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…

The latest argument in favor of Washington getting serious about health care reform came late last week with the announcement that health premiums increased 95% since 2000.
Even more troubling, that premium increase isn’t in ‘2000 plan dollars’; deductibles and copays have increased and benefits have been cut over the last nine years, making the ‘real’ increase much higher. Yet despite the reduction in benefits, the number of employers offering coverage has declined from 69% at the start of the decade to 63% in 2008.
It’s about cost, stupid.
The Democrats’ plans (with the notable exception of Wyden-Bennett) don’t address cost – no, the public option isn’t a solution (see earlier posts for why) and the ‘co-op’ option will do even less to restrain inflation. Republicans have been even more useless in this ‘debate’, distorting the various health care reform initiatives, cherrypicking provisions and then lying about the intent and potential impact, and offering no meaningful alternatives.
We don’t need health care reform, we need health care cost reform.
If we don’t fix the cost problem, family premiums will total $23,842 by 2020 according to a report authored by the Commonwealth Fund. (note that the Fund backs a strong public plan option and believes it will control costs; under the terms laid out by the Fund’s Karen Davis, it would control price but constraints on utilization are weak at best – and that’s where most inflation occurs.)
At what point will cost get so high, and the impact of those costs become so devastating, that we’ll get reform?
It could be now – but I don’t think so. Reform will happen, but the longer it is delayed, the more likely we’ll end up with a draconian change in the system – perhaps single payer, or mandated government price controls. While the opponents of reform may think they are winning, they are merely delaying the inevitable. The same is true for those pushing reform without cost control – if they pass reform, and if costs continue to rise, their political future is certain.

I’ve been buried under a mountain of my own making, and have ignored/delayed writing on several major topics that demand attention. Now that the survey of bill review in work comp is done (will be emailed to requesters at 1 pm est today; if you have NOT already requested a copy via email you can do so at infoAThealthstrategyassocDOTcom) and a client project is just about wrapped up I’m going to get to the following:
– a discussion of NCCI’s perspective on pending changes to the Medicare physician fee schedule, and the impact on workers comp medical costs
– a post on the implications of the economic recovery for group health, and another post on the implications for workers comp
– an update on the impact of the recession on physicians and hospitals
– a follow up piece on the Health Net policy rescission debacle
Promise.

It’s official. Coventry Healthcare has informed their employees they will be closing up the Medicare Private Fee For Service business at the end of this year.
The announcement was made today at the healthplan’s two PFFS operations centers in Houston and San Antonio by the site directors. While the ‘transition’ plan has not yet been released, sources indicate members have begun calling with questions about the program’s demise. The official transition plan will be released around the end of June.
As I reported last week, the decision was finalized at Coventry’s Board meeting which came two days after the Q1 earnings call wherein CEO Allen Wise gave strong indications the PFFS business would be shut down.
The move is a logical one. Coventry lost its way a few years ago with diversification into various governmental and ancillary lines. The new ventures contributed to a loss of focus on core business functions, with the resulting increase in hospital expenses, failure to closely monitor costs, and resulting deterioration in financial performance. Notably one of Wise’ initial moves after he re-assumed the CEO job was to stop funding expansion of Coventry’s managed Medicare program and drill into the medical expense issue.
The termination of the PFFS program is the logical next step.

Here’s the quick and dirty from Orlando.
The hall is alive with private equity and VC folks looking for the next deal. With the bloom off the MSA rose and the PBM space saturated, the money folks are hunting for niche players with great upside growth prospects. While there are a couple potential niches, there’s not anything really new and different.
Actually the MSA rose is still in bloom, and according to several of the vendors smelling sweeter than ever. The reason for their joy is the upcoming deadline for reporting future liability to CMS which vendors think will drive more volume their way. More on that issue in a later post.
A couple smart industry veterans opined that Stratacare will be used as a platform by its new owners, on which they will build a proprietary network. They will then add other ancillary service offerings as Paul Glover and his team seek to become a force in comp managed care.
The deal is slated to close at the end of April.
Glover has a wealth of experience in this space and has built solid businesses in the past. Stratacare will be a player.
More later…

