Category: Medicare and Medicaid

Jun
19

Coventry’s stumbled – badly

Posted by Joe Paduda on Thursday, June 19th, 2008 | Comments

The notice for the teleconference popped up in my email inbox a mere hour and a half before the telecon was scheduled to begin. That was the first indicator of potential trouble.
The second was the opening line from Coventry’s CEO: “To say we’re disappointed with the news we shared earlier this afternoon is an understatement…”
The source of Mr Wolf”s disappointment was Coventry’s report that it will miss its financial projections – by a wide margin.
For a company that has long been (justifiably) proud of its ability to tightly monitor and manage its business, the disclosure that it had significantly underestimated Q1 and Q2 medical costs was a bitter pill indeed, all the more so as it came a few weeks after Wolf’s recent efforts to pump up internal morale by comparing Coventry’s management discipline favorably to competitors.
Earnings will fall short due in large part to higher than expected medical costs in Coventry’s Medicare private fee for service and core group health businesses. In explaining the failure to meet the Medicare program’s projected MLR, CFO Shawn Guertin described the problems inherent in the claims submission and processing flow. Guertin went on to note that the company also had identified some problems in Coventry’s internal claims processing. Curiously, management blamed part of the problem on ID cards not being used by claimants, which delayed claims flows internally. Evidently some members don’t bother to show their Coventry cards when leaving the doctor’s office. The office sends the bill to Medicare, who returns the bill with a note that the patient is not a member. The office then contacts the patient, gets the correc claims submission info, and sends the bill to Coventry.
This takes time, and has led to Coventry under-estimating claims volume and expense for its Medicare private ffs business. I’d note that in prior calls management has been effusive in its self-praise for its ability to operate this business with statements like ‘we couldn’t be more pleased with how this business is running’.
For the Medicare business, the MLR is up 300-340 basis points over prior guidance. This isn’t even close enough for horse shoes or hand grenades. From comments by management on last night’s call, it appeared this popped up in April and May, after things appeared to look pretty solid earlier in 2008.
Again, this is a pretty big surprise.
On the group health front, higher trend in group outpatient utilization and inpatient unit cost, or price per service appear to be the problem. Instead of the forecast 100 basis point reduction in MLR, management is now expecting higher medical costs – with a potential swing of 400 basis points for outpatient expense. Inpatient costs are also up 100 basis points, so the combination is driving up total MLR by 150 basis points.
Another significant contributor to the higher MLR is an increase in the number of more severe (more costly) claims – not more claims, but more high cost claims, specifically between 50k and 150k in dollars paid.
In contrast hospitals are not seeing increased utilization. Facility revenue numbers are not trending up. Coventry wasn’t able to figure out why their hospital costs were going up while overall hospital utilization nationally is not.
Admittedly Coventry has not yet determined all the factors causing these increases in MLR. They do appear to have a grasp on the major factors; from the tone and delivery
of management comments I’d expect there’s a lot of yelling at Coventry HQ, likely to be followed shortly by the distinctive sound of heads rolling. (During the call Wolf did allude to staff reductions in a response to an analyst’s query.)
Lastly, management reported that the work comp business is not meeting projections due in part to lower fee revenue for bill review.
As the market closed, Coventry’s stock price had dropped to $40.97, resulting in a P/E just under 10. Coventry has long been rumored to be a potential acquisition target, and if the stock price declines further (a not unreasonable expectation) suitors will likely emerge.

May
29

Why are there so many spinal implants?

