Coventry Health announced their full-year 2011 results this morning; I'd have to sum it up as quite positive, driven primarily by big Medicaid and Medicare revenue increases. There's no question where management is focused - with CMS programs accounting for half of the company's revenue and essentially all of their growth, management's focus on the call was almost exclusively on governmental programs with some discussion of the impact of health reform.

Most interesting was the continuation of lower medical utilization and lower medical costs into Q4, especially in the inpatient admissions and days across both Medicare and commercial populations. Chairman Alan Wise did note there's been a slight uptick in physician utilization, but this was outweighed by the decline in facility services.

Geographically, it is increasingly clear Coventry is focusing on their core Midwest states, with expansions in governmental programs, deals with provider systems, and specifically successful efforts to increase their Medicaid business in Kansas, Missouri, Nebraska, and (not strictly speaking a midwest state) Kentucky.

The commercial business is not faring as well, with essentially flat membership for the year; premium increases resulted in an 8% uptick in revenue. The work comp sector is not growing much - more on that below.

Coventry's utilization trend was consistent with other payers, yet their overall cost trend is a couple points higher than other health plans at high single digits. This appears to be unit cost driven (no surprise), although CFO Randy Giles did state health reform increased trend by up to 200 basis points specifically from eliminating deductibles and copays for preventive services. Seems like an awful lot to me; I can't see how preventive care deductibles and copays could possibly amount to 200 basis points in losses.

Coventry re-negotiated their Medco pharmacy contract (for their non-workers comp business) and got better terms and an extension, with Medicare through 2015 and commercial a year longer.

On the workers comp front, the loss of a large customer dropped revenue 3%; word is that was the ESIS contract. Management did note that the $1.1 billion in management services/fee revenue is higher margin and provides cash for investment and acquisition activities.

Charles Boorady did ask the only question about workers comp, asking what drove the loss of the large customer - Mike Barr [sp?]is the new manager of the overall services business so Wise deferred to him. WC is an area they're looking to grow, as it is unregulated revenue it is a 'great place to be'. Barr said they lost their second largest group due to a competitive environment, noting there was "nothing specific with WC that created the issue, as a line it runs well." [paraphrase] He went on to note Coventry is centralizing some operations to consolidate especially in areas where there's no network.

Management said that while Coventry lost the overall contract, some employers (likely administered by ESIS) are looking to come back and work directly with Coventry, and Coventry is working on those opportunities. In commenting on the work comp sector, Wise said it is a stable and slightly growing business, it is an accident based business and in tough environment it has continued to add revenue slightly and ebitda a bit. In response to a question, Barr said they lost the business on price.

What are the key takeaways?

Expect Coventry's work comp sector to push hard to increase revenue from existing and add new customers.

Posted by Joe Paduda at 8:09 AM | Link to this post | Comments (0)

A hospital bill for $44 million showed up in Alex Rodriguez' mailbox a couple weeks back.

Although Alex is a resident of New York, he's not "the" A-Rod, but even the A-Rod who wears pinstripes to work at Yankee Stadium would have been hard-pressed to come up with the $44,000,000 ostensibly owed to Bronx Lebanon Hospital.

Of course, it turned out to be a "billing error"...but I'm probably not the only one who didn't think the amount wasn't theoretically possible.

After all, hospitals have been charging patients more and more for the same procedures over the years; the average charge submitted to CMS for Medicare zoomed from around $500 in 1996 to almost $2000 in 2008.

While I haven't heard of a real bill hitting eight figures, I'm sure there've been some that have come close; seven figure bills are much more common than they used to be, with most of my clients getting one or more a year. Carol Gentry of HealthNews Florida reported last year that the estate of a penniless woman was billed $9.2 million by Tampa General Hospital...this case was a mess, complicated by a nasty family dispute, Medicare rules, and legal proceedings.

Here's hoping you aren't the first to get a "real" $44 million bill...

Posted by Joe Paduda at 1:33 PM | Link to this post | Comments (2)

Among the howls of indignation coming from anti-health reform legislators and more strident Presidential aspirants one can often hear the outrage about "faceless government bureaucrats" rationing medical care to our elderly.

(we'll leave aside that many of the howlers are the same ones screaming about out of control Federal entitlement spending...for now).

Turns out those faceless bureaucrats will likely never be seated, as all 15 members of the Independent Payment Advisory Board (IPAB) have to be approved by the Senate. Given the current toxic environment for appointees (see Donald Berwick et al), it's highly likely Senators opposing health reform will do anything in their rather considerable power to block all appointments.

That's unfortunate indeed, as the Board is one of the few real cost saving mechanisms we have. Here's a brief outline of their responsibilities excerpted from an excellent piece in Health Affairs.

- if the Medicare chief actuary finds that the growth rate will exceed [a relatively low] target, the actuary must determine how much Medicare spending growth should be reduced. IPAB will then have to recommend specific steps that will curb the rate of growth in Medicare spending.

- The total amount of the Medicare savings IPAB can propose, and the type of savings, are both limited by law. The total amount of these savings cannot exceed 0.5 percent of total Medicare outlays in 2015; 1 percent of outlays in 2016; 1.25 percent in 2017; and 1.5 percent in 2018 and thereafter.

- IPAB cannot propose any recommendation to "ration" care; raise revenues; increase beneficiary premiums or cost sharing; restrict benefits; or alter rules for Medicare eligibility.

- The law directs the panel to give priority to measures that extend the solvency of the program, improve beneficiaries' access to care, and improve the health delivery system and health outcomes, among others.

- IPAB can propose savings in any part of Medicare, except hospital payments in the short run. [pharmacy is also excluded, much to my dismay]

- Congress has the option of passing alternative legislation, but it must achieve the same results in terms of the magnitude of savings. If Congress does not act, the secretary of HHS is required to implement IPAB's proposals by August 15.

And there you have it - an advisory board that is tasked with doing what Congress can so obviously not do - control Medicare cost growth - without rationing care, reducing benefits, or changing eligibility.

What does this mean for you?

Is there a better way to achieve real cost control in Medicare that has a chance of becoming signed legislation?

Posted by Joe Paduda at 4:04 PM | Link to this post

Do you want to spend more taxpayer dollars on Medicare? For care that is demonstrably more expensive?

That's the question before us, and one that (I hope) we can discuss collegially.

