier coverage and headlines created from denying care.
Federal Judge Blocks Medicaid Work Requirements in Kentucky and Arkansas
The Washington Post reportedthat a federal judge in Washington threw a significant roadblock into the Trump administration’s efforts to compel poor people on Medicaid to work in exchange for health benefits, rejecting a Kentucky program for a second time while saying that rules in effect in Arkansas “cannot stand.” The opinions undo the permissions that the U.S. Health and Human Services Department gave those two states, telling the agency it must reconsider the applications with an eye on the effect on poor people who depend on the coverage. Judge James E. Boasberg concluded that in letting Kentucky go forward with its requirements, HHS had been “arbitrary and capricious” — the same criticism he leveled once before. He wrote that he “cannot concur” that Medicaid law leaves the HHS secretary “so unconstrained, nor that the states are so armed to refashion the program Congress designed in any way they choose.” It strips away the federal basis on which that state added work requirements last June that apply to more than 115,000 poor and working-class Arkansans under a part of Medicaid, known as Arkansas Works, that was expanded under the Affordable Care Act. So far, about 18,000 people have lost coverage for failing to meet the rules or failing to report to the state that they complied. Arkansas Gov. Asa Hutchison (R), said Wednesday in a statement he was “disappointed in the decision.” Seema Verma, administrator of HHS’s Centers for Medicare and Medicaid Services, struck a resolute tone: “We will continue to defend our efforts to give states greater flexibility to help low-income Americans rise out of poverty. . . . States are the laboratories of democracy and we will vigorously support their innovative, state-driven efforts to develop and test reforms that will advance the objectives of the Medicaid program.”
Takeaway: While the judge’s rulings touch the two states most directly, they have potential ripple effects for six others that already received permission from the Trump administration to begin work requirements — and for seven more states waiting in line. April 1 is a significant date in both states: Under the Arkansas Works rules, the clock starts over each January, allowing people removed from the program to reapply, and a new three-month countdown begins. However, few people have tried to reapply. So the next group of people to be cut off will be announced within a few weeks. This time, in a first, the denials were to include young adults, 19 to 29, for whom the rules have been phased in more slowly.
Scale: Blessing or Burden for Statewide ACOs?
Caravan Health announced last week the launch of its second statewide program in Florida. In the model, any of the 200-some Florida Hospital Association facilities that want to participate can join together to provide coordinated care. The bid is meant to bolster care quality for Medicare beneficiaries while lowering costs and risk for participating facilities. But some experts say the larger scale, like rampant consolidation, could be more like an anchor weighing down an ACO instead of a beam propping it up. “At the end of the day, success or failure is based on success in managing the quality of care,” said Michael Abrams, partner at Numerof & Associates. “While there may be some bigger numbers involved, I think the safety angle that they’re selling may not be all it’s cracked up to be.” Caravan has no plans to back down on the model, however, and plans to roll out two more statewide ACOs in the next couple of weeks. The Florida ACO, created in partnership with the FHA, is the second. The first, in Mississippi, was launched in January. Under the program, hospitals have access to Caravan’s population health management model to build primary care capacity and monitor quality results. Mississippi currently has 29 providers participating in the program, managing care for roughly 130,000 Medicare patients in 22 locations. Its operations include hiring and training population health nurses throughout the state, annual wellness visits, chronic care management and more. “The only way we can create certainty around our income is to have processes and accountability and the infrastructure, but you’ve also got to have to scale,” said Caravan CEO Lynn Barr. Since Caravan’s 2014 inception, the company has found having 100,000 Medicare lives or more in an ACO yields larger savings than the roughly 80-85% of ACOs with only 20,000 lives or fewer. As the owner of the ACOs, Caravan assumes 75% of the financial risk for providers. Barr said that evens out to a maximum risk of $100 per patient. By comparison, in the basic track of the Medicare Shared Savings Program, the maximum risk for providers is $400 per patient. In the enhanced model it’s $1,500. “With our model, if people follow it and have 100,000 lives, there’s no reason they would ever write a check,” Barr said. Barr maintains Caravan standardizes the most important factors. “Nurses are critical to this model,” Barr said. Caravan has found that after nurses are trained in population health management over three to six months, each dollar the company spends on that provider produces two dollars in savings. And, after Caravan puts the population health management infrastructure in place, the providers themselves helm the ship with a steering committee, leveraging data to see what differentiates them from the next community and making slight adjustments to course-correct.
Takeaway: The key debate is what is the right population size to reduce the risk of losses but keep participant engagement and accountability. If a population is too small, large catastrophic events create spikes and large swings that diminish the ability to analyze and trend data and to manage the risk. ACOs that are less than 10,000 members in size will have a lot of variation. But what is the right number? Caravan was originally planning to combine all of their ACOs into two national ACOs – one that was a Track 1 and one a Track 1+ to provide the advanced APM 5% fee for service bonus opportunity for providers ready to take risk. Caravan believes the right number is greater than 100,000. In contrast, Farzad Mostashari, MD and Aledade believe the right size is around 20,000. If one of Aledade’s ACOs becomes too large, they prefer to break them into two smaller ACOs. (It’s also worth noting that Caravan places heavy emphasis on HCC coding and documentation for accurate risk adjustment.)
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