Proposed Cigna-Humana Merger Raises Stakes for Healthcare Access Amid Election Uncertainty
Cigna Group and Humana are once again discussing a merger that could create a $140 billion insurance giant, further consolidating the U.S. healthcare system. The talks are in preliminary stages after collapsing last December over disagreements about financial terms. FierceHealthcare notes that while discussions have resumed, no formal agreements have been made yet.
The stakes of this merger extend far beyond corporate boardrooms; it directly impacts millions of people's access to essential healthcare services and affordable medications. With Cigna’s Express Scripts commanding 24% of the PBM market and Humana operating the fourth-largest PBM with 8%, the merger raises serious questions about market concentration and its impact on healthcare affordability and accessibility.
Election Outcome Could Determine Merger’s Fate
The timing of the renewed merger talks between Cigna and Humana is no coincidence, occurring just weeks before a presidential election that could heavily influence the merger’s prospects. Bloomberg reports, Wall Street analysts believe that the deal's future hinges on the election outcome, with talks likely "only tangibly moving forward if Trump wins."
Under a Trump Administration, a more favorable regulatory environment might be expected given the GOP's general preference for deregulation. However, skepticism about large corporate mergers from Trump's base and running mate JD Vance complicates this picture. Vance has even praised current FTC Chair Lina Khan, saying she is "one of the few people in the Biden Administration who I think is doing a pretty good job," indicating a potentially less favorable view of healthcare consolidation than the GOP has historically maintained. On the other hand, a Harris Administration would likely continue the Biden Administration's stricter stance on healthcare consolidation, focusing particularly on protecting underserved and rural communities.
TD Cowen analyst Ryan Langston suggests that any formal merger announcement before the election is unlikely, further underscoring the centrality of the election to the deal’s future. Meanwhile, federal scrutiny of pharmacy benefit managers (PBMs) remains high, with the Federal Trade Commission (FTC) accusing the largest PBMs of using negotiation tactics that inflate drug costs, adding another layer of complexity to the regulatory landscape.
Understanding the Scale and Implications of the Proposed Merger
The proposed Cigna-Humana merger would unite two companies with largely complementary business models. Modern Healthcare reports that Cigna dominates in commercial coverage with 16.1 million members, while maintaining a smaller Medicare presence. In contrast, Humana has fewer than 600,000 commercial customers and is withdrawing from employer-sponsored insurance, while standing as the second-largest Medicare insurer with 8.8 million members.
This complementary structure could ease some antitrust concerns, but the combined PBM operations present a more complex challenge. The American Medical Association's (AMA) position on the CVS-Aetna merger highlighted similar concerns, noting that such consolidation can limit competition and reduce patient access to specialty drugs, which may parallel the challenges presented by this merger. Healthcare Huddle's analysis suggests that a merger would create a PBM entity large enough to rival market leader CVS Caremark, potentially controlling 32% of the market. Such concentration in the PBM space has already drawn scrutiny from regulators and policymakers.
To address regulatory hurdles, Cigna is planning to finalize the sale of its Medicare Advantage business to Health Care Service Corporation for $3.3 billion, a move that Modern Healthcare suggests could ease antitrust concerns by eliminating overlapping services. Meanwhile, Humana has faced challenges, with its value dropping nearly 40% this year due to declining Medicare plan enrollments and performance shortfalls resulting in the Centers for Medicare and Medicaid Services (CMS) downgrading their Medicare Advantage (MA) plans’ star ratings.
The combined entity would have a market capitalization of around $121 billion based on October 2024 valuations. While still smaller than UnitedHealth Group's $528 billion market cap, the merger would establish a stronger competitor across both the insurance and PBM markets, potentially reshaping competitive dynamics in the healthcare sector.
PBM Consolidation: Increased Scrutiny as FTC Takes a Stand
The potential merger's impact on pharmacy benefit management deserves particular attention, especially given recent FTC actions against PBMs. Currently, three PBMs control approximately 80% of the market, with Cigna's Express Scripts commanding about 24% and Humana's pharmacy division holding 8% market share, according to Bloomberg Law analysis.
The timing is particularly sensitive given the FTC's September 2024 administrative complaint against major PBMs. As previously reported by CANN, the FTC alleges these companies engaged in anticompetitive rebating practices that artificially inflated drug prices. The FTC investigation has revealed troubling practices, with PBMs frequently prioritizing higher rebates over lower net prices, leading to the exclusion of lower-cost alternatives and driving up drug prices. A combined Cigna-Humana PBM would control 32% of the market, potentially creating an entity large enough to rival market leader CVS Caremark.
This level of concentration raises serious concerns about negotiating power and drug pricing. Bloomberg Law notes that employer groups are particularly wary of the merger, fearing it could make an already complicated market even more opaque for health plans and potentially lead to higher costs for company health plans.
