Insight, analysis & opinion from Joe Paduda
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.
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.
California Healthline reports that Gov. Arnold has agreed to sign a bill that would allow injured workers to select their own physicians for two years past the (scheduled) expiration of that right in April 2007. This may not be all that meaningful, as many employers have joined WC managed care plans that allow employers to select treating providers.
In fact, it may drive even more employers to managed care plans as they will now not be able to direct care for another two and a half years.
In what appears to be straight out of alternative papers’ “News of the Weird” column, several private equity firms are looking to buy HCA and take it private. These are really smart people who make lots of money finding gold where others only see dross; they must see something here that I (and lots of others) don’t.
Pro, demographics favor the deal; older folks need more hospital care. Con, there is a growing recognition that end-of-life care is too expensive, and hospitals are the most expensive place to deliver this care. Expect to see a push to relocate terminal patients from hospitals to hospices and other less-intensive facilities.
Pro, hospitals’ profitability has been improving. Con, legislators and regulators are looking to reduce hospital costs.
Pro, hospitals have been investing heavily in profitable lines, e.g. cardiology and orthopedics. Con, in some areas ambulatory surgical centers partially owned by physicians (where that’s possible) have been capturing a significant number of profitable cases, leaving the hospitals to handle the more severe and less profitable patients.
The deal has passed the FTC approval process, and now is closer to reality. However, don’t expect this to be the first of many deals; the private equity community does not seem enamored with the industry, but rather sees HCA as the best bet in a troubled business.
In a transaction that surprised many (including me), Atlanta-based claims administrator Crawford and Co. announced it is acquiring FL-based Broadspire Services from investment group Platinum Equity. The deal is valued at $150 million, and will move the combined companies into third place on the list of top property and casualty TPAs (third party administrators; firms that process claims on a fee-for-service basis without taking any insurance risk).
Broadspire CEO Dennis Replogle will be staying with the new company, which likely will go thru some transition and specialization as Crawford figures out where it fits in.
The deal is another in the ongoing parade of consolidation that started with the original firesale of Kemper National Services to Platinum several years ago. Since then, Sedgwick was acquired by Fidelity National and then bought CMI; Broadspire bought Cunningham Lindsey and RSCKO, and several smaller deals were consummated as well.
Rumors had been circulating for some time that Sedgwick CMS was looking at Broadspire, and internal sources at the target company reported that Sedgwick staffers had been at the Broadspire offices in Plantation FL. Sedgwick management has been under serious pressure to increase revenues, and absent serious price cutting, a large acquisition looked to be the most likely route.
If the price seems low, it may be due in part to the timing of the deal. The softening insurance market (which may not be softening for long) makes insurance a better buy in some instances than going self-insured. If the market does turn, Crawford will be able to congratulate itself for buying at the right time.
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?
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??
The Hartford’s annual study of drug costs provides insights into what drugs are driving costs, and the results a carrier can expect if they work hard at managing drugs. The big insurer enjoyed a reduction (!) in drug costs year-over-year of one percent, driven largely by the demise of the COX-2 drugs and the emergence of generics for Oxycontin and Neurontin.
Heavy-duty pain med Actiq continues to be a big problem for the Hartford, as it is for other payers. Of note, one payer I work with has been able to sharply curtail the use of Actiq through a targeted clinical management program involving physicians doing peer review. And, Actiq is coming off patent next year, which may reduce the price per dose. (but the manufacturer has developed a “new and improved” version that will likely be used as a substitute…)
The Hartford’s results are not surprising. Payers with aggressive, integrated approaches to managing drug costs are experiencing modest increases in drug expenses, while those without a strong focus on managing pharmaceutical expense have been hammered by costs increasing upwards of 15% annually. The Hartford participated in my firm’s third Annual Survey of Prescription Drug Management in Workers Compensation; their results, and the results of several other large payers, helped keep the industry’s overall inflation rate to 10%.
The keys to success? Managing utilization. A strong clinical management approach. The intelligent use of prior authorizations. And a company-wide commitment, backed up by the resources needed to attack the problem.
What does this mean for you?
You too can control drug costs – by focusing on utilization and clinical management.
The property-casualty industry looks to be heading for a profitable year, but (no pun intended) storm clouds are on the horizon. The latest prediction comes from Conning and Co, the Hartford, Conn. based insurance research firm.
According to Conning’s analysis, 2006 looks very strong, with past price hikes fattening bottom lines. The bad news is the industry can’t ever seem to maintain pricing discipline, which is (inevitably) leading to price competition in some lines, which in turn will result in rising loss costs and a decline in return on equity (which isn’t all that strong to start with at 9.2% in 2005).
So far, prices have remained flat to slightly down, with mild variations among the various insurance lines (work comp prices are slightly lower, property (outside of hurricane areas) flat, D&O down somewhat…)
The big worry continues to be the storm season, which has been quite mild to date. One knowledgeable source, a reinsurance broker, told me the reinsurers are holding their collective breath while watching the Weather Channel. if the weather continues its’ current quiescent state, reinsurers may well recover a big chunk of the losses they incurred over the last couple of years. If not, expect to see reinsurance premiums zoom up for all property and casualty lines, as reinsurers seek to maintain solvency.
What does this mean for you?
Primary insurer profitability follows reinsurer profitability, hope for calm winds.
Three workers comp physicians and one medical practice were recognized as the best comp providers in Florida at the fourth annual Florida Choice Awards for Workers Compensation banquet last night in Otlando. Sponsored by Choice Medical Management (a consulting client), the awards are one of the few, if not the only, attempt to recognize the second-most important player in workers compensation, the physician.
These are the folks who diagnose the injury, assess causality and relatedness (is the injury work-related and to what extent is work responsible) write the scripts, encourage the patient, talk with the employer about alternate duty, fill out the innnumberable forms, develop treatment plans, and deliver the care.
The Choice awards represent the right way to work with comp docs – respect them, recognize them, reward them.
They are also in marked contrast to the way other networks, payers, and insurers think about and act towards physicians. For example, the head of claims for a large work comp insurer, speaking at the Florida Work Comp Institute conference (host of the Choice Awards) noted in his speech that driving greater network penetration and “savings” was key to reducing work comp expense. That mis-prioritization is largely responsible for the explosion in medical expense in work comp.
And physicians are beginning to reject the discount-oriented “managed care” approach employed by many work comp payers. Sources indicate that the Florida chapter of the American College of Occupational and Environmental Medicine (the professional association of occupational medicine physicians) will be forming a committee to develop a position statement related to managed care networks.
Here’s hoping it is direct, definitive, and blunt.
