Insight, analysis & opinion from Joe Paduda

Dec
24

Farewell 2005

Posted by Joe Paduda on Saturday, December 24th, 2005 | Comments

I’m on holiday tomorrow thru the end of the year and will be taking a break from blogging till 2006.
Thanks to all who have made this a great year for Managed Care Matters. We’re up to 6000 unique visitors per month and growing 15% each month. We’ve generated a lot of comments, a good bit of controversy, and some enlightened discussion.
Managed Care Matters appears to be one of the few, if not the only, occupant of the blogosphere dedicated to managed care. That’s strange, if not downright wierd. The managed care industry is one of the largest in the US, is growing rapidly internationally, and has tremendous implications for the economic and health status future of the country.
So why aren’t there more blogs on managed care? Lots of possible reasons, but there is clearly a need for more dialogue, discussion, and intelligent perspective.
I would encourage anyone with a bit of time (it doesn’t take much), a knack for writing, and valuable insights to start a blog on managed care. Once you are up and running, let me know and we’ll look at linking to you.
If you are looking for help, advice, and assistance, talk to Julie Ferguson (julie@julieferguson.com) She is the brains behind the tech stuff here; besides being a great writer she is expert in the blog business.
Enjoy the holidays and see you in 2006.

Dec
23

Malpractice investigations

Posted by Joe Paduda on Friday, December 23rd, 2005 | Comments

Insurance Journal reports on changes in the way the State of Maryland will deal with investigations of potentially problematic physicians in yesterday’s edition. In a study conducted by the Baltimore Sun newspaper, 120 of the state’s approxinmately 17,000 physicians were found to have five of more malpractice claims in a ten-year period.
The review of the state’s policies was initiated when a new review board found the staff was swamped and overloaded, investigating too many situations where problems did not appear to be significant. In revamping the criteria, the review board decided to:
“investigate automatically only when doctors settle three cases for $150,000 or more each over five years. Pinder (head of the review board) said the board also reviews any doctor who resolves a claim about care in the past five years with a payment of at least $1 million”
There were 11 settlements over $1 million, and only 4 physicians met the three cases for $150,000 or more over five years criterion.
There are wide differences among the states in the criteria and process for investigating physicians, ranging from Nevada and Pennsylvania which investigate each and every claim, to Massachusetts which reviews any physician with three or more claims in a ten year period.

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
21

Case’s strategy for Revolution Health

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

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

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
20

Federal subsidy of Part D providers

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

Several readers have asked why insurance companies are so interested in the Medicare Part D program. While there are several reasons, the most significant one is they are protected from losses for a defined period of time.
Buried within the 2003 Medicare law was a provision that allotted $10 billion to cover potential losses incurred by insurers who provided Medicare Part D drug coverage plans. Yes, there is a time limit for claims against this fund, but it provides insurers with enough time to figure out how to make money and protects them from losses while they are learning.
What a great deal. I wish someone had allocated money to me to help me get my consulting firm started nine years ago; many other businesses could have benefited from Federal and taxpayer largesse as well. But we don’t qualify for these huge subsidies; we have to succeed or fail on our own. The invisible hand has a fistful of cash for selected “entrepreneurs”.
I continue to be mystified by the apparent willingness of the present administration and the conservative Republican majority to try to solve big problems with taxpayer funds. The $10 billion subsidy is a big-government, fiscally “liberal” approach.
What does this mean for you?
Higher taxes to subsidize corporations while they learn from their mistakes.

Dec
19

Medicare physician reimbursement

Posted by Joe Paduda on Monday, December 19th, 2005 | Comments

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

Dec
15

Aetna’s work comp subsidiary has new leader

Posted by Joe Paduda on Thursday, December 15th, 2005 | Comments

Aetna has officially named Pat Scullion to head up the Aetna Workers Compensation Access subsidiary. Scullion was formerly in a financial role at AWCA; he replaces Robyn Walsh who retired five months ago.
Scullion’s background is financial; he does have experience in workers comp from his two years at AWCA and a previous stint at First Health.
Sources indicate AWCA has been able to establish relationships with several other workers comp managed care entities, including Concentra, Ingenix, Genex, and Intracorp. The company has had more modest success in the payer sector; the Hartford is the sole insurer landed to date, although a large TPA and another payer will be moving some of their states to AWCA’s networks in the near future.
While Scullion is not a big name in the industry, his appointment will likely help AWCA reinforce its claims to be in the work comp business for the long haul.
Meanwhile, First Health’s work comp business is still without a leader. However, several sources at FH’s payer clients indicate that this may be resolved in the near future, as Coventry has several candidates under consideration.
What does this mean for you?
AWCA is working to establish itself as a worthy competitor to First Health in the network access business; for WC payers this is excellent news.

Dec
15

Third party billers and usual and customary

Posted by Joe Paduda on Thursday, December 15th, 2005 | Comments

My post of a couple weeks ago on Third Party Billers (TPBs) generated a good bit of heat and even some light amongst interested readers. It has also caused a few payers to examine their own reimbursement policies in some detail. Caution – Most regular visitors will find this a touch too esoteric, but for interested parties nothing could be more intriguing.
Reminder – TPBs are “factors”; companies that buy workers comp scripts from retail pharmacies and try to collect from payers such as insurance companies. Seems pretty straightforward – pay a discounted price, the pharmacy gets their money quickly and then the TPB makes money on the margin between what they pay and what they collect. There are a few nuances and twists that make this a lot more complicated, and therefore a lot more frustrating for payers.
In about half the states, there is a fee schedule mandated by the state government which sets the maximum reimbursement amount for most drugs. Thus, when TPBs request reimbursement from payers, they ask for the fee schedule amount. So far, so good.
Except when the pharmacy is in the payer’s Pharmacy Benefit Management vendor’s network of contracted pharmacies. In this instance, some payers and payers/PBMs have reduced the amount payable to that owed under the terms of the contract rate at the dispensing pharmacy. TPBs do not approve of this interpretation, and in some instances have aggressively pursued additional payments.
A different situation arises in the non-fee schedule states. Most of these require reimbursement to be at “usual and customary”, which is defined by the NCPDP (standard field 426-DQ) as the “amount charged cash customers for the prescription exclusive of sales tax or other amounts claimed”. It appears that this definition is not used by the TPBs, who are actually billing at rates that appear to be based on a multiple of the Average Wholesale Price, or AWP. (Various sources within payer organizations have indicated that the multiple is in the range of AWP + 15% to AWP + 20%.).
Some payers pay the requested amount while others pay the bills at what they deem to be “U&C”. In some instances TPBs have threatened to initiate legal action against payers failing to pay what the TPBs have stated they are owed.
The net is this – there appears to be a disagreement as to what constitutes “usual and customary”. After reviewing research on drug fee schedules and reimbursement arrangements in the individual states, there does not appear to be a consistent, clear definition of usual and customary.
There have been some court cases that at least part involved this issue; to my knowledge there have not been any precedents set or definitive rulings written. If any reader is aware of more conclusive information please let me know.
What does this mean for you?
Confusion and different interpretations are never helpful and can lead to excess costs and hassles for all involved. The sooner this is publicly resolved the better for all parties.
Note to reader – I contacted executives at third party billers in an effort to get their perspective on this issue; none have returned my calls as of this morning. This despite the request from one (Third Party Solutions) in a comment on a previous post that I contact them to get their input.

Joe Paduda is the principal of Health Strategy Associates

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