PPO company Viant (owner of Beech Street and PPONext) will be acquired by larger PPO company MultiPlan.

The announcement came last week; here's the lead from the internal memo to employees:

"After much thought and deliberation by our Board of Directors and our Executive Team, we have decided to pursue a new chapter in Viant’s long history. Therefore, it is with pleasure that we announce that Viant and MultiPlan have reached an agreement where MultiPlan will acquire 100% of Viant sometime over the next several months.

This decision was not reached lightly. Viant has demonstrated tremendous resiliency over the years, overcoming market and competitive challenges while still growing the business at attractive rates. However, the current U.S. economy and the political momentum around health care reform are very real and represent significant risks. As a result of these challenging and uncertain times, we have considered the most favorable strategic options available to our company that enable us to strengthen our position in the managed care industry and continue to grow. Clearly, economies of scale permit larger companies greater opportunity for growth and cost savings when facing uncertain times."

The two companies have significant overlap in their PPO networks; both claim five thousand plus hospitals and six hundred thousand plus other providers. It is highly likely the successor organization will pick the best discount deals from either network, giving customers (potentially) larger savings on some bills.

Unsurprisingly, there will be staff reductions; here's how Viant bosses Dan Thomas and Tom Bartlett put it: "Predictably, as the two companies integrate, downsizing will occur over time where redundant resources and costs are most apparent. We are confident that as this process evolves, the new company will endeavor to retain the most talented and professional employees from both organizations in order to emerge with visibly greater expertise and productivity.
There is no doubt Viant’s team is viewed very favorably by MultiPlan and it is committed to ensuring we achieve this objective."

So, what does this mean?

Large, broad-based, national PPOs have been faltering of late, as their ability to extract discounts from providers, especially hospitals, has diminished. Over the last few years we've seen the PPO market consolidate, with Beech bought by Concentra, First Health take over CCN, Coventry acquiring Concentra and First Health, and Aetna's purchase of PPOM.

Expect this to continue, but it's a losing game. PPOs are a cost containment solution that has fallen out of favor. While there will always be a place for them (think out of area coverage, work comp, companies with widely spread workers) they will continue to lose share to more tightly managed networks, vertically integrated systems, and Blues plans.

Posted by at 7:04 AM | Permalink | Comments (0)

The stock prices of health insurers wax and wane with the likelihood of health reform becoming reality - although in inverse. The announcement last month that the outlook for most of the major health insurers had been downgraded to (or remained) negative might be seen as an indication that reform is likely, or perhaps it is more a result of the conservative nature of rating agency Fitch.

Fitch's analysis makes sense - if a public plan option is passed that includes the ability to force providers to accept Medicare or similar rates, then it will murder the private insurers. But that is just not going to happen. There is zero chance of any reform measure passing that includes a public plan reimbursing at Medicare - or any rates close to Medicare.

The ratings company's assertion that reform that includes guaranteed issue without mandated universal coverage and/or pricing flexibility and/or underwriting is a bad idea has been convincingly demonstrated in Massachusetts.

That doesn't mean the industry has substantial risk. But that risk is more resulting from the current economy than the potential problems from health reform. This was confirmed by Mark Farrah & Associates' report that the top eight plans lost more than four hundred thousand commercial members in the most recent quarter. If anything, the employment picture is a lot more significant for health plans than the much less likely chance of public plans and other 'maybe' events. According to Farrah;

"WellPoint and UnitedHealth, the two largest plans in the United States, saw total enrollment declines of 490,000 and 465,000 respectively. The economy and maintaining strict pricing and underwriting discipline were cited as reasons for the declines."

What Fitch is not adequately considering is the very real opportunity for health plans. The smart ones (a limited population to be sure) will see this as a big chance to gain millions of members. The even smarter ones will quickly move to slash their admin expenses by eliminating underwriting, refining marketing, and investing heavily in population health.

I'd note that Fitch now has awarded all plans the coveted 'negative' status; I believe this is misguided, as there are clearly several that are better positioned to take advantage of reform (if it happens). I'd include Aetna in that group; they actually gained 1.4 million members in Q1 2009.

Posted by at 6:00 AM | Permalink | Comments (0)

Shawn Guertin, Coventry's CFO, spoke at the Wachovia investor day conference late last month, and here, so you don't have to listen to the entire webcast, are the highlights. But if you do want to, it is still available here (although it was due to be taken down a couple weeks ago.)

The net is the company is recovering nicely from the troubles of 2008, and remains committed to building a low cost operating structure in commercial, medicare, part d, medicaid, and workers comp.

- Q1 revenues were $3.6 billion, with an MLR under 81%. That's good news for CVTY, who had problems in the same Q in 2008, and represents 20%+ growth over that quarter. Commercial health accounts for about half of the company's total revenue.

- Medicare results were in line with expectations, with the all-important MLR also not surprising anyone at Coventry (or more importantly the analysts). Coordinated Care is growing nicely, and membership will be around 180k this year. Coventry remains convinced this is a good business...

- Part D membership is up substantially this year, with growth of over a half-million members.

- Coventry is continuing to emphasize its core businesses - Medicare, commercial, and workers comp. They are following thru on the exit from Medicare Private Fee for Service (PFFS) which will free up significant capital and are selling off or exiting a few other smaller businesses. Guertin went thru the financials of the PFFS exit; suffice it to say that dumping that business will not hurt 2010 earnings. Once PFFS is shut down, $3 billion will drop off the top line, leaving the company at $10.8 billion annual revenue.

- Commercial risk membership is dropping about 10% - no surprise to anyone in this industry due to the economy. The primary driver is attrition from existing businesses, as fewer employees opt to maintain coverage at their existing customers.

- The individual health business is growing, with membership expected to grow 20%+ this year.

- Work comp remains a favored child at CVTY, and why shouldn't it; with revenues of about $800 million driving margins of over $500 billion there's a lot to like. Guertin noted the drop in claims frequency has hurt the company a bit, but this has been offset by sales wins and good growth in WC PBM business. He also said that WC is more insulated from health care reform, and is also attractive as it produces 'unregulated' cash flows. Not exactly; as anyone in the network or bill review business can tell you, when a state changes its fee schedule (see California, Ambulatory Care), it can dramatically affect revenues. In CA, the the change resulted in dramatically lower margins for PPOs.

I'd also pick on Guertin's statement that Coventry "never abandoned medical management principles". Truth be told, the company didn't have much in the way of med mgt to abandon. Compared to an Aetna, Coventry's medical management capabilities are quite limited.

One other point I found quite interesting - regarding COBRA uptake, Coventry hasn't seen any significant change in the number of folks signing up for COBRA despite the subsidy built into the stimulus package. That is consistent with my sense back in February, and with what other health plans are seeing now.

I won't be able to perform the same service for the Q2 earnings call (July 28) as I'll be in Africa with the family on a much-anticipated trip. Any volunteers to fill in?

Posted by at 4:18 PM | Permalink | Comments (2)

The Verden Group's latest ranking of health plans is out, and there's a bit of turnover at the top.

For those unfamiliar with the Verden Report, it evaluates how well or poorly managed care companies/health plans are doing from the providers' perspective. It tracks changes to policies regarding pre-certification; reimbursement; claims filing, processing and problem reporting; eligibility verification and other provider-payer 'interaction'; the volume, timing and communication about those changes, and the accuracy of that communication.

In brief, the Report reports how well, or poorly, payers are treating providers. The Report is very useful, particularly in monitoring healthplans' relations with providers overall. Healthplans that consistently rate at the bottom end of the scale are going to have a tough time expanding; likely cause themselves, and their insureds, a good deal of agita due to avoidable confusion about healthplan process/policy changes; and I'd argue don't have a good grasp on one of the essential components of a successful long term strategy - good provider-payer relations.

I emphasize evaluating health plan performance over the long term. From time to time any health plan is going to look 'bad' (or at the least not as good as they usually do) because they will have to implement a number of provider-facing changes around the same time.

As an example, look at Aetna's history (at the top throughout 2008) compared to their current position (fourth). The big healthplan announced a lot of changes (relative to the earlier volume) - but the clarity of their communications about those changes was quite good - best in the industry, in fact.

On another note, New England's Fallon Community Health Plan was well below average due to significant changes in the list of procedures subject to utilization review. Although Fallon removed 'a bunch of pre-authorizations on injections and drugs", Fallon added a pre-cert requirement for more expensive services including kyphoplasty.

This last is why you need to read the report and not just the rankings. Without getting too far into the details, kyphoplasty, a minimally-invasive surgical procedure intended to alleviate spinal compression, is one of those newish procedures that offers minimal - if any - improvement over older, more established techniques.

It is a good thing that Fallon is tightening up standards for approval of this procedure. Even if it adds to providers' workload.

Posted by at 9:13 AM | Permalink

The fine folks at FierceHealthcare have compiled a list of the top ten health plan CEOs ranked by compensation. The links include details on performance, prior year compensation, and a bit of editorial.

Aetna Ron Williams $24,300,112

CIGNA Ed Hanway $12, 236,740

WellPoint Angela Braly $9,844,212

Coventry Dale Wolf (ret) $9,047,469

Centene Michael Neidorff $8,774,483

Amerigroup James Carlson $5,292,546

Humana Michael McCallister $4,764,309

HealthNet Jay Gellert $4,425,355

Universal American Richard Barasch $3,503,702

UnitedHealth Group Steve Hemsley $3,421,042

Some of these top-ten CEOs saw their compensation drop due to declines in their company stock price or other financial issues (CIGNA, Coventry) while others seem to have been unaffected by deteriorating performance (WellPoint, HealthNet) and settlement of lawsuits (Amerigroup.

Posted by at 9:16 AM | Permalink | Comments (2)

Expect the Texas legislature to pass laws tightly restricting PPOs before the end of the biennial legislative session June 1. According to WorkCompCentral, the Senate is making considerable progress on a compromise bill that will closely follow the NCOIL model.

The NCOIL model act includes strong disclosure requirements, standards for network contract and discount disclosure, penalties for PPO's failure to disclose clients to providers, allows providers to refuse discounts taken without a contract and provides for enforcement under Texas' unfair trade practices laws. (see the WorkCompCentral article for details)

This is good news for payers and providers alike.

Silent PPOs have long been a major bone of contention, leading to countless lawsuits and counter suits by payers and providers, tying up claims in seemingly endless litigation. Not only will the bill - if enacted - reduce legal hassles and the cost of same, I'm also hopeful that it will force payers to stop their endless, pointless, counter-productive discount-shopping.

Picking providers base on how much they'll cut their rate is beyond dumb,for reasons laid out in detail elsewhere on this blog. Beyond that obvious problem is the damage that process dies to the payer-provider relationship. It tells the provider they are merely a vendor, a bill, a cost. It devalues their role entirely, transforming what is often an already-tense relationship into open warfare.