I’m going to be attending the NCCI conference in May and RIMS in April and plan on covering both here in MCM. And no it’s not because I’m excited to spend time in Orlando: the location is perhaps my least favorite in the country.
This will be my first NCCI conference and comp wonk that I am I’m really looking forward to it. NCCI produces some of the most detailed and yet useful information regarding comp cost drivers, the impact of legislative and regulatory changes, and industry trends. Their work on drug costs has been particularly enlightening. I’m attending as a member of the press; kudos to NCCI for recognizing blogs as media.
The people at RIMS have yet to ‘get it’. This is the second year they’ve told me that MCM doesn’t qualify for media status, this despite the blog’s 35,000 visitors each month. I wonder how they’d handle a media request from dailyKos?
So, what do you want to know? What info do you want to hear about? Any emerging trends, companies, issues you’d like to hear about? Let me know and I’ll do my best to get the details. I’ll be blogging and twittering (?) from both conferences – this will be my first experience with twitter so let’s manage those expectations, people…

Continue reading What’s on your mind?

Amidst the speculation that UHC may be buying Coventry Health comes the inevitable questions about what UHC would do with Coventry’s work comp division. A historical perspective may be instructive.
UHC has had at least three previous ventures into the work comp world over the last fifteen years, in addition to the services delivered by its Ingenix subsidiary (fee schedules, ucr databases and the PowerTrak bill repricing software). Way back in the mid-nineties UHC was in the work comp business in Florida in a big way. UHC actually accepted risk via its health plans in Florida, calculating that it could deliver lower medical coats through a more efficient delivery system.
This worked well – until the tail caught up with UHC and they subsequently lost millions of dollars.
This may have affected the company’s view of comp going forward; since the Florida fiasco UHC has assiduously avoided comp.
At one time the company owned two comp managed care entities, Focus and MetraComp ( where I labored for a few years). Both eventually ended up at Coventry, Focus via a sale to Concentra (which was in turn bought by Coventry) and MetraComp through a sale to NHR, which was then sold to Concentra.
As part of the NHR deal, United agreed to let NHR access its network contracts for three years in return for an access fee. At the end if that term NHR was on its own.
If history repeats itself, UHC would likely seek to sell off the work comp division if indeed it does but Coventry. There are already discussions going on at at least two private equity firms regarding putting together a bid for the business.
This may well be just as much an indicator of the sorry state of the M&A business as the potential attractiveness of a Coventry work comp spinoff. That said, even if UHC decides not buy Coventry there is the chance that Coventry will sell the business off itself. CEO Allen Wise has not been an enthusiastic supporter of the business, at least not publicly.

Congress’ political grandstanding and completely misdirected public outrage over the AIG bonuses brought back memories of the Terry Schiavo tragedy, where members of Congress embarrassed themselves and the nation by intervening in a family matter (Schiavo was in a persistent vegetative state and her husband wanted to take her off life support).
Hopefully the last word in this fiasco was published yesterday in the New York Times. You may already have seen the letter circulating from Jake DeSantis, a former AIG Financial Products exec who recently left the company after the public pillorying of everything AIG.
Congress’ public outrage was beneath that body, misdirected, and counter-productive – and awful to watch. deSantis and his colleagues at AIGFP were (mostly) working diligently to unwind the bad investments entered into by their predecessors. Few, if any, of the idiots who caused the implosion of AIG are still with the company.
Yet the President and Congress (both Ds and Rs) took it upon themselves to publicly humiliate the very people who were trying to fix the problem. As did the attorneys general from Connecticut and New York as they sought political advantage from public outrage.
I said last week:
“Every minute we spend screaming about AIG’s bonus plan is a minute not spent on fixing the company up to sell off assets. Every ounce of energy spent on this is wasted.
I don’t know the details of the plan or how execs who left could still be paid or what the restructuring of the plan looks like (other than pushing half the payouts off and subjecting them to performance metrics). I do know the execs primarily responsible for the disaster are long gone and bonuses are being paid to those trying to clean up their mess.
I am quite sure everything possible is being done – within the law – to ensure our dollars are not used unless there is no other option.
Passing punitive legislation, faulting Geithner, citing changes in AIG’s condition, all miss the point. That point is we need to fix AIG so we can sell off AIU holdings, Alico, the auto business, and the rest and thereby recoup taxpayer dollars. To expect a Treasury Secretary dealing with the greatest financial crisis in eighty years to know every detail about the bonus plan at one division at one company is ludicrous. Trying to tax these bonuses when most are paid to people that don’t even live in the US is political grandstanding of the worst kind. Trying to weasel out of the contracts using tenuous arguments will do nothing but tie up AIG in litigation for years, likely extending the time it takes to wind down this operation and get our tax dollars repaid. ”
What does this mean for you?
Our officials have done the nation and the good people of AIG a tremendous disservice.

