54 – Behind the Numbers: A Dive into Healthcare’s Financial Trends w/ Emily Evans

Vic: [00:00:00] Okay, welcome everyone. Thanks for joining Emily. Thanks for doing this. I’m excited to go through our quarterly policy review with you

Emily Evans: Always glad to see you, too

Vic: Yeah, this it seems like a lot changes in a quarter Uh, and yet a lot is uh, we’ll circle back to some of the recurring themes too. So we have a little of both

Vic: today uh United health group came out with their earnings report. I know it’s hot off the presses So you may not have dug into both of them, but we wanted to use this opportunity To talk through that really in the frame of medicare advantage And how the demographics are shifting we talked about it at the end of last year But I think we continue to see changes and evolution and of course united came out today So let’s talk through the medical advantage Demographics and policy and then a couple other topics to talk through [00:01:00] too

Emily Evans: Yeah, let’s talk about what United Health Group, uh, did because, uh, in terms of earnings for, for first quarter, which, uh, is, is pretty important.

Emily Evans: Um, they, they had, they, they were taking a big hit on the change healthcare. It’s going to be over a billion dollars in the end. Um, but the, the way in which we do these things on Wall Street is we, we set those things aside that are, you know, You know one time events. Um, so when you set that aside you had an adjusted first quarter earning of six dollars and 91 cents versus six dollars and 26 Cents last year and wall street was expecting six dollars and 62 cents.

Emily Evans: So that’s a fairly significant uh improvement Uh their their revenue for the quarter is It was 99. 8 billion dollars up from 91. 9 billion [00:02:00] last year, and the street was looking for about 99. 28, so did a little bit better on on the top line, uh, as well. And the reason this is important is, first of all, a lot of people were worried that the change healthcare debacle would create a cloud that would make it, make it more difficult to see exactly what took place, uh, at UnitedHealth Group.

Emily Evans: You know, for we know, for example, that they dropped a lot of their prior authorization rules and their utilization management rules during this period, and they they had a lot more utilization, but they’re reporting a medical loss benefit, a medical loss ratio, meaning the what what they paid out in benefits versus what they received in premiums of 84.

Emily Evans: 3%. Which is fine, you know, uh, First united health is so big, you know, we don’t know what happens under the engine, but it’s fun So what was happening going into? That earnings call [00:03:00] was wall street is expecting a couple of things first of all They’re expecting higher benefit costs because we’ve heard from humana For example say we’re seeing higher benefit costs particularly, uh on the inpatient side We’ve also united health group has mentioned it and and so have a few others Now, the interesting thing is, as Marcus knows, because I talked about this last week, I had a little bit of trouble finding, you know, these, these, these cost issues, you know, when I look at, when I look at the data, um, and it looks like and, It’s a problem, but it’s primarily a problem, uh, between the Medicare Advantage plans and the hospital system.

Emily Evans: So, um, Marcus, if you want to, uh, we’ll throw up slide two. Uh, this is a, the, the Medicare Advantage plan, Adding kind of to the woes of the change health care issue concerns about medical loss ratios, et cetera, [00:04:00] is Medicare advantage is kind of facing a bit of a demographic headwind. And I put a line that that blue line that you’ll see on the slide.

Emily Evans: That’s your month over month change. And you could see the little peaks are when the, um When the monthly enrollment spikes after, uh, the January, yeah, the open enrollment period. So you got the fall open enrollment period and those people, um, that appear on the rolls as a result of, of the open enrollment period.

Emily Evans: And what do you notice about the trend there since 2019 roughly

Marcus: going down,

Emily Evans: it’s going down and it’s going down because there are lag, the growth of seniors, people turning 65 is slowing. The last. Big post war cohort is 61, 1961 62, uh, and they turned, they turned 65 in a couple of years. And from there, it’s just, it’s a cliff, you know, until we get to the millennials.

Emily Evans: So you have, uh, the, the, the, the, the [00:05:00] challenge, Here is that you have fewer people to recruit onto your roles, uh, you know, because just because of demographics, you have this benefit cost pressure, particularly from the inpatient hospitals. And we should also mention that your boomer cohort, which turned 65 in 2021, I’m sorry, 2012, those people are hitting their top.

Emily Evans: Utilization cost years. So you’ve got this not great mix The thing we all have to remember when it comes to publicly traded companies Is that they have the biggest balance sheets, you know They have the biggest lines of credit and there are all these other plans out there Blues plans, smaller regional plans, and I keep reminding people, a lot of bad things can happen before it ever gets to the door of the large, uh, the large managed care organizations and, and that from this earnings, [00:06:00] that appears to be the case, uh, we need to hear from Humana.

Emily Evans: Humana is, um. Careply Medicare Advantage, not unlike United Health Group. And, uh, and we wanted to hear what, what, what they have to say. And one of the, because they’ve expressed concern about the, um, their benefit ratio at the same time that I’m going, eh, you know, yeah, it’s up, but it’s not, shouldn’t be too different from fourth quarter.

