Paul Heldman, Senior Health Policy Analyst & Sarah Mills, Analyst
December 1, 2014
Inpatient rehab facilities remain a top potential source of Medicare legislative savings to finance congressional initiatives in 2015, including for a likely bill in late March to delay a 21% Medicare physician pay cut scheduled to take effect April 1. MedPAC, a congressional advisory panel on Medicare, will likely at its Dec. 18-19 meetings consider a recommendation to more closely align inpatient rehab hospital payments with those of lower paid skilled nursing facilities. Inpatient rehab providers: HLS, KND; skilled nursing facilities: ENSG, SKH, KND.
Hospitals and the Supreme Court: We caution investors in hospitals from being too optimistic about the continuation of federal subsidies to help 4.5 million people buy health coverage now that the Supreme Court has accepted a challenge to the government assistance to working class Americans in 35 states. We reiterate the subsidies will most likely continue to flow, but we think the issue could get snagged and tangled in the politics of the 2016 presidential and congressional elections. Oral arguments are likely in early March, followed by a high court ruling in late June. Hospitals: HCA, LPNT, THC, UHS, CYH.
Device Tax, Insurance Risk Corridors: We reiterate a 65% chance that the new Republican-controlled Congress early next year will eliminate the 2.3% tax on medical device sales by capitalizing on opposition to the levy from Democrats representing states with a heavy concentration of device manufacturers. Government assistance to health insurers known as risk corridors is also in play for moderation or repeal by Republicans who describe it as an industry bailout. However, we think the Obama administration and industry will most likely successfully push back against repeal of this mechanism for helping insurers to contain premium increases.
Biosimilars: The Food and Drug Administration (FDA) is moving under a new abbreviated process toward approval of the first lower cost biosimilar competitor to a brand-name biotech drug. The first product approval may come as early as May for a biosimilar version of Neupogen being produced by Sandoz, the generic manufacturing division of Novartis (NVS), in our view. The maker of the innovator version of the drug is Amgen. Progress by the FDA includes likely issuance by the agency of guidance by year end on labeling and interchangeability requirements for biosimilars. We are unsure whether the FDA will also address biosimilar naming in its labeling guidance, but we expect a guidance on naming will be be available within the first half of 2015. We reiterate the FDA will most likely resolve the contentious biosimilar naming issue in a way most favorable to makers of biosimilars by requiring these products to have a modifier attached to the generic drug name that is traditionally shared by innovator and generic drug companies for products with the same active ingredients.
Generic Drug Pricing: We believe the new Republican-controlled Congress is unlikely to take legislative steps to control rising generic drug prices. The greater threat may be from the Justice Department, which is investigating generic drug price increases. Medicare and Medicaid data showed an average 448% increase from July 2013 to July 2014 for half of all generic drugs, according to Sen. Bernie Sanders of Vermont, a liberal independent who caucuses with the Democrats. Sanders recently held a subcommittee hearing on rising generic drug prices.