Impact on Healthcare Access and Specialty Care
Healthcare consolidation has long presented significant barriers for patients who rely on specialized care, including those living with chronic conditions like HIV. For example, patients often face more restrictive formularies, meaning fewer options for necessary medications, and increased prior authorization requirements, which can delay access to critical treatments. This is especially problematic for patients with chronic conditions like HIV, where timely and consistent access to specific medications is critical for maintaining health. Research published by Tufts Center for the Evaluation of Value and Risk in Health shows that consolidation often leads to restricted specialty care access, which can be particularly detrimental to people requiring ongoing care management. For instance, patients with cancer may find it harder to access specialized oncologists or newer, targeted therapies due to narrower provider networks and limited formularies. These barriers do more than inconvenience patients—they delay treatments, ultimately impacting patient outcomes.
The National Academy for State Health Policy (NASHP) reports that consolidated health systems frequently use their market power to implement restrictive contracts that can limit patient choice. These contracts often include clauses that prevent insurers from steering patients to higher-value care providers or limit the ability to negotiate better prices, ultimately restricting patient options and driving up healthcare costs. This can particularly impact people relying on specialty medications and services, like those living with HIV who need consistent access to specialists and specific drug regimens.
Consolidated systems often impose more stringent prior authorization requirements and narrower specialty pharmacy networks, as noted in the BMC Health Services Research study. The AMA highlights that merged entities often use their power to make access to specialty drugs more restrictive, which further limits patient options and exacerbates challenges for those needing specialized care. For people living with HIV, disruptions or delays in accessing antiretroviral medications could have serious health implications.
The combined entity's negotiating power could lead to more restricted provider networks. NASHP's research shows that consolidated entities often leverage market power to demand higher reimbursement rates, resulting in narrower networks that limit access to specialists, including HIV care providers.
Navigating Complex Regulatory Hurdles
The proposed Cigna-Humana merger faces significant regulatory scrutiny at both federal and state levels. The merger is likely to undergo a 12- to 24-month regulatory review, particularly given the current antitrust enforcement environment. Regulatory challenges are expected to include a detailed examination of the potential impact on competition, particularly in the PBM market, and whether the merger could lead to increased healthcare costs for consumers. The recent FTC crackdowns on healthcare companies, which could provide additional insights into the type of scrutiny expected during the review, particularly regarding anti-competitive practices and market concentration. Both the FTC and the U.S. Department of Justice are likely to scrutinize any potential overlap in services and demand divestitures to ensure that competition remains intact. Additionally, state-level reviews could require concessions to protect local markets from becoming overly concentrated.
Kaiser Family Foundation's analysis highlights how the FTC and Department of Justice have increased their focus on both horizontal and vertical integration effects. They now examine broader implications for healthcare costs and access, beyond direct market overlap.
State-level review adds another layer of complexity. KFF notes that 34 states and DC require notification of health insurance mergers, with 13 states requiring explicit approval. This multi-state review process could extend the timeline and require concessions to address state-level concerns.
Looking Ahead: Implications for Healthcare Access and Affordability
The proposed Cigna-Humana merger represents more than a business combination—it embodies the tension between market consolidation and healthcare accessibility. While the companies argue that their complementary business models could improve efficiency, the merger's impact on PBM market concentration and healthcare access demands careful scrutiny.
The immediate path forward hinges significantly on the November 5th election outcome, with analysts suggesting meaningful progress is unlikely before then. Beyond the election, the regulatory review process could extend into 2026, as federal and state regulators examine the merger’s implications for competition, drug pricing, and healthcare access.
For healthcare stakeholders, especially those relying on specialty care and medications, the merger’s outcome could significantly impact their care access and costs. The combined entity's expanded market power in both insurance and PBM sectors could reshape provider networks, prior authorization processes, and drug formulary designs.
Advocacy organizations and policymakers must carefully monitor and engage in the regulatory review process to ensure that any approved merger includes meaningful protections for healthcare access and affordability. The FTC’s current focus on PBM practices provides an important opportunity to address long-standing concerns about drug pricing and access in any merger approval conditions.
FTC Ramps Up Efforts Against Hospital Consolidation in Wake of Rising Costs
In June 2024, a class-action lawsuit against Hartford HealthCare (HHC) in Connecticut exposed the reality of hospital consolidation: dramatically inflated medical costs. The lawsuit claims that Hartford HealthCare, a dominant force in Connecticut's healthcare landscape, leverages its market power to overcharge for medical services, such as colonoscopies which cost $3,800 at HHC’s St. Vincent’s Medical Center compared to just $1,400 at nearby Bridgeport Hospital, owned by Yale New Haven Health. This drastic difference in pricing underscores a broader, concerning trend impacting the U.S. healthcare system, and the Federal Trade Commission (FTC) is taking notice.
