Nov

A few more dollars for docs, a lot fewer dollars for PT

Posted by Joe Paduda on Tuesday, November 30th, 2010 | Comments

The one-month Medicare physician payment fix passed the House yesterday and will be signed by President Obama. As Congress is operating under ‘Pay as You Go’ rules, the additional cost of the increased 2.2% for physicians had to be offset – and physical therapy was picked as the victim. PT will take a big hit – a 20% reduction in Medicare reimbursement.
This umpteen-gazillionth short-term Medicare physician payment fix will expire at the end of 2010, and when it does, Congress will have to either:
a) pass a long term fix, or
b) pass another extension/short term fix.
As loyal readers know all too well, I don’t see this ridiculously ludicrous situation getting resolved anytime soon, because a permanent fix will require the fixers to acknowledge a $300 billion (and growing) addition to the deficit. While no one likes the Sustainable Growth Rate methodology, it’s a heckuva lot more likeable than having your name associated with yet another addition to the deficit – especially these days.
The Medicare SGR formula/process was set up seven years ago to establish an annual budget for Medicare’s physician expenses. Each year, if the total amount spent on physician care by Medicare exceeded a cap, the reimbursement rate per procedure for the following year would be adjusted downward.
And for the last seven plus years, reimbursement – according to SGR – should have been cut, but each year it was actually raised, albeit marginally. The result is a deficit that is now almost 300 billion dollars.
Way back in the early days of this blog, I wrote about what was then a 4% cut and the attendant furor surrounding the issue: “Complicating the matter is the pending 4.3% decrease in the fee schedule slated to go into effect on 1/1/06. If Congress reverses the cut, then 2007 premium and deductible increases will be even higher than projected.”
Congress couldn’t muster the votes/guts/brains to deal with a 4% cut five years ago, so now we’re facing a 25% reduction on 1/1/2011...
So, what’s going to happen>
Well, a couple of folks in Congress are pushing for a twelve month extension so they have time to work on a permanent solution. While I admire the intent, I just don’t see the Dems and Reps coming together on a solution to such a politically-charged issue.
As I said a couple weeks back, the new Congress is all excited to change the way business is done in Washington.
How they deal with SGR, the $300 billion deficit recognition problem, furious seniors and really cranky physicians will tell us a lot about whether they’re serious about making hard decisions, or just naive.
My money’s on the latter.

Nov

The Humana – Concentra deal: this isn’t that hard to figure out, people

Posted by Joe Paduda on Monday, November 29th, 2010 | Comments

We’ve all had a few days to digest the recently announced Humana – Concentra deal, and perhaps think thru what this means for Humana, why they did the deal, and if this gives any insight into what other health plans may do.
Perhaps the best one-sentence synopsis of the deal was provided by a Humana spokesperson: “This acquisition is consistent with the goals of health reform”.
Here’s the slightly longer version.
1. Three million Humana members are located in close proximity to Concentra facilities.
2. Concentra knows how to deliver primary care efficiently. They are also working hard at wellness and health promotion.
3. Health plans are going to be desperate for primary care providers come 1/1/2014, when their membership will explode.
4. Health plans that can keep patients away from specialists, expensive diagnostics, and facilities are going to do very, very well. That can only be accomplished with good primary care.
5. Concentra has very strong relationships with local employers, and solid experience selling to those employers.
I was a little surprised to read some of the financial community’s statements about the deal.
For example, AM Best said “This transaction is expected to be a source of business diversification for Humana as well as unregulated cash flows.”
This was the lead sentence in their comment on the deal, and while it mentions a couple benefits, I doubt they were the primary reasons Humana decided to shell out almost $800 million. Sure, the cash flow is unregulated, and business is different, but workers comp also faces a structural issue with declining claims frequency and is highly vulnerable to regulatory risk, two factors that would militate against a ‘diversification and cash flow’ rationale.
Then there was this gem from Marketwatch: “Plus, the company said it was buying privately held insurer [emphasis added] Concentra Inc. in Addison, Texas, for $790 million in cash.”
There has also been some speculation that the deal was – at least partially – due to a desire on the part of Humana to buy a provider and thus get around, avoid, or mitigate Florida MLR rules. While this may have been a contributing factor, it is highly unlikely it was one of the top reasons Humana did the deal. Humana already has primary care centers in Florida as a result of the CarePlus deal in 2005 and Concentra doesn’t have a lot of facilities in the Sunshine State.

