The world (at least the very small part of it that I inhabit) has been buzzing about Wal-Mart's announcement that it will be pricing almost 300 generic drugs at $4 for a 30 day supply. Newspapers, private equity firms, PBMs, drug manufacturers, insurers, policy makers, and politicians are all rambling on about the various significant impacts this will have on the world, among them improving the lives of the uninsured.

I don't get it.

First, Wal-Mart's drug list includes only two scripts that are on the top 20 list. Two.

Second, the $4 price does not represent a big discount on many of these drugs (although it is substantial on a few).

Third, the drug list includes mostly drugs that are older generics where there are multiple manufacturers, enabling Wal-Mart to use it's power to negotiate better deals by pitching one manufacturer against another.

Fourth, other drug retailers have been offering similar plans for some time now.

Fifth, of the 267 items on the original Wal-Mart list, there are only 118 distinct drugs, several with multiple formulations.

Sixth, very few of the drugs on the list are on any workers' comp top drug list (e.g. naproxen)

Seventh, my take is Wal-Mart has done this for branding reasons.

Eighth, most drug chains have not followed suit (although retailers Target and K-Mart have).

The net - a very large and powerful retailer has announced it is cutting its prices on a relatively few items that are not exactly the pharmaceutical equivalent of the Talking Elmo doll (at least in terms of popularity).

Posted by Joe Paduda at 7:16 AM | Link to this post | Comments (23)

In one answer to the question, where did Ohio's Workers Comp premiums go?, the answer is to a contractor building Tommy Noe's house on Lake Erie.

Noe, the defendant in a criminal trial, is alleged to have used workers comp funds set aside as reserves to pay future claims to help pay for his 4200 square foot house on Lake Erie. And another one in the Florida Keys, both of which were worth a million bucks each.

If anyone has photos of these places, let me know.

Posted by Joe Paduda at 6:23 AM | Link to this post

Coventry announced their third quarter earnings this week, and much of the news was good. Health plans have been experiencing declining medical loss ratios and strong pricing, resulting in solid profiits and increasing revenues, and Coventry's results mirror the industry.

Before diving into the FH WC business, a caveat. Coventry is a very well-managed company. They run a very solid business, understand the group health, HMO, and Medicare businesses better than most, and have consistently delivered excellent results.

But, while all is good in group health, Medicare and Medicaid land, the same can't be said for the First Health workers comp business.

When Coventry bought FH, expectations were pretty high for revenue and profit growth from the WC segment of the deal. In January of this year, CEO Dale Wolf noted that he expected FH WC revenues to grow to $240 million in 2006; unless the fourth quarter is an absolute grand slam, that does not look likely. So far, revenues are generally flat quarter over quarter, and are tracking to hit $209 million...

FH WC revenues
2005 Q2 $54
2005 Q3 $51
2005 Q4 $53
2006 Q1 $51
2006 Q2 $55
2006 Q3 $51

A couple exchanges during the investor call are illuminating. First, WC was not mentioned at all during the management presentation.

Second, when asked by an analyst if there was anything new or different in the competitive landscape in WC, Wolf said “no, nothing, only competitive skirmishes.” (that's not how I see it)

Third, responding to an analyst question about FH's quarterly WC revenue trends, Wolf noted that "claims volume leads to fluctuations in quarterly results" ( I may not have that exactly right). I point this out as there was no mention of the afore-mentioned high expectations for FH's WC business, and the statement seems to imply that those early hopes for solid revenue growth have been, well, modified.

Here's a summary of the some of the issues plaguing FH's WC unit.

The business still has no leader.

A very large customer will be moving more than a dozen states from FH's WC PPO to rival Aetna Workers' Comp Access.

FH's rather large investment in the EDS bill review system is yet to pay off, with indications that customers are increasingly frustrated by FH's inability to meet deadlines for system enhancements. In at least one case, the promised enhancements are more than two years behind schedule.

FH's Priority Services unit is moribund, with staff departures, uncertain leadership, and little in the way of attention from Coventry folk.

Customers report declining savings (below fee schedule/U&C) over the last nine months, especially in facility costs. This is an interesting contrast to Coventry's overall strong results in managing facility costs, which have been lower than expectations.

Coventry is a very good company, FH is an under-performing business unit.

