Managed Care Matters

I think I've figured out why analysts have been unable to accurately forecast health plan financials - they don't know what questions to ask.

That's the only conclusion I can draw after listening to the latest earnings call from Coventry Health. The mid-tier health plan company is still reeling a bit from last month's announcement that it had been surprised by a sharp increase in medical costs, an increase that evidently had caught management by surprise.

Folks, this is a health plan company - one that claims "We deliver exceptional value every day, driving solutions that help people enjoy optimal health."

One might think that a health plan company makes money by managing medical care for hundreds of thousands of Americans. Near as I can tell, Coventry isn't a health plan, it is a transaction processor that makes money by pricing its insurance far enough above medical costs to administer the plans and make a bit of margin.

And from the questions that were asked ,and the ones that weren't, it is pretty obvious Wall Street analysts think Coventry is a transaction processor as well. Out of the twenty or so questions after the management presentation, there was one - yes, one, that got anywhere close to actually inquiring about medical management. That questioner asked what Coventry could do or had done to deliver care to Medicare enrollees through an HMO at lower cost than thru the standard Medicare plan. Coventry Chairman Dale Wolf responded by noting that hospital days per 1000 members among Medicare HMO plans could be in teh 900-1300 range, compared to standard Medicare rates of around 3000 days/1000.

That was it. No follow up question as to how they could do that, what the long term implications were, how that affected pricing, what the techniques were that delivered such a great result and could those techniques be used for commercial members.

The entire conversation was about medical trend and how Coventry was fixing its pricing model to reflect higher trend, and if enrollment was going to decrease as a result. Not the factors causing medical trend and what Coventry was doing about it. Well, to be fair, there was a little dialogue about higher inpatient utilization and unit costs in Medicare, and higher hospital utilization on the commercial side. But if you were interested in Coventry's solution to same, you're out of luck. Not one analyst even asked.

If analysts don't know to ask the company why their costs are going up and what they are going to do about it and how that will play out, what, exactly, are they 'analyzing'?

There's this thing in business called a sustainable competitive advantage - something you do really well, that is hard to do, that others don't do well. This gives you an edge in the market, one that makes you a perennial winner. Coventry doesn't have one, and neither do any of the other health plans. Because all they do is process transactions, adding no value.

Here are some of the questions they should have been asking.

• What key indicators of medical trend do you watch closely?
• Exactly what is your average inpatient days per thousand for each block of business and how does that compare to industry standards?
• How about admissions per thousand?
• what is driving trend? Is it unit cost (price per service), utilization (number of those services received by a member when they do get those services), frequency (percentage of members that get that service) or intensity (higher cost version of a technology or more expensive procedure type than expected)?
• Which types of medical care are the biggest drivers; ancillary, physician services, pharma, inpatient, outpatient?
• What is your plan to address those issues?
• How will you measure results and when will you know if you've been effective?
• What is Coventry doing about members with chronic conditions? How have your results compared to industry standards?

And the big one:

How would Coventry compete and win if it could not risk select and had to take all comers at a community rate?

Because that may well be the scenario Coventry, and all its competitors, face in two short years.

Note - this applies almost equally to most every health plan. In fact you could just about replace 'Coventry' with Wellpoint, Cigna, Humana, Blue Cross, etc and the same perspective would hold true.

Now I really am going on vacation.

Posted by at 8:32 AM | Permalink | Comments (3)

The big question is this: is Coventry's screwup a symptom of a larger issue, or is it specific to Coventry?

As of now it looks like the problems are not industry-wide. This leaves one inescapable conclusion - mistakes by management. Everyone, and every company, makes mistakes at times; what makes this so noticeable is it comes from a company with a history of strong results and from management that is (or perhaps was) extremely self-confident.

Bob Laszewski went back and read Coventry's Q1 earnings report; here's his take:

* Their private fee-for-service (PFFS) problem should have been obvious to to their actuaries since Coventry had apparently not issued ID cards to new PFFS customers and claims weren't coming in as they should have been. The PFFS data had to be too good to be true and that should have been obvious.
* Their explanation for seeing their commercial trend jump by 200 bps is inadequate. They said they are seeing an increase in large claims and hospital claims generally. That is true of other health plans but not to anywhere near the same degree as Coventry. It is not clear to me that Coventry has really gotten to the bottom of all of this.

Bob also quoted extensively from Coventry's last earnings call. Looking back, the overweening self-confidence is breath-taking - here are a couple excerpts.

"We've said for the last three years that the core operating growth rate in a purely commercial business was not as high as some were suggesting. We took some flak for that...Variations in medical cost trends generally do not happen quickly [emphasis added] and given the progress in analytics within the industry, will be pretty closely anticipated in pricing. That doesn't suggest we will never make a mistake and miss it a little, but that's far from an underwriting cycle...don't look for the operating margins of our commercial operations to fall off the table. They won't. [emphasis added]

Perhaps most telling is this comment from CFOP Shawn Guertin:"those that are close to the details and fundamentals of the business, will succeed over the long haul."

Kudos to Coventry for getting this news out quickly. While they can, and should, be pilloried for not knowing all the factors that led to the problem, better to get the news out quickly then wait weeks more in an effort to be able to answer all the questions.

My sense is that Coventry's management has been spending way too much time managing the numbers and nowhere near enough time managing medical. Those are not the same thing. Reflecting back on the calls I've listened to and management reports I've read, I can't recall any detailed discussion of disease management, hospital expense management, outpatient utilization, or centers of excellence. These guys (and they are mostly guys) know the numbers better than anyone, but I don't get the sense that they spend any time looking under the numbers, at medical cost drivers.