Perhaps Humana is going to add occ med services to the ten or so CarePlus facilities; this would help it’s soon-to-be subsidiary and give analysts evidence of that oft-cited ‘synergy’ thing.
The net is this. Reform is coming, healthplans must drastically change their operating models, and winners will be the ones that figure out how to market to and manage previously-uninsured, and solve primary care.
Humana’s got a good start.

Nov

Medicare physician reimbursement – the can gets kicked again

Posted by Joe Paduda on Friday, November 19th, 2010 | Comments

Yesterday the Senate voted to prevent implemtation of the pending 23% cut in Medicare’s physician reimbursement – until December 31. The House will likely do the same.
Then, unless congress passes a bill that fixes – or postpones another cut in the RBRVS, physicians will see their reimbursement slashed.
I’ve blogged on the stupidity and wastefulness of this so many times I’m ready to sue Congress for carpal tunnel. But my problems are tiny compared to the hassles for docs, billing companies, insurers, regulators, and Medicare patients.
The new Congress wants to fix Washington. What they do about medicare physician reimbursement will tell us a lot about how – and if – they will succeed.

Nov

Coventry’s earnings – doing quite well

Posted by Joe Paduda on Tuesday, November 9th, 2010 | Comments

There was a lot of good news for Coventry Health last quarter, much due to what CEO Allen Wise called “unusually low medical trend”.
That said, 2011’s numbers are not likely to be as robust as this year, and Wise spent a good bit of his podium time discussing the whys and wherefores. While the change in MLR is key, he also noted the company laid off 900 people, has assigned various health-reform-preparation tasks to specific groups, and is hiring (or has hired) three execs to focus on specific functions. Coventry is also working hard to adapt by forming partnerships with provider groups and investing in care management.
As it must.
In his opening comments, Wise noted the company’s ‘cost structure’ will enable Coventry to compete effectively when medical loss ratio requirements are instituted in 2011. MLR will be critical going forward, and if this year’s numbers are any indication, Coventry may have a problem – they’re too profitable. The commercial group operation’s premiums and membership were up, while the MLR was kept at a strong 78.4%. Wise’ sense is that medical trend will remain in the eight percent range. Depending on what the final regulations count as ‘administrative expense’, Coventry may be faced with a need to lower prices as it may be ‘too profitable’.
(Ed note – this MLR requirement is going to be a major pain in the neck for all parties – insurers, consumers, regulators, bloggers. I’m still at a loss as to understand how this is going to help control cost; I can see it adding a lot of administrative cost, which will decrease profitability even more…)
In discussing what has now become a major change in direction and emphasis for the mid-tier healthplan operator. Wise spoke at some length about Coventry’s strategy to acquire small provider-owned health plans, thereby gaining share in secondary and tertiary markets while solidifying relations with delivery and health systems. Here’s an excerpt from his comments.
“Our two acquisitions in 2010 are more than revenue and membership. It’s about our future cost structure and more important, our ability to improve care for members and develop long term strategic relationships with high quality health systems. I think it’s worth a minute to stay with this topic. We feel the best way to care for members and provide the best value proposition is by having collaborative relationships with provider systems and physicians and working to develop affordable products.
These relationships are rooted in collaboration, including shared incentives, quality incentives, data sharing, and in some cases, more focused networks. We have and will continue to build these types of relationships whether as a part of an ACO model, medical home, or variation of both. We believe we’re able to offer our provider partners creativity, flexibility, and local market commitment, whether it’s part of an acquisition or a contractual collaborative relationship or both, in some cases.”
Coventry appears to be seeking to carve out a niche, or perhaps more accurately develop a business strategy based in part on acting as the plan administrator for local health systems.
This is an interesting strategy, and one that may position Coventry well for the future. However, the company may find there just aren’t that many smaller regional health plan acquisition targets, there will certainly be other plans following the same strategy, and margins may not be very attractive in what may be a commodity, transaction-processor business.
While there was solid growth overall, the company’s organic growth was less than one percent, only the second quarter of growth since the end of 2007. There were other mentions of growth, but they were a little puzzling; for example, Wise actually noted the company had added 47 people to their Nebraska Medicaid plan…
Coventry looks to be entering the care coordination business as well in at least one market, although details were scarce.
The company’s workers comp business was mentioned a grand total of once during the call, and then only in passing as the market leader.’

