Friday's news that the nation added over a quarter-million private-sector jobs in January [opens pdf] was good news indeed for health plans, workers comp insurers, service companies. But January wasn't the only bright spot; the report indicated a lot more jobs were added last quarter than previously thought, and the unemployment rate fell by two-tenths of a point.

Since August, the unemployment rate has fallen steadily from 9.1 percent to 8.3 percent, a significant - and encouraging - improvement.

Here are a few key indicators.

- employment in architecture and engineering grew by 7000 jobs, a likely harbinger of future growth in construction and manufacturing.

- construction employment increased by 21,000 after a jump of 31,000 in December

- manufacturing jumped by a whopping 50,000 jobs, much of it in durable goods such as automobiles

- November and December employment was higher than previously reported by 60,000 jobs

So, what are the implications for health plans and work comp payers and service providers?

More workers = more health plan members. We likely won't see much growth for another couple of months, as many employers have extended their waiting periods for eligibility. However, the steady growth in jobs at small and large employers means organic premium growth with almost no added cost-of-sale.

Occupational injury rates akafrequency will trend up for some months as new employees tend to get injured more often than their more experienced, thoroughly-trained, and knowledgeable co-workers. This means more claims for work comp insurers, and more work for the industries servicing work comp - think physical therapy, imaging, bill review and repricing, networks. Pharmacy will also tick up, but the PBMs are somewhat isolated from frequency trends by long time claimants high utilization.

Most encouraging is the overall increase in employment over the last 22 months.

Posted by Joe Paduda at 8:06 AM | Link to this post | Comments (0)

We now know one of - if not the - major reasons health care cost trends have moderated - people aren't getting care.

- Physician visits were down 8% year over year

- 77% of people delayed visits to the dentist due to cost

- a quarter didn't get prescriptions filled due to cost.

All this didn't happen last year, but the trends seem pretty clear.

As we noted last month, this has been good great news for health insurers, who've seen profits soar as medical costs for 2010 came in lower than projections, and that trend continued into this year. That said, at least one - UnitedHealth, is forecasting a return to somewhat higher utilization in the current quarter.

I'm not sure that's going to happen.

Other than an obvious driver of utilization - fewer people with insurance means more people putting off care of all types - there's one other factor that is almost certainly contributing to the drop off in demand for services - high deductible accounts. More accurately, accounts that don't have any funds in them.

According to a report released in January by the Employee Benefit Research Institute, at the end of last year the average balance in HSA accounts dropped to $1355. With the number of accounts increasing about 14% from 2009 to 5.7 million, it's not surprising that the average balance would drop as new accounts would probably have lower balances than older accounts.

But remember that these accounts are meant to fund care up to the deductible, which can range from a thousand dollars to well over five thousand dollars. If there isn't enough money in the account to cover the deductible, people may be putting off care to save their dollars for when they really need them.

Posted by Joe Paduda at 7:39 AM | Link to this post | Comments (3)

It was all over the news yesterday and this morning- health insurance premiums are going up at near-double-digits. Front page in the NYTimes, and a top story in hundreds of other media outlets.

Premiums were up nine percent, yet health care costs (for commercial insurers) had increased less than two percent in 2010.

What gives?

The bad news was triggered by another in the never-ending series of great research from the Kaiser Family Foundation on all things health care related. This latest report contains much in the way of valuable information, but we're going to focus on the biggie - insurance premiums increased 9 percent this year, and now top $15,000.

Premiums increased 113% over ten years; if this rate persists, and there's no reason to think it won't, we're looking at family premiums above thirty thousand dollars in less than a decade.

But just a couple days ago, Mark Farrah and Associates reported commercial health plans' medical trend rates were at a historical low.

So, how can premiums go up nine percent while underlying costs only increased two percent? How does that work? Premiums go up more than four times as fast as the cost of goods sold?

According to the piece in the NYTimes,

"Aetna and United Health/Oxford said their requested rate increases in New York largely reflected actual hospital, physician and pharmacy costs. "Our rate requests are simply keeping pace," said Maria Gordon Shydlo, a spokeswoman for United Health Group/Oxford."

Yet MFA's research indicates that those costs didn't increase anywhere near nine percent in 2010. Health plans are saying that costs will increase faster this year for myriad reasons, and therefore they have to stay in front of those increases. That may be true, and it also may well be true that health plans are looking to sock away as much cash as possible for the investments they're making to prepare for the post-reform world.

But that's beside the point. Which is, could your business operate this way?

Posted by Joe Paduda at 1:29 PM | Link to this post | Comments (2)

As the economy started to recover and health reform measures began to be implemented in Q1 2011, health plans benefited with increased enrollment. According to industry analysts Mark Farrah Associates, "The Commercial sector saw a net gain of 1.6 million members between December 2010 and March 2011. In comparison, the Commercial sector gained approximately 388,000 between December 2009 and March 2010." The increase contributed to an overall membership gain of 1.1% for the top seven health plans/insurers.

Across all seven health plans, which account for 41% of membership in the country, the news was generally positive especially on the profit side. Profits were up almost across the board, with United HealthGroup enjoying a 7.95% margin and Kaiser, Wellpoint, and Aetna all seeing net profits in excess of six percent. The good news continued in the second quarter; Kaiser saw a sixty-plus percent jump in profits in Q2; Cigna and Humana each had profit increases of more than thirty percent.

The PPACA's requirement that health plans provide coverage for dependents up to age 26 added about 280,000 members for Wellpoint and less than 100k for Aetna over the year ended Marh 2011.

Medicare and Medicaid enrollment also saw gains; Medicaid's increase was a bit more than commercial's at 2.3%. In contrast, Medicaid grew by 13.6% during the recession, which economists consider ran from December 2007 to December 2009.

What does this all mean?

PPACA has already contributed to increased revenues for health plans. Margins are solid across the board and look to be growing.

Membership is also on the upswing, driven partially by governmental programs but primarily by substantial increases on the commercial side.

Overall, it's a good time to be in the health insurance business. That said, there's a very, very different world coming and health plans will need all the free cash they can accumulate to prepare for health reform's dramatic changes to their business models.

Posted by Joe Paduda at 12:12 PM | Link to this post

Now that the debt limit deal is done, the hard stuff starts. While there's been a lot of focus on the Pentagon budget and lack of revenue increases, the real heavy lifting will come when the super-committee convenes to figure out how to save the next $1.2 trillion. And their focus will be on Medicare, Medicaid, and provider reimbursement.

Because that's where the 'super-committee' is going to have to find a big chunk of the additional savings required by the deal.

With Medicare and Medicaid accounting for a large and ever-increasing part of the deficit, by necessity the super-committee is going to have to look at provider reimbursement. As Bob Laszewski points out, they don't have time to fundamentally alter reimbursement methodology, can't change the eligibility parameters under the terms of the deal, and they are starting from a deficit projection that assumes the pending 29.5% cut in physician reimbursement is actually going to happen.

The 29.5% alone accounts for about $300 billion, so the super-committee has to find another $1.2 trillion on top of that $300 billion.

Where's it going to come from?

Physician reimbursement under Medicare and Medicaid is going to get hammered.

Hospitals are going to see substantial cuts in reimbursement as well.

Pharma and PBMs participating in Part D are another big target, and one with less political pull in DC.

Insurers heavy in Medicare Advantage have been reporting nice earnings of late; that's not going to escape the notice of deficit-cutters in Washington.

Expect to see means testing for Medicare as well.

What are the chances we see substantial cuts in reimbursement? I'd say about 100%.

Without higher revenues and given the requirements of the debt limit deal, there's no other place to cut the hundreds of billions needed, and do so by Thanksgiving.

What does this mean for you?

Cost-shifting was a problem before this deal. It is about to become THE problem for private payers and workers comp insurers.

Posted by Joe Paduda at 10:55 AM | Link to this post | Comments (2)

Five percent of people account for half of all medical costs.

That's true for group health, Medicare, Medicaid, workers comp - pretty much every line of coverage.

You know that, I know that, we all know that.

But what do we DO about that?

Why do most payers use the same generic approach across all members, geographic regions, provider types, disease conditions, employers, when we all know health care is local, people are very different, surgical cases are quite different from medical ones, and non-specific back pain is NOT the same as a spinal injury.

Not surprisingly, there's a strong correlation between obesity (and related conditions) and high cost claims. And half of the patients in the top five percent had hypertension, one-third had high cholesterol, and more than one-quarter had diabetes.

Here's one idea. Identify patients with hypertension, hyperlipidemia, obesity (use BMI) and/or diabetes, and triage them to a clinical resource (nurse) trained in, and equipped to, address their issues. Whether you're in the workers comp, group, or Medicare/Medicaid world, the impact of these unhealthy folks on your results will be mitigated if you pay attention right up front rather than discovering some months down the road that the 'simple bad back' has become a very expensive, long term, chronic pain case.

Posted by Joe Paduda at 8:01 AM | Link to this post | Comments (1)

Austin Frakt's piece discussing the latest research findings tells us what we've long suspected - high deductible plans don't seem to reduce cost trends.

Frakt highlights an analysis by Katherine Swartz of the Robert Wood Johnson Foundation, an analysis that reads in part:

the CDHP [consumer directed health plan, which uses a very high deductible] was not able to controlmedical expenditures over time and it appears that the enrollees in the CDHP spent more on hospital care than enrollees in the traditional plans...The findings from these three studies are consistent with expectations about deductibles -- once the deductible has been met, there are no longer strong incentives for an enrollee to be concerned about further health care expenditures. [...]

Health plans with high deductibles and uniformly applied co-payments or coinsurance rates are oftenreferred to as "blunt instruments" for reducing unnecessary health care expenditures because evidenceis mounting that people reduce both essential and nonessential care...uniformly applied cost-sharing particularly causes people to reduce their use of prescription drugs, which in turn seems to lead to use of more expensive types of care that are indicative of adverse events and poor health outcomes. [emphasis added]

Those who've been watching the evolution of CDHPs for some time are not surprised. In fact, we knew as long as five years ago that CDHPs = lower drug costs = more hospitalization
. There are several other problems w CDHPs - chief among them the fact that the people who spend the most dollars on health care will not alter their spending habits on iota due to a CDHP.

Here's a discussion from a previous post.

The underpinnings of CDHPs lie in the economic theory of "Moral Hazard." Journalist-author Malcolm Gladwell describes this as the belief that "insurance can change the behavior of the person being insured" and notes that it is popular among many economists and think-tank types and, consequently, has been influential in shaping health care delivery systems. The idea is that if insurance covers the bills, people are more likely to seek care and run up unnecessary costs.

The Moral Hazard theory falls short when confronted by the rather uncomfortable reality of actually having health care services rendered to one's own person. Why would anyone want to subject themselves to surgery or hospitalization if there were an option to avoid it and just go fishing instead?

But on the surface, the concept makes some sense. Most people would be careful about getting an MRI if they knew they had to foot the bill, but perhaps too careful. People will not simply avoid discretionary care; they will avoid necessary care, as several studies indicate. One Rand Corporation study concludes that when individuals are required to pay more for prescription drugs, they don't take them as they should. This leads to nasty physical and financial problems, such as more strokes, which cause lots of pain and cost lots of money to fix when a few blood-pressure pills might have sufficed. As far as drug copays go, increasing consumers' costs actually drives up total medical expenses. It's not a great leap to think individuals with high deductibles will likely wait before scheduling an appointment with their physician to see if a problem just goes away on its own. In a time when the Centers for Disease Control describe diabetes as "a runaway train," is it economically wise to foster measures that discourage preventive care?

The coup de gras for CDHP is its old nemesis, the real world. CDHP's fatal flaw is that the "consumer" part is directed at the wrong people. Half of U.S. health care costs are spent on five percent of the population. A deductible has little impact on the purchasing behavior of these folks; they'll blow through a few thousand bucks in a couple of months

Conversely, over two-thirds of Americans spend less than a thousand dollars a year on health care. The only effect a high deductible will have on these folks is to discourage the use of preventive care.

Consumerism is not all bad - health care shouldn't be "free" for anyone. Requiring people to share in the cost of their care should be a part of any serious reform effort. The fix for CDHP is relatively simple - get rid of high deductibles, which are unaffordable for many and may well discourage preventive care, and replace them with coinsurance per service to ensure patients have some financial skin in the game. Insurance companies should keep an income-indexed out-of pocket-maximum, while covering preventive services and maintenance medications at very low copays to encourage their use.

I"d add that employers really interested in reducing costs over the long term do have another alternative - buy a CDHP plan, and then fund the deductibles. One company has saved their clients significant dollars with this hybrid approach.

Posted by Joe Paduda at 9:35 AM | Link to this post | Comments (2)

Is medicine science, art, some combination of the two, or something else?

That's not an idle question.

If you're trying to get more scientific about how you practice medicine or what services/procedures/drugs/treatments you pay for, you are likely relying on clinical guidelines to help provide a little more perspective, hopefully one based on something other than best guess or generally accepted knowledge or tribal wisdom.

A recent study may well give you pause - the key finding is rather alarming - many guidelines are NOT based on solid research, but on work that is kindly described as rather more superficial.

Published in the Archives of Internal Medicine, the research found "More than half of the current recommendations of the IDSA (Infectious Diseases Society of America) are based on level III evidence [expert opinion] only." [emphasis added] Note that the research focused solely on IDSA guidelines, which cover a relatively small fraction of all the guidelines in use today. Largely as a result of that conclusion, the researchers concluded "Until more data from well-designed controlled clinical trials become available, physicians should remain cautious when using current guidelines as the sole source guiding patient care decisions."

This isn't exactly new news. This from research on guidelines published in The Journal of the American Medical Association over a decade ago "Less than 10% of the guidelines used and described formal methods of combining scientific evidence or expert opinion. Many used informal techniques such as narrative summaries prepared by clinical experts, a type of review shown to be of low mean scientific quality and reproducibility.18​ Indeed, it was difficult to determine if some of the guidelines made any attempt to review evidence, as less than 20% specified how evidence was identified, and more than 25% did not even cite any references."

The risk here is our sound bite-long attention span will lead some to use these studies to discount guidelines in their entirety, ignoring entirely the "Until more data from well-designed controlled clinical trials become available" recommendation.

Truth is there are lots of guidelines based on standards of evidence significantly higher than 'expert opinion'. The pre-eminent organization in this area, and the one with the most rigorous standards, is the Cochrane Collaboration. And while not all will meet the randomized double-blind control methodology that most believe is the gold standard, many will indeed provide an ample and durable foundation on which to base medical decisions, treatment recommendations, and reimbursement.

With that said, there are organizations that trumpet their 'guidelines' as providing the basis for coverage and payment decisions, when a more-than-superficial examination indicates the 'guidelines' are built on mighty shaky ground.

The Agency for Healthcare Research and Quality maintains a database of evidence-based clinical guidelines; the listing is not comprehensive as many organizations choose to not submit their guidelines for business reasons. However, while not meeting the 'gold' standard described above, the standard employed by AHRQ is far superior to that of "expert opinion only"; AHRQ requirements include "Corroborating documentation can be produced and verified that a systematic literature search and review of existing scientific evidence published in peer reviewed journals was performed during the guideline development." (while their science is solid, they really need to get some English majors involved in the whole writing thing...)

What does this mean for you?

If an organization or vendor is touting their medical criteria or guidelines, prepare - and ask - pointed questions about the methodology, development process, quality of the evidence, and staffing of the effort. The good ones will be only too happy to share their work, and the others will either not know why you aren't impressed and/or be exposed.

A thoughtful piece on ranking the evidence used in medical guideline development can be found here. [opens pdf]

Lots more info on guidelines is available here.

Posted by Joe Paduda at 6:55 AM | Link to this post | Comments (11)

Many of the Republicans in the House have committed to cutting discretionary spending this year by $100 billion. That's a pretty big chunk out of the $477 billion total, and because the Federal fiscal year is well under way, this would amount to a thirty plus percent cut in current spending.

(to track how they're doing, bookmark PolitiFact's Pledge-O-Meter)

Leaving aside the obvious...difficulty in cutting almost a third of current non-military, non-entitlement or debt discretionary spending, I'm struck by the rather dramatic change demonstrated by this interest in cutting spending, especially as much of it comes from the same guys and gals who voted for the Medicare Part D program, the drug benefit with no dedicated financing, no offsets and no revenue-generators - the entire cost - which is now around sixteen trillion dollars - simply added to the federal budget deficit.

Heck, the fiscal fighters in the GOP could cut $62 billion this year alone just by canceling Part D - but wait, that would alienate seniors, whose votes are critical, and getting more so.

Among the hawks - now salivating at the chance to show their fiscal responsibility credentials - who voted in favor of an unfunded $16 trillion addition to the deficit are current Speaker Boehner, Barton of Texas, Cantor, Issa, Hoekstra, Hensarling, Nussle, fiscal hawk Ryan, Rohrabacher and LaHood.

We have a problem - a huge, and growing problem. Cutting a hundred billion from current non-military, non-entitlement, non-veterans, non-debt service spending is a great political sound bite. It's also fiscally irresponsible.

If these politicians are really interested in cutting the deficit, they should kill Part D.

Posted by Joe Paduda at 7:19 AM | Link to this post | Comments (1)

Yesterday the NYTimes reported the Justice Department is suing Blue Cross Blue Shield of Michigan for allegedly violating antitrust laws. BCBSMI is accused of requiring hospitals to give BCBSMI 'most favored nation' pricing, thereby increasing the prices paid by other health plans and stifling competition.

According to the Times, the Blues contracts had "clauses stipulating that no insurance companies could obtain better rates from the providers than Blue Cross. Some of these contract provisions, known as "most favored nation" clauses, require hospitals to charge other insurers a specified percentage more than they charge Blue Cross -- in some cases, 30 to 40 percent more, the lawsuit said."

Christine Varney, the head of the antitrust division in the Justice Department, said "Our lawsuit alleges that the intent and effect of Blue Cross Blue Shield of Michigan's contracts is to raise hospital costs for competing health plans..."

The lawsuit also claims that Blue Cross agreed to pay higher prices to certain hospitals to get them to agree to the "most favored nation" clauses.

There are three issues here that deserve your attention.

First, there is no 'free market' in health insurance. Most markets are dominated by a single, or at most two, health plans. This is clearly an effort by the Feds to make a statement, to force big health plans and their co-operating health systems and hospital groups to back off and 'let' smaller insurers into the market. No one, least of all big insurance companies, likes to be sued by the Federal government, and this very public case has undoubtedly started many health plan legal departments scrambling to prepare briefs for their CEOs detailing their potential liability for the same 'offenses'.

As a corollary, smaller health plans cannot compete with the big boys because they don't have the medical dollars required for bargaining purposes. Why would St Tony's Hospital give a big discount to Mom and Pop's Health Plan? The answer is simple - they wouldn't, because they don't have to - Mom and Pop don't have any patient dollars that they would (potentially) move to another hospital, so there's no reason for St Tony to do a deal.

(This basic fact is lost on those politicians and pundits who think that selling health insurance across state lines is a panacea. Health plans' costs are primarily, and overwhelmingly, determined by the medical costs in the areas they operate - and legalizing cross-border sales of insurance will do nothing to reduce premiums or improve access)

The suit is apparently an effort by the Feds to address this reality, and may well be part of a larger strategy to improve competition ahead of implementing health reform.

Second, many health plans and insurers have most favored nation clauses in their contracts - workers comp payers too. This suit may - and most certainly should - encourage those payers to reconsider the purpose of and risk in those clauses.

I hasten to add that the accusations against BCBSMI go beyond simple MFN clauses; according to the Times, "the Justice Department said that Blue Cross required two hospitals in Saginaw, Mich., to charge most other insurers at least 39 percent more than the hospitals charged Blue Cross. Likewise, it said, in the Detroit area, the contract required three hospitals to "charge Blue Cross's significant competitors at least 25 percent more than they charge Blue Cross."

Finally, this highlights the symbiotic payer - provider relationship that is the fabric of our current health system - dominant health plans and dominant health systems working very closely together. If we as a society decide this isn't the health system we want, than we're going to have to get very litigious for a very long time. It has taken a century for the system to evolve to this point, and will take decades for any material change. In some instances this works very, very well - think Geisinger, Mayo, Marshfield.

In others, it may well 'stifle competition' But lets get serious - how effectively could a newcomer, or even a second tier health plan, really compete without the huge dollars necessary for investments in IT; care management; provider contracting, analysis, and relations; marketing and brand development; and distribution?

It couldn't, and it can't.

Like it or not, competing in health insurance, as in many industries, puts a premium on size and scale.

What does this mean for you?

We can already see this, as smaller health plans are being snapped up by bigger competitors, their management all-too-clearly reading the writing on the wall that survival in the post-reform world will require size, and scale, and money far beyond the grasp of most smaller health plans.

Note - A subsidiary of BCBSMI is a consulting client of HSA. While I have no knowledge that in any way pertains to this action, I do know that as an organization BCBSMI is quite sensitive to and cautious about any actions that might be construed to harm competition or interfere in provider practice.

Posted by Joe Paduda at 6:26 AM | Link to this post | Comments (6)

Health reform's complicated - but it can be easily explained. The good folks at the Kaiser Family Foundation have produced a terrific video - that's entertaining to boot - laying out pros and cons, explaining the rationale behind and opposition to reform, and all from a neutral perspective.

Kaiser's reform site also has an interactive timeline, detailing the changes by year, and a detailed, here-it-all-is view here.

If you're interested in how reform affects Medicare, Medicaid, employes, taxes - whatever - the timeline page allows you to sort and select only what you want. Seniors concerned about death panels and reductions in the Medicare program would find a lot of comfort here.

One part of reform I'm really looking forward to - simplified administration. Here's KFF's synopsis:

Simplify health insurance administration by adopting a single set of operating rules for eligibility verification and claims status (rules adopted July 1, 2011; effective January 1, 2013), electronic funds transfers and health care payment and remittance (rules adopted July 1, 2012; effective January 1, 2014), and health claims or equivalent encounter information, enrollment and disenrollment in a health plan, health plan premium payments, and referral certification and authorization (rules adopted July 1, 2014; effective January 1, 2016). Health plans must document compliance with these standards or face a penalty of no more than $1 per covered life. (Effective April 1, 2014).

Good work by the good folks at KFF!

Posted by Joe Paduda at 6:03 AM | Link to this post

Q - When is it legal for someone to examine patient records?

A - when they are a legislator seeking to "defend doctors he believes were wrongly the subjects of misconduct investigations by the [Texas Medical} board, which licenses the state's physicians."

According to an article in the Texas Tribune, that's exactly what happened in Texas. As a state legislator, former state Rep. Bill Zedler, R-Arlington, "had authority to obtain and review private patient and physician records. The Texas Medical Board provides such records -- which also detail patient treatment -- only by special request and solely for official legislative purposes."

Wait. Did I just write that? How does a state law supersede HIPPA, which mandates confidentiality of patient records?

And it turns out Zedler did NOT review the records for legislative purposes, but rather to assist specific physicians, two of whom were - you guessed it - large campaign donors. According to the Texas Tribune, Zedler requested records from the Texas Medical Board for:

"Houston anesthesiologist Vladimir Redko and Dallas thoracic surgeon Dr. William Rea, neither of whom were constituents. According to the board's disciplinary orders, both were ultimately sanctioned for "egregious" treatment violations ranging from performing invasive procedures to injecting natural gas and jet fuel into the patients in order to diagnose chemical sensitivities. Records show that the doctors gave Zedler a combined total of $25,000 in the past half-decade and that some contributions were made just weeks before Zedler requested their case files."

Zedler reviewed the medical records himself; while he's not a physician, or nurse, he was a medical equipment salesman, so "I know what appropriate treatment is and isn't," he says. "I sold equipment, so a lot of times my customers were doctors. I've been inside surgical suites before -- that kind of stuff."

Zedler didn't limit his investigations to the Texas Medical Board. Again, according to the Tribune, "Physician investigators at a separate agency, the Division of Workers' Compensation of the Texas Department of Insurance, recall that Zedler also took great interest in doctors who were under investigation at workers' comp.[emphasis added] Dr. Bill Nemeth, the division's former medical advisor, says Zedler had some success in stopping investigations of the doctors on whose behalf he intervened."

On the basis of his experience selling medical equipment, Zedler took it upon himself to examine what would normally be considered confidential patient records, then contact the state regulatory authorities in an effort to get them to drop investigations of at least two physicians who were significant campaign donors.

And this guy is running for election.

Posted by Joe Paduda at 7:09 AM | Link to this post | Comments (6)

Medical malpractice is one of the cost drivers about which there is much disagreement, some contend it is a major contributor to overall system costs, while others view med mal as a relatively minor factor.

A new study [abstract only] reported in this morning's Health Affairs makes a compelling case for the latter view, and adds valuable insight into what is a politically-charged issue, one rife with misinformation and sloppy math.

The study found "Overall annual medical liability system costs, including defensive medicine, are estimated to be $55.6 billion in 2008 dollars, or 2.4 percent of total health care spending." [emphasis added]

Recall total system costs are in excess of $2.2 trillion. While $55 billion is a lot of money, compared to total system costs of $2.3 trillion, it, well, isn't much.

In fact, costs would be much higher if the real toll of medical malpractice - lousy care, incompetent providers, poorly managed facilities, was adequately accounted for. Solid research indicates the vast majority of medical malpractice problems are never litigated. One study indicated that the cost of 'adverse events approached 5% of total health care costs; over a hundred billion dollars in today's world.

The med mal reform issue has been raised by opponents of health reform, who contend the failure to include med mal reform in the Accountable Care Act was a missed opportunity to significantly reduce costs Of note, the study estimated the most significant cost associated with medical malpractice was defensive medicine, which accounted for $45.6 billion of the total, most of which was spent on hospital services.

In an email conversation, I asked the study's principal author, Michelle M. Mello, PhD, to clarify the study's findings re the impact of med mal on defensive medicine - the theory that physicians change the way they practice to protect themselves against medical malpractice by prescribing more tests and studies.

Here's Dr Mello's response.

"There are two ways to measure defensive medicine. One is to ask physicians, using surveys, how often they order extra tests, procedures, and referrals primarily because of liability pressure. We didn't use this method because it has two major shortcomings: (1) physicians may consciously or unconsciously overreport defensive practices because they want to help build the case for taking action to solve what they perceive as a problem with the liability environment; and (2) they may not be able to separate out different motivations they have for ordering services. In many cases, they may feel that ordering an extra test is a good idea both because it's in the patient's best interest and because it helps them reduce their liability risk.

The other method -- the one we used -- is to compare rates of health services that we think are indicative of defensive medicine in areas of high and low liability risk. If rates are higher in high-liability areas, and we can rule out other explanations for the differences, we can conclude that there is an association between liability and physician practices. The main challenge associated with this method is adequately controlling for other factors that could explain the differences. Researchers have extensively documented that physicians in different geographic areas have different practice styles, and it is believed that this is due to many factors, of which liability concern may be one.

We based our defensive medicine estimates for hospital services on previous analyses by Dan Kessler & Mark McClellan. Having reviewed the literature extensively as it has evolved over the past decade, our firm belief is that the Kessler & McClellan analyses provide the best available figures. Their statistical design enabled the researchers to control for other sources of variation in physician practices.

The main weakness of the Kessler & McClellan analysis, as we discuss in the paper, is that it was based on a narrow range of health services (cardiac care services) provided to a specific type of patient (Medicare beneficiaries). Is it appropriate to generalize from these data to all services provided to all patients? We have some concern about that, and consequently characterize the quality of the evidence supporting our defensive medicine estimate as low. Other kinds of health services may be less subject to physician discretion over treatment intensity than the cardiac services that Kessler & McClellan studied, so it's possible that extrapolating to all services yields an estimate of defensive medicine costs that is too high. Nevertheless, we believe Kessler & McClellan's analysis of the strongest one available."

The paper provides additional background on the methodology used, and the challenges with that methodology. While it isn't perfect, one has to compare it to the methods used by others who contend the tort system is a major driver of health care costs. Those 'methods' are rather less rigorous.

What does this mean for you?

One has to view the cost of medical malpractice in context - and the fact is there's far too much lousy medicine, and far too little accountability.

Posted by Joe Paduda at 7:11 AM | Link to this post | Comments (4)

A new report documents the impact of the recession on the health care system, and for many Americans, the news is proof of what they know all too well - higher deductibles and copays are reducing their ability to access care.

The report [fee req] does not document whether the forgone care would have been necessary/appropriate/supported by evidence-based guidelines, and it is likely some of the forgone care was unnecessary. That said, it's only 'some', and it is highly likely Americans with slimmer benefits, or no benefits at all, are skipping visits, medications, therapies, and operations that will over the long term will have very serious implications.

According to a piece in the NYTimes, the researchers reported "We find strong evidence that the economic crisis -- manifested in job and wealth losses -- has led to reductions in the use of routine medical care." 26.5 percent of respondents reported reducing their use of routine medical care since the start of the global economic crisis in 2007.

The report adds more weight to the increasing evidence that the recession, coupled with the unique American health insurance system, has had a significant impact on Americans' ability to access care.

The importance of primary care in prevention is well documented; [opens pdf] timely use of primary care tends to reduce the need for interventional procedures such as CABG, thereby reducing cost and improving long term quality of life. Delaying or forgoing primary care will likely have the opposite effect, increasing future health care costs.

Impact on workers comp

Over the short term, this 'side effect' of the recession will likely increase work comp costs and extend disability duration, as more injured workers will have poor health status due to forgone care. If diabetics aren't controlling their blood sugar, asthma sufferers have more acute episodes, and hypertensives are taking their meds every other day, it is going to be more difficult, costly, and time-consuming to help these claimants recover functionality.

Over the long term, health reform will reduce work comp costs as many more individuals will have coverage. But until 2015 (or so), we won't see this positive influence.

Posted by Joe Paduda at 7:12 AM | Link to this post | Comments (2)

We're learning a lot from Massachusett's experiment in universal coverage - and some of the lessons are rather enlightening.

Take this one.

According to Bestwire, Lora Pellegrini, president of the Massachusetts Association of Health Plans, said something along the lines of "That's the problem with the new U.S. health care reform law... it offers millions of uninsured Americans access to health insurance but doesn't address underlying medical costs, which are contributing to costly premiums." [not a direct quote]

Wait.

If health plans rely on the government to help control costs, exactly what value do they deliver?

In fairness, Ms Pelligrini noted the market share of some provider groups is a significant factor in insurers' inability to negotiate favorable rates. There's no question negotiating power has shifted back towards providers, and that shift is contributing to higher costs for health plans.

Doesn't seem to be hurting profits, though; the industry is enjoying a stellar 17.4% return on equity after seven publicly traded health plans reported earnings above expectations.

Try as I might to sympathize with insurers, their complaints are besides the point.

Suppliers in any business seek to maximize profits. Smart buyers will figure out how to find more cost-effective suppliers, develop alternative supply chains, or in very tight supply markets even resort to vertical integration, setting up their own suppliers.

I see no reason health plans can't do the same. There's far too much 'old thinking' among health plans; they remain overly concerned with the size of their network directory, believing large provider networks are essential to success.

Clearly, nothing could be further from the case. Some health plans are beginning to experiment with smaller, more exclusive networks, and I have no doubt the lower costs will make them much more attractive than the 'old school' huge networks with high costs due to broad access. No, success will come to those payers who creatively figure out how to work closely with selected providers, establishing partnerships, paying fairly, sharing information, and providing feedback.

Otherwise they're just administrators, and not very efficient ones at that. If health plans are going to rely on the government to control costs, what, precisely, are health plans for?

Posted by Joe Paduda at 6:39 AM | Link to this post | Comments (1)

Getting employees to change unhealthy habits, exercise, eat right, and do all the other little things that make for better health and lower health care costs is fiendishly difficult. As a nation, we've proven that if anything, trying to change behavior is a losing proposition.

But every now and then there's a glimmer of hope, with evidence that some change is possible - and sustainable.

Earlier this week the Orlando Sentinel had a front page article about one company's very successful campaign to help its workers shed some pounds. The company, Total Medical Solutions (HSA consulting client, altho I take no credit for this success), started a team-based weight loss program that has resulted in the disappearance of hundreds of pounds, bonded workers from different parts of the company together around a common goal, and led to some significant business for area clothing stores.

While the benefits for workers are apparent - better health, greater self-esteem, more energy - there are also long term benefits for TMS in the form of (hopefully) lower medical expense for costs associated with obesity. Diseases including hypertension and diabetes are strongly associated with obesity; returning to a healthy weight can dramatically reduce the chance someone will contract these conditions.

There's another benefit - TMS grouped their workers together in teams, teams that crossed department and positional lines. Execs from one department found themselves allied with line workers from another area; accountants with call center staff, operations with marketing (now there's an idea...) - all working together to lose weight.

I've got to believe that this sharing of a common goal will have other benefits, in the form of renewed commitment to corporate objectives, a better ability to work together, and a stronger sense of team.

Kudos to the folks at TMS for finding a creative way to help their staff get healthier.

Posted by Joe Paduda at 11:47 AM | Link to this post

Anne Zieger has written a brief, very compelling piece about how a certain large teaching hospital crossed (at least technically) ethical boundaries by telling a patient she was covered, then that she wasn't, but only after she had a procedure that was billed at $25,000.

I don't know why the insurer didn't cover the procedure, or why the hospital didn't tell her it wasn't covered, just like I'm sure the patient has no idea how she's going to come up with $25k. It could be a breakdown in communication at MassGeneral, or it could be the patient was told and can't remember, or perhaps there's some other explanation.

Regardless, it certainly points out - as if we needed more evidence - exactly how screwed up our financial reimbursement 'system' is.

Yecch.

Posted by Joe Paduda at 3:35 PM | Link to this post | Comments (2)

With the Senate's passage of a bill preventing cuts to Medicare physician reimbursement for another six months, we're only waiting on the House's action to boot the problem further down the road, where it can grow, and fester and frustrate just in time for the New Year.

That said, it isn't all bad news. The good news is the (short term) fix is paid for, it was the product of bipartisan action, and, for docs, it increases reimbursement by a touch above two percent.

With that said, this is so illuminating and so frustrating on so many levels, that it is worth exploring in detail.

First, the House may not pass the bill. Speaker Nancy Pelosi (D CA) has said that she's got big problems with the narrow fix as it doesn't address the House's priorities in other areas including jobs and unemployment extension.

If the House doesn't pass the fix early this week - like before Wednesday - expect physicians to go ballistic. CMS has already told their bill payers to start cutting checks to docs reflecting th 21% cut; each day that passes before those cuts are rescinded will increase the level of anger among physicians, which is already close to an all-time high.

Second, 'fixing' the current Medicare physician reimbursement price-setting process (known as the Sustainable Growth Rate (SGR) for the methodology in place today) will require Congress recognize a quarter-trillion dollar addition to the deficit.

Ouch. Hard to see how any politician will explain that to their constituents at a Town Meeting. Let me see, "Well, Mr X, in order to understand why I voted for a quarter trillion dollar addition to the deficit, let me explain how the SGR contributes to medical price inflation..." Can't wait to see the headlines on FauxNews on that one...

Third, as I noted last month, "there's an inherent problem with the SGR approach - SGR attempts to use price to control cost. The complete failure of the SGR approach to control cost is patently obvious, as utilization continues to grow at rapid rates. This was a problem four years ago, and its done nothing but get worse. Not only does the RBRVS/SGR approach contribute to cost growth, it also 'values' procedures - doing stuff to patients - more than listening to them."

As Gail Wilensky wrote, "The primary problem with the SGR is that while it can control total spending by physicians (assuming it is actually implemented), it does not affect nor is it driven by the volume and intensity of spending of individual physicians. In fact, there is some concern that expenditure targets may actually exacerbate the incentives for individual physicians to increase the volume and intensity of services they provide." [emphasis added]

Fourth, changes to Medicare physician reimbursement will impact group, Medicare Advantage, Medicaid managed care, and workers comp - both directly and indirectly. Many network contracts are based on or reference RBRVS, so changes to RBRVS can result in alterations in network reimbursement. The indirect impact may be more significant, as physicians alter practice and billing patterns to address revenue shortfalls and opportunities. With eventual cuts in reimbursement for surgeries and imaging likely, payers will have to carefully monitor practice patterns if they are to stay on top of potentially problematic trends.

Finally, Congress is indeed in a 'fix'. Caught between the Scylla of budget deficits and Charybdis of an enraged and engaged physician community, it decided to prolong its agony until after the fall elections, in hopes that passage of a more permanent solution will come so early in the 2012 election cycle that other issues will overshadow it by the time the voters hit the booths in November 2012. That, and the Democrats may well be thinking they are going to lose a bunch of seats in both houses this fall, so any post-2010 election solution to SGR/RBRVS will require the Rs to make policy and not just hurl bricks. It's one thing to point out problems, it is entirely another to come up with solutions, especially when any foreseeable solution will anger a powerful constituency.

What does this mean for you?

Watch what happens this week in the House. It will be a lesson in civics, if not civility.

Posted by Joe Paduda at 7:12 AM | Link to this post | Comments (1)

There's been a minor flurry of articles about the Veteran's Administration health care system recently, a flurry that is both welcome and a bit tardy. It would have been helpful indeed if these had come out during the furor over health reform. Better late than never.

Let's tackle cost first. The CBO's most recent report indicates the VA does a much better job controlling cost than the private sector delivery system (used by Medicare). According to the CBO,

"Adjusting for the changing mix of patients (using data on reliance and relative costs by priority group), the Congressional Budget Office (CBO) estimates that VHA's budget authority per enrollee grew by 1.7 percent in real terms from 1999 to 2005 (0.3 percent annually) [emphasis added] .2 Though not the decline in cost per capita that is suggested by the unadjusted figures, that estimate still indicates some degree of cost control when compared with Medicare's real rate of growth of 29.4 percent in cost per capita over that same period (4.4 percent per year)."

In contrast, the private insurance sector [pdf] saw premiums increase over 70% over the same period (I know this isn't exactly apples-to-apples, but no matter how you slice the apple, 70% is still a lot more than 1.7%)

How about patient satisfaction? Again, the VA scores better than the private sector.

"In 2005, VA achieved a satisfaction score of 83 (out of 100) on the ACSI for inpatient care and 80 (out of 100) for outpatient care, compared with averages for private-sector providers of 73 for inpatient care and 75 for outpatient care...For VA, the scores for inpatient and outpatient care were 84 and 83, respectively, while the average scores for the private sector were 79 and 81."

In the press, Maggie Mahar posted on Phillip Longman's new edition of Best Care Anywhere; Why VA Healthcare is Better than Yours; quoting Longman's foreword "Health care quality experts hail it [the VA health care system] for its exceptional safety record, its use of evidence-based medicine, its heath promotion and wellness programs, and its unparalleled adoption of electronic medical records and other information technologies. Finally, and most astoundingly, it is the only health care provider in the United States whose cost per patient has been holding steady in recent years, even as its quality performance is making it the benchmark of the entire health care sector."

Merrill Goozner published an interview with Longman, who noted "In study after study published in peer‐reviewed journals, the VA beats other health care providers on virtually every measure of quality. These include patient safety, adherence to the protocols of evidence medicine, integration of care, cost‐effectiveness, and patient satisfaction. The VA is also on the
leading edge of medical research, due to its close affiliation with the nation's
leading medical schools, where many VA doctors have faculty positions."

Longman's book is a timely update to his 2007 edition, providing new insights into the effectiveness of the VA's VistA IT infrastructure and coverage of adoption by the private sector of VistA.

Another recent article noted the system is responsible for 24 million veterans (treating about 5.5 million last year), has a budget of "$50 billion and operates more than 1,400 care sites, including 950 outpatient clinics, 153 hospitals and 134 nursing homes."

The piece quoted Elizabeth McGlynn, associate director of Rand Health and author of a study of the VA: "You're much better off in the VA than in a lot of the rest of the U.S. health-care system," she said. "You've got a fighting chance there's going to be some organized, thoughtful, evidence-based response to dealing effectively with the health problem that somebody brings to them."

Which brings up this question -

Where would you like to get your health care, and which inflation rate would you prefer?

Posted by Joe Paduda at 7:00 AM | Link to this post | Comments (18)

A quick post to express a heartfelt thanks to all who serve our country.

It is our responsibility as a nation to ensure they are taken care of, and it is gratifying to see the great strides made by the Veteran's Administration's health care system in improving quality and access to care. Sure, they have their problems, but those problems have to be considered in light of the overall strength of the system and the quality of the work performed by the VA's dedicated staff.

Have a great weekend.

Posted by Joe Paduda at 10:26 AM | Link to this post

Bill Sota posted a brief piece about the Veterans Administration's adoption and use of Electronic Health Records, citing: "Good news on the cost savings performance of Vista which is the VA's electronic medical record system:"

Bill is referring to the primary source, an article in Health Affairs:

"The VA spent proportionately more on IT than the private health care sector spent, but it achieved higher levels of IT adoption and quality of care. The potential value of the VA's health IT investments is estimated at $3.09 billion in cumulative benefits net of investment costs." [emphasis added]

Two points.

1. The VA is a very, very large health system that has implemented an EHR program and saved taxpayers over $3 billion dollars - so far. Implementing EHR is difficult, time-consuming, and a lot of work. Yet it can, and has, been done.

2. This is a creditable result, and one that should encourage other integrated health systems to find out what the VA has done and, perhaps, do something similar. After all, if the gubmint can do it, it should be child's play for the vaunted free market...

Unfortunately, it appears as if the private sector isn't as competent in this area as the VA. Within the article itself are a couple telling conclusions. First, the VA spends considerably more (as a percentage of total expenditures) on IT than the private sector does. Yet the VA's ratio of IT capital spending to total spending is considerably less than the private sector's.

The VA spends more on IT, with a big chunk of that invested in implementation and maintenance. And the results show the impact:

"The VA has achieved close to 100 percent adoption of several VistA components since 2004. In contrast, the private health care sector has not reached significant adoption of any of these systems. Adoption in the private health sector of inpatient electronic health records stands at 61 percent; use of inpatient bar-code medication administration is at 22 percent; computerized physician order entry adoption stands at 16 percent; and outpatient electronic medical record adoption is at 12 percent"

Finally, the implementation of the VA's VistA system has delivered significant improvements in the quality of care delivered. Here are just a couple examples (quoted from the articleº:

- For preventive care process measures such as cancer screenings, the VA had higher performance during 2004-2007 relative to the private health care sector

- VA patients with diabetes had better glucose testing compliance and control, more controlled cholesterol, and more timely retinal exams when compared to the Medicare health maintenance organization (HMO) private-sector benchmark.

- The VA averaged about fifteen percentage points higher than the private sector on preventive care for patients with diabetes and seventeen percentage points higher for patients with diabetes who have well-controlled cholesterol

What does this mean for you?

EHR can, and has, delivered significant savings and RoI while increasing quality.

The next time someone bemoans the government's incompetence and complete lack of ability to run anything, tell them about the VA. And tell them to stop parroting Fox talking points; they are a poor substitute for actual thinking.

Posted by Joe Paduda at 8:24 AM | Link to this post | Comments (5)

As one who haas heartily criticized the health reform bill for it's apparent avoidance of any real cost control, I was quite surprised to hear that there are two meaningful - and very significant - cost control mechanisms contained in the new law. Both rely on using proven methodologies to attack administrative and medical costs and both have been widely tested.

I don't doubt they'll work as intended, but I have serious doubts about the willingness of physicians and many patients to accept these provisions.

Buried deep within the 2000+ page health reform bill is a paragraph that called for sealed bids from potential vendors interested in managing the national health exchange component of health reform, bids that would have to exceed certain standards in order to be considered. Those standards, when closely examined, are the operating metrics used by Britain's National Health Service's External Markets Programme.

As no American company or not for profit organization has the necessary experience required by the law, it certainly appears as if this provision was intended to allow, if not require, HHS Sec. Kathleen Sibelius to award the contract for administering the National Insurance Exchange to the NHS.

This isn't as far-fetched as it may sound. The NHS was awarded a similar contract two years ago in India, and is currently managing the health systems in the BVIs, Barbados, the Falkland Islands, and most recently is reportedly close to a deal to revamp Iceland's troubled health system.

Details are scarce; as one might imagine the Administration is loathe to provide any information at a time when refom opponents are in full voice and the media is following reform very closely. Don't expect to hear anyone in Washington speaking on the record about this anytime before July; with Congress out of session and vacations in full swing any uproar will be kept to a minimum.

As if that wasn't enough, sources within HHS have confirmed the long-circulating rumors that Dr. Sir James Watson, former head of Britain's NICE program, will be heading up the federal government's medical guideline development project. Watson is reknowned for his ability to identify the most cost-effective procedures with minimal data, a talent that will serve him well in the grossly-underfunded new department.

Watson will have to be a quick study, as Americans will be justifiably concerned with the prospect of the architect of Britain's medical cost control program in such an influential position.

What does this mean for you?

Less work on the part of physicians or patients as HHS will be determining which procedures are, and are not, 'necessary'.

Posted by Joe Paduda at 6:10 AM | Link to this post | Comments (6)

In preparing for a talk on the ethics of comparative effectiveness I'm to give at the Geisinger Clinic in Danville PA in April, I've been interviewing medical directors from several health plans and workers comp insurers, along with physicians - both practicing and managing, in an effort to get their views on guidelines.

I've been somewhat surprised at what I've learned.

The real problem may not be payers' efforts to deny medical care, but their willingness to 'go along to get along'; to avoid making tough coverage decisions, and when in the slightest doubt, to approve the procedure/drug/treatment/therapy rather than run the risk of upsetting someone.

One would think payers would be keenly interested in supporting and using evidence-based clinical guidelines; costs would be reduced and outcomes improved, benefiting both patients and profits. And one might very well be wrong.

Payers operate in a market where public opinion matters a lot; if the payer has a negative image, it will be harder to convince employers and their employees to sign up for their health plan. It may also be harder to convince physicians and other providers to join and stay in their provider networks. And families may well be reluctant to carry an insurance card from a payer known for their tight controls on medical care.

We all know that restricting unnecessary care is not bad or immoral, but to the general public, it can certainly look like a profit-driven effort to cut costs, regardless of the effect on patients. To be sure, payers' public efforts to terminate patients on the flimsiest of excuses and refuse coverage to anyone who might actually get sick haven't helped their image. But the sense I get from the medical directors and practitioners I've spoken with is they are quite reluctant to deny treatment.

Part of this may be influenced by reality - when claims costs go up, so do premiums, and so does the health plan's top line. There are few industries where built-in inflation results in near-double-growth same-store growth every year; health insurance is certainly one. This 'reality' is closely related to health plans' motivations. Wall Street demands revenue growth, and for those health plans that are for-profit, their primary obligation is to their stockholders.

Allowing questionable treatments drives up revenues which benefits stockholders.

Of course, it isn't anywhere near that simple or straightforward in the real world. Health plans' profits are higher if medical costs are lower - at least over the short term. And most of the health plan execs I know are honestly trying to ensure their members get the care they need, care that they can't afford if they approve any and all treatments no matter how ineffective.

But there is no question payers face an ethical dilemma, one complicated by patient demand, provider relations, market influences, and the obligation to their owners. (I'm not addressing the not for profits in this post)

A lot of Federal (taxpayer) dollars are going to be spent on comparative effectiveness research over the next few years, and if there's a better use of my money I'm not aware of it. It is widely acknowledged that much of what we spend is wasted on unnecessary tests, advertising-driven consumer demand, unproven treatments and procedures that benefit device companies, specialists, and facility owners far more than patients.

It's also equally clear that reining in those costs is going to be incredibly difficult, because much of it occurs in the somewhat grey area between procedures that are clearly useless or harmful, and those that are undeniably appropriate. And that grey area is where hundreds of billions are spent every year.

What does this mean for you?

Perhaps an ethical dilemma.

Posted by Joe Paduda at 7:13 AM | Link to this post | Comments (5)

Over the next few weeks, I'm going to be writing extensively about the death spiral of the American health insurance system, a fate as certain as it is unthinkable.

As enrollment in private insurance plans declines, and the Medicaid population increases, providers will have to increasingly rely on the remaining private pay patients to cover the costs of the uninsured and, in the case of Medicaid, under-reimbursed. I'll begin the discussion with a story that clearly illustrates the problem.

Hartford Hospital's announcement that its primary strategic focus is to achieve a "Solid Foundation" is prima facie evidence of the future of health care - the continuation of the private insurance death spiral.

In its press release, HH says:

"Negotiating with managed care companies is one key element of Solid Foundation. In 2010, Hartford Healthcare has two more major contracts to negotiate, and these contracts have a common thread - historic underpayments from private insurance companies. Hartford Healthcare physicians and hospitals have been paid too little for too long compared to hospitals across the country with similar services and capabilities."

That's not to say they're out there looking to make billions; HH is aiming for margins in the 1% - 2% range.

But in order to make those modest margins, HH is going to have to fill beds - and the data indicate the Hartford area has too many beds, which will result in higher costs without an improvement in quality of care.

Compared to New Haven, CT, [link opens the Dartmouth Atlas for New England as pdf] Hartford has 23% more excess bed capacity and hospital costs that are more than 10% higher per capita.

I don't know if the hospitalization rate in New Haven is appropriate or not; I don't know if the hospitalization rate in Hartford is appropriate or not. I do know that one of the two, or perhaps both, aren't the 'right' rate.

