38 – Healthcare Policy & Regulation with Emily Evans

Marcus: [00:00:00] All right, uh, so it’s, uh, it’s policy story time with our friend Emily Evans and, uh, Emily, we just had you on to, to close out the year, but we’ll be bringing you on once a quarter to close out the year. Give us everything we need to know, uh, on the policy side of things. Last week, Vic and I wrapped up, uh, a conversation about Chevron, uh, which was fun because when we had you on for episode number two, I don’t know if you remember this, but, uh, we, we talked about Chevron and it’s, it’s amazing that it’s back in the news and, and, uh, on the docket for the Supreme court to be reviewing that.

And that 2024 could be the year that You know, the, the regulatory agencies are severely impaired in their ability to sort of autonomously operate. Uh, but I think you’ve got some other stuff you want to share with us and with the listeners, uh, on the policy landscape.

Emily Evans: Yeah. I think by the [00:01:00] time people, uh, get to listen to this, the oral arguments will have been held at the Supreme Court over Uh, the, the, it’s a fisheries case.

It doesn’t have anything to do with the healthcare. Um, but it’s a fisheries case. It’s going to be before the Lido Bright versus USA is, is the case. And, uh, and it’s going to be, we’ll have oral arguments. We will have had oral arguments by the time you hear this. And some, uh, conclusions will have been drawn, but before, because this is before the oral arguments, you know, there, there’s a pretty, pretty Pretty decent expectation amongst court watchers that the Supreme court is going to finally reverse a doctrine, which has given it free reign to the agencies to do whatever they felt was appropriate.

under the law. And increasingly, as our institutions have failed us and as government service has become less appealing [00:02:00] to a younger generation, um, it’s been increasingly, uh, government’s been increasingly manned by By activists, people who are looking for an outcome, not necessarily trying to develop policy.

But, we should pair that up with, and this is what I want to talk about today, Uh, in, um, let’s see, November, uh, I guess it was November, The Supreme Court had on its docket an SEC case, Uh, which was a, it does, it’s just like the fisheries case. It doesn’t really matter, you know exactly what it’s about. But, uh, the, the, the, uh, the, the company that was, uh, taking up Patriots 78, I think is what it’s called, it was taking, uh, up case they had been accused of wrongdoing by the SEC and fine.

And they, the process they went through was the administrative law process where the SEC charges them with crime. And [00:03:00] then they, uh, present themselves and argue their case before an administrative law judge that is not a jury, but an administrative law judge that is employed by the SEC. Um, now if you’re just even a little paranoid, you’re going to be like, well, wait a minute, the fix is in.

Um, I would like to go to a jury of my peers. Uh, and you can’t really do that. And, and administratively, the SEC, and this is also true of the Federal Trade Commission, which is what we’re going to talk about, Uh, the, where you, You know, you, there’s a reason to believe you won’t get a fair trial since the, the prosecution is also sort of kind of the adjudicator.

I don’t, I don’t think judges are, are mean to do it on purpose, but the, but the, the system is not exactly the, the, the open court environment that, that most, uh, most cases enjoy. Right. Uh, so the, as a, [00:04:00] because of the potential to upend. This similar administrative law proceeding over at the Federal Trade Commission, we have had a backup in M& A.

Uh, you, you know, we just had J. P. Morgan. And what do we usually expect out of J. P. Morgan? Earnings, you know, uh, guidance, You know, pre announce, whatever. We didn’t really get that much of that because attendance wasn’t that great. And it’s certainly from the services industry. Uh, and the other thing you look for is M& A getting announced, which we get some of from the biotech pharma deal.

Um, but we’re not seeing it across the board. And the thing about it is, is we badly need it. Uh, we have a lot of health plans, particularly Medicare Advantage. They’re kind of struggling, you know, with their memberships and [00:05:00] getting members. It’s kind of a dogfight out there. Uh, we have healthcare systems that aren’t really able to make, make a go of it.

Uh, but they can’t really merge the, the, so, so basically what you have is this kind of pile up in the C suite with a lot of deals and a lot of people going, well, let’s wait and see how this ALJ thing turns out. Because if the, if the government can no longer take us through the administrative law process, and we can try our case in court, Well, we would want to do that.

