the healthy muse healthcare news the easy way

the healthy muse healthcare things to know

Key stories, trends, and insights from the quarter Q1 2020

1 4 Notable Stories Policy Updates

2 5 Mergers & Acquisitions Performance by Sector

3 6 Trends to Watch Digital Health IPOs notable news stories

Google’s patient privacy scandal. Take a look at what Google has been doing behind the scenes in healthcare including its partnership with Ascension, a large nonprofit health system. A lot of its plans have to do with accessing data of millions of patients – without provider or patient consent. While it all might be in the name of providing better, more efficient care, Google doesn’t have a strong track record with privacy and handling data. Read more from the WSJ here.

The coronavirus grips the world. SARS-COV-2, infamously known as the novel coronavirus, took center stage in Wuhan, China at the end of January and the rest of Q1. While originally overlooked as a threat, the virus expanded its presence and soon caused a global pandemic. Public markets sold off in droves as shelter in place orders and panic ensued. Unemployment skyrocketed and Congress took major efforts to curb the economic effects of the disease by drafting stimulus legislation. Winners from the pandemic: With Trump easing access to telehealth, COVID-19 may be a black swan event for the industry and lead to widespread adoption. Teladoc’s stock surged on increased demand for virtual visits. UnitedHealth is expanding access to virtual care. Telehealth365 just made its platform free for 6 months. Teletherapy has been forced on outpatient clinics. Other Coronavirus winners: Biotech firms working on COVID-19 treatments and vaccines like Moderna and Gilead have braved most of the recent market panic.

CVS debuts its HealthHUB strategy. CVS’ HealthHUB strategy is developing right before our eyes. The healthcare giant will begin rolling out the highly touted HealthHUBs to select markets. How did they decide which areas to target? By choosing markets where a high number of Aetna members were located.

The founding of Civica Rx. Blue Cross Blue Shield invested in generic drug company Civica Rx in late January to promote the development of generics in the market and cut prescription drug costs. What is Civica Rx? It’s a nonprofit partnership among health systems with the goal of combating drug shortages in hospitals This initiative is growing ever important as generic drug makers producing key drugs like antibiotics are struggling financially.

2 notable news stories

Opioid crisis updates: states reject a big-time settlement offer. On Friday, Feb. 14, attorney generals from 20 states rejected the drug distributors’ settlement offer of $18 billion, the WSJ reports. The settlement would have resolved all litigation surrounding opioids. According to the WSJ, “the dissenting states want the wholesalers to contribute between $22 billion and $32 billion.” Companies affected by the news include McKesson, AmerisourceBergen, and Cardinal Health. All of these companies prefer to settle their involvement in the opioid crisis all at once, rather than in multiple court cases over several states.

UnitedHealth turns the cold shoulder to Mednax. On February 20, UnitedHealthcare announced its plans to end in-network contracts with Mednax in 4 states. Physicians employed by Mednax (anesthesiologists (pain medicine), neonatologists (NICU), and obstetricians) in Georgia, Arkansas, and North and South Carolina will no longer be covered by UnitedHealthcare’s health insurance plans in those states. Since a lot of Mednax physicians work in and contract with hospitals, that likely means MORE surprise medical bills for patients. The impact to Mednax: Its stock dropped 25% over the two days following the announcement. Mednax said that the contracts represented about 2% of its revenues – which equates to about $70 – 80 million.

Online pharmacy Ro wants to disrupt the generic drug market. Ro, a new online pharmacy, is piloting a new service that would offer users of the platform $5 per prescription for generic medications. Details: $5 per prescription, per month. 500 generic drugs included. Delivery included. Ro…sounds familiar: You might recall that Ro is formerly the startup called Roman, which discreetly sold male ED and hair loss medication directly to men. It’s a power play: Ro probably won’t make any money off this program without some SERIOUS customer acquisition. The pharmacy is rolling the service out to a small subset of patients first.