Here's the issue. The House passed legislation that would overturn part of the health reform(known as Section 6001) bill by requiring Medicare reimburse care delivered by new or expanded doctor-owned hospitals. According to the Congressional Budget Office this change would increase federal spending by $300 million over 10 years; undoubtedly private health care costs would also increase, probably by more (cost per day is higher in the private sector).

The bill doesn't prohibit building new or expanding existing facilities, it just affects Medicare's certification of new or expanded facilities. New/expanded physician owned facilities can still get certified but there are very stiff requirements currently in place intended to limit building to areas that are truly underserved.

There's abundant research indicating physician-owned hospitals cost more, treat more, and tout better outcomes because they tend to treat healthy patients with good insurance coverage.

Here's a series of quotes from Economic Trends:

- the entrance of [physician owned hospitals] POHs and limited-service hospitals to communities is associated with significant growth in total hospital volumes and total hospital spending (Lewin Group, 2004).

- In a related study, Mitchell (2007) found that the entry of a physician-owned orthopedic hospital between 1999 and 2004 drove up market area utilization of complex spinal fusion procedures by 121 percent.

By the end of the period, Mitchell concluded that 91 percent of orthopedic procedures were performed in POHs with the residual nine percent being completed by full-service community hospitals. [orthopedics is one of the most profitable areas of care for all hospitals, by removing these procedures from community hospitals the POH reduced the community hospitals' margins and likely drove outcomes down]

- In addition to reducing community hospital utilization, it has been concluded that POHs generate higher costs for health care in an area. For example, an analysis by the Medicare Payment Advisory Commission (MedPAC) found that heart, orthopedic and surgical specialty hospitals had higher inpatient costs per discharge than community hospitals (Lewin Group, 2004).

Yes, construction would generate jobs - in the trades over the short term and in the health care sector over the longer term. That's good - for the investors, owners, and employees.

But these facilities also increase Medicare's costs, while forcing other facilities to cost-shift to private insureds to make up for lost margin.

What does this mean for you?

Depends on what you want: A "free market" or higher taxes and higher group health premiums?

Posted by Joe Paduda at 7:51 AM | Link to this post | Comments (4)

Now that Don Berwick has returned home from Washington, what's to become of Medicare?

The former head of the Centers for Medicare and Medicaid, widely acknowledged as one of the brightest and most effective health care executives in the nation, was only there for 17 months, a victim of politics. That's sad, disheartening, and deeply concerning.

Here was a guy whose life's passion is to improve the delivery of health care; one who founded and turned the Institute for Healthcare Improvement into one of the most effective agents for change in the nation; who, by all reports was doing a masterful job at CMS changing the culture to one of continuous improvement in the quality of care delivered while reducing the cost of that care.

Yet Dr Berwick couldn't get approved by the Senate. He was rejected by Republican Senators who vilified him for such blatant transgressions as:

- complimenting one aspect of the British National Health Service (while ignoring Berwick's pointed criticisms of NHS),

- explicitly acknowledging the US health care system rations care, and calling on politicians to acknowledge that fact as well (a quote remarkably similar to one from GOP Rep Paul Ryan)

These attacks were misguided, politically motivated, and in most instances relied on taking highly selective, out-of-context quotes to misrepresent what Berwick was actually saying.

For those unfamiliar with IHI, the basic premise was to take improvement techniques learned in industry and seek ways to apply them to health care. IHI has had a major impact on all areas of health care; their Improvement Map is widely used and demonstrates the Institute's focus on bringing quality improvement - carefully thought out and rigorously evaluated - to health care.

What bothers me - a lot - about this is politicians decided that demagoguing and scoring political points was more important that reforming Medicare.

What Don Berwick was trying to do was exactly what needs doing - reform CMS to improve quality and strip out unnecessary cost. If we are ever to get health care costs under control, we have to do so by rationalizing what services get delivered, in what setting, by which providers, to which patients. CMS can be, and under Berwick has been, an enormous force for positive change.

The good news - to the extent there is any - is Berwick's replacement is an accomplished, effective health care exec with a long history of achievement. Marilyn Tavenner.

Here's a quote that bodes well for her tenure:
"The only way to stabilize costs without cutting benefits or provider fees is to improve care to those with the highest health care costs."

Here's hoping Ms Tavenner is actually allowed to do just that.

Posted by Joe Paduda at 7:16 AM | Link to this post | Comments (2)

There's going to be a LOT coming out in the next two months about Medicare, so it may help to know a few things about the program to help put it in context.

- We spent over a half-trillion dollars on Medicare in 2010.

- That's fifteen percent of total Federal expenditures.

- 48 million people were covered in 2010.

- The health reform bill (aka the PPACA of 2010) is credited with reducing Medicare costs by by $424 billion (net ten-year savings) over the next ten years, certainly a step in the right direction.

- That equates to a 3.5% annual growth rate - almost two full points lower than projected per-capita growth in private health insurance spend.

- Despite those reductions, costs will get to within whispering distance of a trillion dollars in ten years.

- All those reductions don't come without pain. In fact, Medicare's Office of the Actuary projects Medicare reimbursement rates will be lower than Medicaid's...a result that may well lead to providers abandoning the system.

- Some of that pain may start January 1st, when physician reimbursement is slated for a 29.4% across-the-board cut.

So. We have - on the one hand, huge costs that are getting bigger despite aggressive efforts to slash growth. And on the other, we have consequences that look pretty daunting - dramatically reduced reimbursement that will almost certainly lead to access problems for beneficiaries.

What does this mean for you?

There are no simple, easy, painless answers. Every time you hear someone talking about one aspect of the issue (physician payment, impact on the deficit, access problems, reductions in payments to Medicare Advantage plans) remember there's another side to the issue, another perspective that almost certainly can make a well-founded and reasonable counter-argument.

he super committee and medicare - KFF report on implications

Posted by Joe Paduda at 8:11 AM | Link to this post | Comments (5)

As the economy started to recover and health reform measures began to be implemented in Q1 2011, health plans benefited with increased enrollment. According to industry analysts Mark Farrah Associates, "The Commercial sector saw a net gain of 1.6 million members between December 2010 and March 2011. In comparison, the Commercial sector gained approximately 388,000 between December 2009 and March 2010." The increase contributed to an overall membership gain of 1.1% for the top seven health plans/insurers.

Across all seven health plans, which account for 41% of membership in the country, the news was generally positive especially on the profit side. Profits were up almost across the board, with United HealthGroup enjoying a 7.95% margin and Kaiser, Wellpoint, and Aetna all seeing net profits in excess of six percent. The good news continued in the second quarter; Kaiser saw a sixty-plus percent jump in profits in Q2; Cigna and Humana each had profit increases of more than thirty percent.

