I’m attending the annual meeting of the International Association of Industrial Accident Boards and Commissions this week, and will be doing a bit of reporting from the meeting.
Today’s topics include a discussion of the impact of health reform on work comp; a session on the implications of the court settlement ending the use of AWP as a pricing benchmark for prescription drugs; much discussion of technology including EDI, e-billing, and claim reporting; review the latest in impairment ratings; and a discussion on potential negative effects of medical management programs.
Back with more later this morning…

From comments made by management at Coventry’s presentation at Morgan Stanley investor day last week, the company’s efforts to refocus on core businesses appears to be working.
Of he two key takeaways one was wildly obvious while the other much less so. The company’s tight, almost monomaniacal focus on medical loss ratio (MLR) was quite noticeable; CFO Shawn Guertin’s comments about Coventry’s investment in clinical management was not, yet perhaps no less important.
First, the results for the first half of 2009. It went well. Commercial MLR looks to be coming in about 50 basis points better than initially projected, Medicare growth has been very good and MLR looking OK. And no surprise, Commercial membership and specifically risk membership (fully insured, mostly small group business) is ‘under pressure’.
Projecting forward, Guertin said for the second half of the year, commercial MLR is top of mind, with an expectation of some increase in COBRA takeup due to the Federal subsidy in ARRA, swine flu and deductible seasonality (as the year ends, more members have hit their deductible so medical costs payable by insurers increase). They are most concerned about COBRA’s impact on MLR, and have pushed projected MLR up 50 basis points due to the increased uptake.
Coventry ‘grew tremendously this year in Medicare’, and that is good, but they are not yet entirely comfortable with the growth and are ‘still watching and tracking pretty closely’ to try to identify potential cost spikes.
What’s going to happen with goig forward? Coventry is seeking to strike a balance between membership loss and price. Still focused on managing SGA broadly under CEO/Chairman Allen Wise’ direction.
One question asked if there is anything they are looking at exiting; Guertin said no, they are pretty much completed with the process of cutting non-core businesses. Don’t look for them to sell businesses, including the Workers Comp business. In fact Guertin highlighted the WC business as different piece that has ‘performed very well this year and continues to perform well’ and will continue to grow going forward.
Regarding reform, if reform includes community rating and universal mandate that will remove what Guertin believes is a competitive advantage for Coventry.
They’ve done a lot to improve their underwriting skill, he sees this as a loss of an advantage they had but if these changes occur they will be left with a level playing field, These days the company is doing a lot of thinking about the cost proposition of the product and value, and how best to compete in a post-reform market. In what was a bit of a rambling comment on Coventry’s strategy, Guertin said they are asking ‘Should we tailor a high performance network; we can’t change plan design but truly need to manage cost, we are investing in clinical programs and network design will be key to that.’ (not verbatim but pretty close)
Guertin got back on track responding to a question about reform scenarios, saying words to the effect that their ‘basis for competition has always been about cost and thinks that may help them as it is the ‘core of what they are’. They would spend their money on clinical and network management as opposed to brand or marketing due to the overwhelming marketing advantage of blues. Coventry wants to be positioned as a high quality but really cost effective player; think of Coventry as the Southwest Airlines in an insurance exchange, and they are trying to drive company in that direction.
What does this mean?
Coventry has never been about medical management. They are a pricing arbitrager and risk selector, priding themselves on managing the delta between insurance premiums and medical costs. They have not ever claimed to be expert in managing the medical costs themselves.
If reform comes, they will need to get really good at managing medical really fast. Coventry’s competitors aren’t exactly fully prepared for the new world either, but many of the Blues, along with Aetna, are a lot further along than Coventry. They also have market share (which Coventry doesn’t), solid brand images (which Coventry doesn’t), and in some instances substantially better relationships with providers.
I still don’t think we’ll get comprehensive reform this time around, and if we don’t Coventry may think they’ve dodged a bullet. But sooner or later reform will happen, and those healthplans that aren’t very good at managing medical are going to be toast.

and a more complete and diverse analysis won’t be found. Read this week’s edition to understand what worked, what didn’t, and what the future will hold for reform

The Baucus bill is out, and despite multiple concessions made in an effort to garner some GOP support, not a single Republican Senator has voiced even equivocal support. While Sens Snowe Grassley and Enzi allow that they’re still negotiating, the list of objections likely precludes endorsement by all three. The only potential R supporter at thus juncture is Olympia Snowe who is said to be waiting for CBO’s scoring (assessment of the bill’s cost).
Without any GOP support some Dems will likely wonder why the bill contains provisions that are not viewed favorably by many of their supporters. The question is a fair one. If the Baucus bill isn’t enough to capture a few GOP votes, anything more will be so unacceptable to liberal Democrats that they may withhold their support from any bill with additional concessions to Grassley et al.
We may well see a game of brinksmanship begin soon as the more liberal Dems seek to strip out the co-op, add a public option and universal mandate along with higher subsidies for lower income folks.
We’re about to find out just how serious the Democrats are about health reform, and just how much the GOP wants to block it.

Today’s Washington Post reports that Sens. Enzi and Grassley have asked Sen Baucua to consider a lengthy list of changes to his health reform bill, changes that include elimination of state funding for the expansion of Medicaid, reduction or elimination of the penalty for failure to obtain health insurance, and myriad other modifications.
As I noted before the President’s speech last week, these two Senators are the key to health reform’s passage. With the revelation that there’s much they don’t like about the Baucua effort, it is growing increasingly clear that reform’s chances are grim indeed. Recall that the Baucua bill doesn’t have a public option, specifically prohibits the use of tax dollars to fund care for undocumented workers, and is not exactly abortion-friendly either. In sum, this is NOT a liberal bill.
Yet the gang of two remain unsupportive despite Baucus’ efforts to present them with a bill that avoids most of the really contentious issues.
The net is this. If two of the more moderate GOP Senators are this unhappy with the Baucus bill, the Dem choices are stark. Either compromise so much that the final bill becomes all but meaningless or pick the reconciliation option.
Come to think of it, there is a third choice; use the reconciliation process to ram thru narrow, specific bills targeted to drastically cut reimbursement for pharma, hospitals and , medical devices; slash Medicare Advantage funding; and revamp Medicare’s provider reimbursement to end fee for service and move to episode of care over time.
That may be the best option. The threat alone may force stakeholders to get serious.
And it sure would be fun to watch!

The work comp insurance industry has been hit hard by declining revenues and a big drop in investment income. While the investment picture is brightening somewhat, the revenue side is not getting any better.
Continued high unemployment and associated smaller payrolls has directly affected premium income, while higher claim severity and a soft market that won’t end are adding to work comp executives’ misery.
And execs have a lot of reason to be miserable. Consider:

• Net written premiums declined twelve percent in 2008, the third consecutive year of decreases
• The combined ratio (claims plus admin expense) climbed to 104.4% last year – historically not so bad, but given the awful investment returns, bad enough
• Medical costs continue to climb significantly faster than the overall medical CPI
• Net income for the entire industry declined to below a billion dollars, a drop of over sixty percent from the prior year

Remember that perspective is historical – things will turn around, although it may take another twelve months or so. If employment picks up, as it should as the economy strengthens, premiums will head north. With AIG somewhat out of the woods, brokers and agents are expecting the pricing wars to taper off (some opine that AIG has been aggressively pricing business in an effort to hold on to clients and grab much needed revenue). If – a huge if – health reform efforts bear fruit, there will be less pressure on providers to cost-shift to workers comp payers. And the investment returns lookk to be recovering somewhat.

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.

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.

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.

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.