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Humira Biosimilars and Others Face Uncertain Future Under IRA

July 19, 2023

By Ana Mulero
July 19, 2023

The recent flood of Humira biosimilars to enter the market highlights the uncertainty that surrounds generic competition for biologics following the introduction of the Inflation Reduction Act.

On July 1 and 3, seven biosimilars entered the U.S. market to challenge Humira, joining Amgen’s Amjevita (adalimumab–atto), which hit the market in January. This flood of generic competition adds insult to injury to AbbVie’s blockbuster arthritis drug, which was penalized under the Inflation Reduction Act (IRA) for its price hike, affecting price and hence competition.

L.E.K. Consulting Managing Director Alex Guth told BioSpace that the
competition from biosimilars “has a substantial negative impact on net pricing
potential for existing biologics, including Humira.” Penalties and price
negotiations imposed by the IRA burden biologics even further, he added.

The legislation was signed into law in August 2022, and the Centers for Medicare and Medicaid Services (CMS) has already penalized 70 drugs and biologics so far. In June, the federal government flagged 43 drugs, including Humira, whose prices have risen faster than the rate of inflation and are thus required to pay a penalty in the form of a rebate to Medicare under the Medicare Prescription Drug Inflation Rebate Program portion of the IRA.

The rebate will be the difference between what the price increase would have been if the manufacturer had stuck with the inflation rate for its increase andthe actual increase of the drug or biologic. For Humira, that amounts to a reduction of 19.72% from what its prices would have otherwise been.

The Biden administration said it intends to invoice these manufacturers by the fall of 2025. Meanwhile, beginning in April, the 20% coinsurance that consumers are charged began to be calculated based on a price increase commensurate with the inflation rate. Until September 30, 2023, Medicare patients may see coinsurance amounts for these drugs reduced by $1 to $449 versus what they would have received before the IRA.

The price penalty combined with the entry of biosimilars adds pressure to price competition.

Humira biosimilar developers have adopted different pricing strategies. Amgen and Biocon Biologics have said they would sell their products at two prices, with the first at a small discount relative to Humira’s new adjusted price of about $7,299 for two subcutaneous kits, or about $84,000 for a year’s supply and the second at an even steeper discount. Biocon said its second price would be 85% lower than Humira’s—about $12,500 each year.

Humira is likely a cautionary tale, experts say. CMS will issue a new list of drugs and biologics that will be subject to rebates based on the rate of inflation on a quarterly basis, and which ones are subjected to rebates could change each quarter as the rate of inflation changes. This volatility is expected to perpetuate uncertainty in the biosimilars market.

In addition, the drug price negotiation portion of the IRA further complicates the issue without a clear answer as to whether the legislation will encourage or discourage the development of biosimilar drugs.

Overview of Humira Biosimilars

The first Humira biosimilar to enter the market was Amgen’s Amjevita (adalimumab–atto) in January. Earlier this month, seven more joined the competition: Fresenius Kabi’s Idacio (adalimumab–aacf), Biocon Biologics Ltd’s Hulio (adalimumab–fkjp), Boehringer Ingelheim’s Cyltezo (adalimumab–adbm), Organon & Co. and Samsung Bioepis Co., Ltd.’s’ Hadlima (adalimumab–bwwd), Sandoz’s Hyrimoz (adalimumab–adaz), Celltrion USA’s Yuflyma (adalimumab–aaty) and Coherus BioSciences, Inc.’s Yusimry (adalimumab–aqvh).

The only Humira biosimilar that has received interchangeability designation, which allows pharmacists to substitute a biosimilar at the point of dispensing without prior authorization from the prescriber, Cyltezo.

How Will Price Negotiation Affect Biosimilars?

The industry trade lobbying group Pharmaceutical Research and Manufacturers of America (PhRMA) issued a report in June that examines these issues. PhRMA, along with Merck, BMS and others, has sued the U.S. government, challenging the constitutionality of the IRA’s drug price negotiation program.

“Under the IRA, biosimilar manufacturers are not able to predict, with any accuracy, which biologics will be subject to price setting, creating significant uncertainty regarding whether there will be an opportunity to recoup the investments required to develop a biosimilar competitor,” according to PhRMA’s report.

Guth said that this component of the IRA could have positive implications for biologics developers. That’s because biologics, which will be subject to price negotiation after 13 years of market exclusivity, are excluded from pricing negotiation if they already face biosimilar competition or will in the next two years.