The PPACA's requirement that health plans provide coverage for dependents up to age 26 added about 280,000 members for Wellpoint and less than 100k for Aetna over the year ended Marh 2011.

Medicare and Medicaid enrollment also saw gains; Medicaid's increase was a bit more than commercial's at 2.3%. In contrast, Medicaid grew by 13.6% during the recession, which economists consider ran from December 2007 to December 2009.

What does this all mean?

PPACA has already contributed to increased revenues for health plans. Margins are solid across the board and look to be growing.

Membership is also on the upswing, driven partially by governmental programs but primarily by substantial increases on the commercial side.

Overall, it's a good time to be in the health insurance business. That said, there's a very, very different world coming and health plans will need all the free cash they can accumulate to prepare for health reform's dramatic changes to their business models.

Posted by Joe Paduda at 12:12 PM | Link to this post

Five percent of people account for half of all medical costs.

That's true for group health, Medicare, Medicaid, workers comp - pretty much every line of coverage.

You know that, I know that, we all know that.

But what do we DO about that?

Why do most payers use the same generic approach across all members, geographic regions, provider types, disease conditions, employers, when we all know health care is local, people are very different, surgical cases are quite different from medical ones, and non-specific back pain is NOT the same as a spinal injury.

Not surprisingly, there's a strong correlation between obesity (and related conditions) and high cost claims. And half of the patients in the top five percent had hypertension, one-third had high cholesterol, and more than one-quarter had diabetes.

Here's one idea. Identify patients with hypertension, hyperlipidemia, obesity (use BMI) and/or diabetes, and triage them to a clinical resource (nurse) trained in, and equipped to, address their issues. Whether you're in the workers comp, group, or Medicare/Medicaid world, the impact of these unhealthy folks on your results will be mitigated if you pay attention right up front rather than discovering some months down the road that the 'simple bad back' has become a very expensive, long term, chronic pain case.

Posted by Joe Paduda at 8:01 AM | Link to this post | Comments (1)

When Congress reaches agreement on a deal to increase the debt limit, there will almost certainly be parts that significantly affect workers comp. Medicare and Medicaid are on the table, with both likely to lose hundreds of millions in funding over the next ten years.

And as we all know, what happens in Medicaid and Medicare affects work comp via cost-shifting, fee schedule changes, reimbursement rules, and altered provider practice patterns.

It is not a question of 'if' these huge programs are cut, but rather "how much". Accounting for 23% of the Federal budget, Medicare and Medicaid have to be on the table if there's to be any measurable deficit reduction.

Here's what may happen in the ultimate deficit reduction agreement. along with my assessment of potential impact on work comp

- Reductions in the amount Medicare pays hospitals for bad debts resulting from Medicare beneficiaries' failure to pay deductibles and co-payments; right now CMS pays 70 percent of those debts after the hospitals make "reasonable efforts" to collect.
Impact - hospitals will look to increase reimbursement from work comp and other private payers; work comp is usually the most profitable payer for hospitals; I'd expect this to increase.

- Cuts to Medicare payments to teaching hospitals for physician training and other programs.
Impact - more incentive to seek additional reimbursement from work comp

- Allow or require CMS to negotiate directly with pharma for drug prices.
Impact - possible cost shifting to comp as pharma and other stakeholders seek additional funds to offset lower Part D reimbursement

- Reductions in Federal subsidies for Medicaid.
Impact - incentive for providers to cost shift; however Medicaid providers may not treat many work comp claimants so impact may be minimal.

- Give more power to the Independent Payment Advisory Board (IPAB) created by the Affordable Care Act; set a target of holding Medicare cost growth per beneficiary to GDP per capita plus 0.5 percent beginning in 2018.
Impact - possibly positive, as improvements in delivery systems, reimbursement, pay-for-performance, clinical guideline adoption and acceptance, and other tools/processes would help improve care and reduce errors.

- Reduce reimbursement for durable medical equipment (seen any scooter ads lately?)
Impact - lower margins for DME manufacturers and distributors will motivate cost-shifting, however fee schedules may mitigate those efforts. Watch for creative ways around fee schedules and 'upselling'.

Public opinion will help shape the outcome; recent polls suggest the public is more willing to accept some reductions rather than a wholesale overhaul of Medicare and Medicaid. That said, the health industry's various stakeholders are already hitting the phones hard to forestall - or more likely minimize - reductions to their favorite programs.

What does this mean for you?

We're the mouse; CMS is the elephant; keep your head up, watch out for those big feet, and be nimble. Work comp will be affected by the ultimate deficit reduction agreement; success favors the aware and the well-prepared.

Posted by Joe Paduda at 6:42 AM | Link to this post | Comments (1)

The expansion of Medicare to include coverage for prescription drugs was a political masterstroke. In a single move, the GOP won the hearts and votes of seniors. The result was significant - larger Republican majorities in Congress, and re-election for George Bush. (I know, there were a few other issues and a poor candidate at the top of the ticket for the Dems)

That was less than a decade ago.

Now, the GOP has decided on a policy of self-immolation. Paul Ryan's Medicare plan likely cost the GOP a previously safe seat in upstate New York, has led several Republican Senators to vote against the plan, and resulted in erstwhile Presidential contender Newt Gingrich alternately slamming and praising Ryan and his plan.

While GOP loyalists will argue that Ryan's plan is meant to save Medicare, that assertion is false on its face. In reality, it transfers the risk to seniors, a risk that Medicare assumed when it become law in 1964. One can argue as to whether or how much risk seniors should assume; one cannot argue that the Ryan plan will save Medicare.

But that's beside the point.

What Ryan et al forgot was that seniors guard Medicare like momma bears guard their cubs. I find it bizarre that the same party that single-handedly passed Medicare Part D in an effort to win this crucial voting block has pulled a 180.

Part D worked to keep the GOP in power. Ryan's plan may well have the opposite effect.

In fact, this may be worse. Tea partiers - well, at least some folks who seem to share the same agenda - are mad that the GOP passed Part D, seeing it as an unaffordable expansion of Federal entitlement programs (I agree). So, there's a 'base alienation' issue here as well as a senior vote alienation problem.

Ouch.

For more on this, see Bob Laszewski's excellent piece.

