Sep

Will cooler heads prevail in health reform?

Posted by Joe Paduda on Tuesday, September 8th, 2009 | Comments

President Obama’s speech to a joint session of Congress tomorrow night looks like the last best hope for health reform in 2009. Despite all the protestations about ‘ObamaCare’, the reality is the President has been remarkably silent on health reform specifics, preferring to let Congress work out the details, as long as they meet his goals of coverage and ‘budget neutrality’.
This looks to be the result of a careful analysis of ‘what went wrong’ with the Clinton health care reform effort, an effort blown apart by too many details that elicited devastating criticism. While some may accuse the President of fighting the last war, others note that Obama, as a relative newcomer to the Capital, understands that many in Congress, and particularly the Senate, have long experience with health care and much pride in that experience, and would resent what they might see as a heavy handed attempt by the new guy to dominate an issue that they view as their own.
Regardless, we’re now at the point where the speech, and moderate Democrats’ and Republicans’ reactions to that speech, may be the turning point in the reform effort.
Obama has largely kept his powder dry, avoiding ‘deal-breakers’, lines in the sand, and ‘non-negotiables’, and the same can be said for the Republican Senators key to a true ‘bipartisan’ deal – notably Enzi and Grassley. (Snowe is a different story; she’s the one hope for Democrats seeking to shove something thru with some form of a public option.) Despite the escalating rhetoric on the part of the two Senators, they have – so far – pretty much avoided had line positions.
This modicum of restraint on the part of the President, Enzi and Grassley, is the key to coming up with something that a) can be passed; b) is more than just a tweaking around the margins; and c) promises to control costs while expanding coverage.
A solid set of principles that would form the basis for agreement has been developed by Bob Laszewski, and are the subject of a measured piece by Brian Klepper and David Kibbe. Klepper and Kibbe suggest the following:

* Bulletproof Health Care Security. This is the idea that everyone would have significantly improved access to care, that the employer-sponsored system would remain available for those who like it, and that Congress would be required to use the same system that they pass for the rest of us.
* Medical Malpractice Reform. The Republicans have the Democrats where they want them on this one. There is no good reason why our current Med Mal system, as capricious and ineffectual as it has been, has not been revised with expert systems, except that the trial lawyers, in exchange for hefty financial support, have received protection from the Democrats. It’s time to fix this problem that pervades our health care provider community.
* Paying for It. This is acknowledging that subsidies will be required for those who can’t afford health care at its current cost level, and that there are ways to structure the new cost that are more sensible. As Bob points out, the nearly forgotten Wyden-Bennett bill would be cost neutral in its second year.
* Tough Cost Containment. As we said above, this has been the Congressional Democrats’ proposals’ most glaring and conflicted flaw. It is an area that, with a focus on primary care, paying for results instead of piecework, and cost/quality transparency, could dramatically drive down cost while improving quality, rightsizing our health system and going a long way toward ameliorating the most pernicious drag on our larger economy. Bob tackles cost control most effectively in his Health Care Affordability Model, a plan that would use tax incentives to encourage the industry to focus on driving out waste.

There are a couple huge political plusses for the Republicans in the ‘Four Points’.
First, to date the Dem’s proposals have been woefully short on cost containment, and woefully long on unfunded entitlements. By getting tough on costs, the GOP may be able to find one issue where it has a fresh, new perspective – something the party desperately needs. Sure, they’d infuriate a big donor base, but that would be an acceptable price to pay for a party that needs something to build on for next year’s mid-term elections.
Second, Enzi, Grassley et al would earn big points from the medical provider and manufacturing industry by attacking Med Mal. A successful ‘solution’ to what is perceived to be a big cost driver (although the data don’t support that perception) would play very well with their base, and take some of the sting out of the cost containment provisions.
This is not to make light of the significance of the issue for the Dems as well – passing health reform is a must-do. There’s a lot of political capital at stake so passing it will boost the party’s credentials while failing to do so will cut deeply into the public’s view of the Democrats.
What does this mean for you?
By September 30 we’ll know if reform is still alive. If Grassley and Enzi aren’t sounding strident and protesting ‘heavyhanded Democrats’, we may still get there.

Sep

Is the low work comp injury frequency rate a myth?