Payers have to treat providers intelligently, seek to understand their situation and motivations, and try to work with them. Sure some providers are crooks and frauds, but treating all of them as such just ensures claims will be contentious, difficult, and more costly.

Posted by at 8:28 AM | Permalink

Hospitals are in dire shape. 31% of US health care costs are from hospitals, and by almost any measure, they are hurting badly.

Revenues are declining, profitable services are way down, layoffs are announced weekly (layoffs, in healthcare!!), more and more patients are uninsured, and donations have declined dramatically. Those hospital systems that are reporting decent results seem to be doing so through one-time asset sales and other non-operating measures.

As to what's driving the crisis; if you'll forgive the creative math, here's how the calculus works:

Rising unemployment -> more uninsured -> fewer profitable admissions + more charitable (i.e. non compensated) care + more Medicaid (i.e. money-losing) care = big financial trouble for hospitals

Almost all hospitals make their margins on private pay patients. According to Tenet Health's CEO, (paraphrasing) 'Tenet's profits come from the 27% of patients who have commercial managed-care coverage; it breaks even on Medicare patients, and loses money, to varying degrees, on patients with Medicaid coverage, self-paying uninsured and those who qualify as charity cases'.

The latest bad news comes from Massachusetts, via FierceHealthcare and the Globe.

Here's how the Globe put it:

"59 percent of hospitals statewide reported a drop in elective surgeries in 2008 and into the beginning of fiscal 2009...as more people forgo treatment, hospitals are suffering financially, industry specialists say. Their profits depend heavily on lucrative surgical procedures paid for by private insurers." And that's in a state that has fewer folks without health insurance than just about any other state in the country.

On the west coast, the problem is even worse. according to a CalPERS study, "One-third of private payers’ costs went to hospital profits and to subsidize a revenue gap". Health plans paid hospitals $18 billion in 2005 for care that cost the hospitals $13 billion.

A hidden, but nonetheless significant contributor to hospitals' woes has been the growth of high-deductible health plans. Patients with these plans seeking elective surgery often don't have enough money in their deductible accounts to cover the deductible; hospitals are turning these patients away, unwilling to accept the risk of non-payment.

Impact on health plans

Health plans have been dealing with increasing hospital cost inflation for several years; what's new is the worsening economy has significantly exacerbated the problem. Price has been the primary driver of hospital cost inflation; back in 2003-2004 prices jumped eight percent annually.

Healthplan giant Wellpoint saw hospital trend rates last year above ten percent; in their Q1 2009 earnings call they reported "Inpatient hospital trend is in the low double-digit range and is almost all related to increases in cost per admission. Unit costs are rising due to an elevated average case acuity and higher negotiated rate increases with hospitals."

Aetna is also seeing significant cost inflation, driven by more services per admission, while HealthNet is enjoying cost inflation just under ten percent

The same trend hammered Coventry Health last year, leading to a big increase in their medical loss ratio, and eventually a management shakeup and re-ordering of priorities.

Impact on workers comp

Unlike group and individual health plans, workers comp patients don't have to worry about deductibles and copays. Comp is 'first dollar, every dollar'. And hospitals just love workers comp. Recall that workers comp generates one-fiftieth of a hospital's revenues - and one-sixth of hospital profits It's no wonder workers comp medical costs are starting to jump again - driven by cost shifting from hospitals desperate to make up for lost private pay patients

In recent audits (including a large self-insured employer and a workers' comp municipal trust) the greatest year over year increase in their medical expenses was due to facility cost inflation (primarily hospitals and ambulatory surgical centers). Other clients are experiencing hospital cost trends above 10% year over year, and some are in the 12% range.

Post script - for a detailed review of the hospital perspective on the issues, click here.

Posted by at 6:26 AM | Permalink | Comments (2)

This is a big day for mid-tier healthplan Coventry. After a year of turmoil and ups and (mostly) downs, CVTY has been under the leadership of returning CEO Allen Wise for a full quarter. Today Coventry announced Q1 results, which were projected to include earning of 24 cents a share, according to analysts surveyed by FactSet Research. The company surprised analysts when it reported earnings of 30 cents and projected 2009 revenues just under $14 billion.

The quick take - medical losses are coming under control through higher pricing, commercial membership is down, governmental plan membership is up, Coventry will exit the Medicare PFFS business, they are going to retain the workers comp business and Coventry is not for sale.

Details

While the results look pretty poor in comparison to Q1 2008, recall those results were wrong, as the company had yet to figure out its medical loss ratio problems were quite severe. On balance, this quarter looks reasonably solid.

The primary driver of improved results appears to be the renewed focus on the company's medical loss ratio, which had slipped badly during the previous two years.

Here are some of the highlights.

- Net earnings were down about 65% due to higher expenses.

- Health plan commercial group risk MLR (medical loss ratio) was 80.9% in the quarter, down 230 basis points from the prior quarter. This is a big win as it appears the turnaround in healthplan performance has come earlier than expected.

- Commercial membership decreased 2.5% to 2.8 million. This is not good, as this is the profitable core of the company, Coventry's bread and butter. The good news for the company was they increased pricing across most plans - this increase drove the improvement in MLR although it undoubtedly contributed to the drop in top line.

Coventry is selling more employer plans, but ingroup membership is down - people just can't afford to pay their share of the premiums, even when subsidized by their employers. This is one of those canary-in-the-mine issues that has broad implications, far beyond this one mid-tier healthplan.

- Medicare Advantage membership was up 114,000 during the quarter; the MA MLR was 90.5% in the quarter, down 40 basis points from the prior quarter.

- Medicare private fee for service (PFFS) is not doing well, and it looks like Coventry will exit this business. This business grew dramatically over the quarter, with membership up some 75,000 to 318,000, driving revenues of Wise noted Coventry's board will have a (non scheduled) meeting April 30 which happens to be the day before Coventry has to decide whether it will stay in this business.

Don't bet on it. If Coventry does exit the Medicare PFFS business, top line impact will be significant - likely more than a couple billion dollars.

- Medicare Part D membership of 1,501,000 grew by 570,000. Notably, Humana dumped 180,000 Part D members: these were the folks who cost the company about a buck a share in earnings in 2008 due to higher than expected costs. One analyst thinks Coventry picked up some of the members dumped by Humana...

Wise expressed confidence in the results, saying he's "reasonably comfortable" with Q1 results. CFO Shawn Guertin made a point of noting that most growth in Part D was not in their high-tier products and he feels 'comfortable' as well.

- Workers comp - Wise stated he is committed to maintaining and eventually growing the workers comp segment as it is profitable and returns good margins. He's "absolutely committed to this business." Guertin reiterated the company's positive view of comp, saying results are very strong (or words to that effect). (work comp accounts for about 6% of Coventry's revenue, with much of that from their PBM FirstScript).

More on this later.

Wise closed his opening comments by saying "the company is not for sale". I'd note that few companies that are for sale advertise that fact.

What wasn't covered

Once again, there was almost no discussion of core medical cost drivers - nothing beyond a couple lines from Wise about Coventry's desire to invest in chronic care management for their Medicare members and two softball questions from analysts about cost drivers. (One was answered with the statement that facility unit costs and outpatient facility utilization appear to continue to be the problem. The second question referred to the company’s strategy regarding addressing unit costs by negotiating hospital contracts coming up for renewal and the potential impact of MS DRGs etc. Guertin’s answer was it is tough, hand to hand combat, about a fifth to a third of their hospital contracts come up for renewal this year... There was no declarative statement and certainly nothing substantive to say we’re focusing tightly on these areas or types of service. He did not respond to the MS DRG topic, and there was no follow up from the analyst.)

In what other industry would analysts not ask deep, penetrating questions about the underlying costs the company's main product? Costs that are going up in the high single digits each year? Costs that are causing enrollment declines in the company's core business? Costs that hammered the company last year, that drove the stock down by almost 90%? Costs that were acknowledged to be poorly understood in several of the calls last year?

Medical costs account for $11 billion - about 80% - of the company's $14 billion top line - and there were two superficial questions?

Wow.

Posted by at 6:42 AM | Permalink | Comments (1)

PPOs, or Preferred Provider Organizations, have been around for a couple dozen years. They are networks of credentialed (with varying degrees of rigor) doctors, hospitals, and ancillary providers that have agreed to provide lower rates for 'members' in return for some measure of exclusivity/promise that patients will be directed to use them. I'd note that this 'promise' is often not fulfilled, at least in the eye of the provider. That's a whole separate issue, one we will likely get to in a future post.

As one good friend puts it, 'PPOs are a box of contracts', and not many PPO firms do much more than recruit, credential, negotiate, and contract.

Their popularity waxes and wanes, roughly in line with the underwriting cycle (as cost trends decrease, PPOs tend to grow, as cost trends increase, buyers seek more controlled networks and medical management systems).

Typically PPOs are owned by a large group health plan or specialty company such as a workers comp managed care firm. Many PPOs were built to market/sell to health plans and workers comp payers - Rockport, Coventry, and Interplan are examples of 'vended PPOs', as opposed to those built for the exclusive use of a healthplan.

The problem

There can be several issues with PPOs; lack of direction by the payer, inaccurate data, failure to maintain credentialing standards and 'stacking' are some of the more prevalent.

But of late another issue has been appearing more and more frequently - providers claiming they are not subject to a PPO contract and therefore should be reimbursed at U&C, or in the case of workers comp in many states, the state fee schedule.

Digging into the disagreements that arise when payers assert the providers are subject to a contracted discount, it looks like there are a few contributing factors.

First, some providers have contracts with many health plans and networks, and it canbe tough to keep them all straight. And, the PPO may have changed its name, merged with another firm, or been acquired since the original PPO contract was signed.

Those are the easy ones.

A knottier issue is caused by the mechanism of 'provider selection'. When the provider's bill comes into the healthplan/bill repricer, it is 'checked' against a database to determine if it is from a contracted, or participating, provider (known as a 'par' provider). This checking could occur either at the health plan/repricer, or the bills could be electronically sent to the PPO for the PPO to check par status and apply the discount.

What determines 'par' status is often the source of the problem. For example, PPOs want as many 'hits' as possible, so they err on the side of counting a provider as par if at all possible. The more hits, the more money they make (often), and the better they look to the payer. Payers like more hits because then the managed care folks can show the savings they deliver due to the discounts. So the payer side of the equation is motivated to use logic that assigns as many bills as possible to the par bucket.

To do that, payers often use a provider TIN (tax identification number) as the only criterion to determine par status. If a bill is from a provider with a TIN that matches some contract somewhere in the PPO company's database, than the discount is taken. Payers may also use address, provider first name last name, and/or phone, but most try to use as few criteria as possible.

But large provider groups and hospitals and health systems often use the same TIN for many different service areas - outpatient surgery, inpatient, rehab, pharmacy, hospitalists, occupational medicine. And they rarely offer the same discount deal across all service types and locations. Some service types may not even participate due to the internal structure and demands of the health system.