Contrast that with Aetna, a company that has invested both dollars and management skill in analyzing, understanding, and addressing their medical cost drivers. Their website and press releases reflect a focus on medical - reform, drivers, new initiatives, getting information out to members, physician ratings. There's a lot there. And this isn't just fluff, the work they are doing is deep and targeted at the right issues.

Aetna gets it. So far, Coventry hasn't. We'll see if this stumble triggers a rethinking of their approach. If they get defensive, fire a bunch of middle managers (which it appears they are already doing) to get costs under control, and keep doing what they've been doing, they will not remain among the industry leaders .

Posted by at 7:33 AM | Permalink | Comments (10)

Since Coventry's announcement late Wednesday that they were cutting earnings projections almost in half, the financial markets have been hammering health plan stocks. Their pessimism may be overdone.

Humana and Aetna have reaffirmed their earnings forecast while Wellpoint, Cigna, and UHC have been silent (as of this moment). The market's fear is that Coventry's news that they failed to accurately forecast the medical loss ratio for both the Medicare private ffs and group health business is the first indication of an industry-wide problem. Especially because Coventry has carefully cultivated an image of competence, both absolute (we know our business very well) and relative (we're more on top of our numbers and business than other health plans).

I'd point to Coventry's presentation at the Citigroup Healthcare Conference at the end of May as typical. "...Medicare...has obviously been an area offocus andgreat success for Coventry and 2008 is no exception...(small group) is really a business that is premised on a deep understanding of local market dynamics, really a fanatical attention to detail."

Contrast that with management's statement re Medicare pffs in Thursday's call, where CEO Dale Wolf said that it has been tough to forecast results due to the rapid growth of that business, while acknowledging the need for Coventry to better track cost drivers. It got tougher for Wolf, as the analysts, who seemed genuinely surprised by the news, got more and more specific as the call went on. Wolf admitted that Coventry had limited visibility into group inpatient and outpatient costs, had not yet figured out exactly what drivers led to the cost increases in outpatient, and there had been cost spikes in several specific markets including Utah, Atlanta and central IL.

These factors led Coventry to revise their cost trend estimates for the group business upwards by 150 basis points, driven by a 300+point increase in outpatient and 100 point jump in inpatient costs. Medicare trend rates were also raised. Meanwhile, other health plans were not revising their numbers.

Both Humana and Aetna publicly affirmed their forecasts, with Aetna's CFO noting "The medical cost trend we are experiencing in the second quarter is in line with our expectations to date and consistent with our prior guidance of 7.5 percent, plus-or-minus 50 basis points."

Humana's announcement was even more specific "Analysis of medical claims payments and receipts through May 2008 indicate no adverse prior period development for either full year 2007 or first quarter 2008 medical claims estimates,"

And ten days ago industry giant Wellpoint said it would also be confirming its earning forecast, albeit in private meetings with analysts.

Here's the net. There does not appear to be an industry wide issue. Coventry's history of success and strong performance may have led to overconfidence, a lack of focus, and perhaps atouch of hubris. Wolf's tone went from defensive to chastened to almost combative, and I'd bet this screwup makes Coventry a better company.

But I'll hedge my bet; Coventry has a hard-earned reputation for arrogance and lack of concern for the customer. If that doesn't change you can expect another, similar announcement at some point in the future.

Posted by at 7:23 AM | Permalink | Comments (0)

The notice for the teleconference popped up in my email inbox a mere hour and a half before the telecon was scheduled to begin. That was the first indicator of potential trouble.

The second was the opening line from Coventry's CEO: "To say we're disappointed with the news we shared earlier this afternoon is an understatement..."

The source of Mr Wolf''s disappointment was Coventry's report that it will miss its financial projections - by a wide margin.

For a company that has long been (justifiably) proud of its ability to tightly monitor and manage its business, the disclosure that it had significantly underestimated Q1 and Q2 medical costs was a bitter pill indeed, all the more so as it came a few weeks after Wolf's recent efforts to pump up internal morale by comparing Coventry's management discipline favorably to competitors.

Earnings will fall short due in large part to higher than expected medical costs in Coventry's Medicare private fee for service and core group health businesses. In explaining the failure to meet the Medicare program’s projected MLR, CFO Shawn Guertin described the problems inherent in the claims submission and processing flow. Guertin went on to note that the company also had identified some problems in Coventry’s internal claims processing. Curiously, management blamed part of the problem on ID cards not being used by claimants, which delayed claims flows internally. Evidently some members don't bother to show their Coventry cards when leaving the doctor's office. The office sends the bill to Medicare, who returns the bill with a note that the patient is not a member. The office then contacts the patient, gets the correc claims submission info, and sends the bill to Coventry.

This takes time, and has led to Coventry under-estimating claims volume and expense for its Medicare private ffs business. I'd note that in prior calls management has been effusive in its self-praise for its ability to operate this business with statements like 'we couldn't be more pleased with how this business is running'.

For the Medicare business, the MLR is up 300-340 basis points over prior guidance. This isn’t even close enough for horse shoes or hand grenades. From comments by management on last night's call, it appeared this popped up in April and May, after things appeared to look pretty solid earlier in 2008.

Again, this is a pretty big surprise.

On the group health front, higher trend in group outpatient utilization and inpatient unit cost, or price per service appear to be the problem. Instead of the forecast 100 basis point reduction in MLR, management is now expecting higher medical costs - with a potential swing of 400 basis points for outpatient expense. Inpatient costs are also up 100 basis points, so the combination is driving up total MLR by 150 basis points.

Another significant contributor to the higher MLR is an increase in the number of more severe (more costly) claims – not more claims, but more high cost claims, specifically between 50k and 150k in dollars paid.

