As we reach the year’s midpoint, Capstone is revisiting our sector 2024 predictions and looking ahead to the second half of 2024.
As Capstone predicted, the 2024 healthcare policy landscape has been anything but quiet. Mounting pressure on healthcare providers, insurers facing underappreciated pain, and pharmaceutical manufacturers facing a tough road continue to play out—not to mention increased oversight into private equity activity, hospitals increasingly under the microscope, and a host of ongoing hot-button policy-driven healthcare themes.
We expect the drama to continue in the second half of the year (see our 2024 Healthcare Previews). As the healthcare sector navigates the currents of 2024, the looming election is poised to inject an additional layer of intrigue into the unfolding policy narrative. The question of which side would be most favorable for healthcare stakeholders remains front of mind for both companies and investors.
In a recent Q&A, Capstone’s co-heads of Healthcare, Grace Totman and Hunter Hammond, provide updates on the remainder of what 2024 holds for underappreciated healthcare policy.
What underappreciated policy challenges do you expect the healthcare industry to face in the second half of the year?
The Biden administration has not been friendly to the healthcare industry. Within this overarching statement, however, a few key areas have been particular targets and are likely to continue facing a challenging policy environment in H2 2024.
The Biden administration has not been friendly to the healthcare industry.
Three key themes have emerged: increased oversight into private equity (PE) activity and vertical/horizontal integration, a pessimistic approach to Medicare Advantage, and increased alignment with labor unions in rulemaking for providers. While most of these areas have reached the ‘final rule’ stage, or have begun legal battles in court, the impact of these efforts is yet to be realized by the affected parties. For example, the ongoing UnitedHealth Group Department of Justice (DOJ) antitrust investigation—where regulators are looking into the conglomerate’s potential anticompetitive effects—may produce results over the coming months, creating headline risk for large managed care names.
At the same time, Biden administration-led investigations into private equity ownership in healthcare are just getting started. From a Congressional standpoint, Capstone also expects pharmacy benefit managers (PBMs) and hospitals to come under the microscope with lingering questions on community health center funding and the Medicare trust fund. The forthcoming release of the Federal Trade Commission’s PBM study, likely in Q4 2024, will further increase scrutiny on the space.
What emerging opportunities need to be on investors’ radar?
Providers seemingly can’t win. Labor inflation, minimum wage boosts, and attempts to block consolidation have made the environment for providers—and hospitals, more specifically—incredibly difficult. The anti-hospital sentiment seems to have dissipated in recent months, likely due to these pressures and rising concerns that Medicare Advantage plans pressure hospitals with lower rates and prior authorization.
Providers seemingly can’t win. Labor inflation, minimum wage boosts, and attempts to block consolidation have made the environment for providers—and hospitals, more specifically—incredibly difficult.
Capstone believes this shifting sentiment and growing concerns over rural hospital closures will create an opportunity for true Medicare physician fee schedule relief in the remainder of 2024 and into 2025. Physician fee schedule relief runs counter to most discussions on the federal level, which are mostly focused on finding savings, limiting spending, and extending the Medicare trust fund.
For physicians, nearly a decade of lobbying since the Medicare Access and CHIP Reauthorization Act of 2015 has culminated in a strong push for permanent reform and has caught the interest of a bipartisan Senate working group building a potential compromise. The cost of relief will be steep and comes during a cost-sensitive Congress. Still, with bipartisan support and the potential for budgeting creativity, there remains a path for physicians to get long-awaited relief. Capstone will be closely watching these discussions.
How will the upcoming election influence policy and regulation in the healthcare space?
If there is one healthcare sector that is more black and white in terms of the election, Capstone believes it is managed care. A Trump win would pave the way for a friendlier environment for Medicare Advantage, while a Biden reelection likely means more pain in the near term. Capstone is also closely watching Trump vs. Biden discourse on the Affordable Care Act (ACA). Trump’s “repeal and replace” calls seem to have died down, but it’s hard to imagine him, or the Republican party, ever getting strongly on board with the exchanges. With the 2026 subsidy cliff forthcoming, how “anti-ACA” Trump chooses to be matters.
A Trump win would pave the way for a friendlier environment for Medicare Advantage, while a Biden reelection likely means more pain in the near term.
Beyond that, the upcoming election is unlikely to focus heavily on healthcare agendas. President Biden must defend his handling of the economy, while Trump will likely avoid any healthcare discourse to sidestep the abortion and women’s health debate. The ability to pass any policy out of Congress will hinge on the ability of the two parties to make deals – which hasn’t been a strength of the current Congress. Both parties are vying for control of the House, and even in a sweep, Republicans are unlikely to have the 60-vote majority in the Senate necessary to pass legislation in the face of Democratic filibusters. Lawmakers will have to navigate the strict rules of reconciliation, which would allow them to pass budget bills with a simple majority but limit their levers for reform.
Which sub-sectors will benefit from a potential Trump 2.0, and which will not?
Capstone believes a second Trump administration would be more positive for most parts of the healthcare industry than a second term for President Biden. We believe a Trump administration would provide some much-needed relief to Medicare Advantage payors and likely slow or halt investigations into vertical integration within the industry. However, given Trump’s focus on drug spending, we believe pharmacy benefit managers would face increased threats.
We believe a Trump administration would provide some much-needed relief to Medicare Advantage payors and likely slow or halt investigations into vertical integration within the industry.
Furthermore, we believe the goal of reducing spending would underpin a second Trump administration, limiting its ability to reverse more material Biden administration cuts to industry, such as in MA. Though Republicans are generally against any policy associated with the Affordable Care Act, we believe a potential trade exists for extending ACA subsidies in exchange for extending Trump-era tax cuts – both of which expire at the end of 2025. Regardless, exchange-based plans would always prefer a Democrat sweep in the White House and on the Hill.
Grace Totman, Co-head of Capstone’s Healthcare Policy Practice
Hunter Hammond, Co-head of Capstone’s Healthcare Policy Practice
Read more from the healthcare team:
Since No Surprises Act Went Into Effect, Air Ambulance Providers Are Winning…So Far
How Medicare Advantage Political Support is Shifting
Value for Who? Why Home Health Providers Will Struggle in Future Value-Based Care Models