So let’s, let’s hold off and, and, and proceed unless the deal is just so tasty you can’t resist. And, and that’s why we’ve, we just didn’t see the MNA that I’ve been expecting by now. And we’re probably not going to see until the Supreme Court spits out some sort of decision on whether or not the administrative law judge, Uh, law process violates the 7th Amendment, which is your right to a jury trial.[00:06:00]

And, uh, and that’s, that coupled with the old, the old Sheffrin deference, which you are seeing for the first time in your lifetime, and really your parents lifetime, part of their lifetime,

Marcus: a

Emily Evans: degradation in the administrative power of, uh, of the United States federal government.

Vic: To confirm, both of these rulings, if they They happen like we’re expecting would reduce power of the federal agencies.

But where does it add power? Like what it seems like that what I’m worried about is there’s no body that would make a decision, a jury trials, a long and drawn out expensive process. Um, is that your reading or who, who, who benefits from this?

Emily Evans: The problem’s the same with the Chevron doctrine where, where you, and when the Chevron doctrine was adopted by the Supreme court.

There was a understanding and a belief that the [00:07:00] experts that manned our federal agencies, who at the time would have been held in high professional regard, um, were usually the top of their field. They weren’t using it as a revolving door for a great employment contract, you know, a la Scott Gottlieb, um, who ran the FDA.

Uh, they were serious, you know, serious policy and policy people. And that’s, that’s what we had in 1984. We don’t, we don’t have that in 2023 for a lot of reasons. The administrative law process is also has similarly, um, similarly staffed with X, not sufficiently expert people. And if you have, if you have a, an activist.

Organization like the FTC, which admits it’s activists. It’s not, it’s not, not pretending it’s not. Um, when you have that, you have a administrative law [00:08:00] process that’s going to be kind of tilted away from that objective, fact based, evidence based. So, yeah, now, whereas 20 years ago, they’d be happy to take their chances with an ALJ, uh, probably, but today they’re like, it’s certainly with the FTC.

That that’s not a, That’s, that’s not necessarily going to be a, a good outcome. And yeah, jury trials are more expensive, but because they are more expensive and burdensome, the FTC is more likely to avoid conflict. Devoid charges of antitrust violations if they don’t think that they can put Commit the resources and in committing the resources get an outcome that they desire

Marcus: So so what’s the what’s the betting money on this whole situation right now?

I mean, you know, we we I I think the betting money on [00:09:00] on chevron is that it’s going away

Emily Evans: It there’s one a minority opinion That Chevron could just be narrowed. Um, and not just completely thrown in the trash. I think the, the reason people think it’s going to go away is that the most recent appointments, particularly Neil Gorsuch, okay.

He’s his things, administrative law. That’s why he’s there, and I think, um, uh, I think the, um, uh, Kavanaugh is also an administrative law person, so, so they are there, and they were appointed by Donald Trump, who, what does Donald Trump want to do? Yeah. He wants, he wants to get rid of the deep state. Right. Um, yeah.

Marcus: Drain the swamp.

Emily Evans: Drain the swamp. The funny part is, is I think the swamp, actually the plug has been pulled. Uh, he’s, he’s going to get credit for it [00:10:00] if he ever becomes president again. But, but the, but the, the plug is, is, is going to be pulled. So, um, so, so I I’d say that. On the Chevron, we have a, betting money’s on it gets, it gets overturned with a minority saying, uh, we could just narrow it significantly without pulling the plug on it altogether, which would still be a huge victory for industry.

Uh, and then on the ALJ process, I think there’s a fairly decent, um, probability that that gets, that gets killed off too, because it’s a seventh amendment question. And when everyone is, Vic pointed out when everyone was like, well, this is easier and better for everybody. Well, of course you, you don’t care about your jury trial rights because you’re like, yeah, this is even better.

But then when you find yourself in a position where your, your constitutional rights mean you don’t have a fair crack at your, your defense, well, that’s a different, [00:11:00] that’s a different story. That’s where we are.

Marcus: The FTC, uh, in the fourth quarter of last year. They, they got, I think it was Lena con was on, was on stage at, at some, some event that might’ve been Andrew Ross, Arkansas deal book or something like that.

And she, and she basically put a target on, on, on healthcare’s back in particular. I think, I think it was really sort of healthcare private equity, but you know, said, Hey, coming after these healthcare transactions. And there was already a chilling effect in the, in the, um, provider space around those kinds of transactions.

