Jun

HMO rate increases

Posted by Joe Paduda on Monday, June 13th, 2005 | Comments

Initial HMO rate increases will “only” be 12.4% in 2006. This comes as good news, as increases this year averaged 13.7% according to Hewitt Associates, who also noted the 2006 number is the lowest in five years.
We’ll get to the “if this is the good news, I’m not wanting to hear the bad news” in a moment. First, the details. The actual rate increases tend to be lower than the initial rates. The reason is that employers, shocked by the initial rate increases, cut benefits, increase employee co-pays, alter prescription drug programs, and change HMOs. This usually results in final increases somewhat lower than Hewitt’s “initial rate increase statistics.
So far, so good. Before we all relax, consider that the only way rate increases were held to a rate more than three times the underlying rate of inflation was by shifting costs to the insureds and reducing coverage. Not exactly innovative or long term strategies. However, Hewitt expects that more of this will occur this year, as companies cut benefits and increase copays to offset at least part of the rate increases final increases are likely to be in the 8-9% range.
One benefit that has been particularly affected by these design changes has been prescription drugs. For example, over the last five years, the number of companies offering a $5 generic copay has been cut in half, while the number with a $10 copay has more than doubled and companies are now requiring a $15 copay. With many generics costing pennies per pill, the result is insureds are paying much, if not all, of the cost of many of their generic prescriptions.
Particularly hard hit will be employers offering health plans in the northeast, with initial rate increases coming in at 15.8%.
What does this mean for you?
Leaving aside the benefit design changes and other financial alterations, this means that your health insurance costs for the same benefits you “enjoy” today will cost more than twice as much in five years.

Jun

The impact of the uninsured on health insurance premiums

Posted by Joe Paduda on Thursday, June 9th, 2005 | Comments

There is now evidence that the health care costs of the uninsured are borne in part by those who do have health insurance. A study by Families USA reported in Bloomberg News indicates that the annual “surcharge” is $922 for the average American family with employer-sponsored health care coverage. Why? Because providers who treat the uninsured only receive about 1/3 the cost of their care from the uninsureds, leaving others to pick up the tab for the rest.
According to the report, about 8% of insurance premiums goes to cover costs associated with caring for the uninsured. And, the cost will rise to over $1500 within five years.
The report notes:
“Insured families in six states – New Mexico, West Virginia, Oklahoma, Montana, Texas and Arkansas – will pay more than $1,500 in additional premiums this year to cover the costs of patients who lack medical insurance, the report found. By 2010, the list will include five more states: Florida, Alaska, Idaho, Washington and Arizona.”
Here’s the impact in real world terms. On an individual basis, your family premiums would be $900 less if the uninsured had coverage. On an employer-specific basis, General Motors is paying about $480 million a year in “excess costs” to cover the uninsured. And nationally, considering the Federal and state governments’ expenditures on health care, our taxes are paying more than $50 billion a year to “insure the uninsured”.
I have been saying for several years that the “uninsured” are actually “insured” through a mix of taxation, cost-shifting, and self-insurance. This is the first study that quantifies the cost of that “insurance”.
What does this mean for you?
Until and unless we address the funding of coverage for the uninsured, these hidden and overt taxes will continue. It adds to everyone’s costs of doing business, reduces industrial competitiveness, and damages balance sheets. Yours too.
Thanks to Peter Rousmaniere for the heads-up.

Jun

Growth in limited health plans

Posted by Joe Paduda on Tuesday, June 7th, 2005 | Comments

Limited health plans, covering only routine, non-hospital care, appear to be growing in popularity. The plans, with little to no underwriting and guaranteed level premiums, limit coverage by capping expenses at levels from $1000 to $20,000.
Companies such as Intel, Sears, and IBM, in addition to a number of other large employers, are slated to begin offering these plans next year.
I can’t figure out why anyone would buy one of these plans. The big fear that drives health insurance coverage is catastrophic care; as people buy insurance based on fear, the limited plans do little to meet the market’s need.
One potential impact if these plans grow in popularity is the reduction in the number of those uninsured. However, that would be a highly misleading finding, as the low coverage limit will undoubtedly lead to uncompensated care. One could also argue that insureds will be more likely to pursue more expensive care, as they are not disincented from routine office visits, diagnostic lab and x-ray, and other medical services that may find potentially expensive medical conditions.

