Year: 2006

Jun
23

Vacation

Posted by Joe Paduda on Friday, June 23rd, 2006 | Comments

I’m leaving for a slightly-less-than-three week vacation, and will be posting sporadically at best. This will be the longest break since grad school, and I’m very much looking forward to the time away. One of the really big problems with taking an extended vacation is the somewhat scary notion that the world will proceed along just fine in one’s absence.
Therefore, if anyone is planning any momentous changes in the worlds of managed care, health policy, workers comp, or insurance, please delay until my return.
If the changes absolutely can’t wait, we’ll just have to rely on Matt Holt, Hank Stern, Tom Lynch and Julie Ferguson, Roy Poses, and the rest of the erudite, informed, and incisive that populate the health wonk-o-sphere to announce, analyze, interpret, and pronounce judgment .
Somehow I think they’ll do just fine.

Jun
22

How does physician income drop while costs increase?

Posted by Joe Paduda on Thursday, June 22nd, 2006 | Comments

Everyone’s losing in America’s health care mess. Premiums for family coverage are doubling every ten years, and will hit $20,000 per family per year before 2015. While insurance costs are going up, physicians are actually making less. Physician income decreased 7% (registration required) in real terms from 1997 to 2003. Specialist earnings dropped the least (2%), while primary care docs saw a 10% decline. And Medicare reimbursement rates will likely decline in nominal terms in the near future.
The data, from a study by the Center for the Study of Health System Change, seem at odds with the daily torrent of reports on exploding health care costs. If health care costs and insurance costs are rising, how could docs be making less?
There is good news buried in CSHC’s report – the amount of time physicians spend actually treating patients has increased significantly, while the time devoted to administrative tasks has declined.
It appears the answer lies in declining reimbursement rates. These hard-working docs are spending plenty of time (over 45 hours a week) with patients, but their reimbursement rates have not kept pace with inflation. For example, Medicare has increased fees by 13% during the study period, while the underlying inflation was 21%. And, private payers’ reimbursement declined from 143% of Medicare’s rate in 1997 to 123% in 2003.
So, clearly physician income is not a driver of medical inflation. One driver appears to be the increased volume of tests performed; utilization in this area was up at a 6% annual rate over the study period.
But the real driver appears to be higher utilization of physician services (more docs doing more stuff), and, slightly less important, a significant increase in hospital and facility costs.
Oh, and drug costs continue to rocket skyward…
What does this mean for you?
Higher costs, lower incomes = unhappy consumers and providers does not = change…yet.

Jun
21

Big pharma v big government

Posted by Joe Paduda on Wednesday, June 21st, 2006 | Comments

Prices on branded drugs increased 3.9% in Q1 2006(registration required), the largest increase in six years. Coincidentally, the Medicare Part D drug coverage program went into effect 1/1/2006. Part D has resulted in somewhere around ten million new customers for insurers, who will now pay 4.7% more for Lipitor and 13.3% more for Ambien.
In terms of dollars, AARP calculates the average senior’s costs will increase by almost $20 per month, as the Part D providers are passing the cost increases along to their subscribers.
There has been the usual rash of outraged protests from various mouthpieces for big pharma, all of which are either disingenuous, outrageously self-serving, misleading, or poor attempts at deflecting blame towards insurers et al.
So what happens when pharma decides to increase prices?
Well, the mass media starts looking at what the Veterans Administration pays for drugs. Compared to the VA, the only federal entity allowed to negotiate prices, Part D prices are now 46% higher on average.
Here are a couple examples, quoted from the Families USA report.
“For Zocor (20 mg), the lowest VA price for a year’s treatment was $127.44, while the lowest Part D plan price was $1,275.36, a difference of $1,147.92 or 901 percent.
For Fosamax (70 mg), the lowest VA price for a year’s treatment was $265.32, while the lowest Part D plan price was $727.92, a difference of $462.60 or 174 percent.”
So here we have big government, in the form of the VA, delivering prices that are about half of what private industry can obtain. While that’s kind of interesting, it gets way more than “kind of” interesting when you consider that Part D has added $8 trillion to the nation’s long term debt. That’s a quarter of the entire Medicare deficit…
Tell me again how privatizing health care for seniors is a good deal for taxpayers, seniors, and the country?