Um, how do you, how do you think, This, this agenda that’s coming up this year, uh, the combination of Chevron and the, and the jury trial, um, how do you think these things play out by the end of the year in terms of just the, the gates kind of being lifted on M and a, because the IPO markets are still pretty much, Frozen.

I mean, you know, as long as we’ve got the rates sort of where they are and we’ve got big [00:12:00] tech dominance, it’s still very, very difficult for, um, you know, late stage growth venture companies to make it into the IPO markets. And so the only real path to, uh, realizations is a healthier M and a market. You know, I don’t, I don’t know when we can expect IPO markets, but we need healthy M& A markets to in order for this to be a viable business.

So, like, do you think by the end of the year, if these things do change, we’re going to see just sort of a floodgate of M& A, you know, turning off? I

Emily Evans: think so. Um, from what I understand. There is, there’s a active in house and external lawyer recommendations to any proposal up at the C suite. Hold on to that thought.

Okay. Because if we, if we have a, if we get a decision makes it more difficult for the FTC to accuse us of antitrust because they would have to put on a [00:13:00] JLJ case. Then, then let’s just, let’s just. It’s six months, you know, at the most. So as I understand it, it’s stacking up pretty good, um, in, in, in, in the season, and you hear it and I hear, I hear it heavily in the managed care space, um, which is no surprise.

And then I think in the hospital space, which, which is also no surprise. That’s why you see like Kaiser and Geisinger, you know, they’re on opposite ends of the country. Well, you know, what would be the antitrust problem there? They’re on opposite ends of the country. Uh, but that’s, that’s how they crafted, they crafted it for that purpose, right?

Because who’s gonna, who’s gonna take this up to, it won’t even go to an ALJ, you know, for that point. So, uh, so I think that’s, I think you should see almost immediate results depending on when the decision comes out. And the decision on Chevron would probably be released, uh, at the end of [00:14:00] June. It’s a big case.

It would, like the Affordable Care Act case, kind of thing that would get spit out in that last, um, release in, you know, like the last week of June. And then those guys get out of town. And, and they go on the speaking circuit and they do all that stuff. So, so that, that would be the, that would be the timing of it.

And from there, you probably have a lot of things set up that just get to just get to go

Marcus: when we were talking last week about Chevron. One of the things we discussed was the fact that Congress is pretty much broken at the moment because of Chevron. I would

Emily Evans: argue,

Marcus: well, well, we’ll see. Right. I mean, we’ll, we’ll, we’ll see.

We’ll see if that’s actually correct, but let’s, let’s just, let’s just assume Chevron is not the only reason that it’s broken and, uh, you know, there are some other, Yeah, yeah, yeah. There are some other underlying dysfunctions that are, that are holding up the, the lawmaking process. Um, you know, one thing that we saw happen in the, in, in Biden’s term, one, uh, and [00:15:00] a lot of it was pandemic enabled, but, um, you know, these huge bills that ended up, you know, working their way through Congress that sort of were packed with all sorts of things.

And, and one of the things that. That is sticking out to me now, because I had a, had a meeting with, with the team last week at JP Morgan is ARPA H. So, um, you know, my fund Jumpstart Nova, we’re, we’re part of a, an investor, a catalyst hub, they’ve got, you know, investors from around the country. And basically that that’s just to, to streamline the communication between a bunch of investors and what’s happening at ARPA H, but ARPA H is like this, this total carve out, right?

It’s this budgetary carve out to execute something that, you know, You can’t really get done in Congress, but for, but furthermore, you can’t even really get done inside of the agencies. Right. So you just sort of, sort of saying, Hey, here’s a whole, you know, initiative program. It’s, it’s not, it’s not long term right.

It’s all like pilot oriented and so it doesn’t have like a long term, um, sustainable. [00:16:00] Underpinning to it, but the idea would be, can you demonstrate viability or efficacy via some of these pilots and then, you know, sort of make the case to a CMS or to an FDA that these things should be, you know, straight lined.

I’m just wondering. In a world where Chevron is either minimized or eliminated a, will you see presidents, um, decide to go even more towards the executive order, big bill route in order to get their, um, uh, their, their election, you know, their, their campaign promises done. Um, and two. You know, what is the, what’s the downstream negative effect for innovators?

