Supreme Court hears arguments on constitutionality of individual mandate
WASHINGTON — The Supreme Court on Tuesday morning heard arguments on whether the individual mandate portion of the Patient Protection and Affordable Care Act is constitutional. The final decision, expected in June, could mean a swing between 15 million and 27 million Americans, along with their prescription and other healthcare needs, entering the insurance market in 2014, according to a recent study published by the Rand Corp.
At issue is whether or not the federal government has the authority to compel commerce, in this instance healthcare insurance, in an effort to mitigate costs across all insured. Incidentally, it also will significantly reduce government cost — with the mandate the total government cost per newly insured individual is $3,659, compared with $7,468 if the individual mandate is eliminated, according to Rand.
"This is the regulation of people’s participation in the healthcare market," testified Donald Verrilli, U.S. solicitor general. Verrilli argued that because everyone eventually avails themselves of healthcare services, and because those who are not insured inflate the price of that health care for those who are, that everyone be required to carry insurance.
"It may well be that everybody eventually will need health care, but not everybody will need a heart transplant," suggested Justice Antonin Scalia, asking if whether an individual mandate would set a dangerous precedent, drawing a correlation to the food industry. "Everybody has to buy food, therefore [the government] can make people buy broccoli."
Justice Anthony Kennedy made the comparison between this individual mandate and the fact that common law does not presently compel an individual to intercede on behalf of another, even in an emergency. "Here, the government is saying that the individual must act," he said. "That changes the relationship between the government and the people in a fundamental way."
"If the effect of those uninsured people … is to raise insurance premiums right now in the aggregate," noted Justice Elana Kagan. "Those people are in commerce."
If the individual mandate is ruled constitutional, then the "40 million Americans" identified as uninsured today will be required to purchase some level of insurance. That will drive a good number of patients to medical homes and, in theory, significantly increase the demand for maintenance prescriptions and other preventative or chronic healthcare services.
If ruled unconstitutional, the number of Americans who will be apart of the marketplace in 2016 because of the Affordable Care Act will be reduced by almost 30 million, according to the Rand study. That study determined that by 2016 81.3% of nonelderly patients would have insurance if the Affordable Care Act were not implemented; 86.6% would have insurance if the law was implemented without the individual mandate; and 91.1% would have coverage with the passing of the ACA and the enforcement of the individual mandate. With the insurance mandate, 50.1 million people would be covered through Medicaid and 24.5 million would be uninsured by 2016. Without the mandate, 37 million would be covered through Medicaid and 52.2 million would be uninsured.
The individual mandate supports another aspect of the Affordable Care Act — that insurers not deny coverage to those with preexisting conditions — by enlarging the pool of covered to include young and healthy patients who won’t incur as many healthcare costs. "These people are essentially the golden goose that pay for the lower premium," commented Paul Clement, lead attorney for Florida and 25 other states who are challenging the mandate.
Slightly more than half (53%) of Americans expect the Supreme Court to rule that the individual mandate is unconstitutional; almost as many, 51%, think the Supreme Court should rule that way, according to a Kaiser Family Foundation poll conducted Feb. 29 through March 5. If the mandate is struck down, 60% of Americans will want lawmakers to continue working on improving access to health care.
What is not expected to be impacted by the Supreme Court ruling is the market-driven push toward lower-cost consumer-directed health care — retail clinics, over-the-counter medicines, Rx-to-OTC switch, private industry incentives for wellness and prevention or workplace penalties for unhealthy lifestyles. "Healthcare is reforming with or without the legislation," stated Steven Burrill, CEO of Burrill & Co., a financial services firm focused on the life sciences. "The most dramatic changes to health care are under way, and they are being driven not by legislation, but by patients, providers, payers and technology," he noted. "That’s coming as the convergence of information technology, wireless connectivity, and low-cost monitors will provide us with real-time information about our own health and wellness, and put individuals in unprecedented control of their own health."
Have you picked the wrong competitor to worry about?
Recently during one of our Elevation Forum meetings, we asked the question: which competitors do you worry about the most?
Many of the leaders in the room listed either the largest or the fastest growing competitors they compete against. But one honest executive shared a provocative reflection. He said we are not as worried about who’s outside, but more focused on the enemy in the mirror.
His comment reminded me that dominant companies lose their leadership position two-thirds of the time because they pick the wrong competitor to worry about. Many times the competitor is an emerging outlier, or an agile entrepreneur seizing a white space, but more times than not, we become the enemy when we overstate our own assets and the value we bring to others.
According to a piece of research called Silence Fails, the vast majority of product launches, reorganizations, mergers and improvement initiatives either fail or grossly disappoint, with roughly 90% of all major projects violating their own schedule, budgets or quality standards. And what’s even more disappointing is that 88% of those surveyed were currently working on projects that they predict will fail, but only 1-in-10 shared their comments due to internal politics.
Often times the enemy is within, not outside the walls of your own building. Personal and corporate success often hinders evaluation and new ideas, creating serious blind spots. As executive coach Marshall Goldsmith often states, sometimes you can be successful despite yourself.
The behaviors many of the top companies embrace are different than the rest of the pack. Instead of focusing solely on their competitors, they set the rules of engagement, and honestly evaluate who’s in the mirror. Here are eight behaviors that set them apart from their competitors:
- They love to create and utilize fast prototyping to test ideas with their retail partners. And when they fail, they fail fast cutting their losses.
- They obsessively listen to the customer, and experiment with them fearlessly. They understand the boardroom agenda of their customers and respond accordingly.
- Their customer engagements are higher level discussions, centered on ideas — not products. They don’t bury their retail partners with long presentations, rather facilitate larger discovery meetings.
