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US healthcare spending slows for 2nd consecutive year; opioid crisis a factor

Studios, Exhibitors Set To Spar Over Streaming

Power Forecast Briefing Discusses Improved Spark Spreads and Profitability Projections for ERCOT and PJM


Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Nexstar Buys WGN For A Song; Divestiture Of WGN, Stakes In Food Channels Likely

US healthcare spending slows for 2nd consecutive year; opioid crisis a factor

U.S. healthcare spending grew 3.9% in 2017 — the second consecutive year the growth rate has slowed, an outcome driven largely by the drop-off in spending for hospital care, physician and clinical services and retail prescription drugs.

Healthcare spending reached $3.5 trillion in 2017, or about $10,739 per person, according to a new analysis from the Office of the Actuary at the Centers for Medicare and Medicaid Services, published online Dec. 6 in the public policy journal Health Affairs.

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As a share of gross domestic product, health spending was 17.92%, similar to 2016's 17.97%, the analysis showed.

It was the first year since 2013 that healthcare's share of GDP did not increase, according to CMS analysts.

Officials noted that the low rate of spending growth in 2017 was similar to the average annual rate of 3.9% in 2008-2013 — the period that followed the financial crisis and predated the major coverage expansions under the Affordable Care Act — when there was a net decline in private health insurance enrollment, a low rate of growth in per person spending for private and government coverage and a slowdown in medical price inflation and in the use and intensity of goods and services.

In 2017, the CMS actuaries reported that U.S. healthcare spending had grown by 4.3% in 2016, but the analysts have since revised that figure to 4.8%, Anne Martin, an economist in CMS' National Health Statistics Group and the lead author of the new analysis, said during a Dec. 6 call with reporters.

The recent slowdown in health spending trends follows elevated rates of growth in 2014 and 2015 of 5.2% and 5.8%, respectively. The growth resulted from expanded insurance coverage and the associated increases in the use of services for people who gained coverage under the ACA, including through the expansion of Medicaid, and also by spending for prescription medicines, which grew rapidly during those two years in large part because of new hepatitis C drugs such as Gilead Sciences Inc.'s Harvoni and Sovaldi.

Drug spending

Spending on retail prescription medicines in 2014 had grown by 12.4 % — after Sovaldi and Harvoni hit the U.S. market — and 8.9% in 2015.

But in 2017, that growth had fallen sharply, dropping to 0.4 % — the slowest rate since 2012, when a large number of blockbuster drugs lost patent protection, which in turn, drove prices and total spending down.

Many people who took the newer hepatitis C drugs also were cured of their disease, so spending started to significantly decline for those medicines after 2015, Martin said.

The $333.4 billion spent on prescription medicines in 2017 accounted for 10% of total national health spending, according to the CMS report.

In 2017, there were fewer prescription drugs dispensed, Martin said.

The CMS analysts estimated that the use of prescription therapies increased by only 1.8% in 2017, versus a growth rate of 2.3% in 2016.

Americans also continued to use lower-cost generic medicines over higher-cost therapies, Martin said.

In 2017, lower-cost generic medicines represented 85% of the total drugs dispensed, versus 84% in 2014, according to CMS.

CMS relied on drug data from IQVIA Holdings Inc. to determine the drivers of growth and spending, though the agency's analysts did not break down the spending by type of drugs, Martin said.

The top therapeutic classes in 2017 by spending were diabetes, oncology, autoimmune, respiratory agents and HIV antivirals, she said.

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Impact of opioid crisis

Another factor that affected the slower growth rate in prescription drug spending in 2017 was the U.S. opioid crisis, Martin said.

"The number of prescriptions dispensed for pain had a large impact on the trend and a lot of that did have to do with the opioid epidemic and greater tightening of those types of prescriptions being dispensed," she told reporters.

The House and Senate passed legislation earlier this year aimed at defeating the growing opioid addiction epidemic, which has resulted in the deaths of about 115 Americans per day.

The new legislation gives the U.S. Food and Drug Administration the authority to require drugmakers to package their opioids in unit-dose blister packs, for three- or seven-day supplies — an action intended to cut down on the number of prescriptions dispensed and the pills Americans take.

FDA Commissioner Scott Gottlieb said he wanted to get to work right away on implementing that requirement, noting that he would like to see initial opioid prescriptions for one- or two-day supplies.

Healthcare coverage and services

The CMS analysis also showed that total spending on Medicare, the government's insurance program for seniors and the disabled, grew at about the same rate in 2017 as it did in 2014 — 4.2% and 4.3%, respectively.

The $705.9 billion spent by Medicare in 2017 accounted for 20% of all national healthcare spending in the year, the agency stated.

Medicaid spending reached $581.9 billion in 2017, accounting for 17% of total national health expenditures. The growth rate for Medicaid, however, slowed for the third straight year — increasing 2.9% in 2017, versus 4.2% in 2016.

