Managed Care Matters

I recently gave a keynote speech to a group of insurance brokers affiliated with the Institute for Work Comp Professionals; the talk focused on cost drivers in WC, with special emphasis on medical costs.

The part of the talk that generated the most discussion was the section on networks, and specifically how most WC networks have completely failed to reduce medical expenses.

My net is insurers are shooting themselves in the head, with a pistol provided by their managed care departments.

PPOs contract with providers to deliver services at a discount. Most PPOs get paid a percentage of the savings that is delivered by that discount, typically 15 to 22 percent of the savings. So, the more the PPO 'saves' the more it makes. On the surface, this sounds good: the system rewards the PPO for saving money and does not pay it when it delivers no savings.

However, a closer look reveals that when the PPO vendors win, the payer loses. The ugly head of the Law of Unintended Consequences emerges again.

At the most basic level, health care costs are driven by a relatively simple equation:

Price per Unit x Number of Units = Total Costs

Under a percentage-of-savings arrangement, reducing total cost is ignored in favor of saving money on unit costs. The PPO gets paid for savings on individual bills. Therefore, the more services that are delivered and the more bills generated, the greater the 'savings' and the more money the PPO makes.

The system encourages over utilization because it is in the PPO's best interest financially to have numerous providers generate lots of bills for lots of services. Also, the providers, squeezed by a per-unit fee schedule that is lower than fee schedule/Usual and Customary Rates (UCR), have a perverse incentive to make up for that discount by performing more services.

The industry has been hit, and hit hard, by the Law of Unintended Consequences. Two of the top managed care "fixes" - fee schedules and PPOs with pricing based on percentage of savings, encourage over-utilization, a major cost driver for workers' compensation.

It's no wonder that most PPOs like this model, but why would any of their customers?

The simple answer is that managed care departments at many carriers and third party administrators (TPAs) are evaluated on the basis of their network penetration (the percentage of dollars that flow through a network provider) and network savings (on a per-bill basis).Their internal and external customers have bought into the per-unit discount model, and measure the success of their managed care programs on the dollars and/or bills that flow thru the network, and the savings below fee schedule or UCR delivered by the network.

The fact is few carriers, TPAs, or employers have realized that per-bill 'savings' is the wrong way to assess a managed care program. And unless senior management changes their evaluation methodology, their managed care departments will have no incentive to change their program to one that actually does reduce total costs.

After my conversation with a hall full of brokers, my bet is more carriers are going to be getting more questions about this.

Posted by at 6:54 AM | Permalink | Comments (3)

Many payers look at 'medical' as a line item and nothing more. This myopia, this failure to look deeper, to try to understand what drives medical, is perhaps the most significant shortcoming in the industry.

Many readers will dismiss this criticism, claiming that they are different and smarter, that they know better.

And most will be wrong.

One current example provides compelling evidence of the industry's ignorance of many things medical. I've posted on the pending changes to the Florida fee schedule, namely the move by the Three Member Panel to establish Medicare billed charges as the standard for Usual and Customary for facilities. That's right, billed charges, not reimbursement. Yet many payers - self insured employers, insurers, and TPAs - are blissfully unaware of the damage this will do.

Here's why hospital costs are important. According to the WCRI, hospital costs are rapidly accelerating for claims with more than 7 days lost time (which account for 83.5% of all workers' compensation medical payout).

• Medical payment for NonHospital providers: up 3.8%
• All hospital medical payments: up 7.1%
• Inpatient hospital medical payments: up 12.1%

In Florida, where hospital costs are about half of all medical expenses, this is particularly significant. In fact, two studies indicate the Panel's proposed changes will dramatically increase hospital costs - by over $50 million annually. More troubling, the change will likely have the unintended consequence of shifting the location of care for many patients. With facility reimbursement becoming much more profitable, payers can expect to see many more bills for care delivered in hospitals, outpatient facilities, and ASCs. And they will be paying much more for that care.

Yet payers, in testimony before the Panel, seem to be completely ignorant of the impact of the proposed changes.

Here's hoping payers wake up from their slumber - and soon. If not, many will have to explain to their clients why they didn't act to prevent this disaster. Because it is preventable.

