Managed Care Matters will be spending the next week at a lake in New Hampshire, blissfully unaware and unconcerned about happenings in the real world.
See you in August
Jul
25
Insight, analysis & opinion from Joe Paduda
Year: 2008
Jul
24
Colleague David Williams has a new take, fresh look and punchy style in his edition of Health Wonk Review.
His version is a fast read, too.
Jul
24
In today’s earnings announcement, AmerisourceBergen, parent company of work comp PBM/ancillary services firm PMSI, detailed the financial impact of the deal.
ABC carried PMSI on the books at about $260 million; by selling the property for $40 million (plus a $10 million contingency) ABC will be taking a $222 million hit as a result of the transaction. On an earnings per share basis the result is 1.37 per share, giving ABC a net loss of $108 million, or 67 cents per share.
Observers who are confused about the recent on-again, off-again status of the PMSI sale can be forgiven for that confusion; ABC has been somewhat schizophrenic about its dealings with PMSI. After putting PMSI on the market early this year, ABC announced last month that the company was not going to sell PMSI after the initial offers came in well under expectations. According to ABC’s CEO David Yost, “We look to PMSI to be on track in the September quarter and into fiscal ’09.”
Contrast this with Yost’s announcement today – “We were very disappointed with PMSI’s performance in this quarter, and after re-evaluating our alternatives, we decided to sell the PMSI workers’ compensation business in order to focus our full attention on our pharmaceutical distribution and related businesses and allow H.I.G. to focus on the opportunities at PMSI.”
ABC’s impatience with the turnaround may have played a role, but from here it looks like the hammering Yost took over ABC’s overall financial performance to date may have been more of a motivator.
HIG, the investment firm that bought PMSI does have some experience in this space with investments in Align Networks and Gould and Lamb. They have been quite successful in selling properties and generating rich returns for their investors, a history that bodes well for PMSI. And for the PMSI employees who add value, are flexible, focus on customers, and don’t buy into the “we do it that way because that’s the way we’ve always done it” nonsense.
Jul
24
PMSI, the workers comp PBM and ancillary services provider, will announce today that it has been sold to investment firm HIG. Sources within PMSI indicate the stock deal is worth $50 million, of which $10 million is contingent on achieving certain performance measures. Current management will likely remain in place after the deal closes in about 60 days.
The timing of this transaction is coincident with Express Script’s announcement of the closing (sub req) of their acquisition of MSC’s Pharmacy Benefit Management business. Express Scripts is now poised to become one of, if not the largest workers comp PBMs.
These deals are the latest in a series of financial transactions and potential transactions involving work comp PBMs. Cypress Care was recapitalized by investor Brazos Private Equity in November, 2006; Fiserv sought to sell its third party biller/PBM business early last year; Coventry purchased First Script as part of the Concentra transaction, and MSC itself was purchased by Monitor Clipper early in 2005.
PMSI has been struggling of late, losing the Hartford’s business (while retaining SRS (Hartford’s TPA)) to ESI and CNA late last year to Coventry. While PMSI’s parent company, Amerisource Bergen, was somewhat of a distant parent and may not have provided the attention and resources necessary for PMSI to maintain its historical leadership position, there’s no question HIG’s focus and attention will be intense and constant. Private equity management can be quite helpful; it can also be overbearing and short-sighted. And sometimes all three – which may be exactly what PMSI needs to recover its leadership position.
At risk of being accused of burying the lead, here’s what has me puzzled. Sources indicate Express looked closely at PMSI – recently . Yet they plunked down $248 million for MSC’s pharmacy business, when they could have paid a fifth of that for all of PMSI (which includes a robust ancillary services division).
PMSI has been somewhat damaged goods lately due to customer losses, yet MSC was in a similar position less than two years ago after it lost its largest PBM customer, Liberty Mutual, to rival Progressive Medical (PM had half of Liberty and was awarded MSC’s portion).
From here, it looks like a pretty good deal – although PMSI’s financials have been pretty bad lately, $50 million is a very good deal for one of the top two companies in a growing market.
Jul
23
From our good friends at WorkersCompInsider comes this entertaining post on the Massachusetts firefighter/bodybuilder. It’s always great to have a hobby. Especially when one is totally disabled.