This “may create an environment in which originators are more amenable to biosimilar entry than previously because it provides some level of protection from near–term negotiation,” Guth said. But, the IRA can also disincentivize biosimilar development, he added—if negotiation brings down pricing prior to biosimilar entry. This would limit the potential incentive to develop biosimilars, Guth said.

Margery Fischbein, managing director of healthcare at Cassel Salpeter & Co., agreed that this could happen. “An unintended consequence of the IRA is that generic and biosimilar manufacturers may be disincentivized to enter the market given their pricing advantages relative to Medicare negotiated brand name drugs may no longer be attractive,” Fischbein told BioSpace.

Guth said what the industry should be watching is the specific products CMS will identify for negotiation and the beginning of the price negotiation meetings between CMS and the manufacturers of those products. CMS will announce the first ten drugs selected for negotiation under Medicare Part B by September 1.

“The uncertainty for biosimilars generated by the IRA—both in terms of rebates and price negotiation—has not been fully anticipated by the lawmakers,” Guth said.

Ana Mulero is a freelance writer based in Puerto Rico. She can be reached at anacmulero@outlook.com and @anitamulero on Twitter.

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Blue Water Biotech makes the case for better mpox vaccines, even at ‘hyperlow endemicity’

July 18, 2023

By Helen Floersh
July 18, 2023

In some ways, mpox is the story of an epidemic that wasn’t. For a few brief (and scary) weeks in the early summer of 2022, when mpox cases around the world jumped from zero to hundreds in less than a month, it seemed that the disease was poised to go from being rarely found outside of Africa to a global threat—a dismal prospect to a pandemic-weary world.

Thanks largely to the mitigation efforts of the gay community and its uptake of Bavarian Nordic’s Jyennos vaccine—a smallpox vaccine repurposed for use against mpox—the disease is no longer considered a public health emergency in the U.S. Still, it seems it’s here to stay, as evidenced by case clusters in Chicago and New York this summer.

“What’s different now is that mpox now is at what I call ‘hyperlow endemicity’—it has established itself at a very low level and hasn’t gone away,” Andrew Noymer, Ph.D., an epidemiologist at University of California Irvine, told Fierce Biotech Research in an interview. “We really do have a disease that has persisted.”

But is that enough to justify investing in new vaccine technology, given that cases are circulating at low latency and that the current approach seems to work reasonably well? For Blue Water Biotech, which announced June 28 that its new mpox vaccine generated an immune response in mice, the answer is clear.

“What we’re offering is a tool that we think has efficacy and performs better than the current options,” Joseph Hernandez, founder and CEO of Blue Water, said in an interview. “We feel we have an obligation to move forward.”

Old virus, new infections

A quick refresher on mpox: The disease is caused by the mpox virus, which causes a rash with lesions similar to smallpox. It’s spread via skin-to-skin contact with an infected person or animal. While most people who contract mpox will have mild illness, it can be severe or deadly in individuals who are immunocompromised. There is no vaccine developed exclusively for mpox.

Mpox was initially identified in Denmark in 1958, when an outbreak occurred in a colony of research primates. The first human case was recorded in 1970 in a 9-month-old boy in the Democratic Republic of Congo, where it has remained endemic for the past 40 years. It’s also considered endemic in several other regions of central and west Africa.

Though the disease started out relatively rare, incidence had crept up both in and out of Africa well before the 2022 outbreak. Cases increased 20-fold in the DRC between the 1980s and 2010. The U.S. saw an outbreak across the Midwest in 2003, likely started by prairie dogs that were infected by imported Gambian rats. The disease has been sporadically reported in the U.K. since 2018.

Besides increased international travel, the rise in mpox cases could also be linked to waning population-level protection from the smallpox vaccine, which offers some cross protection against mpox. Smallpox vaccines were routine throughout most of the world until the disease was declared eradicated in 1980. While no one has gotten smallpox since then, mpox cases have crept up—notably in people younger than 60, for whom smallpox vaccination wouldn’t have been commonplace.

“The people who were vaccinated against smallpox in the 60s and 70s aren’t at high risk of getting mpox,” Noymer said. “Mpox is more—not less—likely to emerge now because starting in the early 1980s no one was vaccinated against smallpox.”

