As I have done for many years, I write a healthcare year-in-review blog to tell you about all the major health stories and trends of the last twelve months. It is meant to be a general assessment and you can check this website’s Newsfeeds and Blogs as well as my LinkedIn posts ( https://www.linkedin.com/in/marc-s-ryan-%F0%9F%87%BA%F0%9F%87%A6-1a99529/ ) for more information. I break the stories and trends into categories to help your understanding. It is clear that 2023 was a busy year for healthcare, so this blog will be a long one! Here we go!
Healthcare, Insurers, and Providers In General
In general, 2023 was a continuing year of recovery from the COVID pandemic (2020 to 2022). Healthcare utilization was up again and costs/inflation are returning to normal. We shall see this continue into 2024. We saw moderate inflation in the healthcare sector in 2023 with similar projections for next year (5% to 6%).
We hit a record low uninsured rate (about 7.7% or 25 million), but the return of Medicaid redeterminations will mean a creeping up in the uninsured count. The better uninsured numbers were driven by continued growth in Medicaid and the Exchanges and the stability of the commercial market.
Insurers generally had a stable outlook, although financials were somewhat mixed (especially driven by Medicare Advantage (MA) missteps) and led to layoffs in the industry. Health plans generally reduced the number of prior authorizations (PA) they were doing by announcing a pare back of PAs on certain services. This signaled a pivot of sorts to care management and member and provider engagement to control costs and improve quality. Plans heard for the first time Capitol Hill speak to the potential gaming of the minimum medical loss ratio (MLR) rule across lines of business.
Hospitals continue to face financial pressures as do physicians. While physician acquisition by hospitals and private equity firms stalled a bit in the past few years, 2023 saw a recovery. Hospitals and other providers lobbied hard for prior authorization limitations as well as no site neutral payments, but seemingly failed to win good Medicare rate hikes (especially physicians). Hospitals also saw Capitol Hill criticize health systems for their lack of commitment to charity care. Congress called for investigation of the vast subsidies they get through tax-exempt statuses. We also saw prominent retail establishments and healthcare firms make investments in primary care. At the same time, some appeared to have over-invested and pulled back.
Despite the recovery, we did see high bankruptcies in healthcare in 2023. This was especially the case in digital health and some other technology investments. Healthcare saw a contraction in private equity and certain other investment due to some notable failures in the industry, including the shuttering of Olive, the one-time darling of investors.
Value-based care (VBC) payments continued to increase both in the fee-for-service pilots in Medicare and Medicaid as well as in Medicare Advantage.
The No Surprises Act continued its bumpy implementation in the commercial world, with huge arbitration backlogs and provider lawsuits that led to a number of suspensions in processing.
Cigna and Humana looked to merging, only for the talks to stop over financial expectations. Cigna said it was still looking at selling its Medicare Advantage business.
The insurtechs saw some good and bad news. Some performed better, while others blew up and ceased operations.
On the political front, there were several weeks where the U.S. House of Representatives basically shut down when Speaker Kevin McCarthy was ousted in what I characterize as a right-wing putsch. A new Speaker, Mike Johnson, R-LA, was named. He hails from the right. The drama destabilized Washington a great deal. Two continuing resolutions (CRs) were finally passed to keep the government operating until early 2024 — January 19 for some agencies and February 2 for the rest. A government shutdown looms.
Humana CEO Bruce Broussard announced he will step down in the second half of 2024. The brilliant executive built one of the best MA-focused insurers in America,
The year saw publication of a story on the fact that Medicare spending was much lower than forecasted over the past decade and a half. This was related to bad estimation and some lower per-member costs due to some technology advancements helping disease state costs. But it does not change the fact that Part A of the Medicare program is slated for insolvency in the early 2030s, based on generally high spending increases and aging numbers.
Early in 2023, we saw Medicare Advantage (MA) plans grow, but at their lowest number and percentage levels in the past several years. More limited growth is projected moving forward. At the same time, MA did reach the magic number of 50%, with a majority of Medicare beneficiaries now getting their healthcare through private managed care. A remarkable achievement and earlier than most forecasted.
Another enrollment bright spot was the continued rapid growth of special needs plans (SNPs), especially dual eligible SNPs (D-SNPs). As such, the Centers for Medicare and Medicaid Services (CMS) is focusing audit and policy objectives on an even more tight integration between Medicare and Medicaid.