Yes, the bodybuilding ex-firefighter is out on disability. Total, complete, permanent disability.
One has to respect Mr Arroyo – He could have given up, resigned himself to a life in front of the TV, with little to look forward to but the next day’s sports pages. But no, in what can only be described as an uplifting (no pun intended) story of perseverance and a willingness to live life to the fullest, Arroyo entered a bodybuilding contest, and competed, just 6 weeks after he was declared fully disabled.
Adding even more drama to the story, Mr Arroyo’s disability was due to an injury to his back suffered when he slipped down some stairs. Unfortunately, no one was there to help him during his time of trouble, or to witness the accident itself.
What’s even more incredible/unbelievable/ridiculous is Mr. Arroyo’s attorney’s statement in response to the recent publicity. Here’s what Attorney Neil Osborne said:”Nothing in his specialized training regiment [sic] for the competition contradicts his neurologist’s documentation of his injuries.” And (this just gets better and better) this was our hero’s sixth injury while on the job.
Here’s a video of Mr Arroyo – got to love the thong.
Oops, late breaking news from another source – this wasn’t a miraculous recovery; it turns out Mr Arroyo has been training for years, has won several body-building contests, and perhaps, just perhaps, his completely-disabling injury is somehow due to his avocation instead of the unwitnessed slip down the stairs.
Just perhaps.
Jul
22
Like a man stumbling through a darkened room full of sharp objects, the individual health insurance industry continues to bash itself bloody.
Today’s painful encounter is the news that individual health policy marketer HealthMarkets agreed to pay a $20 million fine to 36 states for failing to educate sales reps, failing to fully inform customers, and allegedly not paying providers promptly. HealthMarkets caved quickly, as the agreement came less than a year after the initial suit was filed.
This isn’t the first time HealthMarkets has felt the wrath of regulators.
- In 2006, Massachusetts required HM “reassess denials of policyholders’ medical bills dating to January 2002” (Appleby USAToday)
- Maine levied a million dollar penalty earlier this year, while also requiring HM to refund $5.6 million to policyholders
- Delaware fined HM $500k in 2006 (the largest fine in the state’s history) for “steering consumers into individual rather than group health insurance policies, failing to provide state-required coverages, engaging in deceptive and improper marketing, mishandling consumer complaints and failing to institute adequate management controls” (Commissioner’s statement); the insurer also failed to cover immunizations and mental health benefits, in direct violation of state and Federal law.
The Delaware case is especially revealing. There are better benefits, more state controls, and more regulation of small employer policies. And insurers are required by state law to offer those policies – but HealthMarkets’ subsidiary insurer didn’t, instead steering applicants to the ‘more costly, less benefits, more complicated’ individual policies.
HealthMarkets’ leadership team should know better. Led by Allen Wise (ex-founder of Coventry), the board includes Steve Shulman (ex-Value Health CEO), Harve DeMovick (ex Coventry CIO), the board also is populated with notables from the various investment firms that bought HM several years ago. Fortunately, HM brought a seasoned compliance officer on board earlier this year, but you’ve got to wonder why it took them so long. Wise et al have been in the business for many years, the company had a checkered past (to be kind), and the pressure from regulators didn’t start last year.
Why am I highlighting a relatively small player (>700,000 insureds) that operates on the fringes of the insurance market?
To show what can happen when the insurance business operates in the ‘free market’. This company took advantage of uneducated consumers, sold them policies that weren’t as advertised, took their money and left them with lousy coverage. For all those staunch advocates of deregulation – here’s what you can look forward to – but on a much grander scale.
What does this mean for you?
Most insurance companies aren’t like this. Most are staffed by good people trying to do the right thing, to get policies issues, pay claims fairly and promptly, and operate ethically. But when companies cheat and lie and steal, they make it all too easy for folks to tar all insurers with the same brush.
Jul
21
Two days after going down in defeat, overwhelmed by the physician lobby and AARP, health plans received another shot into the bow.
Rep Henry Waxman announced his intention to schedule Congressional hearings on insurance companies practices in the individual insurance market. What may have gotten Waxman’s attention was the ongoing fiasco in California, where two major health plans joined three others settling claims that they illegally canceled members’ policies.