You know, I think about like CMMI as, as, as a program that’s been sort of a dependable place for us to look for innovative opportunities, uh, from CMS. What, what’s, can you talk about both of those things, both how will this impact president’s agenda in terms of things they want to get done if [00:17:00] they are limited through their agencies?

And then two, what’s, what, what do you see being the, the. Potential negative impacts to the innovation economy.

Emily Evans: Well, uh, you know, in terms of presidents, this, this is actually constrains their ambitions somewhat because, you know, if you issue an executive order, On, you know, on ARPA H or any topic, whatever it is, artificial intelligence, huge executive order, 90 pages long.

When you issue that executive order, what you’re doing is you’re instructing the agencies to act in such a way consistent with your order, but what they need to do is go find the law that enables whatever the president just said. And, and exact the artificial intelligence order is a great one because how many laws were written in healthcare that contemplate a artificial intelligence?

So you’re really, you’re really pushing the envelope there in [00:18:00] terms of, you know, what, what the law might allow. All right. So this makes the president, his executive orders more symbolic, which historically is what they’ve been rather than action oriented. Uh, the next. Part of it though, is that the, that the onus moves back from the agencies to Congress to write laws, to write law, which they haven’t really been doing as much as they think they have.

You’ll see tons of, you know, deference to the secretary on huge issues in the affordable care act, for example. Okay. Um, and, and this creates. Uncertainty, it creates a hell of a lot of uncertainty for the industry because you don’t know from one administration to the next, whether or not you’re going to have a, a program or because things, and this is particularly true because Trump overused executive orders, um, [00:19:00] overuse the, and push Chevron well past reasonableness.

Marcus: Yeah.

Emily Evans: Um, and the Biden administration. Undid a lot of it, which, you know, in the case of like lab testing, this was difficult in case of breakthrough technologies, which it was very funny. The Trump administration said, we’re going to, we’re going to set up this program for breakthrough technology. So they have a path to reimbursement.

And then the Biden administration comes in and says, no, we’re not going to do that. And Congress goes, well, wait a minute, you know, this was actually a good policy. Um, and so they’re now, they’re now spitting something out. Although I would argue I’m not sure the law necessarily allows it. So, um, so the, so the, the, so the presidents get much more symbolic in what they ask for.

Then Congress has to get a lot more serious about, Making, making law, which means they have to do it on a bipartisan basis, which means that these huge bills, like the Affordable [00:20:00] Care Act, like the Inflation Reduction Act, they have to cut, they have to be confined. ’cause you have to read the text and know what the text says and know whether or not you know, and make sure that is, you’re thinking of all the possibilities because you can’t count on the bureaucrats to fix it for you.

Um, so, so that should be the, ah,

Marcus: that’s. Oh, that’s really interesting. That’s a really interesting change that I hadn’t thought about.

Emily Evans: Which

Marcus: is the cleanup, right? Which is the cleanup. Back in the

Emily Evans: day, before the Affordable Care Act, you would get technical corrections bills after a large bill like the Affordable Care Act.

And a technical corrections bill is basically Here are all the things that aren’t going to work after we’ve talked to all of the bureaucrats, um, consistent with the law. So we bring in this technical corrections bill, but because there is no partisanship and because of the way in which the Affordable Care Act was passed, there isn’t, nobody’s interested in talking about technical records.

But that, that’s, that [00:21:00] was the method by which, you know, Congress used. So then you go, okay, so what do the agencies do? The first thing you, you, they do is say, okay, what are we doing here? That might be pushing the limits of our, of the law, kinds of things we’re doing. CMMI, which is in the Affordable Care Act, actually had, was given very broad powers, as very specifically, you can make mandatory programs, you know, here’s how they did it.

I think their one area of concern will be, are these programs being properly certified by the actuary, which is a requirement, to say these things are saving money? Okay, because they were a lot of them or not. Um, and, and that, that’s probably their, so they’re gonna have to get more serious about some of their cute ideas.

Um, and make sure they work when it comes to other parts. Telehealth is an area I would be concerned about. Um, the, [00:22:00] at the FDA, the laboratory developed test pending, um, pending regulation is another area of concern because the law clearly does not count contemplate the FDA Regulating in future tests, you know, they’re they’re regulating drugs and devices and you know A test tube full of tissue is is not not a device um by any national natural, you know interpretation of of the language.