MA plans faced much greater scrutiny and trends that will impact the value and success of MA. The 2024 MA and Part D rule will vastly limit the use of evidence-based criteria in utilization management and PA moving forward. This begins January 1 and plans were put on notice of immediate audit on the new rule. The new 2025 rule has additional reforms in it, including new network requirements, agent oversight and reform, and supplemental benefits scrutiny.
The 2024 announced MA rates softened from the past few years, with a modest increase coupled with a new phasing in of a controversial risk adjustment change that will lead to lower risk adjustment revenue over three years. Still, based on previous increases, benefit offerings remained stable for 2024 and grew somewhat. The risk adjustment data validation (RADV) rule was finalized, which could mean huge recoupments for poor risk adjustment practices. Humana immediately and justifiably challenged the rule in court on several grounds. But the RADV rule could create huge financial exposure for the industry in the future.
The Health and Human Service Office of Inspector General (HHS OIG) also announced that it will open up a series of investigations into both MA and Medicaid managed care. Capitol Hill and other groups are focusing in on alleged MA overpayments as well. Some say such overpayments are relatively small, while others have concocted ridiculous numbers (supposedly including alleged beneficial selection in the program). This will create focus on Capitol Hill in the future.
The biggest news was the continued poor performance of MA plans with Star quality ratings. While some continued to do well and others bounced back from a poor 2023 showing, overall the industry saw a major decline in performance from the pre-pandemic numbers. MA plans will see billions in losses of Star quality monies from 2023 and 2024 ratings. A series of more complex clinical measures, enhanced weighting on member satisfaction measures, and the removal of performance outliers led to the decline in scoring and bonuses. Just 42% of MA contracts are now rated four or greater. The number of beneficiaries projected to be in 4 Star or greater plans declined from almost 77% in 2021 to below 74% in 2024.
Medicaid saw all sorts of mixed news in 2023. On one hand, the push to expand Medicaid under the Affordable Care Act (ACA) continued. Some states who had expanded Medicaid in prior years fully implemented in 2023. North Carolina passed a law to expand Medicaid. Georgia won a lawsuit in court against the Biden administration’s pullback of a Trump-era waiver. It was able to implement a limited coverage expansion coupled with work requirements.
At the same time, Medicaid redeterminations began again in April as regular Medicaid eligibility rules returned. So far, almost 13.4 million have been disenrolled, most of them for procedural reasons. Some of them will gain eligibility back and some will make their way to Exchange, employer, and children’s coverage; but, the uptake in other coverage areas is limited and this will mean our uninsured rate will rise by millions in the future.
The Medicaid program also saw numerous waivers approved that begin to allow Medicaid funding to be spent on social needs and socio-economic barriers to good health. California began this with their CalAIM initiative and it became all the craze. Numerous states have now adopted some form of the model. California also prepared for the expansion of state-only Medicaid for hundreds of thousands of immigrants (both legal and illegal).
In 2023, the Exchanges saw record enrollment to over 16.3 million lives, driven by the earlier extension of the premium subsidy expansions through 2025 as well as liberalized marketing and open enrollment rules by the Biden administration. Projections suggest Exchange coverage could exceed nineteen million in 2024, driven by the Medicaid redeterminations.
A federal judge ruled in a lawsuit that the preventive benefits mandate was unconstitutional. A temporary deal was agreed to at the appellate level that allows preventive services to continue free of charge, but the appeals court will now determine prevention benefits’ fate.
Late in 2023, former president and now candidate Donald Trump called again for the repeal of the ACA. This led GOP lawmakers to complain that Trump was putting them in a bind on an issue that saw them suffer at the polls in the past. They sought to dampen expectations, but Trump has continued to the repeal drumbeat, without outlining a credible alternative.
Mergers and acquisitions in healthcare recovered somewhat in 2023 (including providers and hospitals) from the pandemic lull, but has not reached pre-pandemic levels. A continued increase is forecast in 2024. But the Biden administration has made healthcare anti-trust and competitiveness a major issue. It finalized new guidelines it will use to scrutinize healthcare mergers and acquisitions both in the payer and provider worlds. More aggressive oversight by the Federal Trade Commission (FTC) and other federal and state regulators have already stopped a number of high-profile hospital mergers. Congressional and administration activities also centered on the acquisition of healthcare entities by private equity firms (including hospitals) and the impact on quality.