Here's real world example, provided by a consulting client. A bill from an occ med clinic hits a payer, who determines it is a par provider due solely to the TIN match. A 30% discount is taken, and the check cut. But the occ med clinic is not part of the original contract, which specifically states that discount is for inpatient medical services only.

The provider complains to the payer, who contacts the PPO, who eventually pulls the contract, says 'oh, yeah, here's the problem', asks the occ med clinic to resubmit the bill, after which the bill may - or may not - be paid correctly.

Now multiply this by the hundreds, and it is easy to understand why some providers, fed up by the paperchase, are getting downright litigious. This leads to providers suing payers over a few dollars on an office visit - not to get those few dollars, but to force the payer to apply the correct repricing methodology.

If the PPO is the one doing the repricing (as is often the case), there is considerably less incentive to fix the problem. The PPO doesn't have to handle all the calls (although in many cases they are involved at some level), figures many providers will not fight it as it isn't worth it, and even if they do that's a small price to pay for all those fees.

And that's one major reason there's so much litigation in the PPO world these days.

Posted by at 3:20 PM | Permalink | Comments (2)

There's little doubt hospital reimbursement methodology is going to change dramatically over the next few years.

We're going to see a shift from fee for service to global episodic reimbursement, a shift that has already begun. I'll get into that next week, but for now, there's increasing evidence that private payers' hospital costs are rising in large part due to several recent changes in reimbursement policies.

Over the last year, there have been three major changes in hospital reimbursement: the implementation of MS-DRGs (increase in the number of DRGs to better account for patient severity); a 4.8% cut in Medicare hospital reimbursement spread over three years; and the decision by the Centers for Medicare and Medicaid Services (CMS) to stop paying for 'never ever' events - conditions that are egregious medical errors requiring medical treatment.

The net result of these changes has been a drop in governmental payments to hospitals, the decision by several major commercial payers to not pay for never-evers, and increased cost-shifting from hospitals to private payers.

The implementation of MS DRGs and the accompanying decrease in reimbursement looks to be the most significant of the changes, and is already having a dramatic impact on hospital behavior patterns. By adding more DRG codes, CMS is acknowledging there are different levels of patient acuity - that performing a quadruple bypass on an otherwise-healthy patient takes fewer resources than doing the same operation on an obese patient with diabetes and hypertension. While these different levels were somewhat factored in to the 'old' DRG methodology, the new MS-DRGs better tie actual costs to reimbursement. (for a more detailed discussion, see here)

Here's one example.

CMS projected that these changes would reduce Medicare's total reimbursement for cardiovascular surgery by about $620 million, while orthopedic surgeries are projected to see an increase in reimbursement of almost $600 million.

Orthopedic reimbursement is increasing because there are now more MS DRGs for orthopedic surgery, and the additional DRGs will likely mean hospitals will be able to get paid more in 2009 and beyond than they were last year.

Hospitals are going to work very hard to get more orthopedic patients in their ORs, and they are going to carefully examine these patients to make sure they uncover every complication and comorbidity - because a 'sicker' patient equals higher reimbursement.

What does this mean for private payers?

Orthopedic costs will likely rise because hospitals will get better at allocating costs. But cardiovascular costs will also increase due to cost shifting.

Heads they win, tails you lose.

Posted by at 6:47 AM | Permalink | Comments (1)

There is a growing movement on the part of providers that is turning the tables on health plans. Providers have long objected to profiling, ranking, and rating as done by health plans, complaining (with and without justification) that the systems/algorithms used were inaccurate, unfair, superficial, and/or misleading.

Now providers are giving health plans a taste of their own medicine, and for United Health, it is bitter stuff indeed.

One of the first surveys that evaluated providers' opinions of health plans was the survey conducted by the Verden Group. Their Q4 ratings of health plans is out, and once again Aetna is looking good. The rankings are driven by providers’ views of health plans, the complexity and difficulty of their interactions with health plans, and plans’ tools and processes that affect providers. Reimbursement policies are also factored in, as is the cost to the provider of complying with health plan policies.

While the report does not include all health plans, it does cover around forty of the largest.

There is always movement up and down the ratings scale, but Aetna is consistently at or near the top. Other plans seem to bounce around due to changes in reimbursement policies, more or less onerous prior authorization requirements, changes in ease of access to patient eligibility and medical record information – with jumps up or down the rating scale commonplace. The lowest score wins in the Verden scale; Aetna is the only plan to not only score in the single digits in Overall Rankings, but to do so every quarter.

Health plans that partner with providers - provide ready access to eligibility data, reduce the administrative burden of pre-certs and appeals, pay quickly, minimize policy/process changes so providers aren’t constantly confused about the current requirements, and add value in the form of access to member medical data are going to do much better over the long term.

A hospital-focused survey was just released, and it confirms Aetna's leadership position. United HealthGroup is at the bottom of the rankings (it is towards the bottom in the Verden survey, although one of its operating units, (Oxford) is ranked quite high. The survey was conducted by Davies Public Affairs, identified a sharp differences between the 'best' and worst plans. Here's how they put it:

"For the first time, the survey revealed a preferred partner for hospitals and physicians. Aetna received a 64% favorable rating (compared to a 34% unfavorable rating), which was 9% better than CIGNA, the second-best rated plan and a full 48% better than the worst rated plan, UnitedHealthcare. The survey reveals a strong preference from hospitals based on trust, honesty, business practices and good faith negotiations.
"Aetna is clearly the preferred health insurance partner for hospitals and health systems across the United States," said Brandon Edwards, President/COO of DAVIES. "When you combine this survey data with recent publicly traded health plan earnings announcements, it's clear that provider trust and satisfaction are leading indicators of organic membership growth. This bodes well for Aetna, and perhaps CIGNA, as they look at 2009 commercial enrollment retention, as well as 2010 commercial enrollment growth."

The survey revealed that 82% of respondents indicated an unfavorable opinion of UnitedHealthcare, {emphasis added] which is actually an 8% improvement for them over last year. This contrasts with an average unfavorable rating of 34% among all other insurance companies in the survey."

It gets worse.

"One striking finding is that UnitedHealthcare was not the largest payor in terms of revenue for the average hospital, and its reimbursement rates were not significantly lower than other major health plans. UnitedHealthcare is paying as much or more than other insurance companies for healthcare services but they are viewed as the worst performer by a large margin. [emphasis added] The survey makes clear that dissatisfaction is driven by distrust, dishonesty, flawed business process, inadequate claims processing, claims denials and other business process problems."

I was excited when the company I worked for - MetraHealth - was acquired by UHG fourteen years ago. At the time United was the most respected health plan company and was seen as the model that others would aspire to. After working for United for a couple years, I had to leave. My sense was 'if this is the best health plan out there, I've got to stop working at health plans.'

Looks like nothing's changed.

The full Davies survey is here; the Verden Quarterly Report is here.

Posted by at 4:53 PM | Permalink | Comments (2)

Small employers are increasingly dropping health insurance. Premiums are prohibitively expensive and dire economic times are forcing owners to cut costs.

In an effort to control costs, some are resorting to what can only be characterized as fraud.

I recently returned from a trip to the Sunshine State, where I had the opportunity to meet with two prominent brokers. During the course of conversation one gentleman related the following.

An employer had contacted their cpa firm asking some questions about employee benefit payroll deduction requirements. To date they had paid 100% of premium but wanted to begin to have the employees contribute. This, in part, was the response the client received. Subsequent conversations between my colleague and the CPA firm indicated the broker that had taken the cpa firm down this path was doing it for others. In a separate conversation a my. Olleague had with a representative of another carrier, that person confirmed that this type of stuff was not uncommon. And we wonder why the cost of group is higher and is increasing at a faster rate ……..

Here's the email the CPA firm received from the fraudulent broker.

“The cost of health insurance is a problem that we all are trying to grasp. We as employers are attempting to take care of our employees but control the ever rising costs. You have the ability to change your health insurance policy to either method the most common is a percentage of the single premium however, some employers use the flat dollar method as well.

I would recommend that you consider the change to HSA plans with the use of individual policies. The company can pay the premium or portion and contribute to or not to the HSA plan. The cost of individually underwritten plans are about half the cost of group plans. You can maintain group policy if you have employees that can not be underwritten as long as you have at least two.

We changed to this method this year including the full funding of the single person HSA and saved $10k. This savings does include the full family premium and HSA deductibles paid for two (XXX and me).

The negatives that you will have is the potential of uninsurable and the initial fear that the employees may have. The employee will have to pay the cost of benefits from the HSA account until the full deductible is meet then thereafter no out of pocket costs. The typical deductibles range from $1250 single to $2500 family. Even if you have not reached your deductible you will only pay the insurance companies costs.

The other negative is maternity benefits for individual plans are very weak (after one year on plan only pays $1500) so if you have any potential mothers this is something that needs to be considered.

I do have a contact if you need that assisted us with United Health Care in the transition. I personally believe that the HSA plans are the way to go.”

This is fraud.

Posted by at 7:16 AM | Permalink | Comments (1)

Medicare physician reimbursement will change next year. As I noted yesterday, it looks like cognitive services (office visits, etc) will be paid at higher rates, while procedures (surgeries etc) will see a cut in reimbursement.

Consider the fallout from the change. If things go as I think they will, the specialty societies and their allies will fight long and very very hard to minimize any reductions in reimbursement. But over time, their compensation will decline relative to generalist pay. And over time, the re-leveling will become reality - the generally-accepted-way-the-world-is. That process will take years not months, and be marked by ups and downs, resistance from providers and nastiness in negotiations.

What are the implications for health plans? Several.

The near term - the end of this year into 2011
Specialists will seek to replace lost revenue by increasing prices paid by and the number of services delivered to health plan members. Yes, cost shifting. This makes it even more important for health plans to invest in medical management, data mining, physician profiling and reporting. This new pressure to shift costs will manifest itself in a variety of ways - some obvious and some not.

Contracting will take longer, be tougher, and be even more acrimonious than it is today. Health plans will have to plan carefully, provide contracting staff with real, accurate data they can use to convey market share, provider effectiveness, and provider rankings. These last will be highly contentious; physicians will vociferously defend their practices and complain about metrics and methodologies. And in many cases they may have a case. But if they want to be paid more, providers will have to make a convincing case that they are worth it. The net - both parties will need more and better information.

The longer term
Health plans with smaller market share will be at an even-greater disadvantage. Providers will be increasingly picky about the plans they contract with, forcing small plans into a Hobbesian choice - agree to higher rates to fatten the provider directory, and suffer the consequences of the inevitably higher medical loss ratios. Or refuse to contract at higher rates and end up with far too few specialists.

Except for those health plans that are part of integrated delivery systems. These plans will (over time) flourish, especially if they 'buy' their physician services from one or a very few groups.

Over time, expect health plans to also reduce compensation to specialists (relative to generalists). The smart plans, those who can look beyond next quarter's medical loss ratio numbers, will not try to keep generalist reimbursement low while also ratcheting down specialist pay. (Alas, there are far too few 'smart' plans.)