Posted by Joe Paduda at 8:17 AM | Link to this post | Comments (2)

There's been a good deal of complaining about the future costs of health care under reform, some of it justified, some not. In particular, the release of the Medicare Trustee's report last week noted that the date when Medicare intake is lower than outflow has gotten nearer due to the poor economy.

There's a misconception here.

Reports indicate "The Medicare hospital insurance fund will be exhausted in 2024, five years earlier than last year's estimate, government accountants now figure." That's NOT what the report says. In reality, the HI fund will not be exhausted, but rather insufficient to pay ALL projected hospital costs. In 2024, it will be able to cover 90%, slowly decreasing to 75% in 2048 than back up near 90% in 2085.

However, even that overstates the problem, as it is highly likely the IPAC's provisions will kick in to reduce costs well before then. I'd also note that the Medicare Actuary predicted reform would add thirteen years to the HI fund's adequacy; the new figures cut that to an eight year addition due to reform.

As Maggie Mahar pointed out:

"Today [last Friday, actually] the Trustees affirmed that "projected Medicare costs over 75 years are about 25 percent lower because of provisions in the Patient Protection and Affordable Care Act." The Trustees highlight one plank in the ACA that will save tens of billions by reducing "the annual payment updates for most Medicare services (other than physicians' services and drugs.)"

Here, the Trustees are referring to the provision in the legislation that shaves Medicare's annual increases in payments to hospitals, skilled nursing facilities, home health agencies, and other institutions by 1 percent a year, for ten years, with the goal of spurring them to become more efficient. This means that if, in a given year, hospitals normally would receive an adjustment from Medicare that raised reimbursements by 3%, under the new law their reimbursements would climb by just 2%. (Note: this provision does not apply to doctors, only Medicare Part A providers.) Over the decade, the Congressional Budget Office estimates that this change will save $196 billion."

This is not to say Medicare's cost problems are nonexistent - far from it. We absolutely have to get costs under control. The ACA is part of the answer; increasing revenues and reducing expenditures are two other parts of the solution. Of course, we can eliminate the need to increase revenues if Medicare starts negotiating drug prices and Congress eliminates some of the dumber provisions of the Medicare Modernization Act.

Posted by Joe Paduda at 7:04 AM | Link to this post

Last week I wrote on how CMS can save big bucks on Medicare expenditures - negotiate directly with pharma for drug prices for Part D, and base reimbursement for devices on effectiveness and efficacy.

Add 'safety' to the list of reimbursement standards.

A post on Care and Cost reinforces the importance of the device issue; contributor Merrill Goozner reports on the 'recall rate' exhibited by devices that passed the FDA's safety review. For the superficial statistician, the figures touted by industry backers sound reasonable - 0.4%, or 4 out of every thousand devices are recalled.

Here's Merrill...

"Put another way, for every million people who get those devices, 4,000 people are subjected to a faulty product whose failure could put their health at risk.

Now let's compare that to the "Six Sigma" quality standards used by manufacturers of cell phones and flat-screen televisions. Six-sigma, for those not familiar with the concept, was adopted by Motorola in 1986 so it could compete with its Japanese competitors. Such firms aim to make products 99.99966 percent defect free. That's 3.4 defective products per million made."

Here's how a researcher stated his case in written testimony: "(Recalls are an indicator of major device problems that have the potential to negatively affect patient safety and/or device effectiveness.) Such results demonstrate that serious device-related safety problems are extremely rare. [emphasis added]

So. A quality rate that is dramatically lower than that deemed acceptable in the cell phone, mail-order pharmacy, or electronics industry is somehow acceptable, even 'exemplary', by medical device manufacturers.

Why?

Posted by Joe Paduda at 6:30 AM | Link to this post | Comments (1)

Coventry's 2010 earnings report is out, and the news was generally pretty good. Revenues are down considerably, but that's due to the company's decision to exit Medicare private Fee for Service; operating earnings are up for the year (from 3.6% of revenues to 5.9% for the year, and 5.4% to 7.8% for the last quarter) and EPS is up nicely as well.

The numbers are a bit misleading, as there were two significant 'one-time' events that greatly affected results. According to the press release;

"These results include a favorable impact from the MA-PFFS product of $0.45 EPS and an unfavorable impact from the previously announced Louisiana provider class action litigation of $1.18 EPS [this is from their workers comp network business]. Excluding the impact of MA-PFFS results(1) and the provider class action charge(2), core earnings for the year were $546.4 million, or $3.70 EPS."

Medical loss ratios (MLR) were down almost across the board, in every product line, with Medicare Part D dropping to 64.7% last quarter. If Coventry's experiencing the same situation as its much larger competitors, the overall MLR improvement appears to be due in large part to lower utilization.

From a strategy standpoint, I'm going to be listening carefully later today when company execs discuss the future. Two deals in smaller, midwestern markets have been consummated, and I'd expect there will be more as CVTY seeks to gain scale in markets where it can compete - read, avoid markets where the Blues, UHG, Aetna, and Wellpoint dominate. Coventry's cash position is quite good, with about $850 million in the bank and other liquid assets. I'd expect some of this will be allocated to deals similar to the Wichita transaction.

More on strategy in a post later this week...

Workers comp

Comp revenues appear to be relatively flat. While not split out separately, they can be tracked in the "Other Management Services" line which also includes rental network revenues.

The total line was up less than one percent year over year, reflecting Coventry's enviable - but limiting - position as the dominant provider of work comp network and related services. According to an informed source, total WC revenues are likely in the $750 million range.

Posted by Joe Paduda at 7:21 AM | Link to this post

Last night the Senate passed a bill postponing the cut for Medicare physician reimbursement that was scheduled to take effect at the end of this year. When signed by President Obama, the 13 month fix will freeze Medicare physician fees at their current level until the end of 2011, ostensibly giving Congress time to come up with a more permanent fix.

If history is any guide - and it almost always is - there won't be a permanent fix; instead Congress will punt once again, primarily because almost any revamp of the fee schedule will require 'officially'; adding over $300 billion to the deficit.

Still, for at least the next 13 months, Medicare and Tricare (military family health insurance) beneficiaries will not be threatened by the possibility of their physicians refusing to accept the fee schedule.

According to Dow Jones, "in order to pay for the extension, the bill contains a change to the recently passed health care overhaul, requiring that individuals repay excess federal subsidies for health insurance if their income rises.

Under the law, the subsidies for people earning up to 400% of the federal poverty level are calculated based on a person's expected earnings. Repayment of those subsidies had been capped at $250 per individual or $400 per family, in the event that income exceeded expected levels. The law passed by the Senate Wednesday removes those caps and replaces them with a sliding repayment scale."

