Jun

Health care inflation 2004

Posted by Joe Paduda on Thursday, June 23rd, 2005 | Comments

Health care inflation was 8.2% in 2004 for privately insured Americans. This was 2.6% higher than overall economic growth, and almost twice as high as the general rate of medical inflation (4.4% in February) . The largest driver of health inflation was outpatient hospital, which increased 11.2%, while drug cost inflation moderated somewhat, coming in at 7.2% for the year.
The Center for the Study of Health System Change authored the report that is the source of these data, noting:
“Trends in four of the five spending categories

Jun

Competing models of health care

Posted by Joe Paduda on Wednesday, June 22nd, 2005 | Comments

The two competing economic models of health care are greatly influencing the debate on the future of health care in the US. One, hewing closely to the free-market standard, calls for consumer-driven decisions, free markets open to all investors in facilities, technology, and insurance. The other views health care as a unique good, one in which unfettered competition will never work and wherein market-based competition will lead to unacceptable social consequences. The latter model typically calls for more regulation and tighter controls.
An excellent perspective on this debate was brought to my attention by Peter Rousmaniere, a wise man and good friend. Steven Pearlstein of the Washington Post has written a great synopsis of the debate, one that is well worth considering. Using CMS Administrator Mark McClellan’s recent decision (or more accurately non-decision) on the licensing of ambulatory surgery centers (he decided to procrastinate) as his foil, Pearlstein frames the issues quite succinctly.
“When they are vilifying insurers and managed-care companies, physicians like to present themselves as Dr. Welby — selfless professionals whose medical judgments would never, ever be colored by their financial interests. But in lining up behind physician ownership of specialty hospitals, the doctors essentially acknowledge that they are just like the rest of us, their behavior swayed by even modest financial incentives.
You can’t have it both ways. And the way the people would have it is to pay their doctors well, put them in the central decision-making role in the health care system — and then demand that they give up the right to invest in MRI machines or specialty hospitals or get incentive payments from drug companies.”
Leaving aside Pearlstein’s claim to know what the people want, his arguments about physicians are on point.
However, I believe his analysis, excellent as far as it goes, misses a critical point. In all his discussion, and the national debate for that matter, on costs, process measures, outcomes, motivations, consumer-directed v. regulated, price controls and the like, there is no mention of the output.
I fail to see how an economic debate can serve any useful purpose if it does not consider what individuals or societies get for their expenditure. Think back over the last many years, and all the arguments you have heard and/or participated in, all the columns and studies and analyses and debates. Has anyone ever said, “well, we need to spend $X because it will increase the population’s productivity/functionality/quality by Y%, and that is a better return on investment than my opponent’s recommendation.”
Hell no.
This makes me nuts. The entire health care debate is almost useless, because we are arguing about process, about inputs with no appreciation for outputs and economic good.
Until and unless we engage in a debate about what health care should deliver, we are wasting time, words, intellectual capital, and newsprint.

