JPMorgan analyst David Adlington downgraded Smith & Nephew to Neutral and lowered his price target for the shares to GBP 14.77 from GBP 14.87. The analyst sees a more balanced risk/reward following the recent performance of the shares.
Tuesday, January 1, 2019
Biogen raised prices on MS drugs meaningfully today, says Piper Jaffray
Biogen raised prices on MS drugs meaningfully today, says Piper Jaffray According to Kluwer Health, Biogen took “meaningful” price increases across its multiple sclerosis franchise effective January 1, 2019, Piper Jaffray analyst Christopher Raymond tells investors in a research note titled “Starts The New Year Off With Spate of Price Increases.” The timing and magnitudes of the increases are consistent with Biogen’s established pattern, adds the analyst. Raymond, however, finds the company’s increases this year notable, “especially in an environment of increasing drug pricing scrutiny on both the political and policy front.” Biogen took a price increase of 6% for Tecfidera, 3.5% for Tysabri and 2% each for Avonex and Plegridy, he explains. Given President Trump’s Drug Pricing Blueprint and his willingness to call out individual companies for price increases, the analyst thinks some investors will be surprised by Biogen’s 2019 increases. He remains a buyer of Biogen shares with an Overweight rating and $400 price target. The stock closed Monday up $7.40 to $300.92.
Prices on hundreds of drugs rise to ring in the new year
Pharmaceutical companies are ringing in the new year by raising the price of hundreds of drugs, with Allergan PLC setting the pace with increases of nearly 10% on more than two dozen products, according to a new analysis.
Many companies’ increases are relatively modest this year, amid growing public and political pressure on the industry over prices. Yet a few are particularly high, including on some generics, the cheaper alternative to branded accounting for nine out of 10 prescriptions filled in the U.S. Overall, price increases, including recently restored price increases from Pfizer Inc. PFE, +1.61% , continue to exceed inflation.
More than three dozen drug makers raised the prices on hundreds of medicines in the U.S. on Tuesday, according to an analysis from Rx Savings Solutions, which sells software to help employers and health plans choose the least-expensive medicines. The average increase was 6.3%, according to the analysis, including increases on different doses for the same drug.
Allergan AGN, +0.65% confirmed the increases cited in the analysis, saying it raised the price of 51 products — 27 by about 9.5% and another 24 by about 4.9%. The increases covered more than half of its portfolio, from an extended-release version of its Alzheimer’s drug Namenda to dry-eye treatment Restasis. Of the companies analyzed, Allergan had the most increases of more than 9%.
Chief Executive Brent Saunders had announced in 2016 that Allergan would limit itself to one price rise a year on its medicines, and keep those increases under 10% as part of a “social contract” with patients. Allergan said Tuesday that it is “committed to responsible pricing principles” outlined in that pledge. Allergan applied price increases just below 10% on some of its products also at the start of 2017 and 2018.
The Risky Business of Paying Physicians as Contractors
California Ruling Has Contract Consequences
Both small and large practices often hire physicians as independent contractors—sometimes to fill a temporary need, and sometimes to be able to have another physician in their practice without incurring all the expenses and commitments of having another full-time employee.
Earlier this year, the California employment law landscape shifted in a way that is sure to affect all California business owners. The California Supreme Court, in its Dynamex Operations West v. Superior Court decision, created a new legal test for determining whether your licensed providers should be paid as independent contractors or employees. Before writing this off as legal “pop culture,” it is important to understand the direct consequences this ruling has for healthcare practices in particular.
How a principal company classifies and pays a service provider affects both employers and employees alike. The classification of a service provider as an independent contractor, generally seen as beneficial for the company’s bottom line, strips the protections a service provider would otherwise enjoy if classified as an employee. For example, independent contractors are not eligible for such benefits as participation in retirement plans, paid time off, or health insurance, and they must pay their own expenses, such as malpractice insurance.
