Robyn Walsh, the head of Aetna Workers Comp Advantage program, is retiring. No replacement has been named. Started over a year ago by Aetna as a means to enter the workers comp network business, AWCA has struggled to gain traction. While AWCA has attracted interest from several payers, the only payer customer signed to date is the Hartford, and only in Pennsylvania. However, the Hartford appears interested in expanding their relationship into other jurisdictions.

Walsh came into the position with little background in workers comp; she had previously worked in investor relations, networks, and pharmacy.

As I have noted previously, the logic behind group health payers entering the workers comp market leaves me scratching my head. There just is not that much revenue in workers comp.

What does this mean for you?

It is unclear if Walsh's retirement is due to lack of success, a desire to change leadership, or if this was part of the plan all along. We'll have to wait and see. In the meantime, before committing to do business with Aetna, watch carefully to see if Aetna does gain any traction in WC.

Posted by at 7:17 AM | Permalink | Comments (1)

Pay for performance is likely to get a big boost from the Federal government. A bill linking physician pay under Medicare to reporting quality data will be introduced in the Senate before the end of the year, the first step towards a pay for performance model.

Sen. Chuck Grassley (D IA) is the protagonist; as Chair of the Senate Finance Committee Grassley has both jurisdiction and significant influence over the Medicare program.

According to California HealthLine;

"The legislation would allow the HHS secretary to reward providers first when they report quality data and later when they improve quality or meet certain quality thresholds. The legislation would establish a "value-based purchasing" system for providers -- such as hospitals, physicians, Medicare Advantage plans, home health agencies and skilled nursing facilities. Under the bill, physicians who report quality data would receive the full update to Medicare reimbursements allowable under current law in 2007 and those who do not report quality data would have their updates reduced by 2%."

Currently, physician reimbursement under Medicate is slated to drop by 4.3% on 1/1/2006. This decrease is part of past legislation, and has been rescinded in recent years. However, it does require Congress to act or the decrease becomes effective. In this case, it appears Grassley is using it to promote the "P4P" initiative.

What does this mean for you?

Pay for performance is likely to become a reality. You can choose to fight the very concept, or engage and contribute to the dialogue. As Congress is especially adept at the "blunt instrument" style of reform, physicians will be better served engaging rather than avoiding.

Posted by at 7:04 AM | Permalink

The Ohio Bureau of Workers Comp scandal is now hitting Gov. Bob Taft hard. State Sen Marc Dunn has sued Taft to find out what he knew about the Bureau's disastrous investments and when he knew it. Although Taft had released many of his records, some of the words had been blacked out and other documents were not provided to Dunn.

The Bureau of Workers' Comp's investments (the subject of much of the hue and cry) may have been noted in reports submitted by the BWC to Taft that were the subject of the suit. At first, Taft had fought the action, then decided to give in and provide Dunn with the materials. However, Taft has now said the redacted bits were subject to executive privilege, a strange claim as he has already waived that protection in this matter…

Not as entertaining as the previous posts re stamps, gold investments, and shady investment managers, but who knows what the redactions might contain?

In the latest development, the governor's state-hired attorney had sought to have the suit overturned; no further info on this as of today.

Posted by at 6:38 PM | Permalink | Comments (1)

For those interested in consumer directed health care and attitudes towards same, you may want to listen in on a telecon hosted by Harris Interactive and GreatWest Life on 7/28. Here's the details.

Great-West Healthcare will release findings of its "Consumer Attitudes Toward Consumer-Driven Health Care" study on Thursday, July 28, 2005. The company will hold a conference call at 9 a.m. MDT (11 a.m. EDT) that same day, hosted by Cindy Donohoe, vice president of marketing and product development at Great-West Healthcare, and Kinga Zapert, Ph.D., vice president, health care division, Harris Interactive, Inc., to discuss the results. Those wishing to participate via telephone should call 866-261-3331 (moderator: Cindy Donohoe). This number can be accessed 10 minutes before the call begins, as well as during the call.

I'm on vacation then, so enjoy.

Posted by at 8:33 AM | Permalink

One of the most important benefits of the internet is improved communication among and between folk who otherwise would likely not interact. And blogs add immeasurably to that improvement. For some time I have been reading and occasionally cross-posting to and commenting on several providers' blogs, and more specifically two blogs written by thoughtful, highly intelligent, and obviously concerned physicians. The latest discussion is on DB's Medical Rants and concerns pay for performance.

Another excellent physician blog is Health Care Renewal.

As one of the few "payer-side" bloggers, I have also received (or perhaps been subjected to) many comments from folk on the provider side. While the discussions can be contentious at times, they are direct, insightful, and helpful in advancing understanding.

