Year: 2006

May
31

UHC fighting the wrong battles

Posted by Joe Paduda on Wednesday, May 31st, 2006 | Comments

The latest health care plan to enter into a very public battle with a large provider is Oxford Health, a subsidiary of United Healthcare. And their opponent, Jamaica Hospital of Queens, New York, appears to be on the losing end of an unfair battle. Evidently (free registration required) Oxford and Jamaica Hospital completed negotiating a new contract about 18 months ago that increased reimbursement rates significantly. Jamaica signed the deal, sent it on to Oxford, and went on about its business.
Jamaica’s business is providing health care, which it does for many poor, uninsured, and underinsured folks in and around Queens. The hospital was counting on the new deal with Oxford to help it continue to provide these services to this population.
A few months later, Jamaica figured out Oxford had not changed its reimbursement amounts, and complained to the payer. After a bit of wrangling, Oxford told Jamaica that it would not honor the contract (which it had yet to sign) until the hospital helped Oxford negotiate a deal with an anesthesiology group at another hospital in the same system. Jamaica said no, and after more wrangling, Oxford threatened to terminate the contract.
A termination would have jeopardized Jamaica’s ability to provide a broad range of health care services to the uninsured and underinsured.
As a for-profit health plan, United Healthcare is one of the three remaining dominant national health plans (with apologies to Coventry and CIGNA). United is tough, very aggressive, and not afraid of a fight. While one can take issue with its negotiating tactics, my real objection is to the company’s bad battle selection. Instead of strong-arming a hospital system to force a group of docs to kowtow to its demands, United should be screaming about the unfair nature of the health care system that requires its contracted providers to shift costs to United to make up for revenue lost by caring for people without insurance.
United Healthcare’s obligation is to its customers, patients, and shareholders. It is not United Healthcare’s responsibility to pay for care for those people it does not insure. By using childish tactics in its fight with Jamaica over what are really petty issues, United is ignoring a much larger problem, and one it could, and should, actually win.
While I’m no apologist for United or its management, they are getting a raw deal. Too bad they haven’t figured out they are doing it to themselves.

May
30

Physician income, priorities, and the free market

Posted by Joe Paduda on Tuesday, May 30th, 2006 | Comments

It is axiomatic that one’s income is based on one’s value. If recent studies on physician income are any indicator, society still places a lot more value on doing procedures than on keeping people healthy.
According to physician recruiting firm Merritt, Hawkins & Associates, job offers for internists and family practice docs came with average salaries of $162,000 and $145,000 respectively. In contrast, cardiologists and radiologists were offered $$342k and $351k. The first group of docs provide primary care; diagnosing conditions, encouraging healthy behaviors, finding early indicators of life-threatening disease. They get paid for their time. Yes, they do procedures (excisions, tests, x-rays and the like) but their time is spent not doing things but figuring out what’s wrong with patients and making recommendations to fix the problems.
The second group of docs do procedures – yes, they diagnose, albeit on a patient that arrives with records in hand, preliminary work-up completed, and some indicators of a problem that falls into the specialist’s area of expertise – but they get paid to do things – analyze images, perform surgeries and invasive procedures, apply radiation to attack cancers and the like.
And primary care physicians are not (Lowes R. Earnings: Primary care tries to hang on. Medical Economics. September 17, 2004) seeing their incomes increase, while invasive cardiologists enjoyed an 11% jump in income from 2002 to 2003. Internists who are looking to generate more income are encouraged to sub-specialize in gastroenterology, cardiology, and other more lucrative areas.
The Lowes article provides an excellent perspective on the causes and results of the rise of “proceduralists”.
“The proceduralists have benefited from the waning of the gatekeeper model, since they’re now more accessible to patients. And they’re kept busy by graying baby-boomers anxious to preserve their hearts, knees, and various organs. Specialists also have managed to make up for meager third-party reimbursement by generating income from ancillary services such as diagnostic imaging, outpatient surgery centers, and even specialty hospitals.”
What does this mean for you?
The free market in healthcare is working. For specialists. It is most definitely not working for payers, taxpayers, and patients. And it is continuing to drag down our nation’s commercial and industrial competitiveness.