Given this push and pull between the service provider and principal company, it comes as no surprise that there have been a number of lawsuits over the years brought by independent contractors who claim they were misclassified as employees, resulting in substantial penalties against the company for failure to follow overtime and meal and rest-break laws, state and federal Social Security and payroll tax requirements, workers’ compensation insurance requirements, and unemployment insurance requirements.
In addition to such lawsuits, companies face fines by the state of up to $25,000 per misclassification. Generally speaking, independent contractors cannot bring claims for discrimination or harassment and do not enjoy the protections afforded by leave laws, such as pregnancy disability leave and family and medical leave.
Applying the ‘ABC’ Test to Physicians
The Dynamex ruling makes these results even more likely. For the last 30 years or so, courts have used the Borello control test, a multifactor test applied on a more subjective, case-by-case basis to determine whether a service provider was properly classified.
In its recent ruling, the California Supreme Court adopted the new, more objective and simplified “ABC” test. There’s now a legal presumption that all service providers are employees, and the burden of proof is on companies to establish that they have properly classified a service provider as an independent contractor. To meet this burden under the ABC test, the principal company must establish all of the following:
- The service provider is free from the control and direction of the company in the performance of his or her services, by the terms of a written contract and in actuality; and
- The service provider performs services that are outside the usual scope of the company’s business; and
- The service provider is customarily engaged in an independently established trade, occupation, or business.
How the Ruling Affects Your Practice
Healthcare practices, in particular, customarily engage the services of licensed physicians and other healthcare providers as independent contractors. However, as the old adage notes: Just because everyone else is doing it does not necessarily make it legal. This seems especially true now under the more demanding test. Under the new ABC test, classifying licensed service providers as independent contractors is problematic because healthcare practices in such situations will often be unlikely to establish part A and part B.
Part A of the test requires the practice to prove that it is not directing or controlling the licensed provider in the rendering of his or her services. This factor was one of the many factors of the old Borello test. Like the Borello test, a court would determine various facts, such as whether the healthcare practice provides the service provider with a facility; professional supplies; equipment; guidelines on how to perform the services; and administrative services, such as scheduling patient visits. The presence of any of these factors has historically indicated substantial control of the service provider by the healthcare practice and would be indicative of an employer-employee relationship.
Part B of the test requires the healthcare practice to prove that the licensed provider it engaged provides services outside the usual scope of services of the practice. For obvious reasons, this will be nearly impossible in the case of a healthcare practice that engages a doctor, because both practitioners render medical services.
It is possible that a court deems all providers to be engaged in the same ‘business’ even when the providers have different specialties or licenses.
An argument can be made that a medical specialist in one area who engages a medical specialist in another meets this test because the services wouldn’t necessarily be in the usual course of business, but this determination ultimately depends on how narrowly or broadly a court interprets this factor. In other words, it is possible that a court deems all providers to be engaged in the same “business” even when the providers have different specialties or licenses. Until enough case precedent has been established here, a healthcare practice runs a risk when it engages providers as independent contractors.
At a minimum, a true independent contractor must be incorporated and must provide services elsewhere. Thus, a healthcare practice could most plausibly establish part C, because many licensed healthcare providers render services in multiple practices and sometimes even have their own practice simultaneously. These factors certainly support an independent contractor classification, but establishing just one—or even two—factors still fails the new test, which requires all three standards to be met. This may prove especially problematic when it comes to locum tenens providers.
Making Sure Proper Classification Is Used
Practices that utilize independent contractors should consult with their legal counsel to ensure they have properly classified all of their providers. This is especially true for practices that regularly utilize locum tenens physicians. This is because the law does not presently distinguish between locum tenens and other types of independent contractors.
At present, the practical effects of this new ruling remain to be seen. Even if independent contractors must be reclassified as employees, many physicians, after transitioning to employee status, may already meet the professional exemption, which eliminates the need for the healthcare practice to follow overtime and break requirements if certain conditions are met. Practices that reclassify contractors as employees may be able to classify these employees as “part-time,” which could make them ineligible for certain types of benefits, such as retirement, medical insurance, and paid vacation, among others.
