There’s been so much healthcare news it’s been hard to keep up! But don’t worry fam. I gotchu.

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CVS Making a Bid for Signify Health.

News dropped this week that CVS is making a bid to acquire home health and provider enablement platform Signify Health (SGFY) along with other unnamed players. After the announcement, SGFY shot up 12% and is sitting at an enterprise valuation of around $6+ billion.

“…We are expecting to enhance our health services in 3 categories, as you mentioned, primary care, provider enablement and home health…And we are very encouraged and confident that we’ll take the next step on this journey by the end of this year. As you would expect, we are being very disciplined, both strategically and financially, as we pursue kind of our M&A strategy. We can’t be in the primary care without M&A. We’ve been very clear about that.” Karen Lynch, CVS CEO, Q2 2022 earnings call

CVS shot straight with investors on their Q2 earnings call. Karen Lynch floated out the above response when asked about its primary care platform M&A strategy, specifically calling out ‘provider enablement, home health, and primary care.’ And I mean really, what company fits the bill here better than Signify Health?

Almost concurrently to CVS earnings on August 2nd, the Wall Street Journal (paywall) reported that Signify Health is considering strategic options, including a sale. It’s these types of investments I look back on and think “dang, how did I not buy Signify here?” Especially when you pair that news with CVS’ comments on what they’re looking to acquire (even if they don’t acquire SGFY).

Fast forward to this weekend, and it seems as if talks have progressed far enough for the WSJ to report that several bids are taking place for SGFY.

Madden’s Musing.

CVS has been extremely active in its healthcare strategy since acquiring Aetna in late 2018 and looks to continue to build out its clinical footprint in order to prepare for the shift to value-based care. I have to wonder how CVS plans to sort out all of these existing partnerships given that the firm just announced its intent to collab with AmWell on CVS’ new virtual-first primary care service on AmWell’s new platform, Converge.

And finally, I have to wonder where THAT partnership and THIS news about Signify leaves Teladoc’s existing relationship with Aetna in launching Aetna Virtual Primary Care. Can all of these co-exist? Is the writing on the wall for Teladoc? I suppose there could be enough room within a $200B diversified healthcare behemoth for all of these programs. Time will tell!

I’ll leave you with this quote, signaling that even if CVS were to acquire Signify, they might not stop there:

“Yes, Ricky, I think there’s a number of ways for us to think about kind of our overall strategy, and I’ll just go back to we’re looking at capabilities, obviously, in the primary care space, in the home space and in the provider enablement space. So it’s a combination of all those. And as Shawn said, it’s not a kind of one-and-done activity. We’ll continue to evaluate a number of these options.” Karen Lynch

TL;DR: someone give these bankers a raise for bidding up their clients. CVS is sniffin’ around everything!

Elevance partners with Aledade

Anth – er, Elevance (okay I promise that was the last time I’ll do it) announced a partnership with Aledade. As part of the transaction, independent primary care docs aligned with Anthem plans will get the option to access to the Aledade platform, including Aledade’s tech stack and other services as a physician enablement company like Privia, Agilon, or ApolloMed. If you want to learn more about the economics of care platforms, I took a deep dive here.

The announcement is a significant win for Aledade. Anthem’s plans serve 47 million + members and Aledade is quickly becoming (is already) a major player in the care platform space after raising another $123 million in June.

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The partnership will allow physicians to transition to value-based care arrangements, which is a major driver of growth in both primary care and managed care.

The biggest healthcare reform in 10 years

In a 51-50 vote, Democrats passed the Inflation Reduction Act (IRA), which is a pared down version of the Build Back Better Act. Among other climate and tax-related provisions, I, as a healthcare freak, was obviously focused on the healthcare stuff. Lots of health policy experts are calling the IRA a huge breakthrough when it comes to drug pricing regulation.

Healthcare Stuff in the Inflation Reduction Act

Direct Price Negotiation for Drugs: When Medicare Part D passed in 2003, lawmakers banned Medicare from being able to negotiate drug prices since it would be too similar to every other developed country in the world.

  • With the IRA, Medicare can now negotiate drug prices on the oldest, largest drugs that still don’t have any competition starting in 2026. Negotiation is limited to the 10 largest drugs and will expand from there each year (20 total drugs by 2029, from both Medicare Part B and D).
  • To be eligible for negotiation, a drug must (1) comprise a high proportion of Medicare spend, (2) not have any competition (e.g., biosimilars or generics, and (3) be 9+ years post-approval (depending on type of drug).
  • The IRA mandates minimum discounts (which the IRA refers to as the ‘maximum fair price’) of these eligible drugs.
    • Years 9-11 = 25% min discount
    • Years 12-15 = 35% min discount
    • Year 16+ = 60%

List Price Inflation: Drug list prices cannot increase faster than inflation for drugs that Medicare buys; otherwise they’ll have to pay a rebate starting in 2023.

Out-of-Pocket Spending: Out of pocket drug costs for Part D will be capped at $2,000 for beneficiaries starting in 2025, which creates huge savings for beneficiaries but likely will result in much steeper costs for Medicare’s share. This also seems advantageous to drugs priced in the previous out-of-pocket range ($10,000). Along with capping OOP spend, Part D premium growth would be capped at 6% starting in 2024.

ACA Subsidies: The IRA will extend ACA subsidies currently in place thru 2025, a $64B provision.