Um, what I think if you were kind of to sum it up, Marcus, what I would think that would happen is the power right now, that’s insurance companies when it comes to the, um, CMS pharma companies, when it comes to the FDA, their power is diminished because for stuff that falls outside of the envelope created by the law.

The FDA and CMS have to say, you know, go see your representative. Um, which [00:23:00] is, that’s a lot harder to go and convince, you know, a majority of the house and a majority of the Senate you need to do, or we need this, or the law needs to be this, that is much tougher than convincing a bureaucrat, you know, Hey, you need to change this particular process.

That’s the question I want to

Vic: dig into a little bit is not so much on the 7th amendment side. But on the sort of removing the Chevron doctrine, it’s not clear to me that something like the star rating system, or there’s a lot of policies that are run by CMS or FDA, that would have a hard time getting any traction in Congress just because it’s too tightly divided.

And so I worry that we’ll have 12 months, 24 months of almost just like frozen system without much

Marcus: clarity. What’s, what’s likely to get done, you know, I mean, ’cause because over the next 12 to 24 months, , [00:24:00] uh, you know, the, the, the, the backlog that’s gonna be the result from this is gonna be brutal. So, what’s, what’s likely to get done?

Emily Evans: Well, the, the, the, the, the first, the, the, right now 24, you should write off anyway. Okay. You know, you’re not gonna see. Yeah. Yeah.

Marcus: Fair play. You have

Emily Evans: a one vote majority in the house. Um, you have a, a bare majority in the, the Senate. Um, you are likely to see in 25 a flip of the Senate. Not clear what the House, uh, does, um, at this point.

But, but you, you’re not, you’re not going to get a whole lot of exciting stuff done anyway. You might not even get a budget. You might just get, you know, Continuing resolutions, uh, throughout the, throughout the year. Uh, and maybe things like extenders, routine stuff gets, gets, gets pushed out. So the, really the question becomes who’s the president in 2025.

Um, [00:25:00] in 2025, you have a, uh, uh, you know, the leading candidate for Republicans is Donald Trump, who plans on. He didn’t train the swamp last time, so I’m not sure we’re supposed to believe him this time, but, uh, but he definitely has, uh, has a plan to bring in a bureaucracy, which did him, um, I think I’m being polite here, or objective, a disservice.

When he was the president during the pandemic. Um, so that’s, that, that’s the first question then. Okay. So it’s not Donald Trump. Is it Joe Biden? Um, that you, you would, I don’t know how, I don’t know how the, the Biden administration reacts. I don’t know, because the whole system that they’ve relied on breaks down and how do they react without A [00:26:00] majority to help that happen, that could be could be more of nothing, you know, more, you know, with a another four years of Biden.

It could be a lot of nothing. But at the same time, a lot of nothing could become something in the sense that you you see this, you see this like in the concierge doc movement, for example, right? These doctors have decided they are so over. The whole system that you send them a couple grand a year and they’ll take care of you.

You know that that’s yeah That that’s that’s one indication. We you know, uh, one of the big multi specialty practices here in town Most of the docs aren’t taking medicare um, so you you can you can see a detachment from from the system in which case you have a kind of alternative parallel system being built that is deregulated [00:27:00] or unregulated you But because it needs to move forward, it needs to do things.

That’s what it does. That would not be surprising to me.

Marcus: Yeah. So, so, so deregulation more shifting to things being out of network. And by the way, you know, you talked about The docs who are moving into the concierge practice. Well, they’re not by themselves because obviously if they’re successfully doing it, there’s a bunch of patients who are also sort of opting out and saying, you know, this is, this is trash, right.

You know, um, I, I, I, I’d gladly pay. Uh, a small premium, you know, I’ll go on with a small, uh, higher deductible, lower premium plan. I’d pay a higher premium direct to a doctor who actually treats me like customer, uh, you know what I mean? As opposed to a member of some plan on a panel that like, it’s just a number, right?

I mean, that’s, that’s, that, I mean, it’s, it’s, it’s, it’s, it’s getting kind of ridiculous.