(for detailed information on this in the form of an extensive analysis, email infoAThealthstrategyassocDOTcom with Florida Hospital Reimbursement in the subject line)

Posted by at 6:36 AM | Permalink | Comments (0)

Ingenix has had a tough few months. The latest injury comes in the form of a suit filed by a Connecticut man, seeking class action status based on allegations that the United HealthCare sub engaged in an "alleged conspiracy in which insurance companies calculate their usual, customary and reasonable rates from a flawed and manipulated Ingenix database. The low payments to providers, according to the lawsuit, left Weintraub and other consumers with higher out-of-pocket costs." (Modern Healthcare)

For the legal folks out there, the full case can be accessed here. (PACER sub req)

The plaintiff, Jeffrey Weintraub, is suing Ingenix, their parent, UnitedHealth Group Inc; sister company Oxford Health Plans, as well as Aetna Inc, Cigna Corp, Empire BlueCross BlueShield, Humana Inc, Group Health Ins Inc, Health Ins Plan of NY and Health Net Inc.

OK, so what does this mean? My sense is this is piling on; since the Cuomo announcement Ingenix has been a highly visible target, and based on the company's rather lackadaisical approach to defending its methodology in the Davekos case, it looks like the legal sharks smell blood in the water.

But just because it is piling on does not mean these cases are without merit.

I would expect to see more of these suits filed, perhaps in more class-action friendly jurisdictions (Mississippi, for example). I also expect the industry to rally around Ingenix - this is a very, very big deal, and one that has been mishandled so far. Ingenix, and the health payer industry, cannot afford any more mishaps.

Thanks to Fierce Healthcare for the heads' up.

Posted by at 6:24 AM | Permalink | Comments (1)

Pretty good. I'd say better than 50:50; probably 60:40 or better that there will be major reform in the next Congress.

Here's why.

Sen Ron Wyden's (D OR) Healthy Americans Act has six D and six R Senate cosponsors, including Bob Bennett (R UT). There is broad bipartisan support for the bill, which mandates universal coverage.

WalMart and the SEIU back the bill.

The National Federation of Independent Businesses backs some form of 'universal' reform.

Both Democratic Presidential candidates back major reform.

Congress has been stung by criticism of its inability to get much done - and health care reform is something big that needs doing.

Many of the Fortune 500 back reform, including automakers, service companies, and manufacturers. And the unions that represent their workers do too.

This impressive array of supporters is opposed by...well, it must be opposed by some groups, companies, politicians, lobbies, but it is hard to find much in the way of opposition, at least using internet search engines. We can look to California to find out how and why their efforts to pass reform failed. A loose coalition, comprised of Republican legislators, Blue Cross of California [WellPoint], the state Chamber of Commerce, and the tobacco industry joined together to oppose the bill, and their efforts got a major push from legislators' deep concerns about the cost of the initiative and the Golden State's financial straits. A closely related issue is the concern by many that states, acting alone, cannot enact meaningful reform for the simple reason that 1/3 of all health care dollars are controlled (to a great extent) by the Feds, and if these dollars, and the care they pay for and members they cover aren't integrated into a comprehensive reform measure, the effort is doomed to fail. Cost shifting, contradicting priorities, differing measures of success and evaluation methodologies will result in a confused, bifurcated system that serves neither population well.

Similarly, the problems emerging in Massachusetts and Maine make it less likely that states will successfully pursue reform measures. Instead, the states, a powerful lobbying group in and of themselves, will likely join others to support national reform.

As General Eric Shinseki, former Chief of Staff, U. S. Army, said "If you don't like change, you're going to like irrelevance even less."

Posted by at 5:43 AM | Permalink | Comments (2)

I'm at the annual meeting of the Institute of WorkComp Professionals in Asheville, NC today. A very impressive group; what is notable is these folks actually do 'get it'; they do understand that workers comp is not just a spreadsheet game, a price war, a contest to see who can squeeze the carrier the most.

These agents understand that the value they must deliver is to develop and implement long term programs, programs that attack cost drivers, that reduce injuries and speed return to work.

And those programs, and the results they provide, can't be done on the cheap.

Posted by at 12:36 PM | Permalink | Comments (0)

the new big thing at RIMS this year seemed to be weather; the prediction of it (both long and short term forecasting), and the closely related business of disaster recovery. There were several vendors marketing sophisticated technology that ostensibly enables users to predict the date time and precise location of tornado touchdowns, along with the precise path and extent of destruction and list of addresses that will be affected (well, I may be exagerating just a touch).

