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The $9 Billion Upcharge: How Insurers Kept Extra Cash From Medicare
A Wall Street Journal investigation has found that insurers kept $9.1 billion more in taxpayer funds than they would have had their estimates been accurate from 2006 to 2015, according to Medicare data obtained by the Journal. The cornerstone of Part D is a system in which private insurers such as CVS Health Corp., UnitedHealth Group Inc. and Humana Inc. submit “bids” estimating how much it will cost them to provide the benefit. Medicare uses the estimates to make monthly payments to the plans. Insurance companies use heaps of data to predict future spending. If truly unpredictable events were blowing up their statistical models, the proportion of overestimates to underestimates would be closer to 50/50, says Peter Bach, director of Sloan Kettering’s Center for Health Policy and Outcomes, which conducted the statistical analysis. “Even expert dart throwers don’t hit the bull’s-eye every time. But their misses are spread around in every direction,” says Dr. Bach. “If they start missing in one particular direction over and over they are doing it on purpose.” The Medicare Payment Advisory Commission, an independent congressional agency, wrote in 2015 that insurers’ inaccurate estimates “show consistent patterns rather than the randomness one might expect from projection errors in the actuarial assumptions behind bids.”
Takeaway: Private insurers are allowed to keep up to the first 5% of a bid’s overestimated cost before repaying Medicare. With the current Administration focused on drug prices, transparency and payment reform, the timing of the WSJ’s report may spur further investigation into if it is the drug makers opaqueness that is causing the plan to mismodel costs or if the new data shows the plans models and pricing are creating a consistent pattern. Expect that further findings will contribute to shaping future policy aimed at curbing any type of consistent overpayments.
Bristol-Meyers Announces $74B Merger With Celgene In Deal Primed To Have Sweeping Implications For Drug Industry
KHN reportedthat Bristol would gain the cancer treatment Revlimid in the cash-and-stock deal announced Thursday, as well as inflammatory disease treatments and several products close to launching. The combined company will have nine products with more than $1 billion in annual sales. Bristol’s product portfolio already includes Orencia, an injected drug for rheumatoid arthritis, and the cancer treatment Opdivo. Bristol Chairman and CEO Giovanni Caforio said in a prepared statement that the combination will create a deep product portfolio that drives growth.
Takeaway: This is the first big pharma deal announced in 2019 on the heels of the Glaxo and Pfizer’s announcement last month combining their consumer-health businesses. These types of mergers and acquisitions enable drug makers who are facing new competitive threats that include pressure over pricing, or are their drug pipelines are drying up, to build a portfolio of profitable pharmaceutical products and revenue growth plan.
Glaxo, Pfizer to Combine Consumer-Health Businesses
Pfizer Inc and GlaxoSmithKline PLC announced Wednesday that they plan to combine their consumer health-care units and eventually spin off the joint venture, creating the world’s largest seller of drugstore staples like Advil and Sensodyne toothpaste. The deal will free up both companies to concentrate on prescription medicines, which tend to be more profitable as well as higher risk. The joint venture represents an unexpected conclusion to a yearlong process by Pfizer to shed its consumer business. Glaxo will hold a 68% stake and Pfizer the remaining 32% in the new joint venture. Glaxo said it expects the deal to close in the second half of 2019, with a spinoff of the joint venture happening within three years through a listing on the U.K. stock market. The spinoff could command a market valuation of about $42 billion, according to Mick Cooper, an analyst at Trinity Delta, a research house.
Takeaway: The move allows both pharmaceutical giants to increase their focus and investments in pharmaceuticals to increase their revenue. GlaxoSmithKline wants to rebuild and increase its focus and presence in oncology and immunology drugs by buying or licensing early-stage drugs. The AMA reportedlast year that oncology drugs have a high profit and are actually less expensive to manufacture than originally believed. The AMA looked at the R&D costs and revenue of ten new oncology drugs on the market. According to the data, the average cost of developing a cancer drug is about $720 million. The average annual revenue is about $2.7 billion.
Cigna-Express Scripts merger closed on Thursday
Health insurer Cigna and pharmacy benefit manager Express Scripts cleared federal and state regulatory hurdles less than a year after they first announced their plan to merge in March. “All required regulatory approvals now have been received and the parties closed the transaction on December 20, 2018, subject to the satisfaction of all other closing conditions,” Cigna noted in a filing Wednesday with the Securities and Exchange Commission.
