2018 Healthcare Year in Review

Repeal was replaced for much of 2018, but then December came along.

U.S. District Judge Reed O'Connor put the industry back into a frenzy when he ruled in mid-December to invalidate the Affordable Care Act. Although the Trump administration has pledged to enforce the law while the case makes its way through the appeals process, the ruling has created long-term uncertainty.

Throughout 2018, Congress moved on from failed attempts to repeal the ACA and drama unfolded on a number of other fronts.

With the CMS' guidance, a dozen states advanced plans to impose new enrollment mandates on Medicaid beneficiaries, including work and job training requirements. The Trump administration added a new twist to insurance markets with rules allowing for non-compliant ACA plans.

Deaths mounted from opioids and gun violence, causing public health officials to amp up calls for policy solutions.

Across the industry, the consolidation trend showed no signs of abating. Providers stared down declining admissions by imagining a world dominated by ambulatory care.

Consumer-facing companies continued their push into healthcare aiming to do what the industry hasn't on data exchange. But hackers upped their game too, making breaches an all-too-frequent occurrence.

Operations

Status quo under attack from all corners

Dr. Atul Gawande

The year began with a resounding sentiment that set the tone for 2018: “We're tired of the current healthcare system, so rather than wait for someone to change it, we'll do it ourselves.”

Ascension, Intermountain Healthcare, SSM Health and Trinity Health kicked things off by pledging to create a generic drug company, Civica Rx. The providers spoke on behalf of nearly every health system that faces daily shortages of critical drugs and unexpected price hikes.

Several New Jersey health systems, including Atlantic Health and CentraState Healthcare System, took their own swipe at costs and affordability by forming the Healthcare Transformation Consortium, an effort to deliver a better insurance product to their roughly 75,000 employees.

Industry outsiders were not deterred and themselves made big moves to attack the status quo. Amazon, Berkshire Hathaway and JPMorgan Chase joined together to cut out the middlemen in pursuit of more affordable and efficient healthcare coverage for their 1 million-plus employees. They hired renowned author/speaker/surgeon Dr. Atul Gawande to lead the charge.

Venture capitalists too saw an industry that was ripe for attention. Venture capital funding for digital health startups is projected to top $6.9 billion in 2018, an increase of 230% from five years ago, according to PricewaterhouseCoopers. Meanwhile, the value of private equity deals in healthcare around the globe reached $42.6 billion in 2017, up 17% from $36.4 billion in 2016, according to a report by Bain & Co.

THE BIG 3

1. 1

   JANUARY: Ascension, Intermountain Healthcare, SSM Health and Trinity Health announce plans to build their own generic drug company, now called Civica Rx.

2. 2

   MARCH: Ascension unveils a new strategy to prioritize developing its outpatient and telemedicine network as well as its ancillary businesses over increasing its hospital footprint.

3. 3

   OCTOBER: The CMS finalizes its Outpatient Prospective Payment Systems rule, which includes so-called site-neutral reimbursement, angering hospitals.

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Finance

Operating margins take a hit, again

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Hospital operating margins continued to plummet in 2018, even as balance sheets remain stronger than ever. Martin Arrick, a managing director in S&P Global's U.S. public finance division, said health systems continued to depend heavily on non-operating income throughout the year, and non-operating margins exceeded operating margins.

“Normally it's the other way around,” he said. “That points to a dependence on non-operating income.”

That proved to be a thorn in the sides of some systems in 2018 when the stock market failed to deliver to the same degree as in 2017, a banner year. Oakland, Calif.-based Kaiser Permanente's net non-operating income fell 52% in the third quarter of 2018 year-over-year mostly due to the volatile equities market, but an executive told Modern Healthcare the system does not plan to change its investment strategy.

Others saw solid stock market returns, but still kept capital spending modest, according to a November report from Fitch Ratings. One-quarter of hospitals had AA- ratings at the time of the report, up from 17% at the same time in 2017, mostly because hospitals' ratings improved under Fitch's new rating criteria. Meanwhile, fewer hospitals were rated BBB+ or below.

The year also saw a continued transition toward value-based care. There weren't any huge moves; more like providers gradually positioning themselves to take on risk, whether in the form of insurance contracts or through bundled payments.

THE BIG 3

1. 1

   MARCH: California Attorney General Xavier Becerra sues Sutter Health, Northern California's largest health system, alleging its “all or nothing” contracting approach restricts insurers from providing low-cost health plan options.

2. 2

   AUGUST: Investor-owned hospital giant HCA Healthcare signs a definitive agreement to purchase Asheville, N.C.-based not-for-profit Mission Health for $1.5 billion. Regulators are still reviewing the deal.

3. 3

   NOVEMBER: Catholic Health Initiatives and Dignity Health inch closer to completing their merger after getting conditional approval from the California Justice Department. The combined entity, which will be called CommonSpirit Health, will comprise 140 hospitals and more than 700 care sites across 21 states. The deal, which was supposed to close by the end of the year, we delayed again. Dignity Health in late December said it expects to finalize the merger by the end of January.