Posted by at 8:00 AM | Permalink | Comments (1)

An analysis of hospital expenses in Ohio indicates that the Bureau of Workers' Compensation paid $1.6 billion for services that cost the hospitals less than $1.1 billion to provide. The mark-up, some $544 million, has been described by various stakeholders as "a positive profit margin", "outrageous", "ludicrous", and "a cash cow for hospitals".

The basic issue is hospitals are paid a set percentage of charges, a methodology that some suggest is open to misuse, as the hospitals set the charges. Ohio's hospitals are paid 70% for inpatient and 60% for outpatient services. Scott Courtney, EVP of the Service Employees Union that conducted the study, claimed that "Hospitals arbitrarily set a price that's not at all relevant to the cost of providing care."

Both the BWC and the Ohio Hospital Association are disputing the SEIU's conclusion that hospitals are generating a profit of some 65% on workers compensation, with the Association claiming the figure is in the 15 to 35 percent range.

My own experience examining hospital data, coupled with the experience of MedNet Connect (a consulting client), a firm that works with payers to evaluate bills to assess their ‘credibility' and determine an appropriate reimbursement amount, indicates the SEIU's figures are likely more accurate than the Association's.

While this debate is certainly interesting, once again we find ourselves embroiled in an argument over health care costs that is based on price and cost, and not on value delivered.

I am also familiar with a hospital system in southern Ohio that consistently delivers low cost, very high quality care to injured workers that is focused on return to work. Their results are stunning - total medical costs reduced by over 40%, significantly faster return to work, etc. These results are delivered through an integrated care delivery model, wherein an occupational medicine physician manages each and every lost time claim, communications protocols are set up for each and every client, a physician panel specific to WC is in place, outcomes are assessed for each patient and client, and systems developed and implemented to make it all work. Expensive? Absolutely. Worth it? Absolutely. And the program's expenses will not show up in an analysis of "charge" data.

The study is helpful as far as it goes, but does nothing to assess the performance of these hospitals - performance based on cost per claim, total medical expense, return to work, reinjury rate, etc.

What does this mean for you?

Stop fighting over costs and start demanding outcomes.

Posted by at 7:14 AM | Permalink

While payments for workers compensation indemnity and medical expenses rose just 3.2% in 2003, employer costs were up three times as much. The data, from a report by the National Academy for Social Insurance, indicates claims costs totaled $55 billion while total expenses (claims plus premiums and equivalents) were up to over $80 billion.

This is not surprising. I have been talking for several months about the profitability of the workers compensation market, and NASI's report clearly indicates that the industry's recent strong profitability is due to increased pricing. The cognoscenti will also note that this "happy time" appears to be ending, as recent softness in pricing indicates there is more capital flooding into the market as outsiders (and insiders) decide they want some of that profit too. While it looks good now, remember that the industry's present return on equity is well below that enjoyed by other sectors. Thus, on a relative scale WC is doing well, but on an absolute scale returns are mediocre.

The NASI report is perhaps the best summary of the state of the workers comp business in existence. While it is somewhat dated (due to the time delays in reporting in WC), it is well worth reading.

What does this mean for you?

If you are a seller, don't cut prices. Period. If you are a buyer, think long and hard before chasing the latest cut-rate workers comp policy. Anyone who would sell that to you is less likely to invest in long-term initiatives that will benefit your program, and over the long term, your bottom line.

Posted by at 7:52 AM | Permalink

US health care costs are much higher than any other nations'. Why? Do we have better access to care? Are our doctors paid more? Is it the fault of higher drug costs? Do the related issues of malpractice insurance and defensive medicine have much impact?

A new report sponsored by the Commonwealth Fund compares US and other industrialized countries' health care and attempts to answer those questions. The report's conclusions go a long way towards dispelling some of the "urban myths" surrounding health care.

Overall results
According to the report, "…higher prices for health services such as prescription drugs, hospital stays, and doctor visits, are the main reason for higher U.S. spending. The latest data from the Organization for Economic Cooperation and Development (OECD), which compare trends among 30 industrialized countries, show that the U.S. spent $5,267 per capita on health care in 2002—53 percent more than any other country." And that "other country" is Switzerland, which has the distinction of being the only other OECD nation that spends more than 10% of GDP on health care. When compared to the median expenditure, US costs are much higher.

Access and waiting lists
One of the metronomic chants used by those disparaging other nations' health care systems is the much-hated "waiting list" - with the assumption that their costs are lower because people have to wait forever for a liver, dialysis, blood test, or MRI. The facts tell a different story:

"…despite the lack of waiting lists, Americans do not have access to a greater supply of health care resources than people in most other OECD countries. In fact, the U.S. has fewer per capita hospital beds, physicians, nurses, and CT scanners than the OECD median." The report also compared costs in nations with waiting lists for certain procedures to those without - surprisingly, those with waiting lists actually had higher costs. I don't know if they had waiting lists as a means of addressing higher costs, or somehow the lists drove costs higher. I am also curious as to the mix of generalists to specialists...

