Broker Dealer Regulatory Digest - April 2024

By Davis Wright Tremaine LLP - The following newsletter provides a roundup summarizing enforcement actions, guidance, rulemakings, and other public statements taken by a federal and/or state financial services regulatory agency, specifically focusing on: (1) the source of the development (regulator, legislative body, etc.), (2) the subject matter (consumer lending, money transmission, capital markets, etc.), and (3) the general issue covered. Read Full Article…

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1. CFTC Enforcement Actions: The CFTC took decisive action against a financial services firm for failing to uphold supervision obligations, resulting in inadequate surveillance against spoofing. Despite substantial cooperation and corrective measures, the firm faced a $500,000 civil penalty, signaling the seriousness of regulatory oversight in maintaining market integrity.

2. SEC's Insider Trading Crackdown: The SEC pursued cases of insider trading with vigor, targeting individuals who unlawfully obtained and traded on material nonpublic information. From exploiting access to corporate data during remote work to engaging in "shadow trading" ahead of acquisitions, these cases underscore the SEC's commitment to upholding fair and transparent markets, deterring illicit practices that undermine investor confidence.

3. PCAOB's Record Fine: KPMG Netherlands faced a historic $25 million fine, highlighting the importance of quality control standards in public accounting. The enforcement action, stemming from widespread answer sharing among employees, underscores the significance of robust internal oversight and the consequences of failing to address potential misconduct promptly.

Why ‘nontraditional’ benefits are on the rise and how HR can make them work

By Ryan Golden - With engagement on the downswing even as the end of 2024’s first half nears, nontraditional employee benefits emerged as an area of opportunity for employers, HR Dive’s 2024 Identity of HR survey found. Read Full Article…

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1. Remote and Hybrid Work Programs Dominate Talent Strategies: Over half of HR professionals surveyed last year incorporated remote and hybrid work programs into their talent strategies, reflecting a growing trend towards flexible work arrangements. With 54% of full-time U.S. remote-capable jobs being hybrid in February 2024, it underscores a shift towards normalization of remote work for jobs amenable to it.

2. Focus on Employee Well-being Spurs Nontraditional Benefits: Employers are increasingly addressing employee well-being concerns by expanding beyond traditional benefits like health insurance and retirement plans. Mental health support, educational attainment assistance, and commuting alternatives are among the nontraditional benefits gaining traction, indicating a broader recognition of the link between employee well-being and organizational success.

3. Customized Benefits and Effective Communication Are Key: To ensure benefits meet employees' diverse needs and are utilized effectively, HR departments are adopting a customer-centric approach. Tailoring benefits based on demographic segments and constant communication with employees help in understanding their evolving needs. Additionally, involving managers as advocates for benefits and streamlining programs based on employee feedback contribute to creating a supportive and valued workplace culture.

Kaiser Permanente Is Deploying Innovaccer’s Value-Based Care AI Across Washington

By Katie Adams - Kaiser Permanente announced a significant AI partnership this week aimed at enhancing value-based care. The West Coast-based health system is deploying Innovaccer’s healthcare AI platform and population health management tools — starting with its Washington market and potentially expanding to new markets in the future. Read Full Article…

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1. Innovaccer's Advanced Healthcare Solutions Deployment: Innovaccer, a healthcare technology company specializing in data-driven solutions, is deploying advanced AI and population health platforms in Kaiser Permanente's Washington market. These platforms consolidate patient data from various sources, including electronic health records (EHR) and insurance claims, providing a comprehensive view of each patient's health.

2. Holistic Approach to Patient Care: By leveraging AI algorithms, Innovaccer's platforms identify potential health risks, predict future medical costs, and measure the quality of care delivered. This proactive approach enables healthcare providers to intervene early, mitigate risks, and address gaps in care promptly, ultimately improving health outcomes for patients.