Oct

How Medicare changes physician reimbursement

Posted by Joe Paduda on Thursday, October 28th, 2010 | Comments

The Wall Street Journal has an excellent report on the key step in determining Medicare physician reimbursement.
Here’s the intro:
“Three times a year, 29 doctors gather around a table in a hotel meeting room. Their job is an unusual one: divvying up billions of Medicare dollars.
The group, convened by the American Medical Association, has no official government standing. Members are mostly selected by medical-specialty trade groups. Anyone who attends its meetings must sign a confidentiality agreement.
Yet the influence of the secretive panel, known as the Relative Value Scale Update Committee, is enormous. The Centers for Medicare and Medicaid Services, which oversee Medicare, typically follow at least 90% of its recommendations[emphasis added] in figuring out how much to pay doctors for their work. Medicare spends over $60 billion a year on doctors and other practitioners. Many private insurers and Medicaid programs also use the federal system in creating their own fee schedules.”
The link probably expires tomorrow, so read it now, or print and read it on a plane later.
thanks to Advisen for the tip.

Jul

Coventry – getting with the post-reform program

Posted by Joe Paduda on Friday, July 30th, 2010 | Comments

Coventry earnings call this morning was notable in at least two ways – more discussion about underlying cost drivers, utilization trends and management thereof, and the growing importance of low cost delivery systems from management.
And more evidence that (most) financial analysts don’t understand this business.
Here’s my view on the takeaways from the call.
The per-share earnings charge of $1.18 (from work comp PPO litigation in Louisiana) was the subject of a good deal of discussion during Coventry’s Q2 2010 earnings call this morning, but has to be considered in the context of the overall solid performance of the company.
Coventry actually increased guidance for the full year, marking another improvement in financials for the company that has been on a steady upward trend since CEO/Chair Allen Wise resumed his post a year and a half ago.
Commercial group membership grew nicely, while MLR (medical loss ratio) guidance decreased for the entire year. Coventry expects medical costs to increase in the second half of 2010, consistent with past experience.
In the prepared remarks part of the call, management diiscussed the implications of health reform, asserting the company’s recent results show it is well prepared for reform as it is able to control MLR while maintaining membership and expanding the company’s footprint in selected markets (the Mercy deal is an example)
The company’s statement noted Wise’s enthusiasm for results and performance of the company’s clinical management programs.
Clarity around MLR regulations was the first question – unsurprisingly, given the new regulations regarding limits on insurers’ administrative and other fees. Wise noted that the cost structure in one market in particular was going to improve by shrinking the company’s network, selecting more cost effective delivery systems/health systems. This marked a significant change from calls as recently as last year at this time. Coventry is clearly seeking to partner with more cost efficient health systems; as Wise put it, ‘we need to stop fighting over nickels and focus on overall costs’. [paraphrasing]
This was followed by a question about health plan utilization trends – overall utilization appears to have tapered off industry-wide, the question is why? Wise admitted Coventry doesn’t know, although they’ve spent a lot of time looking at this and their preliminary conclusion is the high deductibles and copays are leading to lower utilization, coupled with expiring COBRA benefits for some employees laid off quite a while ago.
Going forward, Wise sees the market as getting more competitive, making customer service and managing the little things critical to survival and success.
Wise thinks the group health product pendulum has swung back to mid-eighties model where networks are smaller, there’s less choice, and better control over cost and utilization. Coventry’s going to offer products with smaller networks based on provider systems with documented better outcomes and lower costs. They will preferentially look to buy provider-owned plans as they tend to have better cost structures than non-provider-owned plans. The analyst who asked the question wasn’t particularly interested in what Coventry was doing, but rather focused on pricing implications given the MLF regs coming out shortly.
That’s another example of how most of the analysts following this business are out of their depth. The real issue, the key to success, for Coventry and every other health plan, is how they are going to compete in a post-reform world. Price is a result of cost structure, and the failure of the analysts to focus on cost and cost drivers shows how disconnected the analysts are.
Another analyst asked if other health plans are pursuing similar acquisition strategies. Wise noted that there just aren’t that many potential acquisition targets that have good cost structures, fit geographically, and are provider-owned.
The company will be revamping its individual health product offering – in response to a question, Wise noted that the company’s distribution, IT, and benefit design are all works in progress, and there’s still a ways to go.
More to come after I review the transcript