Hartford Hospital is responding to its need to preserve it's organizational existence, and therefore will push hard to raise reimbursement while filing beds, a double hit for private insurers and employers who are being 'taxed' to help offset declining reimbursement from CMS and an increase in the number of Connecticut citizens without health insurance.

An intelligent approach to our nation's coming health care disaster would be to address the supply issue. Reduce the number of beds in Hartford (while I don't know there are too many in Hartford, that's a pretty good guess).

What does this mean for you?

Until intelligence appears in the health care reform debate, you'll see more and more announcements like Hartford Hospital's. While they work to solidify their financial foundation, we'll be watching our nation's health care system crumble.

Posted by Joe Paduda at 7:18 AM | Link to this post | Comments (4)

The use - and misuse - of technology in medicine is not only a major cost driver, it is also a major cause of unnecessary pain and suffering.

Far too many carotid endarterectomies were performed in a misguided effort to reduce

If we are to have any hope of slowing down the rate of increase in medical costs, we have to stop the abuse of unproven and potentially harmful technology.

WorkCompCentral [sub req] has a great piece on a program run by the State of Washington that does just that. The Health Technology Assessment program "assesses various devices, procedures, medical equipment and diagnostic tests, then issues recommendations that public payers must follow[emphasis added]. Those public payers include the Department of Labor & Industries, which runs the state's monopoly workers' compensation program."

According to an article in the New England Journal of Medicine, HTA determines reimbursement on these technologies for programs including:

"Medicaid, the workers' compensation program, the state government employee benefit plan, and the corrections department [which] provide $2.9 billion in benefits annually to approximately 773,000 Washington citizens through direct fee-for-service plans"

Before the wingnuts start spouting about death panels, know that the HTA has been widely accepted by politicians from both parties, it passed with a single 'nay' vote in 2006, supported by both the state Hospital and Medical Associations, and while individual conclusions may draw opposition, the program itself is viewed very positively.

The process is rigorous. According to the NEJM;

"The program's assessments are based on a thorough, systematic review of the evidence related to the effectiveness, safety, and cost-effectiveness of a product or service, with each type of evidence examined separately. After considering the "most valid and reliable" evidence on all three of these dimensions, the health technology clinical committee -- which must be made up of practicing clinicians -- arrives at one of three recommendations: covered without conditions, covered with conditions (such as criteria defining medical necessity), or not covered. The entire process must be transparent."

HTA is important because it shows what can happen when government intervenes intelligently and carefully. So far, HTA has rendered opinions and set policy on:

* Arthroscopic surgery for osteoarthritis of the knee. (Not covered.)
* Discography for uncomplicated degenerative disk disease. (Not covered.)
* Implantable drug-delivery systems for chronic, non-cancer-related pain. (Not covered.)
* Lumbar fusion for uncomplicated degenerative disk disease. (Covered, with conditions.)
* Upright or positional medical resonance imaging. (Not covered.)
* CT colonography. (Not covered.)
* Pediatric bariatric surgery. (Not covered for patients 18 or younger. Covered with conditions for patients between the ages of 19 to 21.)

These actions have reduced costs by over $20 million since its inception three years ago.

What does this mean for you?

Payers should look closely at following Washington's lead.

Posted by Joe Paduda at 6:38 AM | Link to this post | Comments (4)

We now know who will replace Ingenix as the nation's provider of usual, customary and reasonable (UCR) data; we also know when (by the end of 2010). As to the how, that's a bit less certain.

Syracuse University will be the home of a non-profit data house' to be called FAIR Health (Fair and Independent Research Health); Cornell, Upstate Medical Center, SUNY Buffalo, and the University of Rochester will also contribute (got to spread the largesse around). (full disclosure - Syracuse is my alma mater)

The new entity will be funded at least in part by the $100 million NY Attorney General Andrew Cuomo has gotten in settlements from Ingenix' UCR database customers. In addition to Cuomo's successes, Ingenix' parent company, UnitedHealth Group paid $350 million earlier this year to settle a class action suit, and other legal action is continuing which Cuomo expects to add to the $100 million total. The cash will be used to develop the database and set up a mechanism to deliver data to payers and consumers via a website. This last is a great idea - providing health care consumers and providers with access to UCR data should help promote transparency and enable price comparisons by consumers and price competition by providers.

FAIR will be headed up by SU Professor Deborah Freund, an expert in health economics, Distinguished Professor of public administration and economics in SU's Maxwell School and Senior Research Associate at Maxwell's Center for Policy Research. Dr Freund has a wealth of experience on the academic side of health policy and economics and has published on a wide range of topics in those fields.

I'll see if I can stop in for a chat when I'm back up on the Hill in January for another alumni meeting.

The timetable seems...aggressive - there's a lot to do to avoid some of the problems that plagued Ingenix' MDR and PHCS databases; non-existent quality control on source data and inadequate volume of data in some areas are just two of the problems that led to the settlements. While Freund et al at FAIR may want very much to provide comprehensive, clean data that covers all procedures delivered by all providers, they don't control the quality, accuracy, and consistency of the data collected by health insurance companies and other payers. And after the Ingenix debacle, they sure want to be absolutely positively comfortable with their data before they release it to the public.

My guess is the website and initial data will be up and running by the end of next year, but it won't be comprehensive. Even if FAIR is able to come up with standards and a rigorous QA process, it will take more time for payers to develop and implement processes to ensure the data they provide FAIR meets those standards.

And you can bet your last hundred million that no payer is going to send data they aren't absolutely sure is up to snuff.

What does this mean for you?

Good news, as the new UCR provider will help reduce payers' exposure.

Health plans have a new vendor to work with - on the vendor's terms.

Over the longer term, there's another 'outcome' - Health data quality is about to go under the microscope, and the view may be pretty ugly. Healthplans and other payers may well have to upgrade their technology, training, and staffing to meet FAIR's demands

Background

For those who don't follow these things on a daily basis (hard to believe I know), some background. Years ago, the health insurance industry's lobbying and service arm (HIAA) aggregated and compiled physician charge data as a service to its members. HIAA collected the data and fed it back to members, who then used the data to determine how much they should pay providers in specific areas for specific services (services defined by CPT codes). HIAA was taken over/disappeared about a decade ago, and Ingenix took over the aggregation and distribution of the data, which has become known as "UCR" for "Usual, Customary, and Reasonable".

For about ten years, all was fine, at least as far as most insurers were concerned. Sure, physicians complained at times and consumers railed about the low reimbursement paid by companies citing their UCR, but the complaints didn't really make any difference until Cuomo got involved. The problem arose when a few folks in New York complained about the amount they still owed providers after their insurers had paid their portion - according to Ingenix' UCR. After a lengthy investigation, Cuomo found reason to charge UHC and other insurers, and that action ultimately resulted in this settlement.

Posted by Joe Paduda at 7:14 AM | Link to this post | Comments (5)

Depends on who you ask. If you ask group practice administrators about how Medicare compares to the private insurance industry, it is pretty darn good - in several categories, Medicare Part B is rated higher than any other large payer.

That's partly due to the lousy performance of some of the private insurers, but administrators actually rate Medicare's responsiveness, transparency, prompt payment, and overall administrative functions highly.

Yes, you read that correctly.

On a five-point scale, with 5 the highest rating, the much-maligned and oft-decried public plan for the aged has an overall satisfaction rating of 3.6, with Aetna at 3.1 and UnitedHealthcare bringing up the rear at 2.5.

Medicare was considered the most timely responder to inquiries, with Aetna second and UHC at the back of the pack; the same standings hold for accuracy and consistency of the payer's responses to questions, speed of payment (Medicare 4.1, Aetna 3.5, UHC 3.1), disclosure of payment policies, and claims appeal process (Aetna was excluded from the report).

Medicare doesn't appear on the list of questions regarding satisfaction with the contracting process, except in the 'willingness to disclose the fee schedule' category, where it is again rated at the top. This isn't surprising, as CMS is not engaged in '2-way good-faith negotiations' nor do practices have 'leverage during the negotiation process'. I don't know if responders didn't ask about Medicare or if Medicare was ranked at all; I'll let you know when I hear back from the Medical Group Management Association (MGMA), the organization that conducted the study.

As with any study or survey, you can find data to support any perspective.

That said, the ratings of the health plans are generally consistent with those reported by the Verden Group, an independent firm focused on helping providers deal with managed care organizations.

Aetna received top marks for clarity of communications, and was rated the most 'provider friendly network' by respondents to the Verden Survey in 2008.

As the public option becomes possible once more, and opponents lament the inefficiency, lousy service, and incompetence of the faceless bureaucrats that run Medicare, it is helpful to know what the people on the other end of the transaction think.

If you listen to them, on a number of fronts, Medicare's a darn sight better than most of the private insurers they have to deal with

Posted by Joe Paduda at 7:13 AM | Link to this post | Comments (6)

That's what it is going to cost to 'fix' Medicare's physician reimbursement problem. A bill introduced into the Senate, and now scheduled for a vote within days would eliminate the Medicare Sustainable Growth Rate (SGR) program (which determines, or is supposed to determine, what docs get paid by the Feds for procedures) while adding another quarter trillion dollars to the program's deficit.

Really.

The Medicare SGR formula/process was set up six years ago to establish an annual budget for Medicare's physician expenses. Each year, if the total amount spent on physician care by Medicare exceeded a cap, the reimbursement rate per procedure for hte following year would be adjusted downward.

And for the last six years, reimbursement - according to SGR - should have been cut, but each year it was actually raised, albeit marginally. The result is a deficit that is now almost 250 billion dollars, a deficit that we'\re carrying on our books, and, by the way, is not addressed in the Senate Finance Committee's reform bill. In order to pass, the bill, S 1776, will have to get at least 60 Senators to agree to waive a budget point of order because the measure is not offset in the budget - that is, there isn't a cut of a quarter trillion in spending elsewhere in the budget, so the bill, which goes by the feel-good title of Medicare Physician Fairness Act of 2009 (MPFA) will add a quarter-trillion bucks to the deficit.

Physicians are, not surprisingly, all in favor of the bill - even if there are no details on what the 'new reimbursement' methodology or levels will be. Certainly not in the bill itself, which takes less than a minute to read. If you're looking for what replaces SGR, and how Medicare will control costs, don't look in the bill - it isn't there. It looks like the docs think anything is better than the SGR; at least that's what their thinking appears to be today.

But what about the cost? Where are we going to come up with a quarter trillion dollars, while adding another eight hundred billion or so for the big health reform bill? Does the MPFA have some magic bullet, a money tree, a golden goose provision?

Sources on Capitol Hill tell me this isn't just a Democratic measure, but one that will likely garner perhaps a half-dozen Republicans voting 'aye'. Both Harry Reid (D NV) and Minority leader McConnell have agreed the Senate will proceed to vote on S. 1776 next week.

Well, what can you expect from a body that voted in favor of Medicare Part D, and as a result added $8 trillion to the Medicare unfunded liability? This is a measly quarter-trillion, less than 3% of the Part D boondoggle.

Jeezus H Flippin Christmas. This is nuts.

Posted by Joe Paduda at 5:47 AM | Link to this post | Comments (4)

Of the many topics worthy of attention, I've been remiss in not learning more about swine flu, aka the H1N1 virus.

According to the CDC, to date there have been 9000 hospitalizations and over 600 deaths due to H1N1, and more are coming. There's no doubt H1N1 will have a significant impact on employers - and also no doubt many have yet to plan adequately.

Here are a couple things to ponder...

1. If an employee gets sick after exposure at work (think teachers...) is that a work comp claim?

2. If a bunch of workers get sick, should you shut down operations for a while? If so, can employees work from home?

Broadspire, the big TPA, is hosting a webinar on H1N1 le\d by Jake Lazarovic, MD, the company's medical director and in my experience a thoughtful and insightful clinician. The webinar is going to be held today (Monday) at 3 est, Wednesday at 1 est, and Friday at 9 est. Click on the links for more info.

Note - Broadspire is not a client.

Posted by Joe Paduda at 9:35 AM | Link to this post

For at least a couple weeks, many of the 1642 people who subscribe to MCM didn't receive notices when new posts went up. It looks like we've figured out the problem (electronic fingers crossed), so here's what's been on the blog while we were in a technical hiatus.

Yesterday I opined that the recent AHIP/PwC report is more right than wrong; the report misses a lot - and much of what it misses is less than favorable to the report's funders - health insurance companies. But the central point is indeed accurate; without a tough, enforceable universal mandate, you can't force insurers to take all comers without charging more for higher risks or excluding them altogether.

Last week was devoted to the recent report by the state of Texas' Research and Evaluation Group's report on workers comp networks. The initial post generated a good bit of dialogue with the report's authors wherein they clarified a confusing (at least to me and several large payer clients) statement; the follow up post detailed the issue, adn explored another concern; "the report didn't note that three of the networks are provided by one company - Coventry, which also administers a network that is likely underpinning much of the 'non-network' category."

The 'Texas Week' concluded with a post on the larger issue with the report - the fallout in workers comp "C" suites, and the potential damage to managed care.

Two posts the week before covered the AmComp meeting in NYC, with one lamenting the lack of concern about medical costs among work comp execs and another summarizing a talk by industry veteran John Burton.

Before I got all wrapped up in workers comp, i handicapped the health reform odds, saying "If the Baucus bill comes out of committee with unified Democratic support, that tells a lot. And if Snowe signs on, that's even more telling...The Democrats are almost all-in on health reform; at the end it will come down to some Dems deciding if they're better off holding their nose and voting in favor or handing the victory to the GOP."

So far, looks like those Dems are indeed holding their collective nose.

This was preceded by a confession - I'm one of those nerds that actually reads Health Affairs - the latest issue has a great piece on the primacy of price in health care inflation. I don't necessarily agree, but the authors make a compelling case.

It appears that the problem started just before the end of September; readers can always check the main page, sort by category, or type in key words to find specific posts.

Thanks for the forbearance, and here's hoping the gremlins are back in wherever gremlins live..

Posted by Joe Paduda at 7:08 AM | Link to this post

Earlier this week the NYTimes' Robert Pear did a piece that delved into the Dartmouth Atlas of Healthcare, one of my all-time favorite publications. The Atlas, and the research that spawned it, provides a clear and detailed picture of the cottage industry that is American health care; practice patterns vary wildly and widely.

As just one example, the rate of back surgeries for Medicare members is five times higher in Fort Myers than in Miami, while the hip fracture repair rate is essentially identical. And no, it's not because the population is different or sicker, it is because that's just the way medicine is practiced in those two areas.

Well, despite the terrific, well-respected, and well-regarded research behind the Atlas, the NYT got this one wrong, citing some folks who claimed that it is inaccurate, biased, or just plain wrong.

Author Robert Pear is usually one of the best in sorting thru the chaff to find the wheat, but he quoted several individuals without comment, even when the quotes were flat-out wrong. Pear failed to refute critics, even when it would have taken precious little research to do so.

Here are a couple examples:

“There is too much uncertainty about the Dartmouth study to use it as a basis for public policy,” said Senator John Kerry, Democrat of Massachusetts. “Researchers can’t explain why some areas of the country spend more on health care than others. There are many reasons spending could vary: higher costs of living, sicker people or more teaching hospitals.”

Wrong, Senator. Absolutely, flat-out, incontrovertibly wrong.

There is almost no uncertainty about the study and little confusion about why spending is different. It isn't sicker people, and the issue of cost of living and excess hospital costs are discussed in detail - and corrected for - in the Atlas. The Mayo Clinic among other excellent providers delivers great care for a lot less money than hospitals in your state, and there are wide variations in hospital admission patterns between New Haven and Boston - patients are admitted far more often for COPD in Boston than in New Haven. That's just practice pattern variation, for no reason other than 'that's the way we do it' in Boston.

And this.

"Dr. Michael L. Langberg, senior vice president of Cedars-Sinai Medical Center in Los Angeles, is among the critics.

“The statement that Medicare costs can be cut by 30 percent has been repeated so many times that it has come to be viewed as a proven fact by some,” Dr. Langberg said in a recent letter to the Senate Finance Committee. “It is not a fact. It is a gross oversimplification of an untested theory.”

Dr. Langberg endorsed the goal of covering the uninsured, but said, “We do not believe that rushing to make large cuts in Medicare payments to hospitals is the right way to fund that coverage.”

Good to see that automatic kneejerk response is still functioning. There is no question, none, that much of US health care spending is wasted on unproven procedures, hospitalization of patients that could be treated on an outpatient basis, and for devices and drugs with minimal positive impact on health.

Maggie Mahar does a much more in-depth dismantling the disappointing reporting/writing/editing by the Times here.

Posted by Joe Paduda at 11:49 AM | Link to this post | Comments (1)

PPOs, or Preferred Provider Organizations, have been around for a couple dozen years. They are networks of credentialed (with varying degrees of rigor) doctors, hospitals, and ancillary providers that have agreed to provide lower rates for 'members' in return for some measure of exclusivity/promise that patients will be directed to use them. I'd note that this 'promise' is often not fulfilled, at least in the eye of the provider. That's a whole separate issue, one we will likely get to in a future post.

As one good friend puts it, 'PPOs are a box of contracts', and not many PPO firms do much more than recruit, credential, negotiate, and contract.

Their popularity waxes and wanes, roughly in line with the underwriting cycle (as cost trends decrease, PPOs tend to grow, as cost trends increase, buyers seek more controlled networks and medical management systems).

Typically PPOs are owned by a large group health plan or specialty company such as a workers comp managed care firm. Many PPOs were built to market/sell to health plans and workers comp payers - Rockport, Coventry, and Interplan are examples of 'vended PPOs', as opposed to those built for the exclusive use of a healthplan.

The problem

There can be several issues with PPOs; lack of direction by the payer, inaccurate data, failure to maintain credentialing standards and 'stacking' are some of the more prevalent.

But of late another issue has been appearing more and more frequently - providers claiming they are not subject to a PPO contract and therefore should be reimbursed at U&C;, or in the case of workers comp in many states, the state fee schedule.

Digging into the disagreements that arise when payers assert the providers are subject to a contracted discount, it looks like there are a few contributing factors.

First, some providers have contracts with many health plans and networks, and it canbe tough to keep them all straight. And, the PPO may have changed its name, merged with another firm, or been acquired since the original PPO contract was signed.

Those are the easy ones.

A knottier issue is caused by the mechanism of 'provider selection'. When the provider's bill comes into the healthplan/bill repricer, it is 'checked' against a database to determine if it is from a contracted, or participating, provider (known as a 'par' provider). This checking could occur either at the health plan/repricer, or the bills could be electronically sent to the PPO for the PPO to check par status and apply the discount.

What determines 'par' status is often the source of the problem. For example, PPOs want as many 'hits' as possible, so they err on the side of counting a provider as par if at all possible. The more hits, the more money they make (often), and the better they look to the payer. Payers like more hits because then the managed care folks can show the savings they deliver due to the discounts. So the payer side of the equation is motivated to use logic that assigns as many bills as possible to the par bucket.

To do that, payers often use a provider TIN (tax identification number) as the only criterion to determine par status. If a bill is from a provider with a TIN that matches some contract somewhere in the PPO company's database, than the discount is taken. Payers may also use address, provider first name last name, and/or phone, but most try to use as few criteria as possible.

But large provider groups and hospitals and health systems often use the same TIN for many different service areas - outpatient surgery, inpatient, rehab, pharmacy, hospitalists, occupational medicine. And they rarely offer the same discount deal across all service types and locations. Some service types may not even participate due to the internal structure and demands of the health system.

Here's real world example, provided by a consulting client. A bill from an occ med clinic hits a payer, who determines it is a par provider due solely to the TIN match. A 30% discount is taken, and the check cut. But the occ med clinic is not part of the original contract, which specifically states that discount is for inpatient medical services only.

The provider complains to the payer, who contacts the PPO, who eventually pulls the contract, says 'oh, yeah, here's the problem', asks the occ med clinic to resubmit the bill, after which the bill may - or may not - be paid correctly.

Now multiply this by the hundreds, and it is easy to understand why some providers, fed up by the paperchase, are getting downright litigious. This leads to providers suing payers over a few dollars on an office visit - not to get those few dollars, but to force the payer to apply the correct repricing methodology.

If the PPO is the one doing the repricing (as is often the case), there is considerably less incentive to fix the problem. The PPO doesn't have to handle all the calls (although in many cases they are involved at some level), figures many providers will not fight it as it isn't worth it, and even if they do that's a small price to pay for all those fees.

And that's one major reason there's so much litigation in the PPO world these days.

Posted by Joe Paduda at 3:20 PM | Link to this post | Comments (2)

Industry sources informed MCM late today that, in a stunning move, Coventry Healthcare agreed to acquire health plan giant UnitedHealth Group. For several days there had been rumors that UHG would snap up Coventry, the troubled mid-tier health plan, but events of the last few days led to grave concern at UHG that the Ingenix database problems might bring down the parent company. Reportedly the board felt it had 'little choice but to get what we can while we can'.

The deal was done over the last two days, evidently triggered by the appearance of UHG CEO Steve Hemsley before Sen Jay Rockefeller's Senate Committee. Hemsley and Ingenix CEO Mike Slavitt were 'hammered' by Rockefeller and his fellow Senators, who were particularly incensed at the health plan execs inability or unwillingness to "acknowledge consumers’ concerns about whether they were being shortchanged."

The hearing was quite contentious, but there was at least one light moment. At one point, responding to a Senator's pointed questioning about UHG's conflict of interest, Slavitt said ""There is an important difference between an inherent conflict and the actual practice of bias—the latter is something neither I nor my employees nor our parent company would ever tolerate..." Senator Rockefeller reportedly whispered to a colleague "huh? that guy talks like a politician..."

Sources indicate Hemsley called old friend and colleague, current Coventry CEO Allen Wise, to commiserate shortly after he and Slavitt left the Senate hearing room while they were en route to National Airport. "I don't want to be AIG'ed", Hemsley reportedly told Wise; "I can't believe there's all this fuss over a lousy few hundred million bucks...I just want to run my company and be left alone, and now this McCaskill woman says she's going to be on me like white on rice..."

Wise had thought he was close to a deal with his old employer to sell Coventry for a slight premium over the current stock price (around $13). Instead, Hemsley told him he and the UHG board had decided to get out of the health plan business, and were going to sell the company as quickly as possible. A deal came together very quickly, with overall terms agreed to before Hemsley and Slavitt boarded their flight for a return to MInneapolis. (terms were not disclosed)

One of the key motivators for UHG was the concern on the part of UHG's board and Hemsley that they would be back in front of Rockefeller et al repeatedly, and would be 'the poster child for bad health plans'. The Senator had concluded the hearing by telling Hemsley and Slavitt that he was going to order the GAO to determine if and how Ingenix' database had been used to shortchange federal employees who had accessed out of network providers.

Slavitt was reportedly quite shaken by the dressing-down during the hearing, and was 'close to tears' as he exited the chamber. Hemsley was seen to be comforting Slavitt, patting him on the shoulder and murmuring "now, now, it will all be all right" as they walked towards their waiting limo.

When reached for comment, Hemsley refused to confirm or deny the deal, although he did say "I actually had to fly commersh to DC; do you have any idea what a hassle that is?" Hemsley was referring to the Board's command that he not use one of UHG's fleet of corporate jets, and instead fly Northwest to attend the hearing. (On a side note, Hemsley reportedly said "Northwest... isn't DC southeast of here?")

Posted by Joe Paduda at 7:37 PM | Link to this post | Comments (11)

Perhaps the biggest battle brewing in Congress in the health reform war is that of the public option. As I said back in January, "Opponents claim that the Feds would have an unfair advantage due in part to their sheer size; they're just so big that private plans could not compete." Some Republicans and their affiliated think tanks continue to complain private health plans will not be able to compete with a public option as the public plan will just dictate pricing to providers, and they don't have the capital and financial stability requirements forced on private plans.

They're half right. Re the capital requirements, they've got a valid argument. As we know all too well with Medicare and Medicaid, the Feds (and we taxpayers) know we have an ultimate unfunded liability in excess of $22 trillion, but that figure doesn't show up on any formal financial statements.

But when they complain about pricing, that's a red herring - for two reasons.

First, physicians don't have to accept Medicare or Medicaid, and wouldn't have to agree to any 'public option' pricing. In fact many docs don't accept Medicare today. As participants in the free market, they are able to opt out if they feel the compensation is too low - and many do.

The other factor is just as simple - pricing is but one component of the health cost equation. The others are utilization and frequency. 'Utilization' is the number of a specific type of services used by a patient, while 'Frequency' is the percentage/number of patients that use that type of service.

Here's an example. For MRIs, the total cost calculation might be 10 million patients (frequency) X 1.2 MRIs per patient (utilization) X $800 per MRI (price).

Sure, price is a factor - but it is not the most significant factor - not by a long shot. By keeping patients out of the hospital, a private plan would eliminate utilization and prevent price from ever becoming a factor. So, even if a service area was dominated by a public plan, a private plan that did a really good job of keeping members healthy and out of the hospital would deliver lower costs - even if their hospital stays, when they did occur, were more expensive.

Those lower medical costs would enable the private plans to offer lower premiums, which in turn would attract more members, and those members' dollars. The private payers that could deliver better health would also deliver better returns to their investors, while taking share from both the public plan option and other, less successful private plans.

The other reason - markets are already monopsonies

As noted previously, there's another reason the arguments against a public plan don't stand up. Opponents complain that the government's market power would allow it to dominate a market, thereby making it impossible for a private plan to compete.

The reality today is that almost every market is already dominated by a very few health plans, so much so that in most markets, there really is very little market competition amongst health plans.

Here are a few factoids using 2005 data; if anything there has been more market consolidation, so these percentages are even higher today...

- 96% of HMO/PPO markets are deemed highly concentrated

- 99% of HMO markets are highly concentrated

- in 96% of markets, at least one insurer has share higher than 30%

- in almost two-thirds of the markets, at one insurer has share greater than 50%

- in a quarter of the markets, one insurer has share at or above 70%.

What does this mean for you?

If anything, a robust public plan would add competition to many markets, competition that would, if anything, increase consumer and provider choice.

How exactly is that bad?

Posted by Joe Paduda at 11:40 AM | Link to this post | Comments (4)

Rumor is UHG is making a run at mid-tier managed care player Coventry Health. Forbes reported late today that Coventry's share prices ticked up on the 'news'.

I'm not surprised; as I noted several months ago Coventry is likely to be sold or dismembered this year. CEO Allen Wise has deep-rooted connections with UHG. Formerly an EVP at United, Wise was also a senior executive at MetraHealth and facilitated the acquisition of MetraHealth by UHG.

Coventry has been battered by news that it missed its medical loss projections a year ago, beginning a slide that continued with a major miss on Medicare numbers in the fall. Former CEO Allen Wise was brought in to assess the situation, a move that led to the dismissal of CEO Dale Wolf, a re-ordering of priorities, and renewed focus on the core small group HMO business (potentially at the expense of Medicare, Medicaid, Workers Comp, and National Account segments).

The deal wouldn't be good news for providers; according to the Verden Group's survey of physicians UHG is a mediocre performer in terms of policies, procedures, and reimbursement. Hospitals have a much more negative view of the huge plan, as UHG is considered the worst health plan to work with according to a survey by Davies.

If this comes to pass, there will be much more to consider. For now, it's just a rumor.

Posted by Joe Paduda at 11:22 PM | Link to this post

A very good friend sent me this email after reading others' comments about the Brits' NHS. This gentleman has had numerous experiences with the American health care system, none due to lifestyle issues.

Here's his story.

Five hours into an 11-hour flight to London last month I had a heart-related medical "incident" that caused me to faint, hitting my head on a trolley on the way down giving myself a concussion in addition to whatever else was ailing me. Although I (stupidly) refused the wheelchair and ambulance the airline had waiting for me at Heathrow, upon arrival at my hotel I was sent to the emergency room at St. Mary's Hospital in London where I spent the next 24 hours.

I have to say that I received the BEST medical attention I have ever had or witnessed anywhere in the U.S. Upon arrival in the emergency room I was immediately seen by an administrator who did the necessary paperwork with a sense of urgency I've never seen in the U.S. I never even had a moment to take a seat. I was then admitted to the treatment area where for the next 3 hours I received a steady stream of nurses and - not one - but THREE doctors in rapid succession as checks and balances against each other. (At one point the three doctors convened and argued about my diagnosis just like the doctors on television who only have one patient to care about - and actually care.)

In addition to a battery of blood tests, temperature-takings and blood-pressure checks, I had THREE ECGs, TWO X-rays and a CAT-scan before being admitted for an overnight on a heart monitoring machine. After repeated attempts and many delays, they were finally able to get my cardiologist in L.A. on the phone to consult my records and get his opinion. The next day I continued a battery of tests all day long and was told they wanted to keep me for 3-4 days for monitoring and more tests. I refused and demanded to be released as I had to get to the business meetings I was there for - but promised to follow-up with my cardiologist when I returned to L.A. For the next ten days, I received phone calls every couple of days from one of the doctors who had seen me (not a nurse, a real DOCTOR) to make sure everything was alright and that I wasn't experiencing symptoms.

The hospital was the cleanest I've ever seen, was stocked with the latest technology and the most attentive and empathetic staff I've ever seen. Had I been an EU resident, all of this treatment would have been free. As an American, I was allowed to walk out without a bill, but was later mailed a bill for -- get this -- $600. That's right - six hundred dollars! ONE NIGHT in Cedars Sinai Hospital in Los Angeles - without any tests - starts at $15,000. The last time I paid for a CAT-scan it was about $1,800.

I am no stranger to hospitals in the U.S. I've had more than my share of emergencies and have been rushed twice by ambulance with life-threatening conditions only to be kept waiting on a gurney in a hallway for up to five hours. One unforgettable incident was being kept waiting five hours at St. Joseph's Hospital in Santa Monica while my organs were in shut-down mode. The doctor later told me I was hours from death. Another time I was rushed unconscious while tumors had caused blockages of my large and small intestines. They wrongly thought I might have a ruptured appendix. While waiting five hours to be admitted, I was given an enema to try to clear the blockage. Had I had the ruptured appendix they suspected, this would have killed me.

I can only hope that the American health care system will become like the UK's. Even the hospital food was good!

Oh - and by the way - when I got home and saw my cardiologist, he completely ridiculed and belittled the Brits for "over-reacting" and "throwing mud at the wall". He explained that the reason they reacted as they did was because "they didn't know what they were doing". He offered the tests they recommended, but I'd have to wait 6-8 weeks to get on the docket at an outpatient facility and it was going to cost many thousands of dollars and he doubted my insurance would cover it. No thanks! I'm planning on getting the tests when I return to London next month.

Posted by Joe Paduda at 2:06 PM | Link to this post | Comments (8)

The current debate in Washington has more than a few complaining about the expanding role of government in health care. The question should be, can government do a better job than private industry?

Heck yes.

I've never been one to buy into the 'government can't do anything right' meme. Sure, government (which, incidentally, is run by people elected by us) can make mistakes - some pretty big ones at times. But it can also perform very well - NOAA, the CDC, the Coast Guard, Head Start, the NIH, the GI Bill, National Weather Service are a few examples.

But perhaps the best is the Veterans' Administration and the health system run by the VA.

Here are a few factoids...

- compared to commercial managed care plans, the VA provided diabetics with better quality care on seven out of eight metrics by NCQA.

- In 2005, VA hospitals were the highest-rated health system, outperforming other systems including the Mayo Clinic and Johns Hopkins.

- the VA achieves higher scores than private hospitals for patient satisfaction, staffing levels, surgical volume and other significant quality measures

- for six years running, VA hospitals scored higher than private facilities on the University of Michigan's American Customer Satisfaction Index.

And costs haven't increased nearly as fast as they have in the private sector. In the ten years ending in 2005, the number of veterans receiving treatment from the VA more than doubled, from 2.5 million to 5.3 million, but the agency needed 10,000 fewer employees to deliver that care - as a result the cost per patient stayed flat. (costs for care in the private sector jumped 60% over the same period).

The VA did this by closing down unneeded facilities, developing an industry-leading electronic health record system, opening clinics, and dramatically increasing the quality of care, especially for patients with chronic conditions.

Oh, and patients can access their own health records - securely - anytime on the web.

It wasn't always like this; two decades ago the VA's quality was suspect, to say the least. Yet this Federal government organization has been able to turn itself around from a mediocre outfit to one of, if not the, best health systems in the nation.

In his recent piece in the New Yorker, Atul Gawande offhandedly suggests the Feds open up the VA to anyone who wants to buy in.

Sign me up. I'd be only too happy to ditch the Golden Rule (in the running for most misnamed company...) insurance/HSA policy and head down 95 to the VA facility in West Haven, Conn.

Posted by Joe Paduda at 2:57 PM | Link to this post | Comments (4)

The low share prices of health plans make for cheap deals - that's the growing sense among the larger health plans, who see the current dip in values as a buying opportunity.

Among the big boys likely to be looking are Wellpoint, United, and HealthNet. While Cigna and Humana would love to be growing via acquisition, that's not in the cards as they are struggling mightily. In particular, Cigna is in the midst of layoffs, an event that likely precludes any deals over the near term.

Wellpoint is among those looking to do deals. CEO Angela Braly was quoted recently saying "I even feel stronger about that [their ability to acquire health plans] in terms of the execution that we've really displayed over this past year...We really have a much more stable and efficient and effective claims operation, and we can bring that to new partners in an acquisition."

UnitedHealthcare was built on acquisitions; the once-small midwest health plan grew by buying up other health plans in regional markets, later getting big enough to snap up giants including Pacificare. I expect United is already talking with Coventry CEO Allen Wise.

California-based Healthnet is the big health plan least likely to be looking for acquisitions. It has been hit hard by scandal and operational problems, and appears to be working on straightening out internal operations.

Aetna is a bit of a wild card. The most conservative of the big plans, it typically does not look to buy plans, but rather grows organically and through strategic acquisitions of companies with specific expertise in targeted markets. Lately that has meant Medicaid and specialty business. I don't see that changing. That said, there may be some very good deals out there; low stock prices may cause even the staid 'mother Aetna' to open her pocketbook. In the end, the cautious nature of Aetna senior management will likely stop any deal before it goes too far. And who can blame them?; there's a lot of damaged goods out there.

What does this mean for you?

The big will keep getting bigger.

Posted by Joe Paduda at 7:20 AM | Link to this post | Comments (3)

FierceHealthcare reported last week that Aetna paid $20 million to settle charges related to its use of the Ingenix UCR database (their term is MDR). There will likely be announcements from other health plans of their settlement amounts; expect them to be in the Aetna range or less.

This is related but not really to the $350 million settlement for damages related to out of network claims dating from 1994. The settlement, announced last week, will result in UHC paying AMA $300 million to distribute to physicians. However, physicians will have to file claims to receive compensation; one MCM reader noted that in a related case her six-physician practice will receive a whopping $225.

In a related note, I'd remind readers that physician income has been flat to declining over the last several years. Why? Medicare increased fees by 13% from 1997 to 2003, while the underlying inflation was 21%. And, private payers' reimbursement declined from 143% of Medicare's rate in 1997 to 123% in 2003.

I'm thinking we now know at least part of the reason physician income was declining; unfairly low reimbursement from payers using the Ingenix databases.

We already know about health play overpayments - they're called Medicare Advantage.

Posted by Joe Paduda at 4:05 PM | Link to this post

The phone and email has been buzzing today. So has the blog-o-sphere, at least among those bloggers who follow this. Both of us.

Today's follow up announcement by Ingenix' parent UHC revealed the giant health plan will pay $350 million to settle a class action lawsuit directly related to the use of the Ingenix UCR database. This brings the total (to date) cost for legal settlements to $400 million after yesterday's NY settlement. Here's the key language from UHC's statement today.

"UnitedHealth Group (NYSE: UNH) announced today that it has reached an agreement to settle class action litigation related to reimbursement for out-of-network medical services. The agreement resolves class action litigation filed on behalf of the American Medical Association (AMA), health plan members, health care providers and state medical societies.

Under the terms of the proposed nationwide settlement, UnitedHealth Group and its affiliated entities will be released from claims relating to its out-of-network reimbursement policies from March 15, 1994, through the date of final court approval of the settlement. UnitedHealth Group will pay a total of $350 million to fund the settlement for health plan members and out-of-network providers in connection with out-of-network procedures performed since 1994. The agreement contains no admission of wrongdoing."

The real problems with the Ingenix UCR database weren't the subject of much discussion in the settlement documents or the various analyses of the settlement. But underlying the case are some significant problems with the database, how it is put together, and its uses. These issues were highlighted in the Davekos case in Massachusetts, and are discussed in the court record. Among the problems are:

- the accuracy and consistency of the underlying data is questionable. Ingenix cannot assure that the entities (health plans and claims administrators and insurance companies) that supply the data that Ingenix uses to determine what usual customary and reasonable charges are in specific areas are all using the same criteria, are coding consistently and accurately, and are aggregating the data in the same way.

- Ingenix may not always have enough charge data to provide a statistically valid sample for every CPT code. In that case, it appears that Ingenix may aggregate data from similar codes to produce a large enough sample. The potential issue with this work-around is obvious. In some instances, Ingenix actually called medical providers in specific areas where it did not have enough data to ask what they would charge for specific procedures. Thus they were combining telephonic survey data with actual charge data in their UCR databases, a commingling of very different data from very different sources with varying reliability.

- Ingenix itself defines the sociodemographic region boundary lines that are used to determine which charges are relevant for which geographic areas. In the Davekos case, the court appeared to be concerned when Ingenix could not give a defensible rationale for the logic or process they used to determine the boundaries for charge areas.

- Ingenix scrubs the data to extract charges that they decide are outliers for reasons that appear to be subjective. It also appears Ingenix removes high end values but not low end outliers. If this is the case, it would likely skew the charge data towards the lower end.

Those are some of the details behind the Ingenix UCR settlements. As to what will happen next, Bob Laszewski's perspective provides insights as only he can.

What does this mean for you?

If you are using the Ingenix UCR database, you may want to look for other options.

Posted by Joe Paduda at 3:55 PM | Link to this post | Comments (5)

As Bob Laszewski trenchantly notes, covering everyone will not reduce costs in and of itself - at least not on a system-wide basis. Absent major changes in reimbursement and demand management, covering more people will just increase total costs.

That said, universal coverage should significantly decrease costs for private payers and their members, as well as the employers who fund most group coverage. Most significantly, a substantial portion (about eight percent, or over $1000 per family) of health insurance premiums go to cover the cost of uncompensated care. Note that this includes costs for both the uninsured and underfunded care; Medicaid is the most often cited example of inadequate compensation.

Covering everyone would not eliminate the inadequate compensation and resulting cost-shifting, but it certainly would reduce providers' need to recoup lost revenue from treating the uninsured.

Among the beneficiaries of universal coverage, workers comp payers might see the most benefit. Not only is comp a very soft target for cost-shifting, it is also likely claimants without other health insurance receive treatment for their non-occupational conditions in the course of treatment. This is not due to laziness or incompetence or fraud, but rather because the insurer understands that the injured worker cannot return to work unless the injury and any complicating medical conditions are resolved.

What does this mean for you?

The pluses of universal coverage are not often obvious.

Posted by Joe Paduda at 8:29 AM | Link to this post | Comments (3)

Last week a study hit the wires indicating that managed care plans did not have better outcomes for carotid endarterectomies (CEs), a surgical procedure ostensibly intended to reduce the risk of stroke.

Here's the headline from UPI - "No managed care link for stroke-prevention".

A quick read of the headline and abstract leads the reader to the conclusion that managed care is ineffective. But there's much more to it than the headline and brief synopsis. For starters, the data was ten years old. It was from one state (NY), that is not exactly known as a hotbed of managed care. And it lumps all kinds of 'managed care' - from group model HMOs to PPOs under the same category.

And the study's conclusions are muddy. In fact, there had been a good bit of research into the procedure itself (it involves cleaning out the carotid artery (the big one in the neck that bad guys are forever threatening to cut in movies), and the data used indicated "the rate of inappropriate surgery dropped substantially from 32 percent in 1981 prior to the RCTs [randomized controlled trials] to 8.6 percent in 1998/1999 after publication of the clinical trials [by AHRQ]." Clearly, medical practice had changed dramatically over that period, due primarily to publication of data indicating the procedure "reduced the risk of stroke and death compared to medication alone among carefully selected patients and surgeons."; the research also showed many patients did not benefit from the surgery.

It wasn't that simple. In fact, the surgery rate had dropped in the mid-eighties after publication of research indicating the procedure had high complication risks. A decade later, additional research seemed to show that CEs did benefit some patients, and the rate shot up again, only to start a gradual decline.

What happened? Generally accepted medical practice changed. Was the rate different within "managed care' plans? No. But why would it have been?

I worked for large managed care/health plan companies during the late eighties and early nineties, with responsibilities in customer reporting and managed care product development. We all knew there were probably too many carotid endarterectomies performed, but we didn't really know which ones were inappropriate. The indications were rather uncertain, and it did appear the procedure helped some patients. What was not clear was which patients would benefit and which would likely not. The 'choice' we made was to encourage/mandate/require second surgical opinions (at that time the state of the art in managed care) to ensure the patient got at least one other physician's views on the potential risks and benefits. There wasn't much in the way of clinical guidelines that we could use to deny the procedure outright, and the legal risks of a denial were so high that this option was never seriously considered.

Truth be told, the managed care firms I worked for had little 'control' over medical practice. Sure, we had contracts with physicians, but our influence was minimal - we were 'two inches deep and a hundred miles wide'. With little 'market share' in any one physician's office, it was unlikely most of 'our' docs would pay much attention to directives from one of our Medical Directors. We did notice that our rate of surgeries was dropping, but did not have the data to know if this was occurring across the board and thereby due to our efforts (I'm pretty sure we took credit for the decrease...) or was driven by external factors.

Contrast our very loose 'managed care' with the much different model exemplified by group and staff HMOs - Kaiser Permanente, Group Health of Puget Sound, HIP, etc. I don't know what the group/staff model HMO rates were, but I'd bet they were lower than my employers'.

In retrospect, it is obvious that external factors were the reason for the decline in my employer's number and rate of carotid endarterectomies. In retrospect.

What does this mean for you?

There's far too much superficiality in the press, superficiality that can distort public views of managed care and the effectiveness thereof. In this case, the headline, although nominally accurate, is highly misleading.

Posted by Joe Paduda at 6:15 AM | Link to this post

I'm a baseball fan. Weekend mornings I always listen to Ed Randall, one of the more knowledgeable and listen-able baseball analysts; he really knows the game and has a style that is modest yet insightful. For years Mr Randall has been a tireless advocate for prostate cancer screening, and by his efforts he has likely encouraged thousands of men to get tested.

As much as I admire Mr Randall's expertise in baseball and desire to do good, he's really doing a disservice to public health. While his efforts undoubtedly result in an increased early diagnosis of many cancers, they are also increasing costs, scaring many men and their families, and likely harming a portion of men who follow his advice.

In his quest to get as many men tested as possible, Mr Randall is causing as least as much harm as good.

First, a little background about prostate cancer. According to the National Cancer Institute, between 27 percent and 37 percent of men between 55 to 74 years of age have prostate cancer. It is a very slow growing cancer; most men who have it end up dying of something else.

The ugly truth about prostate cancer testing is it doesn't work. The most common test, a blood test known as PSA (Prostate Specific Antigen) is terribly inaccurate. Men who have been tested have no better survival rate than men who have not.

This isn't my opinion, it is the finding of research published in The Archives of Internal Medicine in 2006. The authors found that neither a PSA test, nor a rectal exam reduced the chance of death from prostate cancer.

OK, so what's the problem? Men get tested, no harm no foul? Actually there are lots of problems. First they aren't free - PSA tests range in cost from $70 - $200, dollars that could be saved or spent on more effective medical services. OK, what happens if you decide the heck with the cost, I'm going to get a PSA test. The PSA level can be abnormal even when a man does not have prostate cancer. Seventy percent of positive PSA tests are false positives; the patient does not have prostate cancer. (if you test negative, there's only a one-to-two percent chance you still have prostate cancer.) Of course, those who test positive worry about the result, and think they may well have cancer. I don't know how to place a value on peace of mind, but anyone who has worried about a positive cancer test certainly knows how scary it is. (

When an abnormal P.S.A. level is discovered, most often the next step is a biopsy. Which are often inconclusive. Tissue from a negative screening may have come from parts of the prostate that are free of cancerous cells. If a cancer is found, an operation may not be necessary; remember this cancer grows so slowly most victims die of something else. So, you get an operation, what's the big deal?

The big deal is patients who undergo treatment (radiation and/or surgery) may well end up impotent (38% - 63%) or incontinent (13% to 52%) or have bowel issues (5% to 17%. As a fifty year old man, I don't much like those odds.

This doesn't mean testing is futile or pointless. There are undoubtedly many men who would have never discovered their cancer until it had progressed quite far; the men in this group have to thank people like Mr Randall - on a personal level, he has undoubtedly helped save them. But there's a societal cost for that benefit. Here's one physician's view (from the NYTimes):

“I’m a little worried we may look back on the prostate cancer screening era, after we learn results of clinical trials, and see that we’ve harmed a lot of people without doing them good [emphasis added],” said Dr. David Ransohoff, a professor of medicine and cancer screening researcher at the University of North Carolina at Chapel Hill. “By being so aggressive with so many people, did we do the right thing? I don’t know that it’s going to turn out that way.”

Posted by Joe Paduda at 7:42 AM | Link to this post

Ten years ago, Medicare was expected to go broke by 2008. With the end of the year approaching, here's how folks viewed the then-ten-years-off crisis.

Caution - language may not be appropriate for small children unless they frequently watch South Park.

Posted by Joe Paduda at 12:35 PM | Link to this post | Comments (4)

I've gotten several queries about the future of work comp if/when health reform occurs. The real answer is - no one knows. But I'm happy to take an educated guess.

I very much doubt comp will be directly impacted by or addressed in any health reform bill. It is going to be difficult at best to pass health reform legislation; adding comp is unlikely to increase support but would almost certainly drive work comp stakeholders to lobby against the bill. There's just no upside for including comp in health reform.

Back in the Clinton health reform days, comp was part of health care reform, where it ran into objections (most warranted) from employers, industry types, insurers, and providers. Work comp was addressed in Title X, which "would have required that employees receive all of their health care through the same insurance plan, regardless of whether the injury or illness occurred at home or at work." For lots of reasons, this was a non-starter.

President Elect Obama may well have learned from his future Secretary of State's errors: nowhere do the words 'workers compensation' or similar terms appear in President Elect Obama's website, policy papers on health reform, or in the several speeches he has made on the subject.

Finally comp is not linked to/mentioned in the Baucus plan, Wyden/Bennett Healthy Americans Act, or on Sen. Kennedy's policy pages. These should be viewed as drafts of final bills; if policymakers were actively considering incorporating work comp it is likely we'd have seen it appear in one or more of these bills.

What does this mean for you?

Don't expect to see work comp directly addressed in reform legislation on the Federal level.

But, any reform initiatives will undoubtedly affect workers comp. Here are a couple specifics.

Physician reimbursement
The fall will be highlighted by a debate over Medicare physician compensation. With docs scheduled to see their reimbursement drop by around 20% in 2010, the caterwauling will be heard loud and clear inside the Beltway. Don't look for a major policy change, but rather something to satisfy the physician community and build a little equity for the future. My sense is CMS will increase reimbursement for E&M; codes (cognitive services). Almost all WC fee schedules are based on Medicare, so any change in Medicare directly and immediately impacts comp reimbursement. Watch Capitol Hill carefully; if Congress passes legislation signed by future President Obama affecting Medicare reimbursement, clinic companies may be big winners.

This will also be good news over the long term for comp in general. Good work comp medical care requires physicians to spend time listening to patients, and talking with employers, adjusters, and case managers. Docs don't get paid (at least not adequately) for this time, therefore any increase in reimbursement for office visits will encourage docs to spend time with claimants instead of doing procedures. Well, at least not discourage doctor-patient discourse...

Medical care delivery
If there is a major reform initiative passed, there will likely be fundamental changes in the way health care is delivered, the virtual ‘location’ delivering that care, and the evaluation of care.

And that would dramatically affect workers comp.

Today, health care is delivered episode by episode; diagnosis, care plan, treatment, assessment, and repeat steps 2-4 until the situation is resolved. This episodic model of care will (over time) change to one based on functional outcome management – care focused on returning the patient to functionality, and maintaining that functionality.

This will be in large part driven by the growing influence of chronic care and need to develop a better care model to address chronic care, one that will heavily emphasize patient education and monitoring. It will also require a different ‘location’ of care – the medical home.Dr Kathryn Mueller of the University of Colorado sees the medical home model as a big part of the solution in workers compensation, as the medical home may well be the dominant model for delivery of care throughout the health system in years to come. Studies indicate the home decreases medical errors and improves the quality of care delivered. Notably, the medical home model is NOT a primary-care gatekeeper model – but rather a model wherein the physician is tasked with and responsible for coordinating care and educating the patient.

Drugs
If Congress calls for the Feds to negotiate drug prices, this will affect comp in one of two ways. Either comp payers will be able to piggyback on the Feds' negotiated rates, in which case per-pill prices will come down, or (more likely) comp payers find their per-pill prices increase due to cost shifting.

Posted by Joe Paduda at 8:33 AM | Link to this post | Comments (2)

In what has to rank as the ballsiest move of the year, managed care giant United Healthcare has come up with a 'guaranteed insurability' product for anyone fearing they will lose their health insurance and be unable to obtain coverage in the individual market.

