Yesterday, a Delaware state court judge refused to block a vote on the CVS – Caremark merger proposal although he did require Caremark to notify shareholders of their rights to vote no or ask a Delaware court to appraise the CVS proposal. Businessweek observed that the court’s “determination that Caremark shareholders are due appraisal rights means they can seek court intervention if they don’t think they’re getting fair value for their holdings. The result, [plaintiff’s attorney] Grant said, is that CVS will be pressured to match Express Scripts in making an attractive offer.”

This morning, Caremark issued the required notice to its shareholders and set March 16 as the date for a shareholder meeting and vote on the CVS merger proposal. Express Scripts, the other competitor in the Battle for Caremark, again offered to sit down with Caremark to discuss its proposal.

Meanwhile, Medco, which reported strong 4th quarter 2006 results, offered the following CEO comments on the battle for Caremark:

Snow said in an interview that Medco, which handles prescriptions for 60 million Americans, should benefit whoever acquires the industry’s No. 2 — Caremark Rx Inc. It is weighing competing bids from another rival, Express Scripts Inc., and drugstore chain CVS Corp. Other pharmacy chains wanting to partner with a neutral prescription benefit manager now are negotiating attractive deals with Medco, Snow said, adding some current Caremark clients may defect. Should Express Scripts win out, he said, the combination would be bigger than Medco. But Snow said Caremark’s customer service has been suffering since it acquired AdvancePCS in 2004. CVS has been telling Caremark shareholders that a Caremark-Express Scripts deal would likely cost the merged company $8 billion in annual revenue from dissatisfied customers bailing out. Speller said Medco can grab those “crumbs” and if the battle is prolonged, will be “in the catbird seat” for picking up business from plans wanting to avoid uncertainty at Caremark and Express Scripts.

President Bush held another roundtable discussion on health care issues in Chattanooga, TN today. HHS Secretary Leavitt and Tennessee’s governor participated in the meeting. On a related note, CMS researchers published a report in Health Affairs concluding that as a result of Medicare Part D, the government is now picking up 45% of the Nation’s health care tab, which is expected to double by 2016. The abstract reads as follows:

Growth in national health spending is projected to slow slightly from 6.9
percent in 2005 to 6.8 percent in 2006, marking the fourth consecutive year
of a slowing trend. The health share of gross domestic product (GDP) is
expected to hold steady in 2006 before resuming its historical upward trend,
reaching 19.6 percent of GDP by 2016. Prescription drug spending growth is
expected to accelerate to 6.5 percent in 2006. Medicare prescription drug
coverage has dramatically changed the distribution of drug spending
among payers, but the net effect on aggregate spending is anticipated to be
small.

Fun fact to know and tell — At a healthcare conference that I attended last week at American University, a speaker said that Medicaid’s prescription drug costs are only 10% of the total expenses due to the statutorily mandated price controls. The prescription drug expenses in FEHB plans and ERISA plans tend to range from two to three times higher. Quite a difference.

GCN.com reports that the Office of Management and Budget plans to grade OPM on how well the Federal Employees Health Benefits Program provides heath care quality and pricing information to FEHB plan members under the President’s August 21, 2006, Executive Order. Karen Evans, OMB’s administrator for e-government and ITtold GCN.com that “We will use a scorecard-like approach, starting in our June 30 President’s Management Agenda scorecard, to measure their progress against price and transparency in using health IT.” The Defense Department, the Veterans Affairs Department, and the Health and Human Services Department also will receive a report card.

According to Govexec.com, Rep. Tom Davis (R. Va.) reintroduced a bill last week that would allow federal and military retirees the right to make their health plan contributions with pre-tax dollars (H.R. 1110). Currently, this right is restricted to active employees by the federal tax code. The bill was referred to the House Oversight and Government Reform Committee, which favors the bill, and the House Ways and Means Committee. Former House Ways and Means Chairman Bill Thomas had actively opposed this bill, but he is no longer in Congress and the Ways and Means Committee is now chaired by a Democrat, Charlie Rangel of NY. As this bill would produces a loss in tax revenues, the new “pay go” rule may present an obstacle, but this is a major legislative initiative for NARFE and the Military Coalition.

Business Insurance reports that the Senate Health Education Labor and Pensions Committee braved the snow in DC today and voted 18-3 in favor of the improved mental health parity (S 558) billed discussed in the FEHBlog last Monday. This is not yet posted on the Thomas web site.