Malpractice and defensive medicine
Yes, the US has more malpractice suits per capita than other nations (twice as many as in the UK and Australia, and 3.5 times more than in Canada). But, and here's the big "but", the average award in the US was 14% lower than in Canada, 36% less than the average in the UK, and slightly higher than Australia's average expense (the other countries studied for this factor). So, while our "frequency" is higher, our "severity" (cost per claim) is lower.

Notably, the total impact of malpractice expenses as a percentage of US health care costs was less than 0.5%. That does not factor in defensive medicine - but even the highest estimate of the excess costs resulting from defensive medicine adds but 9% to our total costs - not enough to explain the difference in total costs between the US and other OECD countries.

Price
Here's the issue, at least according to this report. We pay more for "prescription drugs, hospital stays, and doctor visits" than other industrialized nations.

Cautionary note -although it is clear that malpractice, defensive medicine, and too many CT scanners and hospital beds are likely not significant contributors to the vast gap in costs between the US and other countries, the report does not indicate what factors are driving prices.

What does this mean for you?

Remember that this compares the US to other countries; cost drivers that impact you, your business, and your premiums must be examined through the lens of US experience. Price is driving your costs, but it's impact is multiplied by utilization and frequency.

Posted by at 5:33 PM | Permalink | Comments (1)

In 2003 Colorado changed its auto insurance law from one in "which all drivers were required to have coverage for treatment of any injuries resulting from auto accidents to a system in which just the driver at fault pays." The result has been a decline in the percentage of auto injury victims with insurance, leading to reduced revenues for hospitals and an increase in uncompensated care.

Health care providers in Colorado are up in arms about the impact the change away from the no-fault coverage has had on their financial wellbeing, claiming an $80 million hit from the new law. Interestingly, according to Insurance Journal, insurance spokespeople seem to acknowledge the transference of expense from the insurance companies and their policyholders to the hospitals. Carole Walker, executive director of the Rocky Mountain Insurance Information Association, stated:

"We don't believe people should be required to have medical coverage as part of their auto insurance just because some people don't have health insurance…Hospital profits are at the highest level in years, and many hospitals are building big new facilities.''

According to the study that was the basis for the article;

"the percentage of accident patients covered by auto insurance fell from 55.6 percent in 2001 to 32 percent last year; the percentage not paying for their care rose from 1.4 percent to 6.7 percent during the same period…the percentage of patients who couldn't pay for ambulance services had more than doubled to 43.4 percent from 2001 to 2004."

While it is clear that the change has hurt health care providers, there is also evidence that the move away from no-fault resulted in premium cuts in the neighborhood of 25%.

This is more evidence of the reluctance on the part of insurance companies to subsidize care for the otherwise-uninsured. Auto insurers are not in business to help pay for health care for uninsured motorists, and their policyholders can't be blamed for their joy at a 25% cut in their insurance rates. This "hidden tax" is but one example of the impact of uninsureds' health care costs on providers and payers. As more of these "hidden taxes" are revealed and eliminated, more and more costs will have to be shifted to those patients who do have health insurance. Previous studies estimate that those of us with insurance from employers pay an extra $1200 per year to cover those who do not.

It would be great if the politicians would stop arguing about covering the uninsured (they already are covered by these hidden taxes) and start arguing about a more logical and transparent coverage mechanism.

Posted by at 6:44 PM | Permalink

A new study indicates three quarters of US employers will increase employee contributions for health insurance in 2006 while a quarter will reduce pay increases as a result of higher health insurance premiums. The survey, a poll of 150 US employers by PriceWaterhouseCoopers, also noted that health insurance costs were up 12% this year, with respondents estimating costs next year would climb by 11%.

The study also indicates that health insurance, which accounted for 8% of payroll at large employers in 2000, now consumes between 12% and 15% of payroll. The fallout from these increases is significant, with 20% of employers likely hiring fewer new employees as a result of and 25% attributing reduced profits to increased health care expenses.

Posted by at 6:25 AM | Permalink

The Medicare Part D marketing wagon train has hit the road, with CMS Director Mark McClellan leading the effort to convince skeptical seniors to enroll in the program. By all accounts, the effort has yet to hit its stride (free subscription required), as some seniors are confused about the coverage, while healthy seniors appear uninterested in the benefit, and the chronically ill are concerned that the benefits will not be rich enough.

I have been saying for some months now that Medicare Part D is a bad idea primarily because it does not take into account adverse selection. Simply put, the only people who will sign up are those who need the benefit. Others will not sign up until they get sick; while there is a financial penalty for delayed entry into the program, it is so small that it is unlikely to act as a deterrent. In fact, a study by Brandeis University of seniors using drug discount cards indicates the cards were purchased disproportionally by seniors who were already significant drug consumers.