For a fee of a mere 20% of the actual premium, individuals can buy a guarantee from United that they will be able to buy individual health insurance if they need it in the future.

What a deal.

Who's going to buy this? A really tiny market comprised of very healthy paranoid individuals with more money than brains.

Recall that people working for employers with 20 or more full-time employees who leave can still get the same health care benefits for 18 to 36 months, provided they pay the full cost of the premium plus a small upcharge for administrative fees.

HIPAA requires insurers in the individual market guarantee renewability of coverage in most situations.

So, who's left? Anyone who thinks they will lose their group coverage and their COBRA coverage will expire who also won't be able to get individual coverage and doesn't believe there will be meaningful changes in regulation of medical underwriting and treatment of pre-existing conditions. Perhaps my earlier characterization was inaccurate, and the market is not tiny but infinitesimal.

As applicants will have to qualify up front, UHC will (wherever possible) do their medical underwriting and rating for folks applying for the 'Continuity' product. So, if you are covered under a group program and have a pre-ex (as many do), you're not likely to get that condition covered by UHC (in states that allow that practice).

What a great country.

Posted by Joe Paduda at 10:17 AM | Link to this post | Comments (9)

The PPO world is about to get more complicated, and likely less profitable - for the PPOs.

The National Conference of Insurance Legislators (NCOIL) has developed model legislation tightly regulating PPOs, legislation that looks to be on the docket in at least two states next year, and likely others as well.

According to Bill Kidd in today's WorkCompCentral, the model act "allows unlimited “downstream” rentals of PPO contracts and physician discounts, but requires that network access information be made available to providers.

The model establishes criteria for network and discount access and contract termination; sets out contracting entity rights and responsibilities, requires disclosure to providers and contracting entities of third-party access; provides for registration of unlicensed contracting entities; prohibits and penalizes under a state’s unfair trade practices act unauthorized access to provider network contracts and allows physicians to refuse a network discount without a contractual basis."

The key is the notification requirement. The model act calls for PPOs to periodically inform providers of all the networks and 'access brokers' who can access the network contract. Providers have to be kept informed of changes to the list, and the list has to be emailed, mailed, and/or posted on a secure website.

While the issue of silent PPOs has been on a slow boil for years in many jurisdictions, It has been much more contentious in several states including Louisiana, Texas, California, and Oregon. Provider groups have complained that the managed care contracts they enter into have been sold and resold multiple times without their permission or agreement. That complaint is arguably minor; what is definitely not is providers' belief that the payers accessing the contracts 'downstream' are not doing anything to direct patients, but are simply accessing contracts to get a discount.

This is the core issue - PPOs trade volume for discounts. For far too long, big, yellow-pages PPOs have done little to actually increase a provider's patient volume. Many claim they have contracts with and/or access to hundreds of thousands of providers. If that's the case, and I have no reason to doubt that it is, there is no way the PPO can claim it is actually directing care to a selected group of providers.

If everyone's a member of the PPO, then it isn't a 'Preferred' Provider Organization.

The bill under consideration in Texas provides a window into what other states may see on their legislative agendas.

Posted by Joe Paduda at 5:24 AM | Link to this post | Comments (3)

Friday's New York Times had an excellent piece about the major changes occurring in the type of policies gaining traction in the group health insurance market - consumer-directed health plans with high deductibles. According to the NYT's Milt Freudenheim, more than a hundred large companies, including Nissan and Delta Airlines are now offering one plan - a high deductible one. The corporate types interviewed for the article claimed their employers had changed from other options to the single high-deductible one because

While Nissan and Delta are contributing to the deductible account, they are the exception rather than the rule. Only a quarter of employee HSA accounts actually have any funds in them. If, or more accurately when, the worker or a family member gets care, they will have to pay for that care with post-tax funds from their regular cash flow - if not, it likely goes on the credit card, where it not only is paid with post-tax dollars, but it may well add to the family's debt burden.

Although consumer-directed health plans have struggled to gain traction, it looks like we can expect more and more employers to adopt them - gaining a significant reduction in costs in the first year, with some, albeit unconvincing, evidence of slightly lower costs in subsequent years. I'd note that the evidence is rather thin, and the cost savings may well be due more to adverse selection (healthier folks choose HSA plans when they have a choice, with their less-healthy coworkers sticking with HMO or other richer plans).

While I'd like to believe the benefits folks from Nissan and Delta are doing this to encourage better spending habits and healthy behaviors, the real reason they're dumping their richer plans is cost. Both companies have been and will likely continue to be hammered by the recession, high energy costs, and declining demand. Health care plans cost $13,000 per family - it's no wonder employers are switching to lower cost alternatives.

No, companies changing to consumer-directed health plans are doing it to cut costs. But they may well find their efforts backfire.

The underpinnings of CDHPs lie in the economic theory of “Moral Hazard.” Journalist-author Malcolm Gladwell describes this as the belief that “insurance can change the behavior of the person being insured” and notes that it is popular among many economists and think-tank types and, consequently, has been influential in shaping health care delivery systems. The idea is that if insurance covers the bills, people are more likely to seek care and run up unnecessary costs.

The Moral Hazard theory falls short when confronted by the rather uncomfortable reality of actually having health care services rendered to one’s own person. Why would anyone want to subject themselves to surgery or hospitalization if there were an option to avoid it and just go fishing instead?

But on the surface, the concept makes some sense. Most people would be careful about getting an MRI if they knew they had to foot the bill, but perhaps too careful. People will not simply avoid discretionary care; they will avoid necessary care, as several studies indicate. One Rand Corporation study concludes that when individuals are required to pay more for prescription drugs, they don’t take them as they should. This leads to nasty physical and financial problems, such as more strokes, which cause lots of pain and cost lots of money to fix when a few blood-pressure pills might have sufficed. As far as drug copays go, increasing consumers’ costs actually drives up total medical expenses. It’s not a great leap to think individuals with high deductibles will likely wait before scheduling an appointment with their physician to see if a problem just goes away on its own. In a time when the Centers for Disease Control describe diabetes as "a runaway train," is it economically wise to foster measures that discourage preventive care?

The coup de gras for CDHP is its old nemesis, the real world. CDHP's fatal flaw is that the “consumer” part is directed at the wrong people. Half of U.S. health care costs are spent on five percent of the population. A deductible has little impact on the purchasing behavior of these folks; they’ll blow through a few thousand bucks in a couple of months

Conversely, over two-thirds of Americans spend less than a thousand dollars a year on health care. The only effect a high deductible will have on these folks is to discourage the use of preventive care.

Consumerism is not all bad – health care shouldn't be "free" for anyone. Requiring people to share in the cost of their care should be a part of any serious reform effort. The fix for CDHP is relatively simple – get rid of high deductibles, which are unaffordable for many and may well discourage preventive care, and replace them with coinsurance per service to ensure patients have some financial skin in the game. Insurance companies should keep an income-indexed out-of pocket-maximum, while covering preventive services and maintenance medications at very low copays to encourage their use.

I"d add that employers really interested in reducing costs over the long term do have another alternative - buy a CDHP plan, and then fund the deductibles. One company has saved their clients significant dollars with this hybrid approach.

Posted by Joe Paduda at 6:13 AM | Link to this post | Comments (3)

Health care costs are on their way up - or more precisely, the rate of inflation is going to increase.

Although the medical CPI, currently sitting at 2.8%, looks quite good compared to historical rates in the mid-single digits, there are several reasons for the coming rise in costs, and precious few factors likely to drive them down.

Let's start with the worsening economy and its impact on employment. As people lose jobs, they also lose their insurance coverage (unless they can afford COBRA, which is doubtful for many desperate to hold onto cash). They will still need health care, but won't have insurance to pay for it. As a result, they will either have to rely on the understanding of their current providers, or go to hospital emergency rooms for treatment. Either way, the folks who provide care have to recoup their loss on charity care by charging their paying customers more.

Expect to see more cost shifting as unemployment grows.

The economy will likely cause more employers to cancel their health insurance. While it is too early to see if this is actually occurring, it seems a safe bet that employers faced with declining sales will cut costs wherever they can. With the average family policy premium close to $13,000, terminating a health insurance policy will save any employer big bucks. Again, these newly-uninsured will still require health care, but they won't have insurance to pay for it.

Those who hold onto their jobs, and their health insurance, will likely feel rather uncertain about their future and the stability of their employment. Seeing others lose their jobs and health insurance may well result in higher utilization on the part of the employed, as they get all their elective procedures done, prescriptions filled, and preventive care taken care of while still on their employer's policy.

Finally, consider a situation we can think of as 'retroactive adverse selection'. Seniority often plays a role in the who-gets-laid-off calculation; the older folks who have been there longer are more likely to be retained. As the younger, healthier folks leave the plan, the demographic mix becomes older and (usually) more costly. This drives up per-employee costs, which inevitably leads to higher premiums.

If the economy continues to stagnate, the effect of these cost drivers will grow. And the longer it takes to pull out of recession, the more we'll feel the impact on health care costs.

Posted by Joe Paduda at 7:27 AM | Link to this post | Comments (2)

The public does not like health insurance companies. And neither does Congress.

Health plans are blamed for rising health care costs by far more Americans than point an accusing finger at pharma companies, the government, hospitals or physicians. Fully 41% of respondents say health plans are most responsible for the surge in health care expenses, compared to only 16% who blame big pharma.

And by the way, political party affiliation doesn't really affect the numbers at all.

You can moan and groan, whine and sigh, and decry the ignorance of the average survey respondent, or you can accept this for what it is - a blast of the whistle and glare from the headlight of reality.

The health insurance industry has done a great job of selling the public - on the benefits of a single payer plan.

Between ill-advised (and illegal) cancelations of insurance policies held by individuals who have the gall to actually get sick, a refusal to actually explain benefits in terms normal humans can grasp, and a complete failure to justify the hefty surcharge they receive for providing Medicare Advantage plans, health plans look arrogant and out of touch.

It didn't have to be this way.

If there's one service that should be easily (and positively) branded, it is health insurance. Taking care of sick folks, helping expectant mothers, easing the pain of the elderly, eliminating that awful paperwork and getting America out of the sickbed and back on its feet - how great a message is that?

Instead health plans spend their time, money, and intellectual capital avoiding selling insurance to anyone who needs it, canceling policies for individuals who get sick, tightening the reimbursement screws on physicians (who are the face of health care to the public), and making the whole thing incredibly complex and difficult and a huge pain in the butt.

Hell, look at big oil. British Petroleum has done a pretty nice job positioning itself as the green oil company, with a nice flower-type logo and talk about responsibility and alternative energy, all the while spilling crude in Alaska, operating unsafe tankers, and devoting a tiny fraction of their R&D; budget to 'green energy'.

BP et al have figured out that their public image is critically important to their success. If the public views the company positively, they are less likely to be hauled in front of Congress for hearings and pilloried in the press.

Health plans start out way ahead of big oil - pictures of healthy babies and smiling octogenerians and active families are much more powerful than schools of happy dolphins near an oil rig belching smoke. But by not investing in branding, by consistently doing the wrong thing, by making health insurance and health care byzantine and frustrating beyond measure, the health insurance industry has managed to make big oil look good by comparison.

The next President will very likely be a Democrat. The House will become even more Democratic, and the Senate may see a filibuster-proof majority of Democrats. These men and women have a mandate to fix a lot of what's wrong with this country, and they are not going to be shy about taking a sledgehammer to health plans.

At this point there is little health plans can do to avoid the blows. The time to build a positive image was two years ago, back when they were getting fat off Medicare Advantage subsidies. Now, health plans can count themselves fortunate if they avoid becoming little more than administrators for a single payer system, a fate they rightly deserve.

Posted by Joe Paduda at 7:06 PM | Link to this post | Comments (1)

Bear Stearns, Lehman Brothers, and Merrill Lynch were here one day and gone the next. Their rapid, almost-overnight disappearance from the world wide financial landscape is as stunning as the collapse of the Twin Towers. Solid as concrete and steel, their permanency wasn't even questioned until days before they were forever gone from the skyline.

The next to go may well include Morgan Stanley and Washington Mutual; if the stock prices of other financial institutions continue to drop, more companies may also be putting up 'for sale' signs.

While the Fed's rescue of AIG may well have prevented a global mess of historic proportions, it also sent a very loud, and very clear message that the financial industry is in danger of worldwide collapse. As one South Korean put it, ""The U.S. government's rescue of AIG helped the markets to avoid the worst case scenario, but the fact that only the government was willing to help indicated the gravity of U.S. credit problems."[emphasis added]

Now we learn that rating agencies, all too aware of their failure to accurately assess credit risk in banks, investment houses, and property and casualty insurance, are re-thinking their approach to assessing the financial viability of health insurers. Fitch Ratings will be dumping the traditional debt to capital formula within a month. "Fitch believes operating EBITDA, funds flow from operations (FFO) and subsidiary dividend capacity are the appropriate measures in assessing financial leverage and debt utilization, to augment the debt-to-capital analysis traditionally used for insurance companies."

Clearly the landscape is changing dramatically - mountains may be disappearing here, but they will likely be replaced by new mountains in other parts of the globe. From here, it looks like New York, long the center of the financial universe, may be losing that status to London, or perhaps eventually Dubai. Investors hate uncertainty, and there's all too much of it here in what has become the Wild West of speculative 'investing'.

Posted by Joe Paduda at 7:10 AM | Link to this post | Comments (2)

We're going to stick with the hospital story for just a bit longer. So far posts have discussed the significant profits generated by workers comp payments, the inability of comp networks to manage facility costs, and a cornucopia of other hospital-related issues.

The thesis statement for all could be summed up thusly - Hospitals are gaining power at the expense of commercial payers.

Here's the proof.

The largest hospital/surgery center company in the nation, HCA reported a 21.6% jump in profits in the last quarter. Revenues "increased 3.7 percent to nearly $7 billion despite a decline in surgeries and flat admission numbers. "

Lets parse that statement out.

Profits were up much more than revenues, indicating the company (also known as Hospital Corp of America) has been able to keep expenses under control while delivering higher margin services.

Revenues were up even though surgeries (which tend to be very profitable) were down (albeit slightly at 0.5% for inpatient and 0.7% for outpatient facilities) and admissions were flat. The only way that can happen is by changing the mix of services delivered and improving the payer mix (think private insurance instead of Medicaid).

HCA's success wasn't an anomaly. Unlike the other hospital companies, Universal Health Services (could we please get just a bit creative with the company names here?) enjoyed an increase in profits and revenue. UHS saw its profits increase 35%, driven by a big increase in inpatient admissions (up 8.5%) and smaller, yet significant increase in the length of hospital stays (up 3.1%). This wasn't just a one-quarter event; looking at the first half of the year, revenues were up 8% and net income rose 34%. Note that UHS is one of the smaller for-profit hospital companies with fewer than 31 hospitals.

Revenues and profits were also up at HMA, with top line increasing 3.9% despite a decline in patient volumes. HMA, which operates 58 hospitals, also had a good first half of the year with profits almost doubling on a 4% increase in revenue. Interestingly, surgery counts also declined slightly at HMA over the same quarter in the prior year.

We'll round out the review with a quick look at Tenet - the 58 hospital company saw admissions up almost 2%, driven mostly by 'governmental managed care admissions' which jumped 16%. (I wonder, does that mean the Medicaid and Medicare Advantage programs are seeing higher inpatient admission rates? or is it just a shift from unmanaged Medicare?) Tenet also enjoyed a 7.5% increase in 'same hospital commercial managed care revenues'. (which brings up the rather uncomfortable question - is Tenet a preferred partner with the big managed care companies, or are the big managed care companies seeing a jump in hospital admits?)

Notably, Tenet's revenues were up 6.3% on that 1.9% increase in admits, a rather surprising jump given that the Feds are not exactly a generous payer. And digging deeper into Tenet's earnings report, one learns that commercial insurer admits actually declined 2.2% and patient days dropped 3.1%, while outpatient visits were also down 1.8%. So, revenues were up 7.5% on fewer admits and shorter stays...Cost-shifting, perhaps?

Here are a couple statements from Tenet's earnings report that shed additional light on the situation.

• Outpatient pricing outpaced the growth in inpatient pricing due to an improving mix of procedures performed in our outpatient facilities.
• Pricing improvement was evident across all key metrics, primarily reflecting the improved terms of our commercial managed care contracts [emphasis added]

And this from Forbes "Price increases from better terms in its commercial managed-care contracts also helped boost Tenet's profit and revenue."

Looks like a trend to me - hospital revenues are up slightly, profits are up much more than revenues, and this despite (mostly) flat patient volumes and lower surgical volumes.

The source of all these profits? Commercial managed care companies.

Which brings us back to a question I asked a while ago; "what exactly are 'managed care' companies managing?"

Thanks to FierceHealthcare for the heads up

Posted by Joe Paduda at 7:08 AM | Link to this post | Comments (3)

I think I've figured out why analysts have been unable to accurately forecast health plan financials - they don't know what questions to ask.

That's the only conclusion I can draw after listening to the latest earnings call from Coventry Health. The mid-tier health plan company is still reeling a bit from last month's announcement that it had been surprised by a sharp increase in medical costs, an increase that evidently had caught management by surprise.

Folks, this is a health plan company - one that claims "We deliver exceptional value every day, driving solutions that help people enjoy optimal health."

One might think that a health plan company makes money by managing medical care for hundreds of thousands of Americans. Near as I can tell, Coventry isn't a health plan, it is a transaction processor that makes money by pricing its insurance far enough above medical costs to administer the plans and make a bit of margin.

And from the questions that were asked ,and the ones that weren't, it is pretty obvious Wall Street analysts think Coventry is a transaction processor as well. Out of the twenty or so questions after the management presentation, there was one - yes, one, that got anywhere close to actually inquiring about medical management. That questioner asked what Coventry could do or had done to deliver care to Medicare enrollees through an HMO at lower cost than thru the standard Medicare plan. Coventry Chairman Dale Wolf responded by noting that hospital days per 1000 members among Medicare HMO plans could be in teh 900-1300 range, compared to standard Medicare rates of around 3000 days/1000.

That was it. No follow up question as to how they could do that, what the long term implications were, how that affected pricing, what the techniques were that delivered such a great result and could those techniques be used for commercial members.

The entire conversation was about medical trend and how Coventry was fixing its pricing model to reflect higher trend, and if enrollment was going to decrease as a result. Not the factors causing medical trend and what Coventry was doing about it. Well, to be fair, there was a little dialogue about higher inpatient utilization and unit costs in Medicare, and higher hospital utilization on the commercial side. But if you were interested in Coventry's solution to same, you're out of luck. Not one analyst even asked.

If analysts don't know to ask the company why their costs are going up and what they are going to do about it and how that will play out, what, exactly, are they 'analyzing'?

There's this thing in business called a sustainable competitive advantage - something you do really well, that is hard to do, that others don't do well. This gives you an edge in the market, one that makes you a perennial winner. Coventry doesn't have one, and neither do any of the other health plans. Because all they do is process transactions, adding no value.

Here are some of the questions they should have been asking.

• What key indicators of medical trend do you watch closely?
• Exactly what is your average inpatient days per thousand for each block of business and how does that compare to industry standards?
• How about admissions per thousand?
• what is driving trend? Is it unit cost (price per service), utilization (number of those services received by a member when they do get those services), frequency (percentage of members that get that service) or intensity (higher cost version of a technology or more expensive procedure type than expected)?
• Which types of medical care are the biggest drivers; ancillary, physician services, pharma, inpatient, outpatient?
• What is your plan to address those issues?
• How will you measure results and when will you know if you've been effective?
• What is Coventry doing about members with chronic conditions? How have your results compared to industry standards?

And the big one:

How would Coventry compete and win if it could not risk select and had to take all comers at a community rate?

Because that may well be the scenario Coventry, and all its competitors, face in two short years.

Note - this applies almost equally to most every health plan. In fact you could just about replace 'Coventry' with Wellpoint, Cigna, Humana, Blue Cross, etc and the same perspective would hold true.

Now I really am going on vacation.

Posted by Joe Paduda at 8:32 AM | Link to this post | Comments (3)

Like a man stumbling through a darkened room full of sharp objects, the individual health insurance industry continues to bash itself bloody.

Today's painful encounter is the news that individual health policy marketer HealthMarkets agreed to pay a $20 million fine to 36 states for failing to educate sales reps, failing to fully inform customers, and allegedly not paying providers promptly. HealthMarkets caved quickly, as the agreement came less than a year after the initial suit was filed.

This isn't the first time HealthMarkets has felt the wrath of regulators.

• In 2006, Massachusetts required HM "reassess denials of policyholders' medical bills dating to January 2002" (Appleby USAToday)
• Maine levied a million dollar penalty earlier this year, while also requiring HM to refund $5.6 million to policyholders
• Delaware fined HM $500k in 2006 (the largest fine in the state's history) for "steering consumers into individual rather than group health insurance policies, failing to provide state-required coverages, engaging in deceptive and improper marketing, mishandling consumer complaints and failing to institute adequate management controls" (Commissioner's statement); the insurer also failed to cover immunizations and mental health benefits, in direct violation of state and Federal law.

The Delaware case is especially revealing. There are better benefits, more state controls, and more regulation of small employer policies. And insurers are required by state law to offer those policies - but HealthMarkets' subsidiary insurer didn't, instead steering applicants to the 'more costly, less benefits, more complicated' individual policies.

HealthMarkets' leadership team should know better. Led by Allen Wise (ex-founder of Coventry), the board includes Steve Shulman (ex-Value Health CEO), Harve DeMovick (ex Coventry CIO), the board also is populated with notables from the various investment firms that bought HM several years ago. Fortunately, HM brought a seasoned compliance officer on board earlier this year, but you've got to wonder why it took them so long. Wise et al have been in the business for many years, the company had a checkered past (to be kind), and the pressure from regulators didn't start last year.

Why am I highlighting a relatively small player (>700,000 insureds) that operates on the fringes of the insurance market?

To show what can happen when the insurance business operates in the 'free market'. This company took advantage of uneducated consumers, sold them policies that weren't as advertised, took their money and left them with lousy coverage. For all those staunch advocates of deregulation - here's what you can look forward to - but on a much grander scale.

What does this mean for you?

Most insurance companies aren't like this. Most are staffed by good people trying to do the right thing, to get policies issues, pay claims fairly and promptly, and operate ethically. But when companies cheat and lie and steal, they make it all too easy for folks to tar all insurers with the same brush.

Posted by Joe Paduda at 6:29 PM | Link to this post | Comments (2)

In yet another blow to the big health plans, giant UHC will be cutting 4000 positions as part of a restructuring plan. The plan involves ditching the Uniprise brand and putting all commercial products under the UnitedHealthcare banner.

The announcement comes at a time when UHC's stock has been battered by bad news throughout the sector, with UHC recently announcing it is projecting weaker earnings. On the heels of Coventry's missed forecast and following the CalPers settlement (see below), the bad news has driven UHC's stock price to less than half its 52 week high.

The company also will be paying a fine of just under $900 million to settle CalPers' lawsuit stemming from UHC's stock option manipulation - while admitting no wrongdoing. Got to love that last phrase - if there was no wrongdoing I kind of doubt UHC would have agreed to pony up $895 million.

Apparently United has decided to fix its finances by cleaning out its book of business by dumping less-profitable business and tightening underwriting. These moves, coupled with increased premiums, will cut the medical loss ratio, but at the cost of membership. Expect UHC's trend-neutral revenues to decline in 2008 and possibly 2009 (remember that all health plans have a built-in annual growth rate equivalent to medical trend; to accurately calculate growth one has to correct for that trend).

Over the long term, I don't like UHC's chances. This is not a company that invests in medical management - despite its trove of data, analytical expertise, participation in NCQA accreditation and inhouse capabilities, UHC has always been about managing reimbursement, not care. Their latest move to increase premiums is the way United has always reacted to bad financial results. And it may work for a while, but over the long term the winners in the health plan business will be those who actually understand how to manage care.

And United doesn't.

Posted by Joe Paduda at 8:51 AM | Link to this post | Comments (2)

The notice for the teleconference popped up in my email inbox a mere hour and a half before the telecon was scheduled to begin. That was the first indicator of potential trouble.

The second was the opening line from Coventry's CEO: "To say we're disappointed with the news we shared earlier this afternoon is an understatement..."

The source of Mr Wolf''s disappointment was Coventry's report that it will miss its financial projections - by a wide margin.

For a company that has long been (justifiably) proud of its ability to tightly monitor and manage its business, the disclosure that it had significantly underestimated Q1 and Q2 medical costs was a bitter pill indeed, all the more so as it came a few weeks after Wolf's recent efforts to pump up internal morale by comparing Coventry's management discipline favorably to competitors.

Earnings will fall short due in large part to higher than expected medical costs in Coventry's Medicare private fee for service and core group health businesses. In explaining the failure to meet the Medicare program’s projected MLR, CFO Shawn Guertin described the problems inherent in the claims submission and processing flow. Guertin went on to note that the company also had identified some problems in Coventry’s internal claims processing. Curiously, management blamed part of the problem on ID cards not being used by claimants, which delayed claims flows internally. Evidently some members don't bother to show their Coventry cards when leaving the doctor's office. The office sends the bill to Medicare, who returns the bill with a note that the patient is not a member. The office then contacts the patient, gets the correc claims submission info, and sends the bill to Coventry.

This takes time, and has led to Coventry under-estimating claims volume and expense for its Medicare private ffs business. I'd note that in prior calls management has been effusive in its self-praise for its ability to operate this business with statements like 'we couldn't be more pleased with how this business is running'.

For the Medicare business, the MLR is up 300-340 basis points over prior guidance. This isn’t even close enough for horse shoes or hand grenades. From comments by management on last night's call, it appeared this popped up in April and May, after things appeared to look pretty solid earlier in 2008.

Again, this is a pretty big surprise.

On the group health front, higher trend in group outpatient utilization and inpatient unit cost, or price per service appear to be the problem. Instead of the forecast 100 basis point reduction in MLR, management is now expecting higher medical costs - with a potential swing of 400 basis points for outpatient expense. Inpatient costs are also up 100 basis points, so the combination is driving up total MLR by 150 basis points.

Another significant contributor to the higher MLR is an increase in the number of more severe (more costly) claims – not more claims, but more high cost claims, specifically between 50k and 150k in dollars paid.

In contrast hospitals are not seeing increased utilization. Facility revenue numbers are not trending up. Coventry wasn’t able to figure out why their hospital costs were going up while overall hospital utilization nationally is not.

Admittedly Coventry has not yet determined all the factors causing these increases in MLR. They do appear to have a grasp on the major factors; from the tone and delivery
of management comments I'd expect there's a lot of yelling at Coventry HQ, likely to be followed shortly by the distinctive sound of heads rolling. (During the call Wolf did allude to staff reductions in a response to an analyst's query.)

Lastly, management reported that the work comp business is not meeting projections due in part to lower fee revenue for bill review.

As the market closed, Coventry's stock price had dropped to $40.97, resulting in a P/E just under 10. Coventry has long been rumored to be a potential acquisition target, and if the stock price declines further (a not unreasonable expectation) suitors will likely emerge.

Posted by Joe Paduda at 8:07 AM | Link to this post | Comments (6)

Disclaimer - This is the kind of post that makes one want to take a shower after reading. My apologies to readers without convenient access to bathing facilities.

One of the fastest growing segments of the surgical industry is the spinal implant business. In what may be the most comprehensive review of the problem, the Orange County Register reported:

"About 70 percent of U.S. adults -- or 153 million people -- have lower back pain, according to Millennium Research Group. Of those, about 15 million require medical treatment, and most eventually get spinal implants." My take is that is a wildly overstated estimate; one survey reported that the total world market for devices was $4.2 billion; note this study used 2006 data. Another indicated the market was $5 billion in 2005, and predicted growth to $20 billion by 2015. Stryker, one of the major manufacturers, expects growth of 16% per year in the spinal implant market. Yet another report(note opens .pdf) indicated the 2007 worldwide market was $7 billion, with the US accounting for $5.4 billion of that total.

And boy is it profitable. One manufacturer (Allez Spine) sold screws to an implant device company for $79.31 each - screws that were then sold to hospitals for $1000 each (who then marked them up even more when billing insurers).

Yep, there are $480 worth of screws in this xray (wholesale), $6000 retail, and probably $9-12,000 to the insurer/patient. And that doesn't include the other parts...

Medtronic, one of the larger device companies with about 45% market share in the US and the same worldwide, reported sales of $869 million for spinal implants last quarter, driven in part by a big jump in sales of its Kyphon technology. The $869 million represents growth of 35% from the same quarter last year.

The Kyphon story is an ugly one, and points to one potentially significant problem in the spine surgery industry - the focus on devices as a tool to maximize reimbursement.

Kyphon (the company) was acquired by Medtronic in 2005. The company settled a lawsuit filed by the Feds, agreeing to pay $75 million in fines. Kyphon agreed to stop providing inappropriate advice on reimbursement to providers, advice that resulted in hospitals filing inflated claims with Medicare for a spine procedure with the otherworldly name of kyphoplasty.

The details of the case, as reported by the New York Times, are revealing.

Kyphon "persuaded hospitals to keep people overnight for a simple outpatient procedure [bold added] to repair small fissures of the spine. Medicare then reimbursed the hospitals much more generously than it otherwise would have for the procedure, which was developed as a noninvasive approach that could usually be done in about an hour.

By marketing its products this way, Kyphon was able to artificially drive up demand among hospitals, bolstering its revenue and driving up its stock price. Medtronic subsequently bought the company, its competitor, for $3.9 billion, greatly enriching Kyphon’s senior executives. "

Margins for Kyphon's devices approached 90%, due in large part to the high price the company charged, a price that hospitals offset by extending hospital stays (as advised by Kyphon's sales reps and reimbursement experts), thus generating higher bills and much higher revenue.

Another major contributor to the rapid increase in spinal implant surgeries may be the growth of device companies that have spine surgeons as stockholders. The OCR article reported that physician-owned companies are now under investigation by HHS' Office of the Inspector General (OIG). In testimony before the Senate Special Committee on Aging, Gregory E. Demske, Assistant Inspector General for Legal Affairs at the OIG said:

"These financial relationships [between device manufacturers and physicians] can benefit patients and Federal health care programs by promoting innovation and improving patient care. However, these relationships also can create conflicts of interest that must be effectively managed to safeguard patients and ensure the integrity of the health care system...during the years 2002 through 2006, four manufacturers (which controlled almost 75 percent of the hip and knee replacement market) paid physician consultants over $800 million [bold added] under the terms of roughly 6,500 consulting agreements. Although many of these payments were for legitimate services, others were not. The Government has found that sometimes industry payments to physicians are not related to the actual contributions of the physicians, but instead are kickbacks designed to influence the physicians’ medical decisionmaking [bold added]. These abusive practices are sometimes disguised as consulting contracts, royalty agreements, or gifts."

All this growth may well be based on a focus on surgical treatment that is just not supported by research. Some studies indicate surgery is not the best treatment for a substantial number of patients. According to the OCR article (source above);

a "2005 study of patients with back pain published in the journal of the British Medical Association concluded: "No clear evidence emerged that primary spinal fusion surgery was any more beneficial than intensive rehabilitation."

"You look at the number of procedures and the rate of growth and it seems to far outstrip the number of patients who need this," said Dr. Steven J. Atlas, a back specialist and Assistant Professor of Medicine at Harvard Medical School."

And that old nemesis, provider practice pattern variation, is nowhere as obvious as with back surgeries. Looking at Medicare data, the back surgery rate in Fort Myers, Florida was 5 times higher than in Miami. Same population demographics, same state, but different providers.

Perhaps the best explanation for the considerable growth in the use of implants and spine surgery is the lack of evidence either for or against these procedures. There are some reports that indicate positive or negative outcomes, but nothing definitive has been published that could be used by payers and providers to judge the appropriateness of surgery for most patients with back injuries or degenerative conditions.

Posted by Joe Paduda at 7:10 AM | Link to this post

Productivity.

Lost in the great debate about the role of the employer, the individual, and the government in health care reform is the critical link between health insurance, care, and productivity.

Years ago when I was responsible for the Travelers' utilization review account management function I met with Bruce Bradley, who was then the head of employee benefits at telecom giant GTE. I was going thru the data, reporting on how well Travelers had done reducing this and cutting that, when he stopped me and asked about the ER and inpatient admissions rate for children with asthma. I didn't have the data, and asked why he wanted to know.

Bradley proceeded to educate me on GTE's workforce and their functions. To summarize, they had a lot of employees who were single parents or one parent in a dual-income family. Many of their employees worked in line maintenance, directory assistance, and other blue- and pink-collar jobs.

And when one of these workers was out of work, caring for a child experiencing an acute asthmatic attack, the lines didn't get fixed and calls didn't get answered. Bradley wanted to know what the Travelers was doing about this. Truth was, we weren't doing anything.

GTE is long gone, swallowed up in the telecom mergers in the nineties. But Bradley's point is as true now as it was then - keeping workers, and their families, healthy and productive is the primary objective of health insurance.

I'll grant that few policy wonks look at it from this perspective. Perhaps that's because they didn't have the pinned-to-the-wall-like-a-butterfly-in-a-display-case experience I went thru. But because they don't consider the impact of health insurance on employer productivity, they miss the reason employers offer health insurance in the first place - to attract, and keep, good workers.

If employers are removed from the process of vetting and selecting health insurance vendors, individuals would be responsible for choosing their carrier. Insurance companies would 'win' based on how cheaply they could provide insurance to individuals and families, and the less care delivered, the lower the premiums. I don't see what would prevent those vendors from suggesting each and every injured or ill worker or dependent tried bed rest and over the counter drugs for two weeks, then an x-ray or basic lab test, and only then would they get to see a diagnostician.

What does this mean for you?
Health care reform based on an individual market would work against employers' desires and needs, and over the long term, against the nation's best interests.

Posted by Joe Paduda at 6:55 AM | Link to this post | Comments (9)

Niko Karvounis has written a terrific summary of the evolution of the Chinese health care system over at The Century Foundation's blog.

Of particular interest is this - health care inflation in China is in the 16% range, a full seven points higher than GDP growth. This inflation is primarily driven by physicians overprescribing drugs and imaging - the only two types of care that they can price high enough to generate a profit.

Yes, communist physicians are making money the old-fashioned way, by over-utilizing.

Posted by Joe Paduda at 7:24 AM | Link to this post | Comments (1)

regulators and legislators take charge. Legislators in California are well on the way to passing a law that would severely restrict health plans' ability to cancel members' coverage, a law that would supersede internal guidelines and policies.

Over the last five years, about 700 individual policies have been canceled under these internal guidelines, with members having little in the way of formal recourse. The press has publicized some of the more egregious cancellations, where individuals with serious health problems had policies cancelled because they did not document minor health issues that occurred years before the application was filed (conditions unrelated to the member's current health problems) .

Even more egregious, at least one payer evaluated, and bonused, a manager in part on her ability to find policies to cancel.

There are actually two bills (which may be merged), one that requires all cancelations be approved by a third party; the other would give health plans a maximum of six months from the date of issue to review patients' policy applications. While many bills are offered, few are passed - but that doesn't look to be the case here; one of the bills has already passed out of the Health Committee on a unanimous vote.

If these bills, or something like them, are passed and signed into law, it may well make it more difficult and expensive to underwrite individual health insurance in the state. It may make it harder to obtain health insurance.

But these bills never would have come about if certain insurers hadn't crossed the stupid line. Here's hoping other insurers in other states watch and learn.

Posted by Joe Paduda at 6:10 AM | Link to this post | Comments (2)

The sleazy world of surgical implants has been exposed recently, with reports of doctors receiving kickbacks, huge settlements by manufacturers, and outrageous pricing.

Just when you thought "finally, a company gets hammered", we find out that the corruption doesn't stop with the implant manufacturers, but infects the regulators themselves.

The US Attorney who settled the case against Zimmer for $311 million forced Zimmer to pay his former boss, John Ashcroft, between $28 and $52 million over 18 months (on a no-bid contract) to oversee the settlement. According to Ashcroft's firm, the fees are justified because they have hired an additional 30 employees and outside consultants for this project, and Ashcroft himself has actually traveled to Indiana several times (several times!!) to oversee the work.

Ashcroft, the former Attorney General, was US Attorney Chris Christie's boss.

Among the terms of the Ashcroft deal are:

--$150,000 to $250,000 per month for travel and incidentals

--$750,000 as a monthly retainer

--hourly fees up to $895

No wonder Ashcroft's spokesman said the firm "was pleased about the deal".

And no wonder implant prices are so high - they have to be to afford the payoffs, both legitimate and illegal.

This is disgusting.

Posted by Joe Paduda at 8:41 AM | Link to this post

The cost of surgical implants is increasing by over 7% annually; and even more in workers comp spinal cases. In audits my firm has performed we have seen costs ranging up to $27,000 for the hardware and related bits and pieces used (or allegedly used) in a neurosurgery case.

It looks like one of the contributors to those high costs is that old reliable - fraud. Blackstone Medical, a spinal implant manufacturer, is in deep legal trouble, facing allegations that it paid doctors kickbacks to use the company's devices.

And as I've noted before, surgeons select the specific devices used in surgeries, with little or no apparent concern about the cost.

Continue reading "Why implants cost so much" »

Posted by Joe Paduda at 1:31 PM | Link to this post | Comments (4)

I've successfully escaped the second nor'easter of the season, and won't be heard from again until next year (unless I get really bored on vacation).

It has been a good year. Thanks for reading.

Posted by Joe Paduda at 6:53 PM | Link to this post | Comments (2)

A recent court ruling in New Jersey could shut down Ambulatory Surgical Centers across the state.

The judge determined that physician-owned ASCs (almost all ASCs are at least partly owned by physicians) violate a state law banning physician self-referral. Not surprisingly, the 200 ASCs in the Garden State (there are about 5000 nationwide) are pulling out the stops to overturn a ruling that, if it stands, would effectively shut down most ASCs in NJ.

Continue reading "ASCs -- good, bad, or just ugly?" »

Posted by Joe Paduda at 7:53 AM | Link to this post | Comments (1)

A decade ago a lot of folks were working on '24 hour' coverage - the combination/integration of workers comp and group health and disability management. AIG, United Healthcare, Reliance National, Broadspire (nee Kemper) and Unisource Administrators were among the players; the Integrated Benefits Institute was founded, and consultants formed practices and marketed their expertise to interested parties. (disclosure - I was heavily involved in the AIG-UHC, Reliance-UHC, and Unisource-UHC-AIG programs)

Then it all sort of faded away, and not much was heard until today's announcement that Sedgwick CMS and UHC have re-entered the market.

Continue reading "The return of 24 hour coverage?" »

Posted by Joe Paduda at 7:09 AM | Link to this post | Comments (4)

Wellpoint, the for-profit owner of Blues plans in fourteen plus states, is doing well in California. United Healthcare is most definitely not. The whys and wherefores are both instructive and predictive.

Continue reading "A tale of two health plans" »

Posted by Joe Paduda at 7:48 AM | Link to this post

I have long assumed individuals working at employers that do not offer health insurance are more likely to file workers comp claims. With the number of employers offering health insurance declining, a logical corollary is more claims will be filed.

Logical, but wrong.

Continue reading "The correlation between health insurance and work comp claims" »

Posted by Joe Paduda at 6:20 AM | Link to this post | Comments (6)

Just when you think the health insurance industry just could not do anything more self-destructively stupid, they raise the bar.

From FierceHealthcare comes the news that HealthNet actually paid bonuses to staff based on how many claimant policies they could terminate.

Continue reading "Dumber than a box of rocks" »

Posted by Joe Paduda at 7:56 AM | Link to this post

Market consolidation continues unabated...

Industry giant United Healthcare is acquiring Fiserv's TPA and related businesses for $775 million in cash. The deal, slated to close either this quarter or next, does NOT include Fiserv's third party biller operations.

Continue reading "United buys Fiserv Health" »

Posted by Joe Paduda at 4:06 PM | Link to this post | Comments (1)

$150 billion.

That's how much revenue that's up for grabs if/when mandated universal coverage becomes law.

Continue reading "Why private insurers will back reform" »

Posted by Joe Paduda at 6:44 AM | Link to this post | Comments (4)

Health Affairs is holding a healthcare issues summit in DC on November 1st. Attending will be more than a few of the nation's health policy experts and policy-setters.

Theme of the day is the future of health care, including S-CHIP's future direction, a roundtable with Presidential candidates' health policy advisers, and a CEO roundtable.

With CEOs from Aetna, Merck, Wellpoint, GE HealthCare, HCA, the SEIU, and AARP on stage, I'm hoping we'll learn a lot more about how they will address health care reform, and the role private industry will take in the discussions about and implementation of that reform.

Posted by Joe Paduda at 7:33 AM | Link to this post

Is it just me, or does anyone else think that Bill Gates has zero credibility when it comes to advocating for a seamless, integrated streamlined system to collect, store, and disseminate health care data?

I'm writing this on a Mac, because I finally threw my Windows PC out the window after one too many system freezes, followed by some unintelligible error message, which presaged a long and frustrating effort to get it resolved.

Continue reading "Do you trust Microsoft?" »

Posted by Joe Paduda at 6:48 AM | Link to this post | Comments (1)

The GM-UAW health care deal is momentous. And not just because it saves GM a lot of money and transfers the liability for the UAW's health benefits from GM to the union.

The tectonic shift is the change from a 'defined benefit' to a 'defined contribution' program. The UAW has essentially agreed to a cap on future health care costs. Now they will have to figure out how to deliver on members' expectations without going broke.

Continue reading "The death of defined healthcare benefits?" »

Posted by Joe Paduda at 9:34 AM | Link to this post

Diabetes, congestive heart failure, and heart disease are increasingly conditions of the poor. And the poorer one is, the more common the condition.(free reg req)

Most health plans have little experience dealing with poor folks with chronic health problems.

They'd better start learning.

Continue reading "Aetna's figured it out" »

Posted by Joe Paduda at 6:20 AM | Link to this post | Comments (10)

An example is worth a thousand studies - the free market can work to limit health care costs.

Continue reading "The market for doctors" »

Posted by Joe Paduda at 6:58 AM | Link to this post | Comments (1)

may be yet to come. The second-tier managed care company has positioned itself well for the future, diversifying away from its traditional small group HMO plans in secondary and tertiary markets into a mix of governmental, ASO, individual, and workers comp managed care services.

The strategy makes sense.

Continue reading "Coventry's good year" »

Posted by Joe Paduda at 7:10 AM | Link to this post

The latest data shows that while there has been some growth in the two types of consumer-directed health plans, it is not 'statistically significant' (3.8% of covered workers are enrolled in these plans in 2007, up from 2.7% in 2006).

Put another way, it looks like the CDHP movement is running out of steam.

That's too bad.

Continue reading "Has the CDHP movement peaked?" »

Posted by Joe Paduda at 6:27 AM | Link to this post | Comments (1)

The average cost for a family's health insurance coverage this year is $12,106. That amounts to just over a quarter of gross median household income ($46,326). (a 'household' is defined as two or more individuals).

Lets put that in context.

Continue reading "How much is too much?" »

Posted by Joe Paduda at 7:09 AM | Link to this post | Comments (6)

A group of docs in Texas has decided that two can play the ratings game. They are working on a project to rate insurers - on their "billing procedures and issues".

It strikes me that these physicians may be engaging in the same type of behavior that infuriates them when exhibited by insurers - using an arbitrary, internally-developed methodology to evaluate payers solely on administrative indicators.

Continue reading "Two can play that game" »

Posted by Joe Paduda at 6:14 AM | Link to this post | Comments (4)

And the bad news just keeps on coming. The ranks of the uninsured increased for the sixth straight year, to 47 million. The increase this time was 2.2 million; 15.8% of Americans, or about one in seven, does not have health insurance.

This despite a slight decline in the national poverty rate and a leveling-off of health insurance premium increases.

So in a 'best-case' environment, 2.2 million Americans still lost their health insurance.

If the problems in the credit markets continue, they will likely drag down the economy, leading to even more becoming uninsured. And this will all happen just in time for the fall 2008 elections.

Posted by Joe Paduda at 8:28 AM | Link to this post | Comments (3)

Carol Gentry of the Tampa Tribune has authored one of the more accessible pieces on the hows and whats of hospital price variation.

Carol's piece illustrates two key issues - the data is available, and consumers aren't using it.

Continue reading "Humana's good effort" »

Posted by Joe Paduda at 7:29 PM | Link to this post | Comments (2)

Several sources indicate health care cost inflation is now running about 7%, with the latest coming from Towers Perrin. This jibes with other reports, and is consistent with last year's final figures.

As always, the data underlying the overall result paint a more complete picture.

Continue reading "Medical cost trends and consumer-directed health plans" »

Posted by Joe Paduda at 9:33 AM | Link to this post | Comments (3)

CMS' hospital reimbursement change is going to create winners and losers; among the biggest winners will be UnitedHealthcare.

Among the losers, their competitors.

Continue reading "United Healthcare wins" »

Posted by Joe Paduda at 8:14 AM | Link to this post

Much has been made here and elsewhere of the issue of cost-shifting. Cost-shifting happens when a provider treats a patient, does not receive 'full' reimbursement, and then increases what s/he charges another patient to make up the difference.

There's a lot of evidence that cost-shifting is pervasive, expensive, and results in a hidden tax of about $1000 for the average insured family.

But what forces providers to treat the uninsured?

In a word, EMTALA.

Continue reading "What's EMTALA?" »

Posted by Joe Paduda at 7:02 AM | Link to this post | Comments (6)

I'm covering the "Take Back America" conference in DC this week. It's one of the leading progressive confabs, attended by everyone from subscribers to "the Weekly Worker" to green investment funds to Families USA to Sens. Edwards, Obama, Clinton, and Klobuchar to MoveOn.org. I'm here to hear what progressives are saying about health care and health reform.

So far, it appears the short answer is "not much".

Continue reading "Where's the progressive movement on health care?" »

Posted by Joe Paduda at 2:26 PM | Link to this post | Comments (4)

Ok, time to get back to examining Coventry. The second quarter earnings report is out, and things are looking good on the commercial side. I'll look at that in detail later; for now, the work comp business is top of mind after the Concentra deal.

Continue reading "Coventry's new numbers" »

Posted by Joe Paduda at 7:28 AM | Link to this post | Comments (2)

I don't see how - because we'll still have to pay for the uninsured. I've been mulling this over since reading a post on Health Care Policy and Marketplace Review. Bob's post points out that a large enough group spreads risk well enough to help keep insurance affordable.

My take is coverage has to be mandated in order to prevent cost-shifting.

Continue reading "Can we control cost without universal coverage?" »

Posted by Joe Paduda at 5:20 PM | Link to this post | Comments (3)

The statistics are starting to come in and they aren't pretty; Consumer directed health plans' growth is all but stalled. Despite advocates claims to the contrary, employers are just not buying into CDHPs.

According to a study by the Kaiser Family Foundation, 19% of people with a choice of CDHPs or traditional forms of coverage choose CDHPs. And most of those folks (71% to be precise) don't put any money into their accounts.

Continue reading "Will consumer-directed health care make it?" »

Posted by Joe Paduda at 6:33 AM | Link to this post | Comments (5)

After going thru a major spring office cleaning and overhaul, I found a really intriguing report buried under books and papers. Well, intriguing for health care geeks...

The combination of two statistics adds a lot of clarity to the US health insurance picture. The two, health care inflation and the uninsured rate, have been combined into the HEMI (healthcare economic misery index). The HEMI is both descriptive and revealing, especially when tracked over time and used to compare states.

Continue reading "What's your healthcare misery index?" »

Posted by Joe Paduda at 6:20 AM | Link to this post

And the award for "most factual errors in a debate" goes to...Mitt Romney, the dynamic (as in changes positions quickly) GOP presidential candidate! In the June 5 presidential debate Romney actually said:

"Every Democrat up there’s talking about a form of socialized medicine, government takeover, massive tax increase…. I’m the guy who actually tackled this issue. We get all of our citizens insured..."

There are at least three mistatements here.

Continue reading "Romney the spinmeister" »

Posted by Joe Paduda at 9:52 AM | Link to this post | Comments (1)

In all the excitement about the Democratic Presidential contenders' health care plans and platforms, I'd neglected to check on their competitors across the virtual aisle.

Fortunately, Bob Laszewski has already done this. The net? GOP candidates are paying very little attention to health care.

Posted by Joe Paduda at 9:20 AM | Link to this post | Comments (4)

We can't afford universal health care. It's too expensive.

Actually, that's not true. We just choose to spend our dollars on other things. For example, medical care and indemnity payments to American troops hurt in the Iraqi war. The latest projections have the long-term expense of caring for Iraqi war veterans totaling 1/3 to 2/3 of a trillion dollars.

So far.

We sure do make interesting choices. Why just the other day Congress voted enough money to fund the war effort for another few months. That expenditure could have provided every uninsured American with health insurance for a year.

Sometimes all you can do is shake your head...

Posted by Joe Paduda at 6:05 PM | Link to this post | Comments (7)

If only it were that easy. I'm talking about the legislation proposed in Michigan to allow motorcyclists to ride without helmets. If they are dumb enough to do that, fine. Except we end up paying their health care bills, which is most definitely not fine.

