Yesterday, the Delaware Chancery Court rejected Express Script’s appeal and is permitting the Caremark shareholders to vote on the CVS merger proposal on March 16. The CVS shareholders will vote on March 15. CVS has announced today that a best and final offer on the merger deal as follows

• CVS and Caremark have agreed to increase the special cash dividend payable to Caremark shareholders promptly following closing of the merger to $7.50 per share [from $6 per share].
• Consistent with (and in lieu of) the previously announced accelerated share repurchase program, promptly following closing of the merger CVS/Caremark will commence a cash tender offer for 150 million (or about 10%) of its outstanding shares at a fixed price of $35 per share.

According to the Wall Street Journal, CVS’s bid for Caremark is valued at $24.85 billion and Express Script’s bid is valued at $26 billion.

Express Scripts expects to receive today a second information request from the Federal Trade Commission about the anti-trust implications of its merger. CVS claims that this uncertainty calls Express Scripts’ bid into question. Express Scripts attempted to defuse this uncertainty by sweetening its offer yesterday.

It is possible that Caremark shareholders may turn down the CVS proposal, notwithstanding the FTC uncertainty, because the Caremark Board refused to negotiate with Express Scripts. On the other hand, the CVS merger would close almost immediately and produce the now $7.50 dividend, and a bird in the hand …

Express Scripts announced today that it is improving the cash portion of its offer for Caremark stock. The cash portion will accrue an additional 6% per annum beginning April 1.

Tomorrow is a big day in the Battle for Caremark as the Federal Trade Commission will announce whether it will undertake a second significant review of the Express Script proposal for anti-trust purposes. Medco CEO John Snow opined to Marketwatch that

If the FTC is favorable – meaning no second review or a minimal second review – I think Express has a very good opportunity here,” Snow told Marketwatch in an interview. But if the FTC has strong concerns about a merger between Medco’s wo biggest pharmaceutical benefits manager rivals, “…meaning there is a big risk factor associated with getting through the FTC process, then I think I’d tilt the scale to the CVS-Caremark merger,” Snow said.

The Wall Street Journal is reporting that the FTC is expected to give the Express Scripts / Caremark merger another look. Time is running out as the Caremark shareholders vote on the CVS merger proposal on March 16. Express Scripts lawyers also are hoping for an appellate victory in the Delaware courts that would stay that vote.

At the HIMSS conference on March 1, in an apparent effort to counter the February 1 GAO report criticizing HHS’s efforts to implement privacy controls in National Health Information Network (“NHIN”) and Mr. Feldman’s resignation from the AHIC workgroup, Dr. Rob Kolodner, the HHS interim HIT czar, announced that HHS plans to contract for a pilot “network of networks” that would allow health care consumers to control the flow their own electronic health information. Dr. Kolodner explained that the Government’s RFPs for a trial implementation of the NHIN will require bidders to include specific technical capabilities for enabling such consumer control. This information control should not affect health benefit plans and insurers which can always deny inadequately documented claims. Today’s Government Health Information Technology magazine reports generally favorable reactions to this initiative.

Evidencing the strength of the health information technology (HIT) market, 25,000 people attended the HIMSS conference in New Orleans last week. HIMSS is a leading HIT trade association. HHS Secretary Leavitt and acting HIT czar Dr. Robert Kolodner both spoke at the conference, as did Captain Kirk (seriously). I recommend reading the speech given by Tennessee Governor Phil Bredesen. The Governor made the following salient points:

What I ask you to take away from this and consider is not all these details and invention, but rather three principles:

–that we have to simplify, make concrete and make stable the standards that we build on—like the hugely successful example of the internet;

–that we should establish a beachhead somewhere and not try to win the whole war at once;

–that we can’t depend on experimenters and early adopters, we have to make it attractive to play and difficult to not play for everyone concerned.

• As I have been blogging about FEHBP contribution news, you may want to read this San Francisco Chronicle article about the Kaiser Health Plan’s “steep” 2007 FEHB premium increase.

• Next week is the OPM / AHIP FEHBP carrier conference. At last year’s conference, the OPM Director shared with the attendees her experiences in shopping for LASIK treatment to correct her vision. Last month, Health Affairs published an article by two researchers from the Center for Studying Health System Change which concludes as follows:
  

  An analysis of the LASIK market revealedlimited shopping overall, despite the fact that patients paythe full cost. For other self-pay procedures, consumers shopeven less, for reasons ranging from urgency, to costs of obtainingprice quotes, to quality concerns that prompt many consumersto rely on word-of-mouth recommendations. Given that consumershopping is not prevalent in most self-pay markets, we expectthe extent of shopping to be even more limited for many servicescovered by insurance.

  It seems to me that the researchers are jumping the gun on their conclusion as time is required for consumers to change their habits.

• In an accompanying article, the Center’s President “cautions that simply giving consumers a price list of ‘a la carte” services does little to help them make informed choices about which providers will cost less for an episode of care, let alone which providers offer the best value—or the optimal combination of the lowest cost and highest quality.”

• In a battle for Caremark follow-up, Express Scripts has appealed the Delaware Court’s decision denying Express Script’s an injunction against a Caremark shareholder vote on the CVS merger proposal. Express Scripts argues that Caremark has failed to provide its shareholders with the full disclosures about the CVS deal required by that court.