Posted by Joe Paduda at 9:49 AM | Link to this post | Comments (3)

The soft market, that's what.

While I'm somewhat reluctant to cite bomb-thrower Robert Hunter of Americans for Insurance Reform, he does make a good point. AIR's recent pronouncement that the med mal crisis appears to have abated in large part due to the underwriting cycle is correct.

My take is the med mal crisis is largely an invented one. Yes, it is a problem for specific specialties and in specific areas. But it is NOT due to large jury awards; it is a result of insurance cycles and pricing.

Posted by Joe Paduda at 6:56 AM | Link to this post | Comments (2)

In what has to go down as perhaps the least surprising news of the political season, big pharma is panicked that Democrats are going to take over Congress.

Panicked may be too mild a word.

There are two main reasons for pharma's concern.

1. The Dems may try to enact legislation that would allow the Feds to negotiate with pharma on drug pricing, something that is specifically prohibited by existing law.

2. The FDA's new drug approval process, which has been under a good bit of scrutiny, may get a very close examination under a very bright light.

Oh, and ex-FDA boss Lester Crawford's ethical issues may be the subject of Congressional inquiry as well.

While it looks like too little too late, pharma is funneling huge dollars to incumbents (primarily Republicans) in an effort to avoid the bright lights of investigation and an extended appearance at the negotiating table with CMS.

What does this mean for you?

If you're in the pharma industry, tough times may be on the horizon.

Posted by Joe Paduda at 6:45 AM | Link to this post | Comments (1)

Tommy Noe, the political fund raiser/rare coin investor/investment adviser to the State of Ohio's bureau of workers compensation (BWC), ought to be teaching negotiation seminars in his next life - that's after he gets out of the pokey.

The deal he negotiated with BWC is far better than any I've come across or heard about, According to the article, Noe's deal prevented any future BWC administrators from reviewing or rejecting his deal, as he did not want them to interfere with his investment "strategy".

As well they should have.

Posted by Joe Paduda at 1:17 PM | Link to this post

The march off the cliff has begun in earnest. A new survey indicates underwriters are starting to hold their collective nose and write business that would not have merited a "no thanks" a year ago. As usual, larger risks are getting the best deals, but even small accounts are seeing discounts at renewal.

Of most interest to the most readers, workers comp rates have been affected more than most lines, with almost 90% of larger risks seeing flat to negative renewal rates.

This is a continuation of a softening market that has been progressively weakening for over a year. With a great big exception being property lines, especially in coastal areas.

Posted by Joe Paduda at 6:54 AM | Link to this post | Comments (1)

Bob Vineyard at InsureBlog has an excellent post on how out of touch most American health care consumers are when it comes to understanding the drivers of health care costs.

I hope these folks don't vote.

Posted by Joe Paduda at 7:41 AM | Link to this post | Comments (1)

There is quite a bit of interest among private equity and venture capital firms in the work comp managed care "space". These investors seek to buy into companies that are poised for growth, that have a "sustainable competitive advantage", solid management, long term contracts with customers, and a profitable business model.

A key to success for these investors is to find these firms before the other investors do, which means identifying good companies quickly. Analysts spend lots of time, energy, and brain power analyzing, assessing, and interpreting data. looking for the wheat among the chaff.

A much faster, and probably more accurate way, is to pick up the phone and call the company. Talk to the receptionist, someone in customer service and someone in billing. What they say doesn't matter nearly as much as how they say it.

Good companies have energy, enthusiasm, and a desire to help that comes through the phone. Not so good ones have none of the above.

Posted by Joe Paduda at 6:24 AM | Link to this post | Comments (1)

I'm suffering from a severe case of cognitive dissonance, brought on by completely conflicting statements in articles from a single source, the New York Times. In Friday's business section, Alex Berenson notes that big pharma, led by Pfizer, Lilly, Novartis and Wyeth all enjoyed strong profit gains (free registration required) in the third quarter.

The profits were generated, in large part, by price increases in the US, where Lilly's prices were up 11%, contributing to a 14% gain in US revenues. Fair enough, prices went up, so did profits.

In the next (virtual) breath, another NYT article quotes the Congressional Budget Office's as concluding that a Democratic Congress' efforts to reduce Medicare drug spending by negotiating directly with pharmaceutical manufacturers will not work because private industry is so darn good at negotiating prices. (polemics are mine, but you get the point)

So let's see. Drug manufacturers are making nice profits by increasing prices in the US. Prices are not going up overseas, where every other country negotiates prices en bloc. And yet the US, the single largest market for drugs, could not impact drug prices by negotiation?