Continue reading "Should we just let Darwin decide?" »

Posted by Joe Paduda at 1:53 PM | Link to this post | Comments (5)

Pharmacy and Therapeutics committees have been around for ages in the provider community - they are the "link between medicine and pharmacy". In the managed care world, P&T; committees take on a somewhat different role, establishing formularies, reviewing medical device reimbursement (at some health plans), contributing to coverage determinations and benefit design.

Mostly, they provide the health plan or insurer with an expert opinion on most things pharmacy-related. Without a P&T; Committee, these decisions often are left to a medical director, or worse, claims adjuster (in the P&C; world), individuals who are not equiped to make educated decisions about pharmaceuticals.

Continue reading "You need a P&T; Committee" »

Posted by Joe Paduda at 6:31 AM | Link to this post

Those who find problems should identify solutions as well. My post last week about the "pre-lash" against consumer-directed health plans (CDHPs) identified a number of problems - but for all their warts, CDHPs, and particularly HSAs, do have a very important role to play in health care reform.

Continue reading "Fixing consumer-directed health care" »

Posted by Joe Paduda at 9:24 AM | Link to this post | Comments (3)

A backlash is what happens after something occurs. That being the case, a "pre-lash" is a "reaction" to something before it occurs. Awkward, but accurate when describing what's happening with consumer-directed health care.

Continue reading "The consumer-directed "pre-lash"" »

Posted by Joe Paduda at 7:56 AM | Link to this post | Comments (4)

Richard Eskow of Sentinel Effect reports on the latest revelations about a bit of book-cooking at the VA. Seems the VA has been a bit, or perhaps more than a bit, overly positive about its record.

More troubling than boosterism is the allegation that the VA selectively reported results, and even fabricated conclusions to make the system appear better than it actually is.

As a fan of the VA, I'm concerned about two things.

Continue reading "The VA's been cooking the books" »

Posted by Joe Paduda at 7:13 AM | Link to this post

The press is reminding us on a daily basis of the problems inherent in a health insurance system based on private insurers. And it's not like the media has to go searching very far for examples of egregious misconduct.

And I'm an advocate of private health insurance.

Continue reading "Private insurers aren't helping themselves" »

Posted by Joe Paduda at 7:23 AM | Link to this post | Comments (2)

The good folks at the California Healthcare Foundation explain why more information does not necessarily equal better consumerism.

Their main point? Consumers' decision making processes are not linear, simple, or straightforward; the deep complexities of the health care decision-making process do not lend themselves to simple metrics and ranking systems, yet that's what consumers like to use.

Continue reading "Decisions about health care" »

Posted by Joe Paduda at 6:34 AM | Link to this post | Comments (2)

The largest health plan trade group wants to form a new agency to "compare the cost and effectiveness of medical treatments as part of a series of recommendations to reduce health care costs." (California HealthLine from CongressDaily) At first blush that's pretty similar to what the Agency for Health Care Research and Quality is doing today.

Continue reading "Desperate times, desperate measures" »

Posted by Joe Paduda at 6:32 AM | Link to this post | Comments (2)

As part of a very good (defined as substantive, open-minded, and comprehensive) discussion on health care reform options going on at TPMCafe, Jonathan Cohn notes:

"a lot of these people don’t understand how precarious their current situation is – because they don’t realize how easily they could lose coverage or the extent to which their insurance might not cover their bills.(emphasis is mine) (Indeed, that’s the whole point of my book.) But for now, anyway, that’s what they think. And if you start telling them you’re going to change their health insurance – even for an alternative as well-liked as Medicare – a lot of them will get skittish."

That's true. But at some point, enough of "those people" who lose coverage or go broke paying bills will decide to do something about it. And that "something" doesn't have to be national; I'm of the opinion that there will be real reform in more than one state years before we do something nationally.

But which ones, and why them?

Continue reading "When will reform come?" »

Posted by Joe Paduda at 9:16 AM | Link to this post | Comments (1)

Richard Eskow has a great synopsis of the historical roots of capitation over at Sentinel Effect - brief, entertaining, and well worth the click-thru.

Posted by Joe Paduda at 7:36 PM | Link to this post

An effort in Connecticut to implement a single payer, universal coverage program is just about dead, after the state's Office of Fiscal Analysis determined it would cost as much as the entire state budget.

Politicians were shocked by the estimated total cost, which ranged from $12 billion to $18 billion.

I'm shocked that they were shocked.

Continue reading "Connecticut's still-born single payer plan" »

Posted by Joe Paduda at 6:53 AM | Link to this post | Comments (2)

TPMCafe has an ongoing debate amongst health policy types about the pros and cons of single payer. There's an all-star cast, and your lunch hour is coming up, and you're kind of wondering why single payer is good/bad...

Posted by Joe Paduda at 11:14 AM | Link to this post

I'm having a tough time getting mad at United Healthcare. The huge managed care company is under fire for penalizing docs who use any lab other than UHC's preferred partner, LabCorp. The AMA, regulators, individual physicians, and a few consumer groups are all screaming about UHC's heavy-handed, dictatorial infringement on their right to practice medicine.

They've got it all wrong.

Continue reading "Hooray for United Healthcare" »

Posted by Joe Paduda at 7:45 AM | Link to this post | Comments (28)

What gets lost in the healthcare debate is the impact of our dysfunctional system on individuals and families. Jon Cohn of The New Republic and elsewhere has gone a long way to personalizing the health care mess in his new book, "Sick".

Jon's also leading a debate on the topic at TPM. Several health care types including your author are arguing to and fro, while others are keeping us honest.

Posted by Joe Paduda at 11:28 AM | Link to this post

Consumer directed health plans will make all of us better users of the health care system. We'll shop for price, be careful about what procedures we get from whom for how much how often. We'll bargain, examine data, and carefully compare providers.

And as a result, we'll all save a bundle, and the US health care system to boot.

Sort of.

Continue reading "You're it. No, you're it. No..." »

Posted by Joe Paduda at 6:58 AM | Link to this post | Comments (9)

The fine may be a million bucks, but the PR damage is much worse.

Continue reading "WellPoint's stupidity" »

Posted by Joe Paduda at 7:00 AM | Link to this post | Comments (1)

You're swamped. I'm swamped. Work, kids, parents, sports, Iraq, vacation plans, tax season, Anna Nicole - there are hundreds of urgently important things filling your time, demanding your attention.

Health care reform is too complicated, too big, too partisan, too much to think about.

It's also going to affect you, your family, your income, our economy and quality of life more than any other issue on the table today.

Health care reform is the biggest, most influential issue facing America today.

Continue reading "Pay attention!" »

Posted by Joe Paduda at 6:13 AM | Link to this post | Comments (1)

Two timely topics are in the news; the likelihood of cuts in the additional payments for Medicare Advantage programs and reductions in Medicare reimbursement rates for physicians.

The juxtaposition is just too...obvious to pass without comment.

Continue reading "Physician pay v. Insurer overpay" »

Posted by Joe Paduda at 4:05 PM | Link to this post | Comments (2)

A study just released by the Commonwealth Fund supports my contention that in comparison to the other health care reform measures now in Congress, Pres. Bush's health care reform plan would have minimal impact on health care costs and the number of uninsured..

On the positive side, Sen Ron Wyden's Healthy Americans Act and the Stark/Kennedy/Dingell expansion of Medicare look pretty good.

Continue reading "Bush v Wyden v. Americare" »

Posted by Joe Paduda at 5:08 AM | Link to this post | Comments (3)

The Bush health care reform (his words, not mine) package was supposed to be revenue neutral. Then, it was going to result in an increase in Federal tax revenue of half a trillion dollars over ten years. Now, it looks like the increase will be a third of a billion.

What gives and who cares and why should they?

Continue reading "Taxes and health care reform" »

Posted by Joe Paduda at 7:50 AM | Link to this post

Actions, or lack thereof, speak louder than State of the Union addresses.

From California HealthLine comes the news that the Administration has failed to comply with its legal obligation to respond to the Citizen's Health Care Working Group.

Continue reading "Bush's non-response" »

Posted by Joe Paduda at 7:42 AM | Link to this post | Comments (3)

Consumers will price shop for some medical services, and won't for others. And the times they are most likely to shop are when services are after a diagnosis has been made, the services sought are relatively simple and elective, and the consumer's insurance plan motivates shopping.

Those are the key points in Paul Ginsburg's MarketWatch piece in Health Affairs' most recent Web edition. (full access requires a subscription to HA)

Continue reading "When consumers will shop for medical care" »

Posted by Joe Paduda at 6:46 AM | Link to this post | Comments (1)

Big changes are coming to Medicare, changes that are going to dramatically effect health plans, providers, PBMs, and pharma.

Medicare Advantage's "bonus" payments are going to be cut significantly, Part D sponsors will likely see reductions in their payments from the Feds, and the planned 10% reduction in Medicare's physician reimbursement is not going to happen.

So why isn't the stock market reacting?

Continue reading "The stock market's take on health care reform" »

Posted by Joe Paduda at 6:59 AM | Link to this post | Comments (1)

For those curious about Bush's health care plan, it's implications, complications, challenges, and ultimate chance of adoption, Bob Laszewski's posts are a must read.

Posted by Joe Paduda at 7:30 AM | Link to this post

URAC, the accreditation body that seems to be into every aspect of managed care, is now looking to certify PBMs. In a presentation at the PBMI conference in Phoenix last week, a representative provided an overview of the process, modules, timing and certification levels contemplated by URAC.

While the process is only for health lines today, URAC is seriously looking into accrediting WC PBMs...

Brace yourselves.

Continue reading "URAC's foray into pharmacy benefit management" »

Posted by Joe Paduda at 6:33 AM | Link to this post | Comments (1)

As I've said a few times before, today's consumer-directed health care plans (CDHP) are not much different from the $100 deductible major medical plans of forty years ago. (That $100 is now equivalent to over $600) Although advocates loudly proclaim CDHPs as a solution to the health care crisis, experience to date indicates that the adoption rate is quite low and the impact on cost is modest at best.

If consumerism is going to have any material effect on health care costs and utilization, it will have to reflect the realities of the health care purchasing decision process and the demographics and health status of the insured population, and recognize the lack of useful data on health care procedure prices and provider quality.

Other than that...

Continue reading "Fixing CDHPs" »

Posted by Joe Paduda at 7:27 AM | Link to this post

You are wandering lost in the desert for several days without water, parched, your lips cracking, tongue swollen, eyes rattling around in your skull, desparate for an oasis. A man appears, and you think you are saved; he tells you he's got just what you need, water. But instead of life-sustaining liquid he gives you empty water bottles and a coupon for free water, usable at a well that has yet to be drilled.

Your hopes dashed, you expire.

Pres. Bush's health reform plan provides individuals with tax breaks to help them buy insurance that for many does not exist. Sort of like water in a desert.

Continue reading "Bush's empty water bottles" »

Posted by Joe Paduda at 7:00 AM | Link to this post | Comments (4)

There hasn't been much in the popular press about consumer-directed health care of late. What a relief. That doesn't mean we can bury the idea, as economists and policy makers of a libertarian bent are going to keep returning to the "market as solution to all" mantra until we successfully implant a wooden cross in their cold small hearts.

And to some degree consumerism in health care is appropriate and warranted, and therefore part of the answer to the health care reform question.

Continue reading "health care consumerism update" »

Posted by Joe Paduda at 10:34 AM | Link to this post | Comments (20)

Bob Laszewski has found the solution to the Bush health care program's reliance on the non-functioning individual health insurance market. The plan needs a model that addresses the problems of medical underwriting, denial of coverage, age band underwriting, risk selection, access and availability, and it's called "Part D"!

Posted by Joe Paduda at 10:53 AM | Link to this post | Comments (6)

Actiq is a narcotic taken in lollypop form, a technique that gets the drug to the pain centers quickly. Developed for break-through cancer pain, evidence now suggests that only 10% of Actiq users have cancer.The high-powered narcotic has been the subject of several recent reports and a state attorney general investigation concerning off-label use.

Continue reading "Actiq - the off-label poster child" »

Posted by Joe Paduda at 7:23 AM | Link to this post | Comments (1)

OK, so I've been a little obsessed with the First Health-Concentra deal. Several clients will be directly affected by the merger, and their priorities are mine. But I've been ignoring the larger world, including a report published in Health Affairs (subscription required) that has far-reaching implications.

Two researchers at CMS analyzed data on the concentration of health care expenditures, (what percentage of patients spend what portion of total medical expenses) and noted a surprising trend.

Continue reading "Health care dollars - Who spends how much" »

Posted by Joe Paduda at 8:09 AM | Link to this post | Comments (1)

In yet another sign of the impending attainment of critical mass on health care reform, the SEIU and WalMart have found common ground.

Who woulda thunk it?

Continue reading "Reform makes for strange bedfellows" »

Posted by Joe Paduda at 8:56 AM | Link to this post

I've been trying to find a summary of the Edwards plan unblemished by opinion/criticism/odds-making, and so far all I've found is the same article written several different ways, and no synopsis.

No wonder we're having a tough time engaging in a substantitive debate.

Continue reading "The Edwards Plan" »

Posted by Joe Paduda at 4:58 PM | Link to this post | Comments (2)

Matt Holt has published a hilarious dialogue with a press relations guy from the National Federation of Independent Businesspeople.

If you are one of those who believe people always act in their self-interest, this will disabuse you of that notion.

Posted by Joe Paduda at 6:50 AM | Link to this post

Controversy over treatment types, overly generous payments to physicians to endorse a product, lawsuits alleging faulty research, the FDA under fire for inadequate evaluation, fights over reimbursement for a new procedure, and confusion over the usefulness of a common and very expensive procedure.

If you want to know why the US health care system is so dysfunctional, I give you low back pain.

Continue reading "my aching back" »

Posted by Joe Paduda at 8:11 AM | Link to this post | Comments (2)

My recent comments on Michael Cannon's entries for the Cavalcade of Risk struck a nerve or two, evidently without the benefit of anaesthesia.

Continue reading "Libertarians and Americans" »

Posted by Joe Paduda at 7:41 AM | Link to this post

If you want to know why the Bush health care plan will not work, you need look no further than the individual insurance cancellation brouhaha in California.

Blue Cross of California and other carriers stand accused of combing through high cost members' application forms to find any mistake, inadvertent or not, and then using that to cancel their coverage.

While Blue Cross' practice (which they have admitted) is reprehensible, it's also understandable in today's dysfunctional insurance market.

Continue reading "The Bush health care plan's problem and the real world" »

Posted by Joe Paduda at 8:26 AM | Link to this post | Comments (1)

The ICD may have not been fully functional when the President was working on his health plan.

Thanks to SST for the tip!

Posted by Joe Paduda at 7:26 AM | Link to this post

There are over a dozen state and federal health care reform initiatives on the table today. To evaluate the various proposals, we have to agree on what we want to accomplish. Otherwise, we'll spend our time debating which road to take when we don't even know our destination.

What are we trying to accomplish with health care reform?

Lower costs today? A sustainable trend rate so care is affordable for the foreseeable future? Better outcomes, defined as healthier people and/or fewer avoidable deaths and/or higher levels of functionality? Coverage for all so no one goes without? Equitable reimbursement? Less interference in the doctor-patient relationship? Greater self-responsibility on the part of consumers? A reduced financial burden on employers, especially small ones and really big ones with lots of retirees? Ever healthier, longer-lived citizens?

All of the above?

Continue reading "Let's start from the beginning" »

Posted by Joe Paduda at 7:37 AM | Link to this post | Comments (8)

Confirming my long-held opinion that Jason Shafrin is the smartest health care economist blogging these days is his post on the implications of Bush's tax cuts...I mean health insurance reform policy.

Jason's insight on the trillion dollar excess policy is brilliant.

He also provides a chart illustrating the financial implications of Bush's plan - no surprise here; "the value of the health insurance tax deduction is worth more than 2x the value for the individual making $10,000,000 as for the person making $10,000."

Posted by Joe Paduda at 7:41 PM | Link to this post

Elected officials considering health care reform would do well to adopt the "first, do no harm" rule. So far, they haven't.

Health care reform proposals circulating among the States run from the broad and all-encompassing (California) to the very narrow (Texas). The big ones suffer from an inherent problem - the broader they are, the more oxen they will gore. As every constituency works to protect and advance their agenda, the big proposals run the very real risk of the death by a thousand cuts (a particularly gruesome, excruciatingly painful Chinese execution, and therefore a perfect analogy).

Narrow, specific initiatives to address discrete issues have the opposite problem - they tend to fix problems caused by the system, instead of fixing the underlying problem.

Look at Texas.

Continue reading "Misguided reform" »

Posted by Joe Paduda at 7:10 AM | Link to this post | Comments (1)

So a lot of folks are finding good things in Pres. Bush's plan to use tax policy to help uninsured people get health insurance.

Not me. I see it as the worst kind of incrementalism, on a par with consumer-directed health care. To the naive, it promises a quick solution using financial gimmickry that will not cost anyone very important much of anything, and may help a few folks get coverage thru a state program.

But it won't do anything to fix the underlying problem - people who need insurance can't get it, and if they can, many can't afford it, leaving the rest of us to pay for their health care. Meanwhile, insurance companies compete not on the basis of how healthy they can keep us, but on how good they are at denying coverage to anyone who may have a claim.

Arrggh!

Continue reading "Bush's blithe ignorance" »

Posted by Joe Paduda at 6:00 PM | Link to this post | Comments (4)

It looks like Pres. Bush is going to announce a major new health plan initiative during his State of the Union address, one that actually may make some sense. The pre-views indicate the plan will be individually-focused (not employer-focused), say very little about cost control, underwriting, or health care providers, and concentrate instead on tax policy.

I don't like to disagree with people whom I highly respect, but I don't see how Bush's plan will work (defined as increase coverage and control expenditures).

Continue reading "The Bush health care/tax plan" »

Posted by Joe Paduda at 4:26 PM | Link to this post | Comments (2)

You have to love idealistic students. Medical students in California, working with a prominent legislator, are pushing for a state-run single-payer system that would end the health insurance industry's role in the system.

The students have a solid case, but single payer will never succeed in the US.

Continue reading "A single payer initiative in California" »

Posted by Joe Paduda at 7:44 AM | Link to this post | Comments (2)

I'm continuing to follow the fortunes of Revolution Health, the Steve Case venture into health care, consumerism, education, wellness, and peripheral matters. Not much new news since my last query; the website is still under construction, but you can enter as a "test guest" here.

Continue reading "MySpace for hypochondriacs" »

Posted by Joe Paduda at 8:25 AM | Link to this post | Comments (4)

One of the more thoughtful articles I've seen on medical tourism is at the Miami Herald.

Posted by Joe Paduda at 7:46 AM | Link to this post | Comments (3)

Voting for the 2006 Medical Blog Awards is open; Managed Care Matters is up for Best Health Policy/Ethics Weblog.

There's lots of competition; support the blog you like best.

Posted by Joe Paduda at 10:02 AM | Link to this post

"Regular" economic theory doesn't apply to health care in this country. After much debate, some of it acrimonious, I decided it's time to lay out my case.

Why? Well, over the next couple of years there's going to be a growing discussion about health care coverage, universal access, cost containment, yadda yadda. With a whole lot of luck, some of it will be educated, informed, and thoughtful. And with an incredible amount of luck and hard work, we'll actually reach a solution that works pretty well.

But, if we don't start with a solid understanding of the underlying issues in health care, we're dead before we start.

Continue reading "The supply-side economics of health care" »

Posted by Joe Paduda at 5:46 AM | Link to this post | Comments (12)

Among the health reform plans likely to be considered is an expansion of Medicare, allowing non-seniors to "buy in" to Medicare.

This is a bad idea.

Continue reading "A not very good idea" »

Posted by Joe Paduda at 7:18 AM | Link to this post | Comments (4)

Ezra Klein opines in his recent editorial in the LA Times that conditions are, if not ripe for a move towards universal coverage, at least we're getting closer to harvest time.

A couple of (relatively) minor nits. Hospital profits are not exactly "skyrocketing". Yes, they're healthier than they have been of late, but low-single-digit margins are not even out of sight, much less out of the troposphere. Second, Ezra claims that the nation won't countenance a continuation of today's health care mess. I disagree - as one who said "we can't take it anymore" ten years ago, I've been amazed by Americans' ability to take it, at least when it comes to over-priced health care of mediocre quality.

Those points aside, Ezra's inventory of environmental and political factors is compelling. There is no doubt that we are getting closer. There is also no doubt (at least in my mind) that Americans' ability to tough it out, endure, and/or ignore this problem is akin to the legendary endurance of the Russian peasant.

Until and unless a plurality of major corporations, labor groups, and middle-class voters decides this is really important, it's highly unlikely we will have a major move towards universal coverage in the next year or two.

Therefore, I'll stick with my prediction of last year - we'll have some form of universal coverage before 2011. And not too much before.

Posted by Joe Paduda at 1:20 PM | Link to this post | Comments (8)

One of the better reviews of the current push for transparency in drug pricing was published by the Napa Valley Times (with assistance from the WSJ).

Continue reading "Why health care is a commodity" »

Posted by Joe Paduda at 7:56 AM | Link to this post

Bob Laszewski is one of the best-connected and most perceptive people on the national health care policy scene. He's also a good friend. Bob recently joined the health blogging world and is posting at Health Policy and Marketplace Review.

Bob's background is impressive - former head of two life and health insurers, founder of an international health policy advocacy group, consultant to Congressional committees and often cited on NPR, the McLaughlin Group, the NewsHour, and the Sunday morning news shows.

His most recent post is on health care cost trends, and the puzzling drop in health insurance premium increases. Well worth the read.

Posted by Joe Paduda at 9:14 AM | Link to this post | Comments (2)

There is one significant blind spot in Sen. Ron Wyden's (D OR) Healthy Americans Act - because the benefit plan is based on the one enjoyed by Congresspeople and Federal employees, it fails to consider that many Americans can't afford the maximum out-of-pocket limit, while to others it is a mere pittance .

The problem with the FEHBP and Congressional plan is all those folks have jobs so they can afford deductibles. A lot of folks working at Walmart can’t. As presently constructed the plan looks a little, well, elitist.

The fix is simple.

Continue reading "Improving Wyden's Healthy Americans Act" »

Posted by Joe Paduda at 8:46 AM | Link to this post | Comments (2)

Sen. Ron Wyden (D OR) has come up with a plan for health care that just might work. Wyden’s plan requires all Americans to purchase health insurance, prohibits medical underwriting, replaces Medicaid with private insurance, and funds the program by a combination of employer contributions, individual payments, and recaptured funds from the mishmash of programs that attempt to address cost-shifting and indigent care.

Those folks making less than the poverty level will not pay anything for their coverage, with graduated subsidies for those making from 1x the poverty level to 4x. There's a lot more detail to the plan, which you can peruse at your leisure at Wyden's site.

Continue reading "Wyden's on to something" »

Posted by Joe Paduda at 10:35 PM | Link to this post | Comments (3)

The body of knowledge concerning consumer directed health plans is increasing steadily, and unfortunately for advocates, it does not appear to include much in the way of good news.

Continue reading "What's really happening with consumer-directed health care" »

Posted by Joe Paduda at 6:34 AM | Link to this post | Comments (1)

In what will come as no surprise to anyone, Congress will eliminate the pending cut in Medicare physician reimbursement. Not only that, but docs who agree to report certain data to CMS will actually get a 1.5% increase in reimbursement from the Feds.

If you listen very closely, you can almost hear the medical community's resounding "yippee".

The reasons docs are not exactly ecstatic about the news are two-fold.

Continue reading "Medicare reimbursement's downstream impact" »

Posted by Joe Paduda at 9:58 AM | Link to this post | Comments (2)

This looks to be the week for health care quality, outcomes, and reporting posts. The latest comes to us courtesy of Fierce Healthcare and the Boston Globe in a report on cardiac surgeons' patients' death rates.

Continue reading "What quality data is available?" »

Posted by Joe Paduda at 6:08 AM | Link to this post | Comments (1)

If the recent contretemps in the mass media and blog-o-sphere about provider quality measures, patient responsibility and cost issues are any indication, a lot of folks are thinking hard and talking loud about these issues.

Here's a synopsis of some of the more trenchant observations.

Continue reading "Patient responsibility/costs/quality" »

Posted by Joe Paduda at 5:01 PM | Link to this post | Comments (7)

Next year, CIGNA will be (financially) encouraging members to go to more cost efficient providers. The mid-tier health plan has announced that it will be charging members less if they go to lower cost physicians.

CIGNA's not alone. Aetna's been a leader in disclosing cost data. Other health plans, partially motivated by a mandate from the Federal Employee Health Benefit Program to publish cost data, more and more health plans are dipping their corporate toes in the water.

Continue reading "Patients should know which providers are cheaper" »

Posted by Joe Paduda at 9:04 PM | Link to this post | Comments (5)

The problem with consumer-directed health plans as presently constructed is fundamental.

They will not work.

They miss the target entirely, mis-understand the problem, and, if taken seriously, will distract from getting to a real solution.

On the other hand, when they fail miserably, as they inevitably will, we'll be in such bad shape that a radical revision of the health care system may well be possible.

Thanks to Graham for the reminder...

Posted by Joe Paduda at 7:17 AM | Link to this post | Comments (2)

My first reaction to a picture of a Medicaid recipient with one leg lost to diabetes smoking was outrage. After reflecting, I'm still outraged.

Continue reading "Personal responsibility and health care costs" »

Posted by Joe Paduda at 8:12 AM | Link to this post | Comments (5)

Medicare Advantage subsidies will be cut, while Medicare will gain the ability to negotiate drug prices, albeit on a limited basis. Those are my predictions for legislation that will be passed early in January by Congress. The trick will be to get the Senate and Bush to go along.

But that may actually happen.

Continue reading "January on the Hill" »

Posted by Joe Paduda at 7:19 AM | Link to this post

The big three will soon be the not-so-big three, expecially if their legacy health care cost problem is not resolved soon. I'm referring to the domestic US auto industry, where legacy health care costs have been crippling GM Ford and Chrysler for years. And the worst is yet to come.

Chairmen of all three stopped into the White House to plead their case yesterday, and were met with the usual "we'll get right on studying that problem."

One of the more interesting proposals advanced by the auto chairs is a reinsurance pool to cover catastrophic claims.

And even more interestig was the hopeful tone struck by GM's Rick Wagoner when he noted that the new Democratic majority appears interested in helping employers struggling with health care costs.

What does this mean for you?

When big manufacturers get behind major changes to the US health care system, we're closer to finally attacking the problem.

Posted by Joe Paduda at 12:04 PM | Link to this post | Comments (3)

I've been spending a good deal of time examining the growing trend in medical tourism - Americans seeking medical care in far-off lands. The motivation is primarily cost; procedures can be less than half the cost overseas compared to US prices.

Other employers are contracting directly with providers, eliminating the health plan "middle men".

Another option for employers seeking to gain more control over health care is via in-house clinics.

Continue reading "In-housing v off-shoring" »

Posted by Joe Paduda at 8:50 AM | Link to this post | Comments (1)

The Democrats' capture of the House will bring new focus to health care, the uninsured, prescription drug pricing, and Medicare Advantage programs. Here's the prognostications.

Continue reading "What now?" »

Posted by Joe Paduda at 8:33 AM | Link to this post

Medical tourism looks to be exploding, growing much faster than many (your author included) had expected. The latest figures indicate a half-million Americans sought care overseas last year.

Much of the care is delivered in Canada and Mexico, but lots of folks are traveling to India and Thailand for complex medical procedures. And the quality appears to be quite high in many of the facilities.

Continue reading "the flattening world of health care" »

Posted by Joe Paduda at 6:30 AM | Link to this post | Comments (2)

By any accounting, Part D has been a boon to the pharmaceutical industry (free registration required). Revenues and profits at Pfizer, Lilly, and other manufacturers have jumped. This will undoubtedly lead to more research dollars available to search for cures for awful diseases, an effort exclusively funded by the US taxpayer that will benefit the entire world.

Aren't we generous?

Continue reading "Drugs, profits and politics" »

Posted by Joe Paduda at 6:40 AM | Link to this post

Bob Vineyard at InsureBlog has an excellent post on how out of touch most American health care consumers are when it comes to understanding the drivers of health care costs.

I hope these folks don't vote.

Posted by Joe Paduda at 7:41 AM | Link to this post | Comments (1)

Perhaps the insurance industry sees the scandals in Washington as a challenge, a motivating factor, a red flag thrust in front of the industry. How else to explain the daily news on malfeasance and wrongdoing on the part of insurers? Criminal indictments, revelations of unethical behavior, news of commission padding, retroactive rejection of applications, and sleazy products have all hit the mainstream media this year, and the latest may be the biggest yet.

Continue reading "Could McGuire be heading to the Big House?" »

Posted by Joe Paduda at 3:08 PM | Link to this post | Comments (2)

Kudos to USAToday for publishing a pretty good article on variations in practice patterns related to back surgeries. In a front page story today, the paper that has been derided by some as "McNews" explores the issues surrounding the explosion in the number of spinal fusions.

The reporting is balanced, insightful, and thorough, a bit of a surprise coming from a paper that prides itself on short sentences, really short words, and lots of color, not depth and nuance.

Noted throughout the article is the primary problem - no one knows how many spinal fusions are the right number, and there is significant disagreement among stakeholders re when a patient should have surgery. (free registration required) That's all true, and that's where workers compensation comes in.

Continue reading "Workers' Comp - the answer to the spinal fusion question" »

Posted by Joe Paduda at 7:11 AM | Link to this post | Comments (2)

Dr. Biill McGuire, Chairman and CEO of United HealthGroup (UHG), is leaving the company. In an answer to the old question, "how much is too much?", the answer is "$1.5 billion".

This is, of course, the value of stock options that Dr. M received from UHG over the course of his career, a substantial portion of which were backdated to ensure he received the maximum possible payout.

Continue reading "How much is too much?" »

Posted by Joe Paduda at 2:48 PM | Link to this post

Dr Mark McClellan has left his post as administrator for the Center for Medicare and Medicaid Services (CMS). On his way out he talked about the future of the Medicare program, his views on the benefits of market-based competition, and his prediction that we are in what will be known as the biomedical century.

McClellan has garnered relatively positive reviews from across the political and editorial spectrum. By all accounts he is smart, dedicated, and a good person. That last is from a reader who knows the family and respects them. While that may all be true, I'm afraid McClellan missed a great opportunity. While he has worked diligently to promote data collection, quality and performance monitoring, and investigations of pay for performance, I have not seen much direct attention paid to practice pattern variation.

That's a big miss.

Posted by Joe Paduda at 8:00 AM | Link to this post | Comments (2)

My recent post on the battles between large health plans and hospitals/health systems generated a good bit of debate. One comment deserves special attention; "the other Joe" notes that the western PA landscape is marked by a combination health care system/health plan that dominates the region. While this type of vertical integration has been tried many times in the past with rather limited success, this version looks to be much better positioned to succeed.

But as the other Joe points out, there are significant costs associated with that "success", costs that are borne by the system/plan's employees, payers, insureds, patients, and employer customers.

Posted by Joe Paduda at 7:57 AM | Link to this post | Comments (4)

A reader asked several excellent questions about when and under what circumstances direct contracting makes sense. That's when an employer contracts directly with health care providers.

My take is an employer has to have at least 750 lives in one area - plant, school, city government, facility, etc. in order to have any buying power at all. And 750 may well be on the low end.

As to whether a partially self-insured employer, say one with a specific deductible of $50,000, should do this, I'd say yes. The vast majority of bills will come from members with total costs well under the $50,000 limit.

Lastly, direct contracting takes expertise and patience. Knowledge of provider payment mechanisms and expectations, an understanding of the related legal issues, an intimate understanding of the local provider community, and really good employee relations are the bare necessities. Without these, stick with a "regular" health plan.

Continue reading "Direct contracting" »

Posted by Joe Paduda at 7:51 PM | Link to this post | Comments (3)

Health Affairs, my favorite health policy magazine (and perhaps the only health policy magazine) has launched a blog. One of the first posts is by James Robinson, and is a review of Redefining Healthcare by Porter and Teisberg. I haven't read the book so I can't comment on Robinson's commentary.

One of the complaints about Health Affairs is it only appears quarterly; then again, given the weighty nature of the periodical that may have been a blessing in disguise. The new blog will likely remedy that situation, although the blog's apparent weekly posting schedule will have to be fixed if HA wants to be a meaningful player in the blog-o-sphere.

They're just getting started, so let's give them time.

Posted by Joe Paduda at 6:10 AM | Link to this post

For readers interested in workers comp, news from Effect Measure to whet the appetites of litigators looking to subrogate workers comp claims.

It seems that the highest levels of the Federal government were intimately involved in publishing information about the safety, or lack thereof, of the air around the WTC in the days after 9/11. And by all accounts they got it wrong.

Liberty Mutual, among other workers comp insurers, was, and is, on the risk for many of the people affected by the clouds of noxious substances resulting from the Towers' collapse. Perhaps they are already subpoena-ing away...

Posted by Joe Paduda at 6:06 AM | Link to this post

I was going to post a blistering riposte to an amazingly lousy article in the NYTimes (registration required), but Matt Holt beat me to it.

The Times article says words to the effect that the reason health care costs so much is because it makes us live longer. Boy is that misinformed, superficial, ineptly researched, and just plain wrong.

Health care costs so much in the US because prices are high and practice pattern variation prevails and there are too many uninsured and cost-shifting is rampant and Congress and the White House would rather grand stand about Terry Schiavo than address real problems.

Good work Matt.

Posted by Joe Paduda at 9:39 PM | Link to this post

Payer-provider interactions are getting downright pugnacious. Perhaps a more accurate characterization is the big health plans and health care systems are raising pugnacity to new levels.

Denver is the scene of one highly public row featuring United Healthcare and HCA’s HealthOne, one of the largest health care systems in the Denver metro area. The ongoing contractual dispute has led to lots of nastiness:

- termination of the UHC-HealthOne contract,
- filing of a temporary restraining order on the part of UHC to force HealthOne to enable UHC members to access some HealthOne facilities, and
- efforts by HealthOne to tightly control UHC case managers’ access to their facilities after reports that case managers were tring to get UHC patients to transfer out of HealthOne facilities.

This is not an isolated issue. Recent disputes have arisen in Rhode Island, Tennessee, and western Florida. Notably, several of the more contentious battles are between UHC and HCA.

Hospital and facility costs are the largest single contributor to health care cost inflation, and hospitals’ negotiating power, and willingness to use same, has grown significantly in recent years. It's likely that the recent announcement that HCA will be bought out by private investors will lead to an increase in the number and intensity of contractual battles.

What does this mean for you?

As United and others seek to constrain medical inflation, and hospitals work to maintain their margins in the face of increasing numbers of uninsured patients expect to see more of these battles hit the news around the country.

Posted by Joe Paduda at 6:33 AM | Link to this post | Comments (14)

Actiq, the lollypop pain killer, is rapidly becoming the biggest problem drug in workers comp. FDA approved only for treating cancer pain, the potent narcotic is now on most payers' top 5 drug list (ranked by dollars spent).

There are likely several factors that have enabled a drug clearly not approved for musculo-skeletal conditions to achieve this high "honor".

Continue reading "Workers comp's top problem drug" »

Posted by Joe Paduda at 7:20 AM | Link to this post | Comments (14)

Kaiser Permanente, one of the oldest and largest HMOs, is going to offer PPOs, high deductible plans, and plans with Health Savings Accounts. This marks a significant change by the big HMO, one that at first seems odd.

But from a business perspective it makes a lot of sense, for two reasons

Continue reading " What is Kaiser up to?" »

Posted by Joe Paduda at 5:17 PM | Link to this post | Comments (3)

The PR and financial fallout from the recent reports of inappropriate retroactive denial of coverage is starting to take its toll on California's Blue Cross plan. From Fierce Healthcare comes the latest news; the State of CA has levied a $200,000 fine against BX for their actions in one specific case.

And that's just one case. Reports indicate there are as many as 19 more.

What does this mean for you?

If David is doing battle with Goliath and the venue is the court of public opinion, you'd best bet on the little guy.

Posted by Joe Paduda at 5:47 AM | Link to this post

The Blues have decided to get smart. Perhaps not smart, but at least smarter. Blue Cross of California's much-publicized PR disaster arose when the LATimes published an article decrying the plan's policy of trying creative ways to cancel policies for individuals who had the nerve to ask BX to pay for their medical problems.

Actually, the problem arose when the State of CA took legal action against BX.

Continue reading "Blue Cross - Brand v. Underwriting" »

Posted by Joe Paduda at 7:44 AM | Link to this post | Comments (2)

In yet another example of self-inflicted trauma, an insurer has been accused of illegally canceling health insurance policies for individuals with serious medical conditions.

Continue reading "Insurers' self-inflicted wounds" »

Posted by Joe Paduda at 8:14 AM | Link to this post | Comments (1)

One of the oft-cited rationales for Health Savings Accounts and Consumer Directed Health Plans (HSAs and CDHPs) is their potential to reduce the number of individuals without health insurance (or, as my neighbor says, the "individually self-insured). While HSAs may have some benefits in terms of increasing consumer awareness of costs, for two rather obvious reasons, HSAs will not help reduce the number of uninsured in the US.

Continue reading "Why HSAs won’t help the uninsured" »

Posted by Joe Paduda at 7:25 AM | Link to this post | Comments (3)

I was unable to attend the rest of the National Consumer Driven Healthcare Summit; had to jet off to Phoenix to talk about drugs. But not to worry, the good people putting on the Summit posted the presentations so I was able to download and read them at 35,000 feet somewhere over Texas.

And boy was I rewarded.

Continue reading "Superficiality v substance in the CDHP debate" »

Posted by Joe Paduda at 7:57 PM | Link to this post | Comments (3)

I went to the National Consumer Directed Healthcare Summit in DC yesterday skeptical but with an open mind. And after Paul Ginsburg's opening talk, I was thinking there may well be a pony in here somewhere. Unfortunately, I left after three more presentations still searching for the pony.

Continue reading "National Consumer Directed Healthcare Summit - report from the scene" »

Posted by Joe Paduda at 8:44 AM | Link to this post

The shine appears to be wearing off the CDHP movement. And fast. Comments from several knowledgeable folks indicate that the movement may have been oversold on its merits. I'm expecting to learn a lot more later this week as I'll be attending the Consumer Driven Healthcare Summit in Washington as a member of the press.

Continue reading "CDHPs - reality is setting in" »

Posted by Joe Paduda at 7:09 PM | Link to this post | Comments (1)

HMOs are cheaper than other forms of health insurance due to lower provider costs. At least that's what an analysis of a 2004 study comparing HMOs to other forms of insurance discussed by Jason Shafrin in a post on Healthcare Economist says.

The difference amounted to 9.3%, with no measurable difference in utilization rates or risk selection between HMOs and other plans.

So, as an industry, HMOs are not more efficient because they are better at managing care or selecting risk, they are cheaper because they pay providers less. I would note that the analysis is based on data from the nineties, so perhaps a more accurate statement is that in the past HMOs were more efficient.

I don't know if that's the case today.

Posted by Joe Paduda at 5:22 AM | Link to this post | Comments (1)

Mark McClellan is leaving his post as head of the Center for Medicare and Medicaid Services. He served long and loyally, sticking to the Administration's line even when facts indicated otherwise, remaining a calming force when Part D enrollment was going nowhere. McClellan is also known for listening hard to suggestions and criticism from all sides, and working diligently to address problems.

Here's what's happened during his tenure.

Part D was passed, implemented, and operational. This was a monumental task, and one McClellan was instrumental in accomplishing. It's not his fault it is a fatally flawed program; well, maybe it is, in some small part, as he was probably involved in writing/editing/opining on the legislation. Nevertheless, under McClellan the program became reality, with the initial enrollment problems addressed (in large part).

Continue reading "McClellan's legacy" »

Posted by Joe Paduda at 6:35 AM | Link to this post

The bad news is the number of those without health insurance in the US has grown to over 46 million. The good news is that a few states have seen a reduction in the number of uninsured; the really bad news is a few have gotten even worse.

Several states are doing well. One is Iowa, where the uninsured population actually decreased last year, as the percentage of those without health insurance dropped from 10.4% in 2004 to 9.1% in 2005. Part of this success is due to increased enrollment of kids in the state's Hawk-I program, which more than doubled over five years to 34,600 in 2005. This parallels an increase of 200,000 enrolled in various government-funded programs over the same period.

Maine's one of the better off states, with a population of uninsured that is significantly lower (10.5%) than the national average of 15.7%. The state's Dirigo health plan, an effort to increase coverage among Mainers by targeting small employers and kids, has failed to meet enrollment goals but generated significant savings. It is tough to tell if the program has had an impact on the uninsured rate, as it is very new.

One that is not experiencing the same level of success is Arizona, with 20% of the population uninsured after an increase of 225,000 in the number of uninsured in 2005. To address the problem, the state is seeking to implement a revamped Medicaid program under a Federal waiver that focuses on the lower-income workers employed at businesses with fewer than 25 employees. There are over 200,000 businesses in the state that meet the size criterion.

As bad as the situation is in Arizona, it is worse in Texas, where almost a quarter of the population lacks health insurance.

What does this mean for you?

A closer examination of individual states may help us understand drivers of and solutions to the problem of uninsurance.

Posted by Joe Paduda at 3:19 PM | Link to this post | Comments (4)

It's happening. Actually, it has been happening for years, albeit not very often. Frustrated with increasing premiums and no real solutions from the health insurance industry, large employers are investing in direct contracts with health care providers to deliver health care services to their employees and their dependents.

The practice got its start before WWI, when lumber mills in Tacoma Washington contracted with the Western Clinic to provide health care services for their employees. Leland Kaiser built health care facilities and hired staff to provide services to workers on the Grand Coulee Dam in the nineteen-thirties, a project that was the beginning of today's Kaiser Permanente.

While there are no statistics on the number of lives covered under direct-contract arrangements, the total number is probably tiny. Unless there is a "magic" combination of a large employer and a dominant health care provider group with extensive facilities in a relatively small geographical area, direct contracting will just be too complicated and difficult to pull off.

But when those conditions do exist, expect more employers to seriously consider the move. Employers that are likely to consider direct contracts include large municipalities, school boards, manufacturing concerns, transportation hubs and entertainment companies.

What does this mean for you?

A business opportunity for providers, another challenge for health plans, and another way to tackle the problem of access and cost.

Posted by Joe Paduda at 7:17 AM | Link to this post | Comments (4)

Okay, here's a kind of out-of-left-field diversion from our usual diet of policy, insurance, managed care and industry news. Lets talk about motorcycle helmets.

When jurisdictions have mandatory helmet laws, the number of fatalities goes down. By most measures, that is a good thing. However, it does mean there are fewer organs to be transplanted, which is a bad thing.

One of the "bad" things is the increase in medical costs. When Florida dropped its mandatory helmet law, hospital costs for motorcycle injuries jumped from $21 million in the thirty months prior to the change to $44 million for the same period post-enactment.

Readers with good memories will recall that Florida also has a lot of folks without health insurance; 81% of these folks are of working age.

EMTALA laws require hospitals to treat patients, including injured motorcyclists without insurance, who show up at the emergency room.

So society is paying for motorcyclists who want to exercise their free right (choice of words intentional) to suffer brain injuries by riding without a helmet. But I don't want to pay for their health care.

Do you?

Posted by Joe Paduda at 6:54 AM | Link to this post | Comments (7)

For an intriguing answer to the question, does risk selection work to maximize profits in health insurance?, see Jason Shafrin's article.

For those too lazy to click-thru, the answer is yes, for the health plan.

Jason also has a related post on the dark side of risk selection, which is what happens to those risk selected against. In a word, the uninsured.

What's good for the company is bad for the economy.

Posted by Joe Paduda at 2:13 PM | Link to this post

Aetna continues its effort to provide information on physician pricing and quality with the announcement that it is now publishing data for the Washington DC metro area. Given the problems encountered by members of other health plans trying to be good "consumers", this initiative, while very limited, is certainly going to help Aetna's DC-area members.

What's missing are the pricing and outcomes for procedures that are less common, but potentially more costly and more critical to individual patients - minor surgery, major surgery, endoscopy, etc.

What does this mean for you?

A step in the right direction, but only a small step. Consumers will need a lot more information in a lot more areas if the whole consumer-directed thing is going to have any chance.

and thanks to Fierce Healthcare for the heads up.

Posted by Joe Paduda at 6:56 AM | Link to this post | Comments (3)

Two recent articles highlight the massive inefficiencies in the US health care system. In Philadelphia, five hospitals now have heart transplant programs, even though there are only enough patients for two. The result? Hospitals will not perform enough to gain the experience needed to improve safety and efficiency while lowering variable costs.

A few hundred miles away, a (reg req)group of cardiologists in Elyria Ohio have evidently decided that their Medicare patients need angioplasties four times more frequently than the national average. I wonder if it's the fried dough at the Elyria fair?

Continue reading "Too much health care is bad on many counts" »

Posted by Joe Paduda at 7:15 AM | Link to this post | Comments (2)

A recent survey indicates middle income Americans are deeply worried about health insurance, the cost of care, and the impact of both on their well-being. The survey authored by the Commonwealth Fund and reported in California Healthline, highlights concerns across incomes, with individuals at higher income levels somewhat less affected by health care costs (although one in five still had trouble paying medical bills).

And this is not just a general fear; according to California Healthline; "half of U.S. adults living in middle-income families say they had a "somewhat serious" or "very serious" problem paying their medical bills over the past two years.

Most intriguing - three-quarters said the "U.S. health care system needs to be fundamentally changed or completely rebuilt (Agovino, AP/Long Island Newsday, 8/17)" (California Healthline).

Politicians - are you listening??

Posted by Joe Paduda at 5:52 AM | Link to this post | Comments (1)

Jason Shafrin at Healthcare Economist has an intriguing analysis of administrative expense in Medicare v private insurance. My net is that Medicare is less costly from an admin expense perspective than private insurance, but not as "less" as I thought.

This is where blogs really excel - making us rethink "common knowledge" and question our assumptions...

Posted by Joe Paduda at 7:03 AM | Link to this post | Comments (2)

The increasing consolidation in the health insurance market is beginning to run up against the same situation among health care providers, creating the market condition known as a bilateral oligopoly (few sellers and few buyers). This appears to be happening in Denver, where UHC is battling HealthOne over contract terms, reimbursement and likely other sticky issues.

There are two points here.

First, according to several sources, HealthONE is an excellent system with enviable outcomes; therefore is entitled to ask for better reimbursement than lower-performing systems. One of those sources is UHC itself. Here's a quote from the press release

""Interestingly, HealthONE hospitals earned the highest quality rankings among Denver metropolitan hospitals for a majority of procedures evaluated in UnitedHealthcare's first ever-report card, released in June of this year," said Patrick Powers, HealthLeaders-InterStudy senior analyst. "These report cards are part of UnitedHealthcare's new pay-for-performance initiatives, which should translate into improved rates for high quality hospitals." That's only half of the story, as we aren't privy to the rates UHC is offering and HealthONE is demanding. That said, HealthONE seems to have a strong case for strong rates.

Second, while a "bilateral oligopoly" may send you (and certainly sent me) scrambling for the e-dictionary, the net is the big players do battle while the consumers try not to get trampled underfoot. Here we have a very large insurer and a very large provider fighting over rates and access, while the consumer waits anxiously for these behemoths to resolve (or not) their squabbles.

Reminds me of the old joke about what you find between elephants' toes.

Slow running natives.

Posted by Joe Paduda at 6:42 AM | Link to this post

I've received an invite from the folks conducting the Consumer Driven Healthcare Summit to attend the September 13-15 conference as a representative of the blog world, sort of a "press invite". I applaud their openness in two respects - first, I've not exactly kept my skeptical views of consumerism in health care to myself; and second, bloggers are a wierd, strange, new form of media that many don't yet recognize as important or even worth noting.

So, I'm looking forward to it.

The agenda includes talks by Paul Ginsburg of the Center for the Study of Health System Change (one of the few truly excellent policy/analysis concerns); Jon Gabel on how much consumers are actually contributing to their HSA accounts; Karen Davis of the Commonwealth Fund, Ron Pollack of Families USA and John Iglehart of Health Affairs on the Downside of Consumer Driven Healthcare; and several sessions on results of studies and research into various aspects of CDHP and its cousins.

This should be fun. And I'll be doing my best to report live from the scene, in the best tradition of Matthew Holt.

Posted by Joe Paduda at 5:42 AM | Link to this post | Comments (4)

Sen. Bill Frist, the senate majority leader and ex-cardiac surgeon and heir to the Frist family fortune (they started hospital firm HCA), has launched a health care blog. A quick perusal indicates posts on med mal reform, Massachusetts' health care reform initiative, and bioterrorism. There are also copies of articles by the Senator for those inclined to learn more about his opinions.

As a relatively new entrant to the field, we'd suggest a couple of things to the Senator. First, hotlinks are pretty useful, and help provide support for statements such as "Many states have passed laws that attempt to keep frivolous lawsuits from being filed and keep liability premiums down..."

It's also helpful to be specific and clear when writing. Parsing out the quote above, it is notable that the dependent clause "that attempt to keep frivolous lawsuits from being filed and keep liability premiums down" relates to the "passed laws", and does not imply that these laws actually do reduce frivolous lawsuits. Kind of nuanced, but readers appreciate the clarity.