It is therefore difficult to see how this program will be a financial success. Yes, the government will subsidize money losing plans (where those funds will come from is somewhat of a mystery), yes there will be some price concessions on individual drugs as pharmacy benefit managers negotiate better deals with manufacturers, yes some employers will save money by having the Feds pick up their retirees' Rx costs. But the fundamental flaw is that seniors will only sign up if they get more out of it then they pay in premiums.

Unless and until someone figures out how to overturn human nature, Medicare Part D is a dead duck.

Posted by at 9:15 PM | Permalink | Comments (1)

US property and casualty insurers have had their most profitable year in almost three decades, turning an underwriting net profit of $5 billion. The bad news is one of the key drivers, strong pricing, has already started to deteriorate.

The great result followed several years of declines that ended with a disastrous 2001, and marked the third consecutive year of improving profits. The improvement, driven by higher prices, a favorable regulatory environment, and more restrictive underwriting, has produced a net profit after taxes of $39 billion. While that sounds like a great pile of cash, the 9.4% return on net worth doesn't look quite as attractive when compared to other industries or historical results. One of the key reasons - the low rates of return on investment income.

By comparison, the industry had a 17.3% rate of return in 1987 with a combined ratio of 104.6, whereas the 2004 rate was 98.1. For those of us old enough to remember, interest rates and stock market returns were significantly higher in those days, allowing insurers to lose money on an underwriting basis and more than make up for it with investment income. It looks like those wonderful days of double digit returns aren't coming back any time soon.

So, despite strong underwriting , a mostly favorable regulatory environment, and few very large catastrophic events, the industry can't even come close to delivering the kinds of returns enjoyed by other sectors. Couple that with the recent evidence of softening prices and continued inability to even focus on, much less begin to control health care expenses, and one cannot be sanguine about the industry's future results.

The net - if prices continue to soften, those insurers without discipline and a focus on medical expense management (for the lines impacted by medical costs) are in for a rough ride.

What does this mean for you?

Success if you stick to the fundamentals and finally do something about medical.

Posted by at 8:08 AM | Permalink

Reuters reports that Eliot Spitzer, NY Attorney General, is close to a settlement with AIG in the civil lawsuit filed by his office. This would be good news for both AIG and the insurance industry, which has been waiting for the proverbial "other shoe" to drop since the suit was filed earlier this year.

The most visible impact of the issue has been the departure of long-time CEO Hank Greenberg as well as the decline in stock price, with AIG's stock down 17% (compared to the S&P's 2 point drop) since the Valentine's Day announcement. An equally significant, but perhaps less visible result is the loss of management attention on key business issues affecting the company. These include -

--continued major problems with AIG's new medical bill document management program, exemplified by long delays in payment, lost bills, frustrated health care providers, and regulatory actions

-- uncertain strategic direction at recent acquisition American General. AG's target market definition seems to wander like the needle on a compass in an iron mine. This lack of focus is NOT typical to AIG.

That said, AIG is a very strong company with competent management. If their leaders can once again begin to focus on their business, and correct a decades-long underinvestment in information technology, then it will continue to succeed.

What does this mean for you?

Get crises resolved as fast as possible, and do NOT lose your focus on the franchise. Trite, but true.

Posted by at 7:44 AM | Permalink

Jon Coppelman at Workers' Comp Insider has a great post on the influence of lunches, meetings, and sales reps (detailers) on prescribing habits of physicians. The quick take - MDs who attended Vioxx lunches prescribed four times more than those who just met with detailers. Oh, they weren't consuming vioxx at the lunches, just hearing about their wonders.

MDs were also paid $750 - $1000 to present at these educational gastronomic events. The presenters talked about related conditions, indications, etc. Jon notes:

"the participating doctors insisted that they are not flacks for the drug companies -- they say that they answer questions at these sessions honestly and candidly. In the example of the migraine headaches above, the lead doctor mentioned the availability of generic medications, in addition to those made by the sponsoring company."

These are pretty common events - almost a quarter million of these doctor presentations took place last year, compared to under 140,000 detailer sales calls. Figure 237,000 events x $750 honorarium per presenter, that's $178 million.

While the investment was huge, "The return on investment for the presentations involving a doctor was twice that of the other sessions."

What does this mean for you?

If you are seeking ways to "counter-detail", you better have a big budget.

Posted by at 4:49 PM | Permalink | Comments (3)

The Broward County School Board audit of their workers compensation program is even-handed, insightful, detailed, and brutal. It shows no mercy for managed care firm CorVel, administrator Gallagher Bassett, or the Board's own risk management department. And according to my reading of the 211 page document, no mercy is deserved.