May

HMOs and Workers Comp

Posted by Joe Paduda on Friday, May 27th, 2005 | Comments

Why isn’t workers comp a good business for group health plans? Several clients and industry types have asked for my take on the recent move by Aetna, Coventry, Wellpoint, and possibly UnitedHealth into workers comp. Without giving away too much (as a consultant I have to make a living), here’s the synopsis.
1. The group health world is saturated. It is rapidly approaching oligopoly status, wherein a few players control most of the market. Therefore, market share is tough (and expensive) to come by.
2. Health plans are seeking alternative revenue sources, and workers comp seems attractive – it is, after all, health care delivered to insured workers by physicians, hospitals, etc.
3. Health plans are arrogant – most look at the workers comp field with disdain, as a modern homo sapiens would consider a Neanderthal. Managed care in comp is behind the times, networks are sloppy, systems are antiquated, and medical management is poorly done. No argument there.
Sound good? Not so fast.
While there are many factors that should give a group health entity pause, the most important one is the tiny size of the potential market.
Total annual medical spend in workers comp, from all payers is around $30 billion. Let’s say one health plan captured all that revenue from all payers. Here’s how the numbers work, or rather don’t.
Out of that $30 billion, about 60% will flow through a network, or $18 billion. Of that $18 billion, a very good health plan will save about 10%, or $1.8 billion. The health plan will be paid up to 20% of those savings (likely considerably less), or $360 million.
So, if one health plan has 100% market share in workers comp networks, the total revenue (not profit) is $360 million.
By way of comparison, Aetna’s annual revenues are around $20 billion and net profits of about $1.6 billion. United HealthGroup’s revenues are $44 billion, $3.6 billion in profits; Wellpoint also has $44 billion in revenues and $2.4 billion in profit.
So, while $360 million sounds good, it is about 1% of the average annual revenues of one of the top HMOs. And that is only if one HMO has 100% market share, a rather unlikely scenario.
More like a rounding error than a business opportunity.
What does this mean for you?
If you are a WC payers, beware health plans bearing gifts. If you can get by their talk of “members” and pricing based on “per member per month” and interest in including ob/gyns in their network and inability to understand the “tail” of workers comp, remain skeptical of their long term staying power.

May

Surgery v. rehab for back pain

Posted by Joe Paduda on Thursday, May 26th, 2005 | Comments

“Surgery to relieve chronic lower back pain is no better than intensive rehabilitation and nearly twice as expensive” concluded researchers in a Reuters article published Monday. The researchers at Nuffield Orthopedic Center in Oxford England studied 349 patients with back pain who either had surgery or intensive rehab.
According to Jeremy Fairbank, an orthopedic surgeon at the center “This is strong evidence that intensive rehabilitation is a good thing to do for people with chronic back pain who are thinking of having about having operations

May

Ambulatory Surgical Centers’ future

Posted by Joe Paduda on Monday, May 16th, 2005 | Comments

So-called “specialty hospitals“, facilities typically owned by for-profit firms and/or practicing physicians, have been the subject of much debate by the Centers for Medicare and Medicaid Services (CMS). Now, it looks like CMS will continue their ban on new facilities at least until the end of the year (and just possibly till 1/1/2007) while they study their impact on cost, quality, and the full service hospitals they compete with.
Specialty facilities focus on a relatively narrow branch of medicine (e.g. spine, cardiac, orthopedics, cancer), are often owned by a partnership including the physicians admitting patients and a for-profit corporation, and rarely have an Emergency Department, overnight stay capacity, or trauma units. What they do have is state-of-the-art facilities, excellent “customer service”, efficient management, and lots of profit potential for the owners.
At issue with CMS is the definition of hospital and whether the specialty facilities meet the CMS definition. This is important because reimbursement is typically better for “hospitals” than for non-hospital facilities (many of these specialty hospitals would likely be classified as ambulatory surgery centers which receive lower reimbursement).
According to Congressional Quarterly,
“The (CMS specialty hospital internal) review also could lead the agency to require some specialty facilities to add emergency departments, which “ten[d] to attract Medicaid and other low-income patients,” CQ HealthBeat reports (CQ HealthBeat, 5/12).
California HealthLine also reports “In addition, CMS is expected to adjust Medicare reimbursement rates for all providers to better reflect the severity of patients’ illnesses, which could lower reimbursement rates for some specialty services.”
Congress appears to favor allowing new specialty hospitals into the CMS provider world, with House Energy and Commerce Cmte Chair Barton (R TX) noting he considers McClellan’s action to be a reasonable compromise.
“The rise of specialty hospitals will press traditional community hospitals to become leaner, faster and better,” he said (AP/Las Vegas Sun, 5/12). Speaking in response Democrats’ concerns about physician self-referrals, Barton said, “The real fight … here is not about quality of care,” adding, “It’s about control and ownership.” He said that banning specialty hospitals goes “against everything in the American culture that says specialization is good.”
What does this mean for you?
As the Centers for Medicare and Medicaid Services (CMS) goes, so go commercial payers. The moratorium on specialty hospital construction has served to halt, or at the least reduce, the number of new facilities seeking licensure throughout the country. If CMS moves forward and allows new construction, watch for changes in reimbursement.
It is possible, and some say likely, that reimbursement levels for these facilities will be lower than for full-service hospitals. As many commercial and state (e.g. workers’ comp and auto liability) fee schedules and reimbursement contracts are based on CMS’ Medicare rates, there will likely be a significant impact on the volume of services delivered through these facilities and the price as well.