Additional evidence supporting the theory that governmental negotiation results in lower drug prices comes from the Veteran's Administration.

I'm really dissonant-ified.

Posted by Joe Paduda at 7:07 AM | Link to this post | Comments (2)

If this continues, big box and discount retailers will be giving drugs away. With the recent announcements that Target is matching Wal-Mart's $4 drug price deal, Wal-Mart is speeding up the roll-out of their $4 script program, and K-Mart has had a 90 day supply of 184 generics for $15 offer since May, the price war has started.

Among the criticisms of the Wal-Mart initiative is that only one of the 20 drugs most commonly prescribed is on the discount list. Regardless, the Wal-Mart move has shaken up the pharma market, and forced retail outlets to quickly figure out their stance.

Chain store H-E-B announced their offering - a $5 for 500 drug program(free registration required). Notably absent from the battlefield are two of the larger pharmacy chains; CVS and Walgreens have said they will not be joining the fray.

The national association of independent pharmacies is outraged by Wal-Mart's initiative; my sense is this is in large part because they just can't stand the big company, although they have noted that the drugs covered by the $4 plan are not exactly the most popular, newest, best models on the market.

And lost in most of the press has been any recognition that many community pharmacies have long offered generic discount buying plans to customers, plans that cover more drugs (or rather more drugs that people actually use) than the Wal-Mart plan.

What does this mean for you?

The smoke has not all been generated yet, much less started to clear, so it's hard to tell. Wait a few weeks and we should be able to make some sense of the hubbub.

Posted by Joe Paduda at 5:19 PM | Link to this post | Comments (3)

Ok, it has been a really long week - mostly spent in airplanes and hotels and conference rooms. So when good friend Chazzy Stone sent me this I just had to put it up.

Mahatma Gandhi, as you know, walked barefoot most of the time, which
produced an impressive set of calluses on his feet. He also ate very
little, which made him rather frail and with his odd diet, he suffered from bad
breath. This made him (Oh, man, this is so bad, it's good)..... A super
calloused fragile mystic hexed by halitosis.

My ribs hurt.

Posted by Joe Paduda at 5:03 PM | Link to this post

I've received several anonymous comments from readers recently, which has caused me to rethink comment policy. Here's how these will be handled in the future.

Anonymous comments that are specific to a topic, show knowledge of that topic, and are not (overly) snarky or mean-spirited or accusatory without substantiation will probably be published. Anonymous posts that don't meet these criteria will probably not be published.

And anonymous comments from authors that call into question my ethics will most definitely not be published. I'm quite willing to address any concerns if, and only if, the commenter has enough courage and honesty to show their (virtual) face.

I have no patience for cowards who criticize without revealing their identity and therefore enable me, and other readers, to understand the cowards' potential biases.

Posted by Joe Paduda at 8:32 AM | Link to this post | Comments (1)

Perhaps the insurance industry sees the scandals in Washington as a challenge, a motivating factor, a red flag thrust in front of the industry. How else to explain the daily news on malfeasance and wrongdoing on the part of insurers? Criminal indictments, revelations of unethical behavior, news of commission padding, retroactive rejection of applications, and sleazy products have all hit the mainstream media this year, and the latest may be the biggest yet.

From Insurance Journal comes the item that United HealthGroup and Chair/CEO Bill McGuire may be facing criminal charges linked to the allegations of back-dating of stock options. The Federal Attorney in New York is evidently investigating the good doctor et al, and those who know about such things see that as very bad news indeed for all involved.

Several individuals quoted in various articles noted that prosecutors tend to go after the really big companies as a deterrent to others who may be contemplating similar actions. And McGuire's $1.5 billion payout certainly will get attention in the media.

UHG has not exactly endeared itself to providers either, making for smiles and high-fives all around in health system board rooms if and when criminal indictments come down.

What does this mean for you?

Pigs get fat. Hogs get slaughtered.

Posted by Joe Paduda at 3:08 PM | Link to this post | Comments (2)

Ezra Klein is hosting the latest edition of Health Wonk Review, bringing his trademark trenchant style to the carnival of policy posts.