Emily Evans: Yeah. And, and the, the, the players that really depend on the, the [00:28:00] current system are the hospitals. And, you know, and what, what becomes there, but that’s back to the M and a problem, you know, that system has probably got to consolidate it, especially with those weak regional, you know, players that are not, um, they’re not competitive.

They’re not competitive with in network. They’re not competitive out of network. They’re not competitive for pay. They’re not competitive at all. They just happen to maybe have the real estate in the right location, which is preserved their interest to, to this point. Um, and that, that definitely needs to.

To to happen.

Marcus: Okay. Uh, anything else? Cause that’s, that was a good 30 minute sprint into a couple of Supreme Court issues and anything else before we, before we wrap for the quarter.

Emily Evans: Uh, no, I, I think that, you know, this is, this is, I think we’re at the beginning of some very interesting change, um, in Washington.

Uh, and I think that this is. Not a bad [00:29:00] thing, actually. I think it’s actually a good thing, which might be an out of consensus view of the world, but that’s how I look at it.

Marcus: I think everyone believes right now that things are not functional. And so change is necessary towards to get towards some function.

It certainly is going to be painful. Um, because it’s, it’s, it’s more like we’re, we’re, we’re breaking. Dysfunctional things without necessarily solving, uh, well for the underlying problem. Let

Emily Evans: me, let me give you some hope in the bridge as a songwriter. Say the, the, the, the thing is, is the states have, and we’ll continue to pick up the slack.

And when you think about it, think about for a minute, having a federal government sitting on top of 50 sovereign entities, 330 million people. Vast, vast [00:30:00] tracts of real estate. And you have this little federal government sitting on top of that. And you think, well that was, that’s kind of a crazy way to approach it.

You know, when you really start to think about the decision making, and, and when you get down to the state, I don’t think they always choose the right, Thing, but they’re probably infinitely more informed about the, the, the players in the process and, and, and the, the, the, the system than they are than a bureaucrat in Washington, which sounds like a political, you know, plank there.

But, but I think it’s kind of true and becoming more true.

Marcus: No, I, I, I actually think, you know, what we’ve, what we’ve seen since the pandemic is the American citizen. Has optionality because it gets to choose across 50 different states, you know, it gets to pick and, and we, and we, you know, the, the beauty of America [00:31:00] is the American citizen gets to vote with their feet, uh, in terms of like what state they want to be a part of.

And, you know, we saw shifting in all sorts of directions, you know, based on. A variety of different policies and things like that. Obviously the, you know, the Southeast, um, was sort of the net gain winner, um, over the last migration. We’ll, we’ll see though. I mean, you know, there, it remains to be a competition, um, across the states for, uh, what’s, what’s sort of the best way to go about some of this stuff.

I think as long as MNA is turned back on and I. Obviously, um, that’s a self, this is a self interested statement, but I think as long as MNA is turned back on, uh, I’m, I’m probably not terribly worried about it because I feel like, you know, at least in that situation, you have capital being able to be used to effectively, um, create competitive [00:32:00] options for consumers as patients.

Right. I, I feel like when MNA is broken. The logjam on, on, on what patients have to accept gets really pretty stuck.

Emily Evans: I think that’s, um,

Marcus: you know, that’s, that’s, that’s, that’s my view of it. I know, I know that there’s a view that says, especially when it comes to hospitals, if you allow too much merging and combining it’s, it’s bad for the customer, I would say that’s true.

Solely in the brick and mortar hospital space, but in this new world of AI and technology and medicine and all this other kind of stuff,

Emily Evans: it ignores the alternatives, ignores the, it ignores outpatient, ignores ambulatory surgery centers. It ignores the actual competitive environment when you, when you think about that.

And, and unfortunately that’s, I think how the FTC is, but I will add one thing, Marcus, I think the IPO window is also, you’re going to see some, um, Some happy things happening there because healthcare looks [00:33:00] really great in a recessionary or stagnating environment versus retail and, and some others. So, so there’s a lot of private equity assets that need to get pulled out of there with this higher cost of capital environment.

And, and I think we’re going to see. We’re going to see a good bit of that in 2024 as well, which I think will be nice.

Marcus: Awesome. All right. Well, look, thanks for, thanks for showing up as always. And we’ll pull you back in if some crazy headline pops up, but otherwise we’ll, we’ll, uh, we will see you in Q2.

Emily Evans: All right.

Great. You guys. Thanks so much.