Jun
19

Reinsurance getting harder to find

Posted by Joe Paduda on Monday, June 19th, 2006 | Comments

While primary P&C insurance markets appear to be flat to softening, the opposite seems to be occuring in the reinsurance business. According to leaders of several of the top reinsurers, capacity is down while demand is up, the indication of a hardening reinsurance market.
Underlying these macro trends are less obvious factors contributing to this apparent dichotomy. First, the secondary insurers are paying more attention to bottom lines than top lines; looking for profitable business and not just any business. Second, reinsurers are seeking good long-tail line business such as workers comp; these lines also tend to be the least affected by natural catastrophes and provide the longest access to capital as claims are paid out over years instead of months. Third, with interest rates ticking up, reinsurers can find attractive places to invest premiums over the long haul.
And finally, there are a lot of very anxious reinsurance underwriters who break out in a cold sweat when the barometer drops…witness all the press about the season’s first tropical depression, a weather non-event that normally would merit nothing more than a slightly extended local weather update in coastal Florida cities.

Jun
19

Ohio’s BWC to cut payments to hospitals

Posted by Joe Paduda on Monday, June 19th, 2006 | Comments

Ohio’s Bureau of Workers Compensation will no longer be subsidizing indigent care at the state’s hospitals. The recent announcement that BWC is cutting reimbursement for inpatient care to Medicare plus 15% is one of the positive outcomes of the Hydra-headed scandal at Ohio’s Bureau of Workers Compensation.
And it appears likely that BWC will next cut payments for outpatient services, which make up a much larger slice of the medical expense pie.
Ohio joins several other states, including Pennsylvania. Connecticut, Rhode Island, California, and Maryland, all of which base workers comp reimbursement on Medicare costs plus a percentage.
Notably, the press has been somewhat neutral in its coverage of the change, with a recent editorial allowing that the reduction will simply result in cost-shifting to other payers. That is an inevitable result; however there is no logical, ethical, or legal requirement that the state’s employers pay for the inefficiencies or hospitals or society’s failure to provide insurance for all citizens.
Work comp has been a very profitable line of business for the state’s hospitals, generating over a half-billion dollars over a seven year period. That figure covers both inpatient and outpatient care, with outpatient significantly larger.
What does this mean for you?
On a micro level, lower costs for workers comp in Ohio; on a macro level another push for universal coverage.

Jun
16

The smart money is buying TPAs

Posted by Joe Paduda on Friday, June 16th, 2006 | Comments

Sedgwick CMS, one of the nation’s larger property and casualty TPAs, is getting even bigger. The company will be acquiring Comp Management Inc. (CMI) for just under $200 million.
This marks the first expansion of Sedgwick since its sale to Fidelity National earlier in the year. Sedgwick acquired California-based disability management and administration firm VPA in May. Prior to that deal, Sedgwick had primarily grown organically; the new owners look to be very interested in gaining size and competencies as quickly as possible.
CMI had been on an expansion trajectory of its own, branching out into medical malpractice administration with the acquisition of Octagon in 2003, a deal that also significantly expanded CMI’s west coast presence. CMI was owned by investment firm Security Capital Corp. of Greenwich Ct.
Broadspire is another TPA acquired by an investment firm. This deal, which transferred the somewhat-damaged Kemper National Services TPA to Platinum Equity, was the first of a series of acquisitions that have propelled the combined entity into the top tier of TPAs in terms of market size. RSKCO and Cunningham Lindsey were added to the portfolio in 2004. Since that deal, Broadspire has been selling off assets that appear to be tangential to its core claims adjudication business; the disability management operation went to Aetna and Bureau Veritas picked up the loss control/safety division earlier this year.
These deals are not the only sign of interest on the part of the investment community in the P&C world. The level and amount of interest in TPAs has grown exponentially over the past year; my sense is the industry is perceived to be ripe for consolidation; backward in terms of technology, business process streamlining, and operational excellence; and significantly less profitable than it could be.
I agree.