Just in case an insurer hadn't taken advantage of that new technology, there were several disaster recovery firms pitching their incredible ability to make disaster damage disappear overnight. Perhaps they should market themselves to parents of teenagers for those inevitable parents-out-of-town-party cleanups. Now that would be a test...

If it is any consolation, there were dozens of security firms at the 2002 RIMS: they've all but disappeared from the show floor, perhaps due to the lack of unfortunate events in 03, 04, 05...

Posted by at 11:21 AM | Permalink | Comments (0)

I and others have taken Sen McCain to task for his wildly expensive health reform plan that somehow manages to cost more than the Obama or Clinton plans, while insuring far fewer people.

How does he do this?

By relying on tax breaks and the existing completely broken health care system, making no changes to insurers' current ability to medically underwrite, deny coverage to those with pre-existing conditions, and allow insurers to write policies across state lines, thereby contributing to the likelihood that adverse selection will speed the death spiral of plans that take all comers.

Brilliant.

Bob Laszewski provides us with a trenchant review of Mccain's latest attempt to justify/explain his 'plan'. Hint - it is neither a justification or explanation, but then again, it isn't a plan.

Posted by at 1:33 PM | Permalink | Comments (0)

I had a chance to spend more time with the Medcor folks this morning at RIMS, and liked what I saw. They've been doing the combo first report of injury (or most of it)/nurse triage/network direction work for ten years now, and some of their nurses (all calls are answered by nurses) have logged over 5000 calls.

Because they don't have any stake in any network, they don't worry about increasing network penetration (a wholly misguided metric used to evaluate managed care plans) per se, but rather focus on getting claimants to the right doc. They do have the ability to send patients to specific docs based on the type of injury - but (here's a shocker) most of their customers are not yet sophisticated enough to be able to identify those 'right' docs.

The value? Avoided ER admissions and reduced claim frequency.

Not an earth-changing business, but one with a lot of potential - even more if the employer is somewhat sophisticated.

Posted by at 12:12 AM | Permalink | Comments (0)

Here, in no particular order, are some findings gleaned from my wanderings around the show floor at RIMS in San Diego.

MSC has rebounded nicely from the loss of Liberty Mutual's pharmacy business last year (awarded entirely to Progressive Medical). Sources indicate MSC's run rate is back above where it was when Liberty terminated the business, primarily from a few wins and no appreciable losses in the interim. Kudos to CEO Joe Delaney, COO Mitch Freeman et al - while the ship may not be altogether righted, they have done a remarkable job in turning the company around.

Progressive Medical is also doing well, adding some incremental business while maintaining its reputation for stellar customer service.

Cypress Care (an HSA consulting client) is on a strong growth track, closing major deals with the California Insurance Guarantee Ass'n and Pennsylvania's state fund (SWIF). Sources indicate Cypress is close to a couple other significant deals.

Express Scripts has released its annual workers comp drug trends report. Here's the link. Maybe that's why all the red-shirted ESI staff were plastered with smiles.

Larry Marsh of Lehman Brothers issued a scathing report on AmerisourceBergen, taking company management to the woodshed for their inability to sell off sub PMSI/Tmesys. Marsh hammered ABC, lowering his eps forecast by $0.05 on the basis of the no-sale of PMSI alone. The PMSI folks are doing their best to ignore the goings-on at Corporate HQ; as noted earlier today their MSA division is pressing ahead and delivering solid results despite downward pressure on pricing in that fast-maturing sector.

Finally, one of the last remaining third party billers, Third Party Solutions, is reportedly on the block - again. Loyal readers (and industry geeks) will recall TPS was for sale about a year ago, with no takers. Now that TPS has bought WorkingRx, it looks like owner Fiserv is thinking someone will pony up big bucks to own a monopoly in that space.

Posted by at 11:19 PM | Permalink | Comments (0)

The periphery of the trade show floor at RIMS is where you'll find innovators - new companies, with new ideas and concepts, new solutions to old problems, all described by their owners, founders, and top execs. To give credit where credit is due, this isn't my observation but rather one made by friend and colleague Peter Rousmaniere.

