What are health insurers afraid of?

As the options on the table become somewhat more clear, it appears all but inevitable that any national health reform program will include a public insurance option, sometimes labled as “Medicare for All”. The plans offered by Pres. Elect Obama plan, Sen Baucus, Sen Kennedy and others all include a governmental option. The Medicare for All is also consistent with the views of key House and Senate leaders, including Pete Stark (D CA).
The wailing and whining has already started. Private insurers are aghast at the prospect of competing for members with a government health program. You know, the much-derided Medicare program, the one that private insurers volunteered to fix with their Medicare Advantage programs (yep, the Medicare that was so lousy that private insurers only needed a small subsidy to compete effectively with, and perhaps a little creative marketing as well).
What exactly do they fear? Specifically, three things.
1. A governmental program will get so large that it will crush private insurers.
2. Government plans have unfair advantages over private plans: they don’t need to maintain reserves, earn profits to attract capital, or pay premium taxes.
3. Governments, through their use of monopsony power, can aribitrarily set prices, reimbursement policy, and make coverage determinations
Fear one – if private industry is successful, governmental programs won’t compete effectively, and private options will come to dominate the market at the expense of the public offering. So unless private industry fails, issue one is moot.
Fear two -fair point. Then again, many healthplans are not for profit (e.g. Blues plans and Kaiser Permanente) and therefore don’t need to earn profits either. Premium taxes are rather minimal in most states, amounting to a couple of points. The reserve issue is a significant one, especially as the rating agencies are starting to toughen up their reserve adequacy standards.
Fear three – there has been so much market consolidation among health plans that most markets have two or at most three major health plans ‘competing’ for share. These plans, such as Independence and Aetna in Philly; the Blues in Boston, Blue Cross, Wellpoint and Kaiser in parts of California; the Blues and United Health in several Florida cities; Empire, GHI, and UHC/Oxford in NYC, all have significant market power over providers and employers today, power that would not likely diminish if a Medicare option came on the scene. These health plans set reimbursement policy and rates, have their own P&T committees and appeals processes, and enforce their market power whenever and wherever they can. They already have monopsony power themselves.
I have been and continue to be a supporter of private insurers and health plans. After working in this industry for twenty-five years, I know there are very smart, capable, and talented people in the business. We have our share of knuckleheads, but that’s no different from any other business. The problem we have is most of those smart folks are not working on care management and outcomes assessment, they are in underwriting. Once the industry stops trying to compete on the basis of risk selection and focuses its brains on care management, I’m confident some of the nation’s largest insurers will find themselves able to compete with Medicare quite comfortably.