Posted by Joe Paduda on Friday, September 4th, 2009 | Comments

More than 75,000 work comp injuries were not reported in just three cities last year. Close to a million may have gone unreported nationally.
Yesterday’s news (sub req) that 92% of low-wage workers don’t file work comp claims for injuries that require medical attention was a shocker. I’d long thought the actual injury rate is higher than the reported rate – but nowhere near that high.
Fully half of the workers with on the job injuries “experienced an illegal employer reaction”, including firing the worker, calling immigration authorities, or telling the worker not to file a comp claim.
Here’s a quick summary from the piece in WorkCompCentral:

The survey found:
* 43% of the injured respondents were required to work despite their injury.
* 30% said their employer refused to help them with the injury.
* 13% were fired shortly after the injury.
* 10% said their employer made them come into work and sit around all day.
* 4% said they were threatened with deportation or at least notification to Immigration and Customs Enforcement.
* 3% were told not to file a workers’ compensation claim.
* 8% were told by employers to file a claim.

You can read the WCC or other article to understand the methodology, which looks pretty solid. And some of the stats above aren’t as troubling as they might first appear – requiring injured workers to work, or come in and not work, may be OK if the injury wasn’t that severe. I’m trying to give the employer the benefit of the doubt here, but for those workers who were threatened, whose employers refused to help with the injury, or were fired because of the injury there is not only a work comp problem, there’s a legal, ethical, and moral failing.
As our economy has become more service-based, the number of low wage jobs has increased – jobs that are held by people that tend to be minorities, undereducated, and recent immigrants, legal or undocumented. My sense is the drop in work comp claim frequency may be – at least partially – due to the failure to report injuries as well as structural changes in the economy and improvements in safety and loss prevention.
The study looked at a population that accounts for fifteen percent of all workers in three cities; Chicago, New York, and Los Angeles. Extrapolating the numbers out in just those three cities indicates that 75,446 workers comp injuries were not reported.
Moreover, according to the study, “workers compensation insurance paid the medical expenses for only 6 percent of the workers in our sample who visited a doctor for an on-the-job injury or illness.” [emphasis added]

What does this mean for you?
For the comp industry, the declining frequency years may be coming to a screeching halt.
If you’re a work comp payer, you’ve been ‘lucky’ if you insure these businesses. That ‘luck’ will soon change as the Department of Labor is dramatically ramping up enforcement efforts. (I don’t mean to imply that comp carriers have somehow been complicit in this, in fact the opposite is much more likely as insurers work very hard to ensure rapid and accurate claim reporting.)
If you’re a TPA or other servicing entity, your revenues have been suppressed by the failure to report injuries.
And if you’re one of these low-wage workers, perhaps there’s hope that the situation will improve.

Sep

Health Wonk Review is up

Posted by Joe Paduda on Thursday, September 3rd, 2009 | Comments

HWR welcomes Jared Rhodes back once again to host this week’s edition of HWR. Jared covers the waterfront, and most of the rest of the island as well, with his comprehensive edition. Lots of good stuff there ready for your perusal.

Sep

The Pfizer settlement and government negotiation of drug prices

Posted by Joe Paduda on Wednesday, September 2nd, 2009 | Comments

The timing of the $2.3 billion Pfizer settlement (sub req) couldn’t be better for hard-line Democrats, and worse for big pharma.
I don’t know if President Obama will be able to pull a rabbit out of his hat (as he did last September) and get health reform legislation back on track – but even if reform fails, you can bet the Democrats in Congress will exact a heavy price on big pharma.
I’ve been predicting since December that Congress will authorize, or perhaps even require, the Secretary of HHS negotiate drug prices with big pharma for Medicare and other government programs – like every other industrialized country does, like the VA does (and pays 40% less than cash price). And this can be, and would be, done under budget reconciliation rules that only require 51 votes in the Senate (the House is a slam dunk). Reconciliation applies to budget matters only; federal payments for drugs clearly qualify for the reconciliation process:

These instructions require authorizing committees with jurisdiction over mandatory spending and revenue policies (usually more than one) to make legislative changes in those programs to effect a specified level of budgetary savings provisions. The instructions typically cover the same fiscal years as the budget resolution, with separate dollar amounts specified for each of the years in the budget resolution. While the Budget Committees develop these instructions based on policy assumptions for changes in programs and laws (which are often printed in the committee reports on the budget resolution), the authorizing committees have complete discretion over the specific programs to be changed and the substance of those changes. An authorizing committee must only meet the specified spending and/or revenue directive given it.