Hospital consolidation has been reshaping the healthcare system, characterized by a surge in mergers and acquisitions—from horizontal and vertical mergers to cross-market consolidations. The American Hospital Association notes a significant uptick in such activities, with over 2,000 mergers since 1998. This trend has led to an increase in the number of community and nonprofit hospitals integrated into larger systems, rising from 53% in 2005 to 68% in 2022, according to Kaiser Family Foundation research. Such market dominance has serious implications, limiting competition and choice, escalating costs, and potentially degrading the quality of care provided to patients.
The Detrimental Impacts of Hospital Consolidation
Higher Prices
Hospital consolidation typically results in higher healthcare costs, affecting patients, employers, and taxpayers through reduced competition. Mergers provide hospitals greater leverage over insurance negotiations, often leading to increased prices. Research has shown that hospitals in concentrated markets secure higher reimbursement rates, which drives up premiums and overall costs. A New England Journal of Medicine study confirms that acquisitions lead to higher prices for commercially insured patients, while a Harvard Business School report indicates cross-market mergers also contribute to rising costs. In areas with high hospital concentration, Marketplace insurance premiums are 5% higher than in less concentrated markets. Hospitals without nearby competitors can charge prices 12% higher than those in competitive markets, imposing a significant financial burden on patients. Given that hospitals constitute 42% of Americans' premium dollars, a 12% price increase translates into more than $1,000 annually for families and about $370 for single people on employer-sponsored plans. These price increases significantly burden consumers, especially under the strain of high-deductible health plans (HDHPs), exacerbating the healthcare affordability crisis. Making matters worse, even with regulations requiring hospitals to be transparent about their pricing, comparison shopping for healthcare services remains difficult. Inconsistencies in how hospitals present pricing information and a lack of standardization make it challenging for patients to accurately compare costs across different providers, further limiting their ability to make informed choices.
Reduced Access and Quality of Care
Despite potential efficiencies, evidence suggests consolidation may compromise care quality, affecting patient experience, mortality rates, and service accessibility. A New England Journal of Medicine study noted a decline in patient satisfaction following mergers, without improvements in readmission or mortality rates. Experts from a Penn LDI seminar highlight that consolidation often leads to higher prices without quality gains, particularly impacting access in consolidated markets. Rural and underserved areas suffer most, experiencing reductions in essential services such as obstetrics, and even specialized services like pediatric care are curtailed, increasing wait times and pressure on remaining providers. This consolidation-driven reduction in services can translate into restricted access to care for patients. Longer wait times for appointments, the need to travel greater distances to find available specialists, and the closure of facilities in underserved communities all create significant barriers to receiving timely and appropriate care.
Negative Impacts on Healthcare Workers
Consolidation also detrimentally impacts healthcare workers by typically leading to lower wages, heavier workloads, and reduced job mobility. Hospitals gain market power that suppresses wages, especially for skilled professionals such as nurses. Increased workloads and staffing shortages result in burnout and higher turnover. Notably, a complaint by labor unions against UPMC highlighted anti-competitive practices that worsen working conditions for healthcare staff.
Ethical Concerns
The ethical implications of consolidation are profound, often prioritizing profit over patient care, exacerbating health disparities and limiting access for marginalized communities. The closure of services in economically disadvantaged areas or restrictions imposed by new owners can severely impact vulnerable populations. As noted by Penn LDI, such practices especially affect low-income women and rural residents, challenging the foundational ethics of healthcare.
These issues underscore the need for a high level of scrutiny around mergers and policies that prioritize patient care quality, affordability, and fair labor practices in the face of ongoing hospital consolidation.
The FTC’s Fight Against Anti-Competitive Mergers
Amid growing concerns about the negative effects of hospital consolidation, the Federal Trade Commission stands as a key defender of patient interests and market competition in healthcare. Under the Biden Administration, the FTC has intensified its stance against anti-competitive mergers, demonstrating a strong commitment to safeguarding consumers from the adverse outcomes of unchecked consolidation.
The FTC has notably succeeded in obstructing several hospital mergers recently. For example, in June 2024, Novant Health in North Carolina canceled its acquisition plans for two hospitals after the FTC argued that the deal would create near-monopoly conditions, leading to higher prices and diminished care quality. Other successful FTC actions include blocking RWJBarnabas Health's merger with St. Peter’s Healthcare System in New Jersey in June 2022, and a similar intervention in March 2022 against a merger between Hackensack Meridian Health and Englewood Healthcare Foundation.
These victories highlight a shift towards more assertive regulatory actions, reflecting the FTC’s renewed vigor under the Biden Administration’s directives. In July 2021, President Biden issued an executive order encouraging greater antitrust enforcement to foster a competitive healthcare marketplace. This order critiqued the rampant hospital mergers and directed the FTC to enhance its antitrust enforcement, even allowing for the retrospective challenge of mergers that might have anti-competitive effects.