The political case for national health reform

A positive brand image. That’s what every successful company seeks, and what unsuccessful companies don’t have – and which the Democratic party, despite its recent successes, is sorely lacking. Yes, the 2008 elections were a rousing success for the Democrats, but that success was driven more by the astonishing incompetence and jaw-dropping corruption of the opposition than by a noticeably smarter/better/more accomplished Democratic party.
The Democrats now have eighteen months to become a real political party again, something that is not merely an alternative to the GOP. Sure, there will be new regulatory bodies and enhanced oversight, better personnel selection procedures and more open government, fewer signing statements and more regulations that will affect workers and protect savings and the environment, but how do you put that on a bumper sticker? How does that translate to a message for the masses?
For the past sixteen years, Democrats have attempted to claim the mantle of the advocate for the working man, all the while passing NAFTA, cutting taxes for the wealthy and big business while enabling offshoring. rolling over and being rolled by their more aggressive political opponents. No wonder blue collar voters ditched the Dems; instead of opposing the Republicans’ business-friendly agenda, to a large extent Dems went right along, even if it cost their old core constituency big-time. For the newly-ascendant Democratic Party, significant health reform may be the key to re-establishing the Party’s brand among middle-class and blue-collar voters. Guaranteeing every American access to affordable health care would, in one stroke, regain the party’s tattered reputation as the supporter of the working man, the party of the middle class.
As Thomas Frank notes, “Any kind of national medical program would be so powerfully attractive to working-class voters that it would shift the tectonic plates of the nation’s politics.” Mr Frank, a deep student of the phenomena wherein so many Americans vote against their economic betterment, is referring to the Republicans’ power within middle America, the so-called Red States, where the middle and lower socio-economic class voter consistently supports the GOP’s candidates, driven primarily by social issues. The candidates elected by these voters push positions that end up benefiting big business while reducing wages and the power of labor. Yet the Republican candidates are able to win and stay in office largely on the strength of positions on abortion, guns, school prayer and choice, homosexual rights; issues that appear to be far more important to many Red State voters than economic concerns.
Not only have most Democratic candidates consistently been on the wrong side of many of these social issues (from the perspective of most Red State voters). The Dems have failed to make political hay out of issues as compelling and obvious as declining wages, job losses, and economic blackmail on the part of big business (tax breaks or we’re out of here). These bread-and-butter issues, the ones that land on the kitchen tables of working people, are precisely where the Democrats used to earn their keep.
Right now, those workers with health care know their health care is subject to the whim of their employer, and while they may feel ‘safe’, they know more than a couple people who have lost their insurance and suffered mightily as a result. Bob Laszewski notes that most workers with coverage are pretty satisfied with their health insurance. But my sense is there is something deeper here too; as middle class, white blue and pink collar workers watch the economy slide out from beneath their feet like sand on a beach, there is a just-under-the-surface-anxiety, a nibbling fear that their coverage may not be as rock-solid as they thought.
The Democratic Party would put itself in a very strong position entering the mid-term elections in 2010 if it passes national health reform (or something close enough for political advertising). By actually delivering something of obvious and significant value to the vast majority of voters – for those with coverage today a sense of security, of protection, of solidity; for those without affordable, comprehensive insurance; the party would plant its flag deep in the heart of Red State Republican country.
Passing some form of national health reform, one that includes a guarantee of access to care and protection from financial devastation would blow this gloomy cloud right off the shoulder of the middle class. It will take a masterful job of cat-herding, as the Democrats in Congress are a remarkably diverse lot. This diversity, from southern Blue Dog to Bay Area liberal, is both the strength and weakness of the Dems. While it enables the party to compete and win in diverse areas, now that the party has solid majorities in both houses of Congress, that diversity is a problem. The Democrats task is to find a major “win” to coalesce around, a goal that will clearly and loudly resonate among voters wondering who exactly these Democrats are and what they stand for.
A compelling case can be made that universal health care addresses the issues of concern to each member in the Democratic caucus: a universal plan
– is good for business, as it alleviates employers’ burden of health care selection (possibly) and financing (possibly at least in part) while improving the health of the workforce.
– is good for providers as it eliminates the risk of uncompensated care, allowing providers to concentrate on treatment while (potentially) addressing the problem of under-compensated care
– is good for patients because they will have access to good care regardless of their employment or marital situation
– is good for society as it will lead to an overall improvement in the nation’s health status.
A universal health plan also addresses the single biggest issue in the Party today – solid evidence that it can actually deliver on its promise to fight for the middle class.
Most importantly, passing universal health care would give the Democratic Party a hugely valuable head start on the 2010 election battle, one that may actually give Red State voters reason to consider voting “D”.
No doubt, Republicans will dust off the “socialized medicine” meme and play those old “Harry and Louise” recordings yet again. But I’m not so sure those messages will scare voters, at least not enough to overcome the pervasive anxiety felt by many families throughout middle America. And if the Republicans are able to block health reform, my sense is voters will see them as on the wrong side of the issue. Recall last summer’s battle over raising physician reimbursement; GOP Senators were crucified by voters after the Senators blocked a physician payment increase, a move that may well have helped their Democratic opponents in the fall.
What does this mean for you?
I don’t think Congress is ready for national health reform in 2009. There’s just too much to do and not enough time to do it all.
But politics trumps all.
Now that adults appear to be once again heading up the Democratic Party, they may well seize this political opportunity and press for reform in 2010. Win or lose, it’s a winning move.