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Insurance

Greater flexibility, new alliances

If 2017 was a year of regulatory unknowns, 2018 was when health insurers and other industry stakeholders started getting answers. The Trump administration offered insurers and states extra tools to sidestep the Affordable Care Act in lieu of a full repeal of the law.

The administration expanded access to health insurance with fewer benefits and protections than ACA plans but with an attractive lower price tag. One rule extended the duration of short-term health plans from a maximum of three months to 12 months and made them renewable. Another allowed more employers and individuals to join together to buy health insurance in association health plans able to skirt the ACA.

New flexibilities extended beyond the individual market to Medicare Advantage and could accelerate enrollment in privatized Medicare plans—a lucrative business line for insurers. The federal government finalized a rule allowing Medicare Advantage insurers to offer supplemental benefits in 2019 that go beyond medical care and address the social determinants of health. It further proposed expanding Advantage members' access to telehealth services in 2020.

Meanwhile, health insurers made headway on multiple transformative mergers with nontraditional partners, including pharmacies and pharmacy benefit managers. The vertical mergers were some of the biggest transactions in healthcare history.

Aetna and pharmacy behemoth CVS Health clinched their $70 billion merger in November. Cigna linked with Express Scripts in a $67 billion proposed merger touted as a way to save costs and improve care by integrating medical and pharmacy services.

THE BIG 3

1. 1

   JUNE: The Trump administration finalizes a rule allowing more employers and self-employed individuals to band together to buy insurance in association health plans.

2. 2

   AUGUST: The administration issues a final rule expanding access to short-term limited-duration health insurance, which can skirt some ACA rules.

3. 3

   NOVEMBER: CVS Health completes its acquisition of Aetna. Several states and the U.S. Justice Department signed off on the deal with conditions.

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Medicaid

Political, legal battles heat up over expansion

Ken Paxton, Texas attorney general

With congressional action to repeal the Affordable Care Act off the table in 2018, the Trump administration and the states engaged in a tense push and pull through the year between expanding, not expanding and limiting Medicaid eligibility.

The CMS set up the Medicaid expansion battle in January by inviting states that extended benefits to low-income adults under the ACA to impose work requirements, premium payments and other conditions on eligibility. As of Dec. 7, five states gained approval to implement work requirements and another 10 had waivers pending with the CMS, according to the Kaiser Family Foundation.

But the future of work mandates, and of the Medicaid expansion as a whole, remained up in the air at year-end. Legal challenges to waivers issued to Arkansas and Kentucky are making their way through the court system and experts expect the U.S. Supreme Court to ultimately decide the issue.

The ACA could be headed to the Supreme Court as well. Texas Attorney General Ken Paxton and 19 other Republican attorneys general won the first round of what is likely to be a protracted court battle over the ACA. If O'Connor's ruling stands, the entire ACA would be tossed, including Medicaid expansion.

THE BIG 3

1. 1

   JANUARY: The CMS issues guidance encouraging states to request Medicaid work-requirement waivers.

2. 2

   OCTOBER: The CMS issues guidance in loosening criteria for state Section 1332 innovation waivers.

3. 3

   NOVEMBER: Voters approve Medicaid expansion in three states; pro-expansion candidates win gubernatorial races in Kansas and Maine, while anti-expansion candidates win in Florida and Georgia.

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Policy

It's all about the money

Alex Azar, HHS secretary (AP Photo)

With full Obamacare repeal dead in Congress, health policy shifted significantly to the executive branch.

Alex Azar, who took the reins of HHS and its $1.2 trillion budget as secretary in January 2018, charted a course of significant changes to the system: through an overarching strategy to lower drug prices and claw back money from the hospital industry.

Azar initially faced skepticism from critics who argued his tenure as a top executive with pharmaceutical giant Eli Lilly & Co. could blunt the Trump administration's promised plan to lower drug prices. That didn't abate when the White House in May unveiled its blueprint. But as the policy bones gained muscle, Azar's ideas have won over some doubters and drawn ire from manufacturers.

Among the most controversial policies: a mandatory International Pricing Index Model for Part B physician-administered drugs to align prices with those in other countries. The administration also made a pitch for price negotiations for drugs in protected classes, where Medicare costs are exceptionally high.

On the hospital side, HHS sparked industry anger over its efforts to rein in spending. The CMS finalized a rule that will slash payments for office visits at hospital outpatient clinics to match the rate for independent physicians' offices. It also trimmed the 340B drug discount program. Hospital groups have turned to the courts to try and reverse what they deem to be administrative overreach.

THE BIG 3

1. 1

   FEBRUARY: Twenty GOP state attorneys general file suit to end the Affordable Care Act, claiming zeroing out the individual tax penalty rendered the law unconstitutional.

2. 2

   NOVEMBER: Midterm elections result in divided government as Democrats regain control of the U.S. House. Republicans increase their Senate majority.