In contrast hospitals are not seeing increased utilization. Facility revenue numbers are not trending up. Coventry wasn’t able to figure out why their hospital costs were going up while overall hospital utilization nationally is not.

Admittedly Coventry has not yet determined all the factors causing these increases in MLR. They do appear to have a grasp on the major factors; from the tone and delivery
of management comments I'd expect there's a lot of yelling at Coventry HQ, likely to be followed shortly by the distinctive sound of heads rolling. (During the call Wolf did allude to staff reductions in a response to an analyst's query.)

Lastly, management reported that the work comp business is not meeting projections due in part to lower fee revenue for bill review.

As the market closed, Coventry's stock price had dropped to $40.97, resulting in a P/E just under 10. Coventry has long been rumored to be a potential acquisition target, and if the stock price declines further (a not unreasonable expectation) suitors will likely emerge.

Posted by at 8:07 AM | Permalink | Comments (6)

Productivity.

Lost in the great debate about the role of the employer, the individual, and the government in health care reform is the critical link between health insurance, care, and productivity.

Years ago when I was responsible for the Travelers' utilization review account management function I met with Bruce Bradley, who was then the head of employee benefits at telecom giant GTE. I was going thru the data, reporting on how well Travelers had done reducing this and cutting that, when he stopped me and asked about the ER and inpatient admissions rate for children with asthma. I didn't have the data, and asked why he wanted to know.

Bradley proceeded to educate me on GTE's workforce and their functions. To summarize, they had a lot of employees who were single parents or one parent in a dual-income family. Many of their employees worked in line maintenance, directory assistance, and other blue- and pink-collar jobs.

And when one of these workers was out of work, caring for a child experiencing an acute asthmatic attack, the lines didn't get fixed and calls didn't get answered. Bradley wanted to know what the Travelers was doing about this. Truth was, we weren't doing anything.

GTE is long gone, swallowed up in the telecom mergers in the nineties. But Bradley's point is as true now as it was then - keeping workers, and their families, healthy and productive is the primary objective of health insurance.

I'll grant that few policy wonks look at it from this perspective. Perhaps that's because they didn't have the pinned-to-the-wall-like-a-butterfly-in-a-display-case experience I went thru. But because they don't consider the impact of health insurance on employer productivity, they miss the reason employers offer health insurance in the first place - to attract, and keep, good workers.

If employers are removed from the process of vetting and selecting health insurance vendors, individuals would be responsible for choosing their carrier. Insurance companies would 'win' based on how cheaply they could provide insurance to individuals and families, and the less care delivered, the lower the premiums. I don't see what would prevent those vendors from suggesting each and every injured or ill worker or dependent tried bed rest and over the counter drugs for two weeks, then an x-ray or basic lab test, and only then would they get to see a diagnostician.

What does this mean for you?
Health care reform based on an individual market would work against employers' desires and needs, and over the long term, against the nation's best interests.

Posted by at 6:55 AM | Permalink | Comments (8)

Ingenix has had a tough few months. The latest injury comes in the form of a suit filed by a Connecticut man, seeking class action status based on allegations that the United HealthCare sub engaged in an "alleged conspiracy in which insurance companies calculate their usual, customary and reasonable rates from a flawed and manipulated Ingenix database. The low payments to providers, according to the lawsuit, left Weintraub and other consumers with higher out-of-pocket costs." (Modern Healthcare)

For the legal folks out there, the full case can be accessed here. (PACER sub req)

The plaintiff, Jeffrey Weintraub, is suing Ingenix, their parent, UnitedHealth Group Inc; sister company Oxford Health Plans, as well as Aetna Inc, Cigna Corp, Empire BlueCross BlueShield, Humana Inc, Group Health Ins Inc, Health Ins Plan of NY and Health Net Inc.

OK, so what does this mean? My sense is this is piling on; since the Cuomo announcement Ingenix has been a highly visible target, and based on the company's rather lackadaisical approach to defending its methodology in the Davekos case, it looks like the legal sharks smell blood in the water.

But just because it is piling on does not mean these cases are without merit.

I would expect to see more of these suits filed, perhaps in more class-action friendly jurisdictions (Mississippi, for example). I also expect the industry to rally around Ingenix - this is a very, very big deal, and one that has been mishandled so far. Ingenix, and the health payer industry, cannot afford any more mishaps.

Thanks to Fierce Healthcare for the heads' up.

Posted by at 6:24 AM | Permalink | Comments (2)

Friend and colleague Bob Laszewski has shined a very bright light on Wall Street's ignorance about the health insurance business.

Bob notes: "We are way past the time the really smart people on Wall Street (that would be all of you) needed to start asking just what the future of this business is. If the answer you get is that the future of managed care is just to ride an unsustainable health care cost trend rate many more years into the future[bold is mine] you might just want to dig a little deeper this time."

As usual, Bob is dead on. Health plans make their money by pricing just above trend, selecting risks, and avoiding claims wherever and whenever possible. They are getting (justifiably) hammered by regulators and the press for claims avoidance, and Wall Street may have finally woken up to the inherent problems in the standard health plan business model.

There are far too few health plans that actually do anything remotely resembling 'managing care" - they manage risk, they manage reimbursement, they manage analysts - but they do not manage care.

I've said before, and repeat here - health plans that know how to manage care, particularly for the previously-uninsured, are going to do really well when universal coverage becomes the law of the land.

Unfortunately, there are few plans that qualify.

Posted by at 11:27 AM | Permalink | Comments (3)

Anthem/Wellpoint's ill-fated efforts to reduce medical costs by retroactively cancelling policies for members with mistakes on applications has become the company's open sore. The latest is the filing of a major lawsuit by the City of Los Angeles, accusing the big health plan of "unlawfully canceling the coverage of thousands of Californians after they filed medical claims."