• Florida Blue Cross has opened a “store” in Jacksonville, Florida, to sell health, dental, and life insurance and provide consumer seminars, which the organization describes as a “a new concept in retailing geared to assist consumers’ navigation of the health insurance market.

• Following up law that Congress passed in December 2006 modifying the health savings account (HSA) law (Internal Revenue Code § 223), the Internal Revenue Service issued guidance for employers to transition employees from health reimbursement arrangements (“HRA”) and flexible spending arrangements (“FSA”) to HSAs.

• Finally, the New York Times reported on a CBS News / New York Times survey which finds health care to be the number one concern of Americans. According to this report, “Nearly two-thirds said the federal government should guarantee health insurance for all Americans and half said they would be willing to pay as much as $500 more in taxes a year for universal coverage.” If anyone believes that $500 in taxes will provide universal health coverage, I will offer them the Brooklyn Bridge. I attended an ABA Emerging Healthcare Issues conference last week where I heard a German lawyer explain that their universal healthcare system is funded with a 15% payroll tax (capped at $4600 per month). That’s more than what U.S. taxpayers currently pay for Social Security and Medicare.

The AMA News reports (subscription required) on a United Healthcare policy to be implemented tomorrow that will “fine” network doctors $50 or more whenever they fail to refer patients to United’s exclusive network laboratory, Labcorp. According to the AMA News,

“United’s decision to penalize doctors has its roots in a deal the plan executed as of Jan. 1. On that date, it began a 10-year agreement with Laboratory Corp. of America that made the Burlington, N.C.-based company United’s exclusive national supplier of lab services. Left out is the company with which LabCorp is fighting for the largest share of the $40 billion clinical lab market — Lyndhurst, N.J.-based Quest Diagnostics.“

Needless to say the medical community is not pleased with this decision and for example the Connecticut State Medical Society is soliciting the State Attorney General’s assistance.

Govexec.com reports that House Majority Leader Steny Hoyer (D Md.) plans to reintroduce a bill that would increase the Government contribution toward FEHB plan coverage from 72% of the enrollment weighted average capped at 75% of the actual plan premium to 80% of the enrollment weighted average capped at 83% of the actual plan premium.

Steve Barr reports in his Washington Post column this morning that the Congressional Budget Office released a Budget Options report that identifies as an option (p. 162) basing the Government contribution toward annuitant coverage on years of Government service, similar to the President’s budget proposal. Mr. Barr doubts that this proposal will have traction on Capitol Hill.

Interestingly, the Budget Options report also identifies as an option for Congress replacing the current government contribution formula with a voucher. The current Government contribution formula is 72% of the enrollment weighted average premium capped at 75% of the actual FEHB plan premium selected by the enrollee. Under the CBO’s approach, an enrollee would receive a voucher that he or she could use to pay for his or her FEHB plan coverage. The report explains (p. 160) that

This option would offer a flat voucher for the FEHB program that would cover roughly the first $3,600 of premiums for individual employees or retirees or the first
$8,400 for family coverage. Those amounts, which are based on the government’s average expected contribution in 2007, would increase annually at the rate of inflation rather than at the average weighted rate of change for premiums in the FEHB program.

* * * Insurers would have greater incentive to offer more-efficient and lower-cost plans to attract participants, because enrollees would pay nothing for plans costing the same as or less than the amount of the voucher.

This option would have several drawbacks, however. First, the average participant would probably pay more for his or her health insurance coverage. Second, large
private-sector companies currently provide better health benefits for employees (although not for retirees) than the government does; that discrepancy would increase under this option, making it harder for the government to attract highly qualified workers. Third, in the case of current federal retirees and long-time workers, this option would cut benefits that have already been earned. Finally,
it could strengthen existing incentives for plans to structure benefits so as to disproportionately attract people with lower-than-average health care costs. That “adverse selection” could destabilize other health care plans.

CBO projects that this option “would reduce discretionary spending (because of lower payments for current employees and their dependents) by $100 million in 2008 and by a total of $5.1 billion over five years. It would also reduce mandatory spending (because of lower payments for retirees) by $100 million in 2008 and by $4.6 billion over five years.”

Please bear in mind that CBO is offering options in this report, not making recommendations, according to the Report’s introduction.

Paul Feldman, deputy director of the Health Privacy Project, resigned as co-chair of the AHIC confidentiality, privacy and security workgroup in protest of the group’s allegedly slow pace. Public reaction to this resignation was mixed according to Modern Healthcare.

Govexec.com reported yesterday that over 400,000 federal employees and annuitants enrolled in the new supplemental dental program and over 300,000 enrolled in the new supplemental vision program. “Of the dental insurance, MetLife was by far the most popular, with more than 250,000 enrollees. BCBS took the lead for vision insurance with more than 198,000, according to OPM data.” Rep. Tom Davis (R Va.) wrote a letter to OPM Director Linda Springer encouraging her to “identify ways that the federal government can leverage this large pool to ensure that participants are receiving the best dental and vision products and services at the lowest cost to the participants.”