3 notable news stories

Providers lose billions during the Great Lockdown. Hospitals: Despite Congress increasing inpatient reimbursement rates related to COVID- 19 cases, hospitals are still expected to lose an estimated $1,000 per case. Not to mention the funds they’re losing by suspending elective surgeries. Hospitals hit hard by the virus will see huge hits to revenues and threaten financial viability. CMS is continuing aggressive efforts to avoid hospital closures by allowing providers access to interest-free payment advances. Other things from the stimulus bill are helping too – like canceling the disproportionate share payment cuts scheduled for later this year. Even with all of the stopgap measures above, it may not be enough funding. Congress might roll out more funding for healthcare in the near term. Read more: How the Coronavirus is impacting hospitals’ operations and financial performance

Physician Practices: Although physician practices are technically eligible for reimbursement in the $100 billion emergency funding pool, their – especially independent practices – are hurting. Primary care physicians are anecdotally reporting about a 75% drop in volumes according to Gist Healthcare. Since most ancillary businesses in healthcare flow FIRST through primary care providers (e.g., therapy, elective surgery, specialist care, diagnostic imaging), you can imagine what a 75% drop in PCP visits could have on the REST of the healthcare continuum – especially on the outpatient side of things. Meanwhile, physicians (as well as nurses and other staff) employed by health systems are seeing pay cuts as hospitals try to stay afloat financially.

Other Healthcare Services… Similarly to hospitals, CMS is easing accelerated payments for home health providers. Even so, home health aides are starting to feel left out to dry as they face equipment shortages on the front line of care for the elderly. Dialysis centers are facing significant challenges in protecting patients from COVID-19

4 mergers and acquisitions

Select Medical purchases more of Concentra. Public post-acute care operator Select Medical purchased 17.2% more of Concentra for $338 million. Select now owns about 65% of the urgent care and occupational medicine operation.

A new Digital Health IPO – One Medical. One Medical, a primary care physician practice platform backed by Google, filed for IPO and debuted on the public markets successfully on January 31, 2020.

Ardent Health calls off its IPO plans. Ardent Health Services, a for-profit health system that operates 30 hospitals, called off its IPO plans in January. Bummer – I was looking forward to following a new public hospital company.

The end of a selling spree era. is getting close to the end of its hospital selling spree. Over the last several years, the struggling hospital operator has sold more than 90 hospitals.

Humana’s big Senior JV play. and Welsh, Carson, Anderson, & Stowe (WCAS) entered into a joint venture on Monday. The JV will be operated by Humana’s primary care subsidiary called Partners in Primary Care and will be focused on providing preventive care services to Medicare beneficiaries by opening up clinics across the nation.

5 trends to watch

Nonprofit health system investments. How 7 hospitals are spending innovation investment dollars: UPMC, Providence & more. Read more from the WSJ on how UPMC specifically is planning to spend its smooth ~$800 million.

Patient data sharing and interoperability Epic, one of the largest electronic health record firms, is NOT at all a fan of HHS’ recently proposed health data sharing rules (read about the proposed ruling here). In an interesting development, Epic’s CEO urged its health system partners in an e- mail to oppose the ruling. Later that week, Epic told Politico that it may sue HHS over the ruling, calling it “deeply flawed.” Stuff about the ruling you should know: The HHS proposed ruling is designed to provide clearer guidance on how patient health information can be accessed – namely, making it easier for patients to access their own health information. Epic thinks that the ruling will hurt patient privacy (since 3rd parties will have an easier time accessing that info) and wants to work with HHS to establish more appropriate guidelines. The bigger picture: HHS wants to make it easier for patients to access their data across health systems. Apple, Microsoft, and the rest of the Big Tech gang are on board with the interoperability proposal and want the policy to go through so that consumers can access their data “without further delay.”

In the news…struggling supermarket pharmacies. The WSJ reports that pharmacies located inside supermarkets are closing at increasing rates for a number of reasons: They’re not big enough to have leverage on reimbursement rates They’re disconnected from larger supply chains or payor networks They don’t have other services that would otherwise draw someone into a drugstore.