Emily Evans: And it shouldn’t be too different from first quarter of 2023. Now, 2022 is a different ball game. 2022, you had all kinds of, you know, inflation within the system. So, so what gives here, so, um, I’ll show this to Marcus. Um, uh, last week, if you look at, um, put up slide three, here’s what I did here is they took the actuary data from the, the office of the actuary and, uh, uh, and, and, uh, created a model [00:07:00] using treasury outlays and I looked at, okay, you know, how much money is going into Medicare Advantage?

Emily Evans: How much money is going into fee for service using the fee for service outlays from the U. S. Treasury? It’s kind of like a cost number. Because if it’s fee for service, that’s sort of the, that’s sort of the cost level you would expect a Medicare Advantage plan to pay, maybe a bit lower, but as you can see from this, they’re right, they’re neck and neck.

Emily Evans: In other words, the, the, the, what a, what Medicare Advantage can convince, um, a hospital to take in terms of, Payment for the care of a patient isn’t much different from fee for service, and that creates a conflict, and it is perfectly sensible when you see all the heat, all the pressure on Congress to do something about prior authorization rules, um, about network requirements, about marketing.

Emily Evans: [00:08:00] Brokers we’ve seen all of that in the last 12 months and it is almost all emanating from the hospital systems You know, they are all talking about it. Um, it’s not you don’t hear doctors practice it They gripe here and then but you don’t you don’t see it So so the pressure when they talk about benefit expense pressure is really coming from the hospital systems And I know we’re going to talk about that in a minute and that and that is You That isn’t to be extrapolated broadly, because if you look at the next slide, it’s a different story in Part B.

Emily Evans: Uh, and here I did the same basic exercise. I took, um, I, I took what I estimated what the Medicare Advantage, um, would be getting for Part B services, because the Office of the Actuary separates those, and then I looked at a fee for service, um, estimate. And as you can see, the fee for service number is a decent, about, about 19 percent.

Emily Evans: Not coincidentally between the medicare advantage and the fee for service level and if we [00:09:00] could treat the fee for service Outlays is kind of the cost basis You can see the medicare advantage plans are having a much better relationship with the the part b plans Um, and for that reason, you know, we’ve seen a lot of Of pressure to move care into the outpatient setting.

Emily Evans: You’ve seen hospitals respond to that by trying to be as outpatient as they can, you know, by setting up, um, outpatient facilities with facility fees and all these, these tricks. Uh, and really it’s, it’s this, this, this war, but that really isn’t going on with, uh, with Part B, which of course is Part B is, you know, your physician’s offices.

Emily Evans: It’s, um, uh, it’s, it’s lab work. It’s. Durable medical equipment and and that sort of thing. So this exercise I think kind of Isolated what the issue is, which is helpful because as we think about you know This being a systemic problem or a long term problem [00:10:00] You know, we we cannot we can understand. All right This this really comes down to how medicare advantage plans are are working within their markets and specifically with their hospitals And also, this is, this is top level data.

Emily Evans: This is not UNH, uh, and, and therefore it includes all those little plans, you know, that aren’t, don’t have a lot of stroke in their markets, uh, and they’re having to, you know, fight it off with the, with the, with the hospitals. So.

Vic: So let me, let me zoom out and see if this, uh, rephrasing is accurate. The Medicare Advantage market.

Vic: Is about to peak and in public markets we look ahead a little bit So it’s it’s basically at the peak and going to be declining If you take a one two year forward look

Emily Evans: in terms of enrollment. Yes

Vic: in terms of enrollment Um, but enrollment would eventually drive Drive [00:11:00] payments, wouldn’t it? Like if you have fewer people Enrolling that should reduce the overall market size.

Emily Evans: Well, you’re not going to have, you’re not going to have fewer people yet, which you’re going to have is the growth of the number of people slowing. You know, so, so you’re, and if you’ve got a turn in. You know, growth numbers in the enrollment metric of 89 percent a year that gets tougher and tougher to do.

Emily Evans: So separate that for a minute from what you’re getting per head. You know, your first metric is are we attracting and keeping, uh, enrollees? So it’s not going to go down. So

Vic: it’s not a shrinking market, but it’s not growing As quickly as it has previously.

Emily Evans: Yeah, and it will it in a few years. It will shrink because those that 1947 cohort is is going to die [00:12:00] Um, and that the cohorts that came after 1947 are smaller and smaller, so eventually, yes, you’re going to hit a trough, but right now where you are, and probably until 2028, 2030, you’re just in a slower growth environment in terms of enrollment.

Emily Evans: But again, I’ll just restate there are a whole lot of plans out there that are going to go by the wayside before you ever see The impact on a united health or or a humana,

Vic: right? So the competitive dynamic between the plans And each other and then also the the Medicare Advantage plans and the health systems Hospitals and health systems, that’s going to get much more, I mean, much more pressure between those groups for competition, and I think what you’re showing on the previous slide is that the, um, the Medicare Advantage plans are sort of holding their own, [00:13:00] putting more of the pressure onto the health systems.