The choice spots on the exhibit floor are occupied by the seniority; RIMS assigns spots according to how many years an exhibitor has been attending, These spots are taken up by the big carriers, brokers, software suppliers, and managed care firms. Not a lot in terms of innovation here, although there are a couple of interesting new solutions to old problems.

Medata's at RIMS with a new booth, new team, and renewed commitment to customer service. Long hampered by a (to be generous) lackadaisical approach to customer service, Medata is back, looking to take advantage of the turmoil in the market created by Coventry's aggressive push to consolidate share; ACS' acquisition of CompIQ; and the sale of FairIsaac's bill review unit to Mitchell Medical.

Coventry is promoting a medical triage/first notice/network direction product that they've been working on for over a year. Early indications are the service can help reduce frequency - significantly. Kudos to the 900 pound gorilla; although the product looks a lot like Medcor's version (which was developed earlier) at worst it shows Coventry knows a good thing when it sees it.

Medcor's service combines the best of nurse triage, first notice and provider network direction, reducing the number of calls the payer (or its designees) need to make and the calls the injured worker needs to answer.

Datacare has a unique data aggregation platform, enabling payers to capture and integrate all documents in one location and automate links between UR and bill review - an all-too-often ignored but nonetheless critical part of the medical management process.

Paradigm has been in business for 15+ years, but this is the first year they've exhibited at RIMS. The company's newest offering is a chronic pain program, which has shown strong results after a five-year development effort.

More tomorrow after my feet recover.

Posted by at 11:14 PM | Permalink | Comments (0)

Medicare Set Asides were a hot business for a couple of years with NuQuest HealthAdvocates and Gould and Lamb dominating the industry. Then Coventry entered the market thru its priority services sub, quickly moving up to the fourth spot. Coventry stumbled with its guarantee recently, losing a couple of clients (namely AIG and Macy's).

Today the MSA business is growing but not nearly as fast as in 2006. The big jumps in volume in the sector are pretty much over; while most vendors are seeing some increases in volume, the double-digit growth of the past looks to be gone.

There are still new entrants but the show floor isn't nearly as crowded with erstwhile MSA vendors as it was last year.

What's next? Depends on the Feds and adoption rates in other lines of business. Expect to see MSAs become more prevalent in other P&C lines especially GL and other liability lines.

Posted by at 7:51 PM | Permalink | Comments (2)

Last week it was the World Health Care Congress (perhaps the best conference I've ever attended in terms of content and quality). This week it is RIMS, the annual property and casualty get together, where brokers schmooze and vendors vend and risk managers are feted by carriers, TPAs, managed care firms and consultants.

Here's what I'm looking for at RIMS 2008. New and different approaches to managed care, approaches that are not merely based on discounted care, but outcomes. And not just lip service or 'we're seriously studying this' but programs that are in place, working, and delivering results.

Straight talk from vendors - what they can, and cannot, do. Results they've been able to deliver, and the keys to that performance. (Knowing that vendors can't be successful unless payers work cooperatively with them)

Evidence that payers are not just talking about outcomes and smaller networks and 'the right docs' but actually doing something.

New trends, products, ideas, and companies - something that has been in short supply in this industry for too long.

Stay tuned.

Posted by at 8:21 AM | Permalink | Comments (2)

Friend and colleague Bob Laszewski has shined a very bright light on Wall Street's ignorance about the health insurance business.

Bob notes: "We are way past the time the really smart people on Wall Street (that would be all of you) needed to start asking just what the future of this business is. If the answer you get is that the future of managed care is just to ride an unsustainable health care cost trend rate many more years into the future[bold is mine] you might just want to dig a little deeper this time."

As usual, Bob is dead on. Health plans make their money by pricing just above trend, selecting risks, and avoiding claims wherever and whenever possible. They are getting (justifiably) hammered by regulators and the press for claims avoidance, and Wall Street may have finally woken up to the inherent problems in the standard health plan business model.

There are far too few health plans that actually do anything remotely resembling 'managing care" - they manage risk, they manage reimbursement, they manage analysts - but they do not manage care.

I've said before, and repeat here - health plans that know how to manage care, particularly for the previously-uninsured, are going to do really well when universal coverage becomes the law of the land.

Unfortunately, there are few plans that qualify.