While earlier reports indicated around 700 policies had been affected, the LA City Attorney 's suit alleges that 'up to' 6000 members had their coverage cancelled.

And that is in LA County. If other municipal prosecutors decide to join in Wellpoint may find itself facing a plethora of suits from all over California; if it expands east...

Once again folks, reform is coming. Do you want to be helping to navigate the bus or do you want to be the bug on the windshield?

Posted by at 6:01 AM | Permalink | Comments (1)

It's 2008. There are thousands of really smart people working to change the delivery of health care, reduce inappropriate use, and improve outcomes.

But in one state, things aren't getting better - they are getting worse. (I'm not picking on Pennsylvania; they just have the misfortune of being in the news more than other states lately)

A study of admission rates in Pennsylvania found that patients with chronic conditions are being admitted to the hospital more often. The analysis focused on HMO members with diabetes, asthma, and/or hypertension and the result is particularly troubling as these conditions are responsible for a large percentage of US health care costs.

Notably, these HMOs have also been lauded for their effectiveness in delivering preventive care, care that should help reduce the number of admissions for these conditions.

Previous studies indicate that effective primary care can dramatically reduce the number of admissions for these conditions. And further reductions can be achieved by implementing quality improvement programs, programs that have well-documented results.

So we're left with the conclusion that despite the fact that we know how to keep patients with chronic conditions out of the hospital, admission rates are going up. And Pennsylvania is not particularly bad - there are a dozen other states that spend a lot more money on inpatient chronic care than the national average.

Can you sense the frustration?

Posted by at 7:21 AM | Permalink | Comments (1)

When a high-flying stock hits the tank, owners get nervous. In some cases (Enron and Bear Stearns come to mind) that is an appropriate reaction. In others, the only reaction is to look with incredulity at the behavior of the 'markets' and the wise ones who steer their course.

Health plan stocks have taken a beating of late, a beating that in my mind is (for most companies) wholly unjustified. One of those with black and blues is Coventry. Here's one perspective on that situation from the desk of Dale Wolf, Chairman and CEO of Coventry - (slimmed down for your reading efficiency) to Coventry employees, with my commentary interspersed.

"...Year-to-date stock prices in the U.S. are down by 8.1% as measured in the S&P 500 and 5.4% in the Dow Jones Industrial Average. On world markets, declines are even greater, as demonstrated by the 17.8% decline in the Dow Jones Euro Stock Index. Closer to home, our own stock is off 28.1% since the beginning of the year, as compared to a 35.3% decline for our peer group in managed care.

What’s driving all this?

Obviously, on the national and world scene, it’s a compilation of the factors outlined above, including the mind-boggling repercussions of previous irrational exuberance in housing prices and lending practices...

The managed care industry has been hit harder than overall equity markets. While one never knows for sure, it is clear that an upcoming election, and its prospects for how health care is financed in the future, clearly weighs on the minds of investors. (I agree with Mr. Wolf; although the future of health care reform is indeed cloudy, what is crystal clear is health plans will play the central role in any reform initiative that gets through Congress and is signed into law. Why investors don't or won't or can't see this is puzzling). Notwithstanding all the other turmoil, this single fact was likely to have had a dampening effect on sector stock prices in 2008. (On top of that, the announcement two weeks ago by one of our competitors of an earnings shortfall sent investors into a tizzy about price discipline, reserve adequacy, the “underwriting cycle”, etc. While most of the companies in the industry have indicated they are not experiencing similar issues, it has been confusing to investors, and hence a major sell off.

(Coventry has been dinged for a failure to adequately forecast and price for this year's particularly rough flu season. Flu, unlike overall medical trend, is a wild card, and by definition can't be 'predicted' or priced for with a high degree of accuracy. Investors and analysts might as well blame crop insurers for damage caused by falling meteors)

So what happens next?

In the short run, I could speculate. (and does...) Certainly stable first and second quarter earnings will be positively viewed by investors. Encouraging prospects for 2009 will also be favorably viewed by investors. But, fears of the shifting political winds will continue to be a headwind. These various data points make it pointless for me to speculate when our company’s stock, and indeed that of the managed care industry, will return to normalcy…whatever that is.

But what I can be highly confident of is that, in the longer run, equity values will follow the fundamentals. Investors look for growth in earnings – over simplified, that is more or less all that matters. Our job, as stewards of their money, is to produce earnings growth. If we, as an industry but, more importantly, we as a company, continue to produce earnings growth north of 10% a year, we will be recognized by investors through appreciation in our share price. While I don’t know when and to what degree, I feel very confident that our current stock price is disjointed from the performance of our company, and if we continue to perform as we have, these will realign.

More importantly, other than buying back our stock with our free cash, which we have been doing as a company, there’s absolutely nothing we can do about our share price except to take care of our customers, find new sources of revenue, and thereby continue to grow the earnings of this company. While I understand completely that many of you have felt the sting of our declining equity prices in terms of your own financial security, I can assure you that there are many others in this country for whom the economy over the next number of months will produce a far worse result... "

Disclosure - I don't own Coventry stock. But with a PE of 10, I may well buy it.

One observation re Coventry - this is a company that, justifiably, prides itself on its ability to predict and price for medical trend. It is not expert in nor does it even emphasize medical management, chronic care management, outcomes assessment, provider profiling, or any other form of 'managed care'. Coventry is expert at managing the balance between pricing and reimbursement.

If and when true reform with universal coverage becomes the law of the land, health plans will no longer be able to win by underwriting; they must be able to deliver a lower medical cost for their population along with higher levels of member satisfaction. This will be a problem for Coventry - a potentially big problem.