Vic: And they’re able to maintain their medical loss ratio, at least so far, even though it’s early days. Is that right?

Emily Evans: They’re get, they’re maintain, they’re main, looks like they’re maintaining their medical loss ratio in that mid, mid to high 80s range, by having a very, By having more margin in their heart B in their Medicare in their like outpatient physicians, which they prefer anyway, right?

Emily Evans: You know, uh, and patients due to and and the hospital utilization and the price of the hospital utilization, you know, maybe a loser for the plans, or certainly it’s not a winner. Um, and they try and do as little of it as possible. I think that’s the way to think about it.

Vic: And then you kind of mentioned that, uh, United, because of all the disruption with Change Healthcare, they cut back on their utilization, uh, management tools, and yet they still had a medical loss ratio of [00:14:00] 84 percent and change.

Emily Evans: Correct.

Vic: Strikes me as pretty good, even if they turned off some of their, um, utilization tools.

Emily Evans: Yeah, that shows you that that, um, that shows you potentially that maybe some of that utilization management is isn’t necessary. Um, you know, because the utilization management could do a couple of things. It can deny care.

Emily Evans: Because you don’t qualify, or you could just slow that train down, um, and it, and it looks, it looks right now that it didn’t have a, a, a material impact on their Medicare loss ratio. I should disclaim this, Vic, and tell you that every analyst on Wall Street, including, uh, Some of UNH’s largest shareholders have very little idea what goes on underneath that hood.

Emily Evans: So, um, so there, there’s, there’s a, there’s a bit of mystery to it, uh, if you will.

Vic: Yeah. I mean, UNH is a pretty big ship [00:15:00] and they’re very sophisticated at managing their own numbers for Wall Street, I think.

Emily Evans: Yeah. They, they have a lot of their A lot of tricks in their trick basket. And if we, on the enrollment side, if you go to slide, the last slide I brought with me, uh, Marcus, one of the on in the, using the enrollment metric.

Emily Evans: What, what’s happening is that a lot of the plan sponsors are trying to push enrollees in the standalone prescription drug benefit. So you would pair your prescription drug benefit with traditional Medicare. What the plans are trying to do is push people out of the prescription drug benefit Into a medicare advantage plan, which also includes a prescription drug benefit Which is putting downward pressure on enrollment in traditional fee for service but creates if you have If you’re not UnitedHealth Group and you have your own, you know, large, robust, [00:16:00] standalone, uh, prescription drug benefit or your CVS, okay, you have access to those customers, you have a good pitch to make to those customers to move to Medicare Advantage.

Emily Evans: So you’ve got some room to run in terms of taking people out of standalone PDP plus traditional Medicare and moving them into Medicare Advantage. Plus, uh, PDP plan, you have, you have a lot more, um, you’ve got a lot more leverage there. Uh, and, and so we, we should see them take advantage of that in their enrollment, uh, metric.

Emily Evans: And again, smaller plans, fewer members, that’s really not the case. And that’s who’s, that’s where it’s going to get kind of sucked out of. Yeah.

Vic: And is it, is it because the, the prescription. Benefit as a standalone is really hard to manage for a payer, so they want to kind of bundle it with the medical expenses.

Vic: Yeah, under the Inflation Reduction

Emily Evans: Act, the benefit design was, a new benefit design was being implemented in 2025. It [00:17:00] requires the plans to take more financial responsibility for people, uh, with chronic conditions and high cost, um, drug, you know, utilization, uh, which means that you need to have better insight into their utilization and their care, uh, so you can intervene and, and try and get that patient, you know, working with its doctors, with a standalone PDP plan, you can’t see anything, you just get the, you get the prescription and you pay for it.

Emily Evans: That’s it. So, so that, that’s what’s, that’s what’s driving that. And it creates a political problem, right? If you’re, you know, Senator Sanders from Vermont, for example, uh, or Senator Klobuchar from Minnesota, you believe wholeheartedly that, Fee for service, the traditional direct, which it’s not, it’s not a direct program.

Emily Evans: Um, that, that’s the, that’s the mission and role of, of the government. And you don’t want to see this privatization. And this is, this is going to make you very nervous and [00:18:00] unhappy as it, as it plays out.

Marcus: Can you just unpack a little bit more, the, um, the part A versus the part B that, and, and sort of what that tension is there between, um, the The, the, the managed care organizations and Medicare Advantage and, and the hospitals.

Marcus: I mean, so for, for anyone who’s listening and not, not viewing, uh, the, the rates were very, very tightly coupled between, um, Medicare Advantage and, and fee for service. And obviously there’s a higher burden, uh, in a Medicare Advantage model than there is in a fee for service model. But what, but at the same time, the enrollments are.

Marcus: Are now over 50%, right? Medicare Advantage. I mean, not, not just the prescription drug plan stuff, but Medicare Advantage, even though it is decelerating in its growth, it has become the dominant model for senior care in, in, in America. And so, and so that would seem to create, um, you know, situations [00:19:00] for, for hospitals.