AI, Digital Health, and Interoperability
The year saw the demise of some AI and digital health firms, including Olive. Tech dollars contracted. But insurers and other parties remained upbeat on AI and digital health investments. The year saw lawsuits accusing health plans of using AI to deny claims and prior authorizations without adequate clinical review. At the same time, insurers also touted AIs positive use in speeding auto-authorizations. New regulations also outlined prudent use of AI in healthcare to foster better outcomes.
Various interoperability rules were finalized, which should slowly but surely deepen the integration of payer and provider data.
Price Transparency And Site Neutral Payments
The drive toward price transparency saw a number of developments. CMS told hospitals and health plans to reform how they post files on pricing. Capitol Hill wants to go further, but has not passed a bill yet. Pharmacy benefit managers (PBM) and drug price transparency were also a hot topic in Congress. The House passed a bill calling for a ban on spread pricing by PBMs, among other reforms. Included in that bill was the baby-step introduction of site neutral payments (for Medicare Part B drug administration only). The Senate has not yet acted on the bill.
The World Of Drugs
The drug world perhaps saw the most activity in 2023. Capitol Hill put a bullseye on the backs of PBMs. Committee action focused on major changes to how PBMs operate. The House passed more limited reforms (including a ban on spread pricing), but the Senate has yet to act. Investigations were requested on numerous fronts as well.
The congressional activity led to some major PBM industry changes. Traditional PBMs announced moves to more transparent approaches. They announced formulary changes to reduce consumer costs. The transparent PBM upstarts, which formed their own lobbying group, pushed for PBM transparency legislation on the Hill. The upstarts entered into numerous novel arrangements to strip away the opaqueness of the drug channel. These arrangements included agreements with Mark Cuban’s Cost Plus drugs and similar entities. Cuban’s company delved into the world of biosimilars, starting with Humira alternatives.
Blue Shield of California (BSC) announced a major initiative to abandon traditional PBM approaches to drug spend, with the adoption of numerous best-in-class transparency partners to lower costs and increase outcomes. It will be a multi-year initiative. BSC says it will succeed, while others suggest it is too bold and incentives are not aligned enough.
The price of insulin was a huge topic in the commercial world after the Inflation Reduction Act (IRA) controlled costs in Medicare (Medicaid has no or minimal copays). Under pressure due to potential legislation, brand drug makers dramatically lowered prices for many insulin products. PBMs used formulary placement to make things more affordable as well.
The IRA’s Medicare drug price negotiations framework saw major activities in 2023. The first ten drugs subject to negotiation in 2026 were announced, along with processes for negotiations and final pricing. The quarterly rebate law continued to show major impact, with dozens of brand makers’ drugs cited for exceeding inflationary limits. These drug makers will be subject to rebates or penalties and consumers get credit on their cost-sharing in Medicare. Seniors and the disabled will save thousands per year due to the Medicare rebate law. Other changes went into effect as well under the IRA, including lower insulin costs in Medicare.
Studies said drug makers’ innovation and other impacts will be modest due to the IRA, but the brand drug maker lobby disagreed. Based on the first drugs announced for negotiation, it seemed clear that some firms would be impacted more greatly than others. Various IRA Medicare drug lawsuits in court got some bad news when a judge denied a temporary injunction, in part saying that drug makers and business groups could not show likelihood of success on the merits.
The Biden administration signaled how intent it is on changing the drug price paradigm. It proposed to seize a drug patent if the drug received major federal funding for development and the drug remained highly priced. A controversial move in free-market-economics America.
Biosimilars continued to see only partial uptake in the market, but Congress is focused on pushing both education and market share in these less costly equivalents to exceedingly expensive brand drugs. There was some progress on adoption of a Humira biosimilar.
A new Alzheimer’s drug was approved after the earlier debacle over Aduhelm’s approval. CMS revised its approach on allowing access to new Alzheimer’s drugs in the Medicare program.
Wow, so much activity in healthcare. Stay tuned next week for some of my predictions for 2024! Happy New Year!
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— Marc S. Ryan