Posted by Joe Paduda at 9:14 AM | Link to this post

The announcement that healthplan semi-giant CIGNA is getting into the workers comp pharmacy benefit management business is stirring up a good bit of interest.

I don't get it. Further, the press release has so many factual and inferential errors that it makes me wonder what CIGNA was thinking.

I don't think CIGNA's PR department did themselves any favors by choosing a customer who, despite her claims to the contrary, does not seem to understand the basic differences between managing drug spend in WC and group health.

The endorser notes that "double dipping is a huge problem in WC". Huh? how so? what evidence indicates this is the case? She goes on to claim that they will get additional savings by using a formulary to "steer employees towards generics...and require mail order for maintenance medications."

Sorry, can't do that. while a PBM can encourage the use of generics, and by the way every single PBM does, in most states you cannot force use of a generic. And as for requiring mail order - that is just flat out not going to happen. There are NO states that allow a payer to force injured workers to use mail order.

The selling points appear to be that employer customers of CIGNA can now get their workers comp and group health drugs through the company, an offering that according to the press release, will result in dramatic savings overnight.

Let's parse out the press release to better understand the value proposition.

The program relies on CIGNA's group health PBM and subsidiary Intracorp's WC expertise to reduce WC drug costs. Savings are going to come from -

discounts - likely in the form of lower per-pill prices. Nice idea, but WC drug costs are driven primarily by utilization, not by price. It's easy to sell customers based on price, but if low price worked drug costs in WC would not have increased by more than 10% annually over the last four years.

preventing duplicate scripts - I'm not sure how this works; if CIGNA thinks claimants are getting the same scripts covered by group and WC benefit plans, I'd love to see the evidence. This is one of those claims that sounds great, but the evidence is usually scarce.

electronic payment systems - this is no differentiator; all WC PBMs have this capability. And I can't see how this will produce savings, unless some employer has been paying drug bills by manually cutting checks.

use of a formulary - this is also something most PBMs have been doing for years. The unspoken issue here is that few are aggressively enforcing the formulary. Most of the scripts that are outside the formulary are filled, as adjusters don't have enough knowledge to refute or reject the script. A formulary only helps if it can be enforced, and very few PBMs and payers really do.

controlled utilization to eliminate fraud and abuse - there's some promise here, if CIGNA et al are really going to do something different and implement a strong clinical management program. Alas, the DUR program turns out to be "same old same old" - rejecting early refills and duplicates, with a somewhat new twist - the program will ensure scripts are appropriately billed to the group or comp budget. This last feature doesn't save any money, it just reallocates it. And the early refill and duplicate rejection has been around for at least ten years.

Finally, the endorser, a human resources exec at a CIGNA customer, applauds the results she has seen - 19% savings and 85% generic utilization rate.

Savings is impossible to judge, as we don't know the denominator - savings off fee schedule? billed charges? cost per claim?

And the generic utilization rate is about what most WC PBMs have been delivering for years.

Posted by Joe Paduda at 8:36 AM | Link to this post | Comments (2)

Kudos to USAToday for publishing a pretty good article on variations in practice patterns related to back surgeries. In a front page story today, the paper that has been derided by some as "McNews" explores the issues surrounding the explosion in the number of spinal fusions.

The reporting is balanced, insightful, and thorough, a bit of a surprise coming from a paper that prides itself on short sentences, really short words, and lots of color, not depth and nuance.

Noted throughout the article is the primary problem - no one knows how many spinal fusions are the right number, and there is significant disagreement among stakeholders re when a patient should have surgery. (free registration required) That's all true, and that's where workers compensation comes in.

Back pain is one of the most common, and potentially most expensive, workers comp injuries. Unlike group health or Medicare, in workers comp the payer really cares about the end result of the medical treatment process - if the patient does not fully recover, the insurer has to pay a lot of money for future lost wages. And, in work comp the claim stays open until it is either settled, or the patient is fully recovered. Finally, work comp databases include both medical treatment information and indemnity, or lost wage, data.

That does not mean workers comp payers have figured out how best to handle back injuries - far from it.

That said, for researchers looking for a robust and comprehensive database for analysis to help determine when spinal fusion makes sense, work comp is the place to go.