What does this mean for you?

For workers comp, no change is good news, as it ensures there will be little need for states to rejigger their fee schedules to address Congress' whim.

For more discussion of this issue click here.

Posted by Joe Paduda at 2:49 PM | Link to this post | Comments (1)

The one-month Medicare physician payment fix passed the House yesterday and will be signed by President Obama. As Congress is operating under 'Pay as You Go' rules, the additional cost of the increased 2.2% for physicians had to be offset - and physical therapy was picked as the victim. PT will take a big hit - a 20% reduction in Medicare reimbursement.

This umpteen-gazillionth short-term Medicare physician payment fix will expire at the end of 2010, and when it does, Congress will have to either:

a) pass a long term fix, or

b) pass another extension/short term fix.

As loyal readers know all too well, I don't see this ridiculously ludicrous situation getting resolved anytime soon, because a permanent fix will require the fixers to acknowledge a $300 billion (and growing) addition to the deficit. While no one likes the Sustainable Growth Rate methodology, it's a heckuva lot more likeable than having your name associated with yet another addition to the deficit - especially these days.

The Medicare SGR formula/process was set up seven years ago to establish an annual budget for Medicare's physician expenses. Each year, if the total amount spent on physician care by Medicare exceeded a cap, the reimbursement rate per procedure for the following year would be adjusted downward.

And for the last seven plus years, reimbursement - according to SGR - should have been cut, but each year it was actually raised, albeit marginally. The result is a deficit that is now almost 300 billion dollars.

Way back in the early days of this blog, I wrote about what was then a 4% cut and the attendant furor surrounding the issue: "Complicating the matter is the pending 4.3% decrease in the fee schedule slated to go into effect on 1/1/06. If Congress reverses the cut, then 2007 premium and deductible increases will be even higher than projected."

Congress couldn't muster the votes/guts/brains to deal with a 4% cut five years ago, so now we're facing a 25% reduction on 1/1/2011...

So, what's going to happen>

Well, a couple of folks in Congress are pushing for a twelve month extension so they have time to work on a permanent solution. While I admire the intent, I just don't see the Dems and Reps coming together on a solution to such a politically-charged issue.

As I said a couple weeks back, the new Congress is all excited to change the way business is done in Washington.

How they deal with SGR, the $300 billion deficit recognition problem, furious seniors and really cranky physicians will tell us a lot about whether they're serious about making hard decisions, or just naive.

My money's on the latter.

Posted by Joe Paduda at 12:39 PM | Link to this post | Comments (5)

We've all had a few days to digest the recently announced Humana - Concentra deal, and perhaps think thru what this means for Humana, why they did the deal, and if this gives any insight into what other health plans may do.

Perhaps the best one-sentence synopsis of the deal was provided by a Humana spokesperson: "This acquisition is consistent with the goals of health reform".

Here's the slightly longer version.

1. Three million Humana members are located in close proximity to Concentra facilities.

2. Concentra knows how to deliver primary care efficiently. They are also working hard at wellness and health promotion.

3. Health plans are going to be desperate for primary care providers come 1/1/2014, when their membership will explode.

4. Health plans that can keep patients away from specialists, expensive diagnostics, and facilities are going to do very, very well. That can only be accomplished with good primary care.

5. Concentra has very strong relationships with local employers, and solid experience selling to those employers.

I was a little surprised to read some of the financial community's statements about the deal.

For example, AM Best said "This transaction is expected to be a source of business diversification for Humana as well as unregulated cash flows."

This was the lead sentence in their comment on the deal, and while it mentions a couple benefits, I doubt they were the primary reasons Humana decided to shell out almost $800 million. Sure, the cash flow is unregulated, and business is different, but workers comp also faces a structural issue with declining claims frequency and is highly vulnerable to regulatory risk, two factors that would militate against a 'diversification and cash flow' rationale.

Then there was this gem from Marketwatch: "Plus, the company said it was buying privately held insurer [emphasis added] Concentra Inc. in Addison, Texas, for $790 million in cash."

There has also been some speculation that the deal was - at least partially - due to a desire on the part of Humana to buy a provider and thus get around, avoid, or mitigate Florida MLR rules. While this may have been a contributing factor, it is highly unlikely it was one of the top reasons Humana did the deal. Humana already has primary care centers in Florida as a result of the CarePlus deal in 2005 and Concentra doesn't have a lot of facilities in the Sunshine State.

Perhaps Humana is going to add occ med services to the ten or so CarePlus facilities; this would help it's soon-to-be subsidiary and give analysts evidence of that oft-cited 'synergy' thing.

The net is this. Reform is coming, healthplans must drastically change their operating models, and winners will be the ones that figure out how to market to and manage previously-uninsured, and solve primary care.

Humana's got a good start.

Posted by Joe Paduda at 4:37 PM | Link to this post

Yesterday the Senate voted to prevent implemtation of the pending 23% cut in Medicare's physician reimbursement - until December 31. The House will likely do the same.

Then, unless congress passes a bill that fixes - or postpones another cut in the RBRVS, physicians will see their reimbursement slashed.

I've blogged on the stupidity and wastefulness of this so many times I'm ready to sue Congress for carpal tunnel. But my problems are tiny compared to the hassles for docs, billing companies, insurers, regulators, and Medicare patients.

The new Congress wants to fix Washington. What they do about medicare physician reimbursement will tell us a lot about how - and if - they will succeed.

Posted by Joe Paduda at 7:52 AM | Link to this post | Comments (1)

There was a lot of good news for Coventry Health last quarter, much due to what CEO Allen Wise called "unusually low medical trend".

That said, 2011's numbers are not likely to be as robust as this year, and Wise spent a good bit of his podium time discussing the whys and wherefores. While the change in MLR is key, he also noted the company laid off 900 people, has assigned various health-reform-preparation tasks to specific groups, and is hiring (or has hired) three execs to focus on specific functions. Coventry is also working hard to adapt by forming partnerships with provider groups and investing in care management.

As it must.

In his opening comments, Wise noted the company's 'cost structure' will enable Coventry to compete effectively when medical loss ratio requirements are instituted in 2011. MLR will be critical going forward, and if this year's numbers are any indication, Coventry may have a problem - they're too profitable. The commercial group operation's premiums and membership were up, while the MLR was kept at a strong 78.4%. Wise' sense is that medical trend will remain in the eight percent range. Depending on what the final regulations count as 'administrative expense', Coventry may be faced with a need to lower prices as it may be 'too profitable'.