Understaffed and overworked pharmacists. The struggling supermarket trend isn’t the only headwind facing pharmacies. A NY Times report released Friday claimed that most pharmacies are understaffed and the pharmacists working the counters are stretched thin. It’s no wonder – if you meander over to the r/pharmacy subreddit, it’s littered with stories about the same type of things.

6 trends to watch

Walmart Health Clinics open up. Walmart Health is continuing its assault on traditional primary care. The retail giant just opened its second primary care clinic. If I had to bet on one company to disrupt primary care, I’d put my money on Walmart.

Medical loss ratios are trickling upward. ALL of the major health insurance payors saw increased medical loss ratios in the fourth quarter (medical cost ratio = medical costs paid by the insurer for its members’ health coverage DIVIDED by the total premiums the insurer collected from its members. It will generally be in the mid-high 80%’s). Things that might drive a higher MCR would include a stronger flu season or more than expected routine visits for members. The coronavirus killed this trend, but it’s still notable.

Community Health System’s comeback Community Health Systems stock saw huge gains after it released its fourth quarter and full-year earnings report. Investors were pleased with the strong cash flow from operations and the successful divestiture plan for its small pack of struggling hospitals. Shrewd maneuvering. In the past 2 years, 80% of hospitals that Community sold are either losing money, bankrupt, or closed.

Health insurers begin competing with providers on care. A very noteworthy trend: Insurers like UnitedHealthcare and Aetna (owned by CVS) are competing with traditional hospitals and physician practices by steering patients toward THEIR owned clinics. (WSJ)

7 trends to watch

Broad healthcare trends: Consolidation is happening industry-wide – to name a few sectors: physician practices, imaging centers, and home health. Coronavirus has temporarily delayed most M&A. Consumer-centric healthcare is rapidly expanding, including direct to consumer services (hand in hand with “concierge medicine“), wearable tech, and telemedicine. More focus on social determinants of health. Rapid increase in investments, Price transparency (learn more), data privacy (learn more), and vertical integration (learn more).

Policy healthcare trends: Election 2020 (learn more), rising drug costs (learn more), surprise billing (learn more), and the ACA back in court (learn more). Medicaid expansion, or Medicaid block grants? Time (and the 2020 election) will tell.

Digital health & innovation trends: Interoperability (more on that below) will create the need for stronger cybersecurity. Entrance of artificial intelligence in drug discovery/development (learn more), diagnostic fields (learn more), and other clinical settings (learn more). Continued growth of robotic assisted surgery (learn more). Big Tech is looking to disrupt healthcare.

Hospital trends: Rural hospitals are closing at record rates (learn more). Staffing shortages will affect providers’ future financial performance and viability.

Post-Acute Care trends: The new home health & hospice payment model, PDGM, may cause mass home health closures and drastic consolidation. Encompass Healthcare is building inpatient rehabilitation facilities like crazy. Skilled nursing facilities are struggling.

Physician Practice trends: Physicians are all getting employed by health systems, private equity firms, or insurance companies like UnitedHealth. As a result, independent docs are getting harder to come by.

Health Insurance trends: Healthcare spending growth, looming Baby Boomer population (65+) resulting in massive Medicare Advantage growth.

8 policy updates

More mid-level independence? The FTC is in support of giving advanced practitioners (AKA physician assistants and nurse practitioners) more autonomy.

SCOTUS takes on more healthcare cases This quarter brought big election news: The SCOTUS announced its intention to review whether the ACA is constitutional – again. They’ll take up the case during its next session, which is ironically right in the middle of the 2020 presidential election. The case centers around the individual mandate. The Supreme Court is planning to take on Pharmacy Benefit Management rate regulation.

Hospitals fight site neutral payments Hospitals sued to stop site-neutral payment policies in 2020.