And finally…what’s notably missing from the final bill:

  • Private Equity Escapes Unscathed: While the original bill removed the carried interest loophole, the final bill will let carried interest survive, which is a major win for private equity players. If the loophole had been eliminated, it MIGHT have incentivized longer hold periods for PE players in healthcare.
  • Insulin Caps: A $35 cap on insulin prices for private insurers (note – Medicare beneficiaries still receive this perk) didn’t make it through to the final IRA bill, as it was considered out of scope for the reconciliation package.

Big Pharma’s Big Beef.

As with most things (even when I’m wrong or off-base) I want to bring both sides of this bill to your attention. PhRMA isn’t a fan of the sweeping changes to the industry. According to STAT, the pharma lobby spent 7+ figures – more in 2022 than any other industry – in an attempt to stifle the drug pricing changes in the IRA.

PhRMA CEO Stephen J. Ubl called the drug pricing plan a ‘tragic loss’ for patients:

“Today’s vote may feel like a political win for Democrats, but it’s really a tragic loss for patients. This drug pricing plan is based on a litany of false promises. They say they’re fighting inflation, but the Biden administration’s own data show that prescription medicines are not fueling inflation. They say this is “negotiation,” but the bill gives the government unchecked authority to set the price of medicines. And they say the bill won’t harm innovation, but various experts, biotech investors and patient advocates agree that this bill will lead to fewer new cures and treatments for patients battling cancer, Alzheimer’s and other diseases.

So in short, the main arguments seem to be stringent government price control (since it’s less of a negotiation and more of a “you get what we decide.”) leading to less innovation. PhRMA is also arguing that net drug prices are decreasing when factoring in rebates and discounts/refunds and are therefore deflationary, therefore not contributing to inflation.

On the plus side, Big Pharma will have 3 years to digest the legislation, continue to lobby, and plan for the IRA’s implementation. That’s a hell of a lot of Drug Channels content, too.

Madden’s Musing.

Drug price negotiation/control isn’t a new concept, even in the U.S. The Veterans Affairs has been able to negotiate drug prices for a while and has its own formulary. Plus pretty much every other developed country in the world negotiates drug pricing. So it’s not like this policy is coming out of left field or anything. Medicare/Gov spending is about 20% of Big Pharma’s revenue mix, so while it’s significant, it’s not insurmountable.

Eligible drugs are limited, which makes me think that the actual impact of the law is overstated – for now. The big thing happening here is the government putting its foot in the door and setting the precedent for continued and expanded scope of negotiation in 2030 and beyond.

While I understand the argument related to innovation, drug makers will still have plenty of flexibility on initial price and will undoubtedly find other ways around the regulations in the classic cat and mouse game.

Open-Ended questions I have:

  • Will these changes trickle out to the commercial market? To what degree?
  • How will the IRA affect physician oncology compensation (drug dispensing / infusion ancillaries) and the 340B program?
  • Will the IRA and Medicare drug negotiation push drug makers into more creative, value-based arrangements? How will drug pricing models shift as a result of the legislation? I would assume that the structure would incentivize higher upfront list prices that the government would then try to negotiate down.

Resources:

Market Movers

Mount Sinai expanded its existing JV with Contessa Health to build out its post-acute spectrum of care, now expected to include Mount Sinai South Nassau’s home health assets along with its hospital at home program and other post-acute services

Pear Therapeutics announced that its prescription digital therapy for opioid use disorder treatment will now be covered by SelectHealth. Sound familiar? That’s Intermountain Healthcare’s insurance arm!

The Justice Department has sued Idaho over its abortion ban, stating that the ban violates EMTALA because it blocks clinicians from performing necessary care in emergency situations.

Pfizer is buying Global Blood Therapeutics for $5.4B to enhance its pipeline and drugs in rare hematology disorders like sickle cell disease.

Augmedix expanded its existing partnership with Adventist Health after an initial successful pilot that had been running since April 2019.

The Feds busted a couple fraud schemes in recent months:

The number of uninsured Americans dropped to 8%, which is an all-time low.

The House passed the Advancing Telehealth Beyond COVID-19 Act – while Congress hasn’t passed it as a whole, making telehealth provisions from the public health emergency seems close.

CareFirst partnered with Headway to expand access to in-network mental health services.

Vori Health announced a strategic affiliation with Physical Rehabilitation Network to create a huge hybrid care model for MSK services.

Homeward raised $50 million and partnered with Priority Health, a plan under BHSH Health to provide primary and specialty care through value-based care arrangements in rural Michigan.

Q2 Earnings highlights continue on!

Miscellaneous Maddenings

  • Tiger Woods apparently turned down an offer between $700 – $800M to join LIV! I mean that’s just an absurd sum of money.
  • In case y’all didn’t know, I’m a massive college football fan. All I gotta say is that Texas is back…and while Texas is officially number 18 in the preseason coaches poll, we received 1 (one) first place vote in the preseason USA Today coaches poll. That coach will be proven correct at the end of the year!! I’m sure the AP poll will have us in the 20’s.
  • Sir Nick Faldo officially capped off his golf commentating career this week. Truly the end of an era and his sendoff was absolutely heartwarming.
  • I shot a 75 at Buffalo Creek this Sunday – one of my better rounds where I didn’t make too many mistakes.

Hospitalogy Top Reads

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Blake Madden
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Blake Madden
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