We’re all furious. You, me, the Feds, pundits and politicians. And that anger is not helping. In fact it is clouding our vision – and may well cause us even more harm.
Every minute we spend screaming about AIG’s bonus plan is a minute not spent on fixing the company up to sell off assets. Every ounce of energy spent on this is wasted.
I don’t know the details of the plan or how execs who left could still be paid or what the restructuring of the plan looks like (other than pushing half the payouts off and subjecting them to performance metrics). I do know the execs primarily responsible for the disaster are long gone and bonuses are being paid to those trying to clean up their mess.
I am quite sure everything possible is being done – within the law – to ensure our dollars are not used unless there is no other option.
Passing punitive legislation, faulting Geithner, citing changes in AIG’s condition, all miss the point. That point is we need to fix AIG so we can sell off AIU holdings, Alico, the auto business, and the rest and thereby recoup taxpayer dollars. To expect a Treasury Secretary dealing with the greatest financial crisis in eighty years to know every detail about the bonus plan at one division at one company is ludicrous. Trying to tax these bonuses when most are paid to people that don’t even live in the US is political grandstanding of the worst kind. Trying to weasel out of the contracts using tenuous arguments will do nothing but tie up AIG in litigation for years, likely extending the time it takes to wind down this operation and get our tax dollars repaid.
As I said Monday night on Nightline, the AIG Financial Products execs should not take the money and their decisions to do so (if in fact they have) are reprehensible. They are being rewarded for a monumental level of incompetence.
I’m disgusted, shocked and dismayed.
I also want my money back and if we have to pay these incompetents to recoup tens of billions of dollars to do that than I’ll suck it up.

With yesterdays announcement that AIG will be consolidating it’s P&C businesses under a single business (American International Underwriter Holdings, or AIUH), the picture is strtimg to get a little more clear. Or perhaps more accurately, a little less cloudy.
AIUH is comprised of the underwriting/insurance unit (AIU) and the administrative unit (Commercial) of the ‘old’ AIG. As such, it is now a separate and distinct insurance company with none of the add-ons such as airplane leasing. It is too early to tell how the business will operate differently from the old ways, but not too early to speculate. Here goes.
Im the past, AIG’s insurance companies had to make money on an underwriting basis. They had to operate at a combined ratio of less than 100. The proceeds from premiums, or investment income, accrued to other AIG subs. This forced the insurance companies to become very very good at underwriting. Two takeaways; if the underwriting expertise stays, AIUH will be a formidable competitor. And as the company will now be allowed to ‘keep’ its investment income, it’s financial results should be quite attractive.
Historically AIG has under-invested in technology and systems. Perhaps the company will now take the long-overdue measures necessary to give its employees the tools they need, and customers the access to information they are demanding.
The new company should also have the tight management focus necessary to prosper. In the past execs were sometimes distracted by the other goings-on at the parent. This distraction did not help keep staff focused and on top of the WC business.
What does this mean for you?
A rejuvenated, focused AIG with a strong WC business will be a formidable competitor.