Repurposing a vaccine—and a need for a new one

While the smallpox vaccine may no longer be in active use, officials in the U.S. have kept stores of it in case of a bioterrorism attack or some other spontaneous outbreak in what’s called the Strategic National Stockpile, or SNS. Until the late 2010s, the supply primarily consisted of two different vaccines: ACAM2000, an older vaccine with a less-than-ideal side effect profile in people with eczema or weakened immune systems, and Jyennos.

A large portion of the Jyennos vaccines expired in 2017, leaving the U.S. with far fewer vaccines than it needed in the case of a smallpox outbreak. The mpox outbreak erupted as officials were working with Bavarian Nordic to replenish the supply. While the vaccines had been approved by the FDA in 2019 for individuals at high risk of mpox, there weren’t enough to meet demand.

To stretch the supply, officials changed the way the vaccines were administered. The original Jyennos vaccine was meant to be given subcutaneously in two separate 0.5 mL doses, spaced four weeks apart. Instead, it would now be administered between layers of the skin, or intradermally, which gave the same effect at a fifth of the dose.

The approach was “a bit of a hail Mary,” as Noymer put it. Thankfully, the data since have shown that it works in the real world: Two intradermal doses had an effectiveness of between 66% and 89%, CDC-funded studies show. (The figures for one dose varied more widely, from 36% to 75%.) “The data are in and it seems to be effective,” Noymer said. “I’m not worried about that.”

“The data are in and it seems to be effective,” Noymer said. “I’m not worried about that.”

But intradermal administration isn’t without its drawbacks. For one, it can lead to scarring in people with darker skin, which may add another obstacle to vaccination. On top of that, it’s simply not in line with how the vaccines were built to work, Noymer pointed out.

“Personally, in my opinion, I’d like to see them go back to subcutaneous [administration], because that’s how the vaccine was designed and that avoids the scarring problem,” he explained. “But that requires more vaccines.”

Scaling up and building better

While efficacy is always something to be enhanced, vaccines that can be produced cheaper and more quickly are a priority too. At the height of the mpox outbreak last year, Bavarian Nordic’s problems with manufacturing fresh supplies of the Jyennos vaccine compounded the shortage caused by expired vaccines, as the company struggled to get new ones out quickly enough to meet demand.

“The manufacturing [for live attenuated virus vaccines] is a nightmare, to be honest,” Shyamala Ganesan, Ph.D., senior director of vaccine research and development at Blue Water, told Fierce Biotech Research. “That’s why [Bavarian Nordic] is trying to refine it now as much as possible.”

While Blue Water is not yet at the point that it can estimate a price per dose of its mpox vaccine, it thinks it will be able to manufacture it at a lower cost than existing ones. That’s because the company’s proprietary delivery technology—which it developed in partnership with Cincinnati Children’s Hospital Medical Center—doesn’t require live virus production, unlike the Jyennos vaccine. Instead, it uses a norovirus-like particle platform that’s designed to target specific antigens rather than the whole virus, and can thus be produced using simpler machinery.

“You can make this in very inexpensive manufacturing systems,” Hernandez said. “We think we can compete at all levels, specifically on the economics and the cost of goods, with any of the other technologies out there.”

Blue Water is still preparing its data for publication, so aside from saying that the vaccine had sparked an immune response, the company couldn’t comment on its efficacy. However, Ganesan did note that they were looking at intramuscular injection rather than subcutaneous or intradermal, another improvement made possible by using targeted antigens rather than whole virus.

“When you go with the targeted approach, you carefully select the antigens against which you need the immune response,” she explained. Trying to deliver whole virus intramuscularly would instead mount a “mixed” immune response that’s less specific.

“It makes delivery much easier. We’re working towards a very cost-effective approach,” she said. “All of these things make this whole technology platform very feasible and very attractive.”

Less mpox, fewer vaccines

Blue Water is one of only a few companies working on mpox vaccines, Ira Leiderman, managing director of the healthcare practice at Miami investment firm Cassel Salpeter and Co., noted in an interview. While the lead contender, Moderna, is planning on testing its vaccine in humans this summer, per the company’s interview with Fierce Biotech at BIO back in June, there’s little other progress on the horizon.

“You don’t see a lot of companies putting forth an mpox vaccine program,” Leiderman said. “Not a huge number of companies working on vaccines to start with—even among the big ones there aren’t many programs.”