Posted by at 6:32 AM | Permalink | Comments (1)

In a word, No.

The industry-specific event that triggered the recent selloff in health plan stocks was teh announcement by Wellpoint that they underpriced their premiums for certain products. This was followed by Humana's problem - their Medicare Part D program is under pressure due to higher utilization, and Coventry's statements to the effect that the flu bug was depressing their results.

The credit market debacle hasn't helped either.

I have no idea why markets move, or why a seemingly minor announcement about increased medical costs due to a flu problem (the very definition of a non-recurring event) would depress the earnings of an entire sector. If I bought and sold stocks (which I don't, my broker does with no input from me) I'd be buying these stocks for several reasons.

First, national health care reform is coming, and these health plans are going to have a huge growth opportunity.

Second, Coventry is one of the better-managed health plans, and their valuation does not reflect their demonstrated ability to consistently excel operationally.

Third, in an increasingly concentrated market, I'd expect the big guys to snap up the smaller ones - which will drive up their stock rices. The recent drop-off in prices should, if anything, make this more likely. That said, the volatility and tightness in the credit markets may make deals tougher to pull off.

Fitch (the ratings agency) opines that the industry's current EBITDA margins should remain around the 9% mark - consistent with past results

Posted by at 9:36 AM | Permalink | Comments (0)

Wellpoint has been slammed (justifiably) for its rescission practices (retroactively canceling insureds' policies when they have the temerity to actually get care) and sued for allegedly inflating earnings expectations (although some of the slamming is, in my view, unjustified).

United Healthcare has also crossed the stupid line a time or four, inflating the CEO's compensation package by back-dating stock options and fumbling the acquisition and integration of Pacificare, publicly fighting with providers (although occasionally I have to come down on UHC's side) and mishandling customer complaints.

HealthNet has not escaped unscathed either. The company went way way past the stupid line when it actually paid bonuses based on executives' success in canceling individual policies (but only for individuals with high claims).

Aetna has been able to avoid embarrassing itself, while making some significant strides in areas that matter. Whether its chronic disease management, sharing data re provider quality and price, or publishing data on outcomes, the huge insurer is moving in the right direction.

Aetna has also been able to build a substantial presence in the work comp network business, essentially forcing its largest competitor to replace its networks with Aetna's (while sticking with WC despite doubts among industry experts (that would include me) that Aetna had the patience required to survive and prosper).

Their latest move also makes sense - Aetna is investigating a P4P model for pharma, potentially basing payment on efficacy for the wildly expensive specialty drugs.

Perhaps this is partially due to lessons learned after the company's well-publicized stumbles after merging with USHealthcare a decade ago. For a while, the staid, customer-oriented culture at the old mother Aetna looked to be overwhelmed by the aggressive, no-holds-barred, occasionally-downright-nasty USHC approach. Management righted the ship just in time, and Aetna has enjoyed better relations with providers, solid financial returns, and growing membership for several years now.

As one reader pointed out some months ago, mother Aetna is certainly capable of doing much more - pushing disease management further and faster, becoming more aggressive on P4P, and building out its member services applications.

But compared to its competitors, Aetna is doing well. Sure, the stock is down by 25% so far this year, but that's a result UHC, Wellpoint, HealthNet, Humana, and Coventry owners would take in a heartbeat.

Posted by at 7:45 AM | Permalink | Comments (7)

Surgical devices left inside a patient. Dispensing the wrong medication or the wrong dosage. Giving a patient the wrong blood type in a transfusion. Serious pressure ulcers incurred while hospitalized. Infections from catheterization in the ICU.

These are among the 'never-ever' events - incidents that should never, ever happen during an inpatient stay. CMS recently decided to stop paying hospitals for care required due to certain"preventable complications" — "conditions that result from medical errors or improper care and that can reasonably be expected to be averted" (NEJM, 10/18/07). The list includes air embolisms, certain infections, patient falls, pressure ulcers and the like.

HealthPartners in Minnesota was one of the first payers to identify the problem and take action, way back in 2002. Now, other commercial health insurers, notably Wellpoint and Aetna, are planning to move beyond CMS' list and eventually refuse payment for 28 events. These events, identified by the National Quality Forum are also under review by the Blue Cross/Blue Shield Association, United Healthcare, and CIGNA who may decide to stop paying for them.

And the Leapfrog Group's membership, which includes many of the country's largest employers, is also asking providers to not bill for these events.

It is not just the payers; hospitals themselves are starting to see the light. Hospital associations in Massachusetts and Minnesota have agreed to not charge payers or patients for these events, which include "wrong-site and wrong-patient surgery, patient death or disability due to wrong use of blood or blood products and medication errors, and follow-up care needed to bring the patient back from such errors."

The largest payer in the nation, CMS, has decided that paying for certain medical errors is bad policy. So has two of the largest health plans, along with one of the best-run health plans in the country. Our biggest companies have joined the "no pay for mistakes" movement. Hospitals themselves have decided it is inappropriate to charge for their screw-ups.

So why are workers comp payers reimbursing hospitals for 'never-evers'? I don't have any empirical evidence that WC payers are not paying for these events. In fact, given the lax payment policies of most payers, I'd be very surprised if more than a very few (if any) payers have the ability to deny payment, much less a policy to do so.

What does this mean for you?

There is clear precedent for non-payment for medical errors. Moreover, workers comp payers may find themselves in the rather awkward position of trying to justify their payments for conditions that their clients have publicly stated are not reimbursable.

Posted by at 6:58 AM | Permalink | Comments (1)

As I've noted repeatedly, there is a place for consumerism in health care, but it is by no means a panacea. And many CDH Plans are poorly designed and will likely lead to higher costs down the road - studies have indicated that when asked to pay more for maintenance meds, some people stop taking them. And that inevitably leads to a decline in health status and rise in the number of acute episodes.