Sen. Ron Wyden (D. Ore.), who has proposed universal health coverage, and a bipartisan group of nine other Senators have written a letter to the President offering to cooperate on the development of legislation to control surging heath care costs. The letter proposes that the Administration and Congress work together to pass laws that would

1) Ensure that all Americans would have affordable, quality, private health coverage, while protecting current government programs. We believe the health care system cannot be fixed without providing solutions for everyone. Otherwise, the costs of those without insurance will continue to be shifted to those who do have coverage. 2) Modernize Federal tax rules for health coverage. Democratic and Republican economists have convinced us that the current rules disproportionately favor the most affluent, while promoting inefficiency. 3) Create more opportunities and incentives for states to design health solutions for their citizens. Many state officials are working in their state legislatures to develop fresh, creative strategies for improving health care, and we believe any legislation passed in this Congress should not stymie that innovation. 4) Take steps to create a culture of wellness through prevention strategies, rather than perpetuating our current emphasis on sick care. For example, Medicare Part A pays thousands of dollars in hospital expenses, while Medicare Part B provides no incentives for seniors to reduce blood pressure or cholesterol. Employers, families, and all our constituents want emphasis on prevention and wellness. 5) Encourage more cost-effective chronic and compassionate end-of-life care. Studies show that an increase in health care spending does not always mean an increase in quality of outcomes. All Americans should be empowered to make decisions about their end of life care, not be forced into hospice care without other options. We hope to work with you on policies that address these issues.

According to Business Insurance, “White House economic adviser Al Hubbard said the president was ‘pleased’ by the invitation to work on health care legislation. ‘We agree with these senators—we want to fix health care now,’ said Mr. Hubbard, director of the National Economic Council, in a statement.”

Finally, the Wall Street Journal reports tonight that Rep. Louise Slaughter’s genetic information non-discrimination bill (H.R. 493) may be enacted this quarter. “The bill was approved by the House Committee on Education and Labor yesterday and is expected to pass the full House. The Senate, which previously passed the legislation twice, is expected to vote on it within two weeks, and President Bush has indicated he will sign it.” The Thomas web site summarizes the bill as follows:

Genetic Information Nondiscrimination Act of 2007 – Amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Public Health Service Act to expand the prohibition against discrimination by group health plans and health insurance issuers in the group and individual markets on the basis of genetic information or services to prohibit: (1) enrollment and premium discrimination based on information about a request for or receipt of genetic services; and (2) requiring genetic testing. Sets forth penalties for violations. Amends title XVIII (Medicare) of the Social Security Act to prohibit issuers of Medicare supplemental policies from discriminating on the basis of genetic information. Extends medical privacy and confidentiality rules to the disclosure of genetic information. Makes it an unlawful employment practice for an employer, employment agency, labor organization, or training program to discriminate against an individual or deprive such individual of employment opportunities because of genetic information. Prohibits the collection and disclosure of genetic information, with certain exceptions. Establishes a Genetic Nondiscrimination Study Commission to review the developing science of genetics and advise Congress on the advisability of providing for a disparate impact cause of action under this Act.

The FEHB Program falls under the Public Health Service Act for purposes of this bill.

Yesterday, a Delaware state court in a suit by a Louisiana municipal police retirement fund ordered prescription benefit manager Caremark to delay its shareholder vote on the CVS merger proposal at least until March 9. That date is the Federal Trade Commission’s current deadline for issuing a Hart-Scott-Rodino Act pre=merger decision on whether or not the Express Scripts merger proposal is acceptable from an anti-trust law standpoint. (The essentially vertical CVS merger proposal already has cleared that hurdle, but the horizontal Express Scripts merger obviously raises greater antitrust issues.) The court reasoned that Caremark shareholders need more time to evaluate the merger proposals. According to press reports, the Delaware court was puzzled by the fact that the Caremark board has not negotiated with Express Scripts or solicited other offers.

Caremark publicly announced continuing support for the CVS deal and that it “will inform shareholders as promptly as possible regarding the new date of the special meeting to approve the CVS merger.” Express Scripts was pleased with the decision.

In wake of four major independent proxy advisory firms advising against the CVS merger proposal, CVS yesterday increased its special Caremark merger closing dividend from $2 to $6 per Caremark share. CVS also postponed its February 23 shareholder meeting on the Caremark merger proposal.

The Wall Street Journal reports today that “at the close of trading yesterday [and the increased CVS dividend was considered], the CVS deal was worth $59.53 for each Caremark share, while Express’s cash-and-stock offer was valued at $61.37. In 4 p.m. New York Stock Exchange composite trading, Caremark traded higher than both offers, at $62.88, up $1.97.”

Who can forget that today is the 198th anniversary of the birth of one of our greatest Presidents Abraham Lincoln? Where would we be today as country without this man?