That could be explained in part by the dynamics of the disease, which make developing a vaccine for mpox less likely to offer a high ROI. While the flu requires new vaccines each season, the mpox vaccine provides long-lasting protection with just a single two-dose regimen.

“If you make an influenza vaccine, tens of millions of people will line up to get it, and you might get a new one every year,” Leiderman explained. “There’s a real business to selling flu vaccines, thus the number of companies selling them.”

On top of that, the most likely customer for new mpox vaccines is the government, which could use them to stock up the SNS, he added. The intricacies of working with the government on vaccine production comes with added costs, such as the need to keep a manufacturing line “warm,” or ready to produce vaccines, even when active production isn’t taking place.

“You may or may not be reimbursed by the government, so it’s not overly attractive,” Leiderman said.

Demand beyond borders

Finally, there’s the question of demand. In the U.S., mpox is regarded by many as a sexually transmitted disease, Noymer said. Though it is true that it has been passed on during sex in the 2022 outbreak, it can be transmitted through casual contact too, such as a hug. “Mpox is not a gay disease, and it’s not a sexually transmitted disease in the strict sense,” he said. “It has been spread through sexual networks, that’s noncontroversial at this point.”

To that end, he expects that demand for an mpox vaccine will continue among people who have sex with many other people, especially those who are also at risk for contracting HIV. Anyone who is taking prophylactic HIV medications should be getting the mpox vaccine, Noymer noted.

“Most of the deaths have been in persons with poorly managed HIV infection,” he said. “It’s just a fact.”

While he sees a need for mpox vaccination in the U.S. for years to come, and for new vaccines that can also work against smallpox to be added to the SNS, perhaps the greater opportunity lies in African countries where mpox is endemic. While it’s not clear how cheap vaccines would need to be before routine vaccination became the norm, for now there is a bigger market, Noymer noted.

“I don’t think all 133 million Americans need an mpox vaccine, but worldwide—clearly in parts of West Africa where we have persistent reemergence of mpox from animal reservoirs—there’s a good case that we could vaccinate a lot of people,” he said.

Moderna appears to be thinking along the same lines. In Fierce Biotech’s BIO interview with Hamilton Bennett, the company’s senior director of vaccine access and partnerships, she noted that Moderna was coordinating with developing nations to facilitate the expansion of vaccine-related economic infrastructure and to ensure the availability of its products in those nations.

“Our portfolio in global health is designed to allow those associations to happen because they’re not something where we can pick up the phone when the clock starts,” she said at the time. “We need to build those relationships now.”

Blue Water Biotech shares a similar philosophy. Though mpox cases have waned for now and appear to be relatively isolated in terms of the demographics most affected, past pandemics have shown that it’s in everyone’s best interest to be prepared.

“Any vaccine that you develop isn’t for one particular community—it’s for protecting the whole general population,” Ganesan said. “We want to provide the next generation of mpox vaccine that will help the whole human community to be protected.”

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Q2 2023: Tech Deal Report

July 18, 2023

Miami Investment Banking Firm Cassel Salpeter Releases Tech Industry Deal Report
South Florida firm publishes Q2 2023 Tech Investment Banking Report surveying technology deals, industry M&A, and public markets activity

Cassel Salpeter & Co. Facilitates Affiliation of Primary Eye Care Center With ReFocus Eye Health

July 13, 2023

MIAMI – July 17, 2023 – Cassel Salpeter & Co., an independent investment banking firm that provides advisory services to middle market and emerging growth companies in the United States and worldwide, today announced that it represented Primary Eye Care Center, P.C. (“Primary Eye Care Center”) in its affiliation with ReFocus Management Services, LLC, (“ReFocus”) a portfolio company of Zenyth Partners.

Primary Eye Care Center is a leading New England eye care practice based in Bloomfield, Conn., with three strategically located offices in Bloomfield, Windsor and Avon, whose ophthalmologists specialize in cataract surgery, premium intraocular lenses and the diagnosis and treatment of glaucoma and corneal diseases and conditions.

ReFocus is an eye care management services organization spanning the Northeast and Mid-Atlantic regions in the United States, which partners with over 80 affiliated ophthalmologists and optometrists across 36 practice locations and one ambulatory surgery center. “We are thrilled to welcome Dr. James Pasternack, Dr. Kevin Dinowitz and the entire team at Primary Eye Care Center to ReFocus,” said ReFocus CEO Jeff Rinkov.