There's a wild card out there as well. Those plans investing in medical homes will likely find their need for specialist services is reduced rather dramatically. While there's been much talk about homes, there's not been a matching amount of activity. The reimbursement change could trigger that, as it will drive more providers into primary care. If the need for specialists is reduced, as it should be with the home model, those same specialists will find they have little leverage.

What does this mean for you?

If you are a provider, be prepared to make the case that you are better than the competition. Payers, get serious about profiling and reporting. Primary care docs, change is a-coming.

Posted by at 9:39 AM | Permalink | Comments (5)

Because they allowed workers comp and national accounts to dictate provider contracting strategies, a decision that drove up the core group business' medical loss ratio.

Here's how.

The beginning of the tough times for Coventry came last spring. Up till then, things had been moving along quite nicely - just a year ago, I noted "For Coventry, 2007 was an excellent year. Total revenue (including group and medicare) came in just short of the $10 billion mark, the commercial group medical loss ratio (MLR) was a stellar 77.3%, and there was modest membership growth in group, Part D and the individual health lines."

Just before the wheels came off, I said "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."

Well, I was half right - and half wrong. Coventry may be expert in managing pricing but it is now obvious that it doesn't understand reimbursement.

Now that new CEO Allen Wise is on the job, Coventry's staff is conducting a top to bottom review to determine, in part, what drove medical costs up so high without anyone noticing/understanding/fixing it early on. Here's how Wise characterized what happened in the earnings call earlier this week, as provided by the good folks at SeekingAlpha in the transcript.

"When I was conducting a review of the company, I was trying to determine the cause of the 300 or 350-basis point deterioration in the commercial medical loss ratio, and I think it is impossible for me to determine precisely what happened there. You heard a little bit about the flow and you heard a little bit about MSDRGs [new medicare hospital pricing methodology], and you heard a little bit about [hospital] unit costs, and I think it’s a probably a little bit of every thing, but there was not any question there was stress at the local health plan of a contractual nature by some of our other businesses, and by that I mean the network rental business, the Workers’ Comp business. I am not sure on the Medicare front, but when you interviewed people here and in the field, look at our litigation count on litigations for network-related issues, there was stress enough there, and enough of frequency to people recounting stops among major providers they started off with that until you solve X or Y problem, none of which were connected to the commercial health risk thing that your rates are going to go up or something....[emphasis added] I think there was a bit of pressure on unit cost. I expected to find some deterioration in local patient management activities. I did not find that. The core competency of the company, while there is plenty of clutter with new activities and a feeling of a lot of things going on at one time, I did not find a loss of focus at the local health plan levels. Many of those medical directors have been with us for a decade, and I didn’t see much change there. If you take the unit cost level, I just think in meeting with our new guy Allen Karp and best practices in each of the plans and having more quantitative information on what really happens on a month to month basis out there, I think there’s just room for improvement there."

Shawn M. Guertin, Coventry's CFO, went on to say "...There is no doubt that the facility unit cost experience was worse than it had historically been and worse than we had expected in ’08..."

Coventry's local provider relations folks were tasked with getting contracts with providers, contracts wherein providers would agree to discount their prices to patients affiliated with Coventry - either health plan members, employees of larger employers who used Coventry's PPO contracts, workers comp claimants, and Medicare members. It appears the contracting effort was hampered by the need to include all these 'products' in provider contracts - especially for hospitals. As Wise said, during the contracting process, "[recruiting and contracting] people [were] recounting stops among major providers they started off with that until you [Coventry] solve X or Y problem, none of which were connected to the commercial health risk thing that your rates are going to go up or something..."

Coventry has determined that their group health MLR was higher than it should have been because their hospital costs were too high. This was driven by their hospital contracts - and the contracted rates were too high because Coventry wanted their payers to accept all products. When hospitals dug in their heels, Coventry's staff gave away some discount for the group health rates in return for discounts for workers comp and PPO claimants.

Remember group health is the big business at Coventry - work comp accounts for less than 7% of the company's total revenues. I get the sense that Wise is wondering why the needs of the workers comp and PPO businesses were allowed to take precedence over his core business - and increase the group business' MLR.

Good question.

Posted by at 10:05 AM | Permalink | Comments (3)

Friday will be Dale Wolf's last day at Coventry. After diversifying the company into workers comp, Medicare Part D, Medicare Advantage and private fee for service, and individual insurance, he leaves behind a much different Coventry than the one he took over in 2005. Don't shed too many tears for Mr Wolf, he leaves after earning over $13 million last year alone.

The health world is also much different. Insurance itself is rapidly approaching the unaffordable level, participation rates are dropping (fewer employees signing up at companies that offer insurance), the Bush administration's massive attempt to privatize Medicare and Medicaid will likely be reversed, hospital costs are exploding, and national health reform is around the corner.

And Coventry's stock is a quarter what it was a year ago, while solutions to the company's problems look ever further away.

Lots to consider, but I offer these thoughts.

The CEO is out, two weeks before the company releases its 2008 earnings report. The 65 year old former CEO is back. The company is not looking for a new CEO. Coventry's commercial business is hamstrung by the factors noted above. It is not doing so well in Medicaid and Medicare growth will likely slow considerably. The company has not shown any expertise in managing care; it appears to rely solely on price increases to manage medical inflation. It has stumbled badly twice in the last year, both times failing to accurately forecast medical costs.

There is some thought that the company may be for sale. I'm one who leans in that direction. Recent news makes it more likely the company will not be sold in its entirety, but rather sell off pieces/markets/health plans. There are just too many moving parts in the 2009 version of Coventry; this complexity would make a comprehensive due diligence effort long and miserable - and given Coventry's historical inability to predict health costs, potentially inaccurate.

But it is cheap.

Never one to forgo an opportunity to say something that will come back to haunt me in the future, I'm going to go out on a thin and ice-bound limb and opine that Coventry will sell off some health plans, and perhaps the work comp and other specialty businesses (e.g. mental health). A little less likely is a sale of the entire company.

What is unlikely is Coventry is essentially unchanged a year from now.

Posted by at 7:49 AM | Permalink | Comments (7)

Yesterday's announcement that Coventry had replaced CEO Dale Wolf with former CEO Allen Wise came after an internal review of the company's performance, a review that didn't come out too well.

According to Dow Jones, "The move comes after a series of missteps the health insurer took late last year. The company lost nearly half its market value in October after it slashed its 2008 forecast, citing higher medical costs at its commercial and Medicare health plans, unexpectedly low business volume and higher overhead spending."

As I noted last week, Coventry's talk at the JPMorgan investor day meeting was given for the most part by CFO Shawn Guertin; other investor meetings and calls were usually split between Wolf and Guertin, or conducted primarily by Wolf. In retrospect, the change is apparent.

The company's stock value increased somewhat today, rallying after a positive review by Wachovia. It is still quite a bit (about $43) below its 52-week high of $57.22.el

Wolf is one of the smarter and more experienced people in the small group HMO business. He has extensive experience in this space, including a stint running the old Travelers' small group block back in the late eighties and early nineties (where he was an internal customer; I was responsible for the UR/CM customer relations at the Travelers). He knows this business very well. Wolf also learned a lot about the HMO business from Allen Wise; the former- and current-CEO of Coventry. Wise is well-named.

From listening to Wolf and watching his moves over the last few years, my sense is he got a bit over-confident. He and his colleagues relished investor calls, bragging about their abilities and sense of the business, delighting in describing their business knowledge and disciplined management. As long as the results backed up the talk, it was all good. But self-confidence can look an awful lot like blind arrogance when problems arise - as they did not once but twice last year.

Missing the medical loss ratio last spring stunned analysts, and a somewhat similar mistake in the fall killed whatever credibility remained.

The final blow may have been the announcement last week that earnings would come in below expectations; during the JP Morgan call Guertin and Wolf all but begged analysts to be patient and wait till 2010, when the turnaround plan would show results. Twelve months is way too long for Wall Street, especially when the request is coming from someone who has lost all credibility.

Wolf's expansion in secondary and tertiary HMO markets, while not universally successful, was smart. The company's early move into Medicare Advantage and related businesses was also the right play at the time. And his takeover of the work comp managed care market brought solid cash flow, great profits, and the comfort of a non-risk business into the portfolio. In the end, the failure to execute on the basics of the business coupled with an overweening self-confidence made all the good moves irrelevant.

What does this mean to you?

Don't read your own press clippings.

Posted by at 6:18 AM | Permalink | Comments (0)

It's no secret that Coventry Health had a tough 2008. After several years of continued growth in profits, revenues, and market cap, management was nothing if not self-confident. Perhaps not self-aware, but certainly self-confident. That ended a little less than a year ago, with the announcement that financial results had suddenly plummeted due to higher medical loss ratios.

The earnings debacle of 2008 started in the spring and recurred in October with additional bad news. The overall impact was more analogous to total immersion in the Barents Sea (think Deadliest Catch) than a dash of cold water in the face. The result is not heightened alertness and awareness, but rather a serious case of hypothermia, with the accompanying symptoms of lethargy, impaired decision-making, and a rather tenuous prognosis.

As I said back in June; 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. There was a bit more discussion of facility costs in a lengthy equity analyst presentation last week, with CFO Shawn Guertin and Chairman Dale Wolf noting (this isn't an exact quote but pretty close) "it is really clear that it [the biggest cost driver] continues to be facility [costs] - facility patterns of care and units cost - and we are going everything to plug any leak we can find to tighten everything down. It is a unit cost issue..." In response to a follow up question, Wolf said Coventry's network discounts look "very very competitive" (compared to other larger competitors).

That's great. Yet Coventry's medical trend is still projected to be higher than (most of) the competition, and it doesn't look like this is due to pricing.

I'd also note that (yet again) there was precious little in the way of insightful questions from the assembled equity analysts. A couple individuals asked questions that sorta addressed underlying cost drivers, but there was no real due diligence, no digging deep into the facility cost issue, and absolutely no question about or reference to utilization. This is particularly surprising; it is abundantly clear to anyone who has spent more than a few minutes examining health care cost drivers that utilization is THE key driver.

I'm also a little confused given Wolf's comments that Coventry's network discounts look good, yet in an earlier statement, Guertin noted facility unit costs were problematic. Perhaps I misunderstood.

Here's the net. A somewhat-chastened management team wants analysts and investors to look forward to 2010, as that's when all their efforts will bear financial fruit. Yet I don't see any real evidence that they are paying any attention to their 'cost of goods sold'. Sure, they know the numbers, the loss ratios, pricing, and the impact of all that on EPS, but there's precious little evidence that they understand, or are addressing in any meaningful way, the underlying drivers of technology, chronic illness, utilization.

What does this mean for you?

Network discounts are not a managed care strategy.

Tomorrow we'll address Coventry's Medicare strategy.