(Ed note - this MLR requirement is going to be a major pain in the neck for all parties - insurers, consumers, regulators, bloggers. I'm still at a loss as to understand how this is going to help control cost; I can see it adding a lot of administrative cost, which will decrease profitability even more...)

In discussing what has now become a major change in direction and emphasis for the mid-tier healthplan operator. Wise spoke at some length about Coventry's strategy to acquire small provider-owned health plans, thereby gaining share in secondary and tertiary markets while solidifying relations with delivery and health systems. Here's an excerpt from his comments.

"Our two acquisitions in 2010 are more than revenue and membership. It's about our future cost structure and more important, our ability to improve care for members and develop long term strategic relationships with high quality health systems. I think it's worth a minute to stay with this topic. We feel the best way to care for members and provide the best value proposition is by having collaborative relationships with provider systems and physicians and working to develop affordable products.

These relationships are rooted in collaboration, including shared incentives, quality incentives, data sharing, and in some cases, more focused networks. We have and will continue to build these types of relationships whether as a part of an ACO model, medical home, or variation of both. We believe we're able to offer our provider partners creativity, flexibility, and local market commitment, whether it's part of an acquisition or a contractual collaborative relationship or both, in some cases."

Coventry appears to be seeking to carve out a niche, or perhaps more accurately develop a business strategy based in part on acting as the plan administrator for local health systems.

This is an interesting strategy, and one that may position Coventry well for the future. However, the company may find there just aren't that many smaller regional health plan acquisition targets, there will certainly be other plans following the same strategy, and margins may not be very attractive in what may be a commodity, transaction-processor business.

While there was solid growth overall, the company's organic growth was less than one percent, only the second quarter of growth since the end of 2007. There were other mentions of growth, but they were a little puzzling; for example, Wise actually noted the company had added 47 people to their Nebraska Medicaid plan...

Coventry looks to be entering the care coordination business as well in at least one market, although details were scarce.

The company's workers comp business was mentioned a grand total of once during the call, and then only in passing as the market leader.'

Posted by Joe Paduda at 7:00 AM | Link to this post

The Wall Street Journal has an excellent report on the key step in determining Medicare physician reimbursement.

Here's the intro:

"Three times a year, 29 doctors gather around a table in a hotel meeting room. Their job is an unusual one: divvying up billions of Medicare dollars.

The group, convened by the American Medical Association, has no official government standing. Members are mostly selected by medical-specialty trade groups. Anyone who attends its meetings must sign a confidentiality agreement.

Yet the influence of the secretive panel, known as the Relative Value Scale Update Committee, is enormous. The Centers for Medicare and Medicaid Services, which oversee Medicare, typically follow at least 90% of its recommendations[emphasis added] in figuring out how much to pay doctors for their work. Medicare spends over $60 billion a year on doctors and other practitioners. Many private insurers and Medicaid programs also use the federal system in creating their own fee schedules."

The link probably expires tomorrow, so read it now, or print and read it on a plane later.

thanks to Advisen for the tip.

Posted by Joe Paduda at 8:52 AM | Link to this post | Comments (1)

Coventry earnings call this morning was notable in at least two ways - more discussion about underlying cost drivers, utilization trends and management thereof, and the growing importance of low cost delivery systems from management.

And more evidence that (most) financial analysts don't understand this business.

Here's my view on the takeaways from the call.

The per-share earnings charge of $1.18 (from work comp PPO litigation in Louisiana) was the subject of a good deal of discussion during Coventry's Q2 2010 earnings call this morning, but has to be considered in the context of the overall solid performance of the company.

Coventry actually increased guidance for the full year, marking another improvement in financials for the company that has been on a steady upward trend since CEO/Chair Allen Wise resumed his post a year and a half ago.

Commercial group membership grew nicely, while MLR (medical loss ratio) guidance decreased for the entire year. Coventry expects medical costs to increase in the second half of 2010, consistent with past experience.

In the prepared remarks part of the call, management diiscussed the implications of health reform, asserting the company's recent results show it is well prepared for reform as it is able to control MLR while maintaining membership and expanding the company's footprint in selected markets (the Mercy deal is an example)

The company's statement noted Wise's enthusiasm for results and performance of the company's clinical management programs.

Clarity around MLR regulations was the first question - unsurprisingly, given the new regulations regarding limits on insurers' administrative and other fees. Wise noted that the cost structure in one market in particular was going to improve by shrinking the company's network, selecting more cost effective delivery systems/health systems. This marked a significant change from calls as recently as last year at this time. Coventry is clearly seeking to partner with more cost efficient health systems; as Wise put it, 'we need to stop fighting over nickels and focus on overall costs'. [paraphrasing]

This was followed by a question about health plan utilization trends - overall utilization appears to have tapered off industry-wide, the question is why? Wise admitted Coventry doesn't know, although they've spent a lot of time looking at this and their preliminary conclusion is the high deductibles and copays are leading to lower utilization, coupled with expiring COBRA benefits for some employees laid off quite a while ago.

Going forward, Wise sees the market as getting more competitive, making customer service and managing the little things critical to survival and success.

Wise thinks the group health product pendulum has swung back to mid-eighties model where networks are smaller, there's less choice, and better control over cost and utilization. Coventry's going to offer products with smaller networks based on provider systems with documented better outcomes and lower costs. They will preferentially look to buy provider-owned plans as they tend to have better cost structures than non-provider-owned plans. The analyst who asked the question wasn't particularly interested in what Coventry was doing, but rather focused on pricing implications given the MLF regs coming out shortly.

That's another example of how most of the analysts following this business are out of their depth. The real issue, the key to success, for Coventry and every other health plan, is how they are going to compete in a post-reform world. Price is a result of cost structure, and the failure of the analysts to focus on cost and cost drivers shows how disconnected the analysts are.

Another analyst asked if other health plans are pursuing similar acquisition strategies. Wise noted that there just aren't that many potential acquisition targets that have good cost structures, fit geographically, and are provider-owned.

The company will be revamping its individual health product offering - in response to a question, Wise noted that the company's distribution, IT, and benefit design are all works in progress, and there's still a ways to go.

More to come after I review the transcript

Posted by Joe Paduda at 9:27 AM | Link to this post | Comments (1)

Today's Kaiser Health Tracking Poll contains interesting data about support for health reform (steady positives, declining negatives), what's much more telling is the extent of seniors' a) ignorance of basic facts about health reform and b) widespread belief that reform includes death panels and cuts Medicare benefits.