Senators Ted Kennedy (D Mass.), Mike Enzi (R Wyo.) and Pete Domenici (R N.M.) announced today a bipartisan improved mental health parity bill that the Senate Health, Labor, Education, and Pensions Committee will consider in executive session on Wednesday February 14, 2007, at 9:30 am. (Sens. Kennedy and Enzi are the chair and ranking member of the HELP Committee.) According to the press release,

The legislation would provide mental health parity for about 113 million Americans who work for employers with 50 or more employees. It will ensure that health plans do not place more restrictive conditions on mental health coverage than on medical or surgical coverage. As such it would require:
· Parity for financial requirements like deductibles, co-payments, and annual and lifetime limits; and,
· Parity for treatment limitations such as the number of covered hospital days and visits.

The 1996 Mental Health Parity law only provided parity for annual and lifetime limits between mental health coverage and medical surgical coverage. The new bill expands parity by including deductibles, co-payments, out-of-pocket expenses, coinsurance, covered hospital days, and covered out-patient visits.

The bill would not prohibit group health plans from negotiating separate reimbursement or provider payment rates, or managing the provision of mental benefits in order to provide medically necessary treatments under the plan (as a means to contain costs and monitor and improve the quality of care).

This is similar to the improved mental health parity program that has been utilized by the Federal Employees Health Benefits Program since 2001. However, the press release states that “Oversight and administration would be conducted by the Department of Labor for self funded ERISA plans and by the Department of Health and Human Services for insured plans.” Where would FEHB plans fit in here? Oversight over those plans should remain with OPM.

On January 30, 2007, the Food and Drug Administration announced that it will be taking the following steps to improve drug safety based on a September 2006 Institute of Medicine report:

• Strengthening the science that supports the FDA’s medical product safety system at every stage of the product life cycle from pre-market testing and development through post-market surveillance and risk management. Related FDA initiatives include developing new scientific approaches to detecting,understanding, predicting, and preventing adverse events, developing and incorporating new quantitative tools in the assessment of benefit and risk, and conducting a pilot program to review the safety profiles of certain newly approved drugs on a regularly scheduled basis.
• Improving communication and information flow among all stakeholders engaged in promoting the safe use of medical products. Related FDA initiatives include the establishment of an advisory committee to provide input to improve the agency’s risk communication policies and practices, conducting a comprehensive review of current public communication tools and developing a comprehensive risk communication strategic plan.
• Improving operations and management to ensure implementation of the review, analysis, consultation, and communication processes needed to strengthen the U.S. drug safety system. Related FDA initiatives include engaging external management consultants to help the Center for Drug Evaluation and Research (CDER) develop a comprehensive strategy for improving CDER’s organizational culture, and making specific organizational and management changes to increase communications among review and safety staff.

I am no expert on drug safety but I expect that follow-up studies on recently approved drugs would prove valuable, particularly in view of the Vioxx fiasco.

On February 1, 2007, Sen. Ted Kennedy (D Mass.) and Michael Enzi (R. Wyo.), the chair and ranking member of the Senate’s Health, Education, Labor, and Pensions Committee re-introduced a drug safety bill (S. 484). According to a press release, Senator Kennedy and Senator Enzi hope to report out a bill addressing the drug user fee reauthorization, drug safety, and three other FDA reauthorizations shortly after Easter, for consideration on the Senate floor by late spring, and a conference with the House with final passage before the August recess. The FDA drug approval user fee program must be renewed this year which provides a further impetus for this bill.

The Caremark shareholders vote on the CVS merger proposal on February 20, and of course most votes will be submitted by proxy. Yesterday, a proxy vote advisory service Glass Lewis & Co. advised Caremark shareholders to reject the CVS merger proposal. “We are not convinced that the process used by the company and the board to arrive at this deal resulted in shareholders receiving as big a stake as they deserve in the proposed, combined entity,” Glass Lewis said. Express Scripts sent a fifth letter to Caremark shareholders urging rejection of the CVS merger proposal. Express Scripts also sent a letter to the Caremark Board of Directors urging Caremark to open merger talks, and it reported record fourth quarter 2006 revenues. The good news has caused Express Scripts’ stock price to increase, thereby improving the value of its Caremark merger offer. According to the Wall Street Journal, “Based on closing prices Thursday, the Express Scripts bid is about 5%, or $3 a share, higher than the CVS offer.” That’s much better than last week when the two bids were just about even.

Caremark disagreed with the Glass Lewis advice, and CVS ran a full page ad in the Wall Street Journal “citing the substantial negative consequences to shareholders, consumers and employers that would stem from Express Scripts acquiring Caremark.” The CVS deal has one advantage over the Express Scripts deal — the regulatory approvals are in place. This explains why Express Scripts is now advocating Caremark shareholder rejection of the CVS deal, rather than adoption of its deal.