Posted by at 7:42 AM | Permalink | Comments (2)

FierceHealthcare reported last week that Aetna paid $20 million to settle charges related to its use of the Ingenix UCR database (their term is MDR). There will likely be announcements from other health plans of their settlement amounts; expect them to be in the Aetna range or less.

This is related but not really to the $350 million settlement for damages related to out of network claims dating from 1994. The settlement, announced last week, will result in UHC paying AMA $300 million to distribute to physicians. However, physicians will have to file claims to receive compensation; one MCM reader noted that in a related case her six-physician practice will receive a whopping $225.

In a related note, I'd remind readers that physician income has been flat to declining over the last several years. Why? Medicare increased fees by 13% from 1997 to 2003, while the underlying inflation was 21%. And, private payers' reimbursement declined from 143% of Medicare's rate in 1997 to 123% in 2003.

I'm thinking we now know at least part of the reason physician income was declining; unfairly low reimbursement from payers using the Ingenix databases.

We already know about health play overpayments - they're called Medicare Advantage.

Posted by at 4:05 PM | Permalink | Comments (0)

The phone and email has been buzzing today. So has the blog-o-sphere, at least among those bloggers who follow this. Both of us.

Today's follow up announcement by Ingenix' parent UHC revealed the giant health plan will pay $350 million to settle a class action lawsuit directly related to the use of the Ingenix UCR database. This brings the total (to date) cost for legal settlements to $400 million after yesterday's NY settlement. Here's the key language from UHC's statement today.

"UnitedHealth Group (NYSE: UNH) announced today that it has reached an agreement to settle class action litigation related to reimbursement for out-of-network medical services. The agreement resolves class action litigation filed on behalf of the American Medical Association (AMA), health plan members, health care providers and state medical societies.

Under the terms of the proposed nationwide settlement, UnitedHealth Group and its affiliated entities will be released from claims relating to its out-of-network reimbursement policies from March 15, 1994, through the date of final court approval of the settlement. UnitedHealth Group will pay a total of $350 million to fund the settlement for health plan members and out-of-network providers in connection with out-of-network procedures performed since 1994. The agreement contains no admission of wrongdoing."

The real problems with the Ingenix UCR database weren't the subject of much discussion in the settlement documents or the various analyses of the settlement. But underlying the case are some significant problems with the database, how it is put together, and its uses. These issues were highlighted in the Davekos case in Massachusetts, and are discussed in the court record. Among the problems are:

- the accuracy and consistency of the underlying data is questionable. Ingenix cannot assure that the entities (health plans and claims administrators and insurance companies) that supply the data that Ingenix uses to determine what usual customary and reasonable charges are in specific areas are all using the same criteria, are coding consistently and accurately, and are aggregating the data in the same way.

- Ingenix may not always have enough charge data to provide a statistically valid sample for every CPT code. In that case, it appears that Ingenix may aggregate data from similar codes to produce a large enough sample. The potential issue with this work-around is obvious. In some instances, Ingenix actually called medical providers in specific areas where it did not have enough data to ask what they would charge for specific procedures. Thus they were combining telephonic survey data with actual charge data in their UCR databases, a commingling of very different data from very different sources with varying reliability.

- Ingenix itself defines the sociodemographic region boundary lines that are used to determine which charges are relevant for which geographic areas. In the Davekos case, the court appeared to be concerned when Ingenix could not give a defensible rationale for the logic or process they used to determine the boundaries for charge areas.

- Ingenix scrubs the data to extract charges that they decide are outliers for reasons that appear to be subjective. It also appears Ingenix removes high end values but not low end outliers. If this is the case, it would likely skew the charge data towards the lower end.

Those are some of the details behind the Ingenix UCR settlements. As to what will happen next, Bob Laszewski's perspective provides insights as only he can.

What does this mean for you?

If you are using the Ingenix UCR database, you may want to look for other options.

Posted by at 3:55 PM | Permalink | Comments (5)

This is one tough year to be putting on the swami hat and dusting off the crystal ball. There are so many moving pieces affecting the group health/individual/Medicare/ Medicaid world that it will be hard enough to analyze what happened after the fact, much less before.

Enough with the dissembling. Here goes.

1. Consolidation will accelerate. After a hiatus due to the still-slushy credit markets, big health plans will start acquiring second tier ones. Expect this to happen after mid-year, for reasons due not only to the credit markets but also to goings-on on Capitol Hill. Among the health plans likely to get attention are Humana, MVP Health Plan, AmeriHealth, and Priority Health.

1.a. Coventry will also be on the list; it has solid penetration in a number of second-tier and tertiary markets along with a strong workers comp managed care business. The company has been hamstrung by operating issues; if these appear to be under control it will likely be in play in 2009. Check their talk at the JP Morgan conference later this week for an early indication of progress. (Note I own shares in Coventry)

2. Health plans will split in their reaction to legislation pending in DC. Some will wail and whine, while others will look for the opportunities. Among those already reasonably well positioned are Aetna and UHG (particularly their AmeriChoice unit). Count on AHIP to bemoan the unfairness of it all, and ask for subsidies in the form of risk pools and governmental coverage of high cost claims.

3. Expect more scrutiny of healthplans serving Medicaid and Medicare populations, as the Feds are ramping up their efforts to crack down on abusive and fraudulent practices. The new Administration will want to send a message to health plans that an expansion of S-CHIP and other governmental programs is not a license to steal. There will likely be more Wellcares hitting the headlines in 2009.

4. Health plans will begin to focus more effort on being easy to work with - especially for providers. Increasing frustration with the administrative burden placed on them by health plans is causing providers to become more selective about participation; the health plans that are 'low-maintenance' will have better relations with more providers, and the ones on the other end of the spectrum will not. See the Verden Group's reports for a heads-up on how health plans stack up in the eyes of providers.

5. The Medicaid population will grow substantially, as well the percentage enrolled in some variation of a managed care plan (currently above 60%). Health plans active in this market will do well - if they are priced right.

6. The economic stimulus plan is critical for health plans. Enrollment depends on jobs; with unemployment at a sixteen-year high at 7.2% and smaller employers dropping coverage as they attempt to stay afloat, expect enrollment to continue to drop thru mid-year. This will hit the big commercial plans hardest, although a few are somewhat insulated as the drop in commercial will be offset by growth in Medicaid.

7. Don't expect much growth in the individual plans; they are unaffordable for many and restrictions on pre-ex make them unattractive for others. Until and unless the pre-ex and medical underwriting issues are resolved, growth will be slow - at best.

Check back in twelve months.

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

Last week a study hit the wires indicating that managed care plans did not have better outcomes for carotid endarterectomies (CEs), a surgical procedure ostensibly intended to reduce the risk of stroke.

Here's the headline from UPI - "No managed care link for stroke-prevention".

A quick read of the headline and abstract leads the reader to the conclusion that managed care is ineffective. But there's much more to it than the headline and brief synopsis. For starters, the data was ten years old. It was from one state (NY), that is not exactly known as a hotbed of managed care. And it lumps all kinds of 'managed care' - from group model HMOs to PPOs under the same category.

And the study's conclusions are muddy. In fact, there had been a good bit of research into the procedure itself (it involves cleaning out the carotid artery (the big one in the neck that bad guys are forever threatening to cut in movies), and the data used indicated "the rate of inappropriate surgery dropped substantially from 32 percent in 1981 prior to the RCTs [randomized controlled trials] to 8.6 percent in 1998/1999 after publication of the clinical trials [by AHRQ]." Clearly, medical practice had changed dramatically over that period, due primarily to publication of data indicating the procedure "reduced the risk of stroke and death compared to medication alone among carefully selected patients and surgeons."; the research also showed many patients did not benefit from the surgery.

It wasn't that simple. In fact, the surgery rate had dropped in the mid-eighties after publication of research indicating the procedure had high complication risks. A decade later, additional research seemed to show that CEs did benefit some patients, and the rate shot up again, only to start a gradual decline.

What happened? Generally accepted medical practice changed. Was the rate different within "managed care' plans? No. But why would it have been?

I worked for large managed care/health plan companies during the late eighties and early nineties, with responsibilities in customer reporting and managed care product development. We all knew there were probably too many carotid endarterectomies performed, but we didn't really know which ones were inappropriate. The indications were rather uncertain, and it did appear the procedure helped some patients. What was not clear was which patients would benefit and which would likely not. The 'choice' we made was to encourage/mandate/require second surgical opinions (at that time the state of the art in managed care) to ensure the patient got at least one other physician's views on the potential risks and benefits. There wasn't much in the way of clinical guidelines that we could use to deny the procedure outright, and the legal risks of a denial were so high that this option was never seriously considered.

Truth be told, the managed care firms I worked for had little 'control' over medical practice. Sure, we had contracts with physicians, but our influence was minimal - we were 'two inches deep and a hundred miles wide'. With little 'market share' in any one physician's office, it was unlikely most of 'our' docs would pay much attention to directives from one of our Medical Directors. We did notice that our rate of surgeries was dropping, but did not have the data to know if this was occurring across the board and thereby due to our efforts (I'm pretty sure we took credit for the decrease...) or was driven by external factors.

Contrast our very loose 'managed care' with the much different model exemplified by group and staff HMOs - Kaiser Permanente, Group Health of Puget Sound, HIP, etc. I don't know what the group/staff model HMO rates were, but I'd bet they were lower than my employers'.

In retrospect, it is obvious that external factors were the reason for the decline in my employer's number and rate of carotid endarterectomies. In retrospect.

What does this mean for you?

There's far too much superficiality in the press, superficiality that can distort public views of managed care and the effectiveness thereof. In this case, the headline, although nominally accurate, is highly misleading.

Posted by at 6:15 AM | Permalink | Comments (0)

The PPO world is about to get more complicated, and likely less profitable - for the PPOs.

The National Conference of Insurance Legislators (NCOIL) has developed model legislation tightly regulating PPOs, legislation that looks to be on the docket in at least two states next year, and likely others as well.

According to Bill Kidd in today's WorkCompCentral, the model act "allows unlimited “downstream” rentals of PPO contracts and physician discounts, but requires that network access information be made available to providers.

The model establishes criteria for network and discount access and contract termination; sets out contracting entity rights and responsibilities, requires disclosure to providers and contracting entities of third-party access; provides for registration of unlicensed contracting entities; prohibits and penalizes under a state’s unfair trade practices act unauthorized access to provider network contracts and allows physicians to refuse a network discount without a contractual basis."

The key is the notification requirement. The model act calls for PPOs to periodically inform providers of all the networks and 'access brokers' who can access the network contract. Providers have to be kept informed of changes to the list, and the list has to be emailed, mailed, and/or posted on a secure website.

While the issue of silent PPOs has been on a slow boil for years in many jurisdictions, It has been much more contentious in several states including Louisiana, Texas, California, and Oregon. Provider groups have complained that the managed care contracts they enter into have been sold and resold multiple times without their permission or agreement. That complaint is arguably minor; what is definitely not is providers' belief that the payers accessing the contracts 'downstream' are not doing anything to direct patients, but are simply accessing contracts to get a discount.