As per Kaiser Health News reports, this directive has rejuvenated FTC efforts, increasing the agency’s readiness to tackle hospital mergers that might have previously been overlooked. ProPublica’s analysis indicates a significant uptick in enforcement, with the FTC blocking four mergers in the first two years of Biden’s presidency, compared to fewer than one per year during the previous administration.
Evolving Enforcement Strategies
The FTC is also broadening its enforcement strategies, exploring new legal theories and focusing more on diverse aspects of market competition, including labor markets. FTC Chair Lina Khan emphasized in December 2021 the importance of examining how mergers affect not just prices but also employment conditions, highlighting the potential of increased antitrust actions to improve pay and working conditions for healthcare workers.
Moreover, the FTC is scrutinizing vertical mergers more closely, such as those involving hospitals acquiring physician practices, which had traditionally been perceived as beneficial for efficiency. Recent studies, however, suggest these mergers might increase prices and reduce competition, as hospitals gain more control over referrals and insurer negotiations.
This proactive approach by the FTC, fueled by the Biden Administration’s push for more competition, marks a potential turning point in the battle against the detrimental impacts of hospital consolidation. This shift underscores a comprehensive strategy to protect competition and patient welfare in the healthcare sector.
Limitations of Current Enforcement Mechanisms
Despite the FTC's strong stance against anti-competitive hospital mergers, the agency confronts significant barriers that hinder its effectiveness in tackling consolidation. These challenges stem from outdated guidelines, limited resources, and the complexities of proving competition harm in complex healthcare markets.
The FTC's enforcement focus has been predominantly on single-market mergers, as per guidelines last updated in 2010. This approach overlooks the rising trend of cross-market mergers, where healthcare entities expand across different regions, enhancing their market power and leverage over insurers. The effects of these mergers can significantly diminish competition even without direct geographic overlap.
Moreover, stagnant funding levels have strained the FTC's capacity to adequately investigate and legally contest the growing volume of hospital mergers. According to ProPublica, the agency's budget constraints limit its ability to hire necessary expert staff and sustain prolonged legal battles against well-funded healthcare giants. Consequently, many potentially harmful mergers proceed without challenge, consolidating markets further and reducing competition.
Challenging cross-market mergers in court presents its own set of hurdles. These cases tend to lack solid legal precedents, complicating the FTC's task of demonstrating their anti-competitive nature. The nuanced market dynamics involved, such as insurer behavior and potential spillover effects, add to the complexity, making it difficult for the FTC to establish clear legal grounds for opposition.
To truly curb anti-competitive hospital mergers, the FTC needs updated guidelines that reflect the realities of cross-market mergers, increased funding for enforcement activities, and innovative legal strategies to tackle these complex consolidations effectively.
The Medical Credit Card Blind Spot
As policymakers and regulators grapple with the complex issue of hospital consolidation, a related problem is emerging that demands attention: the proliferation of medical credit cards and their disproportionate impact on vulnerable patients. These financial products, often promoted by healthcare providers themselves, are creating a new avenue for medical debt, trapping patients in a cycle of high-interest payments and jeopardizing their financial security.
The Consumer Financial Protection Bureau (CFPB) reports a staggering growth in medical credit card use, with the number of cardholders nearly tripling in the last decade. From 2018 through 2020, Americans charged almost $23 billion in healthcare expenses to these cards, accumulating over $1 billion in deferred interest payments alone. This trend is particularly concerning for older Americans, whose unpaid medical debt has surged in recent years, reaching $53.8 billion in 2020.
The promotion of these cards by healthcare providers, who often receive financial incentives from credit card companies, raises serious ethical concerns. Patients, facing the stress of a medical diagnosis or treatment, are particularly vulnerable to persuasive sales tactics and may not fully understand the complex terms of these credit products. This practice is especially egregious when providers push these cards onto patients who might be eligible for financial assistance programs (FAPs), designed to help low-income patients cover medical expenses.
To protect patients from predatory medical credit practices, policymakers must implement regulations. This includes prohibiting deferred interest promotions, capping interest rates on medical credit cards, requiring clear and conspicuous disclosures of terms and conditions, and strengthening enforcement of FAP requirements to ensure eligible patients are aware of and receive the financial assistance they deserve. We must address this blind spot to prevent unnecessary medical debt and safeguard the financial well-being of vulnerable Americans.
A Multi-Pronged Policy Strategy
Addressing the pervasive effects of hospital consolidation requires a comprehensive strategy aimed at fostering a competitive, patient-centered healthcare system. This strategy must include bolstering antitrust enforcement, revising payment models, regulating medical credit practices, and empowering patients as informed consumers.
