[PBMs, Cancer Screening, Medicare Advantage] A Few Surprises in the Healthcare Spending Package but Otherwise Mirroring Prior Compromise
Following Tuesday night’s release of a short-term continuing resolution (CR) funding the government through March 14, we outline some key differences from previously-reported iterations of the healthcare extenders package, involving PBMs [CI, CVS, UNH, ELV], multi-cancer screening tests [GRAL, EXAS, GH], and Medicare Advantage insurers [HUM, UNH, ALHC, CVS], which were different from previously-reported versions of the healthcare extenders package.
- PBMs [CI, CVS, UNH, ELV]: Mandate 100% pass-through of drug manufacturer rebates / discounts related to utilization, outside of bona fide service fees paid by PBM customers in the ERISA commercial market, starting 30 months post-enactment. While negative on its face, we suspect PBMs would respond by charging higher bona fide service fees and/or premiums, as assumed in prior CBO analysis, thereby potentially limiting the hit to PBMs or the savings advantage for enrollees from lower drug costs. This policy is on top of the other previously discussed PBM reforms [see here] but does not demand a ban on spread pricing in the commercial markets, which was part of the Senate HELP Committee’s marked-up legislation.
- Multi-Cancer Early Detection (MCED) [GRAL, EXAS, GH]: Allow – but not require – Medicare to cover FDA-approved MCED screening tests starting in 2029, subject to criteria to be established under a National Coverage Determination (NCD). Reimbursement would be capped at ~$500 from 2029-2030, before being based on the commercial payment rates. Moreover, eligibility for coverage starts with those aged 50-65 (~13% of beneficiaries), with the top end increasing by one year annually. This implies that the majority of Medicare patients would be ineligible for coverage until ~2037 [full note].
- Medicare Advantage (MA) [HUM, UNH, ALHC, CVS]: Does not include statutory language that would have codified regulatory prior authorization requirements or mandated speedier responses to prior authorization requests to MA plans. This is a surprise, given the public clamor against insurers’ usage of prior authorization denials and delays. However, the spending bill does include a provision for greater transparency about provider networks, which was expected
With the exception of the above, other healthcare policies largely mirror the compromise discussed late last week regarding additional PBM reforms (mandatory disclosures, Medicare Part D delinking of compensation from drug price and Medicaid spread pricing ban), partial physician fee fix, Medicaid disproportionate share hospital delay, telehealth, Medicare and Medicaid extenders, SUPPORT and PAHPA Act reauthorizations, extension of the 2% Medicare provider sequestration and hospice cap indexing in the outyears, reduction of the Medicare Improvement Fund, among others. The spending measure also seems to include a waiver of the
statutory PAYGO scorecard, which would mean that the maximum 4% cut to Medicare provider reimbursements is averted, as Congress has done in the past.
Still left on the cutting room floor from last week were: (1) the GOP’s desired savings offset from repealing CMS’s nursing home minimum staffing rule, which we still think is likely be tapped by the incoming Congress in 2025, providing relief to nursing homes and post-acute care REITs; and (2) the Democrats’ requested extension of the enhanced Obamacare subsidies, which we continue to believe will be at least partially extended late next year.
Rather than allow the subsidies to expire, we believe Congress will tweak and refocus the payments toward lower-income enrollees, which are the bulk of ACA enrollees, for the purchase of Obamacare plans, with the extension to last 1-2 years.
The below chart should provide investors with a cheat sheet of the myriad healthcare policies included in the legislation.