For example, a practice may have all of the following: (1) a retirement plan that requires an employee to work 1000 hours per year to participate in the plan; (2) a health insurance policy that requires that the employee works 30 hours per week to participate; and (3) a handbook that provides that only full-time employees are eligible for paid vacation. A physician who only works 15 hours per week for this employer would not be eligible for health insurance, retirement, or paid vacation.
Furthermore, in this decision, the court applies the new ABC test to employer wage requirements, but does not explicitly apply it to employer requirements related to workers’ compensation and payroll tax requirements, both of which incorporate their own definitions of “employee” and “independent contractor.”
Because of the uncertain practical effect of this new test, the surest way to mitigate any legal exposure in your practice is to classify your service providers as employees and comply with all employment requirements. Our hope is that as time goes on, the courts or the legislature will provide more clarity as to how to apply the new ABC test.
As a final reminder: If you own a healthcare practice and engage service providers, please remember that whether you classify those providers as independent contractors or employees, healthcare fraud and abuse laws encourage your service relationship to be set forth in a written, compliant contract.
Federal Task Force Highlights Ways to Limit Opioid Exposure
A federal task force may propose a closer look at how insurers’ policies deny Americans ways to manage their acute and chronic pain without facing the risk for opioid addiction.
In a draft report released last week, the Pain Management Best Practices Inter-Agency Task Force also stressed the need for changes in the treatment of people already addicted to narcotics, including a call for efforts to address the stigma involved with substance abuse. The Department of Health and Human Services (HHS) told Medscape Medical News that it will accept comments on the draft report through April 1.
The draft report urges “consistent and timely insurance coverage” for interventional procedures, including targeted injections, early in the course of pain treatment. The task force also called for the establishment of criteria-based guidelines for properly credentialing physicians who are appropriately trained using interventional techniques to help manage patients with chronic pain.
The draft report also suggests establishing credentialing criteria that establishes minimum requirements for training physicians in interventional pain management, seeking to bolster use of this approach.
“Unfortunately, pain physician specialists are typically not involved in the multidisciplinary approaches of treating a pain patient early enough in his or her treatment, which can lead to suboptimal patient outcomes,” the task force writes.
In the draft report, the task force notes that an estimated 50 million people in the United States experience chronic daily pain, which has a significant impact on the lives of 19.6 million of them. The Comprehensive Addiction and Recovery Act of 2016 called for the establishment of this task force, which has 29 members. It includes federal officials and pain experts who work in both academia and private practice. The task force is overseen by HHS and the departments of Veterans Affairs and Defense. After receiving public comments, the task force intends to submit a final set of recommendations to Congress in 2019.
Opioid Epidemic
In the draft report, the task force examined the underlying causes of the nation’s current opioid epidemic.
The treatment of pain in the United States began to undergo significant changes in the 1990s, with recommendations that clinicians consider patients’ reported pain scores as a “5th vital sign,” the task force says in its report.
There was aggressive marketing of newer opioid products at a time of limited coverage for other options for pain management. Hospital administrators and regulators pressed aggressive treatment to lower pain scores, while also increasing the bureaucratic demands on them, particularly those generated by electronic health records [EHRs].
“The administrative burden of using the EHR contributes significantly to physician burnout, likely affecting their capacity to manage the complexity of pain care,” the task force writes. “As the mandate for improved pain management has increased, there was and remains a need for greater education and greater time and resources to respond to the greater needs of patients with painful conditions.”
The number of 2017 overdose deaths involving opioids, including prescription opioids and illegal opioids like heroin and illicitly manufactured fentanyl, was six times higher than in 1999, according to the Centers for Disease Control and Prevention (CDC). The CDC has said that the current mortality rate averages to 130 Americans dying each day from an opioid overdose.
The CDC describes the epidemic as having three waves, starting with abuse of prescription painkillers in the 1990s. The second wave starting around 2010 was marked by rapid increases in overdose deaths involving heroin. The third wave, starting around 2013, has been marked by overdose deaths involving synthetic opioids — particularly those involving illicit fentanyl.
