Category: Manage Care – Group Health

Jan
4

Why I’m skeptical about United HealthGroup

Posted by Joe Paduda on Wednesday, January 4th, 2006 | Comments

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…

Dec
21

United Healthcare – Pacificare merger nears completion

Posted by Joe Paduda on Wednesday, December 21st, 2005 | Comments

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.

Dec
20

Pay for Performance – does it work?

Posted by Joe Paduda on Tuesday, December 20th, 2005 | Comments

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.

Dec
14

Consumer directed plan members’ satisfaction rates

Posted by Joe Paduda on Wednesday, December 14th, 2005 | Comments

New information is coming out on consumer directed health plans that indicates member satisfaction rates are significantly lower than those of individuals enrolled in “traditional” health plans. These plans are based on the premise that empowering consumers with information and requiring them to spend their own money (albeit from tax-deferred Health Savings Accounts) on costs up to a high deductible, after which insurance takes over (typically $2000 to $5000) will help reduce or at least constrain the rate of increase in health care costs.
It does appear that members of CDHPs are interested in costs; according to the Los Angeles Times article on CDHP member satisfaction and adoption rates (free registration required):
“High-deductible plans do make people think more carefully about costs. A study released Thursday by the nonprofit Employee Benefit Research Institute, for example, found that more than 70% of people in consumer-driven health plans said they considered costs when deciding whether to see a doctor, compared with less than 40% of people in traditional insurance plans.”
The information appears to be lacking for seven out of eight enrollees; only 12% of CDHP plan members have received information allowing them to compare costs at different facilities, and just a few more have been provided data on health care providers’ quality indicators.
As noted here earlier, Aetna is one of the leaders in this area, providing both cost and quality data to members in many of their locations. Aetna also has developed a website that enables members to find out what their costs will be for specific providers based on the member’s specific health plan benefit design.
Pacificare has also licensed IHCIS’ technology to provide members with a “Health Cost Estimator” which contains information on low, average and high costs by diagnosis and procedure for in-network or non-network providers.
There are now approximately 4 million CDHP members in the nation, with enrollment expected to more than quadruple by 2008. However, these numbers may be a little misleading, as the definition of a CDHP tends to be somewhat vague.

Dec
9

United HealthGroup’s workers comp network business

Posted by Joe Paduda on Friday, December 9th, 2005 | Comments

United HealthGroup appears to be preparing to re-enter the workers compensation network business. Sources indicate that the initiative is housed within UHG’s Ingenix subsidiary; plans are not finalized but reports indicate this is all but a done deal.
Ingenix’ new CEO, Richard Anderson, is in the process of determining what to do and who is to do it. While Ingenix is well known for its Power-Trak, UCR databases, and other analytical and software applications, the property and casualty industry has been a relatively modest contributor to the company’s revenues.
For those relatively new to the WC network business, UHG was once a significant player in workers comp PPOs, owning both the Focus (now part of Concentra) and MetraComp (also part of Concentra) network businesses. UHG sold both about 8 years ago; neither was core to the company’s business at the time. Having been at UHG’s MetraComp subsidiary until 1996, I can attest to the company’s lack of interest in workers comp.
Which begs the question – why now? Is it because Aetna is making a major push? Has UHG management been swayed by Coventry’s positive statements about workers comp? (many Coventry executives are ex-UHG employees) Is this a push to diversify, as UHG’s group health and HMO plans are very much a mature industry?
All of the above?
I’ve discussed this at some length with WC network buyers, competitors, and others, and all welcome UHG’s entrance. However, those who have expertise in network development wonder if UHG has the persistence and focus it will take to be successful in this business. It will take years, a lot of dollars, and a long view that UHG has not been known for in the past.
There are many other challenges to be faced; if and when UHG announces anything publicly I’ll devote more time to this.
What does this mean for you?
Another sign that the HMO industry is maturing, and executives are looking for the gold dust that has fallen through the cracks in the measuring room floor.