Strengthening Antitrust Enforcement:
The FTC's current efforts, while commendable, fall short in tackling the full breadth of consolidation issues. As discussed, guidelines need updating to address cross-market mergers explicitly. This includes assessing the broader implications of mergers that impact common customers across different markets. Congress should also enhance FTC funding, enabling more investigations and legal actions against complex healthcare mergers.
Reforming Payment Models:
The prevailing fee-for-service model, which rewards quantity over quality, exacerbates consolidation as providers seek greater market dominance. Transitioning to shared-risk and population-based payment models, as suggested by the Health Care Payment Learning and Action Network, would incentivize providers to prioritize care quality and efficiency. Supporting smaller providers in this transition is necessary, including offering infrastructure investments and adapting risk arrangements to ensure their viable participation in value-based care.
Empowering Patients as Consumers:
We have to empower patients to become knowledgeable consumers. This involves improving price transparency and access to comprehensive quality and performance data, enabling patients to make informed healthcare choices. Policies should also promote patient involvement in decision-making processes, ensuring treatments align with patient preferences and values.
Addressing Integrated Finance and Delivery Systems Concerns:
While systems integrating insurance and healthcare provision can enhance coordination and efficiency, they also pose risks of further consolidating markets and reducing competition. Regulatory oversight is essential to curb anti-competitive practices and ensure these systems do not disadvantage certain patient groups or perpetuate health disparities.
Conclusion
The Hartford HealthCare lawsuit exemplifies the repercussions of unchecked hospital consolidation. This trend, left unaddressed, threatens to compromise the accessibility and affordability of healthcare, deepening disparities and imposing undue financial strain on Americans.
The urgency for comprehensive healthcare reform has never been more apparent. It is time that all stakeholders — policymakers, healthcare providers, patient advocates, and the public — collaborate to redefine the priorities of our healthcare system. We must advocate for a system that values patient well-being above profit, promotes fair competition, and ensures that care quality is rewarded.
By taking decisive action and implementing targeted reforms, we can address the pervasive issues brought on by hospital consolidation. This collective effort is essential to fostering a healthcare environment that upholds the highest standards of equity and excellence, ensuring that all Americans have access to the care they need at prices they can afford.
How the IRA's Price Controls Could Backfire on Patients
For millions of Americans, health insurance offers a false promise. Despite paying premiums, deductibles, and copays, many still find themselves struggling to afford essential healthcare. In fact, a recent survey found that a staggering 43% of adults with employer-sponsored insurance—often considered the gold standard of coverage—find healthcare difficult to afford. This affordability crisis is poised to worsen, as the latest National Health Expenditure projections from the Centers for Medicare & Medicaid Services (CMS) reveal a troubling trend: while government spending on prescription drugs is projected to decrease, patient out-of-pocket costs are expected to rise. The projections forecast an 8.9% increase in hospital expenditures, coupled with a 1.4% decrease in retail prescription drug spending. This shift, driven in part by the Inflation Reduction Act's (IRA) price control provisions, threatens to undermine the law's intended goal of affordable healthcare and exacerbate existing health inequities. While the IRA aims to lower drug costs, its focus on price controls, rather than comprehensive patient protection mechanisms, is creating misaligned incentives that could backfire on the very people it aims to help.
The IRA's Price Controls: A Double-Edged Sword
The IRA's approach to lowering drug costs centers on empowering the government to directly negotiate prices with pharmaceutical companies. This change tackles a provision in the Medicare Part D program known as the "non-interference" clause, which previously prevented the government from directly negotiating drug prices. As a Kaiser Family Foundation (KFF) issue brief explains, "The Part D non-interference clause has been a longstanding target for some policymakers because it has limited the ability of the federal government to leverage lower prices, particularly for high-priced drugs without competitors." While this "non-interference" clause has long been a target for reform, the IRA's implementation creates a ripple effect that extends beyond simply lowering the sticker price of medications. The Congressional Budget Office (CBO) estimates that these drug pricing provisions will reduce the federal deficit by $237 billion over 10 years, suggesting a significant shift in spending away from the government. However, this shift comes at a cost. The IRA's emphasis on price controls, rather than comprehensive patient protection mechanisms, disrupts existing rebate structures that have been crucial in expanding access to medications, particularly for low-income patients and those with chronic conditions.
Programs like 340B and Medicaid rely on a system of manufacturer rebates to make medications more affordable. In essence, drug companies provide rebates to these programs in exchange for having their drugs included on formularies and made available to a large pool of patients. These rebates help offset the cost of medications, allowing safety-net providers to stretch their limited resources and serve more patients. However, the IRA's price controls could disrupt this delicate balance. By directly negotiating lower prices with manufacturers, the government might inadvertently reduce the incentive for companies to offer substantial rebates to programs like 340B and Medicaid. This could lead to higher costs for these programs and ultimately limit access to medications for vulnerable populations.