3. 3

   DECEMBER: U.S. District Judge Reed O'Connor rules deems the Affordable Care Act unconstitutional.

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Public health

Industry tries to fill the void

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From social determinants to the opioid crisis, 2018 was marked by fits and starts and mixed messages from Washington, D.C.

While the rhetoric around addressing social determinants grew in 2018, efforts to fundamentally affect such things as housing and food insecurity were limited in scope.

The healthcare system's approach to social determinants in many ways reflected the country's response overall to some of the year's most pressing public health concerns.

There was tepid praise for Congress' attempt to address the opioid crisis—enactment of the Support for Patients and Communities Act. While the bipartisan legislative package included provisions aimed at expanding telehealth for substance abuse treatment and expanding first responders' access to overdose-reversal medication naloxone, it fell short, public health leaders said, of making a large-scale funding commitment toward expanding access to treatment and prevention.

Public health officials and providers also grew more frustrated with Washington's inaction on efforts to curb gun violence. Despite a growing chorus to study the dilemma as a public health crisis, Congress did not allocate any funds to the Centers for Disease Control and Prevention. That led some providers to fill the void. Kaiser Permanente in April announced it was investing $2 million to research gun violence.

THE BIG 3

1. 1

   JANUARY: CDC Director Dr. Brenda Fitzgerald resigns as reports surface she purchased tobacco stock after she took the position at the agency.

2. 2

   FEBRUARY: A mass shooting at Marjory Stoneman Douglas High School in Parkland, Fla., kills 17 students and staff, sparking a series of protests around the country calling for action to address gun violence.

3. 3

   OCTOBER: President Donald Trump signs a large package of bills aimed at addressing the opioid crisis.

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Technology

Interoperability remained just beyond the horizon

Modern Healthcare Illustration

From the Office of the National Coordinator for Health Information Technology to the CMS to Apple, there was a cacophony of voices in 2018 calling for a system in which patients control their data, allowing it to flow to the right care setting at the right time.

But the holy grail of industry-wide interoperability remained elusive.

It was a promising start to the year after both the ONC and the CMS unveiled initiatives aimed at improving interoperability and data portability. But little detail followed either announcement, creating confusion in the industry.

And as of deadline, the industry was still waiting for the ONC's long-awaited rule on information blocking, which has been hung up at the White House Office of Management and Budget since the fall.

Meanwhile, consumer companies including Apple, Amazon, Google, IBM, Microsoft and Salesforce made moves—one way or another—to make data exchange a reality, primarily by giving patients more power over how their health information is managed.

As more data move around and multiply, there are more opportunities for hackers to get their hands on them. And 2018 was not a good year for breaches.

Between Jan. 1, 2018, and Nov. 30, 333 data breaches were reported to HHS' Office for Civil Rights, which tracks breaches. These attacks can be expensive, costing each affected organization $4 million on average, according to the Ponemon Institute.

THE BIG 3

1. 1

   JANUARY: The ONC releases a draft plan for pushing interoperability among health information exchanges. Also, Apple gives patients the ability to gather data from their health records on their iPhones. In March, the CMS announces MyHealthEData, a plan to give patients greater control over their data.

2. 2

   MAY: Cerner Corp. inks a deal to upgrade the Veterans Affairs Department EHR. Costs are estimated to hit $16 billion over 10 years.

3. 3

   NOVEMBER: Veritas Capital and Evergreen Coast Capital buy Athenahealth for $5.7 billion.

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Quality and safety

Risk was the word in 2018

Seema Verma, CMS administrator (AP Photo)

The CMS more forcefully pressed the transition to value-based payment as the agency announced it would push Medicare accountable care organizations to assume downside risk sooner and that a mandatory oncology payment model would be released.

But even as the CMS made clear to providers that taking on downside risk is inevitable, the agency was largely silent or gave mixed signals about patient-safety issues in 2018.

The CMS followed through with its plan to remove quality measures—mostly infection measures—from the inpatient prospective payment system in an effort to eliminate administrative burden. It also only has two new patient-reported outcome measures on the docket to possibly be added to CMS programs even though there is widespread buy-in about moving away from process measures.

The agency also struggled to improve the hospital star ratings on Hospital Compare. July marked the second time the Trump administration delayed the star ratings in response to a backlash from stakeholders that they don't accurately reflect hospital quality. The CMS plans to update the star ratings in February 2019 after a 14-month delay, but hospital lobbying groups were still displeased with the changes the agency came up with, calling them minimal.

THE BIG 3

1. 1

   JULY: National Guideline Clearinghouse website closes due to budget cuts at HHS' Agency for Healthcare Research and Quality.

2. 2

   AUGUST: The CMS eliminates 18 quality measures and de-duplicated 25 other measures.

3. 3

   NOVEMBER: HHS Secretary Alex Azar suggests Medicaid may pay for social determinants of health.

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