Posted by Joe Paduda on Thursday, May 29th, 2008 | Comments

Disclaimer – This is the kind of post that makes one want to take a shower after reading. My apologies to readers without convenient access to bathing facilities.
One of the fastest growing segments of the surgical industry is the spinal implant business. In what may be the most comprehensive review of the problem, the Orange County Register reported:
“About 70 percent of U.S. adults — or 153 million people — have lower back pain, according to Millennium Research Group. Of those, about 15 million require medical treatment, and most eventually get spinal implants.” My take is that is a wildly overstated estimate; one survey reported that the total world market for devices was $4.2 billion; note this study used 2006 data. Another indicated the market was $5 billion in 2005, and predicted growth to $20 billion by 2015. Stryker, one of the major manufacturers, expects growth of 16% per year in the spinal implant market. Yet another report(note opens .pdf) indicated the 2007 worldwide market was $7 billion, with the US accounting for $5.4 billion of that total.
And boy is it profitable. One manufacturer (Allez Spine) sold screws to an implant device company for $79.31 each – screws that were then sold to hospitals for $1000 each (who then marked them up even more when billing insurers).
sidexray.gif
Yep, there are $480 worth of screws in this xray (wholesale), $6000 retail, and probably $9-12,000 to the insurer/patient. And that doesn’t include the other parts…
Medtronic, one of the larger device companies with about 45% market share in the US and the same worldwide, reported sales of $869 million for spinal implants last quarter, driven in part by a big jump in sales of its Kyphon technology. The $869 million represents growth of 35% from the same quarter last year.
The Kyphon story is an ugly one, and points to one potentially significant problem in the spine surgery industry – the focus on devices as a tool to maximize reimbursement.
Kyphon (the company) was acquired by Medtronic in 2005. The company settled a lawsuit filed by the Feds, agreeing to pay $75 million in fines. Kyphon agreed to stop providing inappropriate advice on reimbursement to providers, advice that resulted in hospitals filing inflated claims with Medicare for a spine procedure with the otherworldly name of kyphoplasty.
The details of the case, as reported by the New York Times, are revealing.
Kyphon “persuaded hospitals to keep people overnight for a simple outpatient procedure [bold added] to repair small fissures of the spine. Medicare then reimbursed the hospitals much more generously than it otherwise would have for the procedure, which was developed as a noninvasive approach that could usually be done in about an hour.
By marketing its products this way, Kyphon was able to artificially drive up demand among hospitals, bolstering its revenue and driving up its stock price. Medtronic subsequently bought the company, its competitor, for $3.9 billion, greatly enriching Kyphon’s senior executives. ”
Margins for Kyphon’s devices approached 90%, due in large part to the high price the company charged, a price that hospitals offset by extending hospital stays (as advised by Kyphon’s sales reps and reimbursement experts), thus generating higher bills and much higher revenue.
Another major contributor to the rapid increase in spinal implant surgeries may be the growth of device companies that have spine surgeons as stockholders. The OCR article reported that physician-owned companies are now under investigation by HHS’ Office of the Inspector General (OIG). In testimony before the Senate Special Committee on Aging, Gregory E. Demske, Assistant Inspector General for Legal Affairs at the OIG said:
“These financial relationships [between device manufacturers and physicians] can benefit patients and Federal health care programs by promoting innovation and improving patient care. However, these relationships also can create conflicts of interest that must be effectively managed to safeguard patients and ensure the integrity of the health care system…during the years 2002 through 2006, four manufacturers (which controlled almost 75 percent of the hip and knee replacement market) paid physician consultants over $800 million [bold added] under the terms of roughly 6,500 consulting agreements. Although many of these payments were for legitimate services, others were not. The Government has found that sometimes industry payments to physicians are not related to the actual contributions of the physicians, but instead are kickbacks designed to influence the physicians’ medical decisionmaking [bold added]. These abusive practices are sometimes disguised as consulting contracts, royalty agreements, or gifts.”
All this growth may well be based on a focus on surgical treatment that is just not supported by research. Some studies indicate surgery is not the best treatment for a substantial number of patients. According to the OCR article (source above);
a “2005 study of patients with back pain published in the journal of the British Medical Association concluded: “No clear evidence emerged that primary spinal fusion surgery was any more beneficial than intensive rehabilitation.”
“You look at the number of procedures and the rate of growth and it seems to far outstrip the number of patients who need this,” said Dr. Steven J. Atlas, a back specialist and Assistant Professor of Medicine at Harvard Medical School.”
And that old nemesis, provider practice pattern variation, is nowhere as obvious as with back surgeries. Looking at Medicare data, the back surgery rate in Fort Myers, Florida was 5 times higher than in Miami. Same population demographics, same state, but different providers.
Perhaps the best explanation for the considerable growth in the use of implants and spine surgery is the lack of evidence either for or against these procedures. There are some reports that indicate positive or negative outcomes, but nothing definitive has been published that could be used by payers and providers to judge the appropriateness of surgery for most patients with back injuries or degenerative conditions.