Jun

Drug detailing, direct-to-consumer ads, and off-label use addressed

Posted by Joe Paduda on Tuesday, June 21st, 2005 | Comments

There are signs that drug marketing is beginning to change, as the FDA focuses on off-label use and some of the big pharmas cut back on their sales forces. This may well be as part of big pharma’s efforts to defuse some of the harsh criticism leveled at them by physicians, consumer groups, and health plans frustrated with pharma’s aggressive marketing tactics.
David Wilson’s Health Business blog notes that Wyeth and Pfizer have both announced plans to cut sales staff. The reasons are:
1. “Mirrored sales teams –the practice of sending multiple sales reps to the same doctor to talk about the same drug– are causing a backlash from doctors and also making it hard to measure the effectiveness of individual sales people
2. There is little new to talk about –because of fewer product launches and in the case of Wyeth the curtailment of uses for its hormone replacement therapy. (Could it be that the more a doctor knows about hormone replacement therapy the less they will prescribe?)
3. The availability of efficient, effective outsourced sales forces available from Ventiv, Innovex and PDI have enabled pharma companies to reduce fixed costs.”
The issue of pharmaceutical detailing has been extensively addressed in DB’s MedRants, a highly entertaining and informative blog authored by physician Robert Centor. Centor has also commented on the recent decision by Bristol-Myers-Squibb to impose “a ban on advertising its new drugs to consumers in their first year on the market, adopting voluntary restrictions that go further than what is anticipated in an industrywide advertising code to be announced next month.” Centor notes
“The optimist in me hopes that the outcries from physicians has influenced their policy. The skeptic in me believes that they understand the DTC drug advertising carries both risks and benefits. Big Pharma has a major image problem. TV drug ads generally hurt their image. ”
As to the issue of off-label use, this is a significant area of concern for many payers, including workers compensation insurers. In my firm’s “Second Annual Survey of Prescription Drug Management in Workers’ Compensation”, payer respondents noted off-label use as a significant concern. Typical was the use of Actiq as a pain med for musculoskeletal pain. Actiq is a brand drug used for break through pain associated with cancer; thus its use in workers comp is the very definition of “off-label”.
What does this mean for you?
If big pharma is finally getting the message, that bodes well for a “decrease in the rate of increase” in pharmaceutical inflation. However, these companies are the ultimate capitalist organizations (that is not intrinsically bad) so they will seek to maximize their returns. And we all know who pays for those “returns”.

Jun

California HMO costs

Posted by Joe Paduda on Thursday, June 16th, 2005 | Comments

CalPERS has managed to hold HMO rate increases for 2006 to 8.7%, while PPO increases are up 9.5%. CalPERS is widely recognized as one of, if not the most, effective negotiators with managed care plans, so their achievement will set the standard for other employers/unions/etc as they begin their negotiations with their health plans. According to their website,
“California Public Employees’ Retirement System … provides retirement and health benefits to more than 1.4 million public employees, retirees, and their families and more than 2,500 employers…”
The 8.7% is the lowest increase since 1999; with 2005 rates up 10%, 2004 16.4%, and 2003 a mind-numbing 24.1%. Of particular note is that benefit design was essentially unchanged as were copayments and prescription drug coverage.
When health plan rate increases negotiated by a very savvy, and very large, payer are more than three times the overall rate of inflation, and when that is trumpeted as good news, you know we are in trouble.
What does this mean for you?
Hold on to your wallet – if you can keep your rate increase below 11% without significant damage to your benefit design, congratulations.

Jun

workers comp in Iraq, Ambulatory Surgery Centers, and other topics

Posted by Joe Paduda on Tuesday, June 14th, 2005 | Comments

Workers’ Comp Insider has a fascinating post on workers comp in Iraq. Jon Coppelman discusses safety issues, premium rates (as high as $80 per $100 of payroll, for people making $100k a year!), the “competitive bidding” situation between AIG and ACE, and other intriguing points.
I highly recommend it.
Another interesting post discusses the costs and benefits of Ambulatory Surgery Centers, with particular attention paid to safety issues. An issue not covered in the post or resources on the post is the issue of ASCs siphoning off the profitable, private pay patients from hospitals, leaving hospitals with sicker, poorer patients. The result, hospitals’ outcomes go down, costs go up, and profits disappear.
Another post in Medpundit lead me to a great article about an American’s experience in the British health system. One quote from the article (originally in the Wall Street Journal) in the Medpundit post is particularly telling:
“There is much better teamwork among doctors, nurses and physical therapists in Britain. In fact, once a week at Queen’s Square, all the hospital’s health workers–from high to low–would assemble for an open forum on each patient in the ward. That way each level knows what the other level is up to, something glaringly absent from U.S. hospital management.”

