Health Care Matters | June 14, 2024

Jun 14

AHRQs New Health Care Extension Service

In a JAMA viewpoint article, leaders at AHRQ announced they will invest half the trust fund ($1B every 10 years) to fund the creation of a health care extension service. The extension service will focus on assisting states in “(1) convening state and community stakeholders to identify urgent health care goals and align their activities to achieve them, (2) providing relevant actionable knowledge and implementation strategies, and tools, and (3) training an implementation workforce.” AHRQ is awarding up to 15 grants to state-based extension cooperatives. Over the course of five years, the cooperative must target two urgent health care issues and engage with state Medicaid, a research partner as well as a multi-stakeholder council. The Notice of Information was released on June 6. The Notice of Funding Opportunity will be released in the summer with applications due in the fall.

Why It Matters

This is another recognition by the Administration that certain urgent population health needs are not being addressed by the current incentives of the U.S. health care system. AHRQ's Health Care Extension Service is similar in aims to recent models released by CMMI like AHEAD as well as the challenge grants offered by ARPA-H in the Health Care Rewards to Achieve Improved Outcomes (HEROES) program. HHS is using a variety of agencies to issue grant funding and cooperative agreements to drive investment in public health, create infrastructure at the local level, and support innovative ways to improve health outcomes.

SCAN Wins MA Star Ratings Lawsuit Against CMS

Following CMS’ star rating release for the 2024 plan year, SCAN Health Plan filed a federal lawsuit against CMS citing that regulators did not appropriately calculate the insurer’s Medicare Advantage (MA) star rating with the application of the Tukey Outer Fence Outlier Deletion Method. This statistical update relies on comparisons to other health plans and at issue was the approach for removing outliers. The company alleged this led SCAN’s score to drop from 4.5 to 3.5, resulting in a $250 million loss in quality bonus payments. The judge sided with SCAN, stating the CMS Tukey provisions did not go through proper notice and comment during rule-making and asked CMS to recalculate the plan’s rating.

Why It Matters

This federal decision, in what is known as “TukeyGate", will have ripple effects throughout the industry. CMS could appeal the decision, but the ruling was clear and lawsuits from other plans are already proceeding. It is unlikely CMS will recalculate the star rating only for SCAN. If CMS recalculates the star ratings of all plans this will have huge repercussions for MA bids and supplemental benefits that were just submitted for the 2025 plan year. CMS will need to decide, and quickly, whether it plans to recalculate star ratings and if/how they allow plans to resubmit bids for next year.

Slowdown in Private Equity Acquisitions

The WSJ reports that there has been a sharp decline in the acquisition of smaller medical businesses. Under FTC Chair, Lina Khan, the agency has put a particular focus on private equity roll-ups in the health care sector and their effect on patient care. Last month the FTC and DOJ began a formal inquiry to identify the harmful effects of roll-ups – the process where a buyout firm acquires a company and merges it with one of its own.

WHY IT MATTERs

The attention on health care roll-ups comes after the FTC and DOJ changed their merger guidelines in December last year and indicated an increased scrutiny of private equity more generally. It appears additional attention and enforcement is having the Administration’s intended effect of reducing this type of private equity deal in the health care sector. While all private equity transactions are down for a myriad of reasons, health care roll-ups surpass the decline in the industry as a whole. Pitchbook Data reported that as of the end of May, these health care transactions are at 23% of last year’s total. Private equity deals in health care hit a peak in 2021, and the results of those mergers are still being felt. While some commend the ability of private equity to quickly invest in and scale smart innovations, U.S. regulators have often expressed trepidation, citing concerns these types of deals increase prices and reduce competition without leading to better patient outcomes. The private equity industry is pushing back against increased enforcement and finding new ways to clear government reviews. We are watching for whether this dip in roll-ups becomes a more sustained trend or whether levels of transactions rebound once firms better understand how to play by the new rules.