At the risk of being accused of being snarky, I'd also point out that the focus on medical malpractice is somewhat bizarre, given the Doctor/Senator's propensity for refuting other physicians' diagnoses without first examining the patient.

Posted by Joe Paduda at 10:34 AM | Link to this post | Comments (1)

Here's another way health care costs weave their way into our lives - the town of Richland Hills, Texas is increasing property taxes to pay for a 20% rise in health insurance costs. While the increase in the mill rate (the cents per hundred dollars of property value) will only go up 0.6, it's another example of the growing awareness of the impact of health care costs on a community.

The same is occuring in communities as different as MIssoula Montana, Boxborough Mass, and the state of New Jersey.

This is a national problem. Today's NYTimes reports that property taxes have gone up two to three times faster than personal income in the tri-state area. As a resident of Connecticut and eight year veteran of my Town's Board of Tax Assessment Appeals, I have first hand knowledge of taxpayers' growing concern, and even anger, over rising property taxes. Now, new laws will require municipalities to report their future health care liabilities, a requirement that had a significant impact on public companies' valuations and financial reporting.

And may well lead to even more taxpayer unrest; public entities typically provide health care benefits that are considerably more generous than those dispensed by the private sector. One of the stated reasons is these benefits are a form of compensation that makes the jobs more attractive given the wages, which tend to be somewhat below the private sector. While the latter may be true, the rationale instantly brings to mind the disaster unfurling at US auto manufacturers, who used the same logic decades ago to provide very generous health benefits in lieu of salary increases.

And look what's happened to them.

Posted by Joe Paduda at 7:49 AM | Link to this post | Comments (4)

Assuaging concerns about quality, treatment standards, and outcomes is one of the biggest challenges facing off-shore medical facilities eager to extract a fraction of US health care dollars. That and figuring out how to make a Mumbai hospital look and feel like the one just down the street from the medical tourist's neighborhood.

Into this business opportunity (the former, not the latter) has stepped an Australian certification body, the Australian Council on Healthcare Standards. Working with two Indian groups, the Quality Council of India (QCI) and the National Accreditation Board for Hospitals and Healthcare Providers (NABH), the Aussies will help revise national credentialing and standards for Indian health care facilities.

The standards are likely to closely parallel those developed by another body, the ISQua, The International Society for Quality in Health Care. ISQua includes board members from URAC, JCAHO, and accrediting organizations from other countries, and is operational in 70 nations.

As healthcare goes global, and American companies and individuals seek to reduce expenses while assuring quality, expect that we'll hear more about health plans that include first-dollar coverage for services rendered at ISQua certified facilities.

What does this mean for you?

The world is getting smaller, flatter (thanks Tom Friedman) and more competitive, and providers who ignore competition from overseas do so at their peril.

Posted by Joe Paduda at 6:48 AM | Link to this post | Comments (2)

As corporate profits have surged over the last six months, retiree health care benefits have been reduced at many companies. That's the headline, but the reality is not so simple.

Large, old-line manufacturers with negotiated benefits and lots of retirees (think steel and autos) are facing bigger-than-huge retiree health care costs, driven in large part by benefit plans that don't even have deductibles or copays. As these firms continue to get hammered by international competitors with much lower labor expenses, they are seeking ways to reduce their costs.

And retiree health care costs are a very big drag on many of these companies, hurting their ability to invest in new products, new employees, new plants and equipment. Sure, GM, Ford, Kaiser Aluminum, US Steel and other companies made lots of decisions, including trading benefits for labor peace, that don't look so smart in hindsight. And GM and Ford completely missed the boat on fuel economy.

But all that is beside the point. If American manufacturers can't reduce their cost of health care, they will be increasingly unable to compete.

Here's one potential solution.

Posted by Joe Paduda at 7:20 AM | Link to this post | Comments (1)

Self-insured employers are beginning to take the drastic step of sending patients overseas for expensive, complex medical procedures. While there are likely just a few employers doing this now, there are several companies formed expressly to provide these services to employers. And, at least three large employers have contracted with benefits consulting house Mercer to research medical services offshoring.

The rationale behind these decisions is obvious - greatly reduced expenses. Procedures done in India or Thailand commonly cost one-tenth to one-fifth what they do here. And this is in facilities that have been likened to five-star hotels, with very high staffing ratios and round-the-clock pampering of American patients.

Hospitals, at least American ones, are not happy about this. Private-pay patients (those covered by private insurance) overpay for care, and that overpayment helps cover the cost of indigent care. As hospitals are required by law to provide care to all, they have relied on this cost-shifting to help balance the books.

Some employers are no longer willing or able to pay this hidden tax

What does this mean for you?

Another thread is being pulled from the worn fabric that is the US health care system.

Posted by Joe Paduda at 10:54 PM | Link to this post | Comments (2)

Most employers are not confident that they understand their companies' High deductible health plans (HDHP). According to a study released by Buck Consultants, only 20% of respondents said they understood their HSHPplans "very well".

Notably, 81% of respondents said the key challenge to successfully implementing these plans was employee education and understanding of the plans.

It is encouraging that employers recognize that the plans will not be successful without an educated and informed employee base; it is somewhat less encouraging that these same employers don't think they know their own plans very well.

Posted by Joe Paduda at 7:17 AM | Link to this post | Comments (2)

The premise of health insurance is simple - insureds pay insurance companies a premium with the expectation that when the insured needs medical care, it will be funded by the insurance company (subject to the policy conditions). And if the care required is really expensive, well, that's why you have insurance.

The relationship is inherently based on trust; the insured trusts the insurance company to pay the bills and the insurance company trusts the insured to pay the premiums. Actually, there's not a lot of trust on the part of the insurer, as they just cut off benefits when premium payments stop coming in. But the insureds trust the insurer to pay the bills, cover expenses, and treat them fairly.

What happens when that trust breaks down? Does it do lasting damage to the relationship between and among individuals and insurers? Absolutely.

"While deception may be tempting because it can be used to increase short-term profits for the deceiver, we find that the long-term costs of deception are very high," the researchers conclude. In other words, in long-term relationships, it pays to cooperate." This quote is from a very interesting experiment conducted by a couple Wharton Business School professors which examined the implications of deception on relationships between individuals.

Research indicates the health insurance industry ranks pretty low in terms of respecting customers, and customer respect, with 3 out of 5 respondents saying their general trust for insurance companies is "not much" or "not at all".

Moreover, polls indicate that people would be willing to pay more to see certain doctors, under certain conditions. This being the case, it is puzzling as to why HSA plan sponsors (insurance companies) aren't more forthcoming, and don't explicitly inform insureds that services rendered by providers must be "covered" under the plan definitions if the negotiated rate is going to apply. If their members are OK with paying more, then insurers should just tell them, clearly and up front, that non-covered services are going to cost whatever the provider charges.

Many health insurance executives appear to have a large blind spot when it comes to their customers' reactions to policy limits and restrictions. They don't seem to "get" that customers are not expert in parsing policy language, don't understand the intricacies of policy limits and restrictions, and get angry when they think they're being mistreated.

The net is, insurance companies may save a few bucks by not telling HDHP buyers that their negotiated discounts don't apply to non-covered services, but they will likely lose customers, and may well lose their battle against tighter regulation as a result.

What does this mean for you?

Perception is king, and customers/voters/health care consumers perceptions of insurers' practices may well result in "unintended consequences" for the insurers.

Posted by Joe Paduda at 7:21 AM | Link to this post | Comments (10)

My esteamed (pun intended) colleague and I spoke at length yesterday about a letter he received from Golden Rule (United Healthcare's subsidiary). I'm paraphrasing; here's the key points.

1. Golden Rule stated that their policy is to reprice bills for non-covered services to reflect the rate they have negotiated with the provider, and to send that information to the insured and provider.

2. It is up to the provider to determine if they will accept that amount, or if they want to balance bill the patient.

3. Here's the corker - Golden Rule stated that this policy is not disclosed to the insured in any written materials because it is contained in the contract between the provider and Golden Rule, and is confidential. Their claim is that this matter is between the insurer and the provider, as the insured is "self-insured" for that risk...

Again, neither I (an ex-insurance company executive) or anyone else I have spoken with understand this policy.

Here's where it really gets unpleasant. UHC, and other insurance companies, sell health plans to employers where the employer is liable for the first $25,000, $100,000, or other level of risk. Beyond that, UHC is "on the hook" for the claims expense. Moreover, employees insured through these plans who receive "non-covered" services from UHC-contracted providers usually get the benefit of the negotiated reimbursement rates.

Colleague suggested, and I agree, that this inconsistency is troubling. And not likely to make individuals, or supporters of consumer-directed health care, very happy.

I'm amazed at the blithe ignorance exhibited by insurance companies. Do they think individuals will not be upset about this? Do they think this will engender warm feelings of brand loyalty? Or do they think this will somehow endear them to their providers, even if it angers their policyholders?

Who's the customer here?

Posted by Joe Paduda at 7:50 AM | Link to this post | Comments (9)

Here's the latest on my Colleague's battle with his/her health plan over accessing their negotiated rate for non-covered care. While the health plan (United Healthcare/Golden Rule) promised to respond, the customer service folks had not resolved the question by the end of last week. So, s/he is still waiting.

The contention of Colleague is that since the marketing materials and policy did not state that UHC's negotiated rates did not apply to these services, and in fact stated that one of the advantages of the plan was that access, the marketing materials are misleading at best.

Meanwhile, Hank Stern and Bob Vineyard at InsureBlog invested a considerable amount of time investigating this, and have written an excellent synopsis of the situation and the insurer's perspectives. Hank and Bob also asked insurance companies to explain why they would adopt a policy that is so obviously consumer unfriendly; as of yesterday they are still waiting for a response...

The net from InsureBlog is that the insurance companies reprice the services to reflect their negotiated rates, but it is up to the provider to determine if they will accept that rate . So, the health plan informs the consumer what their cost could be, and the provider then says "nope, you've got to pay the full boat".

Boy is this dumb. The consumer is now "educated"; they know what they could pay, and they also know that they have to pay the higher rate. Result - really angry consumers, who feel they have been bait-and-switched. Yes, the insurance companies are technically within their rights to do this, as are providers, but this will undoubtedly stoke the anger of voters, an anger that may well be directed at both offending parties.

Posted by Joe Paduda at 7:51 AM | Link to this post | Comments (2)

Health Affairs' article comparing the health status of Americans and Canadians doesn't break new ground nor shatter any perceptions, at least not any perceptions held by informed folks. Tops among the popular misconceptions about the Canadian health care system is the old saw that people have to wait forever for care, with the unstated resulting negative impact on health.

Well, 11% of Canadians do think they have unmet medical needs, primarily because they have to wait too long for care in some instances. In contrast, 13% of Americans have unmet needs, primarily due to cost.

A few more factoids to ponder -

--Most respondents in both countries are in good very good or excellent health, although a few more Canadians enjoy this status (88% v US' 85%)

--31% of the poorest Americans considered themselves to be in fair or poor health compared to 23% of Canadians.

--Canadians and Americans exhibited similar results regarding access to physician services.

The statistics come from the Joint Canada/US Survey of Health, a joint effort of the National Center for Helath Statistics in the US and Canada's Statistics Canada; sample sizes are large and the methodology robust.

When one considers that we Americans are paying 50% more for health care than our northern neighbors, it's hard to see what we get for our dollars.

Posted by Joe Paduda at 6:15 AM | Link to this post | Comments (4)

A study released by the Mayo Clinic, reports that there is far too much money spent on end-of-life care. The study is paralleled by a newly released Dartmouth study , reports that indicates Medicare spent about $40 billion more than it should have on end of life care, due to the inefficiencies of many hospitals.

By any accounting, that's a lot of cash. Enough, in fact, to provide coverage to a substantial number of Americans presently without health insurance.

While it can be argued that one does not know when a person's life is ending within six months, it can't be argued that some hospitals are much more efficient than others. And this inefficiency is costing taxpayers, employers, and individuals billions of dollars.

The Mayo Clinic study found that a substantial portion of Intensive Care Unit patients were the elderly with terminal conditions. ICUs are notoriously (and appropriately) expensive, require high staffing levels and very sophisticated equipment, and are expressly designed to help really sick people get better. That does not make much sense for many elderly with chronic, life-ending conditions.

The Dartmouth study, which was authored in part by John Wennberg (one of the most insightful people in health care), recommends that terminally ill patients be treated outside of acute care facilities. This seems to be common sense; acute care hospitals are, by definition, set up for handling acute conditions - trauma, childbirth, orthopedics, heart attacks, etc. Terminal illnesses are not acute conditions, and therefore should be treated in a facility or setting that is chronic-care oriented.

This is one of those apparently simple solutions that can save billions of dollars while improving quality of care and end of life experience, and is likely to be acceptable to individuals of all political stripes and inclinations.

Sign me up.

Posted by Joe Paduda at 7:21 AM | Link to this post | Comments (2)

HSA plans do not require contracted providers to accept the health plan's negotiated rates when members receive non-covered care. That's what I've learned about the coverage policies of United/Golden Rule, Coventry, Assurant, CIGNA, Aetna, Humana and a couple of the Anthem Blues.

Quoting Hank Stern of InsureBlog, "In Ohio (and, as far as I know everywhere else), individual (as opposed to group) plans exclude normal childbirth. So someone covered under a HDHP would not get the negotiated rate for any pre-natal care..."(or the actual childbirth, or any associated expenses).

Hmmm, I wonder the rate of "complications" experienced by moms covered under HSA plans is higher than one would expect... But I digress.

The key here is what is covered, and what is not. To find that out, ask for a specific list of covered and excluded items from the broker and/or the health plan. And ask if services that are paid out of the HSA, but appear to be covered, fall under the provider's contracted rates.

Why would you do this? Because the contracted rates are likely less than half the "retail" rate.

As to why a health plan would do this; not require their providers to accept contracted rates, that's a mystery to me. As a couple ofcommenters have noted, if the insureds pay the higher rate, they are going to pierce their deductible layer much faster, thereby incurring claims expense and costing the health plan money. To say nothing of the consumer backlash when people find out their coverage through a national plan does not give them better rates.

I'm really surprised that health plans would do this, and do very little to educate their customers about this pervasive policy (nowhere on any website did I see this policy referenced). It makes little sense from a consumer marketing perspective, is likely to alienate customers, looks very short-sighted, and flies in the face of their touted desire to provide consumers with more education and make them better health care buyers.

Did the health plans think consumers wouldn't figure this out? And be angry when they did?

Thanks much to Hank, my "colleague", and several other un-named and un-nameable industry sources.

Posted by Joe Paduda at 5:54 AM | Link to this post | Comments (8)

Prof. Regina Herzlinger, a well-known advocate of consumer-driven health care and professor at Harvard Business School, has come out in favor of a plan proposed by South Carolina Gov. Mark Sanford that would add choice to the state's Medicaid program.

According to Dr. H, "Every recipient would obtain catastrophic and preventive coverage as well as a personal health account (PHA). Enrollees could then use their PHA funds to pay for a consumer-driven option of a traditional Medicaid hospital insurance, along with a doctor of their choice; a managed care policy, with its deductibles and copayment; or a network group of local physicians." OK, sounds reasonable.

She then goes on to say:

(Critics) "believe that Medicaid recipients will overwhelmingly choose the consumer-driven opportunities. But when consumer-driven plans are offered along with other health insurance choices, they are not necessarily the most popular. A 2005 Kaiser Family Foundation survey, for example, found that when enrollees were offered other insurance plans, only about 7 to 15 percent went the consumer-driven route. They also contend that Medicaid enrollees are too poorly educated and lack access to sources of information like the Internet. Although these sources are depicted as high tech, much of what patients learn actually comes from the phone and face-to-face interactions."

I'm not sure what to make of this. Is Dr. H's contention that critics need not worry because most Medicaid beneficiaries won't pick consumer-drive plans? Or is it that Medicaid folks, despite their lower educational level, will grasp health care information as quickly and completely as privately insured people? Or both?

I'm not disagreeing with Dr. H, I'm just not sure where she's going with this.

I am somewhat confounded by her later assertions in the same article that individuals with chronic conditions covered under consumer-directed plans did a better job complying with treatment, testing, and preventive care directions than individuals in non-consumer-directed plans. Methinks the good doctor confuses a statistical relationship with a causal one.

Back in the day, HMOs recruited members by offering health club memberships, knowing that individuals who were already using clubs and those committed to/interested in improving their health status would join up, incur few claims, and therefore the net expense would be considerably less than if the HMO offered comprehensive diabetes care. Marketing and market segmentation at its best.

Just because these HMOs had a lot of people in health clubs does not mean that their members were healthier because they joined the HMO, it could mean that because the members were healthy to start with, they joined the HMO.

My bet is that the folks with chronic conditions that took care care of themselves in the consumer-directed plans were doing so before they joined. Not, as Dr. H says, that "These plans appear to have transformed how some enrollees approach their healthcare."

a nod to fierce healthcare for the head's up.

Posted by Joe Paduda at 6:39 AM | Link to this post | Comments (1)

A colleague working in the managed care industry purchased a HSA plan through United Healthcare/Golden Rule. This colleague, a highly experienced and very knowledgeable industry veteran with extensive expertise in assessing physician outcomes and inpatient and outpatient hospital costs and quality, and several years' experience in provider network development and operation, was confident in his/her ability to effectively reduce costs while obtaining care for the family.

Not so.

Continue reading "United Healthcare - the fine print that's not there" »

Posted by Joe Paduda at 6:50 AM | Link to this post | Comments (15)

Well, duh.

My pejorative use of the playgound expression is not directed at Health Affairs or the authors of the excellent study that is the cause of my use of the childish expression, but rather at those who actually think HSAs (health savings accounts, aka health spending accounts) will reduce spending by making consumers, well, better consumers.

The central finding of the study (authored by Dahlia Remler of CUNY and Sherry Gilead of Columbia University) is this "fully half of (health care) spending is for those who face reduced cost sharing on average (under an HSA plan as opposed to a more traditional health benefit design). Thus, when considering the plans in existence today and comparing them with the types of plans associated with the new (HSA) legislation it is not clear that HSAs live up to their advertised increase in cost sharing."

I'd go further - it is clear that HSAs will have little to no impact on health care spending by the high spenders. This blows a very large hole in HSA advocates' arguments that consumerism is the solution to our health care crisis.

Continue reading "HSAs won't reduce spending." »

Posted by Joe Paduda at 7:59 AM | Link to this post | Comments (5)

Everyone's losing in America's health care mess. Premiums for family coverage are doubling every ten years, and will hit $20,000 per family per year before 2015. While insurance costs are going up, physicians are actually making less. Physician income decreased 7% (registration required) in real terms from 1997 to 2003. Specialist earnings dropped the least (2%), while primary care docs saw a 10% decline. And Medicare reimbursement rates will likely decline in nominal terms in the near future.

The data, from a study by the Center for the Study of Health System Change, seem at odds with the daily torrent of reports on exploding health care costs. If health care costs and insurance costs are rising, how could docs be making less?

There is good news buried in CSHC's report - the amount of time physicians spend actually treating patients has increased significantly, while the time devoted to administrative tasks has declined.

It appears the answer lies in declining reimbursement rates. These hard-working docs are spending plenty of time (over 45 hours a week) with patients, but their reimbursement rates have not kept pace with inflation. For example, Medicare has increased fees by 13% during the study period, while the underlying inflation was 21%. And, private payers' reimbursement declined from 143% of Medicare's rate in 1997 to 123% in 2003.

So, clearly physician income is not a driver of medical inflation. One driver appears to be the increased volume of tests performed; utilization in this area was up at a 6% annual rate over the study period.

But the real driver appears to be higher utilization of physician services (more docs doing more stuff), and, slightly less important, a significant increase in hospital and facility costs.

Oh, and drug costs continue to rocket skyward...

What does this mean for you?

Higher costs, lower incomes = unhappy consumers and providers does not = change...yet.

Posted by Joe Paduda at 4:50 PM | Link to this post | Comments (5)

Prices on branded drugs increased 3.9% in Q1 2006(registration required), the largest increase in six years. Coincidentally, the Medicare Part D drug coverage program went into effect 1/1/2006. Part D has resulted in somewhere around ten million new customers for insurers, who will now pay 4.7% more for Lipitor and 13.3% more for Ambien.

In terms of dollars, AARP calculates the average senior's costs will increase by almost $20 per month, as the Part D providers are passing the cost increases along to their subscribers.

There has been the usual rash of outraged protests from various mouthpieces for big pharma, all of which are either disingenuous, outrageously self-serving, misleading, or poor attempts at deflecting blame towards insurers et al.

So what happens when pharma decides to increase prices?

Well, the mass media starts looking at what the Veterans Administration pays for drugs. Compared to the VA, the only federal entity allowed to negotiate prices, Part D prices are now 46% higher on average.

Here are a couple examples, quoted from the Families USA report.

"For Zocor (20 mg), the lowest VA price for a year’s treatment was $127.44, while the lowest Part D plan price was $1,275.36, a difference of $1,147.92 or 901 percent.

For Fosamax (70 mg), the lowest VA price for a year’s treatment was $265.32, while the lowest Part D plan price was $727.92, a difference of $462.60 or 174 percent."

So here we have big government, in the form of the VA, delivering prices that are about half of what private industry can obtain. While that's kind of interesting, it gets way more than "kind of" interesting when you consider that Part D has added $8 trillion to the nation's long term debt. That's a quarter of the entire Medicare deficit...

Tell me again how privatizing health care for seniors is a good deal for taxpayers, seniors, and the country?

Posted by Joe Paduda at 6:20 AM | Link to this post | Comments (3)

Health care makes strange bedfellows, and there is perhaps no odder combination than UAW Pres. Ron Gettelfinger and Sen Orrin Hatch (R-Utah). Especially when both agree that health care is a national crisis, and both are affiliated with organizations that agree the feds should guarantee health care access to all.

In a landmark speech a couple days ago, UAW President Ron Gettelfinger acknowledged the cost of health care benefits is one of the key problems facing the declining US auto industry, and called for the union's 600,000 members to be part of the solution. In his hour-long speech, Gettelfinger mentioned health care a dozen times, paying special attention to national health care policy. He blamed Pres. Bush for a failure to address the problem, and specifically called for a national single payer approach. But readers who only absorb that sound bite miss Gettelfinger's core message; without a rational approach to health care, the US will not survive economically. Here are a few quotes...

"U.S. automakers (are) at a severe competitive disadvantage...It’s time to level the playing field. Health care is another area where we are at a competitive disadvantage..."

"In the 2003 national auto negotiations we were successful at preserving health care. However, last year the financial situation at GM and Ford was such that our retiree’s health care was at risk and I made the difficult decision to negotiate an agreement to address the huge and growing retirees’ health care liability carried by these companies."

The UAW knows that economic survival depends on a competitive automobile industry, and with health care costs at Ford and GM totaling $9 billion, that survival is in doubt.

"Assuring health care is a shared social responsibility." No, that's not another line from Gettelfinger's speech, but rather from the interim report of the Citizens' Health Care Working Group, a non-partisan Congressionally-funded research project started by Sens. Orrin Hatch (R-UT) and Ron Wyden (D-OR). This statement came out in the group's preliminary report, along with a recommendation that the federal government guarantee access to health care for all Americans.

Sure, there are differences in approach, but there are a lot more similarities than differences. Could it be that we're getting closer to addressing the health care problem?

Posted by Joe Paduda at 7:40 AM | Link to this post | Comments (1)

To much fanfare, CMS released several data files containing hospital charge and payment data by state, county, (but not by individual facility) for the 30 most common DRGs and elective procedures. National, state and county financial ranges are included, and the volume of services provided at individual facilities are also available.

This is the first of three planned data releases; the next scheduled for this summer is for ambulatory surgical centers followed this fall by hospital outpatient numbers.

Promoted by the Administration as a part of Bush's "commitment to make health care more affordable and accessible, President Bush directed the U.S. Department of Health and Human Services to make cost and quality data available to all Americans", the data is available at CMS' website. I'm not sure how this data will help consumers become better...consumers, but in the meantime here's my positive spin on the effort.

Here's my take on what you can do with the data.

1. FIgure out how your payments compare to the Feds', and use that to assess your contracting strategy.

2. Identify the hospitals that do the most specific procedures, and direct your patients/insureds/injured workers to those facilities...and away from the others.

3. Publish the data (after translating it into English) on your website so patients can draw their own conclusions.

4. Examine the volume of procedures at specific facilities and compare that to your payments to same see if there is a link between experience and efficiency (or at least billing practices).

5. Look at the payment to charge ratio and wonder.

6. Wonder how the release of the data will help consumers make better decisions, as individual hospital charge and payment data is not available.

There seems to be a problem here. How are consumers going to improve their ability to consume if individual facilities' results are not posted? How could an individual consumer use these data to make better decisions? Do the Feds have a clue?

Here's the detail on what's in the files.

"Top 30 Elective Inpatient Hospital DRGs" contains the volume and ranges of Medicare payments between the 25th and 75th percentiles for a limited set of conditions treated in U.S. states and counties. Included are the 30 conditions that had the highest utilization rates among all Diagnosis Related Groups (DRGs). Data are aggregated at the county, state and national level.

"Other Inpatient Hospital DRGs of High Utilization" contains ranges of Medicare payments between the 25th and 75th percentiles for a limited set of conditions treated in U.S. states and counties. These conditions are not among the top 30 utilized Diagnosis Related Groups (DRGs), but were deemed of interest to the Medicare community. Data are aggregated at the county, state and national level."

What does this mean for you?

See above.

Posted by Joe Paduda at 6:44 AM | Link to this post

National health care will be reality within five years. All the theory, intellectual debate, politicking, lobbying, trips to Scottish golf resorts and campaign contributions funded by lobbyists, insurers, providers, and big pharma will come up against two overwhelming forces – demographics and the weight of bad decisions in the past.

As of the last Medicare trustee report, Medicare’s long term debt is $32.4 trillion. Part D alone is responsible for a quarter of that amount, or $8 billion. In comparison, the entire Social Security debt is $4 trillion.

In the face of that incomprehensibly huge figure, we have a Congress that is incapable of doing anything that might alienate seniors, doctors, pharmaceutical manufacturers or hospitals. We have an administration seeking to cut provider reimbursement and increase seniors’ costs by $36 billion over 4 years. That’s about 1% of the total medicare deficit. And we have the Bush tax cuts set to expire by 2011, which just happens to be the same time the Medicare trust fund cash flow turns from black to red as the Baby Boomer generation starts cashing in.

This will force change. The only question is will there be a single payer system, universal coverage via private insurers, some form of hybrid, or a new and as-yet unformed model. Given the recent transgressions of the major national health plans, I wouldn't go too long on Aetna, United Healthcare, or CIGNA stock.

If you are looking for what it may look like and the features thereof, see here and here.

What does this mean for you?

Your decision - part of the solution or part of the problem?

Posted by Joe Paduda at 7:55 AM | Link to this post | Comments (2)

It is axiomatic that one's income is based on one's value. If recent studies on physician income are any indicator, society still places a lot more value on doing procedures than on keeping people healthy.

According to physician recruiting firm Merritt, Hawkins & Associates, job offers for internists and family practice docs came with average salaries of $162,000 and $145,000 respectively. In contrast, cardiologists and radiologists were offered $$342k and $351k. The first group of docs provide primary care; diagnosing conditions, encouraging healthy behaviors, finding early indicators of life-threatening disease. They get paid for their time. Yes, they do procedures (excisions, tests, x-rays and the like) but their time is spent not doing things but figuring out what's wrong with patients and making recommendations to fix the problems.

The second group of docs do procedures - yes, they diagnose, albeit on a patient that arrives with records in hand, preliminary work-up completed, and some indicators of a problem that falls into the specialist's area of expertise - but they get paid to do things - analyze images, perform surgeries and invasive procedures, apply radiation to attack cancers and the like.

And primary care physicians are not (Lowes R. Earnings: Primary care tries to hang on. Medical Economics. September 17, 2004) seeing their incomes increase, while invasive cardiologists enjoyed an 11% jump in income from 2002 to 2003. Internists who are looking to generate more income are encouraged to sub-specialize in gastroenterology, cardiology, and other more lucrative areas.

The Lowes article provides an excellent perspective on the causes and results of the rise of "proceduralists".

"The proceduralists have benefited from the waning of the gatekeeper model, since they're now more accessible to patients. And they're kept busy by graying baby-boomers anxious to preserve their hearts, knees, and various organs. Specialists also have managed to make up for meager third-party reimbursement by generating income from ancillary services such as diagnostic imaging, outpatient surgery centers, and even specialty hospitals."

What does this mean for you?

The free market in healthcare is working. For specialists. It is most definitely not working for payers, taxpayers, and patients. And it is continuing to drag down our nation's commercial and industrial competitiveness.

Posted by Joe Paduda at 6:42 AM | Link to this post | Comments (2)

GM's health care costs are over $1500 per car. Chrysler's are $1400, Ford $1100. Honda, Toyota, et al are a fraction of these figures. That disparity crystalizes the economic problem facing US industry (subscription required) competing in a world economy.

There are ample posts and many sources describing how GM got to this point, and all of them are interesting and serve as an excellent object lesson for executives and public policy folk. But the real question is what do we do about this now?

First, let's stop the health care problem from getting any worse. To do that, we have to address the current health care delivery system, pricing, access, and eligibility.

Continue reading "Solving legacy health care costs" »

Posted by Joe Paduda at 6:33 AM | Link to this post | Comments (5)

I'll admit to being somewhat ambivalent about the recent action by the Tennessee state senate to eliminate the state's assumption of risk in Gov. Phil Bredesen's CoverTennessee plan. The Plan, designed to help provide health insurance to lower-income ciitizens (among other goals) relies in part on the assumption of risk by the State for losses above a set limit.

While I strongly believe in the centrality of universal coverage to any meaningful health care reform, I'm also leery of taxpayers' subsidization of big business. Unfortunately, it may be difficult to get health plans to step up to the CoverTennessee plate without some way of protecting them against "excessive" losses.

While the Feds constructed a rather intricate risk-share program for Part D, my reading of that effort is that it is too complex, and potentially too generous, by far. Instead, perhaps the State should set up a reinsurance pool, funded in part by the commercial health plans participating in the CoverTennessee Plan and in part by the State (i.e. taxpayers). This pool might have two components; one to cover losses of any plans that go bankrupt, and another providing, on a quota-share basis, a mechanism to mitigate losses for specific health plans.

Posted by Joe Paduda at 5:48 AM | Link to this post | Comments (2)

One health insurer has at least 30% market share in virtually all of the nation's major markets. This finding, published in the AMA's "Competition in Health Insurance; A comprehensive study of US markets", indicates that the market's consolidation has resulted in a monopsony wherein there are few buyers (in this case of provider's services) and many sellers (again, in this case, providers).

The market is even more consolidated than the above statistic indicates; in 56% of the markets studies, one health plan has over 50% market share, and in one of five markets, a single health plan controls over 70% of the market.

This makes for a small group of companies controlling the buying and selling of health care; they have created a monopsony on the buying end and an oligopoly on the selling end.

What does this mean for you?

US health care may be devolving to a not-quite-single payer system; with three plans dominating the marketplace, providers have little control over selling their services, and health plan purchasers have few sources from whom to buy their health insurance.

The health care market does not lend itself to new entrants as barriers to entry are quite high. Provider contracts are required, and without market share, providers won't give meaningful contracts. And without meaningful contracts, employers won't sign up.

So new entrants are stuck in a Catch-22. The result - continued market consolidation, leading to fewer options for providers (sellers) and employers (buyers).

While the "market" may be working here, the result is likely unfavorable for both providers and employers. Wealth is indeed being created at the health plan level, but at the expense of their suppliers and customers.

The net is this. Is it acceptable to allow companies to exert this level of control over health care ?

Posted by Joe Paduda at 10:19 AM | Link to this post | Comments (3)

The California Health Care Foundation has published its annual Health Care Costs 101 report, providing a wealth of data on cost trends, cost drivers and health care funding sources. Here are a few highlights.

1. Health care costs in the US topped $2 trillion in 2005, over $6500 per person.

2. Hospital care accounted for 30% of the total, and physician and clinical services 21%.

3. The cost of drugs has gone from $20 per person in 1984 to $188 in 2004.

4. Governments fund 39%of health care spending with 22% from the feds and 17% state and local.

5. The overall health care inflation rate in 2004 was 7.9% . This marks the 24th consecutive year health care inflation has exceeded the overall inflation rate.

And the kicker - in 2015, health care costs will comprise 20% of US GDP.

Posted by Joe Paduda at 8:28 AM | Link to this post | Comments (2)

In baseball parlance, sometimes its the trades you don't make that are the best ones. And it looks like the much-ballyhooed Health Week has ended with the trade deadline slated to pass with no blockbuster moves. As discouraging as that might be for those really interested in health care reform, at least Washington won't screw it up any more.

That's because once again, politicians are focusing on the fringes, ignoring the real cost drivers in health care, playing politics with statistics, and getting nowhere in the process. Health Week was supposed to be Congressional Republicans' public policy win, a series of bills that would show the nation they were serious about health care reform. Were they serious?

To quote Hertz ads, "Not exactly."

Let's look at medical malpractice reform and the Association Health Plan Bill.

Continue reading ""Health Week" ends with a whimper" »

Posted by Joe Paduda at 6:47 AM | Link to this post | Comments (2)

One of the more common complaints about insurance for small businesses, and actually for businesses of all sizes, but here we're talking small ones, is the cost of administration. Premium billing, eligibility, enrollment, card and plan booklet issuance, underwriting and sales all add significant cost to the smaller employers' already-pricey health insurance tab.

And that's the main reason fewer and fewer small employers are offering health insurance, and fewer and fewer of their employees are signing up for insurance. As healthy employees decline coverage because they think they won't need it, the sicker ones stick around, driving up claims costs and furthering the vicious circle that is today's insurance cycle.

Costco has stepped into the fray, offering its "executive members" on the West Coast slightly cheaper health insurance through its stores. While the rates won't make you think you've entered a time machine and been transported back to the sixties (or 2002, for that matter), the program does seem to be catching on. Over the last three years, membership in the big retailer's plans has increased by 40% to 15,500 members in Nevada, California, Hawaii, Oregon and Washington.

Considering only 52% of small employers in Oregon offer health insurance to employees (and only 38% of those offer dependents and spouses coverage), Costco's efforts won't solve the health insurance coverage crisis any time soon. It does represent an interesting alternative, as the program reduces adminstrative expenses through automated underwriting, enrollment, and eligibility processes.

I tried out the enrollment process, and it is pretty simple and relatively quick. Rates don't look too bad, if $541.00 per person for a company with an average age of 44 for single coverage aren't "too bad". (I can't believe I just wrote that; we're talking $6500 in annual premiums for single coverage!!)

What does this mean for you?

A smart business move by CostCo, which will be quite overmatched by macro factors making health insurance increasingly unaffordable for more and more small employers.

Fierce Healthcare gets the nod for tipping me off to the story.

Posted by Joe Paduda at 9:05 PM | Link to this post | Comments (1)

The President's health care "reform" package has been deader than Social Security reform for weeks, and yet Mr. Bush remains atop his charger, madly taking on windmills wherever he can find them. The latest tilting was spotted at the American Hospital Association meeting in Houston, wherein Mr. Bush once again called for more Health Spending Accounts, malpractice tort reform, increased investments in technology...

Sen. Trent Lott (R MS) was seen yawning.

When Bush's hometown paper and staunchest supporters both are less than positive about his so-called health care plan, it is truly dead.

Thank goodness.

Meanwhile, many states are taking control of their own destiny. One of the more intriguing efforts is West Virginia's AccessWV program , which enables high-risk people to obtain insurance at somewhat affordable premiums, and by all accounts is working well. Although the premiums for AccessWV can be pretty high, the program is the best alternative for individuals and families unable to get coverage due to health conditions.

Posted by Joe Paduda at 6:41 AM | Link to this post

I'm been somewhat skeptical about the Enzi AHIP bill, but in the spirit of fairness wanted to carefully evaluate the potential of the bill to address its main driver - the lack of affordable health insurance.

I'm even more skeptical now.

The growing trend to consolidation in the health insurance industry would likely be accelerated by the bill proposed by Sen. Mike Enzi (R) WY. Enzi's bill would, among other things, strip out much of the states' power to regulate health insurance, establish a uniform benefit plan, and end many of the restrictions on insurance underwriting. (this last will actually serve to increase the number of uninsured as they will not be able to meet strict underwriting guidelines)

Proponents of Enzi's bill claim that it would enable small businesses to pool their buying power, thereby getting better deals from insurers. While that makes sense in a free market, the market for health insurance is anything but free. In fact, with most local markets dominated by a single carrier, I'm not clear as to how group buying will help any employer gain any pricing power.

The health insurance market has become an oligopoly, generally defined as a market where 4 or fewer sellers control more than 40% of the market. In reality, a study released by the American Medical Association and supported by a newly-released GAO report, clearly shows we have passed this benchmark and are now approaching monopoly status in many markets.

Of the 294 metro areas studied by the AMA, 56% were dominated by a single insurer who controlled over 50% of the market. In essentially all of the 294 markets one insurer had market share of at least 30%.

Nine states are dominated by a single health plan, one of the Blues, with over 50% market share. And this trend has accelerated considerably over the last four years.

My sense is that Enzi's bill would do little to address the core problem of health care coverage - it is just unaffordable for many small businesses and their employees. Enzi et al seem to think that buying power alone will help solve the problem; clearly current market conditions make that argument moot.

What does this mean for you?

Yet another opportunity to study the process of furniture arrangement on the Titanic.

Posted by Joe Paduda at 7:31 AM | Link to this post | Comments (7)

Members of Swiss insurance plans living in the Basel region will be able to go to Germany to get their care, under a pilot program announced by the Swiss government. For those unfamiliar w the health systems in the two countries, both have mandatory coverage through licensed insurers and mostly private providers. Recent changes in German laws have enabled primary care and some other providers to more fully compete for patients.

The driver behind the new program is, you guessed it, cost containment. The Swiss are faced with cost increases of (gasp) 5.6 percent this year, and are desparate for solutions to this crisis. In addition to the cross-border care, the Swiss are also negotiating for lower rates on prescription drugs (what an innovative idea!) and further encouraging the use of generics.

The consensus is that there is an oversupply of physicians in private practice in Germany, thus they may be less expensive than their Swiss cousins.

Now here's the interesting part. The Swiss health care budget is about 11.1% of GDP; the German budget is 10.7%. (Pikers, you say, we Americans are over 16%! ) I find it kind of morbidly fascinating that Swiss health care planners think they may actually save a few francs by sending patients across the border, into a country with a demonstrably "sick" health care system, one that has not done any better job of delivering quality care at a low cost.

Now if they were going to send their patients to India, now they might be getting somewhere.

In fact, that's not a bad idea for some budding young insurance Entray-pra-noor here in the US of A. And I'm only half joking.

Posted by Joe Paduda at 5:29 PM | Link to this post | Comments (1)

UPDATE - One of the most thoughtful, well-written, and best pieces on what health insurance is, what it ought to be, and the different philosophies about same was written by Malcolm Gladwell of The New Yorker last year and subsequently posted by Marc Kashinsky.

Matt Holt posted a review/commentary/expansion on the Gladwell piece, once again demonstrating he knows his stuff.

Mr. Gladwell delves into the depths of 'moral hazard' and its role in the Bush Administration's health care policy thinking, as well as its impact on individual decisions about care.

Re the latter, here is one of the more striking passages.

"Sered and Fernandopulle tell the story of Steve, a factory worker from northern Idaho, with a “grotesquelooking left hand—what looks like a bone sticks out the side.” When he was younger, he broke his hand. “The doctor wanted to operate on it,” he recalls. “And because I didn’t have insurance, well, I was like ‘I ain’t gonna have it operated on.’ The doctor said, ‘Well, I can wrap it for you with an Ace bandage.’ I said, ‘Ahh, let’s do that, then.’ ” Steve uses less health care than he would if he had insurance, but that’s not because he has defeated the scourge of moral hazard. It’s because instead of getting a broken bone fixed he put a bandage on it."

Print it, stick it in your "to be read" file, and absolutely read it.

Posted by Joe Paduda at 8:06 AM | Link to this post | Comments (4)

If consumerism is going to help reduce health care cost inflation, we'll need two things - information and appropriate financial incentives. Actually, we'll need another 'thing' - consumers will need the intelligence and expertise to be able to make the correct decisions when (or more likely if) reviewing information about conditions, procedures, outcomes, costs, side effects, providers, facilities, and alternatives. That's a tough one...but I digress.

So far, the information has been sorely lacking, in part because it's just so massive it's hard to put it together, in part because the Feds won't give out any data on the largest payer on the planet, Medicare, and in part because providers are really really reluctant to sign on to anything that might reveal they aren't individually perfect.

OK, so we're not quite there yet in the information department. What about financial incentives? We're a lot further along there, aren't we? Well, aren't we?

Nope. For two reasons.

Continue reading "The two reasons consumerism won't solve the health care cost problem" »

Posted by Joe Paduda at 7:16 AM | Link to this post | Comments (3)

The report authored by the Center for the Study of Health Systems Change on the impact of demographics on inpatient hospital demand (discussed here earlier) is revealing on several levels: technology v demographics; shifts in utilization by type of procedure, and the impact of an aging population on inpatient v outpatient care.

One of the key takeaways is the note that local demographics can be quite different from national trends, and can actually counteract them entirely. For example, Phoenix is growing so rapidly, and has such a youthful demographic profile (about 10% of the population is over 65) that health care planners may as well ignore the national statistics as their population is significantly different.

At the other end of the spectrum is Syracuse NY, where a stagnant-to-declining population coupled with little influx of younger residents has resulted in a population bulge in the over-65 group (over 16% of the population is over 65, compared to a US average of 12.4%).

While local health care planners and politicians (well, maybe not politicians...) are well aware of these differences, those of us interested in national health care policy and planning would do well to remember that all health care is local, and the needs of individuals and areas trump national trends.

Posted by Joe Paduda at 6:49 AM | Link to this post

Health Affairs has published an excellent review of the impact of aging on hospital demand, one that any hospital exec or regulator would be well served to study and keep near. The study, authored by the good folk at the Center for the Study of Health System Change, indicates that while the aging population will have a significant impact on inpatient utilization and cost, the impact may well be over-shadowed by changes in technology.

Here's an example.

Demographic changes will increase the number of cardiovascular admissions by 1.5% annually over the next ten years, as older people are more likely to require treatment for heart attack and chest pain. While that's a significant change, historically the adoption of angioplasty resulted in a much more dramatic shift in utilization patterns.

Over the ten years following 1993, the number of angioplasties jumped 7% per year. Meanwhile, the number of bypass operations grew only 0.2% per year (a figure lower than that predicted by demographic changes). Angioplasty, a relative new-comer to the cardiovascular treatment scene, appears to have been used instead of the more complicated, expensive, and risky open-heart bypass operation for a portion of the population, and, in addition, was used in many cases where bypass was not likely to be considered.

So, technology not only trumped demographics, it did so in convincing fashion.

What does this mean for you?

While demographic shifts look huge, they may well be overshadowed by changes in technology.

Posted by Joe Paduda at 6:21 AM | Link to this post | Comments (1)

You've just got to read Matt Holt's blow by blow report from the World Healthcare Congress.

Here is one of the more interesting excerpts.

Allan Hubbard, the Administration's point man on health care

"Question to Hubbard - "Do you think HSAs could make the problem worse by driving the young, healthy or wealthy into these plans leaving the sicker in traditional plans which will drive up the cost of health care for the most vulnerable part of society?

Hubbard says that its not for the wealthy, as 40% of people getting them earn less than $50,000 (of course that means that 60% earn well more than the average, but lets leave that aside!) For the chronically ill—he says 2–5% of population—this doesn't work so well. so Administration wants to allow employers to put a bigger amount in the HSA for the chronically ill. But thats the problematic part..."

Paduda comment - 2-5% of the populatin is chronically ill? Perhaps, although it depends on what your definition of "chronic illness" is. They drive a majority of health care costs, so Hubbard essentially admits that HSAs as conceived by the Administration don't work for the chronically ill- and as for putting more dollars in there, isn't that just encouraging usage?

Posted by Joe Paduda at 6:33 AM | Link to this post

While Massachusetts has adopted a program designed to cover almost all of the Commonwealth's citizens with a pretty comprehensive health plan, Tennessee is pursuing a program that is considerably more modest in both plan design, expected enrollment, and cost.

According to the AP story published in Insurance Journal;

"The Cover Tennessee plan calls for a $150 monthly premium for basic health insurance, with the state kicking in $50. The individual would be responsible for the remainder, though businesses would be given the option of paying half.

The program would limit benefits, for example the number of nights for hospital stays, instead of requiring a high deductible to keep costs down for the insurer." Copays will be modest for drugs and physician office visits, and individuals' coverage will be portable.

This initiative began with a grant from the federal government (HHS in particular) to provide funding to study ways to cover the state's uninsured. The report, a 119 page monster, provides a comprehensive and quite detailed review of the state's population demographics, existing health insurance infrastructure,

Of note, "the largest portion of the uninsured worked more than 40 hours per week...for small businesses." 20% of the uninsured work for employers who offer health benefits, but either can't enroll yet, can't afford their contribution, or are ineligible for the plan.

Unlike Massachusetts, the program will be limited to selected insurers. There will be competitive bidding, with the state soliciting bids from insurers, after which the plan will be implemented by the end of the year. My sense is this process will encourage insurers to adopt strict cost control measures.

Posted by Joe Paduda at 12:51 PM | Link to this post | Comments (2)

Matthew Holt is doing an excellent job of reporting on the World Healthcare Congress

Posted by Joe Paduda at 7:51 AM | Link to this post

A thoroughly excellent synopsis of the med mal insurance industry's good fortune reveals that the number of suits filed is a small fraction of those that could be filed, and likely won.

According to Jason Shafrin;

"Less than 3% of people who receive negligent physician care actually sue."

So, could politicians, physicians, and misguided health care economists please stop whining about med mal? It could be a whole lot worse.

Posted by Joe Paduda at 2:27 PM | Link to this post

Many years ago I was stopped for speeding in Montana - specifically doing 90 in a 55 mph zone. The fine was $5 and was paid on the spot. The officer wished me a nice day, and off I went at 90+. It looks like Massachusetts may have learned from the Big Sky state, at least when it comes to setting penalties for politically unpopular laws.

Yes, the new Massachusetts universal coverage law requires most employers provide employees with health coverage, but the penalty of $295 per employee for non-compliance is somewhat of a joke. With health insurance costs per employee in the $5000 plus range, the penalty amounts to a 6% fine for noncompliance.

Not exactly a strong message...

Meanwhile, the state's law may well be challenged by corporations under ERISA...a nod to Paul Secunda for his interpretation of the situation and to John Rodat of SignalHealth for the heads up.

Posted by Joe Paduda at 8:53 AM | Link to this post

One of the main drivers of health care cost inflation is hospital expense. New information reported in the Detroit News reveals that despite layoffs, a dramatic increase in uncompensated care, and flat inpatient admissions, hospitals throughout the Detroit metro area enjoyed a very profitable 2005. Meanwhile, Sutter Health, the big hospital/health care company on the West Coast, also reported increased profits - $442 million on revenues of $6.7 billion.

The good financials are a result of aggressive cost cutting, an influx of sicker patients requiring more services, and increased reimbursement from private payers.

One item of interest is the huge growth in uncompensated care. According to the News, "uncompensated care reported by the region's major health systems rose to about $740 million in 2005, up $163 million from 2004."

My bet is that this rapid growth is due in large part to big increases in billed charges, and not necessarily to more services provided to more folks without insurance. The growth in billed charges is rampant throughout the US, as hospitals seek to offset their "losses" on uncompensated care by cost-shifting to other payers.

What does this mean for you?

If I was in the commercial insurance business I'd watch my hospital expenses really really carefully.

Posted by Joe Paduda at 9:27 PM | Link to this post

Pretty much everyone would agree that when it comes to information about physician practice patterns, outcomes, and costs, the more the public knows, the better. And the staunchest supporters of consumerism are the most ardent advocates of full disclosure of publishing health care provider data. Why just this week Pres. Bush was in Connecticut stumping for his various solutions to the nation’s health care crisis, proclaiming the benefits of information in driving down costs and improving outcomes.

No big news here.

Except that Medicare provider data, the nation’s largest database of provider-specific information, encompassing over a billion claims per year, with information on practice patterns on the vast majority of physicians in the US, and under the direct control of the Federal government (and therefore by Mr. Bush) has not been released to the public. Or anyone else, for that matter.

What’s going on? Well, the Feds claim that the data is private, is covered under a 1979 law prohibiting disclosure of individuals’ data, and therefore cannot be released. This is somewhat confusing, as most physicians practice in professional corporations (that’s the significance of the “P.C.” you see after the name of the doc or medical group) and therefore are not covered by the law.

I’ll admit to a bit of cognitive dissonance here. Are these are the same Feds that can unilaterally release confidential information about national security issues; use Executive Findings to claim exemption from Acts of Congress; the Feds that are of the same party that controls both Houses of Congress and therefore might have some say in what new legislation is passed; the Feds in control of the Attorney General’s office with all its resources, which has demonstrated its willingness to prepare legal documents authorizing all manner of actions?

Given the aggressive position of the Administration on other issues, its willingness to take steps that are bold and controversial on other matters, I’m really surprised that they have been so, well, wimpy on disclosure of Medicare data.