A Republican re-haul of Medicaid through Block Grants. On Thursday, CMS gave the OK on a block grant structure for states’ Medicaid programs. If this proposal were enacted, it would mean that states would have the ability to receive a fixed sum of money to spend on healthcare how they see fit. States would also be able to impose further conditions of eligibility in determining whether an individual would be qualified for that state’s Medicaid program. CMS thinks these changes are necessary as a cost control in order to guarantee that the program has enough funding in the future. How does that differ from Medicaid today? As Medicaid exists today, states receive varying levels of payment based on how many ACA enrollees they have. Additionally, there are no community guidelines, work requirements, or any other steps needed for Medicaid eligibility. Read the full 56 page CMS letter to state Medicaid directors here.

Election 2020 race and healthcare. Take a look at the Healthy Muse’s healthcare election 2020 HUB, where you can see a breakdown of major policy proposals, candidate positions, and healthcare lingo to understand.

9 policy updates

Price transparency. Payers and employers are protesting HHS’ price transparency rule. Bottom line: they’re in support of letting patients know how much things will cost them out of pocket, but they’re not fans of publicly disclosing their reimbursement rates. Payors also think it’ll cost them bigly in administrative costs to get all of that data uploaded. HHS responded to the protests, arguing that the administrative cost caused by the request would be manageable and that providers are only ‘adding’ to the confusion.

State of the Union healthcare stuff. Trump wants Congress to get past its gridlock on drug pricing – “I am calling for bipartisan legislation that achieves the goal of dramatically lowering prescription drug prices. Get a bill to my desk, and I will sign it into law without delay.” He took a shot at Bernie’s Medicare for All proposal. He talked about positive progress in kidney care, Alzheimer’s, and the opioid crisis. He’s focused on eliminating HIV over the next decade. He promised to protect pre-existing conditions. It’s political suicide these days to say otherwise. Read more: Here’s the full #SOTU2020 transcript.

Democrats vs. Republicans on Drug Pricing. Throughout their election campaigns, several candidates have taken shots at Trump’s prescription drug poilcies. Bloomberg, Bernie, and Klobuchar all recently taken shots on failed policies, including the TV ad list pricing policy that was blocked in court. While the candidates claim that nothing concrete has passed regarding drug pricing, he actually shares some similar ideas to many of them – namely, cheaper drug importation from places like , and tying drug costs in the U.S. to a basket of developed countries that pay much lower prices. Other Trump drug accomplishments: The administration implemented a faster FDA process to get generic drugs to market quicker. Trump also signed a bill that removed pharmacist gag clauses – pharmacists can now tell patients at the counter whether an alternative drug would be cheaper to pay out-of-pocket. You should know: Democrats passed a drug pricing bill in the House late in 2019. The main conflict between Republicans and Democrats on drug pricing: Democrats are fine with the government directly negotiating with drug companies on prices for both public and private markets. Republicans are against this expansion of government authority.

10 policy updates

Colorado unveils its public option. Colorado’s first-ever public option health insurance plan revealed its payment rates – and hospitals aren’t happy with the base payment rate of 155% of Medicare. In fact, Colorado’s public option woes may be a microcosm for what will happen with any sort of federally mandated public option. (Remind me – what’s a public option?) Read more about the state’s public option implications – and what that means for Democrats – from Bloomberg.

Hospital mega mergers might get harder. The FTC is planning to scrutinize hospital mergers much closer in 2020 and beyond.