This means that programs like 340B and Medicaid, which rely on manufacturer rebates to offset costs and provide affordable medications to vulnerable populations, could be significantly undermined by the IRA's price control measures.
Further complicating the issue is the potential for pharmaceutical companies to adapt to the IRA's price controls by strategically setting higher launch prices for new drugs. This tactic allows them to recoup potential losses from negotiated prices in the future, effectively shifting the cost burden onto other payers, including patients. The CBO projects that this trend of higher launch prices would disproportionately impact Medicaid spending, placing a greater strain on a program already facing significant enrollment fluctuations and budgetary pressures. The KFF brief warns that, "Drug manufacturers may respond to the inflation rebates by increasing launch prices for drugs that come to market in the future." This means that while the IRA might appear to lower drug costs in the short term, it could inadvertently fuel a long-term trend of rising prices for new medications, ultimately impacting patient affordability and access to innovative therapies.
Hospitals: Benefiting from the System While Patients Pay the Price
The CMS projections forecast an alarming 8.9% increase in hospital expenditures, raising questions about the drivers of this unsustainable growth. A closer look reveals a troubling connection between this trend and the 340B Drug Pricing Program, a federal initiative designed to help safety-net hospitals provide affordable medications to low-income patients. The CBO's analysis of 340B spending reveals an explosive 19% average annual growth from 2010 to 2021, significantly outpacing overall healthcare spending growth. This dramatic increase is largely attributed to hospitals, particularly those specializing in oncology, which are increasingly purchasing high-priced specialty drugs through the program. As the CBO presentation states, "340B facilities benefit from the program because the difference between the acquisition cost and the amount they are paid (often called the 'spread') is larger for drugs acquired through the 340B program." This suggests that hospitals are capitalizing on the 340B program's discounts to acquire expensive medications, potentially driving up their overall spending. But are these savings being passed on to patients? Evidence suggests otherwise.
This suspicion of hospitals leveraging the 340B program for profit is further reinforced by a UC Berkeley School of Public Health study which found that hospitals are charging insurers exorbitant markups for infused specialty drugs, many of which are likely acquired through 340B. The study reveals that hospitals eligible for 340B discounts charge insurers a staggering 300% more for these drugs than their acquisition costs, effectively pocketing a substantial profit margin. This practice raises serious concerns about whether the 340B program, designed to help vulnerable patients access affordable medications, is instead being exploited by hospitals to boost their bottom line. As Christopher Whaley, a co-author of the UC Berkeley study, aptly points out, "It is ironic that some hospitals earn more from administering drugs than do drug firms for developing and manufacturing those drugs. At least drug firms invest part of their revenues in innovation; hospitals invest nothing." This highlights a perverse incentive structure where hospitals benefit financially from a program intended to help patients, while those same patients are often left facing inflated prices for essential medications and crippling medical debt.
The Affordability Crisis: A Broken Promise for Patients
This concerning trend of rising healthcare costs and shifting burdens is not limited to those reliant on safety-net programs. The Commonwealth Fund's 2023 Health Care Affordability Survey paints a bleak picture of the widespread affordability crisis facing Americans across all insurance types. The survey found that 43% of adults with employer coverage find healthcare difficult to afford, shattering the illusion that employer-sponsored insurance guarantees financial protection. These findings challenge the fundamental assumption that health insurance in the United States equates to affordable access to care. As the survey report states, "While having health insurance is always better than not having it, the survey findings challenge the implicit assumption that health insurance in the United States buys affordable access to care." This sentiment is echoed by millions of Americans who, despite having insurance, are forced to make difficult choices between their health and their financial well-being.
Even the IRA's lauded out-of-pocket (OOP) cap on Part D drug costs, while offering some relief, fails to address the root causes of this affordability crisis. An analysis by Avalere reveals that even with the cap in place, a significant number of Medicare beneficiaries will continue to face high healthcare costs, particularly those with lower incomes or specific health conditions. The analysis projects that 182,000 beneficiaries will spend over 10% of their income on Part D drug costs in 2025, despite the OOP cap. This sobering statistic underscores the limitations of focusing solely on OOP costs without addressing the underlying drivers of high drug prices and healthcare spending. As the Avalere analysis cautions, "High OOP costs are expected to result in many enrollees still facing affordability challenges in 2025." The findings from both the Avalere analysis and the Commonwealth Fund survey highlight a critical gap in the IRA's approach: it fails to adequately protect the most vulnerable patients from the financial burden of healthcare.