What does this mean for you?

Likely frustration, regardless of your opinion on consumerism in health care.

Posted by Joe Paduda at 5:24 AM | Link to this post | Comments (2)

Sally Pipes is a think-tank leader out on the west coast who appears to be a "free-market-as-cure-for-healthcare's-ills" advocate. Her latest effort appeared in USAToday earlier this week, wherein Ms Pipes reveals her belief that Massachusetts' health plan legislation is a thinly-veiled attempt to force the state into a single-payor solution.

While the entire editorial is, well, interesting, one of the most bizarre statements in her editorial is this -

"Individual health insurance is not always a good deal in Massachusetts, thanks to state-imposed community rating regulations that require companies to charge the sick and healthy the same rates."

Uh, that's kind of the point of insurance - everyone pools their funds to pay for the claims of the few with high expenses. If you don't do that, you have what is known as pay-as-you go. And that's not insurance. But for some reason Ms. Pipes thinks that's bad.

Wait, there's more.

Ms. Pipes then says that the Mass plan will saddle the state with the "same health plan design (that is) threatening General Motors Corp.'s viability and bankrupted its suppliers."

Oh jeez, that's about eight errors in less than one sentence.

Health plan design is not the main problem at GM - lousy cars, poor union negotiation tactics, aging plants, high gas prices, and bad management are GM's biggest problems. And health care. But GM's health care plans are WAY different from the new plan in MA. And cost-shifting from the uninsured, an aging population, too many retirees, inadequate cost controls, and lack of effective disease management are the biggest problems with GM's health care program.

Here's the silver lining - Ms. Pipes went on to say "The legislation will not control the true costs of these plans." That's absolutely true, and she is right on point, and I agree.

It's great to find common ground.

Posted by Joe Paduda at 7:10 AM | Link to this post

Bob Laszewski is one of the most insightful observers of health policy matters inside the Beltway, and his recent comments on Enzi’s proposed AHP legislation continue that record. Bob has noted that the bill now before Congress is a far cry from the original AHP legislation, and has potentially far-reaching consequences for the health insurance industry.

AHPs were health insurance plans set up by trade associations who used them to generate fat commissions. Back in the eighties and early nineties, trade association members signed up for these programs in large numbers. While they did not have much in the way of managed care or “cost containment”, many AHP type programs thrived even after the initial entry of managed care programs into the market, on the basis of their ability to select the best risks and price accordingly.

As HMOs and health plans became more sophisticated, the AHPs’ advantages in these areas declined significantly, and their cost management capabilities were overmatched by those of the managed care experts in HMOs and larger health plans. Faced with very tough competition, AHPs all but died out in the late nineties.

For those that can afford them, small employers’ helath insurance costs are significantly higher than their larger competitors’. This additional cost is in large part due to higher administrative expenses; fewer premium dollars go to pay health care costs because it costs more on a per-person basis to bill premiums, issue cards, set up computer systems, track elgibility, etc. This differential has led Sen. Enzi, at the behest of the Chamber of Commerce, NFIB and others, to try to come up with a way to make insurance “affordable” for the small employer.

Enter the Enzi bill, titled, with much editorial license the "Health Insurance Marketplace Modernization and Affordability Act". A product of the “sausage-making” that is our legislative process, the bill seeks to eliminate most state mandates, thereby allowing both insurance companies and associations to offer stripped-down plans.

While that sounds great, the likely effect of the bill, if it is passed, will be to allow insurers to do a much more effective job of risk selection, thereby avoiding the less healthy (i.e. more costly) people. I'm not blaming the insurance companies; insurance is about avoiding avoidable risk.

What Enzi's bill will not do is make health care more affordable for small businesses. It will certainly make insurance more affordable for some businesses - those with healthier employees and lower risks. The rest will be even worse off than they are today.

What does this mean for you?

More health policy by folks without any health policy expertise equals no solutions to our health care cost problems.

Posted by Joe Paduda at 8:43 PM | Link to this post | Comments (2)

OK, congratulations to Massachusetts' legislators and governor for creating the nation's first potentially viable universal coverage program. While everyone is busy congratulating each other, (free registration required) I hate to be the one to harsh their mellow. But so I shall.

I've read numerous reports of the new program, but nowhere have I seen any reference to any aspect of the program that convinces me it will work over the long haul. Why not?

There don’t appear to be any cost-control mechanisms, price or fee or utilization or frequency controls, nor any constraints on supply.

Yes, the program should eliminate excessive costs in the system due to cost-shifting, as long as the fees paid by all payers are high enough to cover associated costs. And, with cost-shifting accounting for about $1000 of the average family’s annual health insurance premium, the savings should be significant.

But that’s it. I’m afraid Massachusetts’ noble efforts have built a giant new demand mechanism, one that will produce healthier people, a one-time drop in premiums due to elimination of cost shifting (fingers crossed on that one), and ever-higher costs for the state’s citizens.

If we are relying on private industry’s innovators to come up with a solution, one that will effectively hold down costs over the long term for the entire population, we may have a long wait. For there are few incentives and lots of risks for any insurer to develop bold new programs when all they have to do is out-market their competition to capture their slice of the Mass pie. And there certainly has been ample opportunity for private companies to develop and deliver new programs over the past two decades, programs that could successfully constrain costs. That just hasn’t happened.

I hope I’m wrong, I hope I’m wrong, I hope I’m wrong.

But if I’m not, naysayers will have another example of an “experiment” that did not work out, an example they can, and will, point to as an image of another failed attempt by government to solve a huge problem.

The reality is government did not do too much, but rather did not go far enough.

Posted by Joe Paduda at 7:19 AM | Link to this post | Comments (6)

White House Domestic Policy Advisor Allan Hubbard has been making waves of late, speaking out on behalf of consumerism in health care, advocating bigger tax breaks for health savings accounts, and demanding hospitals disclose their pricing information so consumers can make better decisions.

I've been blogging on consumerism in health care, the lack of useful data on prices and outcomes, and the complexities of health care buying decisions for well over a year, so no need to review those issues.

Except, one of his statements manages to simultaneously be both blatantly jingoistic and completely misleading. Here's the quote from Sunday's NYTimes ""no consumer is better than the American consumer at driving prices down and quality up."

I'm not sure if Hubbard's statement is a tortured call for patriotism as the solution to health care's ills, or if he actually believes this drivel. Doesn't really matter.

Every other country has some variation of nationalized health care, with some entirely nationalized (Canada), others mostly public (Britian), and others with a strict national requirement for care delivered by private providers (Switzerland). Yes, there are lots of variations and permutations, but every other country uses government to set prices for health care, not consumers.

And by the way, Allan, if you knew anything about health care you would know that the single most significant factor causing US health care to be more than 50% more expensive than other developed countries is price. And somehow you think that each individual citizen will be better equipped to demand and obtain lower prices for drugs than, say, the VA?

If that's your position, Alan, than why are small businesses pushing so hard for Enzi's AHP bill to allow them to capture the purchasing power of big companies?

My guess is Hubbard is another of the "every complex problem has a simple solution" guys.

What does this mean for you?

More wasted time as the Administration refuses to engage in meaningful efforts to address the health care crisis.

Posted by Joe Paduda at 7:34 AM | Link to this post | Comments (1)

Contrary to popular belief, most of the patients in emergency rooms have insurance, but are there because they can't get in to see their regular physician or are waiting for an inpatient bed. A new study released today by the American College of Emergency Physicians (and reported in the LA Times) indicates that about 15% of patients in ERs were people without health insurance.

The statistics hold true across the board, even for high utilizers of ERs (those who visited 4 or more times per year).

The report refutes a common misconception that the uninsured make up a substantial percentage of ER admissions.

What does this mean for you?

The lesson I take from this is to always question your assumptions (to quote one of Ayn Rand's heroes), and question your most basic assumptions about health care most aggressively.

Posted by Joe Paduda at 6:18 AM | Link to this post

Yesterday's New York TImes includes an excellent primer on avian flu (A(H5N1)), one that executives at managed care firms would be well-advised to read and file away. For those without the time or inclination to do so, here's a couple interesting take-aways.

To get your attention, the World Health Organization estimates that if the bird flu becomes contagious among humans, an infection rate of 25% is possible. Estimates are that this would lead to deaths totaling 400,000 in Europe and 200,000+ in the US.

1. To date, bird flu has infected about 200 humans and killed approximately 100 that we are aware of. This last qualifier is key; as most of the infections have occured in underdeveloped countries, reporting may well be suspect. However, for a disease that has been in existence for over ten years, the death toll has been very low indeed. This leads some experts to surmise that avian flu is not likely to "jump" to human-human transmissability - if it hasn't in ten years, it likely never will.

2. The death rate may not be nearly as high as indicated above, as some infected people may have relatively mild cases for unknown reasons. Again, under-reporting would skew the numbers.

3. BUT. The disease also did not move out of southeast Asia for ten years, then exploded across the entire continent in the space of a few months. This somewhat refutes the argument that since the disease has yet to become transmissable between humans it won't over the long term.

4. Flu pandemics are unpredictable, vary widely in their lethality and the profile of victims, can occur any time of year, and are very difficult to prevent via vaccine and treat via drugs, as the virus is highly adaptable.

Fitch Ratings has doen their usual excellent work preparing a review of the potential impact of bird flu on the insurance industry. While Fitch notes that most of the financial impact of a pandemic woudl hit life insurers and reinsurers, it also provides its perspective on the effect on other lines of insurance, notably health.

What does this mean for you?

Better to be aware and prepared for something that never happens than unprepared for a crisis.

Posted by Joe Paduda at 6:26 AM | Link to this post

A survey by a small business trade association in California found that 91% of respondents rated health care cost and availability as their chief concern, outweighing workers comp, energy costs, and governmental regulations. Only 2% of the 430 respondents said health care was a low priority.

Amazingly, 44% don't require any employee contribution for insurance. It could be that this 44% primarily includes businesses where all employees are family members.

Equally amazing, fully 52% supported a Canadian-style single payer system; 90% also support purchasing pools for smaller employers.

11% of the respondents offer HSA-based health insurance.

What does this mean for you?

Even more evidence that likely voters want the health insurance mess solved.

Posted by Joe Paduda at 1:55 PM | Link to this post | Comments (1)

I am no economist. Some will likely howl in agreement, others knowingly nod their heads while tapping out their pipes so as to not get ash on their tweeds (them are the economists). I do know a good bit about health insurance, health care, and the rather messy intersection of the two. With that disclaimer/caveat, here goes my take on an esoteric economic theory.

Jason Shafrin's post on Baumol's cost disease was picked up by Kate Steadman for the latest Health Wonk Review - as a few other bloggers and commentors on Managed Care Matters had been bludgeoning me with this economic term, I figured I better find out what it is. So, here's the definition.

Basically, it holds that when there is little or no growth in productivity the result is that unit costs tend to inflate. As docs and nurses can't increase productivity as fast as it increases in other industries, prices have to go up faster to make up for that differential.

OK - I'm not sure I agree w Jason's underlying premise - which seems to be predicated on clinician time as the key determiner of health care cost. What about technology adoption rates, the rise in pharmaceutical utilization and pricing, the aging population's increased demand for services, etc. While I will grant that labor costs are a major driver of hospital expenses (see California's minimum nurse staffing headaches), and hospital costs are one of the biggest influences on total medical expense, there are so many other factors that one cannot attribute the sickness of our system to one single factor.

I'd also point out that physician cost inflation has held relatively steady at about 7.7% for several years (although costs jumped last year due to higher Medicare utilization by docs) , while Rx and hospital costs have varied widely. And, as physician expense is s relatively small part of the overall health care cost equation, I don't see how Baumol's cost disease is the over-riding factor here.

That said, I certainly agree with Jason's conclusion that health care costs will continue to grow as a percentage of individuals' expenditures.

Posted by Joe Paduda at 8:14 AM | Link to this post | Comments (2)

I don't see how consumer directed health care as presently conceived is going to work ("work" defined as significantly reduce health care cost inflation). Among other problems with the concept, most of the dollars are spent by folks with chronic or very expensive acute conditions that have costs far above their deductibles eliminating any incentive for these folks to worry about costs.

But I’ll suspend logic for the moment to consider another issue. If consumer-directed health care is going to work, consumers will have to know what their health status is, what their health status means in terms of potential morbidity, and what health care (for those conditions) might cost them. Then, if they want to be "educated consumers," they will need to have current, accurate information on the costs and outcomes of health care providers in their geographic area who treat their specific conditions (or potential conditions).

The first two aren’t too tough, at least on a population basis. Health risk appraisals have done a pretty good job of forecasting future health conditions…for the general population. And epidemiology has evolved into a reasonably accurate science for prediction of population-based morbidity and associated trends.

The last two are also not too tough, again on a population basis (seeing a trend here?). Case-mix adjusting physician outcomes can produce a fairly accurate picture of individual physician and/or facility outcomes. If you have a large enough sample size and if the diagnoses and other data are accurate, consistent, and complete. Rather big ifs…

(I apologize in advance for denigrating the rather significant issues inherent in case-mix assessment and analysis and ignoring the wide variation in practice patterns across specialties, geography, and physician. I’m making a huge generalization to make another point.)

The big breakdown is our individual uniqueness - we are each a population of one. And that’s where "consumerism" blows apart.

We each get treated as individuals, not as populations. We have unique combinations of co-morbidities, allergies, pre-existing conditions, quirks, differences, nuance, needs and fears. Some of us know a lot about medical stuff, and most of us don’t know much at all. And some patients think that “quality care” is getting in to see the doc within a couple of days, while others view it as a clean waiting room with lots of interesting magazines, and still others want a doc who is warm and smiles, while another group wants to see case-mix adjusted statistics on outcomes.

This "a plus b plus c plus d..." is what makes each patient unique, a population of one.

And docs have to treat individuals, not populations. So, each patient gets treated a little differently.

Patients need to take responsibility for their health, and play an active role in their care. No debate there. But in an increasingly specialized world, with physicians unable to keep up with the growing library of medical knowledge, individual expertise getting deeper and narrower and an educational system which is hard-pressed to adequately educate many Americans on some rather basic subjects, it is not only irresponsible but incredibly naïve to expect or demand individuals have all the knowledge and experience required to effectively “manage” their own health care.

The bright-eyed, textbook-quoting academics and theoreticians citing both obscure economic theory and Adam Smith see consumerism as the cure for health care’s ills. Boy are they clueless.

Oscar Wilde’s oft-quoted " ...a cynic is one who knows the price of everything and the value of nothing" also applies to these "health care economists."

Posted by Joe Paduda at 11:44 AM | Link to this post | Comments (1)

And you thought Part D was all serious stuff...

Thanks to Helen of kingknight.com for the tip!

Posted by Joe Paduda at 10:35 AM | Link to this post | Comments (1)

If businesses and politicians think the 45 million uninsured are not their problem, they are wrong. Really wrong. The uninsured get health care, they just don't pay for it - taxpayers, employers, and those of us with health insurance do. And they get a lot of care - around $100 billion worth.

Out of that $100 billion, three-quarters is covered by cost-shifting to those patients with insurance, and one-quarter is self-paid. And because upwards of 30% of the uninsured who are admitted to hospitals are there for avoidable conditions and 18,000 die prematurely each year, the economic costs in terms of excess care and forgone productivity are immense.

There are overt taxes and hidden taxes - and the uninsured represent a $100 billion hidden tax, borne by employers who offer health insurance, employees who pay part of their premiums, and taxpayers.

The next time someone says we can't afford to cover the uninsured, tell them we already are, and we are paying way more than we would if they had insurance.

What does this mean for you?

Higher taxes and premiums due to lack of political will.

Posted by Joe Paduda at 6:28 AM | Link to this post | Comments (3)

Yes, there are ways for employers to keep health care inflation under control. And yes, some insurers are better positioned to help manage expense over the long term. Some employers have been able to hold health care cost increases under 3% for two years or more. That is an amazing result, especially in a period where many employers have seen double-digit premium jumps. How do they do it? Do they fire sick employees? Only hire Olympic athletes? Are they the early adopters of consumer-directed health plans (CDHPs)?

No no and no. Rather, these employers are not the ones relying largely on CDHPs, engaging in significant cost-shifting to employees, slashing benefits or limiting eligibility. According to one of the sponsors of a study on high-performing employee health plans:

"merely increasing employee accountability or sharing costs with employees does not reduce overall cost increases. In fact, the degree to which organizations have adopted programs that share more costs and financial risks with employees was found to be almost completely unrelated to performance.

"Employers should not focus on employee accountability alone," said (Helen) Darling. "When used in combination with promoting quality care, health management, use of data and appropriate use of care, companies are able to achieve significantly lower cost trends."

Of all the health plans, managed care firms, and insurers out there, Aetna looks to be the best positioned to provide employers with the tools they need to identify the right docs, pay them fairly (although this is, at best, a work in progress), and educate consumers about appropriate health benefit, and health care, decisions.

Continue reading "How companies reduce health care inflation" »

Posted by Joe Paduda at 1:48 PM | Link to this post

Alcoa, one of the nation's leading industrial companies and a giant in the aluminum sector, is entering union negotiations that look to feature, you guessed it, health care costs as the key issue. The company is now paying the entire health care bill for hourly workers, a practice that is fast going the way of the dinosaur.

No surprises so far - old industrial firm overpays thru rich benefits, now struggling, asks for givebacks...

What's different about this story is the union leader is asking Alcoa to work with the union to push for national health care, noting that all the other countries in which Alcoa operates have some form of national system.

Labor is starting to get it.

Posted by Joe Paduda at 7:04 AM | Link to this post

Kate Steadman at HealthyPolicy highlights the recent news that Wendy's has terminated its traditional health plans, adopted an HSA-only program, and seen its health care costs increase.

There are also several insightful comments following the post.

Posted by Joe Paduda at 11:04 AM | Link to this post | Comments (9)

If you think your medical costs have gone up a lot since 2000, consider that health care costs have increased by 69% for the US military through 2004. Included in this figure are costs associated with Congress' 2000 decision to enhance health care for retirees over 65 and their dependents, estimated at $6.5 billion (on an accrual basis) for FY 2004.

Posted by Joe Paduda at 6:48 AM | Link to this post

Into the lexicon of politically charged rhetoric comes a new definition for Health Savings Accounts - "the mother of all tax shelters." This tagline, created by Prof. Paul Caron of the University of Cincinnati (one of the nation's leading tax law experts, and a fellow blogger), describes the incentives and benefits created by HSAs, which allow individuals to save as much as $10,500 tax-free annually to cover health expenses.

And the benefits are not just the deductibility of the HSA investments. There is also tax-free earnings growth, untaxed withdrawals for expenses not covered by insurance, and no time limit or requirement for drawing down the accounts. While this all sounds great, there is one rather awkward problem.

HSAs disproportionably favor the rich. The wealthy are the ones who gain the most benefit from the higher deduction and can most easily afford the combined insurance/HSA plans. According to a CPA quoted in a recent Bloomberg News article, "To them, it's just a savings account. But for a client with diabetes, his out-of-pocket medical costs are going to be the maximum (the client's expenses are so high that they will exceed the deductible and any costs above the deductible will be covered by insurance). There really are no savings."

The CPA's anecdotal finding has been supported by a recent GAO study of federal employees which found that HSA adopters tend to be wealthier than the average Federal employee due to the accounts' aspects that "uniquely attract higher-income individuals with the means to pay higher deductibles and the desire to accrue tax-free savings." (43% of HSA adopters had incomes above $75,000; 23% of all FEHBP enrollees had salaries at that level or above)

This may partially explain the rather modest enrollment projections for HSAs; the Bush administration estimates that only about 10% of privately insured individuals will be covered by HSA plans by 2010.

What does this mean for you?

HSAs are a great tax break (leaving aside the question of how we can afford more tax breaks despite ballooning deficits) but don't address health care cost drivers.

Posted by Joe Paduda at 9:47 AM | Link to this post | Comments (2)

What do GM, Ford, hotels in LA, grocery stores and public transit in Sacramento, public transit in Philly, and Boeing have in common?

All were faced with strikes and/or labor strife due primarily to conflicts about health care insurance, costs, and access. The strike by Sikorsky workers in Connecticut (registration required) is yet another example of health care's growing pressure on US employers.

There's a great quote in the NYTimes article on Sikorsky from one of Sikorsky's flight technicians that crystallizes this issue - " "This isn't only about us," said Bruce Peters, a flight technician ... This is a nationwide problem with medical care." Peters notes that any wage increases the workers have been offered will be consumed by insurance costs - the additional copays, co-insurance, and employee premium contributions contained in the company's latest contract offer.

Peters personalizes the national disparity between wage growth and employees' personal health care costs. Premiums for employer-sponsored health care have grown five times faster than wages since 2000.

In 2004, the average family's insurance premiums came within an x-ray charge of $10,000. In contrast, median family income in 2004 was slightly over $43,000. Yes, you read that right - health insurance costs came to 23% of family earnings.

And yes, things have gotten worse since the sunny days of 2004; predictions are that 2006 will see the average family's insurance costs hitting $14,500 per year.

A survey of smaller employers in California indicates that more than half will not be offering health insurance to their workers this year. This despite their optimism about growth and increased revenues in 2006.

The sky is falling, and it is crashing down around the heads of US employers, employees, taxpayers, and governments.

What to do?

Of all the groups out there, the National Coalition for Health Care Reform is making the most sense. NCHC's goals are universal coverage; health care quality improvement; cost management; equitable financing and simplified administration.
What is notable about their work is nowhere does the coalition advocate single-payer, private insurance, or any other system. Yes, they research, study, and report on the potential impacts, positive and negative, of the several types and sources of funding. No, NCHC doesn't take a political stance.

Posted by Joe Paduda at 10:54 AM | Link to this post | Comments (1)

The "Wal-Mart" legislation on the docket in over 20 states is pushing some pro-business advocates into a Hobbesian choice - support Wal-Mart and other opponents of mandatory benefits legislation, thereby adding thousands to Medicaid rolls, or support the legislation and place a heavier financial burden on the world's largest retailer.

Wal-Mart and several other large employers have thousands of employees covered under state Medicaid programs. The modestly paid employees qualify for the taxpayer-funded coverage due to their relatively low income. And, Wal-Mart's health insurance plans are too expensive for these employees; different souces indicate different participation levels for employees, but none report participation above 46%. (The Wall Street Journal claims 46% of employees are enrolled in the company's plans, other sources indicate 43% of the company's 1.3 million workers are covered under their plans in 2005, a drop of five points from last year's 47%.)

The average income for a Wal-Mart employee is less than $20,000 per year, making it difficult for them to afford even the least-expensive plans offered by the company. The company has developed a low-cost alternative plan (the "Value Plan") that provides minimal coverage for an employee contributing $11 per month; while there are tight limits on benefits in the first year, these restrictions make sense; they will help mitigate adverse selection risks.

Improvements to the health benefits annonced by CEO Lee Scott include a reduction in the eligibility waiting period from two years to six months for full time workers; allowing children of part-time workers access to the plans; and reducing the waiting period for part time workers.

There are more than enough Wal-Mart bashers and advocates throwing stones over these and other issues. And the company is (somewhat unfairly) being made into a whipping-boy for a national problem. Remember, the number of employers offering health insurance has dropped by 15% over the past five years...

Simply put, labor expenses are a very significant part of Wal-Mart's overall cost structure, and health benefit costs are hitting the company both directly (via employees on insurance) and indirectly (via the tax burden from uncompensated care, Medicare and Medicaid). This increases the company's cost of doing business, and thereby their prices to consumers.

This is not a value statement, but reality.

What does this mean for you?

The US health care system is a burdeon on employers and our industrial competitiveness.

Posted by Joe Paduda at 10:30 AM | Link to this post | Comments (4)

There are lots of moving parts, political agendae, and battling priorities in the pay for performance movement, and it is getting even complicated-er. Today's announcement by the AMA that it will produce metrics for assessment of physician quality (registration required) is a clear indicator that financial motivations have, at least temporarily, outweighed physicians' measurement phobia.

There are two distinct but closely related and very powerful forces at work here - one financial and the other political. Financially, the key issue is concern among docs that these "quality indicators" will be used to reduce reimbursement. And that fear is not unfounded. One has to look no further than the latest Federal budget proposal and the annual battle over the mandatory reduction in Medicare physician fees to understand that the phobia has a solid foundation in reality.

Politically, Bush's pronouncements in favor of consumerism as the solution to the health care cost crisis have painted him into a corner. Critics (myself among them) have noted many problems and challenges (read near insurmountable obstacles) with this approach, chief among them its breathtakingly na�ve faith in consumers' ability to somehow ferret out "information" that will enable them to make intelligent, informed decisions about medical care. Faced with criticism on this (and other points), Congress and the administration has been pushing hard to address the information deficit. And one component (but only one) of the consumer information deficit is some means of assessing physician quality. (and as difficult as that is, the complexity pales in comparison to the challenge of proving the efficacy of specific procedures and courses of treatment for specific disease states in defined populations�but that's another subject)

Faced with either doing it themselves or having others do it to them, the AMA took the lesser of two evils.

But it's still an evil. Tthe AMA's decision to develop 140 "uniform measures of the quality of care" by the end of the year is leading to conflict within the medical community, who are angry with the Association for agreeing to do this without first consulting the specialty societies (including orthopedics, neurosurgery and gynecology). And the AMA would not do that lightly; typically physicians band together to form a united front when confronted with challenges to their inalienable right to do whatever they want and charge for it. My sense is the AMA went ahead without the specialty societies precisely because they knew the societies would be a hindrance, and the stakes are too high.

The AMA's public statements about the deal with CMS to produce metrics ring true. If the docs don't come up with measures, then the Feds will; and many commercial payers are well down the quality indicator path. And commercial payers are already doing so. So the AMA has taken the smart approach, deciding to be part of the solution, and taking a leadership role in that effort, rather than their usual obstructionist tendencies.

What does this mean for you?

So far, so good...so far.

The end product may well be measures that are so pedestrian and easily attainable that they are all but meaningless. If that's the case, the AMA will have won the battle and be close to losing the war.

Posted by Joe Paduda at 6:57 AM | Link to this post | Comments (3)

When the (registration required) FDA approves new medical devices for specific conditions, insurers are almost always required to cover them. Even if the approval makes no sense, the device fails in clinical trials, and there is no conclusive evidence of its efficacy.

The cost per case for the device and surgery is about $25,000; over 500 implants have been performed to date (the majority during the so-called clinical study).

Dr. Daniel G. Schultz, director of the Center for Devices and Radiological Health, approved an electrical stimulator for the treatment of depression, despite the unanimous opinion of the Center's clinical staff that the device had no discernable impact. A Senate committee investigating the FDA could find
"no previous instance in which the director of the center had approved a device in the face of unanimous opposition from staff scientists and administrators beneath him. "(NYTimes)

In fact, in a study conducted by the device's manufacturer, the device utterly failed to produce any measurable impact on depression in the study group.

Now that the device is approved for treatment of depression, expect manufacturer Cyberonics to put on a full-court press to get doctors to prescribe it. This over the concerns expressed on the floor of the Senate:

"I am greatly concerned the FDA standard for approval may not have been met here, and if that's the case it raises further difficult questions about whether Medicare or Medicaid dollars should be used to pay for this device now," Grassley, an Iowa Republican, said during a speech on the Senate floor." (Reuters)

What does this mean for you?

More of your dollars spent on highly questionable and really expensive technology.

Posted by Joe Paduda at 7:02 AM | Link to this post | Comments (1)

I've been avoiding posting on this because there are so many smart people who know a lot more than I about epidemiology, flu transmission, viral mutation, and public health. Thank goodness for that.

But, a post by Revere at EffectMeasure scared me silly.

If this disease mutates (and reports indicate it is only two mutations away from becoming transmissable from human to human) and travels to the US (which it is sure to do) we are going to face not only a public health crisis, but an insurance crisis as well.

Who's paying for the tamiflu, intensive care, respirators, and hospital charges? Medicare, Medicaid (taxpayers), insurance companies and self-insured employers. The industry has done an excellent job of managing medical loss ratios by negotiating with providers and increasing prices. Many health plans pride themselves on this, and so they should.

What we haven't done, nor do we have any experience in, is planning for a pandemic. Here's a few numbers that may do to you what Revere did to me.

If the bird flu is similar to the relatively mild flu pandemic of 1968, the WHO prediction is for between 2-7 million deaths worldwide, and millions more infected. That may be optimistic.

If it is similar to the 1918 flu, projections are for 150 MILLION deaths, and hundreds of millions more infected. Not to mention a tremendous impact on the world economy, transportation, trade,

The US has about 5% of the world population. Extrapolating from the higher number, we could see 7.5 million deaths and tens of millions sickened. Let's say that number is way too high, as we have an excellent health care infrastructure, lots of money, and lots of docs and pretty good public health. All those positives may reduce the impact by, say, 90%. So, we are left with 750,000 Americans dying and millions more sick.

What does this mean for you?

I don't see how the US health insurance industry can pay for this.

Posted by Joe Paduda at 8:41 AM | Link to this post | Comments (3)

Cost is preventing cancer patients in both the US and Britain from receiving certain cancer drugs. There are striking parallels between yesterday's post on the price of cancer drug Avastin and its impact on patients and an article in today's NYTimes on the decision by Britian's National Health Service to deny Herceptin (free subscription required) to women with early stage breast cancer.

In both cases, the decision by payers to not cover the full cost of the drugs is based in part on a lack of clinical evidence. Only in part. The other basis for the decision is clearly cost related. Britian's NHS is under very heavy pressure to keep costs under control. This pressure has come up against patient advocacy groups and physicians who want to be able to treat as they see fit. Eerily similar to the situation on this side of the Atlantic, where patients find themselves unable to afford drugs that their physicians think will help them battle cancer.

The tendency is to personalize the problem by focusing on one patient. While there are individually painful stories, they take away from a very important, albeit painful, discussion that both Britain and the US must have about cost, benefits, and opportunity cost.

The patient profiled in the Times lives in an area administered by the Swindon Primary Care Trust. The Trust is looking at the cost of paying for Herceptin for 20 potential recipients of the drug, balanced against the needs of all 200,000 residents they have to provide care for under a finite budget. There are 20 women with early stage breast cancer that theoretically might benefit from Herceptin; at a cost of $40,000 each, that's $8 million annually.

For all those that decry the British health system's inherent rationing of health care, I would ask if it is "better" to spend that $8 million on a drug without proven efficacy for that specific condition for 20 patients, or use it to provide pre-natal care to prevent low birth weight babies; fund an anti-smoking program to reduce future cancers; or perhaps buy vaccines and treatments for the bird flu that is just off Britain's shores.

Anyone for playing God?

Posted by Joe Paduda at 8:01 AM | Link to this post

The tone and debate here of late has been strident, loud and contentious. In the interest of maintaining sanity among the participants, here's a public service by managed care matters.com.

A video about the horrid folk at insurance companies, well worth the watch, especially if you're working in a health insurance company. Turn up the sound!

BTW - no, I don't believe in, support wholeheartedly, or otherwise think this video is factual.

Posted by Joe Paduda at 7:55 AM | Link to this post

This is getting tiresome. I am being assailed by economists who protest that they can boil health care down to supply and demand, and that demand creates supply. True on its face, but the economic devils are in the details. And they don't want to hear the details, or they want to ignore them, or they're just so smart ....well, clearly that's not it.

The problem with health policy today is that too many people who style themselves as economists (including one commenter on a previous post), and therefore experts on everything, make flat out wrong statements like "Adding supply does not increase demand. The increased supply of health services over the last forty years is due to an increase in demand (due to Medicare)."

How simplistic. The reason health care costs are increasing is an aging population, medicine's position as more art than science, a lack of control over new and expensive technology and medicines, and the US subsidizing much of the world's pharma research. But back to demand and supply.

Here's healthcare 101. Some may have heard of John Wennberg, MD. Here's an excerpt from his seminal study on hospital utilization in Boston and New Haven. (Lancet, May 23, 1987)
" The populations of New Haven and Boston are demographically similar and receive most of their hospital care in university hospitals, but in 1982 their expenditures per head for inpatient care were $451 and $889, respectively. The 685,400 residents of Boston incurred about $300 million more in hospital expenditures and used 739 more beds than they would have if the use rates for New Haven residents had applied. Most of the extra beds were invested in higher admission rates for medical conditions in which the decision to admit can be discretionary. The overall rates for major surgery were equal, but rates for some individual operations varied widely. These findings indicate that academic standards of care are compatible with widely varying patterns of practice and that medical care costs are not necessarily high in communities served largely by university hospitals.

Why was utilization higher in Boston? Because they had more hospital beds, and admitted more patients with conditions such as COPD than docs in New Haven did (may not be in an economics textbook, but known to we morons in health care as chronic obstructive pulmonary disease). The supply drives demand in health care.

And that is but one reason health care is NOT like any other good or service.

Here's another quote from a more recent Wennberg article on variation in medical utilization:

"Medicare spending varies more than twofold among regions, and the variations persist even after differences in health are corrected for. Higher levels of Medicare spending are due largely to increased use of "supply-sensitive" services-physician visits, specialist consultations, and hospitalizations, particularly for those with chronic illnesses or in their last six months of life. Also, higher spending does not result in more effective care, elevated rates of elective surgery, or better health outcomes.

There are many other reasons so-called economists' simplistic opinions on health care are naive and ignorant - there is little to no accurate data on what procedures, facilities, or providers provide optimal outcomes so buyers don't know what to buy; it is often impossible for the layman to determine if a symptom or set of symptoms is an indicator of something serious; the most expensive patients cost far more than any deductible anticipated by the CDHP advocates, thereby eliminating any price sensitivity on their part; poor folk can't afford basic insurance anyway so their care gets covered under EMTALA, and on and on.

Economists talking health policy are like priests talking safe sex. They know all about it in theory, but their knowledge is purely academic, as is their understanding of the basic concept and sensitivity to the potential positive and negative outcomes. And the visual is decidedly unappealing.

I wish I could bill for this.

Posted by Joe Paduda at 6:00 PM | Link to this post | Comments (1)

Loyal reader TrapierMichael (Trapper to his policy friends) questioned the source of a quote used in a post here earlier today attributed to the McKinsey study on CDHPs. Trapper could not find the quote in the article, but did locate it in another report, done by the folks at the Employment Benefits Research Institute, a well-respected industry group.

The EBRI study, entitled "Early Experience With High-Deductible and Consumer-Driven Health Plans: Findings From the EBRI/Commonwealth Fund Consumerism in Health Care Survey" was out in December of 2005; six months after the McKinsey report.

One of the key points in the original McKinsey document was this statement:

"it remains to be seen whether CDHP plans with HSAs inhibit the appropriate use of maintenance drugs and treatments for behavioral conditions..."

The EBRI study points directly to this issue, as Spike noted in his quote, albeit mis-cited. This is in conflict with the McKinsey study's finding that "One striking finding was the increased likelihood of CDHP consumers with chronic diseases to report that they were taking greater responsibility for their health." CDHP partipants were over 20% more likely to "carefully follow their treatment regimens."

Of note, the companies implementing CDHPs that did not do so just to lower costs, but invested in employee education, communicated clearly, and provided access to data and information about lifestyle changes, had the most satisfied employees. The employer with the highest employee satisfaction even went so far as to start an employee fitness center, reward employees with cash for attainment of certain health goals, and extensively trained employees on the health plan itself as well as sources for health information.

The research methodology and cohort for each study was different, with EBRI using data from the Harris Interactive Study and McKinsey surveying individuals from specific employers with full-replacement CDHPs (where the old health plan was terminated and replaced in its entirety by CDHPs).

I'd like to get into more detail but I have to get some work done.

Compliments to Trapper for his research, and I'll try to do a better job of vetting sources.

Posted by Joe Paduda at 1:23 PM | Link to this post

Spike has done his homework. UPDATE - well, Spike actually quoted a different report, not the original McKinsey one. I should have done some source checking, did not, and apologize for the oversight.) In response to a comment from another reader (Michael Trapier), he read the entire article by McKinsey on CDHPs et al. Here's Spike's quote from the article, which deserves its own post. (again, turns out this quote was from an EBRI research report), and read the comments below:

"While people reported using health services at similar rates across health plans, adults with CDHPs and HDHPs were significantly more likely to report that they had avoided, skipped, or delayed health care because of costs than were those with comprehensive insurance, with problems particularly pronounced among those with health problems or incomes under $50,000. The survey asked whether in the last year respondents had delayed or avoided getting health care services when they were sick because of costs. About one-third of people in CDHPs (35 percent) and HDHPs (31 percent) reported delaying or avoiding care, twice the rate of those in comprehensive health plans (17 percent).

Having a health problem made it more likely that people avoided or delayed care. Among people who reported being in fair or poor health or having at least one chronic health condition, those in CDHPs or HDHPs reported delaying or avoiding care at higher rates than those in comprehensive plans: 40 percent of those in CDHPs and 31 percent of people in HDHPs, compared with 21 percent in comprehensive plans. People with HDHPs and CDHPs in households with incomes of under $50,000 were also more likely to avoid or delay care: nearly half of those in CDHPs and more than two in five in HDHPs reported delaying or avoiding care, compared with one-quarter (26 percent) of those in comprehensive plans in that income range.

In addition to delaying or avoiding health care, people in HDHPs were significantly more likely to skimp on their medications than were those in comprehensive plans. The survey asked respondents whether in the last 12 months they had not filled a prescription because of costs. More than one-quarter (26 percent) of those with HDHPs said they had not filled a prescription because of cost, compared with 16 percent of those in comprehensive health plans (Figure 17). Having a health problem made it more likely that people avoided filling prescriptions, particularly those with HDHPs: One-third of those in HDHPs with health problems had not filled a prescription because of cost, compared with one-fifth (21 percent) of people in comprehensive plans."

That's a (rather lengthy) quote from the study you cited. In fact, that whole study talks about how total healthcare use is the same for each group, but out of pocket costs are way higher for those in CDHPs and that people in comprehensive group care found that their plan made it easier for them to incpororate costs into their decisions about treatment.

As for health economics, the reality is that as long as there is EMTALA, (which says that hospitals must treat patients in need of emergency care regardless of their ability to pay), creating systems where preventive pay is discouraged will only be more expensive for all of us. And I don't see anybody having the political will to void EMTALA. We're all in this together, whether you like it or not."

That's a lot of good work, Spike.

Notably, the time period for the study did not enable the researchers to identify changes in health care costs over time. One has to wonder if the failures to comply with drug regimens etc. would actually lead to increased health care costs over time. Actually, you don't have to wonder.

BTW - the McKinsey report also notes that CDHPs did have a substantial correlation with participants' awareness of costs; desire to seek alternative treatment, and likelihood of involvement in healthy behaviors. But I wonder if the latter was not an artifact, and if the participants' healthy behaviors made it more likely that they would select CDHPs.

What does this mean for you?

More evidence that CDHPs will do nothing to reduce medical expenses.

Posted by Joe Paduda at 7:48 AM | Link to this post | Comments (1)

A post at "over my med body" (grahamazon.com) about the correlation between copays and adverse health outcomes pointed me to an interesting study published in the American Journal of Managed Care on the correlation between raising drug copays and decreased compliance.

Here's the net - increasing copays for people on cholesterol-lowering drugs led to lower compliance. Lower compliance led to increased hospitalizations and other bad and costly outcomes. According to the report:

"Although many obstacles exist, varying copayments for CL )cholesterol lowering) therapy by therapeutic need (reducing them for those who would benefit the most) would reduce hospitalizations and ED use�with total savings of more than $1 billion annually"

This is one of a growing series of reports, studies, and analyses that indicate increasing patient costs at point of service can have negative effects on total costs and patient health status.

Or, saving a few bucks on scripts costs lots more in hospitalizations.

What does this mean for you?

Helpful data to consider when considering the impact of consumer-directed health plans and high deductibles/Health Savings Accounts (HSAs). When you remember that half of all the HSA accounts opened to date have no funds in them, it becomes clear that these plans may do as much, or more, harm than good.

Posted by Joe Paduda at 3:56 PM | Link to this post | Comments (9)

An excellent review of the realities and myth behind medical malpractice is on Kate Steadman's Health Policy blog. The series of posts are a sort of book report on Tom Baker's The Medical Malpractice Myth.

I've posted on med mal before, as has Ezra Klein - both using the article published in Health Affairs last year as the basis for the posts. But Kate's is the best rebuttal of the myth I've come across.

What does this mean for you?

Medical malpractice insurance is NOT a meaningful contributor to health cost inflation. Medical errors certainly are - remember to distinguish between the two.

Posted by Joe Paduda at 12:02 AM | Link to this post

There's so much spin in the press about Bush's approach to health care the facts are pretty much ignored. So, as a public service, I've winnowed through the partisan, the strident, the pedantic and the ideology-driven cacophony surrounding Bush's State of the Union proposals for health care to get to the facts about HSAs, CDHPs and consumerism in health care, and the viability of the whole mess .

Here's the real story, complete with facts, citations, and sources.

HSAs as a means to reduce the number of uninsured
- Robert Laszewski - Bob notes that "increasing the tax-deductibility of out-of-pocket expenses for HSA programs ...doesn't do a whole lot for an uninsured person in a zero bracket...the President's tax cuts increased the number of low income people who do not pay taxes." And, studies show fewer than one million of the 46 million uninsured are likely to enroll in HSA plans.

HSAs as a way for consumers to fund health care costs and reduce premiums
That presupposes there is cash in the account to pay for services up to the deductible, and that the policy then covers needed care. Fact is, more than half the 3 million HSAs have not been funded at all - not even a cent. Hard to see how they will pay for care with non-existent funds...

Consumer-directed health plans as a means to reduce health care costs.
No, they won't. And CDHPs may actually increase health care costs; reports indicate similar programs in other areas have had "unintended consequences" - less compliance with preventive medicine as an example.

Portability of health insurance
Bush's HSAs are portable, but that does not mean the insurance behind them is. Insurers offering HSAs can still require medical underwriting, which eliminates coverage for chronic conditions and/or increases premiums to a level that is unaffordable. So, insurance is not portable at all. And making it portable would require a drastic change to the COBRA laws, or de-coupling private health insurance from employers. Neither is anywhere close to being considered, much less the subject of legislation. However, Bush's administration is making an attempt to drastically change existing laws governing these matters - like ERISA, state regulatory authority over insurance plans and the like. These are huge undertakings, and the chances of all the required legal changes actually occuring are zilch.

Viability
This gets to the heart of the matter, which is "do voters believe Bush has credibility when it comes to health care". A USAToday poll indicates the majority do not. According to California HealthLine, a "USA Today/CNN/Gallup poll of 1,066 U.S. adults conducted between Jan. 20 and Jan. 22 found that about 60% of respondents disapprove of how Bush has addressed health care issues, compared with 40% in mid-2002".

Couple the citizenry's skepticism with the potentially negative implications for tax revenue from the Bush proposals, and his stated desire to halve the $900 billion deficit by 2010, and the Bush program looks unattainable.

Which is just as well, as it will do nothing to reduce health cost inflation or expand coverage.

Posted by Joe Paduda at 9:48 AM | Link to this post | Comments (1)

Pres. Bush's statements on health care and health insurance in the State of the Union (free subscription required) address left me somewhat confused about the President's real objectives. While he advocated controlling the cost of care, he also strongly endorsed extending tax breaks for insurance and any individual expenditure on anything medical.

These two programs are contradictory. Reducing the consumer's real cost of health care makes them less likely to reduce expenditures, thereby feeding medical inflation.

The central premise of the Bush plan appears to be a belief in the power of information and tax policy to encourage better decision making by health care consumers. This approach, known as consumer-directed health care, will do nothing to reduce health care inflation.

Bush also:

� continued his oft-repeated support for association health plans (AHPs) to enable more small employers to purchase health insurance (although critics note that existing plans have had little to no impact on adoption of insurance; these plans are also strongly opposed by regulators and the health insurance industry; and prior legislation for AHPs has died in the Senate several times);
� endorsed tax credits for low income families to encourage them to set up Health Savings Accounts (HSAs) (although these people tend to be the less well-educated, are less likely to have access to the Internet or other data sources to assess the quality of physicians and appropriateness of care, a central component of the consumer-driven approach to health care)
� continued to push for expanded funding for electronic health records and "other health information technology";
� repeated the call to increase the limits on tax-free annual contributions to HSAs, now over $5000 per family. In fact, over half of the HSA accounts set up to date have not been funded; people are just not contributing to these funds, despite the tax break. HSAs will do nothing to reduce health care demand; they are merely another tax break for the well-to-do.

Bush also endorsed limits on medical malpractice awards for pain and suffering. This lamentable attempt to blame lawyers and plaintiffs for health care costs, defensive medicine, and physician behavior disappears when faced with the facts - malpractice costs are simply not a significant contributor to health cost inflation.

The real drivers of health cost inflation are technology, the rising cost of drugs (driven by higher prices and greater utilization), higher labor costs (especially in the hospital sector) and an aging population. Insurance premiums reflect the cost of providing care to the uninsured, a burden that is paid by those with insurance.

None of the President's proposals do anything to address the core drivers of health care inflation, and some actually will add to the demand for health care, likely increasing costs.

What does this mean for you?

The lack of national leadership ensures medical inflation will continue unabated. Look for the rolls of the uninsured to grow as the number of employers offering, and employees buying, health insurance continues to drop.

Posted by Joe Paduda at 7:52 AM | Link to this post

An excellent ongoing debate on HSAs is raging at Ezra Klein's blog.

Ezra is engaged in a discussion w libertarian/conservative Adrienne and others about the role of and impact upon society of HSAs.

Here's an excerpt

" (Adrienne) If your ultimate goal as a health policy wonk is to push for government-financed health care, then criticizing HSAs and the consumer-driven health care approach is your bread and butter, the overwhelming evidence that many people like having the HSA option notwithstanding.

(Ezra) Well, yeah. If yesterday I was paying to help sick, old people not go bankrupt and today I'm not, I'll probably be a happy camper. At least till I get sick and/or old. I'm sure the healthy young things populating HSA's are ecstatic to have lower premiums, but I'm similarly sure that HSA's are a bad idea. And since they will eventually destroy regular insurance if widely adopted..."

Leaving aside the ideological asides, the debate provides good perspective on the pros cons and disagreements about same. There's also less twisting of facts and perceptions than one normally finds in left-right debates.

My perspective is once you strip aside the labels and ideology, it is blindingly apparent that HSAs and CDHPs cannot and will not reduce health care inflation - they just do not address the key drivers - aging, technology, over-utilization...

So, if you want to debate HSAs on their merits, go ahead - just don't confuse them with medical cost containment.

Posted by Joe Paduda at 11:13 AM | Link to this post | Comments (8)

Half of the 2 million people who have signed up for consumer directed plans with health savings accounts have yet to put anything into the accounts. Interesting, as one of, if not the major attraction of the plans was the tax-favored status of the dollars going into the savings accounts.

(Matthew Holt at The Healthcare Blog has a transcript of Pres. Bush's interview with the Wall Street Journal in which Bush describes HSAs as one of the ways to make health care more affordable...)

What appears to be happening is what I (and others) have been predicting all along. Employers, staggering under the burden of rising health care costs, have all but given up and thrown in the towel. Those who have given up are dropping their health plans in favor of the new high-deductible plans, thereby shifting more of the burden onto employees. In those instances where the CDHP option is offered alongside regular heath plans, CDHP participation is in the low single digits.

The idea (at least the politicians' idea) behind CDHPs is that they will make the consumers more directive, more involved, more aware of their health and thus better consumers. I'm not sure the employers care much about the theory; what they do care about is health care inflation is now less of a problem for them.

I write that with no malice towards employers; many have decided health care is simply unmanageable. It is digging into their profits, their ability to fund new businesses or products, increase wages, enhance training, pay bonuses and executive stock options, and hire new workers. Employers in the US are tasked with addressing the health care needs of their workers, a challenge their competitors in other OECD countries don't worry about.

Here's more detail from Milt Freudenheim's article in today's New York Times:

" people have evidently signed up not because they are eager to direct their own medical spending but because the plan looked cheap or they had no other insurance option. And at least half of those enrolled have not put money in their health savings accounts. So there will be no money building up for next year's out-of-pocket expenses � a big selling point for these health plans.

In addition, many employers have been slow to offer the plans. And companies that do so have been reluctant to encourage worker participation by contributing money to the savings accounts. The employers figure that "portability" means that their money will go out the door with workers who leave...

(Bush is likely to recommend raising the limit on what individuals and families can contribute to HSAs)...For people with modest incomes who are hard put to save for medical needs or much else, raising the contribution limit may be a moot point. But for those who have the money to set aside, the savings accounts can be attractive....

While nonunion employees of Banta (a printing company that dropped all plans but the CDHP) have no insurance alternative, workers at large companies that still offer a choice have been slow to abandon coverage like H.M.O.'s and preferred-provider networks.

At I.B.M., only "a very small number" of employees have selected the health savings account option, according to Marianne E. DeFazio, the director of global health benefits, who declined to provide a specific figure. Industry experts estimated that 3 percent of I.B.M. employees had signed up for the savings plans, which the company has offered for the last two enrollment periods.

UnitedHealth Group, the largest provider of the savings plans, says that of the 24 million people insured under its various types of policies, 654,000 now have health savings plans. But so far, only about half have started setting aside money, a spokesman, Daryl Richard, said.