I'm going to spend a few hours reviewing and commenting on this audit and my take on same. The purpose is not to slam any individual or company, but to highlight "worst practices" that are persistent throughout the workers comp industry; detail some of the findings to show specifically what can go wrong when a program is poorly conceived and managed; and shed light on what can happen when vendors take advantage of an ignorant or lazy program manager.

I do want to note that the audit report itself reflects an attention to task, focus on the real issues, and blunt assessment that are both rare and welcome in public or private reports. It does the Board credit.

Broward County's schools have some 350 locations and 39,000 employees. Annual workers comp expenditures are in the $34 million range.

The audit's introduction does not soft-pedal the issues; "the problems…were not subtle or a matter of interpretation, but were substantive, overt, and revealed a fundamental breakdown n processes and accountability. The result is a program that is woefully inadequate in providing for the District's workers' compensation needs."

The executive summary goes on to note:

"…an effective workers compensation system needs to be a fully integrated system, Specifically, this integrated system is comprised of certain core components that are both fundamental and inextricably inter-dependent. Simply fixing a sub-set of these components will not fix the system and may in fact adversely impact some of the other interdependent components and …continue to perpetuate the spending of tens of millions of dollars annually that could have been utilized to support our educational programs…"

I'll note some of the more egregious problems contained within the report (page v), and we'll focus next time on the issues related to medical management, followed by networks, and close with lessons learned.

Problems included:

-- undercounting of lost time claims by Gallagher Bassett by more than half - GB reported 14% of claims were LT; the audit indicated the real percentage was 35%. This is somewhat puzzling; TPA normally get paid more for managing a lost time claim, so an under-report here is unusual. Still, a rather amazing discrepancy.

- "The focus of the CorVel network on obtaining a large quantity of discounted medical services rather than facilitating quality care and superior results through a concentrated collection of high quality clinicians who are properly paid." This is one of the best indictments of the "percentage of savings" large deep discount PPO model I have read. And very accurate.

-- A total of 292 claims, costing over $81 million that have been open for over five years. Wow. This reflects either a complete lack of interest in or understanding of claims management.

-- "Excessive assignment of claims to field case managers, at a cost of over $2 million with little or no tangible results." Inappropriate billing practices for both field and telephonic case management were also noted, possibly resulting in over $1 million in over billings.

-- "The transference of many claims responsibilities from claims adjusters employed by Gallagher Bassett Services to field and telephonic case managers employed by CorVel. This transference then allows CorVel to bill the District under additional services."

The overarching problem reported in the audit was the complete lack of "any goals for process or program outcomes currently in place in order to enable one to determine whether the program was successful on a daily monthly or annual basis."

What does this mean for you?

Consider the problems uncovered in Florida in respect to your program, operations, or client relations. While being sloppy, lazy, or possibly unethical may be profitable or easy in the short term, it is certainly no recipe for long term success.

Posted by at 12:41 PM | Permalink | Comments (1)

Roy Poses has some interesting insights into the financial benefits and costs of the pending Pacificare-UnitedHealth merger in his blog Health Care Renewal. Dr Poses notes that two of the execs involved both make over a hundred million this year or will make it if this deal gets done.

He also highlights Dr. Alain Enthoven's views on the deal, citing his credentials as a:

"charter member of the Jackson Hole group, and long-time advocate of managed competition... "I don't see this as beneficial to California consumers or employers...I regard this as a loss and doubt there are any economies of scale to be achieved here."

The LA Times quotes UHG CEO Bill McGuire on the business justification for the deal; ""There is not enough money … to pay for the healthcare system as it operates today. It is indiscriminate, it is non-scientifically based, it is founded on anecdote as much as it is science. We have to change course."

Note that Enthoven et al are struggling with understanding how this deal will improve the McGuire-described landscape...as am I. Additional views on this are in yesterday's CaliforniaHealthLine (if you don't subscribe, you should). Most center on the dubious claim that the merger will somehow benefit consumers, with several groups and individuals voicing serious doubts about the likelihood of that happy outcome...

"Jack Lewin, president of the California Medical Association, said, "There's no discernable benefit to the consumer for this. The benefit is to the companies and their shareholders."

"Anthony Wright, executive director of Health Access California, said, "Because the health industry is dominated by only a few big players, there's less competitive force to try to bring down the price of health care"

"Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights said that the acquisition would result in less choice for consumers, lower reimbursements for physicians and hospitals and more waste in the health care system unless regulators establish conditions for the agreement"

and perhaps most importantly,

"California regulators likely will "focus on access to quality health care" rather than antitrust issues. Insurance Commissioner John Garamendi said, "My department has established a very clear position on health care industry consolidations and the effect that they may have on consumers"

Faithful readers will recall the delays and eventual concessions brought on by Garamendi's resistance to the Anthem-Wellpoint deal. With little to no real evidence of McGuire's claimed positives for consumers, there is growing skepticism amongst consumers and regulators about the societal benefits of these mergers.

