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Our Take: 2020’s (other) top stories

Dec 21, 2020

Editor’s note: This is the last issue of Our Take for 2020. Look for the next one on Jan. 4. We hope you enjoy the holidays.

2020’s (other) top stories

There’s no question that the pandemic has been THE top story of the year and will undoubtedly dominate the news well into next year; the novel coronavirus has affected every facet of the industry, if not society. While COVID-19 has been a factor in the top five stories we’ve selected for our recap, it’s not our point of focus. Instead, we’ve homed in on what else we believe is important to remember about health care stakeholders and value-based care in 2020.

1. Big Pharma made a big comeback

Between the relatively recent (and in some cases ongoing) investigations by lawmakers and the U.S. government into high drug prices, the so far mostly failed attempts to lower drug prices, and the spotlight on several drugmakers’ roles in fueling the country’s opioid crisis, the pharmaceutical industry’s reputation was in tatters this time a year ago. As Stephen Buranyi wrote in an opinion piece for The New York Times last Thursday, “Gallup polling had the pharmaceutical industry ranked the most disliked in America, below both big oil and big government.” That’s beyond bad.

But now, several pharma heavyweights — along with a relative newbie based in Cambridge, Mass. — have risen dramatically in status here and in many parts of the world because they offer what most people see as the best hope for wrangling SARS-CoV-2 into submission.

To hasten the discovery and development of a treatment and possibly even a cure for COVID-19, and to ensure greater access to such treatments or cures through the expedited manufacture of generic versions, some pharma companies waived or suspended their patent rights. Some companies formed collaborations with competitors. And some promised they would price their products fairly so that more people could have access to them once they were authorized or approved.

Collectively, these self-sacrificing steps appeared to positively influence the public’s opinion of Big Pharma, or at least some of its key members. As the year wore on and COVID-19 took its toll, and as people grew increasingly weary of taking precautions to slow the spread of the coronavirus, a handful of drugmakers emerged as potential “heroes.”

The FDA granted emergency use authorization (EUA) to Gilead Sciences’ remdesivir on May 1 for severe cases of the disease, and on Oct. 22 the antiviral, now marketed under the brand name Veklury, became the first drug to gain full approval in the U.S. as a treatment for COVID-19. Last month, the FDA granted EUAs to three monoclonal antibodies — Eli Lilly’s bamlanivimab on Nov. 9, and Regeneron Pharmaceuticals’ antibody cocktail consisting of casirivimab and imdevimab on Nov. 21. Eli Lilly’s Olumiant (baricitinib) received an EUA on Nov. 19 for use in combination with Veklury.

Subsequently, and with greater fanfare, Pfizer and BioNTech’s COVID-19 vaccine was granted an EUA on Dec. 11. On Friday — precisely a week later — Moderna took its place alongside the big-league players when the FDA granted its vaccine an EUA. Given that both vaccines are based on mRNA technology, their authorization represents a milestone within the industry.

If these and future vaccines can turn the tide in the global battle against the coronavirus, then the pharmaceutical and biotechnology companies that have led the charge certainly will have earned kudos for their roles. As Mr. Buranyi’s points out in the Times article, though, we shouldn’t overlook the contributions of the many scientists, researchers, and other collaborators who built the foundation that made it possible for these vaccines to be authorized so swiftly. They also deserve recognition and praise.

While we’re on the topic of the pharmaceutical industry, we should note that several billion-dollar mergers occurred in the second half of 2020. In August, Johnson & Johnson signed a definitive agreement to acquire Momenta Pharmaceuticals in a deal valued at approximately $6.5 billion, Sanofi entered into a definitive agreement to spend about $3.7 billion to increase its stake in Principia Biopharma, and Gilead Sciences expanded its collaboration with Tango Therapeutics in a deal that eventually could be valued at more than $6.1 billion. A month later, Gilead stunned analysts by announcing that it would spend $21 billion to acquire Immunomedics. In October, Bristol Myers Squibb agreed to buy MyoKardia for $13.1 billion.

Then in November, the Federal Trade Commission cleared the way for Pfizer and Mylan to combine Mylan with Pfizer’s Upjohn business unit, as long as certain divestitures were made. As part of that deal, Pfizer will receive $12 billion from the resulting combined company, which will operate under the name Viatris. In a smaller transaction, Merck & Co. signed a definitive agreement earlier this month to acquire OncoImmune for $425 million in cash and potential milestone payments. Merck will also invest $50 million in a spinoff stemming from that deal.

And finally, we’d be remiss if we didn’t mention the dissolution of Purdue Pharma. In October, the company agreed to pay $8.3 billion as part of a settlement announced by the Justice Department in connection with its role in the opioid epidemic that has gripped the country for decades. When Purdue completes its bankruptcy restructuring, it will emerge as a public benefit company governed by a trust.

2. Insurers used some of their record profits to offer financial assistance

Even before the pandemic hit, many of the leading insurers were reporting billions of dollars in annual profit. For instance, CVS Health recorded $6.6 billion in profit for 2019, the first year in which CVS-Aetna reported financial results as a combined company. Kaiser Permanente nearly tripled its profits year over year, from $6.2 billion in 2018 to $17.2 billion in 2019. And even though it was “only” an increase of 15.5% from the previous year, UnitedHealth Group reported a profit of $13.8 billion for 2019.