The problem is exacerbated for people with little to no money in their HSA accounts; any maintenance medications, diagnostic tests, or preventive care will have to come out of their pocket - a pocket that is often empty.

Thus, while CDHPs (that don't account for this limitation) may well save money in the short term by reducing premiums, they will increase employers' costs over the medium to longer term.

Which leads to the next issue - most folks under 65 get their insurance from their employer. Unless health care reform somehow removes employers from the process, that is not going to change. For now, employers decide what coverage most Americans get - and therefore the 'health plan' has to make sense for the employer.

For employers, HRAs (where the employer 'controls' the funds) are a much better idea than HSAs (where the employee controls the funds; employees who leave a job take their HSA accounts with them). So employers are reluctant to fund an HSA account knowing that those dollars walk out the door when the worker does. In 2007, the (exhibit 8.5, p. 125) average employer funding for single coverage HRA accounts was $915 v. $428 for HSAs; for families it was $1800 for HRA v. $714 for HSA accounts.

One firm that looks to have figured out that HRAs are a better answer for small to mid-market employers is Barrett Benefits Group. (I have no business relationship affiliation with the firm). Their product, branded as 'SharedFunding', is perhaps best characterized as a hybrid. SharedFunding is an HRA-based high deductible plan with employee accounts that are funded as needed. Unlike other HRA-type programs, this plan requires the employer to fund the individual accounts on an 'as-needed' basis. This pay-as-you-go model significantly reduces both insurance premiums and funding requirements, while ensuring the employee accounts are funded appropriately.

Based in Ohio, BBG has recently expanded operations in Florida, and is developing other tools to help employers control the costs of chronic conditions.

Posted by at 7:10 AM | Permalink | Comments (2)

The FDA has issued a warning notice for off-label use of Fentora after three deaths were linked to off-label usage of the fentanyl tablet.

One issue may be related to the substitution of Fentora for another powerful pain medication, Actiq. Both are manufactured by Cephalon, but Fentora is absorbed more quickly than is Actiq. Therefore, the same dosage of Fentora may result in more of the drug being absorbed into the bloodstream.

Cephalon has been plagued by accusations of aggressive detailing, including encouraging physicians to prescribe the drug off-label. Another recent article indicates the pharma industry has been aggressively lobbying the FDA to allow this type of detailing, which evidently has been going on for two years despite restrictions against the practice.

Of note to workers compensation insurers, Fentora appears to be becoming increasingly popular for treatment of back pain in some areas.

What does this mean to you?

If you are a WC payer, find out which claimants are taking Fentora and figure out why and if it is appropriate. Not only is the drug dangerous, it is also very expensive.

Posted by at 3:08 PM | Permalink | Comments (2)

A recent court ruling in New Jersey could shut down Ambulatory Surgical Centers across the state.

The judge determined that physician-owned ASCs (almost all ASCs are at least partly owned by physicians) violate a state law banning physician self-referral. Not surprisingly, the 200 ASCs in the Garden State (there are about 5000 nationwide) are pulling out the stops to overturn a ruling that, if it stands, would effectively shut down most ASCs in NJ.

Continue reading "ASCs -- good, bad, or just ugly?" »

Posted by at 7:53 AM | Permalink | Comments (1)

A decade ago a lot of folks were working on '24 hour' coverage - the combination/integration of workers comp and group health and disability management. AIG, United Healthcare, Reliance National, Broadspire (nee Kemper) and Unisource Administrators were among the players; the Integrated Benefits Institute was founded, and consultants formed practices and marketed their expertise to interested parties. (disclosure - I was heavily involved in the AIG-UHC, Reliance-UHC, and Unisource-UHC-AIG programs)

Then it all sort of faded away, and not much was heard until today's announcement that Sedgwick CMS and UHC have re-entered the market.

Continue reading "The return of 24 hour coverage?" »

Posted by at 7:09 AM | Permalink | Comments (4)

Today's a "suit day"; one of those increasingly-frequent days where business demands require something a bit more upscale than the usual. Today's event is the Piper Jaffray Healthcare Investor conference in NYC, where I'm on a panel discussing Consumer-directed health care with Jeff Margolis of TriZetto and John Mills of HIP.

We're slated to discuss the role of consumerism in healthcare's future, in front of an audience comprised of investors and analysts.

Posted by at 6:57 AM | Permalink | Comments (4)

I have long assumed individuals working at employers that do not offer health insurance are more likely to file workers comp claims. With the number of employers offering health insurance declining, a logical corollary is more claims will be filed.

Logical, but wrong.

Continue reading "The correlation between health insurance and work comp claims" »

Posted by at 6:20 AM | Permalink | Comments (6)

Just when you think the health insurance industry just could not do anything more self-destructively stupid, they raise the bar.

From FierceHealthcare comes the news that HealthNet actually paid bonuses to staff based on how many claimant policies they could terminate.

Continue reading "Dumber than a box of rocks" »

Posted by at 7:56 AM | Permalink | Comments (0)

$150 billion.

That's how much revenue that's up for grabs if/when mandated universal coverage becomes law.

Continue reading "Why private insurers will back reform" »

Posted by at 6:44 AM | Permalink | Comments (4)

Diabetes, congestive heart failure, and heart disease are increasingly conditions of the poor. And the poorer one is, the more common the condition.(free reg req)

Most health plans have little experience dealing with poor folks with chronic health problems.

They'd better start learning.

Continue reading "Aetna's figured it out" »

Posted by at 6:20 AM | Permalink | Comments (10)

Premium increases are low in part because benefits have been decreased and employee contributions increased. Chris made this point yesterday in a comment on my post about low trend rates.