I see this as capitalism pure and simple. And that is not necessarily a bad thing. However, McGuire et al make a serious mistake when they characterize a business deal meant to benefit their stockholders as a plus for society. That is not what for-profit corporations are designed to do. Rather than make unsupportable claims, better if they just state they are doing it to drive more profits, pay the merger-associated costs, and be done with it.

There will be much more to come on this issue.

What does this mean for you?

Watch this carefully, as the fight over Pacificare-UHG will be much tougher than the Anthem-Wellpoint deal. Garamendi is the "big stick" here, and he will exercise that size vigorously. The path this takes will have a major influence on future health insurance deals.

Posted by at 6:38 AM | Permalink | Comments (1)

For a real world view of consumer-directed health care, we can turn to the recent report by the Kaiser Family Foundation which indicates "Twenty-seven percent of women under age 65 delayed or went without needed medical care in the last year because they did not think they could afford it". And these weren't just the uninsured. In fact, "17% of women with private insurance delayed or went without care because of cost concerns."

While I don't mean to sound like a strident opponent of consumer education or deny the importance of involving individuals in the economic consequences of their health behaviors, it does strike me that when one out of six insured women delay care or skip it entirely due to cost we have a pretty good sense of the real effect of so-called "consumer-directed" health care - economic rationing.

It will be interesting to see if other studies of actual plans that are based on these ideas have different outcomes.

Posted by at 8:24 AM | Permalink

Steve Case, late of AOL-TimeWarner, has made a huge bet on consumer-driven health care with his investments in Revolution Health Group. Case and fellow investors including Colin Powell, Jim Barksdale (Netscape), Steve Wiggins (Oxford Health Plan), Franklin Raines (Fannie Mae) are planning to purchase at least seven (unnamed) companies to form the core of an entity that will (at least according to the USA Today article):

--provide consumers with access to data on physician and hospital cost and quality
--lower health insurance costs by streamlining the purchasing process
--enable consumers to rapidly access their personal health care data at convenient locations

These guys are not fooling around - Case intends to invest $500 million of his own money in the venture, and the other partners' pedigrees and personal fortunes will certainly make Revolution one of the larger new ventures in the health care business.

The question is, does the premise of the idea, consumer-directed health care, make sense?

Sort of, but not really.

To illustrate, here is a quote from Colin Powell from the article about shoppers looking for a TV;

"they can go on the Internet and "within a second and a half, get hundreds of choices of where to buy," along with information about the TV, the seller and any additional charges. "Why should that not apply to health care?" he asks."

Well, Mr. Secretary, buying a TV is not exactly the same as trying to find out what to do about a lump in your neck, a gradual loss of nighttime vision, or general sense of fatigue. When buying a TV, you already know what the solution is. The issue with health care is a big chunk of the effort and expense is associated with trying to answer the "what's the problem" question.

The other significant problem w the whole "consumer-directed" idea is the nature of health care as an economic good. As Matthew Holt of "the Health Care Blog" has noted repeatedly, health care is not a typical economic good, it is not like guns or butter. People use different criteria when deciding what is worth spending when they or their loved ones are at risk. Case in point.

My daughter was admitted to a local emergency clinic with an adverse reaction to a medication. She was stabilized, appeared to be doing fine, was not in paid, fully alert and conversational. As the clinic neared closing time, the doc suggested that she be sent on to Yale for further observation before discharge, as there was some information that the reaction could lead to a problem with her breathing. She was breathing fine, talking, and appeared normal.

We are insured under a high-deductible MSA plan, so any charges would come out of our pocket. I thought about it for a few seconds, than agreed. I also agreed to have her brought over in an ambulance for the fifteen minute trip. I knew full well that the risk was minimal, the costs would be over $2000 for this "preventive" measure, and I would pay all that out of my own pocket. Was the very small risk worth the outrageously inflated cost?

You bet your life it was.

The net here is I do not believe health care's cost problem can be addressed in any significant way by this drive to consumer-directed health care. In addition to the emotional buying decision process noted above, it is also instructive to remember that a significant portion of total health care dollars are spent on treatment in the last six months of life; and that a majority of the health care dollars go to treat individuals with serious chronic conditions who get almost all their care paid for.

While better educating individuals will undoubtedly help them solve their individual health issues, and perhaps cut a few cents off their bills, it will do nothing to reduce the national health care tab.

Posted by at 4:10 PM | Permalink | Comments (6)

While medical malpractice premiums were climbing dramatically from 2000 to 2004, claims did not increase at all. The finding from a study by the Center for Justice and Democracy reported in the New York Times, examined the premium and claim histories of the 15 largest med mal carriers and found that while premiums escalated 120%, claims were flat while the insurers' incurred loss ratios (ratio of claims to premiums collected) improved by almost 25% to 51.4%.

