Welcome to The Donut Hole’s weekly summary. The news doesn’t stop. Lucky for you, we are here to help you take in the week that was in the business of healthcare.
Patient Out-of-Pocket Healthcare Costs Balloon by 10% Since 2020
A new report estimated total patient out-of-pocket costs at $491B in 2021, a 10% year-over-year increase. The report attributed the increase to a range of regulatory and payor requirement shifts and the continued rise in prevalence of chronic conditions like diabetes, obesity, and hypertension. The report also identified increasing healthcare costs and out-of-pocket spending as a major healthcare policy issue, echoing a recent West Health and Gallup poll that found that 18% of patients wouldn’t be able to pay for necessary healthcare services. Not surprisingly, the poll identified that healthcare affordability is more problematic for low-income patients. Specifically:
35% of households with incomes lower than $24,000 said they would not be able to access healthcare right now because of affordability issues
For middle-income earners making between $40,000 and $98,000 annually, that number went down to 19%
7% of those making over $180,000 said they could not afford care
Commentary: As we’ve mentioned before, the patient cost problem is a combination of high prices and poor insurance plan design. We need to create a system that better rewards people for proactively managing their health and offer more affordable ways to access needed healthcare services. Higher copays and coinsurance only serve to disincentive medication adherence and appropriate utilization. One example of innovation in this space is Sempre Health, which works with health plans to reward adherent patients with lower pharmacy copays. We need more models like this to meaningfully help patients afford the care they need.
Turquoise Health: Help CMS decide how to penalize non-transparent hospitals
Here’s a follow-up to our discussion around Turquoise Health, a start-up focused on hospital price transparency, in a recent Donut Hole issue. In a blog post on its website, the company notes that only 1,181 of the 3,171 hospitals that have made an effort to comply with the new CMS price transparency rules are fully compliant. In response to this lackluster compliance rate, CMS is considering harsher financial penalties for hospitals that fail to meet the rule’s requirements. For reference, the current penalty is $300 per day (max penalty of $109,350 per year) for all hospitals regardless of size. The new rule consider a sliding scale that would penalize larger hospitals up to $2M per year. Turquoise is encouraging individuals to share their thoughts with CMS during the public comment period.
Commentary: The specifics of the price transparency rules are less important to you than the potential impact it could have on patients’ behavior. Will patients actually compare prices across providers and choose where to receive care based on that information? It all remains to be seen, but getting more hospitals to release full pricing information is clearly a needed step to get there.
It’s also informative to see what little impact the current penalty is having. For most hospitals, the penalty is well worth it to maintain the upper hand in price negotiations with health plans.
Medicare has become more of a private marketplace — and it's costly
Axios provides an excellent summary of the emerging concerns over the growth of Medicare Advantage enrollment against traditional Medicare. The data suggest that it's increasingly likely that over 50% of all Medicare enrollees will be in private MA plans in a few years. For context, just 25% if enrollees were in MA plans 10 years ago. The primary concern identified in the article is costs. The federal government paid almost $350B to MA insurers for 2021, a 10% increase from 2020. Every year since 2015, annual spending growth on MA plans has outpaced annual enrollment growth. The primary culprit is uncapped risk adjustment, which was designed to help offset higher medical costs for plans that manage sicker populations but in reality has led to significant upcoding where plans identify as many diagnoses as possible (e.g. Kaiser Permanente’s recent problem with the DOJ). Many payers have professionalized the process, too. One dominant MA insurer’s risk adjustment division is known as "the office of profit planning," according to an industry source.
The attractive, risk adjustment-based economics of MA plans have led venture capital and private equity firms to back a host of new insurers in recent years, including Alignment Healthcare, Bright Health, Clover Health, Devoted Health, and Oscar Health and explains why many health systems run their own MA plans.
Commentary: These stats are a treasure trove for those of you interested in policy and raise some key questions. If MA is a poor deal for the American taxpayer, should we continue to support it in its current form? Would there be a way to implement some of the other benefits MA plans offer, like vision and hearing, dental care, transportation, gym memberships, and healthy food, into traditional Medicare? What would the market response be to risk adjustment reform? How should MA figure into Medicare expansion policy proposals? Is there a better way to bundle the various parts of Medicare to make accessing traditional Medicare easier for consumers?
Aetna, CVS Health enter into virtual primary care space
Another story from the rapidly evolving world of virtual care and the digital front door. CVS Aetna announced its Virtual Primary Care service for its health plan members. The program aims to build a continuous relationship between the member and a virtual care physician beginning from the first 30- to 45-minute comprehensive primary care visit and extending to each visit thereafter. The service also includes access to a virtual nurse care team for pre-, during- and post-visit support, including navigation to in-person providers as well as labs and testing. Moreover, the offering will enable in-person visits with in-network healthcare providers with no referral requirements.
The service is powered by Teladoc.
Commentary: This story addresses a core theme we’ve been tracking - the growing importance of the “front door” to the healthcare system. Programs like this one are another challenge to traditional primary care practices, which now face yet another competitor for visits and patient relationships. The proliferation of new “front doors” will also likely impact referral patterns, so specialists should also track these developments closely and may need to form new partnerships or affiliations.
VA decides against adding Biogen's Aduhelm to its formulary as PBM shuns controversial Alzheimer's drug
The Aduhelm saga continues. The Department of Veterans Affairs has decided to not include Biogen’s pricey new Alzheimer’s drug Aduhelm on its formulary, and its PBM even went so far as to recommend against offering it, noting “the lack of evidence of a robust and meaningful clinical benefit and the known safety signal.” The decision comes on the heels of a similar decision from Blue Cross Blue Shield plans. Other insurers remain in a wait-and-see-what-Medicare-does mode, but don’t appear to be advocates of broad access to the therapy.
Commentary: The ongoing Aduhelm epic illustrates how difficult it is to actually get a new therapy to market. Regulatory approval is just the first step in a long process that requires reimbursement and access negotiations with payors and PBMs and robust provider education efforts. Will Aduhelm ever get off the ground following its controversial approval? Decisions like the VA’s will make it exceedingly difficult, but it like all comes down to what Medicare decides to do.
Other news you may like:
Surgeons Cash In on Stakes in Private Medical Device Companies
Year 1 of the Bundled Payments for Care Improvement–Advanced Model
Ultromics adds $33M to its AI-enabled cardiac imaging product portfolio
Labcorp scoops up femtech startup Ovia Health to deepen women’s health services
Lawsuit charges HCA operating hospital monopoly in North Carolina
UnitedHealthcare is paying $15.6 million to settle mental health overcharge accusations
Utilization bounced back for payers in Q2, dinging profitability
OIG audit targets Aetna's Medicare Advantage plans as government cracks down on fraud
Have a great week!
— Hannah and Caleb Bank, Co-founders
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