May

Medicare cuts in MD reimbursement

Posted by Joe Paduda on Tuesday, May 10th, 2005 | Comments

California HealthLine has an excellent roundup of Medicare news. Most significant is their take on physician reimbursement, which is slated to be cut by 4% on 1/1/2006. Lawmakers appear to be interested in rescinding the cut, which would be consistent with their actions the last time Medicare physician reimbursement cuts were slated to take place.
Expect changes late in the year or early next – I know, early next year would be after the cuts are scheduled to take effect. The political winds are moving in that direction, with the AMA and AARP staking out positions (no surprises there)
What does this mean for you?
1. With most state WC and other fee schedules tied to Medicare rates, cuts in physician reimbursement will directly affect payouts in these lines of insurance.
2. If Congress does not act until early next year, companies tasked with implementing fee schedule changes will find themselves burning the midnight oil to build fee schedule tables that can meet either eventuality -cut or no cut.
3. PPO discounts are often pegged to Medicare, so their revenues will either increase or stay the same, depending on what Congress does.
4. And most important, a decrease in reimbursement will lead to more physicians dropping out of Medicare, Medicaid, and any reimbursement program tied directly to Medicare. Today physicians ask for, and receive, reimbursement higher than the state fee schedule in WC in Massachusetts. Florida raised its fee schedule from 87% of Medicare (on average) to 114% in large part due to physicians refusing to take the lower reimbursement. Early evidence is physicians are returning to the system, and utilization has not increased.
Editorial statement – price controls simply do not work. When will the politicians, managed care “experts” and PPO companies learn this?

May

Coventry call

Posted by Joe Paduda on Friday, May 6th, 2005 | Comments

More from the “group health” side of the Coventry call…
In general, a very strong quarter for one of the mid-tier players in managed care. Loss ratios were down, medical trend slightly decreased, and efforts are underway to address some of the key components of medical inflation, notably imaging.
There was some talk about increasing copays and deductibles, a “cost containment” mechanism from the early days of health insurance. These are now called “benefit buydowns”…
Details –
In line with other managed care players, medical cost pmpm trends were at 8.1% for the first quarter, which was mirrored by their Medicaid and medicare business. This was driven by better utilization (volume of services delivered), with inpatient utilization and pharmacy trending well. For pharmacy trend, Coventry also saw “more favorable unit cost and utilization.”
Medical Loss Ratios improved significantly; my sense is this was likely driven by the improvements in utilization coupled with premium rate increases.
Coventry execs talked about the components of medical expense in some detail, paying especial attention to diagnostic imaging. Evidently they are working hard on this area as costs are increasing. Specifically, Coventry is looking to cut unit prices. They are also trying a somewhat unique approach which will bear watching, purchasing imaging on a capitated basis from a vendor for imaging. In addition, they are using precert on all significant imaging in most markets.
On the benefit design side, Coventry is selling more higher deductibles and copay programs, referred to as “benefit buydowns.” For those of us old enough to remember, these appear to be nothing more than cost shifting of initial expenses to the plan member. This has been extended to specific service lines, including “benefit buydowns” in pharmacy.
Consumer Directed Health Planss – they have one, it is in the market place, although they have not seen huge demand due to their smaller size market – have 10k members in some form of that, expect it will grow but “unlikely to be exponential”.
Want to write a few large accounts and keep the “small group engine” going.
What does this mean for you?
Medical inflation is not tamed, but more under control than in prior quarters – this is consistent with other managed care firm results, so if you are not seeing a leveling off of the “rate of increase”, you’re doing something wrong.
Attention to the drivers of trend, notably imaging, is growing, and reflects a deeper understanding of the nuances of health care. Simply put, you cannot manage imaging like you manage hospital expenses. If you haven’t figured this out yet, get with the program.