May
26

Concentra to announce major deal in Q3

Posted by Joe Paduda on Friday, May 26th, 2006 | Comments

Several sources indicate Concentra will announce a major acquisition in Q3 2006. Speculation is that the deal will involve adding a significant number of occupational medicine clinics to Concentra’s present 300 or so.
The next question is likely to be who/what clinics would be acquired. Here’s where the speculation turns to outright guessing.
One candidate may be HealthSouth. The troubled chain needs cash, has a lot of clinics, some of which actually generate decent patient volumes, and does a fair job of marketing itself to doctors and employers. However, HealthSouth sold its occ med clinics to another potential target several years ago.
The acquirer was USHealthWorks, a much smaller company company with strong traction in markets that are complementary to Concentra, including 56 occ med clinics in California alone. USHW is privately held, making a transaction smoother and likely faster than a deal with a publicly-traded firm. Concentra is owned by private equity firm Welsh Carson Anderson Stowe, which apparently remains enamored with the company’s potential.
Headquartered in Alpharetta GA, USHW has more than 160 clinics, 450 docs, and treats over 10,000 patients per day.
Adding USHW to the Concentra operation would result in one company with over 450 clinics touching over 13% of all workers comp injuries.
What does this mean for you?
More consolidation in the health care industry is quite consistent with recent developments, and while it may help streamline operations and reduce some overhead while improving claims and medical record document flow, my guess is some of the larger payers will be concerned about the growing market power of Concentra as the “initial treater” of WC injuries.

May
25

Solving legacy health care costs

Posted by Joe Paduda on Thursday, May 25th, 2006 | Comments

GM’s health care costs are over $1500 per car. Chrysler’s are $1400, Ford $1100. Honda, Toyota, et al are a fraction of these figures. That disparity crystalizes the economic problem facing US industry (subscription required) competing in a world economy.
There are ample posts and many sources describing how GM got to this point, and all of them are interesting and serve as an excellent object lesson for executives and public policy folk. But the real question is what do we do about this now?
First, let’s stop the health care problem from getting any worse. To do that, we have to address the current health care delivery system, pricing, access, and eligibility.

Continue reading Solving legacy health care costs

May
24

P&C Predictions for 2006

Posted by Joe Paduda on Wednesday, May 24th, 2006 | Comments

2006 will be a good year for insurer profitability, according to Robert Hartwig of the Insurance Information Institute. If the storm season is not unduly harsh and if insurers can maintain some pricing discipline. Those are mighty big “ifs”, and while the weather may be unpredictable, the propensity for underwritering discipline to waver is well documented.
There are two components to profits – premiums and claims. And while the claims picture is cloudy, the revenue picture is pretty clear. Premium increases have leveled off to half of one percent, the lowest rate since the nineties. And in spots there has been evidence of rate decreases as insurers try to hold onto profitable business. If the discipline holds, insurers may be OK. If not, we’ll have problems.
While insurer profits look good (up 12% over 2004), that is misleading as the industry’s return on equity remains below that enjoyed by other, less risky businesses. An RoE of 10.5% is not adequate for an industry that is subject to huge unpredictable losses; investors will find better returns from less-risky investments in many sectors.
As unattractive as 10.5% may be, it is much better than the industry’s average results for the last ten years of 7.7%.
What does this mean for you?
Hold on to your hat. Predictions are for the hurricane season to be a bad one, and if a big storm makes landfall in a populated and/or industrialized area, losses will be big and so will rate increases.