This is the core issue - PPOs trade volume for discounts. For far too long, big, yellow-pages PPOs have done little to actually increase a provider's patient volume. Many claim they have contracts with and/or access to hundreds of thousands of providers. If that's the case, and I have no reason to doubt that it is, there is no way the PPO can claim it is actually directing care to a selected group of providers.

If everyone's a member of the PPO, then it isn't a 'Preferred' Provider Organization.

The bill under consideration in Texas provides a window into what other states may see on their legislative agendas.

Posted by at 5:24 AM | Permalink | Comments (3)

The public does not like health insurance companies. And neither does Congress.

Health plans are blamed for rising health care costs by far more Americans than point an accusing finger at pharma companies, the government, hospitals or physicians. Fully 41% of respondents say health plans are most responsible for the surge in health care expenses, compared to only 16% who blame big pharma.

And by the way, political party affiliation doesn't really affect the numbers at all.

You can moan and groan, whine and sigh, and decry the ignorance of the average survey respondent, or you can accept this for what it is - a blast of the whistle and glare from the headlight of reality.

The health insurance industry has done a great job of selling the public - on the benefits of a single payer plan.

Between ill-advised (and illegal) cancelations of insurance policies held by individuals who have the gall to actually get sick, a refusal to actually explain benefits in terms normal humans can grasp, and a complete failure to justify the hefty surcharge they receive for providing Medicare Advantage plans, health plans look arrogant and out of touch.

It didn't have to be this way.

If there's one service that should be easily (and positively) branded, it is health insurance. Taking care of sick folks, helping expectant mothers, easing the pain of the elderly, eliminating that awful paperwork and getting America out of the sickbed and back on its feet - how great a message is that?

Instead health plans spend their time, money, and intellectual capital avoiding selling insurance to anyone who needs it, canceling policies for individuals who get sick, tightening the reimbursement screws on physicians (who are the face of health care to the public), and making the whole thing incredibly complex and difficult and a huge pain in the butt.

Hell, look at big oil. British Petroleum has done a pretty nice job positioning itself as the green oil company, with a nice flower-type logo and talk about responsibility and alternative energy, all the while spilling crude in Alaska, operating unsafe tankers, and devoting a tiny fraction of their R&D budget to 'green energy'.

BP et al have figured out that their public image is critically important to their success. If the public views the company positively, they are less likely to be hauled in front of Congress for hearings and pilloried in the press.

Health plans start out way ahead of big oil - pictures of healthy babies and smiling octogenerians and active families are much more powerful than schools of happy dolphins near an oil rig belching smoke. But by not investing in branding, by consistently doing the wrong thing, by making health insurance and health care byzantine and frustrating beyond measure, the health insurance industry has managed to make big oil look good by comparison.

The next President will very likely be a Democrat. The House will become even more Democratic, and the Senate may see a filibuster-proof majority of Democrats. These men and women have a mandate to fix a lot of what's wrong with this country, and they are not going to be shy about taking a sledgehammer to health plans.

At this point there is little health plans can do to avoid the blows. The time to build a positive image was two years ago, back when they were getting fat off Medicare Advantage subsidies. Now, health plans can count themselves fortunate if they avoid becoming little more than administrators for a single payer system, a fate they rightly deserve.

Posted by at 7:06 PM | Permalink | Comments (1)

Many benefits professionals and risk managers evaluate networks based, at least to some degree, on the thickness of the directory and the depth of the discount. The logic is - hey, the more hospitals in there, and the better the discounts, the better it is for my employees/claimants and the better it is for my bottom line.

Logical, and likely wrong.

Let's take Tenet Hospitals as an example.

I recently completed an analysis of several networks for a client, who was initially impressed that one of the networks under consideration featured their national contract with Tenet, a large for-profit health care system with facilities in the southeast, Texas, California, and southeastern Pennsylvania. In total, Tenet has about 56 hospitals (some are in the process of being sold) and about $9 billion in revenues.

They also have one of the highest charge-to-cost ratios of any hospital or health care system in the nation.

A very thorough, albeit dated, report on hospital charge to cost ratios was underwritten by the California Nurses' Association and published in 2004. Although the data is somewhat old, it is nonetheless revealing. For example:

• Of the nation's hospitals with the highest charges compared to costs, seven of the top ten were Tenet facilities (three were soon to be sold)
• Tenet's charge to cost ratio typically was several times higher than the national average
• 64 of the top 100 hospitals ranked by charge to cost ratio were Tenet facilities
• the top hospital was a Tenet facility with a ratio of 1092%

I'd note again that these data are old and Tenet has sold off some of these facilities. However, data from client medical bill repricing reports indicates high charge to cost ratios are still quite prevalent among Tenet facilities.

There is additional evidence that charging a lot has been a core business practice at Tenet, which has been charging more than other hospitals for identical procedures since at least 2000. According to one report describing an analysis of Tenet charge policies by the SEIU:

"Tenet's California hospitals charged an average of $73,038 for pacemaker implants, 81 percent more than the $40,452 charged by non-Tenet hospitals, according to state government figures analyzed by the Service Employees International Union. Tracheostomies, at $569,672, were 69 percent higher at Tenet than in the rest of the state, where they average $336, 579. "Tenet is engaged in turbocharging," said Steve Askin, health care research coordinator for the union in Los Angeles."

And:

"From 1996 to 2001, Tenet's average daily inpatient charge in Orange County grew 101 percent, compared with 28 percent for non- Tenet hospitals. Tenet's charges for outpatient services here rose 119 percent, compared with 43 percent for its competitors, according to the data.

Last year, [2006] eight of the county's 10 highest-charging hospitals belonged to Tenet. The Orange County hospital at the top of that list was Tenet's Western Medical Center in Santa Ana. It billed an average of $9,453 a day per patient. That was $2,500 more than the highest non-Tenet hospital -- UCI Medical Center -- and nearly twice the countywide average."

Look at Tenet's website (or, for that matter, any other health care systems) for information about cost and cost-effectiveness . There are very few statements (and even less supporting data) regarding cost effectiveness, efficiency, or competitiveness. Lots of words about quality and patient care and how great their people are (all of which are important, and significant, and appropriate to be considered in evaluating network facilities).

What does this mean for you?

Discounts are not important - net costs are. Do not evaluate networks on the basis of how thick the directory is and how deep the discounts are. Hospitals that charge a lot can 'discount' a lot more than hospitals that don't engage in charge inflation.

This is obviously critically important for group benefits administrators as well as work comp payers. It also is instructive when considering the potential for national health reform. I'll dig into that tomorrow.

Posted by at 6:21 AM | Permalink | Comments (3)

The short answer is - it got combined with other sorta-kinda related businesses and put under one boss - Dan Fishbein, MD, in the "New Product Businesses" unit.

According to an Aetna Communications staffer;

"AWCA is part of the New Product Businesses area, which also includes the Cofinity, Aetna Signature Administrators, Pet Insurance and Worksite Health businesses. The former PPOM business, is part of Cofinity. All 5 businesses (including AWCA and Cofinity) now have a common reporting structure in the New Product Businesses area.

These changes will help Aetna identify and successfully execute strategies for new distribution channels, business models, partnerships and products and generate substantial growth for the company. The AWCA business is an important part of this strategy."

Up until Monday, AWCA (Aetna Work Comp Access) was a separate business unit, with its own leader (Pat Scullion), operations head (Shawn Fisher) and sales leader (Tom Shivers). AWCA also had a network management function, account management, and other support housed within the unit. In the new structure, network management and operations for work comp will be handled by two units also responsible for Aetna's group health TPA and PPO businesses headed up by Mark Granzier. Here's how Aetna's internal announcement put it "All network functions in these businesses will be realigned to Mark. This will enable us to have a single area focused on contracting and provider relations, and to leverage these resources efficiently across our businesses."

Sounds good in an announcement, and here's hoping Aetna figures this out. Unfortunately, other companies' attempts to integrate work comp functions with group health haven't fared so well, as the contracting staff usually doesn't 'get' work comp; work comp is usually a relatively small part of the overall business; and network negotiators tend to use WC as a bargaining chip, giving away discounts there to get a better group health discount. This can be particularly problematic for hospital and facility contracts, where work comp is a big profit maker for hospitals (while generating higher loss costs for payers).

This isn't idle speculation. It's based on personal experience within the old Travelers, MetraHealth, and UnitedHealthcare. I've also been privy to hospital negotiations - from the provider side - and watched the big networks cave on comp to get a slightly better deal on the group side.

Sales and account management will be the responsibility of Michael Ciarrocchi who has been named the General Manager for the three businesses. There is no real need for a de facto sales force for AWCA, as the network is being sold (pretty much exclusively) through Coventry. There is a big need for upgraded customer service, as there continue to be issues related to data quality (inaccurate provider data, particularly in Pennsylvania) and AWCA's historical responsiveness has been less than stellar.

Reporting will be handled by a unit headed by Mike Kane that will service all the businesses (the three mentioned above, plus Aetna's Pet Insurance and Worksite/Direct2you units). I'm not sure how this benefits AWCA's customers. Although a common reporting platform would likely be beneficial, there is little other synergy. AWCA customers access network discounts via electronic feeds, and there is no 'outcomes' data to be aggregated or mined as the payments, claim records, and bill detail data are housed on customers' systems.

From a business management perspective, it's understandable that Aetna decided to cut costs and reduce overhead on a (relatively tiny) business unit that essentially serves one customer with one product. Remember this is a company with annual revenues of $25 billion; it is unlikely AWCA's revenues were more than two-tenths of a percent of that total.

Work comp just isn't material.

I'd note that Aetna is perhaps the only big managed care firm that is positioned well for the long term. Their investments have been smart (PPOM, Schaller Anderson), their initiatives in transparency and consumerism are well thought out and (mostly) well done, they have solid people who strive to do the right thing (other health plans also have a lot of good people; Aetna's workforce seems to have more of them), and they are willing to admit mistakes and work hard to rectify them.

That said, many big work comp payers are relying on Aetna to help them manage their medical expenses. And this move makes many of those payers very nervous.

Click below for the full text of Aetna's internal announcement on AWCA.

Continue reading "What happened to Aetna's work comp division?" »

Posted by at 6:53 AM | Permalink | Comments (0)

Bear Stearns, Lehman Brothers, and Merrill Lynch were here one day and gone the next. Their rapid, almost-overnight disappearance from the world wide financial landscape is as stunning as the collapse of the Twin Towers. Solid as concrete and steel, their permanency wasn't even questioned until days before they were forever gone from the skyline.

The next to go may well include Morgan Stanley and Washington Mutual; if the stock prices of other financial institutions continue to drop, more companies may also be putting up 'for sale' signs.