Jul

The power of mis-information – a cautionary tale for health plans

Posted by Joe Paduda on Thursday, July 29th, 2010 | Comments

Today’s Kaiser Health Tracking Poll contains interesting data about support for health reform (steady positives, declining negatives), what’s much more telling is the extent of seniors’ a) ignorance of basic facts about health reform and b) widespread belief that reform includes death panels and cuts Medicare benefits.
Yikes.
According to Kaiser, “Half of seniors (50%) say the law will cut benefits that were previously provided to all people on Medicare, and more than a third (36%) incorrectly believe the law will “allow a government panel to make decisions about end-of-life care for people on Medicare.”
These are both factually incorrect.
Moreover, “Despite the fact that Medicare’s actuaries predict the health reform law will extend the life of the Medicare Part A Trust Fund by 12 years (from 2017 to 2029), only 14 percent of seniors know this and nearly half (45%) of seniors think the health reform law will weaken the financial condition of the fund. ”
There are several ways to look at this.
The power of the anti-reform noise machine is truly impressive; death panel myth promoters are clearly effective in getting people to believe their claims, despite widespread debunking of the claim by multiple independent organizations. (One well-respected organization, Politifact.com (run by the St Pete Times, a terrific newspaper, called it “pants on fire false).
Then again, it’s hard to underestimate the ignorance of the American public; we’re talking about a country where 43% of the population doesn’t believe in human evolution…
Seniors tend to vote in higher percentages than the rest of the population, so their concerns about reform, based at least in part on ignorance of the actual reform bill and its provisions, may well have a disproportionate impact on the election this fall.
Closer to home, health plans and insurers have to take note of these poll numbers and consider the impact on their own members.
As health plans increasingly emphasize provider network selection based on quality and outcomes data; rigorously employ evidence-based medical guidelines; and get tougher on experimental and unproven medical procedures and therapies, they are going to be exposed to the same type of fear-mongering from idiots using the public’s ignorance and fear to gain notoriety.
What does this mean for you?
Health plans must – and I mean must – develop and implement programs to stay on top of the public’s perception and opinions about them. Call it opinion monitoring, social network monitoring, complaint management, whatever, but do it. But this will only work if you proactively educate members and the markets about what you’re doing and why. Otherwise it’s purely defensive, will appear so, and will be little help when the stuff hits the fan.
Which it always does.