A Call for Patient-Centered Solutions
The CMS projections, alongside independent analyses of the pharmaceutical market and patient affordability, paint a clear picture: the current trajectory of US healthcare spending is unsustainable and inequitable. The IRA's price control provisions, while well-intentioned, risk exacerbating the affordability crisis by disrupting existing rebate structures, incentivizing higher launch prices for new drugs, and shifting costs onto patients. This shift is further compounded by unchecked hospital spending, particularly on high-priced specialty medications acquired through the 340B program. The result is a system where hospitals and pharmaceutical companies benefit, while patients—especially those with lower incomes or chronic conditions—are left struggling to afford essential care.
To be sure, the IRA includes provisions aimed at directly helping patients, such as the out-of-pocket cap on Part D drug costs and the expansion of subsidies for marketplace plans. These are positive steps towards easing the financial burden of healthcare for many Americans. However, the law's broader focus on price controls, without sufficient attention to patient protection mechanisms and the potential for unintended consequences, threatens to undermine these gains and create new challenges for those who rely on safety-net programs like 340B and Medicaid.
It's time for a fundamental shift in our approach to healthcare reform. Policymakers must move beyond a narrow focus on price controls and embrace a patient-centered approach that prioritizes affordability, access, and equity. This requires a multi-pronged strategy that includes:
Reassessing the IRA's reliance on price controls: Instead of simply dictating prices, policymakers should explore alternative approaches that strengthen patient protections, preserve rebate structures that support broader access, and address the potential for cost-shifting onto patients.
Tackling hospital pricing practices: Increased transparency and accountability in hospital pricing, particularly for inpatient medications, is necessary to ensure that safety-net programs like 340B are truly benefiting patients and not being exploited for profit.
Investing in alternative care models: Promoting value-based care and investing in primary and preventive care can reduce reliance on expensive hospital stays, improve health outcomes, and make healthcare more affordable for everyone.
The promise of affordable, accessible healthcare for all Americans remains unfulfilled. We must demand a healthcare system that puts patients first, not profits. Only then can we ensure that everyone has the opportunity to live a healthy and fulfilling life, regardless of their income or health status.
Health Inequity: Barriers Caused by Abusive Payer Practices
On February 2, 2023, ProPublica, the publication with a mission to “expose abuses of power” and particularly known for their extraordinary thoroughness of investigation, published a piece exposing United Healthcare’s practices denying medically necessary care for one patient, Christopher McNaughton, who is diagnosed with ulcerative colitis. The barriers caused by abusive payer practices is nothing new to patients living with chronic health conditions, including HIV and viral hepatitis.
McNaughton’s disease state is particularly challenging and his treatment was costing United Healthcare about $2 million per year. McNaughton, after receiving repeated coverage denials of live-improving and life-saving medication from United Healthcare, many appeals, conflicting results from “third-party” medical reviewers, and an insistence from United Healthcare that McNaughton’s care was not “medically necessary”, McNaughton’s family sued. What that lawsuit uncovered was a trove of data, recordings, emails, reports, and more that showed distain for McNaughton’s family seeking the care he needs, a cover up of a review which properly identified the medical necessity for McNaughton’s treatment in alignment with his provider’s recommendations, and even more grossly abusive legal tricks to disrupt and complicate the lawsuit process.
McNaughton receives his insurance coverage through Penn State University, where he goes to school and his parents work. Amid all of the turmoil of navigating denials, McNaughton and his family had reached out to the sponsor of his health cover only to find an extraordinary lack of help. The curious detail there is the university’s “health insurance coordinator” turns out to be a full-time employee of United Healthcare, despite no disclosure of that fact on Penn State’s webpages and the coordinator being assigned both a Penn State email address and phone number. Arguably, as the sponsor of the plan, Penn State has a role to play here, too, much like large employers and even the government in public payer programs.
Similarly, the New York Times covered the issue of payers refusing to cover the cost of high-cost, life-saving care, especially when that care includes newer medications. All the advancements in the world can’t change the course of a person’s life, if they can’t afford those advancements or the cost of those advancements might bankrupt a patient. While some public payer programs help to protect patients from these burdens, with complex regulatory requirements, even those are often farmed out to the same private payer entities responsible for McNaughton’s experiences, or those described by the numerous patients included in New York Times’ piece. For Medicaid, these entities are called managed care organizations (MCOs) and in Medicare they can been under the Medicare Advantage program. For many patients in private plans, formulary restrictions are quite common. This is still also true in Medicaid and Medicare Advantage plans, in which a patient and/or their provider has to chase after a series of costly administrative barriers in order to get an exception, which may or may not be denied at the end of the day. Indeed, MCOs and private payers have a history of refusing to add new medications to formularies, arguing “cost-effectiveness”, despite U.S. Food and Drug Administration (FDA) approvals and study designs showing greater efficacy, curative potential, or meeting a unique need. We won’t argue how placing greater value on “cost-savings” in the short-term in the face of more efficacious medication for patients is both morally and ethically abominable. Ultimately, these types of moves just shift cost-burdens to patients, namely in the expense of their health and even their lives. Similarly, newer medications may be placed on higher tiers, requiring higher co-pays or step-therapy (failing a different medication before having access to a newer one). Program designs with high deductibles and copay schemes (sometimes called co-insurance) are leaving more and more patients behind, as evidenced by work from Dr. Jalpa Doshi, a professor at the University of Pennsylvania, which showed rates of medication abandonment increase dramatically as co-pays rise.