Posted by Joe Paduda at 7:11 AM | Link to this post | Comments (2)

Dr. Biill McGuire, Chairman and CEO of United HealthGroup (UHG), is leaving the company. In an answer to the old question, "how much is too much?", the answer is "$1.5 billion".

This is, of course, the value of stock options that Dr. M received from UHG over the course of his career, a substantial portion of which were backdated to ensure he received the maximum possible payout.

This is a multi-layered situation.

McGuire is already one of the wealthiest men in the nation; what was he going to do with the extra money?

Health plans are already not exactly the most beloved businesses in the US, and he had to know the rather rich compensation package would outrage many. Or perhaps he just did not concern himself with this particular repercussion. Anyone with a few hundred million bucks can certainly afford some of those fancy noise-canceling headphones...

UHG's Board may well have seen it as essential to hold onto the executive who was primarily responsible for building one of the most successful companies in America, and thought the billion-plus payout was a reward well-earned.

And health care providers are not in an accomodating mood; the news of McGuire's demise will undoubtedly stoke their anger even more.

Posted by Joe Paduda at 2:48 PM | Link to this post

Dr Mark McClellan has left his post as administrator for the Center for Medicare and Medicaid Services (CMS). On his way out he talked about the future of the Medicare program, his views on the benefits of market-based competition, and his prediction that we are in what will be known as the biomedical century.

McClellan has garnered relatively positive reviews from across the political and editorial spectrum. By all accounts he is smart, dedicated, and a good person. That last is from a reader who knows the family and respects them. While that may all be true, I'm afraid McClellan missed a great opportunity. While he has worked diligently to promote data collection, quality and performance monitoring, and investigations of pay for performance, I have not seen much direct attention paid to practice pattern variation.

That's a big miss.

Posted by Joe Paduda at 8:00 AM | Link to this post | Comments (2)

CorVel's stock has enjoyed a resurgence of late, and is currently trading near it's 52 week high. Yes, earnings have rebounded from a few tough quarters, although revenues remain essentially flat. What's really driving the numbers?

The stock repurchase program, although a potential cause, is not likely to have had much of an impact as no shares were bought in the most recent quarter.

No, it looks like CorVel has done a better job of managing the cost of goods sold, as their gross margin has improved substantially. It is likely that the company is focusing less on low-margin case management and more on high margin networks and technology-driven niches such as bill review.

SG&A expenses were up considerably; if they had held consistent with past quarters the profit picture would have been even rosier.

While the network business may be looking good for now, CorVel's strategy of contracting with as many providers as possible at very low discounts may have run its course. The company recently lost one network relationship (albeit in a small jurisdiction) and sources indicate it will lose additional business.

Posted by Joe Paduda at 7:37 PM | Link to this post | Comments (2)

My recent post on the battles between large health plans and hospitals/health systems generated a good bit of debate. One comment deserves special attention; "the other Joe" notes that the western PA landscape is marked by a combination health care system/health plan that dominates the region. While this type of vertical integration has been tried many times in the past with rather limited success, this version looks to be much better positioned to succeed.

But as the other Joe points out, there are significant costs associated with that "success", costs that are borne by the system/plan's employees, payers, insureds, patients, and employer customers.

Posted by Joe Paduda at 7:57 AM | Link to this post | Comments (4)

A reader asked several excellent questions about when and under what circumstances direct contracting makes sense. That's when an employer contracts directly with health care providers.

My take is an employer has to have at least 750 lives in one area - plant, school, city government, facility, etc. in order to have any buying power at all. And 750 may well be on the low end.

As to whether a partially self-insured employer, say one with a specific deductible of $50,000, should do this, I'd say yes. The vast majority of bills will come from members with total costs well under the $50,000 limit.

Lastly, direct contracting takes expertise and patience. Knowledge of provider payment mechanisms and expectations, an understanding of the related legal issues, an intimate understanding of the local provider community, and really good employee relations are the bare necessities. Without these, stick with a "regular" health plan.

If I were an employer, here's what I'd do.

I'd set up a plan that pays 100% for in-network tertiary care, has a very low copay for preventive care including maintenance drugs, and has a very high out-of-pocket max for non-network tertiary care. I'd give significant discounts on premium sharing to those employees with healthy habits (this is the same as charging smokers more, but more politically palatable (sorry Rommy). Do not cover any medical costs incurred if a motorist is not wearing a seatbelt or a motorcyclist is not wearing a helmet. Contract directly for primary care, ob/gyn, pediatrics, and emergency care.