Marcus: In more than half the cases when they’re caring for seniors, and that’s really expensive care, um, where the burden, uh, of, of care management is higher for them, um, rates are no better than they would get for fee for service, um, but what, what else is going on there from a tension perspective?

Emily Evans: What you have, uh, with the health systems in America is one, first of all, it’s, it’s got, it’s, it’s consolidated a lot.

Emily Evans: It’s not as consolidated as people like to think, but it’s definitely consolidated. And, and over the years, and, and typically in a market, Unless you’re talking about Houston, like a really fast growing area, you have, you know, or Nashville, cause we were home to a hospital coming, you have, you know, usually you have two hospitals and some places you only have one.

Emily Evans: Um, so in, in the markets, the hospitals are very much a dominant player, a definer, [00:20:00] if you will, and you cannot say to your members. You know, we’re not going to, we’re not going to put Vanderbilt on our, on our, um, on our network, right? You can’t, you can’t do that. And Vanderbilt, of course, knows that, just to pick on Vanderbilt because they’re local, but, and of course they know that.

Emily Evans: So, so you have to put hospitals in your network that are, that attract members and keep members. That’s your first consideration. Then those hospitals have to get rates that can keep your capitated payment, you know, where you want it to be in order to also be competitive in your market. It has gotten very, very difficult and one of the reasons for that is labor costs.

Emily Evans: Uh, if you look at the way in which labor costs took off in 2021 and throughout 2022, the curve is a lot steeper in hospitals than it is in doctor’s offices. Why is that? [00:21:00] Because people prefer to work in the doctor’s office, you know, so, so they’re willing to take a little bit less of a wage, you know, for the nice predictability of, of, you know, working with in the doctor’s office.

Emily Evans: So your hospital systems are, first of all, have a Um, stroke in the market, right? Uh, but at the same time, um, they’re very expensive. So you’re an insurance company, you got to put them in your network. So what are you going to do? You’re going to try as hard as you can to pay them as little as possible while still keeping in their network.

Emily Evans: And that’s why you see in the, in the graph I showed, this convergence between fee for service And Medicare Advantage outlays because you’re, you’re, you, you really, you, you’ve got, you’ve got one Titan basically beating up on the other. Uh, and, and, and there, it’s, it’s sort of a, um, a, uh, it’s right, it’s a draw right now.

Emily Evans: And this is why we’re hearing so much about, you [00:22:00] know, prior authorization and, and the American Hospital Association trying to get Congress to intervene and, and all of these things, these are all a result of the insurance companies trying to find that balance between those competing, uh, competing interests.

Emily Evans: So, uh, now when you’re talking about Part B, it’s primarily physicians, there are 860, 000 physicians in this country. Okay, you know, the multi, a typical multi specialty practice, you know, large multi specialty practice is what, 250 physicians, 200 physicians? Um, you know, if you, you start getting into the three, 400, that, that’s, that’s, that’s really large.

Emily Evans: Well, there’s a, A lot of those and and you don’t have quite the negotiation going on that you would have with with the hospital and do people they want their doctor they want to keep their doctor that this is true and I think that plays out but doesn’t matter do they go to this orthopedic surgeon or that [00:23:00] orthopedic surgeon they just they just met him for their knee you know um so that that’s that’s the part b dynamic and it’s very very different and medicare advantage plans can pay You can take advantage of it and it allows them to negotiate better prices.

Emily Evans: It’s not as critical in every specialty case that you have every single doctor in town and your network like you have to have, you know, most hospitals in town. So that’s the, that’s the, the yin and the yang and it’s hard to know exactly how it’s going to turn out. Um, because. You know, on the one hand, we’re hearing anecdotally that physicians offices, you know, they’re dropping Medicare and Medicare Advantage is like, this is just too much of a pain in the neck.

Marcus: I was about to ask about that. So, you know, the, the, the word on the street is that innovating in the specialty space in Medicare Advantage has gotten really, really hard, really, really fast. Like, is that [00:24:00] right? Uh, yeah, yeah, we’re talking like in the last six to nine months. Um, it’s, it’s very much sort of, you know, word on the street.

Marcus: So, you know, I, I’m not going to name names or talk about companies or talk about who’s, who’s struggling. And when you say

Emily Evans: you specialty, you mean like orthopedics or cardiac or so forth, right?

Marcus: Uh, no, probably more sort of specific disease states. So, you know, we might be talking about, um, Yeah, we might be talking about diabetes, we might be talking about, uh, cancer, actually, you know, groups who are focusing on cancer from a, from a value based care perspective, you know, just, just hearing that there, there’s a lot of headwinds, uh, in there, um, you know, these groups are not big enough to garner articles from the Wall Street Journal, right?

Marcus: You know, Wall Street Journal is going to write about Humana, um, it looks like, um, I don’t know, But like, how do you see, it seems to me that you basically feel like, okay, we’re going to hear about the rate stuff. The rate stuff becomes effectively theater, maybe to even say what was me and then over perform [00:25:00] on a quarterly basis, especially for the publicly traded companies.