May
27

Today’s SAT question

Posted by Joe Paduda on Tuesday, May 27th, 2008 | Comments

Medicare is to Workers Comp as:
a) Mars is to deck stain
b) surgery is to literature
c) a jelly sandwich is to Colorado
d) all of the above
e) none of the above
If you chose (d), congratulations, you understand there few similarities between the two systems, other than both involve paying health care providers to deliver care.
Beyond that, Medicare and Work Comp are, as the Brits say, chalk and cheese. Yet many regulators and legislators still try to base reimbursement under workers comp to Medicare’s RBRVS system (resource based relative value scale). The latest effort is in California, where a recent study by the Lewin Group has come under fire from providers in the Golden State. Critics contend Lewin’s analysis does not accurately assess the inherent differences between the two systems or the way providers deliver care, and bill for that care, and therefore the study’s conclusion is inappropriate.
I think the critics are right. As I’ve noted before, the additional paperwork, different procedures, complex and dynamic treatment rules and approval process, additional communications requirement, and different demographics make work comp a very different animal from Medicare.
I’ll have more on this later, as the reports and analysis require more time than I’ve got right now.
But there are two more (very) current examples of the problems inherent in linking WC reimbursement to governmental programs. Both involve drugs, and in both cases WC drug costs are linked to Medicaid. The states are NY and CA. In both cases, the FS will also drop in July; to AWP-16.25% in NY for brand and an across-the-board cut of 10% (below the current very low rates) in California.
There are already myriad examples of claimants unable to fill comp scripts in New York today, and that is at the current, slightly more generous FS. There have been fewer reports of this issue in CA, but the new rate reduction has pharmacy chains screaming.
As well they should. Here’s how Workers comp and Medicaid are different
1. Unlike Medicaid, there are no copays, restrictive formularies, or other cost- and utilization containment measures in WC. Thus all cost containment efforts in WC for drugs involves Drug Utilization Review processes that can involve pharmacists and clinicians reviewing scripts for appropriateness, medical necessity, potential conflicts and adverse outcomes, and relatedness to the WC medical condition.
2. PBMs pay pharmacies more for WC drugs than for Medicaid drugs; a typical brand discount is AWP-12%, generic is MAC or -25-35%. The Medicaid FS is substantially lower, at AWP-15+% for brand and FUL (>-40%)for generics.
3. Unlike Medicaid, to the extent they exist at all, rebates are much lower in WC. In NY, Medicaid rebates are a minimum of 11% of the Average Manufacturer’s Price per unit. The rebate revenue significantly reduces states’ costs for drugs. As these rebates are much lower or nonexistent in WC, PBMs do not have rebate dollars to offset their drug costs.
Sure, it is easy for lazy insurers, regulators, legislators, and employers to think they are doing something positive by cutting the price they pay for drugs.
It is also a big mistake.