Posted by at 11:27 AM | Permalink | Comments (3)

As I reported last week, the softening market will inevitably lead to a significant increase in the number of mergers. Add another deal to the list.

In a deal just announced, Liberty Mutual is buying Safeco, the Seattle-based P&C carrier, for $6.2 billion in cash. The transaction is valued at $68.25 a share, and marks the second major acquisition by Liberty in the last few months.

Safeco will be part of Liberty's Agency Markets business, a venture that was initiated by Liberty Chairman Ted Kelly several years ago. Prior to that, Liberty was a direct writer, and only sold thru its captive sale force (disclosure - I sold for LM for several years). The Agency Markets unit has been quite successful in helping Liberty land clients that would not buy direct, but had strong relationships with brokers.

Safeco joins America First, Indiana Insurance, Montgomery, Ohio Casualty, Peerless, Colorado Casualty, Golden Eagle, and Liberty Northwest as well as Wausau and Summit Holding.

The current financial state of the P&C market makes it highly likely, and I would even say inevitable, that more deals get done, and soon. There is more capital out there than places to park it, and with organic growth difficult and very expensive (the market is soft enough, and even Liberty can't keep cutting prices forever) insurers looking to grow are going to have to do so thru acquisition.

Posted by at 10:20 AM | Permalink | Comments (1)

I reported last week that workers comp pharmacy benefit manager/DME supplier PMSI/Tmesys was near a deal to transfer the company from Amerisource Bergen to a new owner. Citigroup's investment banking arm was retained to sell the property, and PMSI was put up for sale in late January.

Firm bids were requested from interested parties in early March.

Sources indicate Amerisource Bergen and Citigroup were in the final stages of negotiating the transaction with a financial buyer late last week, with the deal slated to be announced yesterday.

That deal is off, and Amerisource has pulled the plug on any sale. Evidently they were not able to get the price they wanted, and have decided to hold onto PMSI - for the time being.

Here's how Amerisource characterized the situation:

The Valley Forge, Pennsylvania-based company said it will focus its efforts on turning around PMSI.

President and Chief Executive Officer David Yost said in a prepared statement, "Because the final bids did not reflect the turnaround value of the business (bold added), which we expect to capture, we will focus on significantly improving the business and delivering that value to shareholders."

He said he expects PMSI to improve in the second half of this fiscal year and show improvement in fiscal year 2009.

Posted by at 10:14 AM | Permalink | Comments (0)

AIG is no longer using Coventry for MSAs.

AIG was quite displeased when Coventry raised prices for networks and other services. AIG has long been a loyal First Health/Coventry customer, and was one of their larger MSA customers.

The defection, and other business losses has led to a reported 60% drop in revenue for Coventry's Priority Services unit (they handle the MSAs (Medicare Set-Asides); sources indicate Q1 2008 MSA revenue is down almost $3 million from Q12007.

Priority Services has had other problems, namely issues related to its 'guarantee' that CMS would accept its recommendations for Medicare Set-Aside amounts. I don't have the details, but it appears that Coventry has not been able to deliver on what has been its key marketing message - the guarantee. Apparently this is in large part due to CMS' unfamiliarity with state workers comp fee schedules.

The drop off in business reportedly has led to layoffs at Coventry's Priority Services division.

The business decline comes on the heels of a Federal subpoena issued to Coventry demanding they cease any and all destruction of records related to their MSA business dating back at least three years. The subpoena has made its way to all PS employees, and may well be tied to a complaint from a couple years back alleging that PS inappropriately used Coventry's online access to Medicare eligibility data.

The net is this - Coventry has been very aggressively working to maximize WC revenues, to sell all its services to all its customers by bundling, offering what amounts to bulk purchase deals, and in some cases requiring customers to agree to significant price increases. When you are a monopoly in one critical area (workers comp networks) you have some pretty strong leverage.

The problem arises in other areas, where Coventry does not have a monopoly, and customers, angered by their heavy-handed tactics, vote with their feet and move their business elsewhere. The workers comp buyer is tough, does not like to be hemmed into a corner, can be loyal but only if s/he believes s/he is being treated fairly, and has a long memory.

Coventry may be forgetting that their priorities must be aligned with their customers' if they are to prosper over the long term.