Emily Evans: Well, say what was me so you can keep Congress off your back too.

Marcus: Yeah. Okay. Okay. Fair, fair play. And, and then, and then also they have the ability to. Race premiums and they have, you know, like they have plays that they can still execute out there. Um, and of course, like you never want to just lay on your back and accept sort of poor rates.

Marcus: I mean, you always want to sort of posture and say, I’d like better rates. Um, but, but at the end of the day, somebody gets, gets impacted and gets hurt. You know, Vic and I were always trying to, the reason why we study all this stuff is so we can understand where to. And so Medicare Advantage was a super popular space for, you know, probably five, six years they’re running straight and, and now it’s starting to get kind of, kind of cold, um, in, in the VC markets.

Marcus: So is, is that something that’s You would expect based on the data analysis that you’ve that you’ve done here recently,

Emily Evans: and since you guys kind of run ahead of us by a [00:26:00] few years, you know, I think it’s, it’s important, really important point because, uh, you know, and I, and I would guess that the, a big driver of that is the demographics, you know, having no, no longer being a growth area.

Emily Evans: I think it’s stupid not to innovate. You know, when you have, when you have scarcity, that’s when you’re supposed to innovate, um, and it could be that thinking about that innovation needs to think more about scarcity, you know, demographic headwinds, um, making sure docs can be Medicare, take Medicare advantage, but also practice medicine, um, those, those are, those are kind of, those are the kinds of things that, that everybody should be thinking about because at some point, you know, Um, you know, the, the game plan for Medicare Advantage has been let me get as many people on these roles as possible and eventually it’s going to be about more about profitability, you know, more about preserving margin.

Emily Evans: And that means you’re, you’re going to [00:27:00] have to make sure that everybody who works for your plan, uh, at either as a doctor or, you know, whatever, they, they have to, you know, They have to be as efficient as possible.

Vic: Yeah. So it’s, it’s kind of interesting that the, the health plans, Medicare Advantage health plans are negotiating with the health systems and depending on the market, it might be slight variations, but what you’re showing a couple of slides back was they’re, they’re sort of a, they’re negotiated to a, to a draw, right there.

Vic: They’re kind of paying roughly the same amount. Whereas when you go to the physician groups. Um, and maybe surgery centers were surgery center. So they and be,

Emily Evans: uh, they’re in, they’re in part B. Yeah, they’re outpatient.

Vic: So physician groups and surgery centers, they don’t have the same negotiating power. So they’re except they having to accept a lower rating in Medicare advantage, or they just opt out altogether.

Vic: Which is, which [00:28:00] is maybe worse, definitely worse for the patient, but, um, it’s not as common that someone would not enroll in Medicaid Advantage because a particular physician group had opted out.

Emily Evans: It, it, it, especially if it, if it was a primary. Care position, you would care if you, if you, or if you, if you say you have a chronic disease and it’s your endocrinologist and they’re not in the network, you’re going to care about that.

Emily Evans: Are you going to care about the, the guy you’re going to see for a few minutes before he replaces your knee? Probably not, you know, and that probably not.

Vic: Yeah, and it’s um, I mean, I think there is a, there’s a difference in patient choice there. The other thing that, that I think I just want to bring up is if you’re in Medicare, the physician group is typically moving away and not accepting Medicare at all in any form.

Vic: And so if I, if I’m managing a plan and trying to build a network at Humana or United or any plan, there’s really not any [00:29:00] alternative that is very scary. Like if, You know, I, I need to get my share, hopefully more than my share, of the Medicaid Advantage population. But if this doc abandons and isn’t accepting anyone That member is not going to go to another Medicare Advantage plan because of that, because it’s, they’re not accepting Medicare at all.

Emily Evans: Yeah, that, that, that doctor wouldn’t, so, so that patient has a choice of going concierge, which is typically what we’ll see, we’ll see a doc. You know, okay i’m done taking the insurance thing and and that across the board and then he’ll say i’m gonna I’m gonna be send me two grand a year and that’ll be i’ll be your concierge doc that’s becoming uh more popular Uh, or that patient has to go find another doctor, which is never ideal um, but that’s that’s that’s kind of the I think the world we’re we’re going to be living in here as this Tension continues to get tighter, but you’re seeing it first in health systems, hospitals, [00:30:00] before you see it in, in the doctor, you know, down on the corner.

Vic: So, Emily, we’ve been following, um, various reports, sort of measuring and mapping how much CMS pays for pharmaceuticals. A couple, couple weeks ago was the GLP ones. Last week, it was the Alzheimer’s, and it’s in the, you know, multi billions per year and rising pretty quickly. Um, and I wanted to circle back to talk to you about the ongoing sort of evolution of where FDA’s mandate is versus CMS’s mandate in a new drug that, that comes up and shows a lot of promise.

Vic: First of all, how, how do you think the agencies ought to be set up or how were they set up in the legislation? And then how do you think it’s evolving today? Cause it seems like there’s a There’s a transition there.