Interoperability – sharing health data across providers – is about to get WAY easier. For better or worse, HHS released its final interoperability ruling Monday (catch up on interoperability here). The ruling will ease the ways that personal health data can be shared across electronic health record platforms like Epic and Cerner. Because the rule standardizes data sharing methods AND mandates that consumers will have access to their own health records online, the final interoperability ruling is expected to have huge effects on the health data industry. Think about it like this: every provider has its own health records system. This system acts similar to a ‘walled garden‘ for providers, which keeps patients coming back to them. With the final HHS interoperability ruling, these walls are coming down. In my mind, that makes it much easier for the patient to switch between providers. Things to consider: This news ALSO means that new entrants, a la, Amazon/Apple/Google, will have an easier time competing with traditional players like Epic and Cerner. Then there’s also that whole patient data privacy element, too. If sharing personal health data gets easier, that means less privacy over your health data. Is this ruling too big of an administrative burden on providers? After all, almost 70% of hospitals still use some sort of mail or faxing for sending and receiving records.

11 policy updates

Healthcare gets $127 billion from the $2.2 Trillion Stimulus Package Congress just passed an unprecedented level of government spending as a result of the Coronavirus Crisis. $2.2 Trillion dollars of whopping cash, a lot of which is going to individuals and small businesses. But a decent-sized portion of the overall pie – about $127 billion – is related to healthcare stimulus. What’s in it for healthcare providers? Most of the healthcare stimulus part of the bill is vague. Congress allocated about $127 billion to healthcare, $27 billion of which is designated for COVID- 19 specific purposes (manufacturing, vaccine development, etc).

More of what’s in the healthcare stimulus package related to the Coronavirus Crisis. Add an additional 20%: 20% higher reimbursement for any COVID-19 related case in hospitals (inpatient stays); Delays to planned Medicare reimbursement cuts (AKA disproportionate share payments, sequesters, etc); $100 billion in funding through grants. Anyone who treats COVID-19 patients through Medicare Part A or Part B is eligible for this part of the healthcare stimulus. This fund is super open-ended and is applicable to a broad range of providers – meaning that HHS can use these funds at its discretion and based on need. Advanced payments from Medicare. How it works: providers would be able to receive upfront payments from Medicare. Those providers receiving payments would ‘pay back’ those Medicare advanced payments (essentially loans) by then NOT receiving Medicare payments once the crisis is over. Not in the stimulus package: Laboratory test funding. Their previously scheduled payment cuts are getting delayed, though.

12 sector performance

120.0% Healthcare Indexes vs. S&P 500 Performance 3/31/2020 110.0%

100.0%

90.0%

80.0% Broad Healthcare: (13.2%) 70.0% S&P 500 Index: (19.8%) Healthcare Services: (20.2%) 60.0% 1/2/2020 2/2/2020 3/2/2020

performance by sector: healthy muse selected firms

Healthcare Distributor (0.4%) Pharmaceuticals (10.9%) Home Health and Hospice (14.7%) Managed Care (14.8%) Healthcare Equipment (15.2%) Dialysis (21.1%) Post-Acute (21.1%) Acute Care Hospitals (27.5%) Diagnostics (27.5%) Ambulatory Services (42.6%) Behavioral (44.6%) Physician Services / Other (48.1%)