Jul

Changes to physician reimbursement under reform – the details

Posted by Joe Paduda on Friday, July 23rd, 2010 | Comments

Several clients have asked for more detail on how the reform bill will change Medicare reimbursement for physicians and other non-facility providers. Here’s the synopsis.
First, note that this pertains only to reimbursement changes contained within the reform bill. There are a host of other initiatives, ideas, pending changes, and reimbursement ‘tweaks’ outside the bill that will also impact reimbursement.
Reimbursement for primary care services – provided by some internists, family practice docs, pediatricians, PAs, and nurse practitioners – will increase 10% between 2011 and 2015. After 2015, the increase – which is described as a ‘bonus’ – will theoretically expire.
The key word here is ‘some’.
To get the increased compensation, 60% of the provider’s charges for services over the last (to be determined) months/years must have been for primary care.
There’s also more funds for some general surgeons – a 10% bonus if they provide ‘major surgical procedures in health professional shortage areas“.
That’s it for the easily described changes. Now here’s the more complex.
1. Bundled payments – there’s a national pilot program authorized under reform that would allow for bundling of payments for an entire episode of care, as opposed to the current fee for service (FFS) methodology. Under this scenario, a group of physicians, ancillary care providers, and facilities would get paid a flat amount for a specific condition/diagnosis.
2. Post 2014 and the Independent Payment Advisory Board – Starting in 2014, the IPAB would be required to recommend specific Medicare spending reductions in any year in which Medicare’s per capita cost growth rate exceeded a specific target. IPAB’s recommendations are more than just idle talk; they would become law unless Congress passed an alternative proposal that resulted in identical savings. Some provider types are excluded for a limited time (this is too deep in the weeds to go into here).
There’s more in the bill, but it is for very specific services, types of providers, and geographic areas yet to be identified – in all, few providers will be affected.
For more detail on the bill’s impact on reimbursement, click here.[opens pdf]
What does this mean for you?

Remember this is just the reform bill – it is highly likely other changes driven by other bills, regulatory changes, and miscellaneous factors will have as much – if not more – impact.

Jun

The Medicare physician reimbursement ‘fix’

Posted by Joe Paduda on Monday, June 21st, 2010 | Comments

With the Senate’s passage of a bill preventing cuts to Medicare physician reimbursement for another six months, we’re only waiting on the House’s action to boot the problem further down the road, where it can grow, and fester and frustrate just in time for the New Year.
That said, it isn’t all bad news. The good news is the (short term) fix is paid for, it was the product of bipartisan action, and, for docs, it increases reimbursement by a touch above two percent.
With that said, this is so illuminating and so frustrating on so many levels, that it is worth exploring in detail.
First, the House may not pass the bill. Speaker Nancy Pelosi (D CA) has said that she’s got big problems with the narrow fix as it doesn’t address the House’s priorities in other areas including jobs and unemployment extension.
If the House doesn’t pass the fix early this week – like before Wednesday – expect physicians to go ballistic. CMS has already told their bill payers to start cutting checks to docs reflecting th 21% cut; each day that passes before those cuts are rescinded will increase the level of anger among physicians, which is already close to an all-time high.
Second, ‘fixing’ the current Medicare physician reimbursement price-setting process (known as the Sustainable Growth Rate (SGR) for the methodology in place today) will require Congress recognize a quarter-trillion dollar addition to the deficit.
Ouch. Hard to see how any politician will explain that to their constituents at a Town Meeting. Let me see, “Well, Mr X, in order to understand why I voted for a quarter trillion dollar addition to the deficit, let me explain how the SGR contributes to medical price inflation…” Can’t wait to see the headlines on FauxNews on that one…
Third, as I noted last month, “there’s an inherent problem with the SGR approach – SGR attempts to use price to control cost. The complete failure of the SGR approach to control cost is patently obvious, as utilization continues to grow at rapid rates. This was a problem four years ago, and its done nothing but get worse. Not only does the RBRVS/SGR approach contribute to cost growth, it also ‘values’ procedures – doing stuff to patients – more than listening to them.”
As Gail Wilensky wrote, “The primary problem with the SGR is that while it can control total spending by physicians (assuming it is actually implemented), it does not affect nor is it driven by the volume and intensity of spending of individual physicians. In fact, there is some concern that expenditure targets may actually exacerbate the incentives for individual physicians to increase the volume and intensity of services they provide.” [emphasis added]
Fourth, changes to Medicare physician reimbursement will impact group, Medicare Advantage, Medicaid managed care, and workers comp – both directly and indirectly. Many network contracts are based on or reference RBRVS, so changes to RBRVS can result in alterations in network reimbursement. The indirect impact may be more significant, as physicians alter practice and billing patterns to address revenue shortfalls and opportunities. With eventual cuts in reimbursement for surgeries and imaging likely, payers will have to carefully monitor practice patterns if they are to stay on top of potentially problematic trends.
Finally, Congress is indeed in a ‘fix’. Caught between the Scylla of budget deficits and Charybdis of an enraged and engaged physician community, it decided to prolong its agony until after the fall elections, in hopes that passage of a more permanent solution will come so early in the 2012 election cycle that other issues will overshadow it by the time the voters hit the booths in November 2012. That, and the Democrats may well be thinking they are going to lose a bunch of seats in both houses this fall, so any post-2010 election solution to SGR/RBRVS will require the Rs to make policy and not just hurl bricks. It’s one thing to point out problems, it is entirely another to come up with solutions, especially when any foreseeable solution will anger a powerful constituency.
What does this mean for you?
Watch what happens this week in the House. It will be a lesson in civics, if not civility.