Posted by at 7:30 AM | Permalink | Comments (0)

Anthem/Wellpoint's ill-fated efforts to reduce medical costs by retroactively cancelling policies for members with mistakes on applications has become the company's open sore. The latest is the filing of a major lawsuit by the City of Los Angeles, accusing the big health plan of "unlawfully canceling the coverage of thousands of Californians after they filed medical claims."

While earlier reports indicated around 700 policies had been affected, the LA City Attorney 's suit alleges that 'up to' 6000 members had their coverage cancelled.

And that is in LA County. If other municipal prosecutors decide to join in Wellpoint may find itself facing a plethora of suits from all over California; if it expands east...

Once again folks, reform is coming. Do you want to be helping to navigate the bus or do you want to be the bug on the windshield?

Posted by at 6:01 AM | Permalink | Comments (1)

The third session of the World Health Care Congress was begun by a talk from Rep Jim Cooper (D TN), one of Barack Obama's health policy folks. Rep Cooper primarily condemned Sen McCain's policy, while noting that both Democrats' platforms were essentially identical - with one notable exception - Obama does not mandate coverage.

(A comparison of the Clinton and Obama plans is here)

According to Cooper, the upfront problem w universal coverage is that it will result in "zero Republican votes" - a completely wrong statement. For example, Ron Wyden's (D OR) Healthy Americans Act has six (6) GOP cosponsors - and the HAA specifically calls for universal coverage.

McCain's spokesman, Thomas Miller of the American Enterprise Institute, talked a good bit about the tax implications of McCain's plan - a program that is remarkably similar to Pres. Bush's plan (that got absolutely zero traction in Congress). Miller noted that McCain's plan relies on the market and individual motivation to buy insurance, a motivation that will be enhanced by a tax credit for those how buy coverage (a tax credit that amounts to $2500 for an individual or $5000 for a family, about half of what coverage actually costs).

I'd note that Mr. Miller did not mention that Sen McCain's plan will also be quite expensive. The cost of the Senator's tax credits would be $206 billion in FY 2009 and $3.6 trillion over 10 years.

Chris Jennings spoke for Sen Clinton, and he started with the (I would argue sole) difference between the Clinton and Obama plans - she wants mandated universal coverage and he does not. Mr Jennings noted that half the cost comes from rolling back the Bush tax cuts and half from programmatic savings, but he did not add much in the way of new insights into how Sen Clinton's plan will reduce costs.

There were two commentors - George Halvorson, CEO of Kaiser Permanente, and fomer Sec of State (and other departments) George Shultz. Halvorson began with the good news, that candidates are talking at a level of detail and comprehension re health care that is unprecedented. We've moved away from sound bites and deep into the details, a transformation that is quite encouraging to Mr. Halvorson.

George Shultz noted that if people work longer there will be more GDP, and this will help pay for more health care. He also opined that the reason people are living so much longer over the last 60-80 years is due to basic research and development of technology and pharmaceuticals. This, I would note, is in direct conflict with every other expert's view on the subject - sanitation, nutrition, antibiotics and infectious disease control are overwhelmingly responsible for the improvement in lifespan, not MRI machines and new drugs (with the notable, but not overwhelmingly important, exception of antibiotics).

Finally, someone raised the question of comparative effectiveness evaluation - and all spokesmen agreed that we need to do a lot more of it. The elephant in the room is the AMA, and their likely-nuclear reaction to anything that smacks of 'telling physicians how to practice medicine'.

But here's my primary takeaway - everyone on the panel called for universal coverage even if McCain's spokesman's support was muted at best.

Posted by at 10:00 AM | Permalink | Comments (0)

Health care 'experts' are coming out of the woodwork like termites after fumigation. Former Sec of State George Shultz and Stanford professor John Shoven are two of the latest emergent experts; they have written a book on reforming social security and health care - I haven't read the social security part and after reading the health care section I don't think I will.

One of the authors' primary contentions is that involving the consumer in health care is a key to reforming the system. One of the bases for their argument is the history of laser eye surgery - Shultz and Shoven contend that the consumer's involvement in selecting and negotiating for laser surgery demonstrates that consumerism can reduce costs while improving outcomes.

This because health insurance does not pay for lasix, forcing consumers to, well, be consumers. The huge differences between buying eye surgery (a pretty basic decision, with a tightly defined problem and expected outcome and easily measured result) and figuring out how to buy, or more accurately if you need to buy, health care for your child with an undiagnosed neural disorder are not addressed - at all. I find this to be an unforgivable error, an oversimplification of monumental proportion.