Among UnitedHealth's policy holders, a larger number � 846,000 � are still covered under an older type of policy that, like health savings plans, has low premiums and high annual deductibles. But instead of employees' setting aside money, the employer contributes to an account that gradually grows in value and is available for the employee to draw down for health expenses.

The money in these plans, known as health reimbursement accounts, reverts to the employer when workers leave their jobs. That is one reason some large employers are sticking with this older form of insurance.

I hope I'm just being paranoid when I look at Bush's proposal to increase HSA contribution limits as another tax giveaway to the better off. But I fail to see how the push for CDHPs will, in any meaningful way, address health care cost inflation.

It just won't.

What does this mean for you?

CDHPs won't significantly impact health care costs. Period.

Posted by Joe Paduda at 2:53 PM | Link to this post | Comments (1)

This blog world is getting incestuous...

Ezra Klein posted an excellent summation of the issues inherent in HSAs on his blog about the time I was posting here on CDHPs, and the two crossed paths in the ether.

Here is an excerpt from Ezra's commentary (for a non-insurance guy he certainly understands adverse selection) -

"Because what HSA's really do is separate the young from the old, the well from the sick. Currently, insurance operates off of the concept of risk pooling. Since health costs tend to be unpredictable and illness isn't thought a moral failing, we all pay a bit more than we expect to use in order to subsidize those who end up needing much more than they ever thought possible. The well subsidize the sick, the young subsidize the old, and we all accept the arrangement because one day we will be old, and one day we will be sick, and no one wants to shoulder that alone.

But HSA's slice right through this intergenerational, redistributionist arrangement: they're a great deal for young, healthy folks because they don't force subsidization. Just don't get sick. And if you're already sick, don't think you can hide by remaining in traditional insurance plans: when the healthy rush towards HSA's, older plans will hold only the ill, and insurance companies will send premiums skyrocketing to recoup the difference."

While this was happening, Matthew Holt's The Health Care Blog was commenting on both matters; and...

all three have been picked up by the DailyKOS, with much intelligent and insightful commentary. If you think no one is paying attention, the 90 comments elicited by the dailykos post will change your mind.

Here's an excerpt:

"HSAs are (1) a terrible idea that look like another give away to corporations and (2) a sellable idea that can easily be spun into sounding like the greatest health plan ever" (say this last word with teenage girl enthusiasm, stretching it out and heavily accenting the "ver" part of e-VER).

I try (really) to avoid histrionics on this blog, but the CDHP/HSA cure-all for the world's sins thing makes me nuts. It reveals a superficial at best understanding of health care, the economics thereof, and the real drivers of health care cost inflation.

Can we please drive a stake in its non-existent heart and start thinking about real issues, like aging, technology, drug utilization, uninsurance.....

Posted by Joe Paduda at 7:33 PM | Link to this post

President Bush's health care reform efforts appear to focus on expansion of Health Savings Accounts. I'm not sure how that reforms health care; it does have some impact on health care financing by switching some of the reimbursement from insurers to individuals, but other than that I'm hard pressed to see how HSAs will help lower health care costs.

In his January 21 radio address, Bush said "he would push to limit health care costs by expanding tax-free "Health Savings Accounts," which let people set aside money for routine medical expenses." (Houston Chronicle).

Most folks who know anything about health care costs attribute inflation to the aging population; the growth in technology; rising labor costs for hospitals; the burden of costs shifting from the uninsured to the insured; rising drug utilization and pricing; and perhaps a soupcon of defensive medicine.

In his address, Bush also said "For the sake of America's small businesses, we must ... make health care more affordable and accessible," Bush said He also called for better price disclosure for medical services and expansion of health care coverage for the uninsured. (Reuters/Houston Chronicle, 1/21), as quoted in California HealthLine.

"I decided this is a national issue that requires a national response," Bush said, adding that the government must ensure "that health care is available and affordable"...

Where health savings accounts fit on this list as a cure for a cause I can't see. Are there limits on technology? Authority for CMS to negotiate with big pharma? A major new effort to train nurses? Stringent application of technology review by CMS? An effort to cover the uninsured through the expansion of Medicaid?

No.

What does this mean for you?

I guess it is up to the rest of us to fix health care. The Bush program is not exactly "reaching for the stars".

Posted by Joe Paduda at 4:27 PM | Link to this post | Comments (2)

I recently had the opportunity to meet Dr. Alain Enthoven of Stanford University at his offices in California. One of the topics about which we have corresponded is the relatively new "consumer directed health plans" or CDHPs. Faithful readers will know that I am no fan of CDHPs; my take is they are simply the old indemnity insurance programs with higher deductibles coupled with broad based PPOs.

My problem with CDHPs is rooted in a belief that they will have no real impact on health care costs, except for the very real potential to increase acute episodes and associated costs due to lower compliance with preventive treatment plans. This opinion is backed up with facts, and has been the subject of an energetic debate on this blog.

Dr. Enthoven recently debated Regina Herzlinger on this very subject. Here are a few excerpts from his comments.

1. CDHP will be ineffective at moderating growth of health expenditures in the long run and in improving value for money. Health expenditures are very concentrated on relatively few people. In any given year, some 85% of health expenditure dollars will be spent on people who have exceeded their deductibles or can reasonably expect to do so, for any level of deductibles that is reasonable for most people. For them, the marginal cost of more care will be small, probably near zero, certainly not enough to affect their decisions once they are hospitalized.

2. The main appeal of CDHP is to employers who are eager to find a way to shift costs back onto employees, to "rebalance their compensation portfolios," as benefit consultants say. The costs will be shifted to people with chronic conditions who will usually reach and exceed their deductibles. CDHP, including HSAs, will be great for the healthy and wealthy who can benefit from the tax shelter aspect more than ordinary workers. So CDHP can be expected to grow rapidly.

3. About three quarters of health care spending is now on people with chronic conditions. The emphasis in our health care delivery system needs to be on teaching and motivating these patients to change their life styles and adopt much more healthy patterns of behavior. CDHP is based on the idea that a key to economy is keeping people away from the doctor� CDHP moves in the wrong direction�attempting to keep people away from health care rather than reaching out to support them in improving their lifestyles and managing their conditions to keep them out of the hospital and away from more costly complications.

4. CDHP emphasizes the decisions of informed consumers, a model that may seem to fit well with a population of professors in universities that have medical schools. These consumers are supposed to shop confidently for doctors, negotiate with them over prices and treatments. The information requirements at the micro-decision level are much greater than the information needed to make an informed choice of care system. Medical care is very complex and uncertain. � a mere 25% of Americans are college graduates, it seems unlikely that even much better consumer information than we have today will drive better decision making at the micro level. Only recently, the most famous bypass graft (CABG) patient in America (ex-President Bill Clinton) , living in the state with the best outcomes related information, chose a hospital with higher than average risk-adjusted mortality. The experience in New York was that the publication of such quality related information did not drive changes in market share. What changes in performance there were�and there were some�came from state regulation or the threat of it, and from the professional aspirations of doctors, most of whom wanted to be among the best.

5. CDHP is not accurately named. In that model, consumers direct the spending of the first $1500 (subject to what the insurer will count toward deductibles)�but no economic responsibility for choice for the rest of the spending, the other 85% or 90%. That is, after spending their $1500, all patients go into the cost unconscious wide access PPO, the same undifferentiated delivery system for everyone, rather than encouraging and rewarding them for choosing an efficient delivery system that will do a good job on the other 85% of spending.

6. Finally, there are doctors in this country who take part in systems that accept responsibility to manage total per capita expenditure of their enrolled members. They are physicians in prepaid group practices. Interestingly enough, they do not appear to be eager to add to front-end cost sharing. They do not believe that unnecessary primary care visits are what is driving expenditure growth. They do believe it is costly new technologies, unselectively applied, and chronic conditions not prevented or properly cared for that drive costs up. They may go along with more front-end cost sharing because other forces in society want it, such as employers, but they generally do not see it as easing their workload.

What does this mean for you?

Readers wanted a debate on the merits of CDHPs, and this certainly contributes to the dialogue. I await responses from advocates or critics.

Posted by Joe Paduda at 8:54 AM | Link to this post | Comments (4)

Pres. Bush is said to be shifting his domestic agenda to one featuring health care reform at the top of the priority list. According to California HealthLine's synopsis of an article in the Wall Street Journal,

"Bush likely will propose expansions of previous health care plans, rather than new federal spending, and the proposals likely will focus on market forces, tax credits, competition among providers and individual health insurance, rather than employer-sponsored coverage."

Earlier, Bush shot down a proposal by his own Tax Reform Committee to limit the tax deductibility of health care benefits provided by employers, frustrating some GOP supporters while heartening insurers.

The news that Bush may start moving away from employer-sponsored coverage is intriguing. The administration is under increasing pressure from employers to do something about health care costs, and this change in focus appears to be the first indication of a possible (albeit long shot) shift in funding sources for working Americans.

I wouldn't make too much of this, except it appears to be the only innovative initiative reported by the Journal.

Posted by Joe Paduda at 1:34 PM | Link to this post | Comments (2)

According to a study published in Health Affairs and reported by Fierce Healthcare, health care spending in the US rose by 7.9% in 2004, a slight decrease in the rate of increase from 2003's 8.%. The US now spends 16% of GDP on health care; in comparison the next most profligate health care spender, Switzerland, spends a mere 11.1%.

By way of comparison, the overall US economy grew by 4.2% in 2004, so health care inflation was not quite twice as high.

Health care expenditures per person are now $6280...

One of the reasons for the drop in the rate of growth was a slowing in prescription drug inflation, which was up 8.2% in 2004. This was the first year drug cost inflation failed to break the double digits.

Conversely, spending on physicians increased by 9%, a significant bump up over historical rates. This was driven in large part by a big jump in Medicare's payments to docs (11.1%). In turn, Medicare's costs were driven by significantly higher utilization (docs ordered more tests, services, and procedures than the previous year).

Before we start jumping for joy at the slowing in overall medical inflation, consider this from California HealthLine:

"Paul Ginsberg, president of the Center for Studying Health System Change, said slowed spending increases in 2004 should be viewed within the context of abnormally high rates of growth in the immediately preceding years, when consumers forced insurers to ease restrictions on managed care.

This reminds me of the guy who is pounding his head into the brick wall, just because it feels so good when he stops. The relief we may be feeling is not the absence of pain, it is just a slight decrease. And we only feel it because last year's pain was so bad.

What does this mean for you?

Most troubling is the increase in utilization for Medicare. The Medicare fee schedule has long been a bone of contention, and physicians may be increasing services as a way to make up for the poor per-service payment.

This cost shifting will affect private payers.

Posted by Joe Paduda at 8:16 AM | Link to this post

Several state legislatures are considering taking action in an attempt to force larger employers to offer health insurance to their employees. While there is considerable variation among the states, most appear to require large employers to dedicate around 10% of payroll dollars to health benefits.

I'm not sure this is Constitutional, legal or advisable, but it is clear that the level of frustration experienced by the middle class (read - voter) is growing. And their legislators are acting upon that frustration. According to the New York Times, the effort "underscores state lawmakers' growing frustration with the progress of federal health care reform and the success of a union effort to turn Wal-Mart into a symbol of everything that is wrong with the system."

It is remarkably easy to throw stones at Wal-Mart - while I won't fault their desire to succeed in a capitalist economy, I do have problems with the company's lobbying for state financial incentives, tax subsidies and abatements while thousands of their employees, who can't afford or are not eligible for Wal-Mart-sponsored health coverage, receive their health insurance through Medicaid. This well-documented "double-dipping" at the taxpayers' expense is highly unethical and inappropriate.

What does this mean for you?

While the effort to force employers to provide health insurance is doomed to failure, the larger message is clear - voters want health care reform. Expect this issue to finally rise to the top in elections this fall.

Posted by Joe Paduda at 8:32 AM | Link to this post | Comments (2)

A reader (Don Moyle) asked me to "elaborate on a comment I made about "...my skepticism re United HealthGroup". The comment was in reference to Matthew Holt's observation that "Empire BCBS has led the way (in) putting its members' patient records online. It looks like the rest of the Wellpoint organization (which bought Empire last year) will adopt the technology this year. That will force competitors like United to follow suit."

United was known as the most respected managed care firm in the nation when I joined it as a result of its acquisition of MetraHealth (the short-lived result of the merger of MetLife and the Travelers' group health operations). I was excited to be part of this great company, but quickly came to find out that the emperor's clothes were, at the least, quite threadbare.

As an ex-United employee, I had first-hand knowledge of some of the company's practices (or lack thereof). Example - while their accreditation required the company to recredential providers every two years, at least one of their larger midwest plans had not recredentialed for four years (this was back in the mid-nineties; perhaps they have begun recredentialing since then...).

On the clinical management side, there did not appear to be much going on. Their work was remarkably similar to the utilization review and case management that had been conducted at the Travelers while I was running product development for the Travelers' Health Company.

What United did do quite well was exercise market power in contracting with providers. Their market share in areas such as St. Louis and Chicago enabled UHC (now known as UHG) to drive down provider prices, thus giving them a competitive advantage (lower cost of goods sold, aka lower medical loss ratio (MLR).

Watching United today reveals not much has changed; United still seeks dominant market share; have publicly disavowed pre-cert and medical management; and are not the leading light in any of the promising new areas such as electronic member records, physician profiling, etc. In fact, they appear to be well behind their competitors in some of these (see Aetna for member education, Wellpoint for electronic member records).

That is not to say that UHG will not succeed, is not a dominant player in the industry, and has not done well. What I'm skeptical about is UHG's ability to really manage care any better than anyone else. They can exercise buying power, but as the market continues to evolve to oligarchy status, their buying power will not be sufficient.

Don, that may be more than you wanted...

Posted by Joe Paduda at 4:58 PM | Link to this post | Comments (8)

Price-fixing, the bluntest of economic policy instruments, is enjoying a resurgence among health care policymakers at the national and state levels. In California, Medi-Cal reimbursement rates for physicians have been cut 5%, effective the first of this year. The cut is expected to save the state some $65 million while in effect (it is slated to expire at the end of the fiscal year).

California's action was initiated under former Gov. Gray Davis (D), but the cut was suspended until approved through the legal appeals process. The cuts do not affect facilities, pharmacies, or other ancillary providers.

Reimbursement cuts may lead to more physicians refusing Medi-Cal; today about half of the state's docs don't accept the state program and about 2/3 of surgeons have opted out as well. One pediatrician noted that he gets about $26 for an office visit, and $13 pmpm for those kids on capitation.

Notably, Gov Schwarzenegger has declined to reduce benefits or cut eligibility; that willingness to hold the line, coupled with the rising costs of Medi-Cal which now accounts for 15% of the state budget, led to the reimbursement reduction.

Meanwhile, Congress has yet to resolve the 4.4% reduction in Medicare physician reimbursement scheduled to go into effect 1/1/2006. While both the House and Senate have agreed to rescind the cuts, the implementing legislation is stuck in a procedural process (the Senate's version and the House's differ, so a conference committee is working on resolving the differences). It appears likely that the cuts will be reversed.

The AMA and other physician groups note that the cuts go into effect simultaneously with implementation of the new Part D prescription drug program. The result, according to some, is physicians will be inundated with questions from concerned patients at the same time they are getting paid less money to see said patients.

For those who are interested, the "logic" behind the cuts is based on something called the "sustainable growth rate" formula. Here's the summary from "Medical News Today"...

"The SGR formula unfairly ties the fees paid for physician services to the performance of the overall economy. Because costs of taking care of an aging population, many of whom have multiple chronic diseases, continue to increase at a faster rate than overall growth in the economy, calculating physician payments using the SGR formula would trigger across-the-board cuts. As a result, Medicare payments for physician services keep decreasing while the cost for doctors to provide care keeps climbing."

What does this mean for you?

Price fixing is the last resort of the policymaker unable to address a problem intelligently. The unintended consequences will be significant. However, the good news is the potential rebellion by providers will add to the pressure to reform health care.

Posted by Joe Paduda at 7:38 AM | Link to this post

Matthew Holt has bravely published his predictions for 2006, with some surprising, some incendiary, and some intriguing perspectives. His observations on efforts to electronicize (my word not his) many of the patient - provider - payer interactions are worth reflecting upon.

One of the more intriguing is Matthew's observation that payers are beginning to integrate clinical and billing data. Here's the quote:

"2005 saw some of the first steps by major insurers to integrate what they know about patients' clinical information with their administrative activity. Using technology from WebMD on an ASP basis, Empire BCBS has led the way here putting its members' patient records online. It looks like the rest of the Wellpoint organization (which bought Empire last year) will adopt the technology this year. That will force competitors like United to follow suit."

As an ex-United person, and one who still can't understand how United could be viewed as the best managed care company in the country, I welcome the observation - if nothing else it validates my skepticism re UHG.

Matthew and I are both pretty skeptical about Consumer Directed Health Plans; while I believe they will grow substantially, I (and he) don't see them as anything other than cost-shifting to individuals from employers and payers. That is not a value statement, but a definition. My bet is CDHPs will enjoy a brief but rapid growth in popularity, and may well represent the last gasp of the private sector before they implode. And when the middle class enrollees in CDHPs and their plan sponsors see that they do not resolve the underlying problem in health care (cost will continue to increase dramatically), the pressure on politicians to get this fixed will force change.

The rest is well worth a read and some reflection.

Here's hoping I'm wrong and CDHPs work very well, health care costs come down, and access is dramatically increased. After all, the White Sox won the Series, so miracles do happen.

Posted by Joe Paduda at 8:03 AM | Link to this post | Comments (1)

The dot-com boom and bust has had an impact on San Francisco Bay-area residents' utilization of health care. According to a study by the Kaiser Family Foundation reported in California HealthLine; 20% of residents surveyed have "skipped or postponed medical care because it was too expensive�"

The problem is particularly acute among the underemployed (those with jobs at pay levels or requiring skills that are substantially less than their previous position or with part-time positions), with 41% skipping or delaying care.

There are several inferences we can draw from this.

1. the availability of insurance drives medical utilization
2. the richer the plan (lower deductible etc) the more likely the insured is to seek care
3. employer-based insurance directly and significantly influences the utilization of medical care.

The survivors of the dot-com implosion are educated, aware, and active. Yet another constituency that is highly likely to push health care coverage to the top of their political interest list.

Posted by Joe Paduda at 7:43 AM | Link to this post

John Garamendi, Insurance Commissioner of California, has approved the merger of United HealthGroup and Pacificare, removing perhaps the biggest obstacle to the deal. The combination, which will have 26 million members, has now been OK'ed in seven of the ten necessary states, with approvals from Colorado, Texas, Washington and the Feds still required to complete the process.

UHG agreed to concessions including providing $200 million for investments and $50 million in direct care for low-income California residents. This amount paralleled the value of the bonuses and payouts for Pacificare execs triggered by the deal's execution.

With California approval now completed, it is highly likely the deal will proceed. Garamendi's action was deemed critical to the merger, as he had previously delayed the Anthem-Wellpoint deal for several months over concerns about the impact on his state's residents.

Amidst all the politicking and sound bites, one thing is clear. The inexorable movement of the health insurance industry to oligopoly status continues. Next up - perhaps Coventry or one of the few state Blues Plans still independent?

What does this mean for you?

Fewer plans, stronger negotiating positions with providers, fewer options for employers, but brutal competition among the survivors will continue.

Posted by Joe Paduda at 8:53 AM | Link to this post

There is an excellent interview with Revolution Health's Steve Case in Fortune that sheds light on Case's ideas, plans, goals, and thinking about health care. His motivations are classically entrepreneurial - personal experience with a sibling wrestling with cancer, a desire to get back into a meaningful work after several years of volunteer work and "shuttling five kids to soccer practice in his Lincoln Navigator", and the perception that the health care system is broken and he can fix it, and make money doing so.

Loyal readers know I have been less than impressed with Case's strategy, team, and acquisitions to date. While I admire the audacity, I question the judgment. Take the business plan. According to Fortune;

"John Pleasants, whom Case installed as chief executive of the health group in September, says selling subscriptions to consumers and ad space to companies will be two big revenue streams. But Revolution also hopes to make money by doing everything from reselling health insurance policies offered by other companies to charging consumers for online doctor visits."

Hmmm. WebMD, MedScape, Aetna, Anthem, and about a hundred other companies are already providing lots of medical and health-related content, mostly for free. And selling ad space too.

There are lots of companies selling insurance policies (we in the industry don't call it "reselling", it is actually acting as a "broker") from your neighborhood agent to Allstate to AARP to UnitedHealthGroup to Blues Plans. Tough competitors too.

On-line doctor visits could theoretically be a revenue stream, if the doctor is a member of a network contracted with the payer, and if there is some mechanism to bill, pay, transfer funds, and adjudicate the "claim" quickly efficiently and accurately. Certainly this can be done, but a very large, Kong-size hurdle will be to convince physicians that they should participate in such a scheme with a tiny player like Revolution. This is theoretically possible, but when Anthem, Pacificare, and other large payers struggle to get docs to use their electronic systems, it makes it difficult to see how Revolution will succeed.

Again, I admire his vision, but the naivete can be breathtaking. For example, Case is quoted as saying "The healthcare system will be fundamentally different. It has to be. It's not working."

Steve, it has not been working for decades, and just because it is so obviously broken does not mean it will get fixed any time soon. See Africa's economies, the Middle East, the World Health Organizations' efforts on AIDS, polio, and river blindness, drug addiction - all very big problems that are very difficult to solve that have blunted the lances of all who have attempted to date.

Thousands of very smart people with lots of cash have tried to change the health care system (see Bill Clinton), and some are actually starting to have some verifiable success (see Kaiser for their work on electronic medical records, Aetna for educating insureds on procedure costs and premium expenses specific to their conditions). The difference is these change agents enter the fray with a deep and broad understanding of health care, providers, cost drivers and outcomes. They know health care financing and the root causes of health care inflation and patient satisfaction. They have large footprints and strong brands. And resources that make Case's $250 million look like chump change (Kaiser has already invested several billion dollars in its electronic medical record initiative alone�).

I'll close with another quote from Fortune talking about Case's core concept, consumer-directed health care.

"Princeton health economist Uwe Reinhardt likens the "consumer-driven guys" to architects touting a huge, new skyscraper before they've had engineers figure out whether it's feasible to build. "They haven't even finished the blueprint," he says.

Case doesn't disagree. "We've only been at this for a few months and still have a lot to learn," he says. But he isn't discouraged by the industry's limited success. "People say, 'Well, some of these consumer-driven ideas, they've been tried and they haven't been successful.' But that doesn't mean they're not good ideas." As Case sees it, consumer-driven health care is about much more than how high you set the deductible in an insurance plan. "For us, it's about how you move the patient back to the centre of the system," he says.

It's a great line. But what does it mean? Case won't get into details, including financials. But Revolution Health's plan reveals that Case is pursuing the same strategy as his old company: He's going to launch a web portal next year, just as AOL did this year."

What does this mean for you?

With apologies, here's the old joke -" how do you make a million in health care? Start a consumer-directed/web portal plan with $250 million".

Posted by Joe Paduda at 7:53 AM | Link to this post

Pay for performance, or P4P, is gaining traction amongst health care organizations, policy types, and some health plans as a potentially promising way to link compensation to outcomes. A study published in October indicates that P4P as presently practiced is in need of refinement and improvement.

The study published in JAMA and sponsored by the Commonwealth Fund, found that physicians compensated under a P4P program improved their performance in one of three metrics, showed no significant improvement in the other two, and three-quarters of the physicians receiving bonuses under the program were performing at the standard before the program's inception.

The program compared 200 physician groups in two of Pacificare's networks with a P4P program and compared them to a control group in another network that did not have a P4P program. Of note, the quality of care for two of the indicators, mammography and hemoglobin-A tests, improved for both the test and control groups, while the P4P groups' performance improved 5.3% for Pap smears while the control group's performance was only up 1.7%.

That said, physicians with the lowest quality scores before the P4P was initiated showed the most significant improvement. One wonders if this was not deviation towards the mean, or the Hawthorne effect, or if the improvement was driven by the program itself.

Obviously these programs need some improvement, and this study should not be interpreted as conclusive evidence that P4P is a non-starter. However, the industry would be well-served to take to heart some of the findings. One of the more obvious is that 75% of the physicians winning bonuses were already performing at that level before the program started. There are two views of this. One is that the payment reflects appropriate compensation for high-performing docs, and this compensation is a just reward for performance.

The other view is that the additional payment, as high as $270,000 for a physician group with 10,000 patients performing at the highest possible level, is a waste of resources as the extra pay is not justified by any improvement in performance.

Clearly, pay for performance is a contentious subject, with various groups including CMMS (contemplating P4P in Medicare) taking an active interest.

What does this mean for you?

Provider compensation is a dynamic field, with previous efforts at capitation, risk-withholds, Fee for service, U&C;, DRGs and others all found to have limitations.

This may be overly simplistic, but simply finding the best docs and sending patients to them strikes me as the smartest, and easiest, thing to do.

Posted by Joe Paduda at 8:10 AM | Link to this post | Comments (3)

For Medicare physician reimbursement, it is indeed the eleventh hour. House and Senate conferees are considering a compromise bill that would raise physician reimbursement by 1% in 2006, against the scheduled 4.4% decrease that is slated to go into effect if no action is taken. This decrease was part of previous Medicare and budget bills, and allowed Congress and the Administration to claim lower costs for Medicare programs when these bills were originally passed. Now, Congress, faced with a vocal and engaged physician community, is forced to either increase reimbursement or deal with the fallout from physicians dropping out of Medicare.

The AMA is quite active in this, lobbying everyone with a pulse on Capitol Hill in an effort to get the increase passed and kill a proposed pay-for-performance initiative.

According to the Washington Post, "Congress is considering a pay-for-performance proposal that in 2007 would cut 2% of Medicare reimbursements if a physician did not report quality data to the federal government�"

The conferees arguing about these provisions are Republicans; Democrats have essentially been shut out of the process. While this may be politically expedient, it is my sense that the GOP legislators may have painted themselves into a corner. Without Democrats participating in the process, Republicans have forced themselves into a Hobbesian choice - anger the physician community or raise Medicare costs. Either way there is no political cover - the Democrats can't be blamed.

Note - as Medicare's fee schedule is used in many states for workers comp and auto reimbursement rates, and by health plans as the basis for their reimbursement as well. There will indeed be unintended consequences for many payers. And few of the property and casualty insurers are paying any attention.

What does this mean for you?

Physician reimbursement will likely be increased and so will fee schedules.

Posted by Joe Paduda at 8:21 AM | Link to this post

Besides being perhaps one of the most intelligent, insightful, and articulate observers and critics of the US health care "system", Bob Laszewski has an ability to make sense out of what is a complex and occasionally contradictory business.

In his latest observation, Bob notes that what is happening in the US health care system is "different than any other (year) I have watched." The net - as a nation, a trade union,a government, a business, or a municipality, we can no longer afford making expensive promises re health care and/or pensions.

Bob cites the Pension Benefit Guaranty Corporation's finding that it now has a deficit of $30 billion and the PBGC's report that private plans and union plans are underfunded by $650 billion.

That's bad. Health care is worse.

If Medicare grows by 1% more than the rest of the economy (which would be a lot slower than it has been growing over the past ten years) it will be larger than the entire US budget by 2050.

The first baby boomers are eligible for Medicare in six years. Six years.

GM, Ford, Delphi, big steel and airlines are all cutting health benefits or have already done so. Bob believes other big firms, in better financial shape than these behemoths, will soon follow suit.

State budgets are being hammered by Medicaid expenses, leading to higher copays, changes in benefits, and outright slashing of Medicaid rolls.

His point is that we are now in a phase of "renegotiation"; promises are not going to be kept whether they are promises made by our government or employers. These promises, made in the day of cheap health care, restrictions on wage increases, a booming national economy driven by the world's dominant manufacturing companies and a much younger population, are no longer affordable.

What does this mean for you?

Significant changes in the health care delivery system are coming. Yes, there are barriers to change in the form of strong lobbying groups. Yes there are powerful politicians. Yes, these are incredibly hard problems. But the tsunami propelled by demographic change and the continued rapid influx of technology will blow these barriers away.

Posted by Joe Paduda at 8:01 AM | Link to this post

There is a truly terrifying problem in the US that no one has paid attention to until now. Health care costs for public-sector retirees may represent a total cost of $1 trillion, according to Mercer Human Resources.

State and local governments are facing a requirement to report their future health care cost liabilities within the next three years. You will hear the explosion of public outrage and feel the impact on future state and local taxes shortly after individual governments announce the results of their analyses. And it will be ugly.

According to a New York Times article featuring Duluth Minn.,

"For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future.

Off the government balance sheets - out of sight and out of mind - those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. And now the accounting rulemaker for the public sector, the Governmental Accounting Standards Board, says it is time for every government to do what Duluth has done: to come to grips with the total value of its promises, and to report it to their taxpayers and bondholders.

My home state, Connecticut, is one of those that budget for health care on a pay-as-you-go-basis. I have been encouraging our local town officials to come to grips with this problem for two years, to no avail. So, it is encouraging that we are being forced to do so. Disappointing that we could not act like adults and do this on our own, but better forced to do it now than later.

Meanwhile, Medicaid and Medicare are the subject of a major fight over $10-50 billion in budget cuts. This is truly tweaking around the edges, and almost a waste of time compared to the local and state problems with health care liabilities. Clearly, we need more than accounting tricks and small benefit design changes if we are to adequately address the nation's health care cost and access problem

What does this mean for you?

Higher taxes.

Posted by Joe Paduda at 2:36 PM | Link to this post

The California HealthCare Foundation has released two excellent reports examining individual health insurance and employer-based health insurance in California, comparing costs and access to other states, and assessing how employers and individuals make decisions regarding insurance.

The reports, part of the ongoing research of the Foundation, were based on work done by the Center for the Study of Health System Change, a D.C.-based organization known for its excellent work at the national level.

Highlights (term loosely applied) include:

--premium increases doubled the overall inflation rate, with the latest figures at 8.2% compared to a 3.9% overall inflation rate in CA

--monthly premiums averaged $858 for families and $321 for individuals

--PPOs cost more in California than the national average, with HMO pricing lower
--70% of large employers are likely to raise employee contributions in 2006

--providing more and better access to information about individual health plans can have just as much impact as subsidizing premiums.

Posted by Joe Paduda at 6:45 AM | Link to this post

Research by the California Health Care Foundation on potential strategies for covering the uninsured indicates that employer-sponsored plans and insurance pools don't hold much promise. Two studies published by the Foundation provide details; both are worth reviewing.

The employer study looked at a multi-year experiment in San Diego wherein smaller employers' health insurance plans were subsidized in an effort to encourage the employers to offer coverage. It turns out that many employers already offered insurance while those that did not were not often swayed by the subsidy. And, less than one-fifth of the state's uninsureds were full time employees or dependents of full time employees.

The evaluation of health insurance pools is somewhat more promising. The net is these require extensive planning, careful implementation, and thorough management if they are to be effective. In addition, market considerations such as competitive plans, the cohesiveness of pool members, and demographics have considerable impact.

The net - creating a successful pool is a time-consuming, detail-intensive effort.

What does this mean for you?

While the studies are not exactly encouraging, at least we have a better grasp of the challenges associated with these two popular ideas. Perhaps we are getting closer to understanding what might work to improve coverage.

Posted by Joe Paduda at 9:23 AM | Link to this post | Comments (3)

It's always interesting to read Mathew Holt's blog, and today is no exception. His post highlights one European's perspective on health care spending, funding for same, and what we should, and should not, be spending health care dollars for.

In the world of health care policy wonks, Mathew stands out.

Posted by Joe Paduda at 10:30 AM | Link to this post

In yet another sign that health care, national health policy (or the lack thereof), and the impact of same on the US economy (free subscription required) is fast becoming a national crisis, Paul Krugman has published an editorial linking GM's incredibly high health care tab to its recent financial problems, and using GM's troubles to highlight the impact health care costs have on other manufacturers.

I'd extend that to any employer that provides health insurance for its workers. I was speaking with a senior partner at a large Florida law firm at the Florida Workers Compensation Conference in August about just this issue. The gentleman, a self-described conservative, was reflecting on the costs of health insurance, and the problems firms such as his encountered in obtaining and funding coverage. We had just heard a talk by former HHS Secretary Donna Shalala in which she made a case for national health insurance.

This gentleman, no fan of Shalala or governmental solutions in general, was acknowledging that the present health care "system" was not serving his firm or its employees very well, was costing a huge amount of money, and there did not appear to be any promising solutions in sight. We discussed the unseen costs of health insurance - higher costs prevented them from hiring a new associate, opening a new office, or adding a new document management system. By the end of the conversation, I sensed a willingness to relook at health care and health insurance, to consider it as not a governmental hand-out or employee benefit, but rather as a drag on his firm's effectiveness.

The more this happens, the closer we get to a solution.

What does this mean for you?

My guess is we will have some form of consensus on national health policy, perhaps with universal coverage, within five years.

Posted by Joe Paduda at 6:17 PM | Link to this post | Comments (3)

Two states' child health insurance initiatives (free subscription required) show different approaches to the same problem; providing access to health care for the nation's kids. South Carolina is adopting a scheme based on private insurers while Illinois is pursuing a plan based on public funding and management of the program.

And these are not the only states experimenting with different approaches: California activists are hoping to get an initiative on the ballot next November that would fund child health insurance through a higher tax on cigarettes; New Mexico's Governor will propose universal health insurance for kids under 5 in his next budget; and Florida has already received approval for the privatization of much of Medicaid.

While Washington dithers over very minor changes to Medicare and Medicaid, the states are once again the laboratories for innovative ideas. These ideas can be differentiated into two broad categories; defined benefit and defined contribution.

The defined benefit programs are those that pay for any care that is consistent with the benefits outlined in the Medicare or Medicaid programs. Defined contribution plans are entirely different - they pay a set amount of money to a program state, or beneficiary that the program, state or beneficiary must use to cover as much of their care as possible.

The ideological distinction here is obvious - have the state responsible for funding the care that is needed v. make private enterprise, the insurance program, and/or the individual responsible for figuring out how much care they need.

With the present regime in Washington, expect the Feds to promote more of the defined benefit programs, and more privatization in the next two years.

While I am all for innovation, remember that administrative costs associated with private health insurance are several times higher than the costs of programs run by the government. The question remaining to be answered is "can the innovations and creativity of private firms deliver better results in terms of lower health care costs and healthier people despite their higher administrative expenses?"

Thanks to Tom Barrett of Choice Medical Management for the reference.

Posted by Joe Paduda at 7:41 AM | Link to this post

A quarter of employers in Rhode Island do not offer health insurance, and over half of employers said health care costs are driving down profits.

A survey by the State's Insurance Commissioner covered 1444 employers in the state and focused on the availability of health insurance, employee adoption rates, premium increases, and the wage status of the employees.

Here are a few of the more salient results.

1. 20% of employers saw health insurance costs increase more than 25% this year
2. Almost half of the employers experienced increases above 20%
3. 71% of "low wage" employers offer health insurance; 99% of other employers do (Low wage employers are those who pay more than half their employees less than $21,000 annually)
4. Six years ago, 61% of employers paid the full cost of insurance; 21% do now.5. 20% of employers offer only high-deductible plans with deductibles above $1000

But the real impact of rising health insurance costs is seen in the rapid rise in the number of people without health insurance. According to Insurance Journal, (the report) "also shows the proportion of the state's population without health insurance rose from 6.2 percent to 11.4 percent, between 2000 and 2004.

Clearly, the nation's smallest state's experience is similar to the rest of the country. Rising health insurance rates are decreasing access to health care, especially for the lower economic classes.

What does this mean for you?

Another straw added to the load on the camel's back.

Posted by Joe Paduda at 5:11 PM | Link to this post | Comments (4)

Administrative expenses account for 34% of private health care spending in California according to a report authored by University of California-Santa Barbara researchers and noted in California HealthLine. The 34% is comprised of insurance paperwork (21%) and medical records (13%).

Billing expenses amounted to 8% of private health insurance premiums; 11-14% of hospital spending and 14% of physician office expense went to billing as well.

Total private insurer administrative expenses totaled 9.9%; Medicare came in at 4.5%.

The full study, published in Health Affairs, noted :

"Including health plan profits, we estimated that 19.7-21.8 percent of spending on physician and hospital services in California that are paid for through privately insured arrangements is used for billing and insurance-related functions.
This is not "new news"; administrative expenses in the US consume a significant portion of health care expense. However, the study notes that these dollars, which are often labeled as "waste", are not. Here is a quote from the full study:

"some administrative effort is required and desirable in a well-functioning system. Hospitals are complex organizations, and administrative effort is needed to use inputs efficiently and produce good outcomes. As physician practice moves toward larger medical groups, administrative effort is required to assure that the groups function efficiently. Administrative activities here include the work of the office manager, the receptionist, the billing staff, the information technology experts, and other personnel not directly contributing to the hands-on care of patients."

Thus, the definition of "administrative expense" is quite broad, encompassing both payer and provider functions. This may be lost in some of the other publicity surrounding reporting of this study.

What does this mean for you?

Lots of opportunity to reduce administrative expense.

Posted by Joe Paduda at 3:43 PM | Link to this post

USAToday reported that 19 states are considering some form of state-wide health insurance programs. While there is wide variation in the programs being considered by the legislatures, all seem to be in response to frustration with the lack of movement on the federal level.

Proposals range from Massachusetts' initiative requiring all citizens to purchase health insurance to Florida's child health insurance program to a universal health system in Maine. It will come as no surprise that many of these are simply studies by committees, are already dead, or have been referred to committee (and may never see the light of day).

That said, it is notable that many state legislatures and governors, ranging from conservative to moderate to liberal, are pushing for reform.

Many of the proposals deal with coverage for children, a politically popular move that has some basis in existing programs in a number of states.

Another sign that the momentum for reform is growing? I think so.

What does this mean for you?

Watch the bellwether states carefully, as successful initiatives often start there and move into the Federal arena (remember how Tommy Thompson got his publicity) .

Posted by Joe Paduda at 6:09 AM | Link to this post

Wal-Mart's impact on health care costs, wages, employment and other indices will be the subject of a conference in Washington DC today. According to an article in Bloomberg, when the nation's largest employer opens a store, it significantly impacts the local economy, with notable effects on Medicaid enrollment and expenses, the cost of staples (e.g. detergent, food), and wages. (Thanks to Peter Rousmaniere for the heads-up)

As one might expect, there is good and bad news to come. On the positive side, purchasers of goods from Wal-Mart get more for their money. On the negative side, wages drop both locally and in the areas that source the company's goods; and governmental health care costs increase.

Here is an excerpt from the article.

" Another conference participant, Michael Hicks, an economist at the Air Force Institute of Technology at Wright-Patterson Air Force Base in Dayton, Ohio, studied Wal-Mart's effect on government anti-poverty programs and found that Wal-Mart increased Medicaid costs an average of $898 per worker.

Medicaid Spending

Hicks found that a 1 percent increase in Wal-Mart's market share in a state is accompanied by a 1.5 percent increase in Medicaid spending. Wal-Mart insures fewer than half its employees, many of whom cannot afford to pay for their own health insurance. Hicks found that government aid to needy families decreased by 3.3 percent with every 1 percent increase in Wal-Mart's market share�"

Wal-Mart's impact on Medicaid has been documented previously in Managed Care Matters (citing other sources), but this is the first time a national conference has been scheduled to focus specifically on Wal-Mart's overall impact on the national and local economies.

Wal-Mart itself sponsored the studies that are the subject of this conference. Kudos to them.

Posted by Joe Paduda at 9:14 AM | Link to this post

Paul Krugman, one of the Op-Ed writers appearing in the New York Times, has an interesting take on a solution to the national health insurance crisis (free subscription required). Those who follow Krugman will not be surprised that he is in favor of a national health insurance program. But put aside the ideological constraints and consider the rationale. Here are a few of his points.

1. Life expectancy and infant mortality in the US is lower than in Canada, Britain, Germany, and many other countries.

2. Health care expenditures in the US are 40% higher than the next most expensive country and twice what they are in the UK.

3. Access to elective procedures is better for some in the US compared to some other countries, and worse for others (e.g. the uninsured).

What Krugman misses is the impact of health care on productivity and functionality. He talks about outcomes in terms of life expectancy, and the impact on health maintenance of deductibles and copays, but has yet to make the connection between those issues and what matters to business; revenue and profit per employee.

He also does not opine on his preferred form of national health insurance; single payer as in the UK or multiple insurers as in Switzerland; or funding; tax-based v. employer v. individual v. combination. In my view, that's smart. Once we figure out that we need a form of mandatory health insurance, then we can argue over the funding of same. But first we need to agree that health insurance should be mandatory.

My bet is within 3-5 years that will indeed be the consensus of American business, a goal of most in the middle class, and growing in popularity among elected officials. The myth is we can't afford health care coverage for all; the reality is we are paying for health care for the uninsured every day in the form of higher premiums, higher taxes, and reduced productivity and higher Medicaid and Medicare costs.

What does this mean for you?

The sooner we can reach consensus that some form of national health care coverage is the goal, the better for US business, providers, and the middle class.

Posted by Joe Paduda at 8:02 AM | Link to this post | Comments (1)

Wal-Mart is back in the news, and it looks like it will be making headlines for some time to come. The fallout from the release of an internal Wal-Mart memo focusing on employee benefits expenses, health care costs and plans appears to be spreading, with potential problems for the firm pertaining to ADA issues. (thanks to a good friend in the insurance industry for the reference) In response, Wal-Mart has set up a "war room" (free subscription required) staffed by veterans of heated political campaigns to respond instantly to bad news and provide the company's perspective on issues.

According to the LA Times, the internal memo authored by Susan Chambers, EVP Benefits will raise thorny issues for the company:

"The memo � acquired and publicized this week by Wal-Mart Watch, a nonprofit group allied with labor unions � virtually guarantees that the retailer, which already is fighting class-action lawsuits over its hiring and promotion practices, will face a slew of new discrimination claims, Winikow (California employee rights attorney) said.

Writing to Wal-Mart's board of directors in advance of their meeting next month, Executive Vice President of Benefits Susan Chambers proposed that benefits be redesigned to attract a "healthier, more productive workforce," potentially saving $670 million by 2011.

Chambers suggested offering savings on healthy foods and other benefits that appealed to healthy workers. She also said all jobs could be redefined "to include some physical activity (e.g. all cashiers do some cart gathering.)"

"These moves would also dissuade unhealthy people from coming to work at Wal-Mart," she wrote.

Employment rules that discriminate against workers on the basis of age or a permanent physical disability run afoul of federal and state laws, whether the discrimination is intentional or not. The laws usually require employers to make reasonable accommodations for a worker's physical disabilities, including chronic medical conditions such as diabetes or heart disease.

Wal-Mart spokeswoman Sarah Clark said the company's intent "was not to dissuade unhealthy people to apply for jobs at Wal-Mart�. It was to provide programs to our associates that help them live longer or healthier lives."

I'll admit (to the likely dismay of some friends in the blogosphere) to harboring some sympathy for Wal-Mart. Health care costs are a very significant part of all companies' cost structures; impact productivity; and reduce funds available for investment in R&D;, expansion, and capital acquisition. Chambers would be doing her stock holders a disservice were she to ignore any and all legal and ethical means of reducing health care costs and increasing the return on that investment.

But the bad news just won't stop for Wal-Mart. A story in today's New York Times reports the US Department of Labor violated its own internal guidelines when it agreed to provide Wal-Mart with 15 days notification before inspecting the company's stores for violations of child labor laws. While that may appear to be outside the scope of this blog, one could make a plausible case that using children to perform tasks that are legally limited to adults is a result of the company's desire to restrain labor costs by using the least expensive workers whenever possible.

Once you get a bad reputation, it is all but impossible to turn opinions and perspective around. Wal-Mart would have been far better served to focus its thinking on ways to use health benefits to increase productivity by increasing the health status and functionality of its workers. After all, this is the company that started the "greeter" function as a way to accommodate workers injured on the job. Now, quadraplegics, paraplegics, and other significantly disabled workers have gainful employment thanks to that policy.

Posted by Joe Paduda at 7:25 AM | Link to this post | Comments (1)

Managed Care Matters is a year old. Starting with the first day's posts on the use of oxycontin in workers comp and Coventry's acquisition of First Health, the blog has covered topics ranging from international pharmaceutical pricing to the investment strategies of Ohio workers comp officials. We are up to just under 200 individuals signed up to receive posting notifications. Almost 5000 unique users visited last month, perusing the 320 entries posted to date. Over 120 comments have been posted to date, enriching the debate, educating me, and providing perspective sorely needed in today's health care debate.

These are busy days for managed care bloggers. Proposals to cut Medicare and Medicaid by Congressional Republicans hit the nightly news shows, interrupted by ads for the $800 billion dollar Medicare prescription drug program passed by these same elected officials.

Mergers and acquisitions still happen, although the decline in frequency is balanced against the increase in the size of the deals.

Workers comp executives are indicted for illegal campaign contributions, bribery, and outright theft.

Managed care firms find themselves the subject of scathing audits alleging overbilling and lousy services.

Consumer directed health plans grow in popularity, while costs keep rising.

Health plan profits zoom, as medical inflation moderates and premiums climb.

Hurricanes affect the entire industry, forcing drivers in Alaska to help pay for wind damage in Alabama.

Huge companies, beneficiaries of state tax subsidies, are forced to offer health plans to low paid workers after news reports indicating 65,000 of their employees are covered by Medicaid.

I have enraged a few along the way (one executive at a workers comp managed care firm was heard to say he would rip my head off the next time he saw me) and look forward to continuing to perform that needed chore when appropriate. Hosting Managed Care Matters has made me more thoughtful, better read, and busier than ever.

Thanks for the insights, challenges, and news items, and please, keep it up.

Posted by Joe Paduda at 6:53 AM | Link to this post | Comments (3)

More details are emerging about Wal-Mart's internal debate on health care and benefits for employees (free subscription required). An internal memo from Wal-mart's head of benefits notes that costs can be reduced by hiring younger workers, ensuring all workers get some physical exercise, and hiring more part time workers.

The memo was in response to the company's soaring benefits expense, which has jumped 15% annually since 2002, driven in large part by a $1.4 billion increase in health care costs over that period. Wal-Mart, which employs 1.33 million people, provides insurance for less than 45% of employees, and 46% of their children are either uninsured or on Medicaid. Medicaid insures 5% of the company's employees, or about 65,000 people (and probably more of their dependents).

Here are some interesting excerpts�

"The memo noted that Wal-Mart workers "are getting sicker than the national population, particularly in obesity-related diseases," including diabetes and coronary artery disease. The memo said Wal-Mart workers tended to overuse emergency rooms and underuse prescriptions and doctor visits, perhaps from previous experience with Medicaid.

The memo noted, "The least healthy, least productive associates are more satisfied with their benefits than other segments and are interested in longer careers with Wal-Mart."

The memo proposed incorporating physical activity in all jobs and promoting health savings accounts. Such accounts are financed with pretax dollars and allow workers to divert their contributions into retirement savings if they are not all spent on health care. Health experts say these accounts will be more attractive to younger, healthier workers.

"It will be far easier to attract and retain a healthier work force than it will be to change behavior in an existing one," the memo said. "These moves would also dissuade unhealthy people from coming to work at Wal-Mart."

More recognition of the problems of the aging workforce, adverse selection, and the essentially uncontrollable nature of today's US health care system.

What does this mean for you?

Higher prices at Wal-mart.

Posted by Joe Paduda at 5:50 PM | Link to this post

The Senate Finance Committee has passed legislation designed to cut $10 billion over five years from Medicaid and Medicare programs. The vote was along party lines, with Republicans in favor and Democrats against the cuts.

The changes, which now have to be considered by the Senate Budget Committee and then the full Senate before passing on to the House, would reduce reimbursement to physicians for drugs dispensed ($6.4 billion), increase funding to incent health plans to participate in medicare programs (no $ figures provided) , and require pharmaceutical manufacturers to increase the rebates paid to the federal government by $1.4 billion.

Additional funds would be set aside for Katrina victims' health care.

The House is considering a package that would cut $11 billion from Medicaid alone, even after adding $2.5 billion for Medicaid services for Katrina victims.

What will result is likely to be some cuts in Medicaid and Medicare, as well as the potential for increased costs for wealthier Medicare eligibles.

The last would have seemed highly unlikely jsut a few months ago, but the Republican base is outraged by the lack of financial discipline it perceives on the part of Republican leadership. The Washington Times notes:" Sen. John McCain (R-Ariz.), one of the group's leaders, said, "I am totally confident that the Republican base is upset and angry about the fiscal indiscipline that we practiced here in the Congress and the mortgaging of our children and our grandchildren's futures"

What does this mean for you?

Tweaking around the edges of Medicare and Medicaid will do nothing to address the underlying cost drivers, so the problem persists...

Posted by Joe Paduda at 3:49 PM | Link to this post

WalMart has introduced a health insurance program that is more affordable for its 1.2 million workers. In what appears to be at least partially in response to criticism from regulators, consumer affairs and labor advocates, and reports in the media, the plan provides coverage for as little as $11 a month (individual premium contribution) for a $1000 deductible program.

Fewer than half of Wal-mart's workers are presently covered by their health insurance; the company's major competitor, Costco, not only pays workers significantly higher wages and also succeeds in covering more than 80% of them.