What does the Pfizer settlement have to do with this? Nothing and everything. This is yet another example of egregious behavior by pharma/big insurers/device companies illegitimately and unethically sucking huge dollars out of the economy to maximize their profits. (for other examples, peruse this blog and any newspaper). If reform fails, the Dems will be looking for blood, and pharma will be near the top of the list of donors. The settlement, and Pfizer’s “outrageous behavior” Pfizer that led to the settlement, will be exhibit one at Congressional debates over the issue, and Republicans seeking to block governmental negotiation with pharma will find themselves in a politically impossible position; if they fight the Dems, they’ll be portrayed as sucking up to big business and more interested in donor profits than deficit reduction. If they don’t…well…that would be a surprise and inspiration for some serious soul searching on the part of big medicine.
There’s a lot of money on the table here, and I’d expect the other pharma companies are mad as hell at Pfizer for providing the Democrats with more ammunition for the coming battle over Federal negotiation of drug prices.

Sep

The coming change in drug pricing

Posted by Joe Paduda on Tuesday, September 1st, 2009 | Comments

Last week I posted on the pending change in pharmacy pricing that will reduce prices by about 4% for most brand drugs.
The pharmacy and big food-and-drug chains are negotiating with the big PBMs; they are seeking ‘cost neutrality’; that is, a pricing level that ensures the pharmacies continue to receive the same dollar amount for scripts affected on September 26 that they got on the 25th (you guessed it, that’s when the change goes into effect). That’s fine for the pharmacies, but the PBMs also have to concern themselves with the other half of their equation – the payers.
In the group health and Medicare world, many if not most contracts have some form of ‘transparency’ built in, which allows the payer to see what the PBM is paying for the drug. (I know, there are lots of hidden fees and reimbursement mechanisms such as rebates that can render ‘transparency’ more like ‘opacity’, but for the purposes of the change in AWP, this transparency will help to get payers and PBMs on the same page quickly.
In the work comp world, it’s a different story. In comp, most contracts include pricing at some multiple of AWP plus a dispensing fee of a few dollars. (In WC, about 63% of scripts are generic, but a big chunk of total drug spend is from branded drugs)
Sources indicate the PBMs – who are stuck between the pharmacies who (rightly) want to be paid a higher AWP (although the actual dollars remain the same) and payers with whom they have existing contracts at pre-defined rates – are working hard to restructure their current deals, and revise pending contracts.
Some payers who see this as a quick way to cut their drug costs are pushing back hard, asking their PBMs to stick with current rates even if they lose money. But most appear to recognize that the important thing is the cost per script, not the AWP percentage (the more educated payers realize that AWP has long been derided as an artificial and rather fungible pricing tool anyway), and are working towards resolving the issue.
Like most maturing industries, the PBM world is going thru a bit of margin compression, as more competition pushes prices lower. At the same time, some PBMs are adding services to control utilization, help ensure patients get the drugs they need without overdosing or conflict with other medications, identify and reach out to physicians with unusual prescribing patterns, and maximize generic usage. These services are not cheap to deliver, and those payers who seek to take advantage of the AWP issue to force down their unit prices will likely see any benefit overmatched by a bump in utilization when the PBM can no longer afford to deliver clinical services.
Note – I am a partner in CompPharma LLC, a consortium of workers comp PBMs.

Aug

Your life without health reform – part two

Posted by Joe Paduda on Monday, August 31st, 2009 | Comments

Last week’s post about what will happen if we don’t have health reform got me (and a couple others) thinking about the downstream impact – on employers, manufacturers, taxpayers.
Before we delve into the impacts, a bit of clarification.
My statement that a family policy would cost $30,000 in 2016 was based on the latest info from two large consulting firms about commercial health insurance premiums – rates are going up more than ten percent next year. And it is highly likely they will continue to accelerate at or near the ten percent number. Two commenters noted that just because something happened in the past does not mean it will continue into the future – I’d respectfully note that while that is true in the abstract, in the concrete world of health insurance, there’s a very high likelihood that costs will indeed go up ten percent – or more – per year for the foreseeable future absent meaningful cost reform.
The AON survey reports trend rates ranged from 16.0% and 18.2% for HMo, PPO, Indemnity plans in 2002, 15.7% – 17.2% in 2003, 14.1% – 15.3% in 04, 12.7% (CDHP) to 14.6% in 05, 11.9% – 14.4% in 2006, 10.7% – 12.7% in 2007, and 10.5 – 12.4% in 2008.
The past is a pretty good predictor of the future; over the last eight years cost have consistently increased more than ten percent each year, with most increases well above that level. Whether we are at the bottom of the cycle or cost inflation rates will continue to decrease is unclear, but what is clear is that the inflation rate will head back up at some point in the next few years.
Back to the real world impact.