The CBO health policy study misses the mark

The release of a long-awaited study by the Congressional Budget Office today “Key Issues in Analyzing Major Health Insurance Proposals” has stirred up a lot of comment and observation, most of it noting that the current proposals aren’t going to solve the coverage/cost problem.
There’s a lot in the study that’s very good, but much of the discussion has missed a central point. There is enough money in the system today to pay for excellent care for every American – probably more than enough. While we can save $110 billion over ten years by negotiating a 15% rebate on drugs covered by Medicare Part D and another $34 billion from efficiencies resulting from improved health care IT, these totals are chump change next to the amount of money we waste by delivering too much care to people who don’t need it.
As an excellent companion piece, I give you Dartmouth’s latest work, Expanding Coverage without Increasing Health Care Spending. As the Hanoverians put it:
“Most analyses of coverage reform predict that we will spend more as a nation on health care once the uninsured gain coverage and begin consuming more care,” write lead authors John E. Wennberg and Shannon Brownlee. “But we predict that covering everyone will have a much smaller impact on the trend in health care costs, provided that capacity is not increased.”… Not increasing capacity while improving quality and increasing coverage, say the authors, can be achieved in a number of ways, including reducing oversupply of health care services in high spending regions of the country. As documented repeatedly over 20 years of research by the Dartmouth Atlas Project, more spending on health care, more procedures and more hospitalizations, do not result in better health outcomes for patients.” [emphasis added]
The CBO report suffers from a troubling omission – an explicit acknowledgment of the impact of over-utilization on US health care costs. While the authors provide an excellent analysis of a hundred-plus health reform initiatives, they do not address the elephant in the room – too many doctors prescribing too many treatments that have no basis in science, no demonstrated efficacy, deliver no benefit to the patient.
That’s where the money is. Yet the CBO study claims that savings from comparative effectiveness research would be tiny – and most of the benefit would take place more than ten years in the future. Where the study misses the mark is in assuming that the health care funding, regulatory, and delivery systems remain static. Without fundamental change, their numbers are likely correct, and may well be optimistic. That, I would suggest, is the point.
There must be fundamental change – as described by Wennberg and Brownlee – in the health care system. Health care has to move from a cottage industry, overseen by a guild of white-coated demigods, to one blending diagnosticians with care delivery systems. Vertically integrated health systems could, and should, be able to survive and flourish in this new world, while insurers and big health plans will only make it if they buy up delivery systems and utilize their analytical capabilities to drive better outcomes on a population basis.
What does this mean for you?
Buyers – be they employers, governments, or individuals – must start evaluating health care offerings not on the basis of premium cost and size of the network directory but using the metric of functionality – how effectively does the health plan maintain and improve the health of its members.


What work comp has done right

The workers comp world has certainly had its problems over 2008, and often these problems have overshadowed the successes, and victories both big and small that were achieved this year. Here without further preamble are a few of the more significant ‘wins’ for work comp in 2008.
1. Frequency declines continued this year, building on a fifteen-year downward trend that has cut the US comp injury rate in half. By any measure, that’s great news. I’d also note that somehow the rate keeps declining, despite various experts (myself included) opining that it has to stop somehow.
2. Pharmacy costs have leveled off, due in no small part to efforts on the part of payers to mine their data, identify trends, and put in place programs to attack over-utilization. Good work to all; your efforts led to the fifth straight year of a decrease in the rate of pharmacy inflation in comp.
3. Predictive modeling continues to progress, albeit in fits and starts. Mistakes are being made, false leads chased, and assumptions proven wrong, but that’s actually good news. This is a new, complex, and weird business tool that will require a lot of trial and error. Mistakes are necessary and vital as the industry learns.
4. More and more payers are actually building new networks and adopting new strategies, either on their own or with new market entrants. These strategies are based on smaller, highly select networks of work comp expert docs, the kind of physician who can drive better outcomes at lower costs. After too many years of relying on the promises of the big networks, these payers are taking matters into their own hands, driving innovation and progress. it may not be as fast or as extensive as some would like to see (me being one of the some), but progress it is.
5. Disclosure of financial relationships among and between managed care firms and TPAs has significantly expanded, with companies including Gallagher Bassett, SRS, and Broadspire leading the charge (in fairness these firms were doing this long before 2008).
6. Specialty managed care has exploded, with carve-out vendors doing an exemplary job managing costs and delivering results in physical medicine, DME/home health, facility bill review, and cat claims. The more they do, the better they get.
7. Regulators in several states are working hard to do the right thing. New York’s willingness to change the pharma fee schedule and increase in benefits, California’s pursuit of lower costs, better medical care, and better benefits, and Texas’ (somewhat clumsy) attempts to fix their system all have been welcome signs of progress. We aren’t there yet, and all have their warts, but the needle is pointing in the right direction.
8. Solvency – unlike other insurance lines, the core solvency of the work comp insurance industry has not been in doubt this year. While parent companies, other insurers, and blue-chip, white-shoe Wall Street firms were imploding on a weekly basis, we in the work comp world have chugged along, hitting a few bumps on the way, but nothing like the rest of the financial world.
We have a long way to go, but in many areas, we’re heading in the right direction.
Good work.