What gives? Does this mean the "med mal crisis" of a few months ago was a myth? Depends on who you listen to. The Times article notes:

"According to Connecticut Attorney General Richard Blumenthal (D), the results of the study "have the potential to alter the debate fundamentally from seeming to cast the rapacious personal injury lawyers as the complete culprits and the insurers as innocent bystanders with doctors as victims to the insurers as equally responsible, if not more so." He does like to turn a phrase...

A ‘diabolically opposite" (one of my bride's best malaprops) view.

Lawrence Smarr -- president of the Physicians Insurers Association of America, which represents insurers owned by physicians -- said, "It's a meaningless comparison that no respectable actuary would consider." He added that malpractice insurance premiums have increased because juries have issued higher awards in lawsuits and insurers have used those awards as justification for the settlement of more claims. Smarr said, "The real problem is claim severity. It means that juries are awarding higher amounts and jury verdicts drive the potential cost of the claim so that makes settlements rise."

My take - Smarr's riposte does nothing to dispute the central result of the study - although Smarr states that claims costs are rising, the data does not support his statement. Either he has not been quoted correctly, does not have a meaningful response, or he is claiming that severity is much more important than frequency. Giving him the benefit of the doubt, I assume he is claiming the latter is true. Smarr is off base, as frequency (the number of claims) is definitely critical to an analysis of any insurance block. If severity has increased, and the total cost of claims has remained flat, than frequency must have decreased. If that is the case, then the "med mal crisis" may have been a severity-driven way to boost premiums.

What does this mean to you?

Always question your assumptions - when someone claims a study indicates a problem or clear finding, delve into the detail to determine yourself if the claim is supported by the data and analysis. To quote Ayn Rand, "always question your assumptions."

Posted by at 10:30 AM | Permalink

It's official, United HealthGroup intends to acquire Pacificare, increasing their membership to 25.7 million and tripling their Medicare insured business. This will also strengthen UHG's west coast operations, long a sore spot for the company.

With the announcement came protests from consumer advocacy groups and others in California. These groups were instrumental in delaying the Anthem-Wellpoint deal, which passed after the companies agreed to allocate over $300 million to fund health care for low income citizens. Expect these groups to weigh in aggressively on this deal as well.

That said, UHG is more expert in acquisitions than the Anthem management was at the time of the Wellpoint deal, and are undoubtedly even smarter now. They will likely move things along more expeditiously than some would expect.

If the deal does go thru, UHG will be a close second to Anthem's membership of 27.7 million. Ratings agency Fitch likes the UHG - Pacificare deal, noting

"Fitch views the transaction as strategically beneficial to UnitedHealth. Approximately 1.8 million, or 57% of Pacificare's 3.2 million members are located in California, which is a state where UnitedHealth has historically lacked a competitive market share. Pacificare's provider network within the State of California will be of significant value to UnitedHealth, which currently gains use of a provider network through a network access agreement with Blue Shield of California. In addition, UnitedHealth will be acquiring the largest player in the Medicare Advantage program."

Frequent readers will note I have ong been talking about constraints on growth for these big managed care plans. There options are to acquire, grow organically, or diversify. While the price seems steep, it is better than cutting rates to gain market share or getting into another line of insurance about which they know little.

Expect there to be renewed interest in plans such as Cigna and Coventry.

This deal reduces UHG's expenses (it will no longer have to "rent" BC CA's networks), adds expertise in pharmacy management and Medicare, strengthens its networks nationally, and adds significant depth to their national accounts efforts. A tough competitor just got tougher.

What does this mean for you?

If you are a provider, there will be increasingn pressure in CA as the number of "suppliers" dwindles. Oligopolies have some benefits, but rarely do they spur innovation and intense competition the likes of which have driven the insurance industry over the last two decades.

Posted by at 11:38 AM | Permalink

An article in today's New York Times discusses some of the issues inherent in the introduction of new medical devices and the quest for insurance reimbursement for same. Predictably, a spine surgeon accuses insurers of refusing to reimburse just to save money, insurers say they won't pay until the device is proven more effective than alternatives, the manufacturer touts supportive studies and ignores less supportive data, and patients are completely confused.

The article does an excellent job of laying out the issues in an even-handed manner, and actually alludes to the significance of any new technology's demonstrated ability to improve on the present "state of the art" in the reimbursement decision process. However, that is about as far as it goes. The article, and other commentary in California HealthLine, does not delve into other alternative treatments and their associated benefits and costs for conditions addressed by devices such as artificial disks, stents, and pacemakers.

It strikes me that device manufacturers certainly have this kind of information, as it is likely part of whatever studies they do. If that assumption is correct, the data is either not reported, was not used by the reporter, or was inconclusive. is no discussion about the potential for the device to replace other medical treatments (e.g. pain meds, therapy, etc.).