Moving on to 2020, in large part because of decreased utilization, the nation’s largest insurers reported second-quarter profits that were significantly higher than what they reported for the same quarter in 2019: CVS Health, $2.98 billion vs. $1.9 billion; Kaiser Permanente, $4.5 billion vs. $2 billion; UnitedHealth Group, $6.7 billion vs. $3.4 billion; Anthem, $2.3 billion vs. $1.1 billion; Humana, $1.8 billion vs. $940 million; Cigna, $1.8 billion vs. $1.4 billion; and Centene, $1.21 billion vs. $495 million.

Those increases prompted The New York Times to report that “the nation’s leading health insurers are experiencing an embarrassment of profits.”

Recognizing that they couldn’t justify retaining the entirety of their profits while millions of their members faced financial devastation, most insurers offered some kind of assistance — for example, by waiving members’ out-of-pocket costs for COVID-19-related care or for telehealth and in-person primary care/behavioral health visits. Some, like UnitedHealth, provided premium credits. Many paid rebates. Others offered providers financial assistance to help with cash flow.

We’ll take a look at the year-end financial reports when they come out next year to see how much these insurers felt obligated to help.

3. The use of telemedicine exploded

The widespread adoption of telehealth might well be the most long-lasting way in which the pandemic has changed the national health care landscape.

Many of the health system executives we interviewed for our latest IDN Engagement Tracking Study told us they were forced to stand up an entire telemedicine program overnight when the pandemic hit. Among the health systems we evaluated, at the peak of the spring outbreak, some 61% of primary care visits and 49% of specialty care visits were conducted virtually. Even sophisticated health systems with advanced telemedicine programs saw an increase in virtual visits of more than 1,000%.

Within a few months, the numbers had fallen off by about half, but roughly three-quarters of the executives we spoke with said they would probably continue to use telemedicine at similar levels even after the pandemic — and a similar percentage said they would still see the benefit of telemedicine even if it weren’t reimbursed at parity.

Initially, the increased use of virtual visits wasn’t enough to offset the decrease in outpatient visits. By mid-March, the overall number of visits to ambulatory practices had dropped by 60% according to an analysis undertaken by researchers at Harvard University in conjunction with health care tech firm Phreesia. That same analysis found that before the first week in March, almost none of the visits that were tracked were conducted via telehealth, but by the middle of April, 30% were conducted by phone or video.

Consumers were hesitant to try telehealth, but once they did, the majority (76%) said they were interested in using telehealth in the future, according to the McKinsey COVID-19 Consumer Survey conducted in April. A Morning Consult poll of more than 1,000 seniors conducted around the same time found an even higher level of support for telehealth.

CMS helped to boost telehealth utilization by increasing reimbursement (including a substantial increase for audio-only provider visits), by waiving the video requirement for certain telephone evaluation and management services, and by expanding the types of practitioners who can provide Medicare telehealth services as well as the types of services that are eligible for reimbursement.

As a result of the increased usage, telehealth companies saw their revenue — and their stock prices — soar. As an example, Teladoc’s second-quarter income increased 85% and virtual visits increased 203% relative to the same period in 2019. The opening price of Teladoc’s stock on Jan. 1, 2020, was $84. According to CNBC, the stock hit a 52-week high on Aug. 4 at $253. That was the day before the company announced that it had signed a definitive agreement to merge with Livongo. The transaction, valued at $18.5 billion, closed on Oct. 30.

Google-backed telehealth company Amwell is another example. The company raised $742 million in an initial public offering in September, selling 41.2 million shares at $18 per share. The next day, the stock’s opening price was $25.51 per share, an increase of 42%.

Michigan-based insurer Priority Health is betting so much on the popularity of telehealth that it launched new health plans in October in which all primary care visits occur virtually, and members need a referral from their PCP to see a specialist in person.

4. Value-based care continued its march forward

We found out in September from the National Association of ACOs that accountable care organizations participating in the Medicare Shared Savings Program (MSSP) generated $2.65 billion in savings for Medicare in 2019. After factoring in the shared savings bonuses Medicare paid out to participating ACOs and the shared loss payments it collected from them, the net savings totaled $1.2 billion — the highest of any year so far in the MSSP.

To help ACOs weather the pandemic, CMS eliminated shared losses for the duration of the public health emergency and gave some an extra year at their current participation level.

CMS also announced that it would be launching several new value-based initiatives. They include the Community Health Access and Rural Transformation (CHART) model for rural hospitals and ACOs, which will provide upfront and annual capitated payments; the End-Stage Renal Disease Treatment Choices Model, which will start on Jan. 1; the Radiation Oncology Model, which also was supposed to start on Jan. 1 but will instead launch on July 1; the Most Favored Nation model, which will limit Medicare payments for 50 commonly prescribed Part B drugs and biologicals to the lowest price the manufacturers receive in “other similar countries,” and the Acute Hospital Care at Home program, which expands hospitals’ ability to provide acute care to patients in their home during COVID-19 surges. The agency also identified 916 physician practices that will participate in the Primary Care First Model starting in January.