Health reform – Pollyannas v Reality

I’ve been rather negative about the chances we’ll see major health care reform next year. That doesn’t mean the new Congress and President won’t address significant issues – expect major efforts to change physician reimbursement, enable HHS Sec-to-be Daschle to negotiate with big pharma, slash the Medicare Advantage subsidy, invest in Health IT and expand SCHIP coverage. These are really really big issues, and taking action on more than a couple would, in any other year, be seen as major change.
I’ll bet most of these initiatives will pass, making 2009 the most significant year for health legislation since 1964.
But the voices calling for a huge overhaul of the American health care delivery and financing system won’t be happy unless its a top to bottom overhaul of the entire delivery and reimbursement system. Methinks these well-meaning folks will find themselves unsatisfied, the victim of inflated expectations.
That would be unfortunate, to say the least. We’re moving in the right direction, there is significant momentum, and focus is on the right areas. What we don’t need is a pell-mell rush to pass universal coverage and worry about costs later.
There’s an old adage – if you don’t have time to do it right in the first place, what makes you think you’ll have time to fix it later?
If we screw it up on the front end, we’ll have zero political capital to clean up our mess.


Doing harm by doing good

I’m a baseball fan. Weekend mornings I always listen to Ed Randall, one of the more knowledgeable and listen-able baseball analysts; he really knows the game and has a style that is modest yet insightful. For years Mr Randall has been a tireless advocate for prostate cancer screening, and by his efforts he has likely encouraged thousands of men to get tested.
As much as I admire Mr Randall’s expertise in baseball and desire to do good, he’s really doing a disservice to public health. While his efforts undoubtedly result in an increased early diagnosis of many cancers, they are also increasing costs, scaring many men and their families, and likely harming a portion of men who follow his advice.
In his quest to get as many men tested as possible, Mr Randall is causing as least as much harm as good.
First, a little background about prostate cancer. According to the National Cancer Institute, between 27 percent and 37 percent of men between 55 to 74 years of age have prostate cancer. It is a very slow growing cancer; most men who have it end up dying of something else.
The ugly truth about prostate cancer testing is it doesn’t work. The most common test, a blood test known as PSA (Prostate Specific Antigen) is terribly inaccurate. Men who have been tested have no better survival rate than men who have not.
This isn’t my opinion, it is the finding of research published in The Archives of Internal Medicine in 2006. The authors found that neither a PSA test, nor a rectal exam reduced the chance of death from prostate cancer.
OK, so what’s the problem? Men get tested, no harm no foul? Actually there are lots of problems. First they aren’t free – PSA tests range in cost from $70 – $200, dollars that could be saved or spent on more effective medical services. OK, what happens if you decide the heck with the cost, I’m going to get a PSA test. The PSA level can be abnormal even when a man does not have prostate cancer. Seventy percent of positive PSA tests are false positives; the patient does not have prostate cancer. (if you test negative, there’s only a one-to-two percent chance you still have prostate cancer.) Of course, those who test positive worry about the result, and think they may well have cancer. I don’t know how to place a value on peace of mind, but anyone who has worried about a positive cancer test certainly knows how scary it is. (
When an abnormal P.S.A. level is discovered, most often the next step is a biopsy. Which are often inconclusive. Tissue from a negative screening may have come from parts of the prostate that are free of cancerous cells. If a cancer is found, an operation may not be necessary; remember this cancer grows so slowly most victims die of something else. So, you get an operation, what’s the big deal?
The big deal is patients who undergo treatment (radiation and/or surgery) may well end up impotent (38% – 63%) or incontinent (13% to 52%) or have bowel issues (5% to 17%. As a fifty year old man, I don’t much like those odds.
This doesn’t mean testing is futile or pointless. There are undoubtedly many men who would have never discovered their cancer until it had progressed quite far; the men in this group have to thank people like Mr Randall – on a personal level, he has undoubtedly helped save them. But there’s a societal cost for that benefit. Here’s one physician’s view (from the NYTimes):
“I’m a little worried we may look back on the prostate cancer screening era, after we learn results of clinical trials, and see that we’ve harmed a lot of people without doing them good [emphasis added],” said Dr. David Ransohoff, a professor of medicine and cancer screening researcher at the University of North Carolina at Chapel Hill. “By being so aggressive with so many people, did we do the right thing? I don’t know that it’s going to turn out that way.”