Is that really happening?

No, yes and hell yes.

Continue reading "Benefits down, cost share up" »

Posted by at 7:52 AM | Permalink | Comments (5)

It looks like employers' health care costs will increase by somewhere in the mid-to-high single digits next year. According to one survey, costs for employer-sponsored health insurance will average over $9300 per worker next year. That's just 7% more than this year, which is 'good news'. Another report indicates costs will jump by 8.7% to $8600+ per worker. (the disparity appears to be due to differences among survey methodology and subjects, the Towers study focuses on larger employers while the Hewitt data is from health plans).

If the good news continues, health care costs will be $18,600 per employee in ten years.

Continue reading "Why the good news on Employer health care costs?" »

Posted by at 7:52 AM | Permalink | Comments (5)

A group of docs in Texas has decided that two can play the ratings game. They are working on a project to rate insurers - on their "billing procedures and issues".

It strikes me that these physicians may be engaging in the same type of behavior that infuriates them when exhibited by insurers - using an arbitrary, internally-developed methodology to evaluate payers solely on administrative indicators.

Continue reading "Two can play that game" »

Posted by at 6:14 AM | Permalink | Comments (4)

Carol Gentry of the Tampa Tribune has authored one of the more accessible pieces on the hows and whats of hospital price variation.

Carol's piece illustrates two key issues - the data is available, and consumers aren't using it.

Continue reading "Humana's good effort" »

Posted by at 7:29 PM | Permalink | Comments (2)

The bright light of practice evaluation is making more than a few physicians uncomfortable; these docs have decided that it is somehow unfair for insurers to suggest members go to specific physicians.

So, like all red-blooded Americans, the docs are suing the insurers.

While the docs in question may think they are standing up for their rights, their actions look more childish than professional from here.

Continue reading "Physician temper tantrums" »

Posted by at 6:14 AM | Permalink | Comments (17)

CMS' hospital reimbursement change is going to create winners and losers; among the biggest winners will be UnitedHealthcare.

Among the losers, their competitors.

Continue reading "United Healthcare wins" »

Posted by at 8:14 AM | Permalink | Comments (0)

The adage goes something like - when the US sneezes, the world catches a cold, signifying just how much influence this country has on the rest of the world.

That's analogous to Medicare's impact on the health care sector. And Medicare is about to change the way it pays hospitals, a change that will have a dramatic effect on every private payer from HMO to individual carrier to workers comp insurer to self-insured employer.

Continue reading "Medicare sneezes" »

Posted by at 9:36 AM | Permalink | Comments (1)

Coventry's latest quarter was a good one. The key to financial success in the health plan business is the MLR, or medical loss ratio; Coventry delivered a Q2 MLR of 77.5% resulting from a combination of higher premiums and lower than expected medical claims. Premiums were up 5.1% YTD, while the medical expense increase was slightly lower at 4.9%.

Continue reading "Coventry and health plan profits" »

Posted by at 7:23 AM | Permalink | Comments (0)

Pharmacy and Therapeutics committees have been around for ages in the provider community - they are the "link between medicine and pharmacy". In the managed care world, P&T committees take on a somewhat different role, establishing formularies, reviewing medical device reimbursement (at some health plans), contributing to coverage determinations and benefit design.

Mostly, they provide the health plan or insurer with an expert opinion on most things pharmacy-related. Without a P&T Committee, these decisions often are left to a medical director, or worse, claims adjuster (in the P&C world), individuals who are not equiped to make educated decisions about pharmaceuticals.

Continue reading "You need a P&T Committee" »

Posted by at 6:31 AM | Permalink | Comments (0)

Actiq has hit the big-time.

Newsweek's latest edition will feature an article on the off-label prescribing of the highly potent narcotic lollypop, an article noting that as much as 80% of scripts for Actiq are for off-label use.

Sources indicate this was brought to the reporter's attention by an unusual source - the risk management department of The Washington Post, Newsweek's sister publication, noticed a high incidence of Actiq scripts among its workers comp patients, and started digging into the issue.

Continue reading "UPDATE - The lollypop story gets big" »

Posted by at 7:25 AM | Permalink | Comments (4)

Humana is guaranteeing it will keep customers' medical trend increases under control, or it will refund part of its admin expenses.

Sort of.

Bob Laszewski cuts to the heart of the matter; it isn't much of a guarantee, but it sure makes for good marketing.

Posted by at 4:39 PM | Permalink | Comments (1)

The merger and consolidation process continues. Coventry Healthcare is acquiring two small health plans in the midwest and another chunk of the Federal Employee Health Benefit Plan.

Coventry is a strong player in the mid to smaller employer market, and a major player in the FEHBP (due to their First Health acquisition). This deal, which is valued at about $130 million and is all cash, makes sense for Coventry and Mutual of Omaha. MoO has long played at the periphery of group health, never quite getting to any significant mass.

And the consolidation continues...

Posted by at 9:18 AM | Permalink | Comments (1)

My post a couple of weeks ago about the RFP process generated a lot of public and even more private comment. It got me thinking about one of the more contentious issues in the vendor-customer relationship - price.

Continue reading "Price" »

Posted by at 1:57 PM | Permalink | Comments (4)

I'm having a tough time getting mad at United Healthcare. The huge managed care company is under fire for penalizing docs who use any lab other than UHC's preferred partner, LabCorp. The AMA, regulators, individual physicians, and a few consumer groups are all screaming about UHC's heavy-handed, dictatorial infringement on their right to practice medicine.

They've got it all wrong.