Jun

HMO rate increases

Posted by Joe Paduda on Monday, June 13th, 2005 | Comments

Initial HMO rate increases will “only” be 12.4% in 2006. This comes as good news, as increases this year averaged 13.7% according to Hewitt Associates, who also noted the 2006 number is the lowest in five years.
We’ll get to the “if this is the good news, I’m not wanting to hear the bad news” in a moment. First, the details. The actual rate increases tend to be lower than the initial rates. The reason is that employers, shocked by the initial rate increases, cut benefits, increase employee co-pays, alter prescription drug programs, and change HMOs. This usually results in final increases somewhat lower than Hewitt’s “initial rate increase statistics.
So far, so good. Before we all relax, consider that the only way rate increases were held to a rate more than three times the underlying rate of inflation was by shifting costs to the insureds and reducing coverage. Not exactly innovative or long term strategies. However, Hewitt expects that more of this will occur this year, as companies cut benefits and increase copays to offset at least part of the rate increases final increases are likely to be in the 8-9% range.
One benefit that has been particularly affected by these design changes has been prescription drugs. For example, over the last five years, the number of companies offering a $5 generic copay has been cut in half, while the number with a $10 copay has more than doubled and companies are now requiring a $15 copay. With many generics costing pennies per pill, the result is insureds are paying much, if not all, of the cost of many of their generic prescriptions.
Particularly hard hit will be employers offering health plans in the northeast, with initial rate increases coming in at 15.8%.
What does this mean for you?
Leaving aside the benefit design changes and other financial alterations, this means that your health insurance costs for the same benefits you “enjoy” today will cost more than twice as much in five years.

Jun

The impact of the uninsured on health insurance premiums

Posted by Joe Paduda on Thursday, June 9th, 2005 | Comments

There is now evidence that the health care costs of the uninsured are borne in part by those who do have health insurance. A study by Families USA reported in Bloomberg News indicates that the annual “surcharge” is $922 for the average American family with employer-sponsored health care coverage. Why? Because providers who treat the uninsured only receive about 1/3 the cost of their care from the uninsureds, leaving others to pick up the tab for the rest.
According to the report, about 8% of insurance premiums goes to cover costs associated with caring for the uninsured. And, the cost will rise to over $1500 within five years.
The report notes:
“Insured families in six states – New Mexico, West Virginia, Oklahoma, Montana, Texas and Arkansas – will pay more than $1,500 in additional premiums this year to cover the costs of patients who lack medical insurance, the report found. By 2010, the list will include five more states: Florida, Alaska, Idaho, Washington and Arizona.”
Here’s the impact in real world terms. On an individual basis, your family premiums would be $900 less if the uninsured had coverage. On an employer-specific basis, General Motors is paying about $480 million a year in “excess costs” to cover the uninsured. And nationally, considering the Federal and state governments’ expenditures on health care, our taxes are paying more than $50 billion a year to “insure the uninsured”.
I have been saying for several years that the “uninsured” are actually “insured” through a mix of taxation, cost-shifting, and self-insurance. This is the first study that quantifies the cost of that “insurance”.
What does this mean for you?
Until and unless we address the funding of coverage for the uninsured, these hidden and overt taxes will continue. It adds to everyone’s costs of doing business, reduces industrial competitiveness, and damages balance sheets. Yours too.
Thanks to Peter Rousmaniere for the heads-up.

Jun

Aetna, data, and care management

Posted by Joe Paduda on Monday, June 6th, 2005 | Comments

Aetna’s acquisition of ActiveHealth Management is part of a growing trend wherein large health plans are seeking to mine their data for better ways to manage cost and care and enable their providers to better utilize “evidence-based medicine”. ActiveHealth has strong assets in these two primary areas, both based on their CareEngine technology.
In part, the acquisition reflects an understanding and appreciation on the part of Aetna senior management that the present use of medical guidelines and pathways is not working. Companies such as Interqual/McKesson, Milliman and Robertson, and IDG all promote their clinical guidelines, and most providers and payers use some form of guideline in the delivery or management of care. However, payers are noting:
– the health care inflation rate is twice that of overall inflation;
– provider practice pattern variation continues to frustrate regulators, academics, providers, and payers alike:
– providers continue to voice their displeasure with what they perceive to be overly-intrusive “management” by “bureaucrats”;
– the chief complaint from providers is the present guidelines are “cookbook” medicine, which treat all patients alike regardless of individual characteristics; and
– the “return on investment” of utilization review and case management continues to diminish (in general).
In addition, payers are finally starting to understand that one of their key assets is the data resident in their claims and managed care information systems. Leaving aside the (rather significant) issues of data accuracy, consistency, and completeness, one of, if not THE key asset of most payers is their database of information on how providers treat, which providers have better outcomes for which types of patients and diagnoses, billing practices, and the like. This asset has been underutilized, to say the least.
If managed care companies/health plans/HMOs are going to be successful, they are going to start utilizing their data to determine the best way to deliver care, and utilize technology similar to ActiveHealth’s to assist in that care delivery.
What does this mean for you?
If Aetna, UnitedHealthGroup, and others are starting to finally take meaningful steps, perhaps you should too. If you are a provider, you would do well to follow this trend carefully, because there is no doubt you will be affected by it.

