Category: Manage Care – Group Health

Jun
22

How does physician income drop while costs increase?

Posted by Joe Paduda on Thursday, June 22nd, 2006 | Comments

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.

Jun
15

Family insurance premiums to double in ten years

Posted by Joe Paduda on Thursday, June 15th, 2006 | Comments

Early indications are that HMO rates will rise 7-8% next year. Compared to this year’s 10% average increase, that’s good news. And here’s just how good that news is.
Withfamily premiums (HMO and other plan types) hovering at the $11,000 mark, and rates increasing by, say, 7% per year, we’ll have health insurance costs of $20,000 per family in ten years. Truly the miracle of compound inflation (sorry, Benjamin Graham).
The 7% increase quoted is a wildly optimistic figure, as rates have increased at least 9% each year for the last five years. And, with the number of people without insurance increasing every year, further adding to cost-shifting to insureds; tighter eligibility requirements for Medicaid; and increased employee cost-sharing the middle class (read – voters) will be increasingly demanding action – and if the next presidential election does not have health care as a top theme, it will only be because of a horrendous natural or man-made disaster. Although one could reasonablyh consider the US health care system a man-made disaster, I’m thinking more on the order of foriegn policy.
What does this mean for you?
More pain before our elected officials get their collective act together.

Jun
12

More reimbursement nastiness

Posted by Joe Paduda on Monday, June 12th, 2006 | Comments

Reimbursement policy has long been one of the more misused means of managing the cost and quality of care. Providers and payers have long fought over risk withholds, capitation, per diems, case rates, and their kin, all in an effort to maximize, or minimize, payout.
By fighting over these issues, the parties are getting no closer to a resolution, and are doing themselves no favors. Instead of this no-win battle, providers and payers should be focusing on the real problem – the un- and under-insured.
But first, the detail on this squabble. The latest trend comes out of California, where Wellpoint has decided to pay docs less for performing colonoscopies in hospitals than in their offices or ambulatory centers. The cut in reimbursement for hospital-based procedures is about 20%, while the increase for non-hospital-based services is 5%.
Readers will no doubt be shocked to hear the hospitals are crying foul, using patient safety as the instrument to bludgeon Wellpoint. Unfortunately, this dispute breaks no new ground in the care v cost dialogue, with CA Hospital Association president Duane Dauner saying “Health plans shouldn’t force doctors to make patient-care decisions based upon money.”
The response from Wellpoint was predictable; “It’s really litigation over dollars, not patient safety,” WellPoint spokesman Robert Alaniz said”, noting that hospital-based colonoscopies could cost “up to ten times” more than non-hospital services.
Without data on actual quality outcomes and specific cost differentials (something a little more specific than “up to ten times more expensive”), it’s hard to cut thru the sound bites. That said, I’m having a tough time with Dauner’s statement that health plans should not ask docs to factor in cost when considering patient care decisions. That’s the attitude that has gotten us to where we are – runaway costs are due in large part to the “buyer’s” ( the physician exerts the most control over the buying decision ) complete lack of concern over costs.
There is a separate issue here; hospitals continue to rely on overpayments by private insurers such as Wellpoint to pay for the underpayments of Medicaid and nonpayments by the uninsured.
If providers and payers addressed the underlying disease state (access) instead of fighting over the symptoms (payment differentials) they might actually have some chance of getting to a solution. Instead, they insult, degrade, and denigrate each other, eliminating any chance for constructive dialogue.
When do the adults take over?

Jun
5

CMS data release – and their point is…?

Posted by Joe Paduda on Monday, June 5th, 2006 | Comments

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.