For tertiary care, work with one of the medical tourism companies to identify high quality, low cost overseas providers. And then let your insureds determine if they want to sign a big check to get tertiary care here, or go overseas and pay nothing and get excellent care.

Posted by Joe Paduda at 7:51 PM | Link to this post | Comments (3)

If you're still wondering why drug costs are going up so far so fast, here's another reason. Direct to consumer advertising costs. Big pharma increased their spending on advertising by 9% in the first half of 2006.

Expect total spending on DTC advertising to hit $5 billion this year.

No wonder prices have jumped this year.

Posted by Joe Paduda at 8:23 AM | Link to this post | Comments (6)

Health Affairs, my favorite health policy magazine (and perhaps the only health policy magazine) has launched a blog. One of the first posts is by James Robinson, and is a review of Redefining Healthcare by Porter and Teisberg. I haven't read the book so I can't comment on Robinson's commentary.

One of the complaints about Health Affairs is it only appears quarterly; then again, given the weighty nature of the periodical that may have been a blessing in disguise. The new blog will likely remedy that situation, although the blog's apparent weekly posting schedule will have to be fixed if HA wants to be a meaningful player in the blog-o-sphere.

They're just getting started, so let's give them time.

Posted by Joe Paduda at 6:10 AM | Link to this post

AWP has long stood for "ain't what's paid", and the old saw has been validated by documents made public during litigation in Boston earlier this year. First DataBank, one of the publishers of Average Wholesale Price data, had been sued by several plaintiffs alleging that First DataBank's benchmarking process was seriously flawed.

There are two primary issues here. First, FDB published data that was allegedly derived from surveys of drug wholesalers, data that was used to establish the average price that wholesalers paid manufacturers for drugs. It turns out that of the three dominant wholesalers, only one was supplying the data (McKesson). Thus, the published prices were not an "average", as neither Cardinal Health nor Amerisource Bergen participated in the survey.

As bad as that is, the real issue is the effect of the selection of McKesson as the sole source of drug pricing data. AWP is based on the actual price that McKesson paid for the drug, plus a margin. For years the typical margin was 20%; several years ago McKesson changed the margin to 25% to make it simpler to administer pricing internally. The price increase also earned McKesson points with its customers, retail pharmacies, who saw an immediate increase in profitability - profits on Lipitor immediately jumped three-fold after the 2002 increase.

Thomson's Red Book, one of the main sources of drug pricing data, has used, and continues to use, a 20% markup in its calculation of AWP.

Under the terms of the settlement, First DataBank has agreed to stop publishing AWP two years from the actual settlement date.

What's the impact?

Drug prices paid by insurers, employers, and individuals may come down somewhat, but it's likely manufacturers will see this as an opportunity to raise wholesale prices (the real prices, not the made-up ones). Retail pharmacy chains are already saying they will increase dispensing fees to compensate for lost margin.

OK, that's all interesting; the window into the mechanics of drug pricing has revealed a picture that is every bit as sordid as most payers long suspected. And watching one of the "perps" suffer the consequences is rather pleasant. But don't forget there are other sources of drug pricing data including the Red Book and Medi-Span, which have been more popular than FDB with many payers due to different pricing benchmarks.

What does this mean for you?

AWP has been replaced by many buyers with MAC or other pricing benchmarks. Expect this trend to accelerate. The transparency movement has, and will continue to effect payers' negotiation strategies.

And stop looking at price per pill, and start focusing on cost per member (in group health and Medicare/Medicaid) or cost per claim in workers comp and auto.

Posted by Joe Paduda at 6:43 AM | Link to this post | Comments (1)

Health Wonk Review is up and sprinting. Despite a hint of chill in the air here in New England, the darn thing is growing like a weed. I attribute that to the hothouse conditions that exist in today's health care policy environment.

Thanks to all who submitted entries; a few did not make the cut as they were not remotely on-topic. Those that did make the cut represent the best of health policy blogging.

Jonathan Cohn of The New Republic uses two recent news items (Wal-Mart's discount drug announcement and a Kaiser Family Foundation report on health care affordability) to illustrate his take on the health care system - while society may be able to afford 20% of GDP going to health care costs, more and more individuals will find themselves priced out of the health care market. BTW, your host doesn't think society can afford to spend one-fifth of its resources on health care.