Further, CMS just finalized a rule to update the Stark Law with new, permanent exceptions that will give providers more flexibility to enter into value-based payment arrangements without the fear of violating the law. Those changes are scheduled to take effect on Jan. 19, 2021. Similarly, the Department of Health and Human Services issued a final rule establishing new safe harbors in the anti-kickback statute that will allow businesses like medical device manufacturers and durable medical equipment companies to participate in value-based arrangements involving digital health technologies.

The private sector is moving ahead with the transition to value-based care as well. Aetna teamed up with Emory Healthcare and Northside Hospital System in Atlanta earlier this year on the Aetna Whole Health program, a value-based model that offers HMO and EPO coverage; CVS HealthHUB stores are directly integrated into the model. In mid-September, CareFIrst Blue Cross Blue Shield and MedStar Health announced that they would collaborate on a value-based care initiative, with the goal of saving $400 million in the next seven years. Around the same time, Humana created two new value-based payment programs for members in some of its Medicare Advantage plans — a coronary artery bypass grafting episode-based model and a total shoulder specialist rewards program. In November, Blue Cross Blue Shield of Illinois announced its Health Equity Hospital Quality Incentive Pilot Program. Through the program, the insurer will provide about $100 million to hospitals that serve a high concentration of plan members who are most at risk of contracting COVID-19.

5. Several mergers were initiated, two were completed, and quite a few were called off

Sentara Healthcare and Cone Health signed a letter of intent (LOI) in August to combine and create a “value-driven” organization, with an anticipated closing date in mid-2021. In September, Lifespan and Care New England signed an LOI to merge and create a nonprofit academic medical center with Brown University. That same month, Hackensack Meridian Health, RWJBarnabas Health, and Horizon Blue Cross Blue Shield New Jersey announced that they were launching Braven Health, a joint venture is offering Medicare Advantage plans in eight New Jersey counties for the 2021 plan year. In October, Lafayette General Hospital officially became part of Ochsner Health, and the merger between Atrium Health and Wake Forest Baptist Health was completed.

Gundersen Health System and Marshfield Clinic Health System called off their merger in January but said they would continue to partner on existing initiatives. In late June, four hospitals on Chicago’s South Side — Advocate Trinity Hospital, Mercy Hospital & Medical Center, South Shore Hospital, and St. Bernard Hospital — gave up on their plans for a $1.1 billion merger, and Beaumont Health and Summa Health announced that they would not proceed with their partnership plans. Soon thereafter, Beaumont and Advocate Aurora signed a nonbinding LOI, resuming the merger discussions they had started in 2019 but then halted because of the pandemic. Those plans were permanently scrapped in October. Intermountain Healthcare and Sanford Health said in late October they had signed an LOI to merge, but by early December those plans had been shelved indefinitely after Sandford CEO Kelby Krabbenhoft stepped down. And just recently the Federal Trade Commission (FTC) sued to stop Hackensack Meridian Health from acquiring Englewood Healthcare Foundation. However, it looks like attempts by the FTC and Pennsylvania’s attorney general to prevent the merger between Jefferson Health and Albert Einstein Healthcare Network may have failed.

On a final note, a previous merger was undone: In early November, AtlantiCare finalized its separation from Geisinger.

And let’s not forget…

  • The fate of the Affordable Care Act remained undecided. After the U.S. Supreme Court heard the latest argument in the case in November, it appeared as though the majority of the justices were in favor of salvaging the act even if the individual mandate was struck down. The court is expected to rule on the case by June.
  • The attorneys general of 48 states, Washington, D.C., and four U.S. territories filed an antitrust lawsuit in June accusing 26 manufacturers of generic drugs and 10 executives of price fixing. Teva’s Actavis unit, Mallinckrodt, Mylan, Novartis’ Sandoz unit, Pfizer, and Sun Pharmaceutical Industries are among the defendants named in the lawsuit.
  • Several companies initiated or expanded their presence as community health care providers. In January, CVS Health opened HealthHUBs in 15 additional CVS pharmacy locations in the Houston area and said it planned to open more this year in Houston and other major metro areas. Ultimately, the company intends to operate 1,500 HealthHUBs by the end of 2021. In February, Humana announced a joint venture with a private equity firm, with the goal of opening new value-based primary care centers that predominantly serve Medicare beneficiaries. In July, Walgreens and VillageMD said they would open 500 to 700 full-service physician offices within the next five years, Amazon announced a pilot program to open 20 Neighborhood Health Centers for its employees in five cities, and Walmart disclosed plans to open several health super centers in Florida next year.
  • Walmart also jumped into the health insurance business, launching an agency in July called Walmart Insurance Services. The company formally introduced the agency in October and said it would sell Medicare plans offered by a number of leading insurers during open enrollment for the 2021 plan year. Additionally, Walmart and Clover Health partnered on two co-branded Medicare Advantage plans.
  • Amazon finally took the step that everyone had been waiting for, launching its new Amazon Pharmacy in November.
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