May
31

UHC fighting the wrong battles

Posted by Joe Paduda on Wednesday, May 31st, 2006 | Comments

The latest health care plan to enter into a very public battle with a large provider is Oxford Health, a subsidiary of United Healthcare. And their opponent, Jamaica Hospital of Queens, New York, appears to be on the losing end of an unfair battle. Evidently (free registration required) Oxford and Jamaica Hospital completed negotiating a new contract about 18 months ago that increased reimbursement rates significantly. Jamaica signed the deal, sent it on to Oxford, and went on about its business.
Jamaica’s business is providing health care, which it does for many poor, uninsured, and underinsured folks in and around Queens. The hospital was counting on the new deal with Oxford to help it continue to provide these services to this population.
A few months later, Jamaica figured out Oxford had not changed its reimbursement amounts, and complained to the payer. After a bit of wrangling, Oxford told Jamaica that it would not honor the contract (which it had yet to sign) until the hospital helped Oxford negotiate a deal with an anesthesiology group at another hospital in the same system. Jamaica said no, and after more wrangling, Oxford threatened to terminate the contract.
A termination would have jeopardized Jamaica’s ability to provide a broad range of health care services to the uninsured and underinsured.
As a for-profit health plan, United Healthcare is one of the three remaining dominant national health plans (with apologies to Coventry and CIGNA). United is tough, very aggressive, and not afraid of a fight. While one can take issue with its negotiating tactics, my real objection is to the company’s bad battle selection. Instead of strong-arming a hospital system to force a group of docs to kowtow to its demands, United should be screaming about the unfair nature of the health care system that requires its contracted providers to shift costs to United to make up for revenue lost by caring for people without insurance.
United Healthcare’s obligation is to its customers, patients, and shareholders. It is not United Healthcare’s responsibility to pay for care for those people it does not insure. By using childish tactics in its fight with Jamaica over what are really petty issues, United is ignoring a much larger problem, and one it could, and should, actually win.
While I’m no apologist for United or its management, they are getting a raw deal. Too bad they haven’t figured out they are doing it to themselves.

May
16

Market power in managed care – the health plans are winning

Posted by Joe Paduda on Tuesday, May 16th, 2006 | Comments

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 ?

May
16

Pigs get fat and hogs get slaughtered

Posted by Joe Paduda on Tuesday, May 16th, 2006 | Comments

Few managed care firms have enjoyed a run of financial success close to that experienced by United HealthGroup, and its executives have done remarkably in the process. But success can be a dangerous thing, as it appears UHG’s executive greed may have superceded good judgement. The latest is the ongoing drip drip of news about United Healthcare’s inappropriate executive stock options program continued today with the news that UHG may have to restate earnings to account for the practice of backdating stock options.
Executive stock options at United did not have specific dates for granting of options; the dates floated. The floating date in and of itself is not the issue; what could be problematic is the accusation that the option grant date was backdated to take advantage of movements in the underlying stock, thereby artificially inflating the value of the options.
And we aren’t talking a few bucks here and there. According to the Minneapolis Star-Tribune, United Chairman and CEO Bill “McGuire held options valued at $1.6 billion at the end of 2005; (COO Steve) Hemsley had options worth $663 million. Collectively, the 10 outside directors have cashed in options worth $159.2 million in the past five years.”
While we all admire capitalism and the wealth it creates, when the wealth-creation process is manipulated to generate fortunes for a few, that’s not quite so admirable. And, if this happens while the company itself is hammering its contracted providers for ever-lower reimbursement, that’s a PR problem writ large.
With United’s current status as one of the top three insurers in the nation (covering some 27 million members, or 9% of the national population) and the dominant player in many markets, it does have market power, and has never been shy about exercising same. But success appears to have bred contempt on the part of UHG’s executives for their fellow shareholders and contracted providers, an attitude that may come back to haunt UHG.
What does this mean for you?
Another example that hubris kills.