May

Physician fees will change – are you paying attention?

Posted by Joe Paduda on Tuesday, May 25th, 2010 | Comments

Congress and the White House are working to come up with a fix for Medicare’s big-and-getting-bigger physician reimbursement (RBRVS) problem. And as I’ve been saying for months, when (not if) this happens, it will have dramatic effect on health care delivery, health care costs, and insurance premiums for work comp, group, and (obviously) Medicare and Medicaid.
Briefly, the change will increase reimbursement for primary care/cognitive services/99xxx CPT codes and slightly raise payments for surgery, radiology, and similar services. The changes occur over time, with a 1.3 percent raise this year plus another 1 percent in 2011. In 2012 and 2013, primary care and preventive services get an additional raise equivalent to the increase in the gross domestic product at the time plus 2 percent, non-primary care would see a raise of GDP plus 1 percent.
The reasons Congress must address Medicare physician reimbursement are twofold; docs are increasingly dropping out of Medicare, and the current SGR process (Sustainable Growth Rate, the methodology in place today that determines what Medicare pays docs) is both responsible for that problem yet ‘fixing’ SGR will mean Congress has to recognize a quarter-trillion dollar addition to the deficit.
It’s not quite that straight forward, but pretty close. For those who want way more detail, read this.
What is clear is that Congress has to act; what’s holding up resolution now is the GOP wants the fix to be deficit neutral, while the Democrats don’t. This will get resolved this week or early next (the current fix expires May 31) but there will be plenty of political point-making over the next few days. How they handle the budget issue, while significant in the large scheme of things, is a longer-term problem. Over the near term, payers and providers will have to figure out how the revisions will impact the industry.
Here are a couple scenarios to ponder.
Work comp – I discussed this in detail a couple weeks ago; the net is 33 states base their WC fee schedule on RBRVS, the key word being ‘base’. A few directly tie their fee schedule to RBRVS, but most adjust the conversion factors, alter the RVUs, add a multiplier, or otherwise tweak RBRVS. And, some states do this thru the regulatory process, while others require legislative action to make significant changes to their fee schedules.
As a result, the state-level implementation of any changes CMS/Congress makes to RBRVS is unclear, state-specific, and politically influenced.
Group – Many network contracts are based on Medicare’s RBRVS; if the Feds change, provider compensation will too. Think about the potential impact, and think deeply. The trickle-down will likely cause specialists to seek higher network reimbursement for two reasons – first the base from which their reimbursement (RBRVS) has declined, and second, they’ll want to make up their lost revenue from Medicare by increasing reimbursement from private payers.
Finally, there’s an inherent problem with the SGR approach – SGR attempts to use price to control cost. The complete failure of the SGR approach to control cost is patently obvious, as utilization continues to grow at rapid rates. This was a problem four years ago, and its done nothing but get worse. Not only does the RBRVS/SGR approach contribute to cost growth, it also ‘values’ procedures – doing stuff to patients – more than listening to them. Sure, the changes will somewhat address that issue, but only somewhat. And we’ll still be stuck with a system that almost entirely bases physician compensation on paying for procedures.
And the more procedures that are done, the more docs make, and the higher costs are.
What does this mean for you?
Pay attention to the news on this change, and think thru the long term impact on your business.

Category: Medicare and Medicaid