Emily Evans: Uh, yeah, you’re [00:31:00] seeing a paradigm shift, uh, as it were. Um, and the paradigm shift is brought about largely by the inflation reduction act, which included, uh, provisions that were to control the.

Emily Evans: Drug spend the medicare drug spend and those provisions include one that allowed medicare to negotiate with manufacturers on top 10 drugs in spend. This would be things like, uh, I well, no, it’s not on it. Um, Xanda, I think is Xandy is one that’s on it. Uh, and, um, and negotiate those prices with the drug companies.

Emily Evans: Uh, it’s a, it’s a squirrely provision. I’m not sure it stands up under court, under, uh, scrutiny from the courts because the penalty for not negotiating with the government is a 95 percent excise tax on sales, there’s a reasonableness [00:32:00] to all this. And that I think most people would consider unreasonable, but we’ll see.

Emily Evans: We’ll see how that goes there. That’s being played out in about half the courts in the country from what I could tell. Um, then the other provision, um, was a, uh, an inflation cap. Uh, this has been true in Medicaid for years. Uh, so this is nothing new. Everybody knows what to do with it. All it does is push the launch price of the drug up and that, and from there on it gets to have, uh, inflation, basically inflation, which right now is, you know, pretty hot.

Emily Evans: So, uh, so those are the two provisions, but the, the biggest, the, the message, you know, from the Biden administration and they’ve gone on the, on the campaign trail with this is. You know, we have, we’re the first, we control drug prices with the Inflation Reduction Act, da da da da da. Well, that’s great until the headline, you know, on the nightly news is a Zempik will cost you 1, 300 a month.

Emily Evans: Now, it doesn’t cost [00:33:00] you 1, 300 a month, but that’s the headline. Uh, you know, the Alzheimer’s drug, Adihelm, uh, was priced at 56, 000 a year. Okay, uh, these are, these are perc problems of perception, and, but when you are in politics, you have to care about problems of perception. And so the problem there for the White House is, wow, these fancy drugs are coming through here, They got big numbers on them.

Emily Evans: People are going to think we didn’t actually control the drug spend with the Inflation Reduction Act because they’re getting hit with these headlines. So that’s the that’s the problem. Okay. So what’s the solution? Um, as far as the FDA is concerned, they don’t care if a drug meets The requirements of safety and efficacy and we’ll get to that efficacy part of it.

Emily Evans: We don’t hear 56 51 percent of their budget comes from the drug industry. They don’t approve drugs. They don’t have a budget. [00:34:00] I’m not saying they Approved drugs, they shouldn’t. They just, if they, they stop approving drugs, they don’t, they don’t have a budget. It’s why they’re there. Uh, so, uh, so, so that runs counter to CMS’s position, which is we need to control the drug spread.

Emily Evans: So, okay, what’s the solution? FDA is not really playing ball. They are approving drugs because they’re safe. Efficacy is getting a little loosey goosey, uh, which is CMS’s complaint, like take the Alzheimer’s drugs, where you’ve said this is safe and there’s safety and efficacy, it’s passed the test, but we’ve got some pretty significant side effects.

Emily Evans: So what CMS is doing is grabbing the Those side effects and say, all right, Medicare is only going to pay for it under these restrictions, and those restrictions were pretty strong, mostly only going to pay for in a clinical setting. So along comes the Zempik. Safe, it appears. [00:35:00] Efficacy on weight loss is fairly well documented, but you can’t cover, you can’t, can’t cover weight loss drugs, uh, or I should, health, um, heartbeat drug plan sponsors do not have to cover weight loss drugs.

Emily Evans: And they have chosen, since the law was, um, passed 20, over 20 years ago, not to do that. Uh, so the, the, position on the weight loss drugs is, okay, they work, it looks like they’re pretty safe, but Medicare won’t cover them. All right, so the drug company’s like, well, how do I get Medicare to cover? All right.

Emily Evans: What I do is I do some research and produce a study on this drug doing a good job on cardiovascular disease. You know, if you take Osempic, you are less likely to have a major cardiovascular event. The difference is not huge. It’s the placebo was 8% Ozempic, or no, Ugovi, six percent. That turns it, turned it into 20, [00:36:00] 20 percent improvement.

Emily Evans: But you’re, you’re really pretty low base numbers. Um, so CMS is like, okay, very expensive, same problem, big expensive drug approved by the FDA. They say it’s safe, it, it meets the test of safety and efficacy. We’re supposed to be controlling spend, All right then, Part D plans. You can use all of the tricks in your utilization management basket to control the spend for the cardiovascular indications.

Emily Evans: Um, and that’s how they’re managing through it. And it’s getting kind of funny actually, because they’re, they’re like, you know, what do we, what do we do? Um, and that, and that it’s a, It’s a huge departure from many, many years of FDA approves, CMS pays for it. Okay, no questions asked. Yeah, and

Vic: I guess the thing I’m struggling with is It seems like CMS has assumed this mantle of trying [00:37:00] to make a value decision of this drug is worth paying for because it has better efficacy than the side effects are negative, or something similar to that.