If nothing changes, the share of the nation’s budget paid by the government will be greater than that paid thru private insurers.
178,000 small business jobs will be lost by 2018 as a result of health care costs
If employee contributions stay at their current level (about 30% of premiums), workers will be paying $9000 per year, or $750 per month, towards their health coverage – not including deductible, copays, coinsurance, and services not covered
General Motors’ health insurance will add about $3000 to the cost of each vehicle – if it is still in business>li>In my hometown of Madison, Conn., Town employee health insurance costs are paid for with property taxes; without reform the amount of tax revenue needed to pay those bills will double by 2016, forcing tax increases and/or significant service cuts
More Americans will have to rely on the kindness of others for their health care
Because 65 million of us will be without health insurance

Unlike the distortions, misrepresentations, and outright lies being spread by McCaughey, Limbaugh, Palin et al, this is the real deal. So fight against reform if you wish, but don’t complain later when you can’t afford insurance, your employer can’t afford insurance, your taxes are going up to pay for teachers’ benefits, and our economy is sinking under the weight of health care costs.
(Note – as I said Friday, health ‘reform’ must include cost control, something neither party has bothered to meaningfully address)

Aug

Your life without healthcare reform – Part One

Posted by Joe Paduda on Friday, August 28th, 2009 | Comments

The reports from consulting firms Segal and Aon that health benefit costs will jump more than ten percent next year shows exactly what we’re in for if reform efforts fail.
And by ‘reform’ I mean reform with strong cost controls.
When costs increase ten percent a year, they double every seven years. With current family premiums in the $15,000 range, employers and employees will be paying $30,000 per family in 2016. And that’s not including deductibles and copays, which are sure to rise.
If you’re relying on so-called consumer-directed health plans to stem the tide, good luck – their costs went up two points more than ‘regular’ HMO and PPO plans. Industry veterans aren’t surprised, as new insurance products almost always have good experience in the first couple years and as the block ‘ages’, claims creep up. As I’ve noted previously, CDHPs are not a panacea, in fact they may well drive up costs due to delayed care. (That said, with substantial changes CDHPs could be a valuable tool in cost containment.)
Eventually the US will reform its health insurance and health care delivery ‘systems’. Unfortunately I don’t see it happening this year due to the failure of the Democrats to put forth a program that controls costs, make a cogent argument and control the debate, and the decision by the Republicans to remain nothing more than the ‘Party of No’.
But when something can no longer continue, it won’t. When enough Americans lose their coverage, when cost-shifting gets to the point where those left with insurance are paying thousands in premiums to cover those without, when local taxes to pay for teachers’ and police benefits get so high that folks are losing their houses, when Medicare finally goes insolvent, when hospitals are collapsing due to the cost of indigent care, when big pharma and device companies are no longer making the gazillions they so richly deserve, then, and only then, will the screaming hordes at Town Hall meetings decide that any health care coverage is better than none.
What happens then?
Well, we may end up with single payer, or Medicare for All, or some version of the German or Swiss or French systems. The false patriots championing freedom and the American tradition of independence and all that other hooey will find themselves drowned out by the moms and dads desperate for insurance to cover their kids and parents.
While the opponents of reform may well win this battle, in the long run they will lose the war. Their best chance (which some seem to have recognized, albeit half-heartedly) is to engage now, get the best deal they can, and retool their business models to prosper without relying primarily on risk selection and underwriting to avoid unhealthy members.
What does this mean for you?
If you are an investor, look closely at the chronic care solutions offered by health insurers – the ones who are investing heavily will be the long term winners.

Aug

CORRECTION – The big PBMs and changes in AWP

Posted by Joe Paduda on Thursday, August 27th, 2009 | Comments

My post yesterday about the coming changes to the AWP pricing formula for drugs included the statement

Understandably, the pharmacies, both independents and chains, are asking the big PBMs to change their contracts to account for the change by reimbursing the pharmacies a few points higher then their current rate.
Word is the big PBMs – Medco, Express – have politely declined.

The second sentence is wrong. Sources indicate the pharmacy chains/independents and the big PBMs are working thru the issue, or have already agreed to terms intended to preserve “cost neutrality” for the pharmacies.
I don’t have all the details on this yet, but wanted to correct my mistake as quickly as possible. More information to follow…
I apologize for the error.

Aug

Whatever happened to AIG?