The slower growth in 2017 was influenced by a deceleration in enrollment in the program, from 3% in 2016 to 2% in 2017, CMS reported.

In addition, hospital care spending, which reached $1.1 trillion in 2017, also slowed, falling to 4.6% from 5.6% a year earlier.

CMS also reported that the growth rate for spending on physician and clinical services fell from 5.6% in 2016 to 4.2% in 2017, with total expenditures reaching $694.3 billion last year.

Technology, Media & Telecom
Studios, Exhibitors Set To Spar Over Streaming

Dec. 14 2018 — According to an article published in Variety in November, Warner Bros. and Universal Pictures are expected to reopen conversations with exhibitors about earlier VOD releases for their films. The studios argue that an earlier on-demand release helps minimize piracy and allows them to better leverage the multimillion-dollar ad campaigns launched for their films' theatrical debuts.

Exhibitors, on the other hand, worry that a shorter theatrical window will reduce ticket sales as potential patrons opt to wait and watch films at home. Fewer ticket sales also lead to lower concession revenues -- the most profitable aspect of the exhibition business.

The article also notes that studios have an extra incentive to negotiate earlier release windows, as WarnerMedia is launching its own streaming service in 2019 while Comcast, home of Universal, is looking to expand its streaming offerings. Having their major films released on their respective services shortly after theatrical release could help drive subscriber growth.

Pushing for a film's possible VOD release just weeks after its big-screen debut could be seen as an aggressive move, but studios have been slowly shrinking their theatrical release windows over the past 20 years. In 1999, the average theatrical window was 169 days; this was just as the DVD market was beginning to explode and the VHS cassette was still a market factor. Soon, DVD became a massive source of revenue for studios and they began to release their films on home video at a quicker pace. In 2017, the average theatrical window dropped to 105 days before dipping to 99 days in 2018.

The major studios all trimmed their theatrical windows by a fair amount between 2000 and 2018, from an average of 172 days down to 94 days, a difference of more than two and a half months. Twentieth Century Fox and Universal Studios had the shortest average theatrical window at 89 days, while Walt Disney had the longest theatrical window at 107 days.

We tracked eight blockbuster films in 2018 that were released on home video less than 90 days after premiering in theaters. The shortest window belonged to "Venom" ($212.3 million domestic gross), which was released in theaters on Oct. 5 and will debut on DVD and Blu-ray just 74 days later on Dec. 18.

The motion-picture business has always been able to capitalize on new technology, from the TV to the VCR to the DVD player, to drive growth. Streaming video has become the primary source for home entertainment — just ask Netflix and its 137.1 million subscribers worldwide. If studios are launching their own services, they naturally want their own premiere content on those services. Studios may not get the rapid release window they are hoping for, but they will likely keep bringing it down slowly, as they have for the past two decades.

If you are a client then learn more about Economics of TV & Film below:

Movies make their way to your home in less than 100 days in 2018

State of Home Entertainment 2018

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Watch: Power Forecast Briefing Discusses Improved Spark Spreads and Profitability Projections for ERCOT and PJM

Dec. 13 2018 — In our latest Power Forecast Briefing, Steve Piper discusses recent power market activity and a forecast that points to profitability for merchant generation regions of ERCOT and PJM. Both saw improved spark spreads in 2018, but ERCOT's upside appears more limited than PJM going forward. More data and market tracking tools can be found on the Market Intelligence platform’s Power Forecast subscription.

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Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.

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Technology, Media & Telecom
Nexstar Buys WGN For A Song; Divestiture Of WGN, Stakes In Food Channels Likely

Dec. 10 2018 — Walt Disney Co.'s pending acquisition of much of 21st Century Fox Inc. certainly raised the bar for cable network valuations — at 15.4x cash flow — and the divestiture of the regional sports networks may see another double-digit-multiple transaction with Inc. in the mix of buyers. Another deal, Nexstar Media Group Inc.'s pending acquisition of Tribune Media Co., sees stakes in three cable nets going to the buyer for single-digit multiples (6.9x).

The deal follows the collapse of Sinclair Broadcast Group Inc.'s deal to buy the company, which is now being litigated. We think that Nexstar is getting quite a deal on the cable network assets and will likely flip them for a quick profit.

When Discovery Inc. agreed to buy Scripps Networks Interactive Inc. in July 2017, the domestic cable networks were valued at $10.14 billion, or 10.5x cash flow, with Food Network (US) valued at $4.5 billion (Scripps owned 68.7%) and Cooking Channel (US) (also at 68.7%) valued at $525 million.

In the current transaction, the valuations come to $3.47 billion and $323 million, respectively. Thus, if Nexstar can get Discovery Communications to pay at least what it paid in the Scripps transaction, Nexstar may make a quick profit. Granted, minority interests typically trade at a discount. Scripps Networks Interactive, however, has tried for years to cut a deal to buy out the minority stake and it may be willing to strike a deal at a higher price to put this issue behind it.

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