Jun

Premium increases’ impact on uninsurance

Posted by Joe Paduda on Friday, June 3rd, 2005 | Comments

If health insurance premiums continue to increase by 10% annually, the percentage of working adults in California with employer-based coverage will decrease from 58% to 53% within five years. The finding, from a study by the University of California-Berkeley, also noted:
— for every 10% increase in premiums, 910,000 Americans lose employer-sponsored coverage
— of those who lose coverage, 75% are uninsured and 20% are insured by Medicaid
— the average premium increase over the last five years has been 11% nationally
According to the Contra Costa Times, 6/2Anthony Wright, director of Health Access, said, “We’re getting close to the tipping point. … Employers who do provide coverage (now) won’t because no one else is”.
I’ve been noting the convergence of a number of factors that seem to indicate growing pressure to come up with some national consensus on health care coverage reform. When middle class voters start to lose their health insurance, the “tipping point” will be reached. And when that happens, there will be reform.
What does this mean for you?
A reform that includes universal access would have relatively little impact on total medical costs (less than $90 billion annually) with significant improvements in health status of the presently uninsured. In addition, there would likely be less incentive for providers to cost-shift, thereby reducing the “hidden tax” inherent in today’s dysfunctional health care funding mess.

May

HMO profits up 33%

Posted by Joe Paduda on Friday, May 27th, 2005 | Comments

Although health plan profits were up substantially in the first 9 months of 2004, only five companies were responsible for over half of those profits. Weiss Ratings’ (along with Fitch, my favorite rating firm) analysis excluded Kaiser, which had gains of $1.2 billion primarily from a regulatory change.
Four of the top five were HMOs owned by Blues plans, with the leader Blue Cross of California posting over $400 million in profits for the period.
Even more notable was the overall improvement in the industry’s financial condition, Weiss upgraded 65 HMOs and only downgraded 3. This improvement was driven by a 33.6 percent increase in profitability.
Other reports indicate the decline in the rate of medical inflation coupled with increased premiums have been largely responsible for the improvements. United HealthGroup, Coventry, Aetna, and others have all reported this “decrease in the rate of increase”.
Good times never last; consolidation in the industry has led to its’ present oligopolistic condition. Thus, health plans have three choices if they are to grow – take market share by cutting price; acquire other health plans; or seek other sources of revenue. Actually, there is a fourth – seek to reduce “cost of goods sold” by reducing reimbursement to providers, but this is highly unlikely to succeed.
The pace of acquisition will likely slow for the simple reason that there are fewer health plans to acquire. Potential candidates include Coventry, but their high-flying stock price likely precludes any move in the near future.
Plans are actively and aggressively, seeking new sources of revenue. The move into workers comp network rental by Aetna and Wellpoint are but two examples. However, it is highly unlikely that there is enough revenue in the ancillary lines to please the Street’s demands for ever-increasing growth.
That leaves price cutting. Yes, all will claim they will never repeat the mistakes of the past, and most will do so anyway. Good times never last, especially in the insurance industry.
What does this mean for you?
Three things.
1. If you are a provider, watch the new contract offers carefully.
2. If you are a workers comp payer, lock these new entrants into long term contracts with significant exit penalties – their interest will likely wane when they figure out how little money there is in workers comp, leaving you high and dry.
3. If you are an analyst, monitor pricing and medical inflation, especially the components of inflation (frequency and utilization) more than unit price. That is where renewed inflation will first appear.

Category: Health Care Issues