May

Coventry

Posted by Joe Paduda on Thursday, May 5th, 2005 | Comments

Interesting notes from their analyst’s call, focusing on their First Health acquisition…
They are “achieving synergies” by reducing headcount and consolidating purchasing. On the pink-slip front, the combined First Health-Coventry operations will shrink by about 450 positions by year end. In total, they expect to exceed $25 million in synergies.
They are also successfully renegotiating vendor contracts; examples include telecom where expenses were $21 million between FH and Coventry. They have renegotiated deals to achieve savings of over $5 million, with no operational change.
In April, they completed conversion to FH for OON emergencies from an outside vendor who supplied that OON service.
During the call, Coventry’s CEO, Dale Wolf, was quick to note the value of FH, and specifically their workers’ comp products which are generating slightly more than $210 million in revenue per year (about 3% of Coventry’s total), but a surprising 11% of their margin. A profitable product line indeed. In total FH revenue was under $142 million in Q1 which was less than expected but not materially so.
Wolf stated that Coventry wants growth in their 3 areas at FH (WC, network rental, and the Federal Employee Health Benefit Program (FEHPB)), and noted that the equity markets appear to have confirmed their belief in FH.
Wins for FH for the unit include an expanded relationship with AIG, a new customer in Fireman’s Fund (which had been in the works for some time), (both in workers comp) and selling (non WC) services to a Fortune 100 employer. Wolf also cited new business wins in rental network. Coventry expects FH will continue to grow modestly in 2005 but more in 2006
On the network side, it sounded like Coventry is working to renegotiate facility deals to drive better discounts, although this was somewhat unclear.
Looks like FEHBP is a potential problem with declining enrollment, but high premium increases appear to have moderated somewhat and Coventry sounds hopeful.
The company has added one more position at senior level, one more to go. Wolf says they have assimilated FH and are in execution mode. Sources indicate the slot that is still open is for the leader of the Workers Comp unit; they continue to look outside the combined company (search has been going on for about two months to date).
While I have every confidence in Coventry’s ability to maximize the return from the FEHBP and network rental business (this is fairly similar to their core group health business), my sense is the optimism about FH’s WC business may be somewhat misplaced. Here’s why:
1. FH’s largest customer is Liberty Mutual, which accounts for about a fifth of their business in WC. Liberty has their network contract out to bid, and I would be quite surprised if First Health retains all of their present business. Expect them to lose several states to competitors.
2. The Hartford’s recently announced deal with Aetna to access their WC network in PA noted that they plan to expand their relationship into other states. Sources indicate this is not a hollow promise, so I would expect the Hartford to move other FH states to Aetna over the next 9-12 months.
3. FH’s WC network continues to suffer from “hollowing out”, as payers hire specialty managed care vendors such as OneCallMedical and MedRisk to provide imaging and physical medicine networks respectively. (note MedRisk is an HSA client). WIth imaging at slightly less than 10% and PM at about 20%, the loss of network access revenue for FH will grow as more payers adopt this strategy.
4. EDS manages FH’s medical repricing technology, and their ongoing struggles with the FH medical bill repricing system are well known, and are not helping the company solidify relationships with existing customers. This has always been a “loss leader”, strategically identified by the ex-FH leadership as a way to “lock in” customers for the FH network. It remains to be seen if the new bosses continue to support that strategy.
What does this mean to you?
Coventry management is quite strong, and has made signficant progress in fixing some of FH’s problems. If you are working with FH, patience may be the watchword, but additional progress, in the form of a defined IT strategy, an increased willingness to partner with specialty networks, and a demonstrated understanding of the huge asset that is their medical bill database will be a requirement for success.

May

Center for Medicare/Medicaid Services’ impact on private payers

Posted by Joe Paduda on Wednesday, May 4th, 2005 | Comments

There has been lots of news about Medicare lately; a good round-up is available at California HealthLine. News includes:
 Physician reimbursement – the current fee schedule expires in 2006, after which reimbursement is scheduled to decline by 5% annually from 2006 to 2012. While some are predicting, with apparent confidence, that the cuts will be eliminated, it appears that others on Capitol Hill, searching for ways to deliver on Bush’s commitment to cut the Federal deficit, are turning their attention to Medicare.
 Medicare will be covering more services performed at Ambulatory Service Centers. Most of these are minimally invasive surgeries, and many have been performed at ASCs for years. It looks like CMS is just catching up with normal practice. However, some procedures, such as laparoscopic cholecystectomies, which are routinely done in ASCs, will not be covered in this setting by CMS.
 CMS will increase payment for stays in long term care hospitals by 3.4% on July 1 of this year and make it easier for LTC facilities to receive payment for “outlier” cases (those patients that consume significantly more resources).
 Drugs – under pressure from the retail pharmacy industry, CMS will require health plans to cover 90 days of drugs whether they are obtained at a retail or mail order pharmacy.
What does this mean for you?
As goes CMS, so follows commercial insurance. Here are the potential effects.
1. Physician fee cuts – physicians will seek to recover lost income from other payers, and those other payers tend to be their group health, auto, and workers’ comp patients. Watch for cost-shifting

Category: Manage Care – Group Health