Apr
16

Medicare is to Workers Comp as Yin is to Yang

Posted by Joe Paduda on Wednesday, April 16th, 2008 | Comments

Why do regulators base WC reimbursement on Medicare? It’s easy, simple, and already familiar to legislators and regulators alike. It is also a big mistake.
Medicare is a program for America’s elderly – over-65, mostly sedentary, and mostly not employed. Workers comp covers ‘working age’ folks; primarily 18-65. ) Many of the surgeries being performed on Medicare vs. workers’ compensation patients are fundamentally different.
The types of outpatient surgeries that can be performed on workers’ compensation patients, who are generally young and in overall good health, are different than the outpatient surgeries Medicare covers (pays) for. Medicare sharply restricts outpatient surgery for good reason as Medicare patients are frail and surgery followed by an inpatient stay is safer given their complicated medical conditions and health risks of prolonged general anesthesia. WC claimants are younger, in better physical condition, and much better suited for outpatient surgeries – yet basing WC reimbursement policies on Medicare would forbid, or at the least financially dis-incent, outpatient surgery in favor of inpatient.
Medicare fee schedules (like the one Florida’s Three-Member Panel is considering adopting) result in more specialist care and more procedures being performed. (opens pdf) National studies show this frequently leads to poorer outcomes and more suffering for patients, in addition to higher costs for payers.
Medicare recipients’ medical conditions are very different from comp claimants’. The top ten Medicare DRGs (Medicare’s coding for inpatient care) are:

  • Heart Failure & Shock
  • Simple Pneumonia & Pleurisy
  • Specific Cerebrovascular Disorders
  • Psychoses
  • Chronic Obstructive Pulmonary Disease
  • Major Joint & Limb Reattachment Procedures, Lower Extremity
  • Angina Pectoris
  • Esophagitis, Gastroent & Misc Digest Disorders
  • G.I. Hemorrhage
  • Nutritional & Misc Metabolic Disorders

No spine conditions, multiple trauma, burns, TBIs, crushing injuries, joint surgeries…
Inflation in Medicare billing is rampant – if you think it is bad in WC generally (and you would be right) it is an order of magnitude worse in Medicare. In Florida, the current annual inflation rate is north of 14% for Medicare outpatient services.
Medicare reimbursement disproportionately favors hospital-based care. With facilities reimbursed at levels much higher than free-standing doctors’ offices and clinics, basing reimbursement on Medicare encourages providers to affiliate with, provide care in, and bill thru facilities. In Florida, the impact is dramatic; basing reimbursement on hospital outpatient service charges will increase costs by an estimated $1,675 to $2,320 per claim (calculations courtesy of FairPay Solutions, an HSA client).
What provider would want to treat in their own, lower cost clinic or office, if they could more than double their fees by working through a hospital?
Finally, CMS itself has warned against using their payment methodologies for non-Medicare patients. “The cost-based relative weights were developed solely using Medicare data. We do not have non-Medicare data…For this reason we are concerned that non-Medicare payers may be using our payment systems and rates without making refinements to address the needs of their own population.” (page 272)
I could go on, but you get the picture. The populations are starkly different, claimants’ health status is different, their motivations are different, provider types are different, and reimbursement should reflect these differences.
Unfortunately, Medicare is the easy choice. Easy, but dead wrong.