In the draft report, the federal task force notes the challenges in trying to address the opioid epidemic simultaneously on a number of fronts, including the unintended consequences of policies.
Successes in curbing opioid prescriptions through state monitoring programs, for example, may have caused some clinicians to refuse to provide prescriptions for people who were on a stable regimen with these drugs, the task force says in the report. Desperate to continue taking narcotics, some of these patients then may have turned to illicit drugs, including fentanyl and heroin, the task force says.
G. Caleb Alexander, MD, of the Johns Hopkins Center for Drug Safety and Effectiveness in Baltimore, Maryland, told Medscape Medical News that the draft report adds to a growing number of calls from medical groups for new approaches to pain management. He said it offered many good suggestions, especially its emphasis on multimodal strategies.
Still, Alexander sounded a note of caution about clinicians trying to predict how likely a patient may be to suffer ill effects from opioids.
“For far too long, we have assumed that we can use risk mitigation measures such as patient screening to appropriately channel patients to opioids vs nonopioid therapies,” Alexander said. “The bottom line is that opioids are inherently high-risk products and also not terribly effective for the treatment of chronic pain, so we need to be sure that we don’t invest more in patient screening, patient contracts, urine toxicology testing, or other risk mitigation measures than they can deliver.”
The task force says its work is meant in part to build on the CDC’s 2016 opioid guideline. In the draft report, the task force raised questions about the CDC’s guidelines, such as a general limit of opioids for acute pain to 3 or fewer days, saying that a “more even-handed approach” could result in less “workflow disruption” for clinicians while letting patients get their painkillers in “a timely manner.”
Other Suggestions
Among the other suggestions from the task force’s draft report are:
- Use multidisciplinary approaches for perioperative pain control such as preoperative psychology, screening and monitoring, and planning for managing pain of moderate to severe complexity. Clinicians may also consider preventive analgesia with nonopioid medications; and regional anesthesia techniques, such as continuous catheter-based local anesthetic infusion, the report states.
- Have the Centers for Medicare & Medicaid Services and other insurers align their reimbursement guidelines for nonopioid pharmacologic therapies with current clinical practice guidelines.
- Consider acupuncture, mindfulness meditation, movement therapy, art therapy, massage therapy, manipulative therapy, yoga, and tai chi in the treatment of acute and chronic pain.
- Conduct more research on these complementary approaches to determine therapeutic value, risk and benefits, mechanisms of action, and economic contribution to the treatment of various pain settings.
- Seek to counter societal attitudes that equate pain with weakness by launching a public relations campaign. It would encourage early treatment for pain that persists beyond the expected duration for that condition or injury.
- Address the stigma and perceived racial bias seen in connection with treatment of pain for people with sickle cell disease.
More information on the Pain Management Best Practices Inter-Agency Task Force report is available on the HHS website.
Private-Equity Firms Create Funds That Are Built to Last
Private-equity firms, known for buying and selling companies, would like to do more buying and holding.
Blackstone Group LP, Carlyle Group LP, CVC Capital Partners and others over the past couple of years have launched funds that can own companies for 15 years or longer. Carlyle and CVC are back in the market raising new long-term buyout funds, and others are joining the fray. KKR & Co. said it has raised $5.5 billion from a few large investors, which it is pairing with $3 billion from its own balance sheet to do longer-term deals.
Meanwhile, firms such as investment giant BlackRock Inc., which doesn’t have a significant private-equity business, have eschewed the traditional fund structure altogether in launching vehicles that can hold assets indefinitely.
A typical buyout fund owns companies — acquired largely with borrowed money — for around five years. Managers will usually tinker with a company’s operations or structure with the goal of selling it or taking it public at a profit. Most investments are supposed to be unloaded by the end of a fund’s 10-year lifespan.
Private-equity executives say the condensed timeline can force them to sell at the wrong time, say, when a company is down on its luck or before it has had time to achieve its full potential. It also helps explain why private-equity firms so often unload assets to rival firms, which continue to reap returns from them. These so-called secondary buyouts incur transaction costs that irk investors, particularly those backing both the buyer and the seller.