- They don’t believe in luck, rather they disrupt categories and attempt to change the game. They are not guilty of introducing items that just cut up the pie; instead they focus on baking new pies.
- They aren’t looking for new products; they are looking to create inventions that solve real problems and improve, simplify or invigorate how people live their lives.
- The winners operate from an outward vantage point, always listening, diagnosing and looking for opportunities to create the future within their category and with their top customers.
- They prioritize hanging out on the fringe in their business, understanding emerging trends, and have developed a competency in becoming the company that understands — what’s next?
- Their leadership allows their members to discover their greatness. They do not control their associates; rather they commission them to be advocates of the organization.
The companies that spend time looking in the mirror don’t allow blind spots to get in the way of unleashing growth and deeper retailer alignment. These organizations bring meaningful value to their consumers, and their retail partners are happy to serve as advocates of their brands.
Are you spending too much time benchmarking competitors and not enough time honestly looking in the mirror?
Dan Mack is EVP strategic sales at The Swanson Group and managing director of Mack Elevation Forum. You can contact him at (630) 607-2774 or learn more at TheSwansonGroup.com or MackElevationForum.com.
Walgreens confident in Q2 results following Express Scripts exit Jan. 1
DEERFIELD, Ill. — On the eve of a potential Federal Trade Commission approval of the Express Scripts-Medco merger, Walgreens’ underlying fundamentals still are strong, Walgreens president and CEO Greg Wasson told analysts Tuesday morning. It’s that underlying strength that has helped Walgreens in the wake of its exit from the Express Scripts pharmacy benefit network, a factor that impacted Walgreens’ net earnings by 7 cents per diluted share for its second quarter ended Feb. 29.
The big question is what happens to that Medco business if the Exress Scripts-Medco merger is approved? "We have a good relationship with Medco and a long-term contract which we intend to honor," Wasson said. Walgreens expects that contract to stand, however Wasson reiterated that Walgreens is "steadfast in the belief that this decision [to not renew the ESI contract] is in the long-term interest of our employees … and shareholders." If the terms of its Medco contract did change, a change that Wasson characterized would be "extraordinary," Walgreens would stand firm on negotiating reimbursement rates that recognize Walgreens’ value. Wasson added that there has been no indication that its terms with Medco would change if the ESI-Medco merger were approved.
Express Scripts represented 88 million prescriptions for Walgreens in 2011, compared with 125 million prescriptions associated with Medco members. Walgreens’ Medco book is shrinking, however, to 108 million prescriptions at the top of 2012 and a projected 74 million prescriptions at the top of 2013, due to expected health plan migration out of the Medco pharmacy benefit manager offering.
Wasson is excited, however, about its negotiations with health plans going forward. "We’ve never been this busy this early in [the PBM selling season]," Wasson said. One of the points Walgreens has been making around its ability to drive health plan savings within a pharmacy network is 90-day fill at retail, which can generate between 7% and 9% in savings, according to the retailer. Walgreens 90-day fills are up 31%, Wasson reported. "This demonstrates that the true value of a 90-day [fill] at retail is becoming clear."
However, if not for a mild cold and flu season, Walgreens may have finished its second quarter with higher comparable net earnings despite its exit from the ESI pharmacy network. Net earnings for the second quarter were $683 million, a 7.7% decrease. Overall net earnings per diluted share were 78 cents, a 2.5% drop from the 80 cents per diluted share reported in the year-ago quarter. Walgreens reported that the mild cold and flu season negatively impacted the reported net earnings by 3 cents per diluted share.
This year’s flu season represents the mildest start in 29 years, as characterized by the Centers for Disease Control and Prevention. Flu shots administered at pharmacies and clinics this flu season through Feb. 29 totaled 5.5 million, compared with 6.2 million a year ago.
Net earnings per diluted share for the first half of fiscal 2012 ended Feb. 29 were $1.41 per diluted share, a decrease of 0.8% from $1.42 per diluted share in the first half of fiscal 2011. This year’s results include the impact of 9 cents per diluted share from the effect of no longer being part of the Express Scripts network and the impact of 1 cent per diluted share in Drugstore.com operations and integration costs. Last year’s results include the impact of 1 cent per diluted share in restructuring and restructuring-related costs associated with Rewiring for Growth, and 1 cent per diluted share in Duane Reade integration costs. Net earnings for the first half of fiscal 2012 were $1.24 billion, down 6.3%.
Walgreens projects the annual impact of the ESI exit will be 21 cents per diluted share.
Second-quarter sales increased 0.8% from the prior-year quarter to $18.7 billion, while first-half of 2012 sales grew 2.7% to $36.8 billion. Prescription sales, which accounted for 61% of sales in the quarter, decreased 1.7%, while prescription sales in comparable stores decreased 3.9%. The company filled 196 million prescriptions in the quarter, a decrease of 4.2% over last year’s second quarter. Prescriptions filled in comparable stores decreased 4.9% in the quarter.
Walgreens acquired the prescription files and inventory from 100 chain and independent pharmacies in the quarter, including more than 30 Kmart pharmacies. Additionally, AARP selected Walgreens for a three-year contract to deliver retail drug store program benefits to AARP members. The relationship between Walgreens and AARP, which began in 2006, will provide AARP members with exclusive offers and rewards, and includes member and community outreach to promote health and wellness.
Meanwhile, front-end comparable store sales increased 2.1% in the second quarter, customer traffic in comparable stores increased 0.7% and basket size increased 1.4%, while total sales in comparable stores decreased 1.5%.
All second-quarter comparable store sales and prescription figures include 29 days in February 2012, Walgreens reported.