While the Fed's rescue of AIG may well have prevented a global mess of historic proportions, it also sent a very loud, and very clear message that the financial industry is in danger of worldwide collapse. As one South Korean put it, ""The U.S. government's rescue of AIG helped the markets to avoid the worst case scenario, but the fact that only the government was willing to help indicated the gravity of U.S. credit problems."[emphasis added]

Now we learn that rating agencies, all too aware of their failure to accurately assess credit risk in banks, investment houses, and property and casualty insurance, are re-thinking their approach to assessing the financial viability of health insurers. Fitch Ratings will be dumping the traditional debt to capital formula within a month. "Fitch believes operating EBITDA, funds flow from operations (FFO) and subsidiary dividend capacity are the appropriate measures in assessing financial leverage and debt utilization, to augment the debt-to-capital analysis traditionally used for insurance companies."

Clearly the landscape is changing dramatically - mountains may be disappearing here, but they will likely be replaced by new mountains in other parts of the globe. From here, it looks like New York, long the center of the financial universe, may be losing that status to London, or perhaps eventually Dubai. Investors hate uncertainty, and there's all too much of it here in what has become the Wild West of speculative 'investing'.

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

Could be.

For a couple days there have been rumors swirling around Hartford (Aetna's hometown) that the big insurer may be looking at Coventry's books ahead of a possible acquisition.

With Coventry's stock still relatively low, and at a P/E under 10, the company looks like a good deal. CVH's stock bounced up a couple bucks early Wednesday, and has stayed in a fairly narrow range since then. There has also been significant volume in options markets, volume that appears to indicate some investors' sense that CVH is in play.

Aetna and Coventry do have an existing, if really tiny, relationship - Coventry uses Aetna's work comp network in many states. I don't know the dollar value of that deal, but doubt it is much more than ten million annually, if that. That's not terribly significant at 'mother Aetna' where annual revenues are over $30 billion.

If Coventry is on the block, I'm not so sure Aetna's a serious option. CVH stumbled recently after missing their earnings forecast earlier this year, a miss that was painful both to investors and management who had cultivated a (to that point well-deserved) reputation for consistently hitting their numbers. Coventry is particularly strong in the smaller employer market, and their ability and expertise in that segment could be helpful to Aetna if it seeks to grow its small employer market share. Coventry does have a growing individual block, but Aetna has already expanded its individual business significantly and is now in 29 states.

Coventry is not a national account company, a market that has been Aetna's sweet spot for years. Its new markets, which tend to be in secondary metro areas such as Oklahoma City, still represent relatively few lives.

Lastly, Coventry's provider contracts are certainly not as good as Aetna's.

Which leaves us with the question - why would Aetna buy Coventry? The only real reason I can see is a strategic one - to gain more strength in the small employer end of the market. There's always the American League East (see Red Sox/Yankees bidding wars for free agents) strategy - if Aetna buys it Anthem can't - but Aetna is not a company that would spend corporate assets just to keep a property away from another competitor.

If you look at Aetna's acquisitions in the past, you'll notice there have not been many. And the deals that have been done - PPOM and Schaller Anderson, have been highly selective and oriented towards acquiring new skills, new market expertise, and new/better technology - not health plan acquisitions.

Is an Aetna-Coventry deal possible? Sure. But highly unlikely.

Posted by at 9:20 AM | Permalink | Comments (3)

According to market research firm Supplier Relations LLC, the total US surgical appliance and device industry's revenue for the year 2007 was "approximately $30.4 billion USD, with an estimated gross profit of 46.15%".

Note that this total includes more than just implantable devices - sutures, surgical dressings, and prosthetics and other stuff are also counted towards the totals. Without buying the report for $600, you won't know exactly how much is spent on which categories. But research indicates the orthopedic and surgical device share of the total has been quite significant - well above 50%.

The growth of the implant market has been marred by allegations of illegal kickbacks, sleazy business deals between manufacturers and physicians, and hugely inflated prices to payers.

That hasn't slowed the market.

Another report (more specific to orthopedics) predicts total implant demand will rise "9.8 percent annually to $23 billion in 2012. The four major product segments -- reconstructive joint replacements, spinal implants, orthobiologics and trauma implants -- will all provide strong growth opportunities."

But the big growth will come from spine. According to an excerpt from the report,

"Spinal implants will show strong growth due to advances in product technologies and related surgical techniques, coupled with an increasing prevalence of chronic back conditions. Fixation devices and artificial discs used in spinal fusion and motion preservation surgeries, especially procedures for the repair of vertebrae and replacement of degenerative discs, will account for the largest share of the market and best growth opportunities."[emphasis added]

What does this mean for you?

Higher costs with uncertain results.

Posted by at 8:08 AM | Permalink | Comments (1)

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 (9)

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 (3)

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 (8)

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 (5)

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 (28)

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 (10)

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)

It's happening. Actually, it has been happening for years, albeit not very often. Frustrated with increasing premiums and no real solutions from the health insurance industry, large employers are investing in direct contracts with health care providers to deliver health care services to their employees and their dependents.

The practice got its start before WWI, when lumber mills in Tacoma Washington contracted with the Western Clinic to provide health care services for their employees. Leland Kaiser built health care facilities and hired staff to provide services to workers on the Grand Coulee Dam in the nineteen-thirties, a project that was the beginning of today's Kaiser Permanente.

While there are no statistics on the number of lives covered under direct-contract arrangements, the total number is probably tiny. Unless there is a "magic" combination of a large employer and a dominant health care provider group with extensive facilities in a relatively small geographical area, direct contracting will just be too complicated and difficult to pull off.

But when those conditions do exist, expect more employers to seriously consider the move. Employers that are likely to consider direct contracts include large municipalities, school boards, manufacturing concerns, transportation hubs and entertainment companies.

What does this mean for you?

A business opportunity for providers, another challenge for health plans, and another way to tackle the problem of access and cost.

Posted by at 7:17 AM | Permalink | Comments (4)

Aetna continues its effort to provide information on physician pricing and quality with the announcement that it is now publishing data for the Washington DC metro area. Given the problems encountered by members of other health plans trying to be good "consumers", this initiative, while very limited, is certainly going to help Aetna's DC-area members.

What's missing are the pricing and outcomes for procedures that are less common, but potentially more costly and more critical to individual patients - minor surgery, major surgery, endoscopy, etc.

What does this mean for you?

A step in the right direction, but only a small step. Consumers will need a lot more information in a lot more areas if the whole consumer-directed thing is going to have any chance.

and thanks to Fierce Healthcare for the heads up.

Posted by at 6:56 AM | Permalink | Comments (3)

Transparency. The basic requirements of consumer-directed health plans (CDHPs) are price transparency and outcomes data. The foundational concept underlying CDHPs is that consumers will ask how much services cost, and providers will be able to tell them.

Oh were it only possible. It looks like the six million folks who have bought CDHPs from an insurance industry eager to tout them as the second coming of (pick a deity) are having a tough time getting the pricing info they need to make informed decisions.

Aetna is ahead of the rest of the industryin providing information about phyeicians and pricing; they have been providing actual reimburement amounts for specific procedures in selected markets for some months. Humana is also doing this on a limited basis in at least one market (southern Wisconsin).

Here's a quote from the Chicago Tribune article:

" But basic data about what services cost generally aren't available. Medical providers and insurers consider this to be highly sensitive competitive information, and their contracts require that it remain secret.

That leaves consumers with more financial responsibility for their care but without the tools to manage these expenses.

"The market just isn't ready yet to deliver on the promise of these new insurance products," said Larry Boress, president of the Midwest Business Group on Health..."

While recent legislation will require hospitals and some other facilities to disclose their prices, the "prices" will be the list prices, and not the discounted rates. Thus this requirement may not be terribly helpful for consumers looking for useful information.

What does this mean for you?

Another (very large) hiccup on the way to consumer-driven nirvana.

Thanks to FierceHealthcare for the tipoff to the Trib's article.

Posted by at 5:28 PM | Permalink | Comments (7)

United Healthcare's stock plunged yesterday after it reported it could not file its second quarter financials on time due to difficulties dealing with stock options for Chairman Bill McGuire and others.

UHC's stock has dropped 22% this year, largely due to regulatory scrutiny of UHC's practice of backdating stock options for McGuire, who now holds options valued at about $1.6 billion. At least that was the options' value before the stock's slide.

This is not the only issue UHC is facing. It's management of HMO Medica has come under scrutiny of late as well. There are allegations that the management contract was much too lucrative and UHC's performance was substandard.

UHC grew in large part due to McGuire's visionary leadership, business acumen, and focus on building value. The dark side of the McGuire era, one that may now be ending, is now showing itself, and it isn't pretty. It looks like outright greed from here.

Posted by at 6:46 AM | Permalink | Comments (2)

The increasing consolidation in the health insurance market is beginning to run up against the same situation among health care providers, creating the market condition known as a bilateral oligopoly (few sellers and few buyers). This appears to be happening in Denver, where UHC is battling HealthOne over contract terms, reimbursement and likely other sticky issues.

There are two points here.

First, according to several sources, HealthONE is an excellent system with enviable outcomes; therefore is entitled to ask for better reimbursement than lower-performing systems. One of those sources is UHC itself. Here's a quote from the press release

""Interestingly, HealthONE hospitals earned the highest quality rankings among Denver metropolitan hospitals for a majority of procedures evaluated in UnitedHealthcare's first ever-report card, released in June of this year," said Patrick Powers, HealthLeaders-InterStudy senior analyst. "These report cards are part of UnitedHealthcare's new pay-for-performance initiatives, which should translate into improved rates for high quality hospitals." That's only half of the story, as we aren't privy to the rates UHC is offering and HealthONE is demanding. That said, HealthONE seems to have a strong case for strong rates.

Second, while a "bilateral oligopoly" may send you (and certainly sent me) scrambling for the e-dictionary, the net is the big players do battle while the consumers try not to get trampled underfoot. Here we have a very large insurer and a very large provider fighting over rates and access, while the consumer waits anxiously for these behemoths to resolve (or not) their squabbles.

Reminds me of the old joke about what you find between elephants' toes.

Slow running natives.

Posted by at 6:42 AM | Permalink | Comments (0)

Assuaging concerns about quality, treatment standards, and outcomes is one of the biggest challenges facing off-shore medical facilities eager to extract a fraction of US health care dollars. That and figuring out how to make a Mumbai hospital look and feel like the one just down the street from the medical tourist's neighborhood.

Into this business opportunity (the former, not the latter) has stepped an Australian certification body, the Australian Council on Healthcare Standards. Working with two Indian groups, the Quality Council of India (QCI) and the National Accreditation Board for Hospitals and Healthcare Providers (NABH), the Aussies will help revise national credentialing and standards for Indian health care facilities.

The standards are likely to closely parallel those developed by another body, the ISQua, The International Society for Quality in Health Care. ISQua includes board members from URAC, JCAHO, and accrediting organizations from other countries, and is operational in 70 nations.