For those individuals who find themselves in that position, there's another option. Instead of going without, some Americans are going overseas. Julie Ferguson of Workers Comp Insider gives the scoop on the rapidly growing world of medical tourism. Phuket, anyone?

If the current battles between big health plans and big health care systems continue, there may well be fewer "in network" providers available, and Phuket Memorial may find itself listed in a provider directory. United Healthcare is frequently in one corner in these heavyweight bouts, and their tough stance is leading to equally strong responses from providers. I examine one highly public contretemps and predict others will follow.

HealthGuru at InstaHealth says that the Veteran's Administration's demonstrated ability to outperform the rest of the US health care industry does not mean it is better than the Th free market, because there is no such thing as a free market in health care. An interesting idelogical point, but one with limited practical application, as HG's completely free market is not ever going to happen.

I'm betting there is a keyboard in California in serious need of repair. That's how passionate Matthew Holt can be when he is taking to task someone who sorely needs a session behind the virtual barn. Matt draws, quarters, tars and feathers, dismembers (ok, that's redundant) and flays a recent NYTimes article that claims we spend more money so we can live longer. (BTW, I was set to unleash my own vitriol on this lousy piece of opinion but Matt beat me to it...but I posted on it anyway).

Matt isn't the only one calling out the mass media for their simplistic approaches to complex issues. This time it's Roy Poses of Health Care Renewal, who greatly objects to the simple-minded approach to health care exhibited by GM's "Director of Community Health Initiatives". The Director, a successful car exec, seems to think that you can fix people the same way you build cars...leaving aside the blindingly obvious differences (1000 car models v 6 billion people models, for one). Roy does note the Director does have some good ideas...

Bob Vineyard of InsureBlog notes that politicians' perspectives on premiums are wildly different from actual market-based rates, and wonders if the pols' projections are due more to magic than actuarial analysis.

Louise at Colorado Health Insurance Insider opines on the morality and business sense of preventive care coverage for insurers. Her net? it makes sense as the early detection of potentially expensive conditions may save insurers big bucks.

A real-world experiment in universal care started Sunday, with the launch of Commonwealth Care in Massachusetts. For the latest info on last-minute machinations, negotiations, and systems checks, and a rather compelling statement on why this is important, head over to A Healthy Blog. Consumers can sign up via the web; we'll make sure to watch MA's progress closely.

"Never thought of that" would be another title for Ezra Klein's post on really comprehensive Universal Insurance. Covering all risks, including health, income, disability and the like that result in drastic economic impact on an individual, Universal Insurance as proposed by Jacob Hacker would base the deductible and coverage parameters on the insured's income.

Kevin MD reports that the in-store clinics opened by Rite Aid around Portland OR have all closed (or are about to be shuttered) after the operator, Take Care Health Systems, figured out it could not make a profit.

The me-too follow-the-leader mentality afflicting the pharma industry has attracted the attention of one blogger. David Williams of MedPharma Partners sheds some much-needed light on big pharma's ongoing efforts to make new drugs sound much better than the drugs they replace...even when they aren't. If only pharma would invest the same amount of energy and resources into creating useful new medicines...

Another entry in the pharma genre comes from Fard Johnmar at Envisioning 2.0. Fard conducted an extensive interview with an FDA official focusing on antibiotics, clinical trial development, the make up of FDA advisory panels, and the FDA-big pharma relationship.

Loyal readers may recall my short fuze when confronted with economists talking about health care. Jason Shafrin of the Healthcare Economist is the best kind of healthcare economist, knowledgeable, smart, pragmatic, and open minded. His latest post continues that trend. (and no we're not related) Jason is thinking that innovation would be better rewarded with prizes than with patents, but there are some mighty important qualifiers, limitations, and dilemmas to be addressed...

While we residents of the blog-o-sphere "get it" (or at least think we do), others in the health care profession are not as conversant with or comfortable in the sphere. Dmitriy Krugylak reports from a recent conference on panelists' perspectives on the impact of new media on health care.

As Bugs Bunny says, that's all folks!

Posted by Joe Paduda at 9:29 AM | Link to this post | Comments (3)

Ohio's Bureau of Workers Comp (BWC) could take a lesson from the State of Washington's own workers comp fund. While the two state funds have some similarities, their results are quite different.