Reimbursement decisions are one of, if not the key success measures for new technology - and the way to get payers to cover these new devices is to show the impact on patient outcomes, functionality, and/or lifestyle improvements as well as the elimination of other medical treatment and the costs thereof.

I must be missing something here.

What does this mean for you?

Before approving a new technology for reimbursement, ask what the impact on patient outcomes is, in addition to what other services/devices/procedures it replaces.

Posted by at 3:21 PM | Permalink

Hard market, soft market, transitional market - all are terms that insurance industry veterans have used to characterize the various stages of the "insurance industry underwriting cycle". Simply put, a hard market is when insurers are backing out of the market, insurance is expensive and getting more so, difficult to find, and likely limited when it can be obtained. Soft markets typically are marked by new entrants into the business, dropping prices, generous underwriting provisions, and aggressive discounting.

We are now in a soft market, especially in California. The next question is how did we get here and how long will it last.

Well, we got here because insurers raised rates for three years in a row beginning in 2001, thereby driving margins, and profits, up substantially. This newly profitable industry caught the attention of outside capital, which wanted to jump in on the action. Remember, those with lots of money to invest can put it into bonds (at very low interest rates) equities (with their only slightly better returns with much more risk), real estate (prices are high and speculation of a bubble rampant), or under a very large mattress.

So, among other insurance lines, workers comp looked especially good. And lots of capital jumped in, causing prices to drop. They are still declining.

The second part of the question is much harder to answer - but there are some indicators that predict it will not last nearly as long as the soft market of the late nineties. Most significant is the continued rapid increase in medical expenses. In workers comp, most medical expenses are paid out more than 12 months after the date of injury, and fully 1/3 of dollars are paid more than 36 months post injury. It is incredibly hard to accurately predict what medical inflation will do to a claim's medical costs. And, all indications are that medical expenses in WC are rising faster than in the overall economy.

You can find an excellent review of past markets, market drivers, and other useful info at the American Association of State Compensation Insurance Funds. While the report is somewhat dated, the logic is not.

What does this mean for you?

Enjoy the soft market if you are a buyer, hope it ends soon if you are a seller, and whoever you are, remember that medical expense will drive the next hard market.

Posted by at 1:14 PM | Permalink

It appears increasingly unlikely that the Terrorism Risk Insurance Act will be renewed in its present form. A report filed by Treasury Sec. John Snow claims the robust economy is justification for its' position that the Act is no longer needed, any renewal will stifle innovation and economic growth, and any renewal should factor in significant changes.

Referring to the potential for renewal of the Act, the report makes several recommendations, noting:

"Any extension of the program should recognize several key principles, including the temporary nature of the program, the rapid expansion of private market development (particularly for insurers and reinsurers to grow capacity), and the need to significantly reduce taxpayer exposure."

Snow is recommending several specific changes, including:

"an extension only if it includes a significant increase to $500 million of the event size that triggers coverage, increases the dollar deductibles and percentage co-payments, and eliminates from the program certain lines of insurance, such as Commercial Auto, General Liability, and other smaller lines, that are far less subject to aggregation risks and should be left to the private market.

While Snow is correct that the Act was intended to be temporary, that was more because it was the first of its kind, we had no experience in this area, and far better to sunset a law than to let an inappropriate, ineffective, or bad law stay on the books automatically.

That said, there are benefits to the insurance industry if the Act dies. These include:
-- No more onerous TRIA paperwork. Insurers/brokers are required to offer TRIA coverage to all policyholders (for most property/casualty and some accident/health lines) and prove that by getting signatures on documents from insureds. Most insureds opt out of coverage, meaning brokers are required to obtain, file, and maintain records without compensation.

-- Outside major municipal areas, the vast majority of policyholders are rejecting terrorism coverage anyway due to higher costs.

Among the problems with any decision to non-renew TRIA are the regulatory requirements of certain states, the lack of a market for terrorism coverage, and the expense of private insurance.

New York state requires terrorism coverage, and is generally seen as the most likely target of an attack. Rock and a hard place, indeed.

Property and workers compensation insurers are particularly vulnerable, due to their high exposure, potential long-tail claims due to environmental fallout from any terror act, and in the case of WC, unlimited financial liability. Make no mistake, another significant terror attack could have a huge financial impact, one that the present insurance markets would not be able to withstand. Scenarios indicate an exposure into the tens of billions under certain situations for property and WC insurers if a dirty bomb event occurs in a major metro area.

What does this mean for you?

Depends on where you work and what your "exposure" is. If you are in a major metro area or near a "high value" target, rates could climb drastically. If not, rates may still increase as insurers seek to mitigate risk by increasing their reserves ahead of a catastrophic event.

I'll look into the potential impact on workers comp in a future posting.

Posted by at 7:57 AM | Permalink