They call for risk adjustment as the way to spread risk and require insurers to take all comers for Medicare and Medicaid members, and seem to advocate universal coverage, but don't adequately address, or I would argue even minimally address the issue of adverse selection. This issue - adverse selection - is central to the problem of health insurance today - people who need insurance buy it, and the sicker they are the more they are willing to pay, and the more expensive it is, the fewer healthy folks will sign up (because the cost:benefit doesn't make sense). This is the death spiral - a current example is Humana, currently getting murdered in Part D (they are one of the only payers still offering a rich option, others have dropped the Cadillac plans because, surprise, the people who bought them were the ones who needed the most, and the most expensive, drugs.

What does this mean for you?

Listen to people like Bob Laszewski, Uwe Reinhardt, Alain Enthoven. People who know of what they speak.

Posted by at 8:56 AM | Permalink | Comments (0)

The opening session for the World Health Care Congress featured Hans Rosling MD PhD of Sweden's Karolinska Institute - a wizard in the use of statistics to explain the relationship between income, health status and the evolution thereof in ways that enable regular people to quickly and readily grasp the issues.

According to Rosling, the biggest disconnect between reality and our current perceptions there of is our segmentation of countries into 'developed' and 'developing', a segmentation that we use (that 'we' would include me) that now looks to really miss the mark - and not by a little.

There is no difference between the Western and developing worlds in two key areas - fertility rate and life expectancy at birth - this has been a remarkable change over the last 50 years, due to fewer kids, better sanitation and nutrition. Pretty simple stuff. But big in terms of implications - for example, demographically, Vietnam is precisely where the US was in 1980 - in terms of family size and life expectancy. And these changes happened before significant economic changes in Vietnam, changes that one would normally associate with dramatically improved population health status.

Most economic growth in the world is taking place in developing countries, the countries that make up 60% of world population and earn a quarter of total income. Yes, we still have about a billion poor people, but that number has remained static for over a hundred years - the percentage of the population that is poor has dropped dramatically.

Rosling's presentation also made a very convincing case, or more accurately proved, his point that there are wide disparities between and among countries in the same areas - making general statements about OECD v Developing countries is not only dead wrong, it is misleading. Misleading in that we draw conclusions based on a split that appears to be deep and persistent, when in fact the 'developing' world is growing faster, economically and in terms of health status, and is rapidly catching up to the developed world.

What does this mean for you?

Always question your assumptions.

Posted by at 8:06 AM | Permalink | Comments (2)

I'm covering the World Health Care Congress in D.C. today, and will be posting from the front row. I'll start with the intro keynote, and post on each session separately. Here's the order

1. Global Health Trends

2. Interview w George Shultz and Dr John Shoven on their incremental approach to reforming health care

3. Presidential Health Care Agenda - spokespersons from the three candidates left standing

4. Innovation in health care - with Clayton Christensen, perhaps the most insightful business author I've read in years

5. HealthGrades on Search and Transparency

6. Achieving accountable care - Elliott Fisher (Dartmouth) Mark McClellan, American Enterprise Institute

To those who subscribe, you will be inundated with posts today.

Posted by at 7:34 AM | Permalink | Comments (0)

The laws of supply and demand are making their impact felt in the P&C insurance industry - there is just too much capital chasing too few risks. Industry watchers have been surprised by how quickly P&C insurance premiums are dropping. For the first time since 1943, total premiums actually dropped last year - a result of price cutting by insurers and a worsening economy.

Profits are not falling as fast as revenues, but there have been significant declines, with the latest numbers indicating the P&C industry's 2007 after-tax profits dropped 5.8% from 2006 to 2007. The net impact of the decline in revenue and profit is a 2007 return on equity (actually policyholder surplus, the industry's proxy for RoE) of 12.3%, compared to a Fortune 500 RoE of 13.9%.

Yet capital still loves the insurance industry. It is still generating a profit based solely on underwriting (not taking into account investment returns), a happy event all too rare in the P&C business. And many in the industry are talking about how this time will be different, because they have better information, are more disciplined, will underwrite better, and won't repeat the mistakes of the late nineties. Just like they said last time.