How different? Read on...

First, what's similar?

Both states have monopolistic carriers; all workers comp insurance must be purchased through a single state-run agency. Both entities employ about 2600 folks. And that's about it for the similarities.

Ohio has about 5.2 million covered workers, earning $190 billion; Washington has half as many workers but they earn 9% more per worker. (I know, Washington looks pretty inefficient, we'll get to that) Washington pays out more in benefits per $100 of covered payroll than Ohio ($1.80 v $1.30), so workers receive more benefits in Washington than workers in Ohio. And, while Ohio has twice as many workers, the total benefits paid out in Ohio are only 33% greater than Washington's payout.

But that may be a reflection of premiums; if employers' premiums are lower, than it logically follows that benefits will be lower as well. According to a study by the state of Oregon, Ohio's WC insurance rates are significantly higher than Washington's. Ohio's premium volume in 2003 was $2.2 billion; Washington's was $900 million. So Ohio is collecting more in premium per worker and delivering less in benefits than Washington is.

Is that because Ohio is doing a bang-up job in the medical management department? Not exactly. Washington's own state fund has kept medical inflation rates at just over 4% for each of the last three years, best in the industry. BWC's medical trend rate is much higher, averaging well over 7% since 1998.

Back to the number of fund employees. Washington's fund, known as Labor and Industry or L&I, has 2600 employees handling claims for 2 million workers. Ohio has about the same number of employees at BWC (again with about twice the number of insured workers), although a significant portion of the claims management function is outsourced to managed care firms, making it difficult to do an apples-apples comparison Claims admin expense represented 8.1% of premium in Washington in 2004, a percentage that is quite modest compared to other WC insurers. Ohio's total claims admin expense was 22.2% of collected premiums (there may be some differences in definitions or premiums and admin expense, whether they would account for the 14.1 point differential is unlikely).

And lastly, the investment philosophies are, well, pretty different. Ohio's ventures and the results thereof are well-documented. By contrast, Washington's investment philosophy is pretty boring. Safe, too.

Posted by Joe Paduda at 8:08 AM | Link to this post | Comments (1)

Florida is one of, or perhaps the only, state to have as an official elected position a state CFO. The incumbent is supposed to oversee state spending, review state contracts and investigate insurance fraud among other functions. Florida's CFO is also part of the four person cabinet along with the governor, attorney general, and Commission of Agriculture and Consumer Affairs.

Obviously, the CFO would have a broad and deep impact on the state's insurance industry, the provision of same, and purchase of insurance by the state. That makes it interesting for we insurance types.

I've met one of the candidates, Alex Sink. Alex is the former president of Bank of America's Florida operations, and struck me as a thoughtful, considered, and very knowledgeable individual. Her position is the CFO should be the "apolitical guardian of the state's books".

Her opponent, Tom Lee is more politically oriented, saying he will rely on his relationships with legislators to get things done. Haven't met him yet.

There is much insurance work to do in Florida; property and wind insurance is all but unobtainable; workers comp has improved significantly but may be starting to head into a down cycle; and the state's own insurance expenses are skyrocketing.

Interesting contrast in perspectives, and a race worth watching. At this point, the tea leaves appear to favor Lee, but over a quarter of voters are undecided.

Posted by Joe Paduda at 6:31 PM | Link to this post

As a drugstore.com customer, I received an email (along with a few hundred thousand other folks) from the company's CEO last week. The email was their response to the recent announcement by Wal Mart that they were cutting prices to below $4 for a month's supply of almost three hundred generic drugs.

The net is the folks at drugstore.com claim to provide prices that are already lower than Wal Mart's for the equivalent supply.

While that is true, it is notable that mail order drugs are always at least 20 points cheaper than the same script bought in a retail store, so the folks at drugstore.com are not exactly giving drugs away. In fact, their margins are likely higher than Wal Mart's.

That said, drugstore.com has put up a neat price checking service on their website that gives consumers a quick and accurate way to compare prices.

This is one way that consumerism, information, and education can help individuals manage health care costs. But buying drugs, where one already knows exactly what one needs in what quantity and for what purpose is a lot different than shopping around for a neonatal oncologist or angioplasty.

Posted by Joe Paduda at 6:13 AM | Link to this post