May
19

The myth of the med mal crisis

Posted by Joe Paduda on Friday, May 19th, 2006 | Comments

The malpractice insurance crisis does not exist. Actually, it does, but only in the popular press and in the minds of the AMA, a few politicians and alarmists. In the real world, the cost of malpractice insurance as a percentage of total practice expenses changed little over the last 30 years, rising from 6% of expenses in 1970 to 7% in 2000.
The finding comes from a report based on data collected by the American Medical Association and published in the MarketWatch section of Health Affairs’ May/June 2006 issue.
While the overall percentage increased by just one point over that period, there were significant changes during the thirty years. From 1970 to 1986 malpractice expenses jumped from 6% to 11% of total practice expense before falling back to 6% in 1996. Premiums bumped back up by a point to 7% in 2000.
Notably, the cost of other practice expenses, including non-physician labor, utilities, rent and medical equipment and supplies, increased much more rapidly than med mal premiums.
Let’s contrast this reality with the hyperbole and outright misinformation generated by some; Ohio Rep. Deborah Price is a great example. She is one of the supporters of med mal reform who have cited some highly doubtful statistics, including one noting that “Four out of 10 Ohio physicians have retired or plan to retire in the next three years due to rising liability insurance premiums”.
If physicians are retiring because med mal premiums are now consuming a couple points more of their practice’s overall expenses, they are lousy business people and probably should join a large group practiice anyway.
NOTE – the AMA has published a comment on their website in an attempt to refute the original article claiming that the analysis stops in 2000 which makes it inaccurate (a possibly valid argument, although one that is refuted prospectively by the authors in their article) and arguing that the data used by the authors is misleading (although the authors make a solid case for their selection of data sources).
My take – the med mal “crisis” can affect pockets of physicians significantly while having relatively minimal effects on the overall population; and the inefficiencies in the insurance market are much greater contributors to the problem than are tort costs. And, most potential suits are never filed anyway.
What does this mean for you?
More wasted time arguing about non-factors when we could be trying to actually solve the real problems driving health care costs up and access down.

May
18

90% < 72%

Posted by Joe Paduda on Thursday, May 18th, 2006 | Comments

CMS’ head Mark McClellan believes that over 90% of Medicare beneficiaries will have drug coverage after Monday’s deadline for Part D enrollment. That may be true, but that does NOT mean Part D enrollment is at 90%.
As has been ably reported in many places including this blog, before Part D most Medicare-eligible folks already had coverage from their Medicare Advantage plan, their employer, through their retirement plan, Tricare, or another source.
That left about 16 million without any drug coverage (out of the 43 million total eligibles). With the latest stats indicating there remain 4.5 million seniors without drug coverage, it looks like Part D will just pass the “adverse selection test” of a minimum of 70% of eligibles enrolled (my sense is a program of this type actually requires much higher enrollment, near 90%, to mitigate the risk of adverse selection).
Where does that leave us? There is a complex risk share program in place designed to protect Part D plan sponsors from adverse selection, a program that is in large part subsidized by taxpayers. However, there remains significant risk inherent in the program, a risk that private insurers would not have taken on without the taxpayers< backing them up.
So, we have a self-described conservative government using public funds and public policy to support private industry’s entrance into a new market.
Doesn’t sound very “conservative” to me. If Part D isn’t attractive enough for private companies to enter into on their own, why are we bribing them to do so? Are we not implicitly agreeing to commit public funds to this program? And if so, why didn’t we just cover drugs under Medicare, thereby avoiding all the doughnut hole, enrollment, dual-eligible and associated troubles?

May
18

CoverTennessee may be bare

Posted by Joe Paduda on Thursday, May 18th, 2006 | Comments

I’ll admit to being somewhat ambivalent about the recent action by the Tennessee state senate to eliminate the state’s assumption of risk in Gov. Phil Bredesen’s CoverTennessee plan. The Plan, designed to help provide health insurance to lower-income ciitizens (among other goals) relies in part on the assumption of risk by the State for losses above a set limit.
While I strongly believe in the centrality of universal coverage to any meaningful health care reform, I’m also leery of taxpayers’ subsidization of big business. Unfortunately, it may be difficult to get health plans to step up to the CoverTennessee plate without some way of protecting them against “excessive” losses.
While the Feds constructed a rather intricate risk-share program for Part D, my reading of that effort is that it is too complex, and potentially too generous, by far. Instead, perhaps the State should set up a reinsurance pool, funded in part by the commercial health plans participating in the CoverTennessee Plan and in part by the State (i.e. taxpayers). This pool might have two components; one to cover losses of any plans that go bankrupt, and another providing, on a quota-share basis, a mechanism to mitigate losses for specific health plans.