Why health reform will be so tough

From the world of workers comp comes a crystal clear picture of what’s wrong with America’s health care system, and how difficult it will be to get it right.
WorkCompCentral has a piece this morning about California’s proposal to not recommend topical analgesics – creams and ointment that are compounded at the pharmacy.
The pharmacy community doesn’t like the proposal, claiming “there’s [sic] prescriptions for these medications, patients have been getting relief, and we think that they should continue to be reimbursed for the medications that are being prescribed for them”.
Opponents of the proposed language also noted that it “conflicts with the DWC’s written policy stating that only “evidence-based, peer-reviewed research concerning the efficacy of a treatment can be the basis for recommending or not recommending a treatment.”
I’d suggest the opposite is the real issue – there is no evidence-based peer reviewed research documenting the effectiveness or efficacy of compounded medications. The pharmacists want to be paid for preparing and dispensing a medication which has not been shown to work. And they are pulling out the lobbyists and PR folks and ‘inhouse experts’ in an attempt to get California to back down.
Further. compounded medications are outside the scope of the the FDA’s authority.
About a third of US health care dollars are spent on treatments that are likely not effective. One has only to look at the history of MRIs, carotid endarterectomy, and angioplasty to identify billions of dollars that have been wasted on treatments that did not help, and may well have harmed, thousands of patients. These treatments, devices, and providers make money for their purveyors and manufacturers, dollars that they are loathe to give up.
Yet the approval process for these treatments/drugs/devices is is almost laughably low. Here’s how a UK researcher put it:

“the FDA dossier showed that the average improvement produced by drugs introduced in the 1960s was 17%, whereas with the drugs introduced in the 1990s it was 16%![emphasis added]…If one looks at the medical interventions we have for many diseases, whether they be psychiatric or neurological disorders, cancer, cardiovascular or respiratory or gastrointestinal problems, or almost any type of illness other than bacterial infections, what evidence-based medicine shows is that, as my colleague found, many of our interventions are pitifully inadequate. Our studies, although beautifully conducted, have been done on patient populations that bear only a limited relationship to those patients we actually see. The number needed to treat to achieve one success over and above that which could be achieved by placebo may be 10, 20, or even as high as 50. Thus, the trials actually give us almost no guidance as to the likely outcome of an intervention in the individual patient who sits in front of us. For many conditions, therapeutic effects are so small that neither the patient, nor the relative, nor the doctor is likely to be able to recognize any differences in the patient’s state as a result of our intervention. We pride ourselves on our large, well-conducted, immaculately analyzed trials that give significant results. But we have forgotten that we need to conduct such enormous trials only because our interventions are so minimally effective. If we were making a really large difference to the outcome, small trials would suffice and provide clearly significant results.”
That’s one side of the argument. Here’s the other.
I give you the condition known as ‘chronic lyme disease’. This tick borne ailment is pretty common in my area (central coast of Connecticut), in fact I live about twenty miles from Lyme. Walk down the main street in Madison and chances are you’ll encounter at least one person who has had recurrent Lyme disease – the mechanic, artist, college student, mom. Yet try to find a doctor who will treat chronic Lyme and you’ll find very few who will risk their reputation and medical license, as several physicians have been disciplined for just that.
The battle over chronic Lyme (and it is a battle) has been brutal, nasty, and vicious. Nay sayers claim no such disease exists, and cite research and articles in prestigious publications such as the New England Journal of Medicine as support for their opinions. Their opponents decry the poor quality and selective nature of that ‘research’, accuse the authors and study leaders of conflicts of interest, and note the successes – patients treated for chronic Lyme that get better.
Anecdotally, I know at least a half-dozen friends and neighbors who have suffered from some condition that robbed them of their energy, caused great pain, and prevented them from doing many of the things the rest of us take for granted. After extensive treatment (we’re talking over a year) with antibiotics, all have gotten better. Much better.
It is abundantly clear that medicine is an art as much as a science, and art is, as famously described, in the eye of the beholder.
And that’s one reason health reform, which must attack cost, will be so very difficult.