Yikes.

According to Kaiser, "Half of seniors (50%) say the law will cut benefits that were previously provided to all people on Medicare, and more than a third (36%) incorrectly believe the law will "allow a government panel to make decisions about end-of-life care for people on Medicare."

These are both factually incorrect.

Moreover, "Despite the fact that Medicare's actuaries predict the health reform law will extend the life of the Medicare Part A Trust Fund by 12 years (from 2017 to 2029), only 14 percent of seniors know this and nearly half (45%) of seniors think the health reform law will weaken the financial condition of the fund.
"

There are several ways to look at this.

The power of the anti-reform noise machine is truly impressive; death panel myth promoters are clearly effective in getting people to believe their claims, despite widespread debunking of the claim by multiple independent organizations. (One well-respected organization, Politifact.com (run by the St Pete Times, a terrific newspaper, called it "pants on fire false).

Then again, it's hard to underestimate the ignorance of the American public; we're talking about a country where 43% of the population doesn't believe in human evolution...

Seniors tend to vote in higher percentages than the rest of the population, so their concerns about reform, based at least in part on ignorance of the actual reform bill and its provisions, may well have a disproportionate impact on the election this fall.

Closer to home, health plans and insurers have to take note of these poll numbers and consider the impact on their own members.

As health plans increasingly emphasize provider network selection based on quality and outcomes data; rigorously employ evidence-based medical guidelines; and get tougher on experimental and unproven medical procedures and therapies, they are going to be exposed to the same type of fear-mongering from idiots using the public's ignorance and fear to gain notoriety.

What does this mean for you?

Health plans must - and I mean must - develop and implement programs to stay on top of the public's perception and opinions about them. Call it opinion monitoring, social network monitoring, complaint management, whatever, but do it. But this will only work if you proactively educate members and the markets about what you're doing and why. Otherwise it's purely defensive, will appear so, and will be little help when the stuff hits the fan.

Which it always does.

Posted by Joe Paduda at 9:32 AM | Link to this post | Comments (8)

Several clients have asked for more detail on how the reform bill will change Medicare reimbursement for physicians and other non-facility providers. Here's the synopsis.

First, note that this pertains only to reimbursement changes contained within the reform bill. There are a host of other initiatives, ideas, pending changes, and reimbursement 'tweaks' outside the bill that will also impact reimbursement.

Reimbursement for primary care services - provided by some internists, family practice docs, pediatricians, PAs, and nurse practitioners - will increase 10% between 2011 and 2015. After 2015, the increase - which is described as a 'bonus' - will theoretically expire.

The key word here is 'some'.

To get the increased compensation, 60% of the provider's charges for services over the last (to be determined) months/years must have been for primary care.

There's also more funds for some general surgeons - a 10% bonus if they provide 'major surgical procedures in health professional shortage areas".

That's it for the easily described changes. Now here's the more complex.

1. Bundled payments - there's a national pilot program authorized under reform that would allow for bundling of payments for an entire episode of care, as opposed to the current fee for service (FFS) methodology. Under this scenario, a group of physicians, ancillary care providers, and facilities would get paid a flat amount for a specific condition/diagnosis.

2. Post 2014 and the Independent Payment Advisory Board - Starting in 2014, the IPAB would be required to recommend specific Medicare spending reductions in any year in which Medicare's per capita cost growth rate exceeded a specific target. IPAB's recommendations are more than just idle talk; they would become law unless Congress passed an alternative proposal that resulted in identical savings. Some provider types are excluded for a limited time (this is too deep in the weeds to go into here).

There's more in the bill, but it is for very specific services, types of providers, and geographic areas yet to be identified - in all, few providers will be affected.

For more detail on the bill's impact on reimbursement, click here.[opens pdf]

What does this mean for you?

Remember this is just the reform bill - it is highly likely other changes driven by other bills, regulatory changes, and miscellaneous factors will have as much - if not more - impact.

Posted by Joe Paduda at 7:51 AM | Link to this post | Comments (2)

With the Senate's passage of a bill preventing cuts to Medicare physician reimbursement for another six months, we're only waiting on the House's action to boot the problem further down the road, where it can grow, and fester and frustrate just in time for the New Year.

That said, it isn't all bad news. The good news is the (short term) fix is paid for, it was the product of bipartisan action, and, for docs, it increases reimbursement by a touch above two percent.

With that said, this is so illuminating and so frustrating on so many levels, that it is worth exploring in detail.

First, the House may not pass the bill. Speaker Nancy Pelosi (D CA) has said that she's got big problems with the narrow fix as it doesn't address the House's priorities in other areas including jobs and unemployment extension.

If the House doesn't pass the fix early this week - like before Wednesday - expect physicians to go ballistic. CMS has already told their bill payers to start cutting checks to docs reflecting th 21% cut; each day that passes before those cuts are rescinded will increase the level of anger among physicians, which is already close to an all-time high.

Second, 'fixing' the current Medicare physician reimbursement price-setting process (known as the Sustainable Growth Rate (SGR) for the methodology in place today) will require Congress recognize a quarter-trillion dollar addition to the deficit.

Ouch. Hard to see how any politician will explain that to their constituents at a Town Meeting. Let me see, "Well, Mr X, in order to understand why I voted for a quarter trillion dollar addition to the deficit, let me explain how the SGR contributes to medical price inflation..." Can't wait to see the headlines on FauxNews on that one...

Third, as I noted last month, "there's an inherent problem with the SGR approach - SGR attempts to use price to control cost. The complete failure of the SGR approach to control cost is patently obvious, as utilization continues to grow at rapid rates. This was a problem four years ago, and its done nothing but get worse. Not only does the RBRVS/SGR approach contribute to cost growth, it also 'values' procedures - doing stuff to patients - more than listening to them."

As Gail Wilensky wrote, "The primary problem with the SGR is that while it can control total spending by physicians (assuming it is actually implemented), it does not affect nor is it driven by the volume and intensity of spending of individual physicians. In fact, there is some concern that expenditure targets may actually exacerbate the incentives for individual physicians to increase the volume and intensity of services they provide." [emphasis added]

Fourth, changes to Medicare physician reimbursement will impact group, Medicare Advantage, Medicaid managed care, and workers comp - both directly and indirectly. Many network contracts are based on or reference RBRVS, so changes to RBRVS can result in alterations in network reimbursement. The indirect impact may be more significant, as physicians alter practice and billing patterns to address revenue shortfalls and opportunities. With eventual cuts in reimbursement for surgeries and imaging likely, payers will have to carefully monitor practice patterns if they are to stay on top of potentially problematic trends.