The Congressional inquiry comes on the heels of multiple lawsuits filed in California against multiple health plans claiming various damages due to policy cancellation. Insurers have described some as ‘political grandstanding’ and ‘totally without merit’. Nonetheless, they’ve also paid fines and agreed to corrective action.
Suits have also been filed and settlements awarded in Arizona,
Is John McCain paying attention? Remember McCain’s reform ‘plan’ relies on the individual insurance market, a ‘market’ that has once again proven it is incapable of acting within the law. McCain seeks to end employer based insurance, replacing it with individual coverage purchased on the open market. The companies who would sell that insurance are the same ones now paying fines for illegally cancelling policies and denying claims.
Let us not forget that McCain’s ‘free market’ is built on insurance companies seeking to make money – and the way they do that is by selling insurance to folks who don’t need it. Those individuals who really need coverage for their current health conditions cannot get that coverage in the vast majority of states, as the insurance company is allowed to specifically exclude certain conditions and/or to charge significantly higher premiums. In fact, there are only five states that specifically require insurance companies to sell policies to everyone regardless of medical condition. (Maine, Massachusetts, New Jersey, New York and Vermont) If you don’t live in the northeast, and if you have any pre-existing condition (and who doesn’t?), you’re out of luck.
Of course, health plans have a solution to this – they will cover a few more folks with pre-ex conditions, as long as the states agree to cover anyone with more serious problems. Now that’s free market business at its best – guaranteeing private companies will take the good risks, and dumping the rest on the taxpayer. The plan, put together after “tireless efforts of the senior leadership of our industry” and seven months of hard work by AHIP’s board would require state high-risk pools to take on anyone who may incur medical costs more than twice the state average, while requiring insurers to cover the rest.
If there’s a clearer statement of the industry’s lack of confidence in its ability to manage health care, I haven’t seen it.
AHIP’s plan crystalizes the problem – (most) health plans long ago gave up any pretense that they would or could actually manage care.
AHIP should change its name from America’s Health Insurance Plans to the ARSC – America’s Risk Selection Companies.
If McCain has a solution to this, he hasn’t published it yet.
thanks to California HealthLine for the inspiration; for an excellent review of the individual market see Julie Appleby’s piece in USAToday.
Jul
18
Bowing to the reality of the market, the New York Work Comp Board has issued a revised pharmacy fee schedule for workers comp.
The previous fee schedule based WC pharmacy fees on Medicaid – a linkage that was problematic for at least a dozen reasons. Here are the major ones.
1. Medicaid has ‘positive enrollment’ – members’ eligibility is determined instantly, electronically. In WC, there is no upfront enrollment, therefore retail pharmacies don’t know where to send the claim, or even if the claim has been accepted by an insurer. Work comp requires a lot of manual work, while Medicaid is electronic and instant.
2. The Medicaid reimbursement schedule has been a political football of late, as state legislators, under pressure from declining revenues and increasing service demands, have looked to cut Medicaid costs by cutting prices paid for drugs. California’s decision to cut reimbursement by 10% has resulted in a political/judicial back and forth that is apparently still not resolved. By tying WC reimbursement to Medicaid, pharmacies, PBMs, and payers would be batted back and forth, not knowing from day to day what they should pay for drugs.
3. Medicaid has a formulary which reduces the cost of the drugs to the pharmacies. There is no such formulary in WC (except in a very few states such as Washington), and therefore drug manufacturers won’t give discounts in return for preference in a therapeutic class.
4. The Medicaid FS is actually significantly lower than the contracted prices PBMs pay retail pharmacies. Thus there is no benefit to payers, or retail pharmacies, in working with PBMs. This despite the strong evidence that PBMs, properly implemented and managed, can dramatically reduce utilization (the volume of scripts dispensed).
What drove NY to make the change? Access issues. Claimants were not able to get their scripts filled as pharmacies could not afford to do so under Medicaid reimbursement, and PBMs could not afford to operate in the state while losing money on every script.
That’s not to say the revised FS is much better. In fact, as the second lowest fee schedule in the nation, it represents an incremental improvement at best, and may not be sufficient to keep all stakeholders participating.
Cynics may point to California, and note that PBMs and pharmacies stayed in that market after the FS was based on Medicaid. True, but each state’s Medicaid FS is unique, and CA’s is significantly more reasonable than NY’s.