Takeaway: Cigna-Express Scripts merger was completed in less than one year. It’s the second large vertical integration merger this year following CVS-Aetna. Cigna-Express Scripts aim is to help contain cost growth and improve health outcomes.
Regulatory and Legislative Issues
As Hospitals Post Sticker Prices Online, Most Patients Will Remain Befuddled
As of Jan. 1, in the name of transparency, all hospitals are required post their list prices online. But KHN reports what is popping up on medical center websites is a dog’s breakfast of medical codes, abbreviations and dollar signs — in little discernible order — that may initially serve to confuse more than illuminate. While more information is always welcome, the new data will fall short of providing most consumers with usable insight. That’s because the price lists displayed this week, called chargemasters, are massive compendiums of the prices set by each hospital for every service or drug a patient might encounter. To figure out what, for example, a trip to the emergency room might cost, a patient would have to locate and piece together the price for each component of their visit — the particular blood tests, the particular medicines dispensed, the facility fee and the physician’s charge, and more. CMS informed hospitals that, effective January 2019, each hospital must post “standard charges” for all hospital inpatient and outpatient services online. CMS hopes charge posting requirement will spur broader price transparency efforts. The new requirement has provoked criticism from providers who feel that charges—which generally exceed expected patient contribution, sometimes by several order of magnitude—will mislead patients who are seeking price information. This is as a result that the chargemaster prices do not reflect the contracted rates that consumers will pay under their health plan.
Takeaway: price transparency emerged as a top trend in 2018 and will continue in 2019. CMS’s aim is to create transparency to enable consumers to price shop for procedures and for physicians and payers to help steer patients and members to the lowest cost providers. CMS should look at Maryland as a model. Maryland launched wearthecost.org at the end of 2017 that promotes both cost and quality data and encourages providers and insurers to reveal their costs in a meaningful way. The website also quickly informs consumers about wide variation in price and quality of care in hospitals across Maryland spurring the highest cost hospitals to respond to lower their price.
Democratic-Led States Appeal Ruling Invalidating Affordable Care
Sixteen states on Thursday appealed a Texas judge’s ruling that invalidated the Affordable Care Act, opening the next phase of legal proceedings over the fate of the Obama-era health-care law. The ACA, which overhauled the nation’s health insurance system in 2010, will remain in effect during the appeals process, which could last a year—or potentially longer if the case lands at the Supreme Court. Democrats, who took control of the U.S. House on Thursday after their victory in the midterms, plan to adopt a measure next week allowing the House to intervene in the lawsuit to protect the health-care law.
Takeaway: Based on the timing of the appeal, it is widely expected that the health-care law will become a major political issue surrounding the 2020 presidential campaign. There is a resurgence in in ‘Medicare for All’ a single payer health system model that Bernie Sanders lobbied for over a decade ago and ran his former presidential platform on. ‘This new momentum for single payer—an issue that sharply divides the party—comes as Democrats are focused on defending Obamacare and as insurers hold out hope for more funding to shore up the law and draw more people into the individual market.’
CMS released the 2020 Medicare Advantage Advance Notice Risk Adjustment
CMS released Part I of the 2020 Advance Notice of Methodological Changes for Medicare Advantage Capitation. CMS is proposing to phase-in changes to the way it calculates risk adjustment payment to Medicare Advantage plans. Starting in 2020, CMS will calculate payments using a blend of 50 percent of the risk adjustment model first used for payment in 2017 and 50 percent of the new risk adjustment model proposed, but not finalized, in the 2019 rate announcement. The new model adds variables that count the number of conditions a beneficiary may have. It includes additional condition categories for mental health, substance use disorder, and chronic kidney disease.
Takeaway: CMS is moving forward with their stated goal to capture a higher percentage of ‘encounter data risk scores’ (EDS) from claims to capture diagnostic information versus through the Risk Adjustment Processing System (RAPS). CMS introduced the EDS weighting at 10% in 2016. In 2020, for the first time, EDS and RAPS will each have an equal weighting of 50%, and the new, and more highly calibrated, risk model is proposed to only be calculated EDS. The industry has been warning providers and Medicare Advantage Organizations (MAOs) to prepare for the transition to ensure patients are completely and accurately diagnosed at each patient encounter.
Disclaimer: This blog includes content gathered from other published sources, not authored by Navvis, and is presented as information only. As with any news story, this information may have changed since its publication date. Commentary included with the information is the opinion of its authors, and is not indented to provide legal or regulatory advice or guidance to the reader. Navvis does not represent the accuracy of or assume liability for the content presented herein.