Mar
9

Why Medicaid Rx reimbursement rates don’t make sense for Workers Comp

Posted by Joe Paduda on Sunday, March 9th, 2008 | Comments

Regulators are increasingly seeking politically low-cost ways to reduce workers comp costs. Some have decided to use the Medicaid reimbursement rate for drugs for Workers Comp, evidently figuring that if pharmacies accept it for Medicaid, they’ll do the same for WC. Same ‘logic’ evidently goes for PBMs.
The only problem is it is dead wrong.
1. Unlike Medicaid, there are no copays, restrictive formularies, or other cost- and utilization containment measures. Thus all cost containment efforts in WC for drugs involve resource-intensive Drug Utilization Review processes; pharmacists and clinicians reviewing scripts for appropriateness, medical necessity, potential conflicts and adverse outcomes, and relatedness to the WC medical condition.
2. PBMs pay pharmacies more for WC drugs than for Medicaid drugs; a lot more.
3. Unlike Medicaid, to the extent they exist at all, rebates are much lower in WC. Medicaid rebates are a minimum of 11% of the Average Manufacturer’s Price per unit (and even higher in many states). The rebate revenue significantly reduces states’ costs for drugs. As these rebates are much lower or nonexistent in WC, PBMs do not have rebate dollars to offset their drug costs.
Unlike Medicaid, most workers comp claimants have no idea how WC works, much less who their insurer is; the chances of the claimant presenting with a card is therefore quite low (less than 25% of all WC first fills go to the appropriate PBM). When a Medicaid recipient shows up at a pharmacy, they have been enrolled and thus have a card, and the transaction process is instantaneous and very low cost.
There is no positive enrollment in WC, unless the claimant presents a card, the pharmacy has no way to identify the appropriate PBM. This presents pharmacies with a high level of risk, a level that is not balanced by a reimbursement that makes that risk level tolerable. Specifically;
1. pharmacies are ‘at risk’ for initial fills where they cannot be sure the carrier/employer will accept the claim – this higher risk level requires a higher reimbursement. There is nothing preventing an individual from writing ‘WC’ on a paper script, thereby perpetrating fraud on the pharmacy.
2. the current regs pay pharmacies 25% more for scripts that are ‘controverted’; that is, where the carrier/employer has said they will not (yet) accept the claim
3. The ‘controverted’ situation is very similar to first fills – the carrier/employer has not indicated they will accept the claim, yet the pharmacy is required to fill it, without guarantee of reimbursement
4. the additional risk forced upon the pharmacies may lead them to:
• not fill scripts without a claim number/specific notice from the carrier/employer
• use the claimant’s existing profile (usually a group health PBM card) to fill the script, thereby increasing group health costs
• require the claimant to pay cash which they may, or may not, be able to do
We’re all for reducing work comp medical expense, but the blunt instrument of deep, and inappropriate, cuts in reimbursement for drugs is also counterproductive.
The key driver of prescription drug cost inflation is not the price per pill but utilization – the volume and type of drugs dispensed. The National Council on Compensation Insurance’s recent study on drug costs in workers comp stated “Utilization changes are the driving force in drug cost changes for WC…Utilization is the biggest reason for cost differences between states” (Workers Compensation Prescription Drug Study, 2007 Update; Barry Lipton et al; NCCI, p. 4, 6).
PBMs have adopted and are continuously improving programs designed to address inappropriate utilization. These programs include
• development of clinical evidence-based guidelines for the use of drugs for musculoskeletal injuries
• outreach by PBM physicians in specific cases where the drug treatment plan may be inappropriate
• data mining to identify potentially questionable prescribing patterns including off-label usage of drugs such as Actiq and Fentora
• Prior Authorization of specific drugs (e.g. narcotic opioids, cardiovascular medications).
What does this mean for you?
If PBMs don’t operate in a state or can’t generate any margin, they’ll eliminate any and all utilization control measures.
And drug costs will increase.

Feb
5

Why is workers comp paying for hospital errors?