3. Unified Data Infrastructure for Enhanced Healthcare Delivery: Innovaccer's technology offers Kaiser Permanente a unified data layer that integrates seamlessly with existing infrastructure, avoiding the need for costly replacements or modifications. This standardized approach to healthcare delivery facilitates consistency in care across various locations, streamlining processes, improving coordination among healthcare professionals, and enabling more informed decision-making.

Novo’s GLP-1 sales boost profits, yet full potential still curbed by supply squeeze

By Ayisha Sharma and Anna Brown - Novo Nordisk is still hitting a glass ceiling in revenues due to GLP-1 supply constraints even as sales keep rising. The price of Wegovy dropped in the first quarter, a trend that the company expects to continue due to competition as well as its so-called “volume-based strategy.” Read Full Article…

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1. Impressive Financial Performance: Novo, the drugmaker, experienced a significant surge in sales during the first quarter of 2024, with a 24% increase in revenue compared to the same period last year, reaching 65.3 billion Danish kroner ($9.4 billion). This growth was largely driven by a 43% rise in Ozempic sales, reaching 27.8 billion Danish kroner ($3.9 billion), and a more-than-doubling of Wegovy sales for obesity, reaching 9.4 billion Danish kroner ($1.4 billion). As a result, Novo has raised both its revenue and profit forecasts, reflecting strong market demand for its products.

2. Supply Challenges Amidst High Demand: Despite robust sales growth, Novo faces persistent supply shortages for its GLP-1 drugs, particularly impacting the sales growth of Ozempic. These shortages have been acknowledged across key markets including the US and China. The company attributes these constraints to continued high demand and is implementing strategies such as 'controlled launches' and a gradual increase in supply throughout 2024 to address the issue.

3. Investments in Manufacturing Capacity and Commercial Strategies: Novo is actively investing in manufacturing capacity, with plans to invest 45 billion Danish kroner ($6.5 billion) to ramp up production in existing sites and support facility acquisitions. Additionally, the company is adapting its commercial strategies, anticipating further price decreases for Wegovy in the US market while focusing on volume growth. Novo is also leveraging recent FDA approvals, such as Wegovy's label expansion for cardiovascular risk reduction, to enhance market penetration and educate healthcare providers about the benefits of its products.

Supportive benefits for women

By Chrissy Jurik - In the wake of Women's History Month, it is an excellent time to think about how benefits advisors and employers can better support female employees. After all, the rapid rise in women working outside the home was a significant development in labor market history during the second half of the 20th century. Read Full Article…

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1. Caregiving Support: Women disproportionately shoulder caregiving responsibilities, leading to emotional, physical, and financial strain. With 79% of employees lacking caregiver support benefits, there's a critical need for solutions. Dependent Care Flexible Spending Accounts (DCFSAs) and Lifestyle Spending Accounts (LSAs) offer relief by making caregiving assistance more affordable and providing resources for overall wellbeing, including mental health support and financial planning.

2. Healthcare Cost Disparity: Women incur significantly higher healthcare costs than men, averaging $15.4 billion annually, primarily due to deductibles, coinsurance, and out-of-pocket expenses. Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) offer tax-saving opportunities, potentially bridging the gap in healthcare spending. LSAs further contribute by covering expenses promoting good health habits, such as nutrition and fitness programs.

3. Retirement Savings Gender Gap: Women face a 30% shortfall in retirement savings compared to men, largely due to wage gaps and career breaks for caregiving. Employer-matched 401(k) contributions and HSAs present vital avenues for bolstering retirement savings. Notably, HSAs offer unique benefits, such as tax-free withdrawals for medical expenses, providing a crucial advantage in long-term financial planning for women employees.

CVS slashes 2024 outlook — again — as Medicare seniors drive spending

By Rebecca Pifer - CVS brought in revenue of $88.4 billion in the quarter, up 4% year over year but significantly below analysts’ expectations. Net income was slashed by almost half compared to the prior-year quarter, to $1.1 billion. Read Full Article…

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1. Unexpected Utilization Pressures: CVS experienced a significantly worse first quarter than anticipated, primarily due to underestimating seniors' high utilization of medical care, particularly in inpatient facilities. This trend was exacerbated by the return to pre-pandemic levels of inpatient admissions, which notably exceeded expectations, leading to a soaring medical loss ratio of 90.4%.