Apr
28

Coventry Q1 2006 earnings report

Posted by Joe Paduda on Friday, April 28th, 2006 | Comments

Coventry continues to deliver strong financial results across the board, with medical trend rates appearing to stabilize at about 8% and premium increases for Q1 somewhat above that rate. Overall membership growth is projected to be in the 1% – 3% range, with new employer customers are buying less-rich benefit plans and members at existing employer customers are shifting to less-rich plans (if multiple plan options are offered).
Part D sales efforts have been succesful, with 529,000 members enrolled to date, $180 million in revenue and margins somewhat better than expected. The growth was in part due to Coventry’s partnership with Medicare Supplement insurers, using the insurers as a distribution channel. Part of the $180 million was $50 million from CMS risk share payments.
The First Health business is producing the desired results although there has been strong pressure on the commercial plan part of FH. Revenues on the workers comp side were $51,425 million for the quarter, down slightly from the previous quarter’s $52,953 million. This is not unusual in the WC network and bill review business, as it tends to be somewhat cyclical.
Of note, Coventry Chairman Dale Wolf had previously suggested FH’s workers comp business would produce a $240 million top line in 2006. Given results to date, increasing price pressure on workers comp networks and bill review entities, and the growing likelihood that First Health will lose workers comp network business, I’d be surprised if FH produces anywhere close to $240 million in revenue.
Their failure to name a leader for the WC sector is not helping.
There were several questions about medical costs, trend rates, and drivers thereof. Uinlike other health plans, Coventry seems to be convinced that trend rates will not decrease, and will remain in the 8% range. When pressed to describe the positives and negatives, Coventry execs said that pharmacy is easier to address than in 2005 due to shift to generics, and biotech injectables continue to be problematic. On the big drivers, they see no big challenges with hospitals and physicians.

Mar
15

Questions about United Health

Posted by Joe Paduda on Wednesday, March 15th, 2006 | Comments

Industry giant (and ex-employer) UnitedHealthGroup is taking fire from an analyst who questions the company’s ability to hold down health care costs, reserving practices, and the results of UHG’s Pacificare division. The analyst, Matthew Borsch of Goldman Sachs, is perhaps the only one on the street recommending against UHG – that said, his points are worth considering and may portend troubles for the industry as a whole.
Borsch notes:
– the Arizona Dept of Insurance recently levied its largest-ever fine ($340,000) against UHG for allegedly not responding to consumer complaints; failing to follow grievance and appeals processes; and not handling disputed payments appropriately. While those problems are not atypical of the industry, UHG was hit hard because it had been cited for similar issues earlier and failed to correct the problems.
– UHG faces another possible hit from a pending class-action suit similar to one that has been settled by Aetna and Cigna, who each paid $160 million to settle their cases. The case is in court this week.
– more troubling is UHG’s apparent problems with health care costs, which have been accelerating of late. That rise, coupled with the company’s payment of medical claims appears to have slowed recently, adds to concerns about future profitability.
While analysts’ opinions should always be viewed with caution, Borsch’s prognostications about UHG have been quite accurate in the past; his forecasts for UHG were the most accurate in the industry in 2004. And, his experience working at industry giant HealthNet probably gives him a leg up on the other erstwhile “experts”.
What does this mean to you?
If UHG stumbles due to higher medical costs, that will be a strong signal that health cost inflation remains unmanageable – and that will be very bad news indeed.
Thanks to Matt Holt’s FierceHealthcare for the lead.

Jan
15

Coventry’s (health, Medicaid) results and plans

Posted by Joe Paduda on Sunday, January 15th, 2006 | Comments

Dale Wolf CEO and President of Coventry, gave a 20+ minute overview of the company’s results for 2005 and plans for 2006 at an investor conference last week in San Francisco. The entire call can be heard until mid April 2006.
Wolf was notably proud of the results Coventry has delivered and the disciplined culture that in his view has been key to the company’s success. He noted that Coventry is now established as a national player – with local health plans in central and south Atlantic and central Midwestern states, the rest of the states are PPO via First Health. In total there are 17 plans in 20 states, 2.5 million members, and these plans derive 75% of revenues from commercial, rest from Medicare and Medicaid. Wolf made one brief mention of Coventry’s Consumer Directed Health Plans