Jul
17
Pundits (myself included) are detecting a sea change on the Hill – the health plans’ power meter is just barely registering while physicians are pegging the needle. If you’re wondering why physicians were so adamantly opposed to the Medicare reimbursement cut, it is because their compensation is barely keeping up with inflation.
Recall that the GOP was going to cut their Medicare reimbursement by 10.6% (while also reducing Medicaid and other Medicare-linked compensation). And this after physicians had gone several years with their income not even keeping pace with inflation.
According to the latest data from 2007, primary care docs enjoyed a 3.35% increase in compensation after inflation (6.3% before accounting for the 2.85% CPI uptick last year). This rather modest increase is way better than their specialist colleagues saw – inflation-wise, specialists broke even. However, specialists’ median income was almost a third of a million bucks, while specialists were just over $182k, so the primary care docs have a long way to go to catch up.
And some of them have a really really long way – median general practice income was $119k, whlle Family practice docs made $129k.
Not bad money, but not exactly huge bucks either. The other part of the equation has to do with job satisfaction – if you love your job, you’re likely to be less concerned with how much you make. But if you don’t love your job, and some damn President/Congressperson is threatening to cut your already low income, while paying big health plans billions more than they should…
Job satisfaction amongst primary care docs is declining. 60% of PCPs (primary care practitioners) would not choose primary care if they got a do-over. 39% would pick surgery or diagnostics, and over one-fifth would not choose medicine.
Looking at changes from 2006 to 2007, the percentage of docs who counted themselves as ‘very satisfied’ declined from 24% to 18%, while those who were ‘very dissatisfied’ went up from 9.4% to 13.2%.
So what do these newly-empowered, angry docs want?
36% want a Canadian-style single payer system.
66% agreed that the “US should move to a market driven system that reduces the role of third party payers.”
(note these were separate questions and therefore don’t add up to 100%)
Yes, working with physicians has heretofore required cat-wrangling skills. And their egos require outdoor meetings as no hall is big enough. And all want more for their specialty and their patients are sicker than average. And they are all better than average.
And they’ve recently found out what they can accomplish when they stop acting like Augustus Gloop and work together.
Thanks to FierceHealthcare for the triggering tip.
Jul
16
It’s over, done, finished. For a few months, anyway. With the overwhelming Congressional vote to override Pres Bush’s veto of the Medicare bill (keeping physician reimbursement levels and cutting subsidies for health plans’ Medicare Advantage and Private Fee For Service), the pols can now move on to other issues.
But while they’re working on oil drilling and war funding and education and trade, the ‘solution’ will merely serve to kick the problem further down the road. And when next we round the corner, we’ll find that the ball has gotten much heavier (docs are scheduled for a 20%+ cut. We’ll also find a rejuvenated physician lobby, one with a renewed strength and sophistication, marked by the ‘partnership’ with AARP.
The Senate vote was an even louder repudiation of Bush’s position than the original vote, with four more GOP Senators joining all their Democratic colleagues and seventeen other Republicans.
Twenty-one Republicans voted to cut health plan subsidies and restore physician reimbursement. Twenty-one.
In the House, 153 Republicans (24 more than voted ‘aye’ originally’) joined the 230 Democrats to overturn the veto.
Some (including Shadowfax) have said physicians don’t have pull in Washington. If you don’t believe in the power of the AMA now, I respectfully suggest you go back, do the math, and ask the GOP members of the House and Senate what made them change their votes.
The next time Congress tackles Medicare, you can be sure health plans’ influence on Capitol Hill will have waned; no, diminished; no, disappeared; no, that’s not quite right either. Suffice it to say that health plans lost this round, and lost it badly. And they have no one to blame but themselves. Appalled by stories of health plans canceling policies, wildly overpaying executives, and cutting back on coverage and physician compensation, Congresspeople found it pretty easy to take a few billion out of health plans and give it to docs.
As Bob Laszewski said when asked about health plans, “Now they have zero political capital, and they’re just going to have it done to them next year.”
When it will hurt a lot more. By digging in their heels, health plans likely lost their last best chance to play a dominant role in future health care reform negotiations. Instead, they will likely find themselves with a seat or two at the table, but those seats will be at the far end, away from the powerful and influential.