2. Impact on Financial Projections: As a result of the higher-than-expected medical costs and lower quality ratings in Medicare Advantage (MA), CVS slashed its earnings expectations for 2024 for the second time in the calendar year. The company expects to notch a medical loss ratio of 89.8% in 2024, up 2.1 percentage points from previous guidance, due to continued medical utilization pressures.

3. Strategies for Mitigating Losses: To address the financial setbacks, CVS plans to focus on improving profits at the potential expense of members. This includes hiking premiums and potentially exiting counties where profitability cannot be improved in the near term. Despite these efforts, the insurer faces further challenges from recently finalized MA payment rates for 2025, which it deems insufficient and a significant disruption to the program.

UnitedHealth CEO Slammed at Senate Hearing on Change Healthcare Cyberattack

By Shannon Firth - Senators from both sides of the aisle tore into UnitedHealth Group (UHG) CEO Andrew Witty, blaming him and the healthcare behemoth for not preventing the cyberattack on Change Healthcare, a UHG subsidiary, and for failing to minimize the fallout for patients and providers, during a Senate Finance Committee hearing on Wednesday. Read Full Article…

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1. Corporate Responsibility and Cybersecurity: Committee Chair Ron Wyden emphasizes that as one of the largest companies in the U.S., UnitedHealth Group (UHG) bears a significant responsibility to safeguard its systems against cyber threats. The cyberattack on subsidiary Change Healthcare, responsible for handling sensitive patient data, underscores the urgent need for robust cybersecurity measures within large corporations like UHG, especially considering the critical nature of the healthcare industry.

2. Impact on Healthcare Infrastructure: The attack on Change Healthcare had widespread ramifications, disrupting the flow of medical data and causing financial chaos for healthcare providers nationwide. Physicians faced delayed payments and patients encountered challenges accessing necessary prescriptions and services. The incident not only highlighted vulnerabilities in UHG's infrastructure but also exposed systemic weaknesses within the broader healthcare system.

3. Accountability and Future Preparedness: UHG CEO's response to the breach focused on addressing immediate concerns and implementing security enhancements, including multi-factor authentication. However, skepticism from senators suggests a need for greater transparency and accountability. There are calls for stronger regulatory measures to enforce cybersecurity standards across the healthcare sector, ensuring better protection of patients' sensitive information and preventing future breaches.

FDA defends lab test rule, as critics fear industry upheaval

By Susan Kelly - Federal officials said a new rule expanding regulatory oversight of laboratory-developed tests will protect patients from inaccurate results while maintaining access to important diagnostics. Read Full Article…

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1. FDA's New Rule on Laboratory-Developed Tests (LDTs): The FDA released a final rule bringing LDTs under the same regulatory framework as medical devices, stirring controversy among industry experts.

2. Concerns Over Test Availability and Regulatory Burden: Some experts argue that the new requirements might restrict test availability, while others predict potential legal challenges against the rule.

3. Industry Response and Implications: Industry analysts express relief over exclusions for certain tests, but concerns persist regarding increased administrative burdens, costs, and potential limitations on innovation in the laboratory industry.

Retailers retreat from health care delivery

By Tina Reed - Walmart's decision to shutter its health clinics and virtual care services marks the most significant retrenchment yet from major retailers who sought to transform how health care is delivered. Read Full Article…

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1. Retail Giants Struggle in Healthcare: Despite their massive scale and resources, major retailers like Walmart, Walgreens, and CVS are facing significant challenges in the healthcare delivery business. Walmart's decision to close down in-store clinics and retreat from telehealth services highlights the difficulty these companies face in establishing a sustainable model in the healthcare sector.

