For startups eyeing opportunities in the US healthcare market, the election of Donald Trump adds a new wrinkle to an already complicated picture. Over the past five years, the American healthcare industry has already been in the thick of a systemic change and massive realignment. Much of the transformation to date has been driven by the enactment of Affordable Care Act (ACA), better known as Obamacare, which President Trump has promised to repeal or, at a minimum, roll back. What will be the implications of the new administration’s policies for Israeli healthcare and life science entrepreneurs?
To explore the changes ahead, it is helpful to review how the ACA has redrawn the US regulatory and reimbursement landscape since 2010. The ACA took on three distinct problems: lack of access to routine care for over 40 million uninsured Americans, along with the relative high cost and low quality of care relative to every other advanced industrialized country. The ACA sought to expand access to care by extending Medicaid for a much wider range of the poorest Americans (up to 137% of Federal Poverty Level ( FPL)) and by subsidizing the mandatory purchase of private health insurance coverage on insurance exchanges for working and middle class Americans (from 138% to 400% of FPL). The solutions to the cost/quality conundrum consisted of a series of initiatives aimed at ending the “fee-for-service” era of volume-based reimbursement in favor of value-based reimbursement and also driving towards greater integration of providers to coordinate care, reducing waste and inefficiency.
Donald Trump and Republicans found political traction in the unpopularity of the ACA exchanges, which offered expensive coverage that many working Americans were forced to buy or pay a penalty (based on the ACA individual mandate) but then could not afford to use based on large deductibles. In the past six years, there have been over 60 attempts by the Republicans in Congress to repeal the ACA and it is a safe bet that repeal will be one of the first initiatives of the new administration. What will this mean in practical terms? More to the point, what will TrumpCare look like?
Answering these questions inherently involves a degree of speculation, not only because of inconsistencies in Donald Trump’s own personal statements, but also based on anticipated conflict with the Republican House, led by Speaker Paul Ryan, and Senate, led by Majority Leader Mitch McConnell. Many people expect a “three-headed monster” as the more cost-conscious, religiously motivated House asserts itself, particularly on budget and tax matters, and the more socially conscious and liberal Senate does so on personal liberties and social issues. In addition, Trump’s selections for cabinet posts will impact these questions. Attorney General Sessions, for example, may look for openings to challenge the federal “hands-off” policy towards marijuana in the states that have decriminalized medicinal and recreational use.
Notwithstanding the drama that will play out based on these tensions, there is sufficient clarity on pieces of the executive healthcare agenda to offer projections. First, although Trump has commented favorably on select parts of the ACA (such as the guaranteed issuance of insurance coverage irrespective of preexisting health conditions and the right of parents to keep children up to age 26 on their family policies), the ACA repeal appears to be a foregone conclusion for symbolic reasons. Beginning in January, Republicans will celebrate the death of the insurance exchanges (which were unsuccessful at creating affordable options for the high risk pool), as well as the end of the individual mandate. Its more popular provisions aspects are likely to resurface in the form of a replacement. Some have questioned whether Senate Democrats may be able to filibuster against repeal, but the budget reconciliation process and defunding offer a path to repeal that is unstoppable (assuming Republican unity).
What will the rest of the replacement for the ACA look like? The signature Trump initiative (borrowed from Speaker Ryan’s alternative to Obamacare) is likely to be a shift to global capitation for all Medicare beneficiaries, coupled with a raise in the eligibility age to 67. This is expected to be coupled with a cap on federal contributions to the states to fund Medicaid coverage for low-income Americans by shifting to a “block grant” model. The net effect of these two initiatives will be to limit federal spending on healthcare dramatically, shifting the financial burden to the states and to individual Americans to pay more out of pocket for their healthcare needs.
These developments are likely to expand several disparities. Within Medicare, capitation will widen the gap between the “haves” (who are already utilizing the Medicare Advantage Program and supplemental insurance to improve their access) and “have-nots”. Spending caps are likely to limit end-of-life care and expensive care for chronic conditions, such as diabetes and COPD, for beneficiaries who are unable to pay out of pocket for costs beyond their personal capitation.