Vic: First of all, is that Is that what they’re trying to navigate?

Emily Evans: I would say that they’re walking towards that line, they’re just not walking over that line. Um, for example, Anuhelm had some pretty important side effects, bleeding, brain bleeding, for example, hemorrhaging.

Marcus: That’s a big one.

Emily Evans: And CMS said, alright, that drug was approved, but we want that administered in a clinical environment.

Emily Evans: We want, we want, and they did this with the follow on drug. We want, we want registry. We want to know who’s taking it. You know, we’re, we’re, we want to have post approval [00:38:00] information about this drug, which, by the way, the FDA has and can require. The FDA has just been really, really bad about collecting post approval information, largely because they can’t do anything about it.

Emily Evans: If a drug doesn’t perform post market, There’s, they, the drug companies really have to voluntarily withdraw it. So what CMS is saying is, eh, you know, okay, kind of safe, kind of, you know, efficacious, let’s get more information. That’s, that’s kinda what they’re saying. They’re not really crossing the line and trying to substitute their judgment for the FDAs, which is what they’re, they need to avoid doing.

Emily Evans: Um, but they’re coming awfully close to it. And, uh, and that’s, and that’s a. Political problem. I mean, it’s a political, politically motivated more than it is anything else. And it could, and it could, it will, what could transpire here is we could have a real all out war between these two [00:39:00] agencies where the CMS actually starts putting its feet in the shoes of the FDA.

Emily Evans: I don’t think that’s going to happen. I think they’re going to play these games and hope for, you know, drug approvals that are, um, aren’t so expensive.

Marcus: So one of the questions I had is, The nature of some of these Um, therapies, and I think this will be the case more and more as more and more, um, cell and gene therapies do make it across the line.

Marcus: Um, you know, we’re, we’re kind of backlogged at the moment, but at some point that’s gonna all open up. You know, we had the CRISPR thing with, um, with sickle cell here recently. Right? Now,

Emily Evans: keep in mind, Marcus, when a drug is the, the, the real concern is not, um, just the expense of the drug, it’s the expense of the drug times units.

Emily Evans: So I’ll add you, uh, Alzheimer’s, a lot of units. Weight loss, a lot of units, a very rare [00:40:00] genetic disease, not a lot of units. So just, I forgot to mention that earlier, but go on. No, no,

Marcus: no. That that’s, that, that, that’s an important point. So in fact, it’s relevant to what I’m, what I’m going to ask, which is, it seems like, um, We’ve had decades of therapies that improved the model of care that, you know, clinicians plus technology can deliver to patients, but now I think everyone is hoping we’re on the precipice of therapies that can improve it.

Marcus: Relieve the need to have certain models of care entirely. And so, you know, talking about the GLP ones and chronic kidney disease and, you know, sort of what the, the specter of this whole class of drugs is doing to devita, for example, right, you know, and I realize this is kind of a, it’s a, it’s a new thing.

Marcus: It’s got to play out for a very, very long time, but is that something that [00:41:00] CMS is considering or thinking about? Like, you know, do they, do they incorporate, Hey. If this thing does actually, you know, uh, get the kind of proliferation that we’re modeling, that could have cost savings in, in dialysis or other things like that.

Emily Evans: There, there’s an attempt to do that mostly in the congressional budget office, not the CMS, but the office of the actuary, uh, does that sort of work. So if, if evidence is presented, About cost savings from cardiovascular disease, which is where we’ve got the indication outside of diabetes and weight loss.

Emily Evans: That is something with good research and evidence. And I questioned it for cardiovascular disease, but let me get to one that I think will really matter that can make its way into the office of the actuaries projections. He will talk about that. He will write about that. And, and that will, that will tell us, that will give us the signal that, okay.

Emily Evans: that we need. [00:42:00] One of the interesting things about the GLP 1 drugs, and this is actually, I think, more important than what it might mean for weight loss, dialysis, cardiovascular disease, and that’s a study that was released, I guess it was a week and a half ago, on what GLP 1 drugs do for mental health. So there is a way in which the brain processes and uses glucose that is controlled by the GLP 1 drugs.

Emily Evans: And all we have is mouse data. Okay. But if you, and we, there’s a lot of ongoing research about the role of gut health and mental health, which you probably, because you’re, you’re, you’re into wellness. Um, you both are. You probably have heard about, right? And, and anecdotally, you know, if you know a trainer or somebody who’s in really good health, they all, they know this, you know, they, they, they talk fairly competently about it.

Emily Evans: But, um, but now there, there’s a lot more research going here. So if you have a drug, [00:43:00] the GLP 1 drugs, Actually have a positive impact on a serious mental health condition, like schizophrenia, taking that patient from somebody who cannot function to a patient who can go to work. That’s could be a really big deal or somebody who doesn’t crash into the ER, you know, once a month or whatever.