“The Cassel Salpeter team was very pleased to assist Primary Eye Care Center in securing an ideal partner,” said Cassel Salpeter Chairman and Co-Founder James Cassel. “Given ReFocus’ geographic proximity to Primary Eye Care Center and their breadth of knowledge in the ophthalmology space, the synergistic opportunities were unmatched in this partnership.”

“The dream team of Cassel Salpeter accommodated our busy schedules as practicing doctors and supported us during the entire process,” said Dr. Dinowitz. “Their experience, compassion and commitment led us to reach our goals for success.”

“The Cassel Salpeter team worked truly and tirelessly for our best interests,” said Dr. Pasternack. “Communication between Cassel Salpeter, Primary Eye Care Center, ReFocus and the rest of the deal team was continuous and flowed smoothly. Without Cassel Salpeter’s efforts, the deal would not have closed.”

The Cassel Salpeter deal team was led by Chairman James Cassel, Director Laura Salpeter and Associate Edward Kropf. Legal counsel for Primary Eye Care Center was Thomas Marrion and Anna Gurevich of Hinckley Allen. Joanne Marcoux at CohnReznick LLP and Kim Bernier at Primary Eye Care Center also played pivotal roles in the deal and assisted all parties throughout the process.

About Cassel Salpeter & Co.:

Cassel Salpeter & Co. LLC is an independent investment banking firm that provides advice to middle market and emerging growth companies in the United States and worldwide. Together, the firm’s professionals have more than 50 years of experience providing private and public companies with a broad spectrum of investment banking and financial advisory services, including: mergers and acquisitions; equity and debt capital raises; fairness and solvency opinions; valuations; and restructurings, such as 363 sales and plans of reorganization. Cofounded by James Cassel and Scott Salpeter, the firm provides objective, unbiased, results-focused services that clients need to achieve their goals. Personally involved at every stage of all engagements, the firm’s senior partners have forged relationships and completed hundreds of transactions and assignments nationwide. The firm’s headquarters are in Miami. Member FINRA and SIPC. More information is available at www.CasselSalpeter.com.

About ReFocus Eye Health:

ReFocus Eye Health is a management services organization dedicated to the provision of best-in-class eye care administered through ReFocus and affiliated groups of eye care physicians. ReFocus’ current affiliate network includes 30+ locations across Connecticut, Massachusetts, New Jersey, Pennsylvania and Rhode Island. ReFocus Eye Health is headquartered in Stamford, CT. To learn more, visit www.refocuseye.com.

‘We Don’t Have Enough of an Infrastructure’: Psychiatric Hospitals Buckling Under Historic Pressure

July 5, 2023

By Chris Larson
July 5, 2023

Psychiatric hospitals are buckling under decades of financial pressure that increased following the onset of the pandemic.

Discriminatory regulations, challenging payer relations and inflation have placed several psychiatric hospitals in untenable positions. A spate of facility closures in 2023 demonstrates that the pressure is proving too much. Industry insiders say that systemic changes can’t come soon enough to protect these facilities and position them to meet ballooning patient demand.

“It’s been a host of issues that over time have really made providing this level of care one of the most challenging things I think I’ve done in my career,” said Stuart Archer, CEO of Oceans Healthcare.

Plano, Texas-based Oceans Healthcare is a behavioral care system that specializes in caring for seniors. It operates outpatient, day treatment and inpatient services at 48 locations in Louisiana, Mississippi, Oklahoma and Texas, according to its website.

Collectively, the psychiatric hospital segment is working well beyond its capacity. On average, U.S. mental health facilities have utilization rates of 144%, while combined substance use/mental health facilities have a 137% rate, according to the latest federal National Substance Use and Mental Health Services Survey (N-SUMHSS).

The same survey finds that substance use facilities collectively have a utilization rate of 96%.

Recently, Nashville, Tennessee-based HCA Healthcare Inc. (NYSE: HCA) shuttered an 18-bed psychiatric unit at Mission Oaks Hospital in Los Gatos, California. HCA Healthcare pointed to workforce challenges as the primary reason for the closure.

“Unfortunately, in the post-pandemic healthcare ecosystem, we can’t find qualified staffing for this unit,” an HCA Healthcare representative told The Mercury News.

HCA Healthcare has not responded to BHB’s request for comment.

That closure reduces the psychiatric bed count in Santa Clara County, California, by 8.5%, the report states.