The gap is also likely to widen through greater flexibility for states in their Medicaid program design. More progressive states (e.g. California and Colorado) are likelier to absorb the cost of retaining the ACA’s expanded Medicaid coverage to the millions of the poorest residents who are losing federal funding. At the other end of the spectrum, states that never accepted funding for Medicaid expansion will continue to limit coverage to the “safety net” population. In the middle, many states will have to decide how much to soften the blow of lost insurance coverage for the millions who lose coverage via the Obamacare repeal. Meanwhile, the Democratic opposition is expected to migrate from backing the Obama/Clinton compromises of the ACA towards advocacy for a single-payer universal Medicare “public option”.
President Trump’s solutions are likely to be focused on tax credits for healthcare premiums (age-adjusted and refundable for the uninsured), Health Savings Accounts (HSAs) that incentivize employees to control healthcare costs by allowing them to keep funds that go unspent (coupled with high deductible plans), and national underwriting in place of state-by-state insurance regulation. All of these measures incentivize individuals to be better healthcare consumers – a boon for price-efficient cash-pay services, but fail to address the levels of cost for catastrophic care and expensive chronic conditions. Many hospitals are dreading the anticipated spike in unfunded care that will result.
One of the few areas likely to see bipartisan support and continue under President Trump is the Medicare risk shifting to providers through the transition to value-based care. Bundled payment initiatives are expected to expand to a broader range of procedures and to wider-ranging use nationwide. MACRA implementation is similarly likely to continue, rewarding providers who demonstrate superior outcomes. Coupled with the shift to Medicare capitation, the pressure on post-acute providers (e.g. skilled nursing facilities) from suppressed utilization and reduced profit margins.
The bleak picture for acute care hospitals and post-acute care providers resulting from all of the above present an even more pressing need for efficient care coordination and management. Meanwhile, these trends place even more pressure on expanding new care settings and, above all, care at home for the aging population via home care services, telemonitoring, and other resources – paid for principally out-of-pocket by the children of aging seniors.
With less government funding, it is worth questioning the long-term sustainability of the pharmaceutical industry’s response to the election. The post-election surge appears to have been driven by the expectation of a laissez faire attitude towards drug pricing from President Trump, in contrast to the fear of potential price controls to combat “over-pricing” of high cost-drugs under a Clinton presidency. But the prognosis is not all rosy for Pharma. The industry had negotiated to be largely left alone under the ACA, but in an environment of much more restricted government funding, it would not be a surprise to see President Trump enable Medicare to negotiate prices for high-cost, low-competition drugs. Biotech ventures driving towards the promise of precision medicine tapping into the human genome may wish to consider the size of the market in the new environment. Similarly, Trump’s populist bent is likely to put pressure on drug pricing by increasing competition, such as reducing the FDA biologic exclusivity period (from its current 12 years), directing the FDA to give prioritized, expedited review to biosimilar applications with limited competition in the marketplace, and accelerating the approval process for generics and other drugs drug applications. For biotechs, the tradeoff may be an easier FDA process, but a tougher reimbursement environment.
What are the takeaways for innovators? The Trump Administration will undoubtedly transform US healthcare regulation and reimbursement. Ventures looking to capitalize on increasing consumerism in patient behavior, home-based aging in place, and other lower-cost, technology-driven solutions, the net effect of more out-of-pocket spending is likely to be positive. The new administration’s policies increase the urgency for lower-cost solutions to deliver care – including more predictive analytics to make sense of healthcare data, more telehealth, and more artificial intelligence. For entrepreneurs driving towards Medicare-driven profits, the anticipated funding cuts over the next several years may call for strategic rethinking.
In collaboration with Harry Nelson, managing partner of Nelson Hardiman LLP, and co-chair of the Adaptive Healthcare Fund.