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The FTC doubles down on private equity and Big Physician
Dominant physician groups don’t command the same attention as, say, Big Tech firms with national omnipresence like Google and Facebook. But they could severely warp the economics of local markets for patients, employers, and insurers — and Lina Khan’s Federal Trade Commission is eager to make Big Physician a lot smaller.
Last September, the FTC sued private equity firm Welsh, Carson, Anderson & Stowe and U.S. Anesthesia Partners, alleging the two parties conspired to create monopolies for anesthesia services. Both Welsh Carson and USAP have tried to get the case thrown out, but the FTC recently doubled down. The agency asked the judge last month to ignore those companies’ pleas, calling their arguments “unavailing” in recent legal filings — akin to smack talk in the courtroom.
It’s not surprising the FTC is spending more time and resources on a lawsuit it initiated. But experts say the agency’s meticulous arguments and persistence to put Welsh Carson and USAP’s business strategy on ice sends the clearest warning yet: Firms that try to consolidate markets for physician services as a means to jack up prices won’t get away without a fight.
“It’s sending a political signal, at least in this administration, that the legal and regulatory risk of private equity in health care has heightened,” Jane Zhu, a physician and professor at Oregon Health & Science University, told me. Read the story for more.
The Big One
There was a collective gasp in the health insurance and employer benefits community last week when a Johnson & Johnson employee sued the conglomerate for mishandling workers’ drug benefits.
People have been waiting for years for this type of lawsuit to drop. My colleague Ed Silverman and I read through the complaint, which was filed by Fairmark Partners, a law firm funded by Arnold Ventures. This particular lawsuit alleges J&J violated its status as a “fiduciary” by allowing itself, and therefore its employees, to be drastically overcharged for prescription drugs. The suit cites a STAT investigation from last year that found pharmacy benefit managers and big consulting firms often have secret financial deals that could create egregious conflicts of interest — which potentially opens employers up to legal liability, under the federal law known as ERISA, for not sniffing out those conflicts.
There’s a lot more to come from this. In the near term, we’ll be watching for J&J’s motion to dismiss the case. That will take some time. But if a judge ultimately allows the case to proceed, will J&J drag in its PBM (Express Scripts) and consulting firm (Aon) — and hoist the blame on them? And will every ERISA attorney in the country copy-paste this lawsuit against other employers who are getting ripped off on drug prices?
“There’s nothing unique in the complaint and the facts alleged that would make this case any different from any other group health plan that uses Express Scripts or any other client that uses Aon,” said Chris Deacon, an independent consultant who used to oversee health benefits for New Jersey’s state employee plan.
The MA rate zeitgeist
There is not a single publicly traded health insurance company that is pleased with the government’s initial pitch for 2025 Medicare Advantage payment rates — and that annoyance leached into several earnings calls and regulatory filings last week.
- Humana’s actuaries expected flat MA payments for 2025, but the company told investors the proposal was actually 1.6 percentage points worse than expected.
- CVS CEO Karen Lynch: “We do not believe it covers overall cost trends that have been emerging in Medicare Advantage.”
- Centene CFO Drew Asher: “The [MA] products may be a little bit less attractive for seniors from an industry standpoint if we don’t make a lot of progress on the final rates.”
CMS has already told the industry that a key component of its proposed rates — the projected spending of people enrolled in traditional Medicare — was only based on data through Sept. 30, 2023. That data will get updated, and you better believe insurers will be throwing their spreadsheets at CMS to make sure the agency uses the data that they like the most.
OK, cool, see you at the med spa, PE
Three sectors within health care saw particularly strong deal activity among private equity firms last year, and at least two of them may not be what you’re thinking.
My colleague Tara Bannow sifted through a new PitchBook report and found that med spa (think Botox clinics), cardiology, and clinical trial sites generated the most PE interest. And as the chart above shows, while PE remains weighted toward dental clinics, home care, orthopedic groups, and mental health providers, the number of deals in those sectors declined year over year in 2023.
Time to clamp down on AI in MA?
Covering congressional hearings is, generally, a painful process. But occasionally, when you look past some political grandstanding and stretches of lawmakers asking woefully unprepared questions to experts, some substantive comments trickle out.
All of that happened last week during a Senate hearing that centered around how artificial intelligence and algorithms should be used in health care, which my colleague Casey Ross and I watched. The most pivotal parts were when a handful of Democrats indicated they do not trust the use of those tools within the Medicare Advantage program.
“Until CMS can verify that AI algorithms reliably adhere to Medicare coverage standards, by law, then my view on this is CMS should prohibit insurance companies from using them in their MA plans for coverage decisions,” said Sen. Elizabeth Warren (D-Mass.), who cited STAT’s investigation that found Medicare Advantage plans routinely reject care based on suggestions calculated by algorithmic programs. Read more to see what the experts said, including one who said monitoring AI ought to become a condition of eligibility for Medicare payment.
This hearing also came right after CMS put out a lengthy memo elucidating for Medicare Advantage plans that their AI tools, which predict things like lengths of stay in a nursing home, have to take a backseat to someone’s individual medical circumstances.
Oregon’s test case for more deal transparency
Physician practice buyouts almost always escape antitrust scrutiny. But Optum’s push to buy a clinic in Oregon is going through the public gauntlet — highlighting how more states want these types of deals to be subject to official oversight, my colleague Brittany Trang reports.
The laws establishing transparency around health care deals vary around the country. Oregon’s is among the more aggressive, which allowed Brittany to trawl through public comments. Let’s just say, a lot of people aren’t happy about Optum’s latest bid, but the clinic in question is also in dire financial straits and has no other option. Read Brittany’s story to see how this oversight is working in states, and how this Optum Oregon deal is shaking out.
Industry odds and ends
- File this under “lol ok”: A bipartisan group of senators is going to try working on long-term fixes to Medicare’s payment system for physicians, my colleague Rachel Cohrs reports.
- Cano Health finally filed for bankruptcy. Tara has the details.
- The Louisiana Department of Insurance is holding a two-day hearing, on Wednesday and Thursday, over Elevance Health’s potential acquisition of Blue Cross Blue Shield of Louisiana.
- Speaking of Blues plans, they remain “financially strong and continue to gain new members,” according to an analysis from Mark Farrah Associates.
- Penn State Health agreed to pay the Department of Justice $12 million after discovering that some claims it submitted to Medicare for “annual wellness visits … were not supported by the medical record.” Curious if other hospitals and provider groups will self-disclose wellness visit errors to the feds.
- AstraZeneca CEO Pascal Soriot on Medicare’s initial negotiation offer for one of its drugs: “relatively encouraging,” my colleague Drew Joseph reports.
- Extremely good journalism: Dominique Mosbergen of the Wall Street Journal revealed the names of more than 500 funeral homes that have exploited grieving customers, often by not disclosing prices for their services. But those “bad actors have been hidden from the public thanks to a sweetheart deal struck between the FTC and the funeral industry more than 25 years ago,” she reports.
The Meme Ward