Dec
2

Concentra’s future

Posted by Joe Paduda on Friday, December 2nd, 2005 | Comments

Concentra’s naming of Norm Payson MD as the company’s new “non-executive” chairman of the board appears to be yet another sign that Concentra is positioning itself for sale or IPO. Long rumored to be preparing to go public, Concentra may be closer now than at any time in the past few years.
Payson got his start in managed care at HealthSource in New Hampshire 20 years ago. He and others built that HMO from the ground up and sold it to CIGNA in 1997. He then joined Oxford in 1998, was there through the turnaround and left it in excellent condition in 2002.
Payson’s role appears to be “non-operational” to say the least; he will be working on strategy issues, providing guidance to senior management, etc. He will be making an investment of $10 million in the firm; before you jump to conclusions, understand that Payson will also be receiving “awards of restricted and unrestricted stock and options

Nov
27

AMA’s protest of UHG-Pacificare merger

Posted by Joe Paduda on Sunday, November 27th, 2005 | Comments

The proposed merger between United HealthGroup and Pacificare is running into objections from consumer groups and other advocacy organizations in several states. Most recently, the AMA’s Colorado branch protested the bonuses and other financial rewards that would accrue to Pacificare executives if the merger is consummated.
The total amount of the bonuses is around $315 million; the AMA appears to be as concerned, if not more so, about the threat to competition in Colorado should the merger proceed.
From the AMA’s side, it is easy to see why they are concerned. Eliminating payers increases the market power of the payers remaining. And the more market power the payer has, the more vulnerable the provider is.
More consolidation is a natural consequence of the industry maturing; that doesn’t mean the various constituencies are going to like it.

Nov
21

Revolution Health and Kaiser Permanente

Posted by Joe Paduda on Monday, November 21st, 2005 | Comments

I’ve been keeping my eye on Revolution Health since its founding earlier this year, and the item posted last week about Kaiser’s work on electronic health records reminded me to check back on Revolution’s progress. Why the focus on Revolution? There are other consumer-directed health plan firms out there, why them specifically?
First, they seem to have the cash. Steve Case’s investment firm, Revolution, has a half billion dollars to invest. It’s very important to understand that not all of this will go to Revolution Health; to date. Of note, Revolution has also invested in two “lifestyle resort firms”, the car-sharing service FlexCar, and other firms in the “life in balance” space.
Second, they have the attention of the media and investment community.
Where is Revolution Health (RH) today? Revolution is framing their business as focusing on three areas; coverage, content, and care. They have acquired several web-based and other companies that have some level of expertise or experience in each of these areas. As noted here previously, none of them is even close to dominant in their specific space. Notably, there are no components that are specifically health care management, managed care, or provider network management firms or have significant capabilities or experience in these areas.
The company appears to be in the process of merging its acquisitions, building the marketing image and message, and possibly looking for new acquisitions.
The only member of Revolution Health’s operating committee with extensive experience in the health insurance/managed care business is Bryce Williams, who worked at eHealth, the parent company of eHealthInsurance as their head of marketing and business development.
Why the comparison to Kaiser? Kaiser is at the opposite end of the spectrum; a company (Kaiser Permanente is actually two entities; Kaiser owns the facilities and administrative end of things, while all the physicians belong to the Permanente Medical Group; technically KP is a large group practice HMO

Nov
18

Kaiser’s electronic health records

Posted by Joe Paduda on Friday, November 18th, 2005 | Comments

Kaiser Permanente has introduced a web-based tool to enable members to schedule appointments, view lab results, select physicians and hospitals, and order prescription refills. The service, initially rolled out to members in northern California, is expected to save the HMO half a billion dollars when fully implemented.
Kaiser has been a leader in the electronic medical records arena, having invested over $3 billion so far. An early initiative failed, but the big HMO jumped right back in with this latest venture. And progress seems to be coming, as two of Kaiser’s sites in California are converting to EMR now, with more scheduled for 2006.
The lesson here is that just because one initiative fails that does not mean the entire idea is flawed. Kaiser learned a lot from its initial efforts, and is using that knowledge to build a system that will eventually be employed throughout the HMO’s operations.
Kaiser has been quite intelligent about this effort, studying the impact of EMR on patient utilization and health status. A study reported early this year indicates that ambulatory visits decreased 9% after implementation, with health status measures remaining flat or increasing slightly.
Kaiser is one of the leading health maintenance organizations in the world, and is likely to remain so due to intelligent approaches to its business such as this one. I continue to be impressed with Kaiser’s persistence in pursuing electronic medical records; many for-profit HMOs would have given up, fired the head of IT, and remained mired in paper and disparate systems. If they even started an EMR effort. To be sure, Kaiser is somewhat unique as its members tend to stick with the plan for longer periods than its competitors; that does not diminish the value the HMO is demonstrating for the rest of the industry.
What does this mean for you?
Watch the not-for-profits closely, as they can teach lessons in efficiency, persistence, and focus that those in the for-profit arena would greatly benefit from.

Oct
19

GM retirees health care cuts

Posted by Joe Paduda on Wednesday, October 19th, 2005 | Comments

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.