2. Complexity of Healthcare Delivery: Ateev Mehrotra of Harvard Medical School emphasizes that success in retail doesn't guarantee success in healthcare. The intricacies of the healthcare industry, including rising costs, flat payment from insurers, and the shift towards value-based payment arrangements, present formidable obstacles for retailers seeking to enter this space. Farzad Mostashari of Aledade notes that despite efforts to improve efficiency, healthcare remains uniquely challenging and resistant to typical business strategies.

3. Telehealth Contraction: The struggles extend beyond retail clinics to telehealth services, with Optum reportedly shutting down its virtual care arm and companies like Teladoc and Amwell experiencing setbacks. This contraction mirrors the challenges faced by retail healthcare initiatives and suggests a broader trend of difficulty in disrupting the healthcare industry. The failure of corporate ventures like Haven, involving JP Morgan, Amazon, and Berkshire Hathaway, underscores the complexity and unique nature of healthcare, which even retail giants find difficult to navigate successfully.

FTC targets ‘junk patents’ on Ozempic, other top drugs

By Kristin Jensen - The Orange Book is a critical tool for drugmakers because they can sue a generic developer who applies for approval of a product with a listed patent, blocking the entry of a copycat medicine for 30 months. By adding a series of patents for minor modifications or new uses, pharmaceutical companies can also craft “patent thickets” that stave off generic competition for years. Read Full Article…

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1. FTC Targets Pharmaceutical Patents: The Federal Trade Commission (FTC) has taken action against over 300 patents filed with the Food and Drug Administration (FDA) to safeguard market exclusivity for top-selling drugs. These patents encompass 20 brand-name products, including medications from Novo Nordisk such as Ozempic, Saxenda, and Victoza, as well as those from other pharmaceutical giants like AstraZeneca, GSK, and Novartis.

2. Focus on Orange Book: Regulators are honing in on the FDA's Orange Book, which compiles approved drugs alongside patent listings. The FTC alleges that patents filed by pharmaceutical companies are either improper or inaccurate, potentially hindering the entry of cheaper generic alternatives to costly medications. This move aims to prevent the manipulation of patent listings that could impede competition and inflate drug prices.

3. FTC’s Aggressive Approach: Under the leadership of Commissioner Lina Khan, the FTC has escalated its efforts against the pharmaceutical industry. In addition to challenging patent filings, the agency has scrutinized mergers and acquisitions, leading to notable actions such as Amgen's acquisition of Horizon Therapeutics and Pfizer's buyout of Seagen. The FTC's actions underscore its commitment to ensuring Americans have access to innovative and affordable medicines by combatting tactics that stifle competition and drive up prices.

UnitedHealth CEO reveals cyberattack origins ahead of Change Healthcare hearings

By Ngai Yeung - UnitedHealth Group’s CEO Andrew Witty is set to testify before lawmakers on Wednesday to explain how the company handled cyberattacks on its massive technology platform, Change Healthcare. Read Full Article…

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1. Lack of Multi-Factor Authentication: Cybercriminals capitalized on compromised login credentials to breach a portal devoid of multi-factor authentication on February 12th. This security vulnerability provided them initial access to the system.

2. Data Extraction and Ransomware Deployment: Following unauthorized access, the cybercriminal group, identified as ALPHV or BlackCat, navigated within the system to extract sensitive data. Nine days later, on February 21st, they deployed ransomware, encrypting Change systems and rendering them inaccessible to UnitedHealth.

3. Response and Financial Implications: UnitedHealth responded by enlisting the FBI and collaborating with tech industry giants like Google, Microsoft, Cisco, and Amazon to address the attack. The CEO, Witty, took the difficult decision to pay the ransom, emphasizing its significant financial impact, with over $6.5 billion already paid in accelerated payments to providers. Moving forward, UnitedHealth advocates for collaborative efforts between the government and private sector to establish mandatory minimum security standards across the industry, including support for vulnerable institutions like rural hospitals. However, Witty refrained from commenting on the company's ongoing antitrust investigation by the Department of Justice.