The moves toward longer-term capital are connected to a broader shift in favor of so-called permanent or perpetual capital — pools of money that don’t need to be constantly refreshed, at great effort and expense. These can come in different guises, including business-development companies, which lend to midsize companies; insurance platforms such as Apollo Global Management LLC’s Athene Holdings Ltd.; private real-estate investment trusts; and long-term real estate, infrastructure and private-equity funds.
Blackstone, the biggest private-equity firm with $456.7 billion of assets, said in September it had $64 billion in perpetual vehicles or long-term funds with an average of 12 years remaining, up more than sevenfold over the past five years. That is thanks largely to a sharp increase in its real-estate assets under management. Such vehicles were responsible for 90% of Blackstone’s revenue over the prior 12 months.
For publicly traded investment firms, such capital is prized because it gives shareholders more visibility into future management fees, which are paid on money invested. The market gives more weight to management fees than to less predictable profits on investments.
Cranemere Group Ltd. operates as a private holding company that can own businesses for as long as it wants. Its founder and chairman, Vincent Mai, formerly served as chief executive of private-equity firm AEA Investors LP. Mr. Mai was sometimes frustrated by being forced to sell the best companies in the portfolio and wanted a structure that allowed him to retain them, according to Cranemere Chief Executive Jeffrey Zients.
“There is excessive short-termism in our economy,” Mr. Zients said in an interview. “That creates opportunity for long-term owners to make disciplined investments in areas like R&D that make sense and have strong returns when you plan to hold companies, not sell them.”
Long-term vehicles tend to buy businesses that are stable with steady cash flows and aren’t fixer-uppers. That means they often cost more. As a result, the vehicles typically have annualized return expectations of 12% to 15%, versus the 20%-plus touted by traditional buyout funds.
Skeptical investors say long-term funds being launched by multistrategy asset managers are just a way to continue to grow their fee streams and that traditional funds already offer the ability for investors to approve extensions beyond the 10-year time horizon. They also question whether firms can predict which companies will be worth owning for longer.
“There is a healthy discipline in having to buy and sell at the right point in the cycle,” said Brian Rodde, who oversees the private-equity portfolio at Makena Capital Management, an investor in buyout funds.
Sponsors of the new funds cite the appeal of the long-term nature of the capital to family businesses, which may otherwise be reluctant to sell to private equity. Last year, CVC invested in family-owned Asplundh Tree Expert LLC out of its long-term fund. The company, which trims trees alongside rail and power lines, had been coveted by private-equity firms for years but the family was finally encouraged to sell in part because CVC would be sticking around for longer, according to people familiar with the deal.
Long-term ownership also appeals to large investors such as insurance companies and sovereign-wealth funds, which have billions to put to work and long-dated liabilities, and family offices, which, unlike pension funds, must pay capital-gains taxes and may not need liquidity; indeed, they may not want to have to find new places to park distributed cash.
Just by eliminating costs incurred from buying and selling companies, a theoretical long-hold fund selling an investment after 24 years could outperform a typical buyout fund selling four successive companies by almost two times on an after-tax basis, according to an analysis by consulting firm Bain & Co.
Tenet announces new multi-year agreement with Cigna
Tenet Healthcare (THC) announced that it has signed a new, multi-year agreement with Cigna (C). The agreement provides Cigna members covered under its commercial health plans with “uninterrupted in-network access to Tenet providers, including hospitals, outpatient centers and employed physicians,” Tenet says in a statement. In addition, all Tenet facilities remain in-network providers for Medicare beneficiaries that are insured by a Cigna-HealthSpring Medicare Advantage plan, it added. Ron Rittenmeyer, Tenet CEO, said, “We are pleased to have reached a successful resolution with Cigna. We believe this is the right outcome for our patients, employees and communities, and we look forward to continuing to serve Cigna members around the country today and in years to come. We remain committed to providing them with the trusted, compassionate care they deserve.”
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