Jun
15

Family insurance premiums to double in ten years

Posted by Joe Paduda on Thursday, June 15th, 2006 | Comments

Early indications are that HMO rates will rise 7-8% next year. Compared to this year’s 10% average increase, that’s good news. And here’s just how good that news is.
Withfamily premiums (HMO and other plan types) hovering at the $11,000 mark, and rates increasing by, say, 7% per year, we’ll have health insurance costs of $20,000 per family in ten years. Truly the miracle of compound inflation (sorry, Benjamin Graham).
The 7% increase quoted is a wildly optimistic figure, as rates have increased at least 9% each year for the last five years. And, with the number of people without insurance increasing every year, further adding to cost-shifting to insureds; tighter eligibility requirements for Medicaid; and increased employee cost-sharing the middle class (read – voters) will be increasingly demanding action – and if the next presidential election does not have health care as a top theme, it will only be because of a horrendous natural or man-made disaster. Although one could reasonablyh consider the US health care system a man-made disaster, I’m thinking more on the order of foriegn policy.
What does this mean for you?
More pain before our elected officials get their collective act together.

Jun
14

Health Wonk Review entries due

Posted by Joe Paduda on Wednesday, June 14th, 2006 | Comments

Send your submissions to Julie Ferguson at: julie AT julieferguson DOT com. Make sure you include-
your blog url
the entry url
a brief synopsis
Julie’s doing other stuff today, so you have till 5 pm eastern.

Jun
14

The UAW, Sen. Orrin Hatch and Universal Access

Posted by Joe Paduda on Wednesday, June 14th, 2006 | Comments

Health care makes strange bedfellows, and there is perhaps no odder combination than UAW Pres. Ron Gettelfinger and Sen Orrin Hatch (R-Utah). Especially when both agree that health care is a national crisis, and both are affiliated with organizations that agree the feds should guarantee health care access to all.
In a landmark speech a couple days ago, UAW President Ron Gettelfinger acknowledged the cost of health care benefits is one of the key problems facing the declining US auto industry, and called for the union’s 600,000 members to be part of the solution. In his hour-long speech, Gettelfinger mentioned health care a dozen times, paying special attention to national health care policy. He blamed Pres. Bush for a failure to address the problem, and specifically called for a national single payer approach. But readers who only absorb that sound bite miss Gettelfinger’s core message; without a rational approach to health care, the US will not survive economically. Here are a few quotes…
“U.S. automakers (are) at a severe competitive disadvantage…It’s time to level the playing field. Health care is another area where we are at a competitive disadvantage…”
“In the 2003 national auto negotiations we were successful at preserving health care. However, last year the financial situation at GM and Ford was such that our retiree’s health care was at risk and I made the difficult decision to negotiate an agreement to address the huge and growing retirees’ health care liability carried by these companies.”
The UAW knows that economic survival depends on a competitive automobile industry, and with health care costs at Ford and GM totaling $9 billion, that survival is in doubt.
“Assuring health care is a shared social responsibility.” No, that’s not another line from Gettelfinger’s speech, but rather from the interim report of the Citizens’ Health Care Working Group, a non-partisan Congressionally-funded research project started by Sens. Orrin Hatch (R-UT) and Ron Wyden (D-OR). This statement came out in the group’s preliminary report, along with a recommendation that the federal government guarantee access to health care for all Americans.
Sure, there are differences in approach, but there are a lot more similarities than differences. Could it be that we’re getting closer to addressing the health care problem?