What's this all mean?

Over the short term, better pricing for insurance buyers, and better coverage terms as well.

Continued blood-letting in the TPA market, which is getting uglier by the minute as normally self-insured risks buy insurance for less than their TPA's loss pick. (Tough time for CorVel to get into the TPA market...)

And a significant increase in the number of mergers. Cochran Caronia published an insightful study last year linking the M&A cycle to the insurance cycle (and presented same at last summer's AMCOMP conference). In that report, they predicted a 10-15% price drop for P&C insurance this year - so far, that looks spot-on, adding credibility to their forecast. Cochran expects reinsurers to invest in MGAs and buy or merge with primary carriers.

Primary carriers will also acquire other insurers and/or buy up MGAs to "capture the incremental underwriting income." Liberty Mutual's purchase of Ohio Casualty a year ago, and HCC's acquisition of Kendrick and Associates are but two examples.

When will this stop? If reinsurers get hit hard (think hurricanes), there is a man-made disaster, or the world-wide economy picks up steam quickly, things could turn. Until then, insurers will slowly bleed themselves until they can't take it any more.

Then the market will start to rebuild itself, on the rubble of the insurers who were convinced that this time they would be smarter.

Posted by at 7:07 AM | Permalink | Comments (0)

Jeez, they're good.

Maggie Mahar and Niko Karvounis host this fortnight's edition of HWR, and obviously spent a lot of time and smarts on the effort.

Particularly excellent is the discussion of the new Tier 4 pricing for drugs - there are several provocative posts that really explain the potential impact.

Posted by at 8:25 AM | Permalink | Comments (1)

Drug costs now account for 15% of total medical expense in workers comp, a percentage that has grown dramatically over the last few years. My firm has conducted the only survey of payers focused on prescription drug management in workers comp, and we're in the midst of the fifth annual survey.

This year's survey is sponsored by Cypress Care, marking the third consecutive year of their support.

Early findings (subject to change) include:

• Costs for some payers have stabilized
• Utilization continues to be the main cost driver
• There is an increasing recognition of the importance, and potential impact, of clinical management programs

If you are with a workers comp payer and interested in participating in the survey, email infoAThealthstrategyassocDOTcom. Respondents receive a comprehensive, detailed Survey report.

Summaries of the previous four Surveys are available here.

Posted by at 8:07 AM | Permalink | Comments (0)

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.

Posted by at 7:01 AM | Permalink | Comments (2)

As I noted yesterday, Florida is considering a change to the fee schedule that would increase work comp medical expenses by a full 20%. The change, basing reimbursement for work comp outpatient procedures on what hospitals bill Medicare, would double workers comp payers' outpatient hospital costs. (Workers comp is already the best payer (by far) for Florida's hospitals, with margins exceeding 55%.)

To understand why, here's a brief background on the facility reimbursement situation in the Sunshine State. Florida's fee schedule calls for most outpatient services to be reimbursed at 75% of 'usual and customary' charges; outpatient surgical services are paid at 60%. The obvious question is: what is 'usual and customary'. Turns out that there is no agreed-upon standard in Florida, a situation that has led to numerous disputes between payers and providers. In an effort to fix this, the regulators are seeking to establish a uniform standard - albeit one that would double already-high outpatient prices.

According to an analysis done by FairPay Solutions (an HSA client), 55% of workers comp costs in FL are billed on UBs (hospital billing forms). 44% of those costs are for hospital outpatient services - or about 13% of total costs. Increasing 'usual and customary' costs by almost 200% (FairPay's estimate based on FL Medicare charge and payment data) will dramatically increase medical costs.

That's bad. But it would get worse, quickly.

Florida hospitals raise prices around 15% annually. There's nothing to stop them from continuing this practice, and as the proposed FS change would base reimbursement on charges, not payments, they are actually incented to push prices even higher.

Expect physicians to start seeing patients in hospital exam rooms as well. Why? Reimbursement - an additional $290 for each visit.

Next we'll consider why Medicare should never be used as the basis for WC reimbursement, and we'll conclude by looking at two markets - Miami and Orlando, (already the poster children for excessive hospital utilization) and consider the impact of this potential change on costs in the two large markets.

Posted by at 6:40 AM | Permalink | Comments (0)