As healthcare goes global, and American companies and individuals seek to reduce expenses while assuring quality, expect that we'll hear more about health plans that include first-dollar coverage for services rendered at ISQua certified facilities.

What does this mean for you?

The world is getting smaller, flatter (thanks Tom Friedman) and more competitive, and providers who ignore competition from overseas do so at their peril.

Posted by at 6:48 AM | Permalink | Comments (2)

My esteamed (pun intended) colleague and I spoke at length yesterday about a letter he received from Golden Rule (United Healthcare's subsidiary). I'm paraphrasing; here's the key points.

1. Golden Rule stated that their policy is to reprice bills for non-covered services to reflect the rate they have negotiated with the provider, and to send that information to the insured and provider.

2. It is up to the provider to determine if they will accept that amount, or if they want to balance bill the patient.

3. Here's the corker - Golden Rule stated that this policy is not disclosed to the insured in any written materials because it is contained in the contract between the provider and Golden Rule, and is confidential. Their claim is that this matter is between the insurer and the provider, as the insured is "self-insured" for that risk...

Again, neither I (an ex-insurance company executive) or anyone else I have spoken with understand this policy.

Here's where it really gets unpleasant. UHC, and other insurance companies, sell health plans to employers where the employer is liable for the first $25,000, $100,000, or other level of risk. Beyond that, UHC is "on the hook" for the claims expense. Moreover, employees insured through these plans who receive "non-covered" services from UHC-contracted providers usually get the benefit of the negotiated reimbursement rates.

Colleague suggested, and I agree, that this inconsistency is troubling. And not likely to make individuals, or supporters of consumer-directed health care, very happy.

I'm amazed at the blithe ignorance exhibited by insurance companies. Do they think individuals will not be upset about this? Do they think this will engender warm feelings of brand loyalty? Or do they think this will somehow endear them to their providers, even if it angers their policyholders?

Who's the customer here?

Posted by at 7:50 AM | Permalink | Comments (9)

From Hank Stern and Bob Vineyard at Insureblog comes a note that they posted about a problem a CIGNA HSA aka High deductible health plan (HDHP) client had that looks remarkably similar to the now-well-known "colleague".

Turns out that the CIGNA HSA plan, which is supposed to help insureds be more sensitive to their expenditures by giving them a financial stake in their care, does not appear to allow insureds to access CIGNA's contract discounts if the insured has yet to meet their deductible.

Evidently other HDHP/HSA plans have similar provisions. While this may make sense in the ivory tower in Edina (home of UHC) or Philly (CIGNA), it makes no sense to a mom with a child screaming due to an apparantly terminal earache, adverse drug reaction, or profusely bleeding head wound. And it will...anger...her immensely, leading her to switch plans (and wonder why this is so complicated and unfair and timeconsuming and stupid).

A reader asked what my opinion of HSAs is.

I believe that getting patients involved in their care, their health, and the financial implications of same is an excellent idea. Twenty years ago I worked for a firm that was trying to do just that - demonstrate to individuals and companies that many health care conditions were due to bad choices. We actually developed a rough algorithm that linked health behaviors, conditions, and attitudes to future health care expenditures. And no one bought it.

So, I still believe in the concept.

What I don't believe is HSAs as a panacea. I'm not going to get into all the reasons for this; if you're interested read here. It also makes me nuts when pundits and politicians and "economists" claim that all we have to do is add a healthy dose of "consumerism" to health care to fix it. What morons.

I do believe that this focus on HSAs and consumerism is largely a waste of time. We should be working to fix our system, not tweaking around the edges. And all this tweaking does is postpone, and make much more expensive and painful, a real solution.

Posted by at 5:04 PM | Permalink | Comments (3)

My post about a colleague's unwitting effort to educate the rest of us about the nuances of HSAs and payment policies has drawn a bit of interest amongst loyal readers and a couple of others as well. That requires follow up.

The plan itself is not a full service plan, instead it is a "hospital surgical" plan that covers (among other things) emergency room services but only in a hospital, and does not cover physician office visits. A brochure, entitled "UHC Choice Plus network" was included in the marketing package, and states that "when you use a network provider for medical services you benefit from the special rates offered to covered members..." that my colleague interpreted, reasonably, to mean that s/he would benefit from UHC's negotiated discounts. And, when the colleague's dependent needed emergent care, located a UHC-contracted provider, and went to that provider.

Here's a quote from the colleague:

"it would be really hard to negotiate with a facility given the fact that I was not aware that I needed to as well as that I was attending to an injured child. Actually my spouse was as I was traveling on business. The furthest thing from my spouse's mind at the time was negotiation of rates. This is why we contracted with UHC..."

Golden Rule is the United Healthcare entity responsible for most of the company's HSA offerings. Their website has a disclaimer regarding care, quality, medical services, but nowhere is it mentioned that payment for services under a deductible are not subject to the network rate. Here's what the language says (bolded text is my edit):

"UnitedHealthcare arranges for providers of health services to participate in a network made available to you as a Golden Rule Insurance Company insured. Network health care providers are independent contractors and are not employees of Golden Rule Insurance Company or UnitedHealthcare. Golden Rule Insurance Company makes payment to network providers through various types of contractual arrangements."

Another part of their website references the "shared savings" program; here's the language: "When you seek health care in the UnitedHealthcare network, you can take advantage of network benefit levels and negotiated discounts with network providers. Staying in-network will result in the lowest out-of-pocket cost to you." Seems pretty unambiguous...

But, the site then directs you to go to another site (Multi-Plan), to find providers who participate in the "shared savings program."

So, technically UHC is more correct than not; the colleague is likely not a "covered member" for that particular service and therefore the health care sought and received is not covered, and therefore not subject to the UHC contracted rates.

But, and this is a mighty big but, UHC's stance fails, miserably, what my friend Peter Rousmaniere refers to as the "reasonableness" standard. What would a reasonable insurance customer making a reasonable interpretation of the language conclude?"

Posted by at 8:09 AM | Permalink | Comments (1)

A colleague working in the managed care industry purchased a HSA plan through United Healthcare/Golden Rule. This colleague, a highly experienced and very knowledgeable industry veteran with extensive expertise in assessing physician outcomes and inpatient and outpatient hospital costs and quality, and several years' experience in provider network development and operation, was confident in his/her ability to effectively reduce costs while obtaining care for the family.

Not so.

Continue reading "United Healthcare - the fine print that's not there" »

Posted by at 6:50 AM | Permalink | Comments (15)

Health insurers are reluctant to pay for experimental or unproven medical procedures and drugs. And in most cases that makes sense; whether its apricot pits for cancer or artifical cartilage, until there is proof that the treatment will positively impact the condition, obtaining that care could harm the patient, or provide no benefit, while costing the insurance company (and therefore its policyholders) lots of money.

That long standing norm has required insurers to staff medical committees , also known as P&T committees, whose function is to assess new procedures and determine the insurer's coverage policy. These committees determine if the treatment is covered in all instances, for specific diagnoses, only after other therapies have been tried, or not at all. And in my experience the committees have done their jobs well, diligently, and fairly.

Personalized medicine, aka gene-based therapy, has long stood just outside the committees' meeting rooms, rarely poking its nose in but nonetheless a very real, and very shadowy presence. The door is about to open, forever altering the size, role, staffing, and reach of these committees. The knock is coming from a beta blocker, Bucindolol, which appears to work quite well for a few people and not at all for others. Early trials were terminated when it seemed the drug did not work nearly as well as others. Now, evidence is emerging that the drug is effective for a segment of the population with a slightly different genetic makeup.

This is the kind of information that will lead to a transformation of the P&T committee, benefit design, medical ethics and likely utilization review. Committees will become larger, require deeper knowledge of genetic medicine, and likely become even more tightly integrated with the medical management department.

And that's a good thing.

Posted by at 7:49 AM | Permalink | Comments (0)

In a presentation to the Global Six Sigma Summit, CIGNA (health plan) CEO Ed Hanway made the link between good health and economic viability. This is one of the few times I have seen a health plan exec directly address the real reason employers should be concerned about health care - its impact on their workers' productivity and therefore the employers' success.

Considering that over 50 million workdays were lost due to a failure to receive needed care, and that this information has been out for years, it's encouraging that a health plan CEO has recognized the role of health care in economic success.

Here's a quote from Hanway's speech...

"By improving the health and well-being of individuals, we create a more productive work force...By supporting a more productive work force, we contribute to a more competitive business community. By improving business competitiveness, we create a stronger economy. And by strengthening the economy, we build a stronger nation."

Hallelujah.

Posted by at 6:56 AM | Permalink | Comments (3)

Everyone's losing in America's health care mess. Premiums for family coverage are doubling every ten years, and will hit $20,000 per family per year before 2015. While insurance costs are going up, physicians are actually making less. Physician income decreased 7% (registration required) in real terms from 1997 to 2003. Specialist earnings dropped the least (2%), while primary care docs saw a 10% decline. And Medicare reimbursement rates will likely decline in nominal terms in the near future.

The data, from a study by the Center for the Study of Health System Change, seem at odds with the daily torrent of reports on exploding health care costs. If health care costs and insurance costs are rising, how could docs be making less?

There is good news buried in CSHC's report - the amount of time physicians spend actually treating patients has increased significantly, while the time devoted to administrative tasks has declined.

It appears the answer lies in declining reimbursement rates. These hard-working docs are spending plenty of time (over 45 hours a week) with patients, but their reimbursement rates have not kept pace with inflation. For example, Medicare has increased fees by 13% during the study period, while the underlying inflation was 21%. And, private payers' reimbursement declined from 143% of Medicare's rate in 1997 to 123% in 2003.

So, clearly physician income is not a driver of medical inflation. One driver appears to be the increased volume of tests performed; utilization in this area was up at a 6% annual rate over the study period.

But the real driver appears to be higher utilization of physician services (more docs doing more stuff), and, slightly less important, a significant increase in hospital and facility costs.

Oh, and drug costs continue to rocket skyward...

What does this mean for you?

Higher costs, lower incomes = unhappy consumers and providers does not = change...yet.

Posted by at 4:50 PM | Permalink | Comments (5)

Early indications are that HMO rates will rise 7-8% next year. Compared to this year's 10% average increase, that's good news. And here's just how good that news is.

Withfamily premiums (HMO and other plan types) hovering at the $11,000 mark, and rates increasing by, say, 7% per year, we'll have health insurance costs of $20,000 per family in ten years. Truly the miracle of compound inflation (sorry, Benjamin Graham).

The 7% increase quoted is a wildly optimistic figure, as rates have increased at least 9% each year for the last five years. And, with the number of people without insurance increasing every year, further adding to cost-shifting to insureds; tighter eligibility requirements for Medicaid; and increased employee cost-sharing the middle class (read - voters) will be increasingly demanding action - and if the next presidential election does not have health care as a top theme, it will only be because of a horrendous natural or man-made disaster. Although one could reasonablyh consider the US health care system a man-made disaster, I'm thinking more on the order of foriegn policy.