HCA operates five psychiatric hospitals. As of the end of 2022, it had 44 psychiatric units in other facilities, according to public filings.

In Tukwila, Washington, Cascade Behavioral Health Hospital LLC told local officials it would shutter at the end of July, eliminating 288 jobs and 137
psychiatric beds.

“We were a solution to a community that needed access to acute behavioral healthcare,” Shaun Fenton, Cascade Behavioral Health Hospital CEO, told officials in a WARN notice. “Through COVID and other complexities, Cascade remained steadfast in our commitment to our patients and community. However, the breadth of challenges created a situation where the long-term viability of the hospital was no longer sustainable.”

Cascade Behavioral Health Hospital was owned and operated by Franklin, Tennessee-based behavioral health giant Acadia Healthcare Co. Inc. (Nasdaq: ACHC).

The relative impact of one factor or another depends on the community surrounding that hospital.

The burden of history and regulations

Psychiatric hospitals today are not what they used to be. Before the deinstitutionalization movement of the Kennedy era and beyond, there was relatively easy access to facilities that took a long-term, residential approach to treatment for severe mental illness (SMIs) or other acute behavioral health needs.

Cultural pressures to end the warehousing of people with disabilities and advancements in medical treatments inspired regulatory changes meant to bring treatment to outpatient clinics and other community settings. However, regulations didn’t go nearly far enough to replicate the access of the historic approach.

“The two challenges are that we swung really far in the way of avoiding longer-termed care facilities — which really do help people, but people don’t want to get to the point of needing them — and we don’t have enough of an infrastructure to support people not getting to that point,” Lindsay Oberleitner, a clinical psychologist and education director of SimplePractice, told BHB.

SimplePractice, part of EngageSmart, is a health and wellness platform for patients and providers.

Further, the financial pressures from uneven reimbursement and a lack of enforcement of federal reimbursement parity laws has made it difficult for providers to keep up with the high demands. Low payment reimbursements often lead to lower wages for staffers. And as the pressure increases for more services, so does the pressure to keep and retain staff. This is often an impossible effort as workers seek comparable or better wages in much less demanding work environments.

If a facility doesn’t have the staff to keep all of a psychiatric facility’s beds open, it’s not going to generate the income needed to go on, Oberleitner said.

“Through COVID and other complexities, Cascade remained steadfast in our commitment to our patients and community. However, the breadth of challenges created a situation where the long-term viability of the hospital was no longer sustainable.”

Shaun Fenton, CEO of Cascade Behavioral Health Hospital

Even if a health system is able to fully staff its psychiatric facility, behavioral health services are at higher risk of being cut at struggling hospitals compared to physical health services.

Behavioral health, on average, ranks 5.2 among the top 11 issues hospital executives face, according to survey data from the American College of Healthcare Executives. However, workforce issues were the No. 1 issue in the latest version of the survey.

For example, St. Dominic Hospital announced the closure of Jackson, Mississippi-based St. Dominic Behavioral Health Services. The move came “after a thorough assessment of our staffing and services and following losses of several million dollars in the last 3-5 years,” according to a statement from the system. St. Dominic Hospital is part of the Catholic health care system, Franciscan Missionaries of Our Lady Health System (FMOLHS).

The move impacts 157 employees, or 5.5% of St. Dominic’s workforce. The losses St. Dominic incurred didn’t necessarily come from the psychiatric unit. Rather, cumulative losses led to the closure, Meredith Bailess, senior director of marketing and communications for St. Dominic Hospital, told BHB.

St. Dominic Hospital has been in operation for the past 77 years.

Oberleitner said psychiatric hospitals also face the task of caring for even sicker patients today than in the past. Regulatory and payer trends have compressed the length of time a patient can remain in the hospital. This limits a facility’s ability to provide care and generate revenue. Further, the collective behavioral health system has not invested enough in outpatient or preventative health care efforts to lift the burden on psychiatric hospitals.

“You’re taking full responsibility for [the patient’s wellbeing] at a point of crisis and taking on risk,” Oberleitner said. “But many times reimbursement might not fully cover the costs that a hospital is needing to even maintain those beds.”

Still, there is a movement to address the shortage of psychiatric beds. Several operators point to increased demand and decades of prolonged pressures as
opportunities for expansion and investment.

In some ways, the historical challenges for psychiatric hospitals and their partners open the door to fundamentally changing dynamics through lobbying and other dealmaking.