Networks in Texas – what are the results?

Back in September the good folks at the Texas Department of Insurance published a most interesting report (shows what a geek I am) – the 2008 Workers’ Compensation Network Report Card. Let’s start with the overall numbers.
Medical costs were about $130 lower for the Texas Star network (a Coventry product) than for the other networks (with non-network claims second least expensive, and all other networks more expensive(!)).
There’s a lot more here, but I’m going to focus on one page in particular – 15 (23 in the pdf file).
More specifically, the top half of that page. It shows (adjusted) average hospital cost per claim, six months post injury, for non-network and several networks. The Texas Star Network’s hospital costs are 5% higher than non-network costs. Corvel’s network costs are significantly higher than Texas Star, and only slightly lower than all the rest of the networks included in the analysis (except Liberty, which has the lowest costs in the study group). Digging deeper into the report, one finds that Texas Star’s higher hospital expense are due to inpatient hospital stays, which are about $3000 more than non-network costs.
By comparison, Corvel’s inpatient costs are a rather stunning twice as high as Texas Star, and over five times higher than Liberty’s HCN.
Like any report, the results generate as many questions as answers. Here are a few of the more intriguing.
Why are Texas Star’s hospital costs higher than non-network?
Texas’ comp regulations require networks include hospitals. Hospitals know this, and according to sources, most refuse to offer any discount, with many forcing networks to pay above the fee schedule. The Texas Star network is priced at around $12 per bill (not including bill review services) or $110 per claim. Thus, the additional cost of using the network is both the access fee, and the ‘premium’ paid to the hospital for the privilege of having them in the network.
Why are Corvel’s inpatient hospital costs so high?
The Corvel numbers look awful, but they have far fewer claimants treated in facilities (a third less than Texas Star, and even fewer than non-network claims). Corvel’s inpatient utilization is very low; most hospital-based care (it appears) is delivered in ambulatory surgical centers and other types of facilities (p. 32). But, the volume of outpatient facility care is off-the-charts higher than non-network claims or any other network’s results.
Which setting delivers the lowest cost per claim?
Too early to tell. Remember, these data are from six months worth of bills. All the expensive claims take years to develop, so we won’t know what the results are for some time. That said, a good chunk of hospital bills hit in the first year of a claim as the acute phase of the injury is treated. While we don’t know what the ultimate result is, it could well be that the inpatient hospital picture doesn’t change much over time.
And what does this mean for you?
Follow this closely, and watch claim development for non-network v network claims. The numbers should start to diverge in favor of networks.


When claims counts drop, these folks yawn

This has been a work-comp intensive week, for mostly the wrong reasons (little good news to report, little innovation, you know, typical WC…)
I’ll close this overly long trip down WC way with good news – about which vendors will flourish in the coming tough times for WC managed care.
With the number of claims likely to drop precipitously in 2009, the folks least at risk are those least dependent on a continuous flow of new claims. As claims age, the need for hospitalizations, surgeries, MRIs, and frequent and extensive physician visits and procedures drops off. Physical therapy also declines, or at least should if it is managed appropriately (PT should be focused on return to functionality and not palliative services). What’s left is the type of services needed to keep long term claimants, with what have become chronic conditions, as comfortable as possible. Realistically, these folks are not returning to work, so the need for functionality-improving treatment has been replaced with symptom mitigation.
That would be the purview of home health and pharmacy companies, as well as the non-commodity DME (durable medical equipment).
NCCI has published a study documenting the change in medical services over time. Notably, the study, Relative Cost of Medical Services By Age of Claim and Accident Year, shows that pharmacy, supplies, home health, and DME costs go from a relatively small part of the medical dollar in the initial year after the claim is incurred to almost 50% of medical expense for claims more than four years old.
There’s another positive indicator for the purveyors of chronic condition services – there’s some evidence that during recessions, severity increases as claimants stay out on disability longer. Some may not have jobs to return to, others may not be able to find new jobs, but regardless of the cause, claims appear to persist.
These two factors, coupled with the rule-of-thumb that a third of medical dollars are spent more than three years after the date of accident, means there will be lots of dollars spent for ‘chronic care purveyors’ services for years to come.