Posted by Joe Paduda on Thursday, August 27th, 2009 | Comments

After this spring’s ugly display of ignorance in the form of public pillorying of undeserving AIG personnel, what happened to AIG?
Well, hard as it is to believe, mostly good stuff. There was a big push to sell assets in the spring, a push that, for very good reason, didn’t result in many sales. That’s a good thing, as buyers were looking for fire-sale prices, and for a while it looked like the Feds were eager to dump as much of AIG as possible regardless of the financial consequences. It’s our good fortune the sales didn’t happen then.
To date the company has sold off assets amounting to about $8 billion, while also reporting solid financial results for the last quarter – and in anybody’s book, $1.8 billion is pretty solid.
The company that brought down the giant, AIG Financial Products, is slowly being unwound, with credit derivative exposure reduced by some seventeen percent since January 1 of this year – but it’s still $1.3 trillion.
And the new CEO promises that taxpayers will be reimbursed, and AIG will arise again. At least the stock markets took heart, pushing the company’s value up some 30% on the strength of not much more then Benmosche’s cheerleading.
Earlier this year, AIG sold auto insurer 21st Century to Zurich’s Farmer’s division for $1.9 billion, got a quarter-billion dollars for AIG Private Bank Ltd. and $680 million for AICredit, while netting $1.1 billion from the public offering of shares in reinsurer Transatlantic Holdings Inc.
Still on the books are American International Assurance Co. (valued at $25 billion) and American Life Insurance Co., ($18 billion) and Chartis’ book value is about $38 billion. And according to Reuters, AIG’s Taiwan life unit Nan Shan Life “could attract a bid of about $2 billion”, and AIG is in talks to sell two Japanese life insurers, AIG Edison Life Insurance Co and AIG Star Life Insurance.
One of the pricier assets still on the block is airplane owner International Lease Finance Corp, which has been valued anywhere from $2.5 to $8 billion. The tight credit markets appear to be the obstacle to a deal for now.
Against those assets, AIG owes the taxpayers about $88 billion as of June 30, 2009.
Meanwhile, the core insurance business has a new name – Chartis – and a bit of a new attitude. The Chartis folks I’ve spoken with are happy to be out, away and on their own, without the derivative mess looming over them like the merchant of death. There are still lots of hard feelings, but less handwringing and more of a ‘we’ve got work to do’ attitude. And internally they are getting the work done, making progress on a number of fronts particularly in underwriting and claims.
I’d expect to see Chartis go to an IPO in the next couple of years, after the credit markets loosen up and valuations start to climb. While taxpayers may not get all of our money back, a little patience and a lot of hard work on the part of AIG folk past and current may minimize the damage.
Here’s hoping that those same politicians who insulted, degraded, denigrated, and verbally assaulted AIG execs back in the spring are adult enough to commend these folks if and when they deserve it.
Holding your breath?

Aug

Are you ready for the change in pharma pricing?

Posted by Joe Paduda on Wednesday, August 26th, 2009 | Comments

On September 26, 2009, First DataBank and MediSpan, the firms that publishe Average Wholesale Pricing tables is changing its methodology. This change will reduce the AWP amount by almost four percent.
So what you say?
Here’s what.
Pharmacies will now be reimbursed at a lower amount for each script filled. With margins on most drugs thin already, this change will push many near to breakeven. Recall that AWP affects retail pricing, not the price paid by pharmacies to manufacturers and their intermediaries.
Understandably, the pharmacies, both independents and chains, are asking the big PBMs to change their contracts to account for the change by reimbursing the pharmacies a few points higher then their current rate.
Word is the big PBMs – Medco, Express – have politely declined. CORRECTION – this statement is incorrect. The big PBMs are in fact negotiating with the retail pharmacies to reach an agreement.
No word on how Caremark is addressing this; as they are owned by the second largest pharmacy chain (CVS) they may well be thinking a little differently about the issue.
In the much smaller work comp world (about $4 billion in annual Rx spend), things aren’t quite as clear. Many payers apparently still think the change isn’t going to happen for another two years (which is when the legal settlement required it), but the publishers were required to make the change within 180 days of the settlement – which means the changes are effective in precisely one month. Regardless, expect there to be quite a bit of discussion amongst PBMs, their customers, and pharmacies over the next thirty days as all try to figure out how to deal with the change while maintaining decent relationships with each other.
I would note that regulators in several of the larger states don’t appear to be interested in making any changes to their fee schedules or reimbursement rules to address the change.
More to follow…

Author: Joe Paduda