According to the New York Times;
"Wal-Mart said that under the plan, monthly premiums would cost between 40 percent and 60 percent less than those for any existing Wal-Mart insurance policy, and that individuals could visit a doctor three times before paying a deductible, an arrangement aimed at encouraging workers to seek preventive care. In the past, workers have had to pay a deductible before their insurance kicked in.

Those who participate will pay a $1,000 deductible, the maximum under Wal-Mart's insurance for 2005. Monthly premiums will be, on average, less than $25 for an individual, $37 for a single parent and $65 for a family. The $11 premium, for individuals, will be available in a handful of areas, Mr. Fogleman said.

But the plan is unlikely to cover a complicated illness or expensive hospital stay during the first year, when there is a $25,000 insurance cap. (The cap is lifted for the second year.) Out-of-pocket payments range from $300 for prescriptions to $1,000 for hospital stays."

Critics note that older workers will not be as well-served under the plan than younger healthier workers.

I would note that Wal-Mart's decision to provide cheaper, well-designed coverage deserves commendation. They will likely face criticism from the equity markets and some analysts, and others will complain, noting Wal-Mart's long delay in providing affordable health care or question the plan design. Regardless, the company has put together a good program at an affordable price.

Kudos to Wal-Mart.

What does this mean for you?

For taxpayers in Florida and other states where large numbers of Wal-mart employees are covered under Medicaid, potential relief from the added tax burden. For other large employers with low-paid workers, more push to provide health care.

Posted by Joe Paduda at 7:43 AM | Link to this post | Comments (2)

Just when I started thinking I may be getting into too much detail in some of my blog posts, I read Matthew Holt's latest on consumer-directed health plans, and some of the following comments from everyone on the entire political and ideological spectrum. Boy, am i superficial.

Net - I agree w Matthew - the folks who believe consumer directed health care will significantly effect overall health care costs also believe in the Easter Bunny.

The Easter bunny solves their problem (sweet tooth) without any harm or cost to them. CDHPs do the same, by making consumers better decision makers about their health care without addressing the fundamental underlying causes of health care inflation. Simple solutions for simple minds.

For the bazillionth time, the people who spend the most on health care, and drive health care inflation, will blow through their deductibles and copays faster than a detailer can pitch an ED drug. Sure, the rest of us are going to pinch pennies, including the poor elderly who may skip taking their hypertension drugs every other day to save money. But we don't drive up health care costs - sick people do.

It is truly scary when ideologues get involved in things about which they know nothing - like the advocates of CDHP.

Posted by Joe Paduda at 6:54 PM | Link to this post

Another insightful view of the debacle at GM and Ford is offered up the The Economist, (subscription may be required) which notes:

"GM says that $1,500 of the price of every new vehicle it sells goes towards health care for past and present employees. The firm's commitments are shockingly vast. It pays the health insurance of some 1m retirees and their dependants as well as its current 200,000 American workers and their families. The deal with the UAW will provide some respite. Though not all details of the deal have been disclosed, the carmaker said it would result in a cash saving of $1 billion a year and would slice $15 billion off the firm's health liabilities towards its pensioners.

(Details of the health care deal emerged yesterday, indicating that for the first time GM employees and retirees would have to pay part of their monthly premiums, along with deductibles and hospital co-pays)

Rick Wagoner, the chief executive, called it "the single biggest cost reduction in a single day in the history of GM", though these cuts alone seem unlikely to be enough. Analysts' estimates of GM's unfunded obligations (before the cuts) are around the $70 billion mark, most of them in relation to retirees' health costs. And the firm has promised to fund a new plan for employees affected by the cuts, costing $3 billion, delivered in three instalments beginning in 2006. So it still has a mountain of cost-cutting to climb�

The Japanese firms have fewer pension obligations and more flexible workforces�and they are largely non-union. Their model ranges are also more attractive to motorists."

Not to mention the Koreans, who can undercut the Japanese.

The central problem for GM and Ford (free subscription required) has been and will continue to be their misguided decisions to make cars that people don't want to buy. Chief among those decisions was the focus on trucks and SUVs, at a time when everyone with any sentient capabilities knew that fuel prices and availability would be drastically impacted by the emergence of India and China coupled with the dearth of new reserves.

But, that extra $1000 per car (the difference between GM's health care costs and Toyota's) would sure come in handy at GM�

What does this mean for you?
A great lesson in business. Those who chose to ignore reality will soon be buried by it.

Posted by Joe Paduda at 6:53 AM | Link to this post

The Senate is progressing rapidly on a plan to reduce Federal spending, with potentially significant effects on Medicare and Medicaid. Although Sen. Grassley (R-IA)'s efforts appear to be somewhat short of the support needed to pass, there is an air of expectation that compromise will result in something significant happening soon.

According to BusinessWeek, there are significant differences even among Republicans, with conservatives including Kyl (R-AZ) favoring maintaining the $7 billion funding to encourage pharmaceutical firms' participation in the Medicare Part D program (not what one would typically think of as a fiscally conservative stance). More moderate GOP Senators led by Snowe (R -ME), appear to be more concerned with not cutting Medicaid and Medicare, which are targeted for reductions of $10 billion in the draft legislation.

Among the key provisions of the legislation as of yesterday were:

- a 1% increase in physician reimbursement (instead of the 4.3% decrease slated to go into effect on 1/1/06)
- increase in funding of $1.8 billion for Katrina-related expense for several affected states
- allow families with incomes up to 300% of the poverty level to buy into Medicaid for disabled children

The rock and hard place dilemma continues, with senators attempting to cut expenditures while funding Katrina efforts, the new Part D program and increase physician reimbursement. How that will pan out is anyone's guess. The National Governors' Association is working hard to prevent any cuts in Medicaid, the Senate is somewhat ambivalent, while the House Republican leadership has committed to cuts of $50 billion in the overall budget despite the reluctance of several committee heads and numerous Representatives to sign on to what could be politically dangerous.

Polls indicate respondents (by a significant majority) are not in favor of cutting governmental health programs.

Meanwhile, Florida has been issued approval by HHS to make significant changes to the State's Medicaid program. In brief, the changes include a significantly greater role for managed care entities; authorization for participating health plans to vary the plan of benefits; and the ability for recipients to "opt out" and receive subsidies to buy insurance on their own.

Driven by annual Medicaid cost increases averaging 13% over the last six years while state revenues were growing 6%, the waiver changes the basis for funding from a "defined benefit" to a "defined contribution". The federal government's contributions will be based not on what is needed to cover the expenses of a pre-defined set of benefits, but on an amount agreed upon by the State and HHS.

This is a big change.

What does this mean for you?

As goes HHS, so goes the rest of the commercial world. There will be impacts on cost-shifting, provider reimbursement levels, and uninsurance rates.

Posted by Joe Paduda at 12:19 PM | Link to this post

The first big crack in retiree health benefits occurred years ago, when steel companies and other "rust belt" companies reneged on their commitments to fund retirees' health coverage, declaring bankruptcy in the face of intense competitive pressures. Now, the nation's largest private provider of health benefits to employees and retirees, General Motors, has negotiated a deal with the UAW that significantly reduces GM's future health care expenses.
For GM and the UAW, which has long resisted even discussing such a cut, it was a matter of mutual survival. GM's future health care expenses which were estimated to be $77 billion for all retirees (free registration required), will be reduced by $15 billion; these changes will also enable GM to cut annual health care expenses thereby saving about a billion dollars in cash per year.

That's the "good news". The bad news is the bankruptcy of former GM subsidiary Delphi, announced earlier this month, will likely force GM to cough up an additional $12 billion to cover Delphi's commitments to retirees for pension and health benefits.

GM has been hobbled not only by the nation's most generous employee and retiree health benefits, but also by just plain dumb decisions to invest heavily in trucks and SUVs. My take is these results are related; they reflect a short-sighted approach to the company's future, an approach predicated not on where do we need to be in 5 or 10 years, but on what do we need to do to generate returns today. With that mentality, strikes, tough labor negotiations, and big investments in efficiency and new technology are undesirable as they reduce cash flow and hurt the income statement.

Consider this - Toyota's health care costs are estimated to be 1/3 of GMs on a per-vehicle basis. Costs are so low they are not even a line item in their financial reports. That means Toyota can sell a vehicle for $1000 less than GM and make the same amount of profit. Actually, Toyota has a lower cost structure, so margins are higher anyway, but the point is that health care alone accounts for $1000 of that lower cost structure.

Interestingly, retirees seem to be somewhat resigned to accepting the deal. That is encouraging, and perhaps reflects their knowledge that their benefits are still richer than anyone else they know.

What does this mean for you?

What's good for GM is good for the country - Alfred Sloan's oft-cited statement is certainly applicable in this instance. If we are to remain competitive in the global economy, we have to reduce the impact of health care costs on our products and services.

Posted by Joe Paduda at 6:33 AM | Link to this post

A fascinating article about the role of genetics, race, and societal interactions is in today's New York Times. Before you blow this off, consider the following points.

1. so-called "personalized medicine" is touted by some as the next big breakthrough in medicine, using genomics to customize therapies for individuals
2. there has been a considerable increase in the investment in and marketing of drugs that are targeted to distinct "racial groups".
3. there is some evidence that this makes sense, and other evidence that it makes no sense whatsoever.
4. the push to unravel the human genome is both supporting and detracting from the "race-based drug development" effort.
5. billions will be invested in research in these areas�

The article is an interview with Dr. Troy Duster, a sociologist who is skeptical of the importance of race in medicine. I may be a little harsh in that characterization, but here are a few quotes.

"When you're talking about genetic diseases, there's usually something in the environment that triggers their onset. Shouldn't we be talking about the trigger?
Take the case of black men and prostate cancer. African-American males have twice the prostate cancer rate that whites do. Right now, the National Cancer Institute is searching for cancer genes among black men. They're not asking, How come black men in the Caribbean and in sub-Saharan Africa have much lower prostate cancer rates than all American men?"

"Definitions of race are constantly changing. Not all that long ago, Jews and Armenians were considered separate racial groups. Today, they are white. Genetically, is Strom Thurmond's daughter white or black? Millions of Americans have her mixed genetic history written within them.

In a time when most physicians see their patients for only brief moments, if they're using these definitions of race in prescribing pills or treatments, they're bound to make mistakes."

"There are genetic diseases in population groups. I don't believe they are race based. These diseases are a marker for the regions where certain populations originated. Sickle cell anemia, for instance, is thought of as a black disease. But it's also to be found among Greeks who hail from a swampy area north of Athens and among people from the Arabian Peninsula." (sickle cell anemia is thought to be an evolutionary adaptation to malaria, which attacks red blood cells. While sickle cell anemia is highly debilitating and can be fatal, it reduces the impact of malaria by altering the shape of the blood cell, thereby allowing individuals to live long enough to procreate)

Duster's point is that scientists focusing solely on genetics miss the "messy stuff" that happens when people interact, live in a stressful society, move away from their places of origin, and change lifestyles.

What does this mean for you?

I have no idea.

Posted by Joe Paduda at 12:04 PM | Link to this post

Fellow blogger DB's Medical Rants has an interesting take on pay for performance. Citing a study published in the New England Journal of Medicine, the post notes:

"One underlying principle of the pay for performance movement stems from the belief that we can use incentives to improve adherence to evidence based quality indicators. The crux of evidence based medicine (EBM) follows from an examination of high quality data. EBM eschews belief.

This study tries to understand how P4P might influence physician practice. It finds no positive impact. Rather P4P may simply be a scheme for rewarding high performers...
However, as I hear the debate, most proponents see P4P as a means to improve quality. This article argues against that."

Changing physician behavior is a windmill that has absorbed billions of dollars and millions of hours of tilting, with little evidence of impact. While the objective is noble, the business case is highly suspect.

What does this mean for you?

Identify the best performing physicians and direct your patients to them. Let others shatter their lances.

Posted by Joe Paduda at 5:46 AM | Link to this post | Comments (1)

Revolution Health's recent announcement of six acquisitions has been covered here in the past; now news is out regarding the management team that will lead the Revolution Health's new company into the future. What puzzles me is the management team's complete lack of provider, payer, or managed care experience. Heavy on internet start-up, tech, consulting, and experience "knitting together a variety of companies into cohesive operating units", the team seems strikingly light in real world experience.

With Steve Case, Colin Powell, Jim Barksdale, Carly Fiorina, and Steve Wiggins (the only one with extensive health care experience in any sector) on the Board, one would have expected to see slightly more, or perhaps much more, real-world expertise to balance the lofty thoughts of the leadership with knowledge gained from time in the trenches.

Alas, such is not the case (no pun intended). Much attention is being paid to the consumerization of health care, with consumer-directed health plans, empowering consumers, getting consumers to take responsibility, etc. Now, the entity launched with the most fanfare looks like an amalgamation of second and third-tier companies overseen by a star-studded board and managed by folks with little experience in the actual real world of buying, delivering, or managing health care.

The CEO, John Pleasants, comes from the internet world, with extensive experience with Evite, Match.com, and CitySearch. The head of the Community Health Information division's most recent experience is as boss of Wondir, a search engine for community health information. Don Hackett of the Information Portal Division worked with drkoop.com, and the ill-fated Physician Computer Network. The new head of research comes from Fannie Mae where she worked in the office of the Chair (who is now on the Board of RHG).

Surely the advocates of consumer-driven health care can come up with something better. Health care is an incredibly complex, multi-faceted industry that operates by a distinct set of rules and motivations, with extremely powerful and deeply entrenched stakeholders exerting control over the delivery, funding, operation, and regulation of the business.

What does this mean for you?

Likely not much.

Posted by Joe Paduda at 6:38 AM | Link to this post

Two consulting firms are indicating health plan rate increases will be between 8.4% and 9.9% in 2006. While this is somewhat lower than increases in recent years, the impact will be felt by both employers and employees, who can expect to pay more for their share of the premium than they did this year. And, the premium increases do not reflect the increased costs borne by employees due to higher deductibles and co-pays.

According to Hewitt, employees will receive an average wage increase of 3.6%; for those making $40,000 annually, 23% of that increase will go to pay their increased premiums. On average, employees will be paying $1,612 towards their health insurance costs. Out-of-pocket costs also will increase as deductibles and co-pays rise, making the average employee's total expenditures in 2006 a record high $3,136. This is 12% higher than 2005.

Interestingly, PPOs will see the lowest percentage increase amongst plan types. According to Insurance Journal's report on the Hewitt Study;

"On average, Hewitt forecasts that companies will experience 2006 cost increases of 9.5 percent for preferred provider organizations (PPOs), 10 percent for health maintenance organization plans (HMOs), and 10.5 percent for both traditional indemnity and point-of-service (POS) plans.

That means, from 2005 to 2006, the average cost per person for major companies will increase from $7,048 to $7,752 for HMOs; $7,374 to $8,075 for PPOs; $7,322 to $8,091 for indemnity plans; and $7,849 to $8,673 for POS plans."

Hewitt also noted that many of the companies they are working with that have implemented consumer-directed health plans have seen flat renewals or even declines.

While this sounds great, remember that many of these plans include an increase in the deductible of from $1000 to $5000. Clearly, benefit design can and does have a major impact on renewal rates; it has for fifty years and the onset of these so-called "innovative" plans simply reinforces that fact.

A survey by Milliman and Robertson indicates that many health plans and insurers are entering the CDHP market; in their annual survey, 93% of respondents who answered the questions regarding CDHPs (not all of the survey respondents did) said they plan to offer an HSA or HRA (health care reimbursement) account program coupled with a high deductible insurance plan.

While that sounds great, only 2.5% of 2005 commercial health premiums are for CDHP programs; respondents expect this to be over 5% in 2006.

What does this mean for you?

Higher premiums, a relatively smaller paycheck, and no help in sight.

Posted by Joe Paduda at 9:50 AM | Link to this post

It has been a while since the last significant discussion of conversion of the US health care system to a single payer format; that drought has been ended with the introduction of legislation by Sen. Sheila Kuehl D-LA) calling for a single payer to run California's health care system.

The bill is a "work in progress"; Kuehl expects to introduce a more comprehensive, thorough bill in the next legislative session. In sum, the bill calls for a single payer funded by a tax surcharge to raise the estimated $184 billion required to cover the state's citizens. Kuehl claims her plan will result in savings of over $8 billion to employers and families.

The plan would be administered by a single entity, but other health plans would be allowed to offer supplemental coverage.

The chances that this will ever see the light of day? None.

But kudos to the Senator for advancing a radical idea. While other governments and planners tweak around the edges, she has put forth a reasonable alternative, one that may help push the dialogue forward.

What does this mean for you?

A stalking horse or straw-man, your choice.

Posted by Joe Paduda at 9:04 AM | Link to this post | Comments (1)

Steve Case's Revolution Health has announced its first investments in the health care arena. They include a company that finds doctors and provides scheduling services; a health information firm; search firm targeting health issues; and two companies focused on insurance.

Case's new company was announced three months ago to great fanfare, focusing on several areas:

--provide consumers with access to data on physician and hospital cost and quality
--lower health insurance costs by streamlining the purchasing process
--enable consumers to rapidly access their personal health care data at convenient locations

These initial investments appear to be somewhat in line with those priorities, although there are already many companies providing similar or identical services with significant revenue streams.

myDNA.com appears to be an advertising supported health information site, similar to others pervading the web. 1-800 Schedule is another web site that appears to be ad-supported. It does provide directories of providers, but there are no quality rankings, ratings, or profiles beyond basic info.

ExtendBenefits is an individual health insurance firm that also supports HSA administration. They claim 500,000 members and base their pitch on lower costs (claiming individual health benefit programs are 1/4 to 1/2 the cost of group programs (?)). ExtendBenefits is staffed by execs from eHealthInsurance and technology folk. There is an interesting article on their site quoting the CEO of Pitney Bowes on health insurance costs. One of the salient parts of the article follows:

"The same thinking has been applied to psychiatric and substance-abuse cases. The company set up an eight-session early-action program to make sure covered employees in these situations were seen early and often by professionals before they were released for more intensive treatment. Although this is more expensive in the short run, says Critelli, in the long term the program "saves money by getting better results from more data."

Pitney Bowes has also found that substantially decreasing the cost of medications borne by employees results in fewer of them discontinuing their long-term treatments, which would invite more serious conditions and hospital visits. The company considers screening and diagnostic procedures a critical component of prevention strategies but found through data analysis that some diagnostic tools�CT scans and MRIs, for example�were being overused. So it increased significantly the percentage of the cost employees have to pay as a way to discourage that excessive use."

Interesting because it points out that a simple HSA/high deductible insurance program is somewhat of a blunt instrument. In Critelli's example, the HSA's financial structure would work well to reduce over-utilization of imaging, but would have a negative effect when considering maintenance drugs for chronic conditions.
As to Revolution's promise to better inform consumers, provide data and quality rankings and the like, they clearly have a ways to go. I'll accept that they are early in their development, but the initial moves are not exactly inspired, transformational, or innovative.

Contrast that with Aetna and the work they are doing in providing price and quality data to members. Sure Aetna has a few more resources, but they are making the right investments in the right programs.

What does this mean for you?

The real innovators in health care have yet to be joined by Case et al.

Posted by Joe Paduda at 8:08 AM | Link to this post | Comments (1)

Six large national employers have begun to offer employee-paid, low cost low coverage health insurance plans to part-time workers. The plans are provided by United HealthGroup, Cigna and Humana to employees without other health coverage. Plans range from a discount card providing lower cost prescriptions, medical and dental checkups to high-deductible programs with and without pre-existing condition limitations.

According to the New York Times,
"UnitedHealth Group is offering the discount card and four levels of limited coverage in all 50 states at monthly premiums ranging from $59 to $149. In 15 states, United will also offer high-deductible policies that cover major medical costs, under the same group rules with no add-on charges for people with preconditions.

The major medical premiums vary based on an enrollee's age, sex and location. Humana will offer the high-deductible policies to individuals in 17 states and Cigna will offer them in Arizona only. Under these individual contracts, premiums may also be higher for those with preconditions."

The program is offered to workers at Sears, Federal-Mogul, IBM, GE, and EMC as well as to independent contractors at Avon Products.

Credit goes to the employers and the not-for-profit group that is sponsoring the initiative, the HR Policy Association.

We'll be following this closely to assess the results, market acceptance, and as time goes on, profitability of the program.

What does this mean for you?

An interesting experiment to watch and learn from. Possiblya way to stem the tide of uninsurance that is increasing costs for employers and employees as the uninsured population's care is paid for by those with coverage.

Posted by Joe Paduda at 5:43 AM | Link to this post

Wellpoint is continuing to consolidate its hold on the nation's Blues plans with its recent announcement regarding the pending deal to acquire Wellchoice, the holding company that owns New York's Empire Blue Cross and Blue Shield.

The transaction is valued at $6.5 billion in cash and stock, is scheduled to close in the first quarter of 2006, subject to regulatory approvals.

This continues the trend towards consolidation in the industry, following such notable deals as Coventry-First Health, United-Oxford, United-Pacificare, Anthem-Wellpoint and Aetna-HMS.

According to California HealthLine;

"The (Wall Street) Journal reports that slowed membership increases, large premium increases becoming less common and the fact that size helps insurers negotiate rates with providers has contributed to the trend of consolidation in the insurance industry (Martinez, Wall Street Journal, 9/28). Gary Claxton, a Kaiser Family Foundation vice president and director of the Health Care Marketplace Project, said, "If you want to grow, you have to look at new markets or consolidation." He said that insurers have been unable to grow by adding new employers or members, so consolidation is their only option."

Claxton's comments echo earlier statements here. With Wall Street's insatiable thirst for growth and continuously improving quarters, health plan execs are desparately seeking new business. There are now 13 remaining publicly traded health plans, and speculation is rampant that the smaller will continue to be acquired by the larger as health care Pac-Man continues. Coventry may be next on the list.

What does this mean for you?

Opportunities for speculation in stocks. Fewer choices in health plans. Confusion regarding who owns which health plan.

Posted by Joe Paduda at 7:52 AM | Link to this post

As the number of employers offering health insurance declines and Medicaid enrollment increases, the people left without health insurance coverage tend to be members of families where the parent(s) have jobs without coverage.

A new study released by the University of California - Berkeley indicates that less than half of the state's children will be covered by employer-sponsored plans within five years if premium costs continue to escalate at double digit rates. Of the rest, 14% would have no coverage at all, and the rest would be insured by tax-payer funded governmental programs.

What does this mean for you?

Higher taxes, larger deficits, and increased cost-shifting from providers to insured patients will accelerate the death spiral of the US health care system.

Posted by Joe Paduda at 9:18 AM | Link to this post

I have been engaged in an email debate with a libertarian about the value of "freedom of choice", impact of payment sources on health care expenditures and inflation thereof, and potential impact of consumerism on health care costs.

He is of the opinion that health care costs are best addressed by patients paying their own way - at least that's what I think he is saying. Leaving aside the question of how someone of modest means pays for a knee replacement much less a heart transplant, the debate spurred me to further investigate who pays what, and who incurs what kind of charges.

My theory is that consumer-directed health plans will have little to no impact on total health care costs, that they are really cost-shifting from employers to employees. I'm not making a value statement about cost-shifting, just stating a fact. By the way, most employers also don't believe CDHPs will have any material impact on health care expenses.

The thinking behind my theory is the belief that most costs are incurred by people who spend way more than their health spending account would hold, and therefore their behavior is not influenced to any significant degree by the funds leaving their spending account.

Here's the support for my theory. (thanks to George Halvorson of the Kaiser Family Foundation for some of the statistics)

Healthy people - 70% of people spend less than $1000 per year on health care costs. These folks are not contributing to the nation's, or their employer's, health care costs in any meaningful way. So, while they may make a "better decision" about health care because they are spending their own dollars, the impact is on the margin.

Catastrophic patients - about 5% of the population, those with really expensive acute or chronic conditions, such as serious heart disease, advanced arthritis, cancer, or significant multiple morbidities, are also not affected - they'll blow through their MSA account balance in a month or two, after which the insurance company or Medicare or Medicaid pays the rest. So, no funds out of their pockets, and realistically, no way for them to pay the huge costs of their health care. By the way, the top one percent of the population that falls into this category spends 40% of all health care dollars, the top five percent that falls into this category spends over 50% of all health care dollars.

OK, that leaves the medium users. The remaining part of the population consumes more than $1000 in health care (a typical MSA plan deductible), and therefore might be more influenced by finances than the other two groups. But there's a problem here. Studies indicate that a significant percentage of people with high deductible plans tend to not fill prescriptions, not seek care, and otherwise "under-utilize" health care due to financial reasons.

Well, their costs are constrained, at least for today. But what if they are not taking their hypertension medications and suffer a stroke? What if they don't get a mammogram and their breast cancer is not diagnosed until it is marginally "curable"? They'll become part of the top 5%, where costs are really uncontrollable.

Some libertarians will claim that their decisions are their responsibility. Not so in health care. There is ample evidence that the costs of the uninsured are borne by private payers; in fact about a thousand dollars of the average family's insurance premium goes to pay for uncompensated care. So, free marketers, who base their policy theories on the merits of the invisible hand, miss the fundamental problem - there is not, and never will be, a free market in health care. One can intellectually debate the merits and benefits of the free market, but that discourse is irrelevant in the real world.

In the real world, people seek care, all of us end up paying for it, and in the US we pay 40% more for health care than in any other industrialized country. And none of the so-called free-market initiatives will in any meaningful way change that.

True change will come from applying more science to the art of health care. Data mining, outcomes analysis, intelligent reimbursement based on that analysis, and financial incentives for insureds that factor in lifestyle choices are all necessary. But consumerism alone will do nothing to hold down health care inflation.

What does this mean for you?

Avoid ideologically-based solutions, and stick to the facts. If the facts don't support your position, find another position.

Posted by Joe Paduda at 9:04 AM | Link to this post | Comments (8)

Medicare Part B premiums will increase 13.2% next year due to rapid growth in physician office visits, lab tests, and outpatient hospital expenses. The average monthly premium will jump $10.30 to $88.50 for Part B, which covers physician charges and some outpatient hospital expenses.

Deductibles will also increase, although CMS is claiming that many beneficiaries will actually see lower total costs due to the implementation of the Part D program that covers prescription drug.

What's driving these increases?

On the surface, program costs and Medicare regulations. By law, beneficiaries have to pay 25%, with the rest of the costs borne by the taxpayers.

Looking just a bit deeper, utilization is the culprit. Medicare fixes physician prices at the RBRVS-based fee schedule, therefore by definition increases of this magnitude have to be driven by higher usage of services. Physician services were up 6.3% last year, are trending at 5.3% this year, and outpatient hospital increases are similar.

Some physicians have been claiming that the increases are due to higher quality care, better diagnostics, and treatments in an outpatient setting that are cheaper and more efficacious than the "old" inpatient protocols.

Regardless, the net is that taxpayers and beneficiaries are paying more for coverage.

Complicating the matter is the pending 4.3% decrease in the fee schedule slated to go into effect on 1/1/06. If Congress reverses the cut, then 2007 premium and deductible increases will be even higher than projected.

If they don't, a lot of docs are going to be mighty upset.

What does this mean for you?

If there was ever an example of how price fixing does not manage expense, here it is. No payer does a better job of controlling the price per unit than CMS. And their expenses are still increasing at unsustainable levels.

It's about utilization.

Posted by Joe Paduda at 8:43 AM | Link to this post

I have held that reform of the US health care system will not occur until a meaningful number of middle-class voters lose coverage, causing them to focus on health care availability, price, and access. Bob Laszewski of Health Policy and Strategy Associates is of the opinion that large employers will be the force behind any real health care reform.

I have too much respect for Bob to disagree with his views, and in any event it appears both events are now occurring.

California HealthLine reported on last week's health care summit in Washington DC, where business leaders and elected officials gathered together to decry the cost of health care and access issues, and discuss potential solutions. Not much new here, expect that Starbuck's, Pitney Bowes, Costco, Honeywell and Verizon were all in attendance along with several senators and governors. It is indeed good news that there is more dialogue, but the key message here is the combined meeting of business leaders and elected officials. While the public musings and declarations are helpful, it is likely that the executives were even more forceful in their private conversations with the politicos.

I can envision a moment before the recorders were turned on when Pitney Bowes (headquartered in Connecticut) execs were telling elected officials about the impact of health care costs on their business call centers, and more specifically about cost-benefit evaluations that indicate off-shoring these functions is starting to look more appealing, in large part due to health care costs.

Verizon and Honeywell's representatives looked on, nodding in agreement, while the politicians adopted the "deer in the headlights" look associated with fear of lost jobs and votes.

Meanwhile, the number of employers offering health insurance declined from 69% in 2000 to 60% in 2005.

73% of the employers not offering coverage said high insurance costs were very important in their decision to not offer insurance.

Interestingly, only 16% of employers believe consumer-directed health plans (CDHPs) are "very effective" in lowering insurance costs. Even more telling, this was the highest score given to any cost-containment strategy.

Clearly, employers are giving up on health insurance because they can't afford it, and don't see any promising approaches on the horizon that will make any appreciable difference.

What does this mean for you?

Large employers, small employers, and employees are all paying a lot of attention to health care coverage and cost. The stars are not yet in alignment, but are certainly moving closer to the point where the momentum behind real health care reform will become irresistible.

Posted by Joe Paduda at 8:07 AM | Link to this post

Katrina and the federal government's reaction to same will put Medicaid reform and other health care measures on the back burner for the foreseeable future. And, two of the key Senators on the Senate Finance Committee charged with finding $10 billion in reductions in Medicaid over the next five years have come out against the cuts.

Is an article in California HealthLine, Sen. Gordon Smith (R) was quoted in a letter to the chairman of the committee:

"Smith said, "I do want to reform Medicaid. But this is not the time to take on Medicaid, nor other entitlements for the poor. ... To do it now is counterproductive and insensitive."

In addition, Senate Minority Leader Harry Reid (D-Nev.), House Minority Leader Nancy Pelosi (D-Calif.), Sen. Kent Conrad (D-N.D.) and Rep. John Spratt (D-S.C.) on Wednesday in a separate letter asked Republican leaders to focus on Hurricane Katrina-related legislation instead of the planned agenda. They wrote, "Under the present circumstances, we believe it would be misguided to proceed with fast-track consideration of legislation that would place at risk services to those in need and divert resources that are necessary to fund the federal response to this tragedy."

Katrina may well impact state Medicaid budgets as well, with the storm's victims seeking medical care for acute and chronic conditions from the storm.

More to come.

Posted by Joe Paduda at 5:46 AM | Link to this post

The latest news from Washington indicates the cut in Medicare reimbursement scheduled to go into effect on 1/1/06 may actually occur. The reduction of 4.3% is a hot topic amongst physicians, many of whom are claiming they will not continue to treat Medicare patients if the cuts go through.

Two of the key Senators on the Finance Committee (which has jurisdiction over CMS) have stated their desire to rescind the cuts. According to Congressional Quarterly, "Sen. Max Baucus (D-Mont.) said he and Senate Finance Committee Chair Chuck Grassley (R-Iowa) are "not going to let those cuts go into effect this year".

The fate of the proposed fee reduction will not just affect Medicare. Many group health and HMO reimbursement arrangements as well as states' workers compensation fee schedules are based on Medicare.

Yet more evidence that when CMS gets a chill, the rest of the health care payers catch a cold.

What does this mean for you?

Keep an eye on Congress' actions, or lack thereof, on this reduction. Regardless of the action taken or not, it will affect health care payers' bottom lines.

Posted by Joe Paduda at 8:14 PM | Link to this post

Donna Shalala is an articulate, convincing, intelligent spokesperson for health care reform. She manages to be politely partisan, reflecting her long history as a liberal Democrat, using history to illustrate her perspective on appropriate solutions for the nation's health care problems. She is also fun; Shalala knows her football, has a great sense of humor, and loves to engage in both.

Such are my views after interviewing the current president of the University of Miami and ex-Secretary of Health and Human Services, sitting with her at a banquet honoring recipients of the Choice Awards for Excellence in Workers Compensation, and listening to her keynote speech at that event.

Without directly endorsing a single payer system, Shalala made a strong argument for single payer national health care, noting that the Federally-run Medicare program's health care costs are increasing at a rate well under that of private insurance while incurring administrative expenses that are one-third those in the private sector.

As an avowed capitalist, I'm a big believer in the free market, consumer choice, the invisible hand et al. Unfortunately, health care is not a typical economic good, where the buyer selects the product or service by balancing cost and quality/outcome/appeal. This is for a rather simple reason - in health care, the heaviest users of health care services pay little to nothing for the (most) services. The person ordering and/or performing the service, the physician, has no incentive or little interest in considering cost.

The payer, which is the insurer/employer, is a transaction processor/funds transfer agent who is also tasked with "managing" the usage of health care by the recipient that is ordered by the recipient's physician.

Not a very clean system from an economist's point of view.

Whether you agree or disagree with Shalala's politics, her presentation on the history of managed care was compelling. It made it abundantly clear that the free market system is unable to constrain the growth in health care costs.

The follow on to that issue is industrial competitiveness. For companies such as GM, IBM, and CostCo who actually contribute significant sums to pay for their employees' health insurance (and pay taxes to subsidize Medicaid programs used by other companies who do not provide coverage) health care costs are a major competitive problem. Toyota, Daewoo, Hyundai, VW et al have significantly lower health care costs than GM's $1500 per vehicle.

So, the "free market" that some are so ardently advocating as the solution to the nation's ills is actually hurting US employers whose underlying costs are higher than their competitors.

What does this mean for you?

Both Shalala and Bob Laszewski of Health Policy and Strategy Associates have stated that when enough large employers get behind health care reform, it will happen.

That day is fast approaching.

Posted by Joe Paduda at 8:37 AM | Link to this post | Comments (2)

While the number of people with employer-sponsored health insurance has declined in California, the overall rate of uninsurance has not dropped, due to a rise in enrollment in the government's Medi-Cal program. Moreover, in 2003 almost 800,000 Californians had access to insurance at their employer but could not afford the premiums. Average contributions increased from $114 to over $200 from 2001 to 2003.

These contributions went to health insurance costs that ranged from $3700 for an individual to over $10,000 per family in 2004.

In total, 54.5% of employed individuals had employer sponsored health insurance, a drop of two points from 2001 to 2003.

Lots of statistics, but what do they mean. Here's my take.

1. Employees are paying roughly 25% of the cost of their insurance, when it is available.
2. The burden of providing health insurance is shifting towards state-sponsored programs from employer-sponsored programs.
3. This shift is likely to continue, and in fact to accelerate due to rising premiums.

I find it fascinating that we continue to debate the merits of a state-based system of health insurance v. employer based v. individual portable programs. Meanwhile, market forces are driving the nation in the direction of a state-sponsored system. So, while we engage in intellectual debates, outside factors drive reality.

Alain Enthoven of Stanford contends that we need to eliminate the employers' role in health insurance. I disagree. Dr, Enthoven may well win the debate, assisted by these underlying external forces.

What does this mean for you?

If you are a health plan, you know quite well the challenges of adding lives and revenues in what is a mature market. That's why health plans are moving so aggressively into government-sponsored programs. Continue that work, but don't forget the employers - they still pay most of your premiums.

Posted by Joe Paduda at 10:42 AM | Link to this post | Comments (1)

Pres. Bush noted in a speech earlier this week that health care is a drag on the economy and family budgets. Ben Bernanke, Chair of the Council of Economic Advisers, said " These are issues that we are going to have to address because they are significant."

According to California HealthLine, Bush's proposals "include tax-free health savings accounts, tax credits to help low-income individuals purchase health insurance, association health plans, support for new technology to reduce medical errors and limits on medical malpractice lawsuits."

These are at best tweaks around the margins. Take limits on med mal lawsuits. Total costs for all expenses associated with medical malpractice, including defense, insurance, etc., amount to 0.46% of total medical costs. Medical malpractice is NOT driving health care cost inflation.

New technology will do little, if anything to address the underlying drivers of health care costs which are technology and price per service.

It is troubling that the President has done so little to address an issue which is at the heart of the nation's economy as well as the wellbeing of its citizens.

Posted by Joe Paduda at 7:38 AM | Link to this post

Pay for performance is likely to get a big boost from the Federal government. A bill linking physician pay under Medicare to reporting quality data will be introduced in the Senate before the end of the year, the first step towards a pay for performance model.

Sen. Chuck Grassley (D IA) is the protagonist; as Chair of the Senate Finance Committee Grassley has both jurisdiction and significant influence over the Medicare program.

According to California HealthLine;

"The legislation would allow the HHS secretary to reward providers first when they report quality data and later when they improve quality or meet certain quality thresholds. The legislation would establish a "value-based purchasing" system for providers -- such as hospitals, physicians, Medicare Advantage plans, home health agencies and skilled nursing facilities. Under the bill, physicians who report quality data would receive the full update to Medicare reimbursements allowable under current law in 2007 and those who do not report quality data would have their updates reduced by 2%."

Currently, physician reimbursement under Medicate is slated to drop by 4.3% on 1/1/2006. This decrease is part of past legislation, and has been rescinded in recent years. However, it does require Congress to act or the decrease becomes effective. In this case, it appears Grassley is using it to promote the "P4P" initiative.

What does this mean for you?

Pay for performance is likely to become a reality. You can choose to fight the very concept, or engage and contribute to the dialogue. As Congress is especially adept at the "blunt instrument" style of reform, physicians will be better served engaging rather than avoiding.

Posted by Joe Paduda at 7:04 AM | Link to this post

For those interested in consumer directed health care and attitudes towards same, you may want to listen in on a telecon hosted by Harris Interactive and GreatWest Life on 7/28. Here's the details.

Great-West Healthcare will release findings of its "Consumer Attitudes Toward Consumer-Driven Health Care" study on Thursday, July 28, 2005. The company will hold a conference call at 9 a.m. MDT (11 a.m. EDT) that same day, hosted by Cindy Donohoe, vice president of marketing and product development at Great-West Healthcare, and Kinga Zapert, Ph.D., vice president, health care division, Harris Interactive, Inc., to discuss the results. Those wishing to participate via telephone should call 866-261-3331 (moderator: Cindy Donohoe). This number can be accessed 10 minutes before the call begins, as well as during the call.

I'm on vacation then, so enjoy.

Posted by Joe Paduda at 8:33 AM | Link to this post

One of the most important benefits of the internet is improved communication among and between folk who otherwise would likely not interact. And blogs add immeasurably to that improvement. For some time I have been reading and occasionally cross-posting to and commenting on several providers' blogs, and more specifically two blogs written by thoughtful, highly intelligent, and obviously concerned physicians. The latest discussion is on DB's Medical Rants and concerns pay for performance.

Another excellent physician blog is Health Care Renewal.

As one of the few "payer-side" bloggers, I have also received (or perhaps been subjected to) many comments from folk on the provider side. While the discussions can be contentious at times, they are direct, insightful, and helpful in advancing understanding.

Posted by Joe Paduda at 8:00 AM | Link to this post | Comments (1)

US health care costs are much higher than any other nations'. Why? Do we have better access to care? Are our doctors paid more? Is it the fault of higher drug costs? Do the related issues of malpractice insurance and defensive medicine have much impact?

A new report sponsored by the Commonwealth Fund compares US and other industrialized countries' health care and attempts to answer those questions. The report's conclusions go a long way towards dispelling some of the "urban myths" surrounding health care.

Overall results
According to the report, "�higher prices for health services such as prescription drugs, hospital stays, and doctor visits, are the main reason for higher U.S. spending. The latest data from the Organization for Economic Cooperation and Development (OECD), which compare trends among 30 industrialized countries, show that the U.S. spent $5,267 per capita on health care in 2002�53 percent more than any other country." And that "other country" is Switzerland, which has the distinction of being the only other OECD nation that spends more than 10% of GDP on health care. When compared to the median expenditure, US costs are much higher.

Access and waiting lists
One of the metronomic chants used by those disparaging other nations' health care systems is the much-hated "waiting list" - with the assumption that their costs are lower because people have to wait forever for a liver, dialysis, blood test, or MRI. The facts tell a different story:

"�despite the lack of waiting lists, Americans do not have access to a greater supply of health care resources than people in most other OECD countries. In fact, the U.S. has fewer per capita hospital beds, physicians, nurses, and CT scanners than the OECD median." The report also compared costs in nations with waiting lists for certain procedures to those without - surprisingly, those with waiting lists actually had higher costs. I don't know if they had waiting lists as a means of addressing higher costs, or somehow the lists drove costs higher. I am also curious as to the mix of generalists to specialists...

Malpractice and defensive medicine
Yes, the US has more malpractice suits per capita than other nations (twice as many as in the UK and Australia, and 3.5 times more than in Canada). But, and here's the big "but", the average award in the US was 14% lower than in Canada, 36% less than the average in the UK, and slightly higher than Australia's average expense (the other countries studied for this factor). So, while our "frequency" is higher, our "severity" (cost per claim) is lower.

Notably, the total impact of malpractice expenses as a percentage of US health care costs was less than 0.5%. That does not factor in defensive medicine - but even the highest estimate of the excess costs resulting from defensive medicine adds but 9% to our total costs - not enough to explain the difference in total costs between the US and other OECD countries.

Price
Here's the issue, at least according to this report. We pay more for "prescription drugs, hospital stays, and doctor visits" than other industrialized nations.

Cautionary note -although it is clear that malpractice, defensive medicine, and too many CT scanners and hospital beds are likely not significant contributors to the vast gap in costs between the US and other countries, the report does not indicate what factors are driving prices.

What does this mean for you?

Remember that this compares the US to other countries; cost drivers that impact you, your business, and your premiums must be examined through the lens of US experience. Price is driving your costs, but it's impact is multiplied by utilization and frequency.

Posted by Joe Paduda at 5:33 PM | Link to this post | Comments (1)

In 2003 Colorado changed its auto insurance law from one in "which all drivers were required to have coverage for treatment of any injuries resulting from auto accidents to a system in which just the driver at fault pays." The result has been a decline in the percentage of auto injury victims with insurance, leading to reduced revenues for hospitals and an increase in uncompensated care.

Health care providers in Colorado are up in arms about the impact the change away from the no-fault coverage has had on their financial wellbeing, claiming an $80 million hit from the new law. Interestingly, according to Insurance Journal, insurance spokespeople seem to acknowledge the transference of expense from the insurance companies and their policyholders to the hospitals. Carole Walker, executive director of the Rocky Mountain Insurance Information Association, stated:

"We don't believe people should be required to have medical coverage as part of their auto insurance just because some people don't have health insurance�Hospital profits are at the highest level in years, and many hospitals are building big new facilities.''

According to the study that was the basis for the article;

"the percentage of accident patients covered by auto insurance fell from 55.6 percent in 2001 to 32 percent last year; the percentage not paying for their care rose from 1.4 percent to 6.7 percent during the same period�the percentage of patients who couldn't pay for ambulance services had more than doubled to 43.4 percent from 2001 to 2004."

While it is clear that the change has hurt health care providers, there is also evidence that the move away from no-fault resulted in premium cuts in the neighborhood of 25%.

This is more evidence of the reluctance on the part of insurance companies to subsidize care for the otherwise-uninsured. Auto insurers are not in business to help pay for health care for uninsured motorists, and their policyholders can't be blamed for their joy at a 25% cut in their insurance rates. This "hidden tax" is but one example of the impact of uninsureds' health care costs on providers and payers. As more of these "hidden taxes" are revealed and eliminated, more and more costs will have to be shifted to those patients who do have health insurance. Previous studies estimate that those of us with insurance from employers pay an extra $1200 per year to cover those who do not.

It would be great if the politicians would stop arguing about covering the uninsured (they already are covered by these hidden taxes) and start arguing about a more logical and transparent coverage mechanism.

Posted by Joe Paduda at 6:44 PM | Link to this post

A new study indicates three quarters of US employers will increase employee contributions for health insurance in 2006 while a quarter will reduce pay increases as a result of higher health insurance premiums. The survey, a poll of 150 US employers by PriceWaterhouseCoopers, also noted that health insurance costs were up 12% this year, with respondents estimating costs next year would climb by 11%.

The study also indicates that health insurance, which accounted for 8% of payroll at large employers in 2000, now consumes between 12% and 15% of payroll. The fallout from these increases is significant, with 20% of employers likely hiring fewer new employees as a result of and 25% attributing reduced profits to increased health care expenses.

Posted by Joe Paduda at 6:25 AM | Link to this post

For a real world view of consumer-directed health care, we can turn to the recent report by the Kaiser Family Foundation which indicates "Twenty-seven percent of women under age 65 delayed or went without needed medical care in the last year because they did not think they could afford it". And these weren't just the uninsured. In fact, "17% of women with private insurance delayed or went without care because of cost concerns."

While I don't mean to sound like a strident opponent of consumer education or deny the importance of involving individuals in the economic consequences of their health behaviors, it does strike me that when one out of six insured women delay care or skip it entirely due to cost we have a pretty good sense of the real effect of so-called "consumer-directed" health care - economic rationing.

It will be interesting to see if other studies of actual plans that are based on these ideas have different outcomes.

Posted by Joe Paduda at 8:24 AM | Link to this post

Steve Case, late of AOL-TimeWarner, has made a huge bet on consumer-driven health care with his investments in Revolution Health Group. Case and fellow investors including Colin Powell, Jim Barksdale (Netscape), Steve Wiggins (Oxford Health Plan), Franklin Raines (Fannie Mae) are planning to purchase at least seven (unnamed) companies to form the core of an entity that will (at least according to the USA Today article):

--provide consumers with access to data on physician and hospital cost and quality
--lower health insurance costs by streamlining the purchasing process
--enable consumers to rapidly access their personal health care data at convenient locations

These guys are not fooling around - Case intends to invest $500 million of his own money in the venture, and the other partners' pedigrees and personal fortunes will certainly make Revolution one of the larger new ventures in the health care business.

The question is, does the premise of the idea, consumer-directed health care, make sense?

Sort of, but not really.

To illustrate, here is a quote from Colin Powell from the article about shoppers looking for a TV;

"they can go on the Internet and "within a second and a half, get hundreds of choices of where to buy," along with information about the TV, the seller and any additional charges. "Why should that not apply to health care?" he asks."

Well, Mr. Secretary, buying a TV is not exactly the same as trying to find out what to do about a lump in your neck, a gradual loss of nighttime vision, or general sense of fatigue. When buying a TV, you already know what the solution is. The issue with health care is a big chunk of the effort and expense is associated with trying to answer the "what's the problem" question.

The other significant problem w the whole "consumer-directed" idea is the nature of health care as an economic good. As Matthew Holt of "the Health Care Blog" has noted repeatedly, health care is not a typical economic good, it is not like guns or butter. People use different criteria when deciding what is worth spending when they or their loved ones are at risk. Case in point.

My daughter was admitted to a local emergency clinic with an adverse reaction to a medication. She was stabilized, appeared to be doing fine, was not in paid, fully alert and conversational. As the clinic neared closing time, the doc suggested that she be sent on to Yale for further observation before discharge, as there was some information that the reaction could lead to a problem with her breathing. She was breathing fine, talking, and appeared normal.

We are insured under a high-deductible MSA plan, so any charges would come out of our pocket. I thought about it for a few seconds, than agreed. I also agreed to have her brought over in an ambulance for the fifteen minute trip. I knew full well that the risk was minimal, the costs would be over $2000 for this "preventive" measure, and I would pay all that out of my own pocket. Was the very small risk worth the outrageously inflated cost?

You bet your life it was.

The net here is I do not believe health care's cost problem can be addressed in any significant way by this drive to consumer-directed health care. In addition to the emotional buying decision process noted above, it is also instructive to remember that a significant portion of total health care dollars are spent on treatment in the last six months of life; and that a majority of the health care dollars go to treat individuals with serious chronic conditions who get almost all their care paid for.

While better educating individuals will undoubtedly help them solve their individual health issues, and perhaps cut a few cents off their bills, it will do nothing to reduce the national health care tab.

Posted by Joe Paduda at 4:10 PM | Link to this post | Comments (6)

An article in today's New York Times discusses some of the issues inherent in the introduction of new medical devices and the quest for insurance reimbursement for same. Predictably, a spine surgeon accuses insurers of refusing to reimburse just to save money, insurers say they won't pay until the device is proven more effective than alternatives, the manufacturer touts supportive studies and ignores less supportive data, and patients are completely confused.

The article does an excellent job of laying out the issues in an even-handed manner, and actually alludes to the significance of any new technology's demonstrated ability to improve on the present "state of the art" in the reimbursement decision process. However, that is about as far as it goes. The article, and other commentary in California HealthLine, does not delve into other alternative treatments and their associated benefits and costs for conditions addressed by devices such as artificial disks, stents, and pacemakers.

It strikes me that device manufacturers certainly have this kind of information, as it is likely part of whatever studies they do. If that assumption is correct, the data is either not reported, was not used by the reporter, or was inconclusive. is no discussion about the potential for the device to replace other medical treatments (e.g. pain meds, therapy, etc.).

Reimbursement decisions are one of, if not the key success measures for new technology - and the way to get payers to cover these new devices is to show the impact on patient outcomes, functionality, and/or lifestyle improvements as well as the elimination of other medical treatment and the costs thereof.

I must be missing something here.

What does this mean for you?

Before approving a new technology for reimbursement, ask what the impact on patient outcomes is, in addition to what other services/devices/procedures it replaces.

Posted by Joe Paduda at 3:21 PM | Link to this post