Emily Evans: So, so the answer to your question is yes. That gets studied, but probably not on the time scale that your typical, you know, Wall Street buy side analyst is going to do, but possibly over the long term for, you know, other considerations, other investment considerations, you know, like, like venture in particular.

Vic: Okay. Well, we need to keep watching that because I think CMS and FDA are so critical to the industry. This evolution is going to make a big impact over time. It’s a slow moving train, but it feels like it’s changing.

Marcus: Yeah, for sure. All

Vic: right,

Marcus: last point.

Vic: Yeah, last point. So, uh, the Senate has begun to make noises [00:44:00] around assessing whether non profit hospitals or untaxed hospitals should be relooked at.

Vic: You brought this to my attention. So talk through like, how real is that? And what’s the process they’ll go through?

Emily Evans: It’s real in the sense that most of the conflict between nonprofit health systems has been with local governments. Where we had a situation in Morristown, New Jersey, the latest is in Pottstown, Pennsylvania, that was last year, where the local government is looking at its, its tax rolls, it’s got a big hole created by the local hospital or the local health system.

Emily Evans: And it starts asking questions like, well, how much charity care do you do? You know, garnishments to patients who couldn’t pay? And, you know, and, and, you know, all those questions. So there’s actually. uh, Hotspot on Pottstown, Pennsylvania that lost its, um, its local tax exemption that would apply largely to property taxes.

Emily Evans: Uh, and, and so there, and that, I think it was the first one. So it [00:45:00] hasn’t really happened a ton, but I will tell you that last mayor’s race, I had quite a few conversations with candidates asking that question. What about that big hole in our property taxes there on 21st and West End? Um, so not to suggest anything here, but that it’s, it’s on the mind, right?

Emily Evans: So, um, so what the, what the Senate, what has the Senate’s interest is the income tax exemption created by a federal 501c3 statute. And what they’re asking is not the health systems, how much charity are you doing? What they’re asking the IRS is what do they have to do to be tax exempt? They just need to file a 501c3 approval and get approvals or something more to this.

Emily Evans: And the fact of the matter is the IRS doesn’t have a great process. They don’t have guidance on it. They don’t have due diligence on it. So, so, so it’s, and this coming from the left, [00:46:00] uh, Bernie Sanders, Amy Klobuchar, uh, to name a couple, but Stat News, uh, two days ago published a, um, uh, published an op ed from Marty McCary at Johns Hopkins, uh, who has become a leader on evidence based care and, you know, Pricing and so forth, saying basically the same thing.

Emily Evans: This really needs to get a good look. So I think that it has legs in the sense that the IRS will be called to task to manage their oversight of the 501c3 exemption and makes and express what those standards should be. You know, I think garnishing wages, you know, is Definitely going to be off the table.

Emily Evans: Um, if you’re going to be a non Braven hospital, there’s probably a few other things, um, that Mari McCary listed that I didn’t know were going on. Uh, and, and I, I think that’s, it’s kind of where it goes, but, you know, and, and the [00:47:00] larger lesson here is that Nonprofit hospitals have have kind of stuck their neck out, maybe a little bit too far when it comes to, you know, they’re not no offense to anyone.

Emily Evans: Venture funding, for example, that’s not that’s that that that might make a lot of sense internally. That doesn’t make a lot of sense. If you’re a member of Congress and and yeah, the optics

Marcus: on that. The optics on that, the optics on that are just not, not great. Yeah. Yeah. I get that. I get that. Optics

Vic: of a nonprofit health system, having a large portfolio of money in venture capital growth assets, or some, you know, a bad actor, like I think Stewart health, where they sold property, you know, to fund salaries and ongoing expenses, and didn’t really use the money in any way that, Benefited, you know, the community that much.

Vic: Yeah. Um,

Emily Evans: sent it to Birmingham.

Vic: Yes. Yeah. Okay. Well, we’ll have to watch [00:48:00] that. I think it’s going to continue to be kind of a hot hot topic over the next, uh, six months or so.

Emily Evans: Yeah. I think it’s, I think it’ll probably endure longer than that, but embolden local governments. I think that that will, that will definitely, um, probably come first.

Emily Evans: And then I think the IRS sets some standards and then the nonprofits are going to be in that position where they’re going to have to say, all right, can we meet these standards do, do, does being for profit make more sense here? Um, considering these, these are all, we don’t know the answers to these things, but those are the next questions.

Marcus: Wow, that’s a big deal. I mean, that’s a big deal.

Emily Evans: Huge deal. Huge deal.

Vic: Yeah. I mean, I don’t know that there’s that many nonprofits that could manage that transition.

Emily Evans: It would be a very, it would be a very different environment.

Vic: Yeah. That combined with the grant funding sort of declining over time. It’s going to be really hard.

Vic: I mean, the academic medical centers really received other recipients of [00:49:00] that probably. So,

Marcus: all right, Emily, thanks. See you in a quarter.

Emily Evans: Okay, thanks you for having me and I look forward to seeing you guys again.

Vic: All right. Thank you. Bye.

Emily Evans: All right, bye.