13 sector performance

XLV Index - Healthcare Company Stock Performance

Regeneron Pharmaceuticals, Inc. 30.8% Abiomed, Inc. 15.7% Vertex Pharmaceuticals Incorporated 8.4% Eli Lilly and Company 7.5% IDEXX Laboratories, Inc. 5.5% Incyte Corporation 4.5% ResMed Inc. 1.1% Danaher Corporation (2.2%) Thermo Fisher Scientific Inc. (3.3%) Nektar Therapeutics (4.0%) Gilead Sciences, Inc. (5.2%) AmerisourceBergen Corporation (5.4%) AbbVie Inc. (5.9%) Quest Diagnostics Incorporated (8.6%) Illumina, Inc. (8.9%) Hologic, Inc. (9.6%) DaVita Inc. (10.6%) Perrigo Company plc (12.0%) Abbott Laboratories (12.1%) Humana Inc. (13.0%) Amgen Inc. (13.4%) Centene Corporation (13.5%) McKesson Corporation (13.8%) Agilent Technologies, Inc. (14.0%) Laboratory Corporation of America Holdings (14.2%) Zoetis Inc. (14.4%) PerkinElmer, Inc. (14.4%) UnitedHealth Group Incorporated (14.7%) Cardinal Health, Inc. (14.8%) Mettler-Toledo International Inc. (14.8%) Alexion Pharmaceuticals, Inc. (15.0%) Johnson & Johnson (15.4%) Baxter International Inc. (15.7%) , Inc. (15.8%) Intuitive Surgical, Inc. (16.5%) Cerner Corporation (16.5%) Bristol-Myers Squibb Company (16.7%) Teleflex Incorporated (17.1%) Biogen Inc. (18.9%) Becton, Dickinson and Company (19.5%) IQVIA Holdings Inc. (20.6%) Edwards Lifesciences Corporation (20.8%) Pfizer Inc. (22.5%) Cigna Corporation (22.6%) Anthem, Inc. (23.7%) Stryker Corporation (23.8%) The Cooper Companies, Inc. (24.3%) CVS Health Corporation (24.5%) Merck & Co., Inc. (24.7%) Henry Schein, Inc. (27.8%) Varian Medical Systems, Inc. (28.0%) Medtronic plc (29.1%) Zimmer Biomet Holdings, Inc. (30.3%) Waters Corporation (31.0%) Mylan N.V. (31.6%) Boston Scientific Corporation (32.1%) DENTSPLY SIRONA Inc. (32.6%) HCA Healthcare, Inc. (38.7%) Universal Health Services, Inc. (38.9%)

14 sector performance

$XHS: Healthcare Services Performance Amedisys, Inc. 10.5% Molina Healthcare, Inc. 4.8% AmerisourceBergen Corporation 4.5% LHC Group, Inc. 2.7% DaVita Inc. 1.1% Chemed Corporation (1.6%) McKesson Corporation (2.2%) Cardinal Health, Inc. (3.3%) Centene Corporation (4.0%) PetIQ, Inc. (6.4%) AMN Healthcare Services, Inc. (6.9%) Corporation (7.0%) The Providence Service Corporation (7.8%) Premier, Inc. (10.2%) Guardant Health, Inc. (12.4%) Humana Inc. (13.4%) Cigna Corporation (13.5%) UnitedHealth Group Incorporated (14.4%) The Ensign Group, Inc. (16.3%) National HealthCare Corporation (16.4%) BioTelemetry, Inc. (17.9%) CVS Health Corporation (19.5%) Quest Diagnostics Incorporated (23.7%) Patterson Companies, Inc. (24.3%) Anthem, Inc. (24.3%) Laboratory Corporation of America Holdings (24.5%) Henry Schein, Inc. (24.7%) Triple-S Management Corporation (25.0%) R1 RCM Inc. (28.4%) Addus HomeCare Corporation (28.9%) HealthEquity, Inc. (30.0%) Universal Health Services, Inc. (30.3%) Select Medical Holdings Corporation (35.3%) Magellan Health, Inc. (37.2%) CorVel Corporation (38.0%) U.S. Physical Therapy, Inc. (38.6%) Covetrus, Inc. (38.7%) HCA Healthcare, Inc. (38.9%) Hanger, Inc. (42.9%) Company, Inc. (44.6%) RadNet, Inc. (47.9%) The Pennant Group, Inc. (56.0%) Inc. (56.2%) MEDNAX, Inc. (57.7%) Corporation (62.5%) , Inc. (69.6%)

15 Digital Health IPO performance

Digital Health Returns: All-Time and YTD

13.1% Livongo (7/25/19) (25.1%)

(10.7%) Peloton (9/26/19) 3.1%

(17.8%) One Medical (1/31/20) (17.8%)

(20.3%) Phreesia (7/18/19) (16.1%)

(23.3%) Healthcare Catalyst (7/25/19) (33.2%)

(37.6%) (6/27/19) (33.4%)

(43.9%) SmileDirectClub (9/12/19) (72.0%)

16 THANKS FOR READING!

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