Posted by Joe Paduda on Tuesday, February 5th, 2008 | Comments

Surgical devices left inside a patient. Dispensing the wrong medication or the wrong dosage. Giving a patient the wrong blood type in a transfusion. Serious pressure ulcers incurred while hospitalized. Infections from catheterization in the ICU.
These are among the ‘never-ever’ events – incidents that should never, ever happen during an inpatient stay. CMS recently decided to stop paying hospitals for care required due to certain“preventable complications” — “conditions that result from medical errors or improper care and that can reasonably be expected to be averted” (NEJM, 10/18/07). The list includes air embolisms, certain infections, patient falls, pressure ulcers and the like.
HealthPartners in Minnesota was one of the first payers to identify the problem and take action, way back in 2002. Now, other commercial health insurers, notably Wellpoint and Aetna, are planning to move beyond CMS’ list and eventually refuse payment for 28 events. These events, identified by the National Quality Forum are also under review by the Blue Cross/Blue Shield Association, United Healthcare, and CIGNA who may decide to stop paying for them.
And the Leapfrog Group’s membership, which includes many of the country’s largest employers, is also asking providers to not bill for these events.
It is not just the payers; hospitals themselves are starting to see the light. Hospital associations in Massachusetts and Minnesota have agreed to not charge payers or patients for these events, which include “wrong-site and wrong-patient surgery, patient death or disability due to wrong use of blood or blood products and medication errors, and follow-up care needed to bring the patient back from such errors.”
The largest payer in the nation, CMS, has decided that paying for certain medical errors is bad policy. So has two of the largest health plans, along with one of the best-run health plans in the country. Our biggest companies have joined the “no pay for mistakes” movement. Hospitals themselves have decided it is inappropriate to charge for their screw-ups.
So why are workers comp payers reimbursing hospitals for ‘never-evers’? I don’t have any empirical evidence that WC payers are not paying for these events. In fact, given the lax payment policies of most payers, I’d be very surprised if more than a very few (if any) payers have the ability to deny payment, much less a policy to do so.
What does this mean for you?
There is clear precedent for non-payment for medical errors. Moreover, workers comp payers may find themselves in the rather awkward position of trying to justify their payments for conditions that their clients have publicly stated are not reimbursable.

Jan
23

Warning on Fentora

Posted by Joe Paduda on Wednesday, January 23rd, 2008 | Comments

The FDA has issued a warning notice for off-label use of Fentora after three deaths were linked to off-label usage of the fentanyl tablet.
One issue may be related to the substitution of Fentora for another powerful pain medication, Actiq. Both are manufactured by Cephalon, but Fentora is absorbed more quickly than is Actiq. Therefore, the same dosage of Fentora may result in more of the drug being absorbed into the bloodstream.
Cephalon has been plagued by accusations of aggressive detailing, including encouraging physicians to prescribe the drug off-label. Another recent article indicates the pharma industry has been aggressively lobbying the FDA to allow this type of detailing, which evidently has been going on for two years despite restrictions against the practice.
Of note to workers compensation insurers, Fentora appears to be becoming increasingly popular for treatment of back pain in some areas.
What does this mean to you?
If you are a WC payer, find out which claimants are taking Fentora and figure out why and if it is appropriate. Not only is the drug dangerous, it is also very expensive.

Nov
27

Medicare dollars are paying for the uninsured

Posted by Joe Paduda on Tuesday, November 27th, 2007 | Comments

Adding to the seemingly-endless list of compelling arguments in favor of universal coverage is the rather obvious “if we insure them now, we won’t have to pay for more expensive care tomorrow.”
Specifically, I’m referring to a recent Commonwealth Fund/AHRQ study on health care costs for new medicare enrollees; the study found that new Medicare enrollees with chronic conditions that previously lacked health insurance incurred substantially higher treatment costs than those that had health insurance before enrolling.
While all previously-uninsured Medicare recipients had higher utilization, this was particularly noticeable for those with hypertension, diabetes, heart disease, or stroke, where prevention and routine care can prevent costly and calamitous acute episodes. The uninsured with these conditions reported more doctor visits (13% relative difference), more hospitalizations (20% relative difference), and higher total medical expenditures (51% relative difference) from ages 65 to 72 years than previously insured adults.
Each year, approximately 2.3 million seniors qualify for Medicare. Of this population, 57% had chronic conditions. The average medical cost (2003 numbers) per Medicare enrollee in the 65-74 age group was $9473. While the information available doesn’t allow a precise calculation of the additional cost involved in treating this group, the amount is certainly well up in the billions.
According to the original article in the NEJM, “The costs of expanding health insurance coverage for uninsured adults before they reach the age of 65 years may be partially offset by subsequent reductions in health care use and spending for these adults after the age of 65, particularly if they have cardiovascular disease or diabetes before the age of 65 years.”
What does this mean for you?
Covering the uninsured would reduce Medicare’s expenses.