Making deals for psychiatric hospitals

Since Medicaid and Medicare are leading payers — both in reimbursement and health plan policy — behavioral health organizations and their partners can lobby the public and elected officials for better rates and other policy changes.

While this isn’t easy, it’s often necessary. And the stakes at play with psychiatric hospitals can make reform a compelling case to argue.

“It’s very difficult for an individual hospital to be able to negotiate appropriate reimbursement rates from an insurance company or any payer,” James Cassel, chairman and co-founder of the investment bank Cassel Salpeter & Co., told BHB. “But it’s a significant national problem that requires the government’s and the appropriate agencies’ help to work through those problems. Because when a hospital closes and there’s no available care, the community suffers.”

At the federal level, many legal and regulatory frameworks popped up in the 1960s and exist today in similar forms to their original introductions. Some of the toughest regulations are the exclusion of institutions for mental disease from the Medicaid program (IMD exclusion) and the 190-day limit on psychiatric care for Medicare beneficiaries.

The federal government oversees and administers Medicaid in partnership with state governments, which covers disadvantaged populations. Medicare is the federal health plan for American elders and those with end-stage renal disease (ESRD).

The American Hospital Association (AHA) calls these and other behavioral health-related policies “arbitrary,” “discriminatory,” and “outdated”.

“This is one of the only levels of care where the federal government, in many ways, discriminates,” Archer said.

He also pointed to the meager increase that psychiatric hospitals will get from Medicare as part of the prospective payment rules. The Centers for Medicare & Medicaid Services announced a 1.9% net increase for inpatient psychiatric payments for the federal fiscal year 2024.

Many facilities have faced “10%, 15% cost increases by any measure” in recent years.

He also pushes for behavioral health providers to take a seat at the regulatory table.

[It’s] a significant national problem that requires the government’s and
the appropriate agencies’ help to work through those problems. Because
when a hospital closes and there’s no available care, the community
suffers.

James Cassel, chairman and co-founder of Cassel Salpeter & Co.

In Louisiana, Oceans Healthcare found a legislator to sponsor and had a hand in passing a bill that allows patients to choose where they can go to get psychiatric facility services, barring hospitals and providers from dictating which facility patients go to for care. In Mississippi, Oceans Healthcare similarly advocated for and saw a bill that allowed IMD facilities to fully participate in the Medicaid program become law. Oceans Healthcare has also lobbied officials on issues in Texas.

“These are issues that many times we find elected officials care deeply about; they just haven’t had as much exposure to the issues at hand,” Archer said. “Nothing happens legislatively unless there’s a champion for an issue.”

Oceans Healthcare hopes to bring similar advocacy work done at the federal level by the industry trade group, the National Association for Behavioral Healthcare (NABH), to the state level. Archer holds an at-large seat on the organization’s board.

Short of changing regulations, health systems can do what they’ve done at other times to make psychiatric hospitals or units work, Cassel said. This can include merging with other systems or establishing partnerships with larger psychiatric facility operators, he added.

Oceans Healthcare’s growth includes establishing joint ventures with other health systems.

In November, Lafayette, Louisiana-based Ochsner Lafayette General and Oceans Healthcare announced a joint venture to build a $30 million behavioral health hospital. It is slated to open in late 2024, will be called Ochsner Behavioral Health Acadiana and will house 120 beds for adolescents, adults and geriatric patients.

“Many of these health systems have been in communities for generations. They’re the trusted brand in the area,” Archer said. “So we enter into the joint ventures with a tremendous amount of respect. Core to that partnership is a shared vision of the role that behavioral health plays in a community and a shared vision to improve it.”

Companies featured in this article:

Cascade Behavioral Health Hospital, Cassel Salpeter & Co., Franciscan Missionaries of Our Lady Health System, HCA Healthcare, Mission Oaks Hospital, Oceans Healthcare, SimplePractice, St. Dominic Hospital is part of the Catholic healthcare system

Chris Larson
Chris Larson is a reporter for Behavioral Health Business. He holds a bachelor’s degree in communications from Brigham Young University and has been covering the healthcare sector since December 2016. He is based in the Louisville metro area. When not at work, he enjoys spending time with his wife and two kids, cooking/baking, and reading sci-fi and fantasy novels.

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Humira Biosimilars and Others Face Uncertain Future Under IRA