Digging into the details of navigation, a Kaiser Family Foundation (KFF) analysis found Medicare Advantage plans forced patients through the process of securing permission from their payer before getting coverage of care – or as we like to call it, getting care – known as prior authorization. In theory, prior authorizations should align with a patient’s medical necessity as identified by their provider, encourage exploration of less costly treatment courses, and save both the plan and patients some money in the process. In practice, prior authorizations, particularly with regard to medication benefit coverage, is used to delay and deny care very similar to auto insurers looking to get out paying for a claim. KFF’s analysis found that in 2021, Medicare Advantage plans received 35 million prior authorization requests. Medicare Advantage only has 23 million enrollees in the contracts reviewed, thus averaging about 1.5 prior authorization per enrollee. The application of these requests is not uniform. Kaiser Permanente (no affiliation with KFF) had a prior authorization rate of 0.3% per enrollee and Anthem had a rate nearly time times higher at 2.9% per enrollee. To be fair, Kaiser Permanente’s network of providers work at entities Kaiser Permanente owns. The overall denial rate of prior authorizations across Medicare Advantage plans in 2021 was about 5% (or 2 million partial or full denials). Navigating denials, as shown in the ProPublica piece, is more than a little bit challenging when payers are bound and determined to limit their own costs. This is easily displayed in seeing the appeal rate for those 2 million denials of coverage was just 11% (or about 220,000). Of those appeals, a full 82% were overturned (or about 180,400). An Office of the Inspector General (OIG) report found more than 10% of a small sample of denials were “inappropriate” and would have generally been covered by traditional Medicare. It’s safe to say, at least 200,000 patients in Medicare Advantage plans alone have experienced delayed, medically necessary care…just because.
All of this incredibly noteworthy as the Biden Administration works to finalize an audit rule for Medicare Advantage plans which is expected to generate some potential $2 billion dollars returned to the government for overbilling, or claiming patients were sicker than they were. These payers are posed to argue simultaneously that patients don’t need medically necessary care despite being sicker than they actually are. It’s truly a remarkable moment to see predatory practices barrel their ways towards one another in the name of payer profits.
The New York Times piece notably reminds readers, when payers or even government officials argue for “cost savings”, they’re not necessarily talking about cost-savings for patients. The Inflation reduction Act, for example, requires manufacturers to refund the difference of medication’s cost rising higher than inflation to the government, but the government isn’t required to pass those savings make it back to patients. Again, to be fair, it might be particularly challenging for public program administrators to ensure those savings make it back to patients because those administrators are already saving plenty of money into their own pockets through bulk purchasing, already negotiating lower costs, and discount or rebate programs. On the double dipping end of the never-ending double dip, these same payers are fighting back against a series of programs run by medication manufacturers known patient assistance programs. The most common form of patient assistance programs is designed as co-pay assistance, helping patients cover their out-of-pocket costs of a particular medication. Right now, payers are using several dirty tricks to make sure they get the benefit of those billing dollars, rather than patients. The HIV + HepC Institute have joined other advocates in suing the Biden Administration over a rule issued under the previous administration to ensure those assistance programs designed to benefit patients and extend access to care are actually being used that way.
States are taking on efforts to combat abusive prior authorization practices introducing or having already passed “gold card” programs, in which providers with a history of successfully meeting prior authorization requirements in previous years may be exempt from needing to go through those processes for a certain period of time. The Biden Administration, for their part have also introduced a set of rules to streamline prior authorization processes, in an effort to expedite the experiences patients and providers have in navigating payment for care. And Congress is expected to see what was known as the Safe Step Act reintroduced this year, a bi-partisan and exceedingly popular piece of legislation aimed at curbing fail-first practices.
But patients, advocates, and policymakers should be careful about unintended consequences and keep an eye out for payers to adjust their practices. In gold-card programs, payers could just expand their prior authorization requirements, narrow formularies, and increase their rate of denials in order to disqualify providers who were previously qualified for the programs. We should also get creative in seeking to close some of these loopholes in the Affordable Care Act’s promise to bring a more equitable and easier to navigate health care landscape. Introducing parity between medical benefit profit caps (known as medical loss ratio) and pharmacy benefit profit caps might encourage (read: require) pharmacy benefit managers to share the savings, have discounts follow patients, expand formularies, and otherwise ensure their program dollars are being used to the maximum benefit of patients.