Continue reading "Hooray for United Healthcare" »

Posted by at 7:45 AM | Permalink | Comments (24)

Insurance companies, employers, and TPAs rely on vendors to process bills, build and operate networks, manage prescriptions and PT, support litigation, and provide expert advice on problematic medical issues. In many instances the vendors are selected thru a competitive bidding process, wherein the lowest bidder gets the deal, or at the least has a much better chance of landing the business than their more costly competitors.

But in others, the selection process goes on seemingly without end.

Continue reading "those damn vendors" »

Posted by at 8:20 AM | Permalink | Comments (6)

Bob Laszewski weighs in on the Wellpoint insurance cancellation debacle. As a former health insurance company president, Bob's perspective is unique.

Posted by at 8:53 AM | Permalink | Comments (0)

URAC, the accreditation body that seems to be into every aspect of managed care, is now looking to certify PBMs. In a presentation at the PBMI conference in Phoenix last week, a representative provided an overview of the process, modules, timing and certification levels contemplated by URAC.

While the process is only for health lines today, URAC is seriously looking into accrediting WC PBMs...

Brace yourselves.

Continue reading "URAC's foray into pharmacy benefit management" »

Posted by at 6:33 AM | Permalink | Comments (1)

How drugs make it on to formularies has always puzzled me. After listening to a talk on the process, I'm even more mystified.

Continue reading "How DO those drugs get on formularies?" »

Posted by at 7:26 AM | Permalink | Comments (9)

It's called "managing the delta."

The health plan business is pretty healthy these days, and the reason is simple - HMOs are keeping health care cost increases under 6% while increasing premiums by 7%+.

Sure, expense management is key, but so is revenue management. The question is, can HMOs manage cost increases for more than a few quarters? History indicates Not.

Thanks to Bob Laszewski for doing the heavy lifting by explaining how this happens.

Posted by at 12:19 PM | Permalink | Comments (4)

I've been virtually talking with other interested parties and staff from Sen. Ron Wyden's (D OR) office about his Healthy Americans Act and how it deals with pricing. Here's my preliminary take.

There are two core concepts central to HAA's viability. First, universal coverage. If everyone has coverage, than there is no (or at least a lot less) need for providers to charge folks with insurance more to cover their losses incurred when they treat people without insurance. Cost-shifting drives up health insurance costs for those folks fortunate and employed enough to have coverage.

Continue reading "Community rating" »

Posted by at 3:27 PM | Permalink | Comments (7)

United HealthCare's bare-knuckle approach to contracting may cost it members. Employers in the San Francisco bay area are deciding to go with other health plans as UHC experiences ongoing difficulties in recruiting and retaining docs.

One of UHC's competitors is aggressively pursuing UHC customers by offering to sign them up at the same rates UHC was charging.

Continue reading "UHC's Bay area battles" »

Posted by at 8:14 AM | Permalink | Comments (0)

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 at 6:24 AM | Permalink | 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.

Continue reading "Could McGuire be heading to the Big House?" »

Posted by at 3:08 PM | Permalink | 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.

Continue reading "Workers' Comp - the answer to the spinal fusion question" »

Posted by at 7:11 AM | Permalink | 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?

Continue reading "Update on CorVel" »

Posted by at 7:37 PM | Permalink | 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 at 7:57 AM | Permalink | 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.

Continue reading "Direct contracting" »

Posted by at 7:51 PM | Permalink | Comments (3)

Payer-provider interactions are getting downright pugnacious. Perhaps a more accurate characterization is the big health plans and health care systems are raising pugnacity to new levels.

Denver is the scene of one highly public row featuring United Healthcare and HCA’s HealthOne, one of the largest health care systems in the Denver metro area. The ongoing contractual dispute has led to lots of nastiness:

- termination of the UHC-HealthOne contract,
- filing of a temporary restraining order on the part of UHC to force HealthOne to enable UHC members to access some HealthOne facilities, and
- efforts by HealthOne to tightly control UHC case managers’ access to their facilities after reports that case managers were tring to get UHC patients to transfer out of HealthOne facilities.

This is not an isolated issue. Recent disputes have arisen in Rhode Island, Tennessee, and western Florida. Notably, several of the more contentious battles are between UHC and HCA.

Hospital and facility costs are the largest single contributor to health care cost inflation, and hospitals’ negotiating power, and willingness to use same, has grown significantly in recent years. It's likely that the recent announcement that HCA will be bought out by private investors will lead to an increase in the number and intensity of contractual battles.

What does this mean for you?

As United and others seek to constrain medical inflation, and hospitals work to maintain their margins in the face of increasing numbers of uninsured patients expect to see more of these battles hit the news around the country.

Posted by at 6:33 AM | Permalink | Comments (14)

The shine appears to be wearing off the CDHP movement. And fast. Comments from several knowledgeable folks indicate that the movement may have been oversold on its merits. I'm expecting to learn a lot more later this week as I'll be attending the Consumer Driven Healthcare Summit in Washington as a member of the press.

Continue reading "CDHPs - reality is setting in" »

Posted by at 7:09 PM | Permalink | Comments (1)

HMOs are cheaper than other forms of health insurance due to lower provider costs. At least that's what an analysis of a 2004 study comparing HMOs to other forms of insurance discussed by Jason Shafrin in a post on Healthcare Economist says.

The difference amounted to 9.3%, with no measurable difference in utilization rates or risk selection between HMOs and other plans.

So, as an industry, HMOs are not more efficient because they are better at managing care or selecting risk, they are cheaper because they pay providers less. I would note that the analysis is based on data from the nineties, so perhaps a more accurate statement is that in the past HMOs were more efficient.

I don't know if that's the case today.

Posted by at 5:22 AM | Permalink | Comments (1)