Finally, Congress is indeed in a 'fix'. Caught between the Scylla of budget deficits and Charybdis of an enraged and engaged physician community, it decided to prolong its agony until after the fall elections, in hopes that passage of a more permanent solution will come so early in the 2012 election cycle that other issues will overshadow it by the time the voters hit the booths in November 2012. That, and the Democrats may well be thinking they are going to lose a bunch of seats in both houses this fall, so any post-2010 election solution to SGR/RBRVS will require the Rs to make policy and not just hurl bricks. It's one thing to point out problems, it is entirely another to come up with solutions, especially when any foreseeable solution will anger a powerful constituency.

What does this mean for you?

Watch what happens this week in the House. It will be a lesson in civics, if not civility.

Posted by Joe Paduda at 7:12 AM | Link to this post | Comments (1)

Congress and the White House are working to come up with a fix for Medicare's big-and-getting-bigger physician reimbursement (RBRVS) problem. And as I've been saying for months, when (not if) this happens, it will have dramatic effect on health care delivery, health care costs, and insurance premiums for work comp, group, and (obviously) Medicare and Medicaid.

Briefly, the change will increase reimbursement for primary care/cognitive services/99xxx CPT codes and slightly raise payments for surgery, radiology, and similar services. The changes occur over time, with a 1.3 percent raise this year plus another 1 percent in 2011. In 2012 and 2013, primary care and preventive services get an additional raise equivalent to the increase in the gross domestic product at the time plus 2 percent, non-primary care would see a raise of GDP plus 1 percent.

The reasons Congress must address Medicare physician reimbursement are twofold; docs are increasingly dropping out of Medicare, and the current SGR process (Sustainable Growth Rate, the methodology in place today that determines what Medicare pays docs) is both responsible for that problem yet 'fixing' SGR will mean Congress has to recognize a quarter-trillion dollar addition to the deficit.

It's not quite that straight forward, but pretty close. For those who want way more detail, read this.

What is clear is that Congress has to act; what's holding up resolution now is the GOP wants the fix to be deficit neutral, while the Democrats don't. This will get resolved this week or early next (the current fix expires May 31) but there will be plenty of political point-making over the next few days. How they handle the budget issue, while significant in the large scheme of things, is a longer-term problem. Over the near term, payers and providers will have to figure out how the revisions will impact the industry.

Here are a couple scenarios to ponder.

Work comp - I discussed this in detail a couple weeks ago; the net is 33 states base their WC fee schedule on RBRVS, the key word being 'base'. A few directly tie their fee schedule to RBRVS, but most adjust the conversion factors, alter the RVUs, add a multiplier, or otherwise tweak RBRVS. And, some states do this thru the regulatory process, while others require legislative action to make significant changes to their fee schedules.

As a result, the state-level implementation of any changes CMS/Congress makes to RBRVS is unclear, state-specific, and politically influenced.

Group - Many network contracts are based on Medicare's RBRVS; if the Feds change, provider compensation will too. Think about the potential impact, and think deeply. The trickle-down will likely cause specialists to seek higher network reimbursement for two reasons - first the base from which their reimbursement (RBRVS) has declined, and second, they'll want to make up their lost revenue from Medicare by increasing reimbursement from private payers.

Finally, there's an inherent problem with the SGR approach - SGR attempts to use price to control cost. The complete failure of the SGR approach to control cost is patently obvious, as utilization continues to grow at rapid rates. This was a problem four years ago, and its done nothing but get worse. Not only does the RBRVS/SGR approach contribute to cost growth, it also 'values' procedures - doing stuff to patients - more than listening to them. Sure, the changes will somewhat address that issue, but only somewhat. And we'll still be stuck with a system that almost entirely bases physician compensation on paying for procedures.

And the more procedures that are done, the more docs make, and the higher costs are.

Pay attention to the news on this change, and think thru the long term impact on your business.

Posted by Joe Paduda at 11:58 AM | Link to this post | Comments (2)

As CMS seeks to ensure taxpayers don't pay for care due to comp, liability, or other causes, Medicare Set-Asides will become more common. And as we've seen recently, one of - if not the - biggest cost areas is pharmaceuticals.

NCCI's studies show that the older claims are, the greater percentage of spend is for drugs, which can account for as much as forty percent of spend in older claims. That, and the recent news that CMS is revising its position re some issues related to projecting future drug costs, have brought much-needed attention to this issue.

My read on the drug-cost-projection issue is simple: to a large extent, the problem is self-inflicted by the work comp industry. With some notable exceptions, most payers have simply not done enough to manage the long term drug therapies of their long term claimants. Understanding that in some states this can be problematic; that many claimants have legal representation; that evidence-based guidelines and research on the science of pain is not as robust as we'd wish; and that patients drive much of the decision making and big pharma has huge dollars to influence physicians and consumers, there's still much that can be done.

Here, in no particular order, are a few strategies worth considering.

1. Partner with a PBM that has a strong clinical orientation coupled with data mining expertise.

2. Motivate adjusters and case managers to identify potentially problematic drug usage and give them the tools and clinical back-up to do something to forestall issues.

3. Put in place early warning processes and flags to identify claims that appear to be heading towards questionable drug use or use of medications with uncertain benefits for the comp injury.

4. Assess the various evidence-based clinical guidelines and determine if they can help your claims staff.

5. Identify physicians with appropriate and potentially inappropriate prescribing patterns, assess those patterns, and determine how best to use that information to direct claimants and 'mange' physicians.

6. Encourage treating physicians to use opioid contracts and drug testing in their normal course of practice.

Most importantly, be proactive. Don't whine, complain, and blame the system, pharma, bad docs. They all may be contributors, but blaming them doesn't solve the payer's problem - action does.

What does this mean for you?

Addressing drug usage early and intelligently can dramatically reduce MSA settlement costs. Oh, and it can certainly help cut indemnity and reduce disability duration as well.

Posted by Joe Paduda at 8:23 AM | Link to this post | Comments (1)

My post on Monday about the internal memo released by CMS regarding MSA allocations triggered a round of name-calling, motive-assumption, and general nastiness by people in the MSA business furious that I awarded PMSI much of the credit for the change.

That, and/or the change has been described as not material and raising more questions.

Here's how I put it Monday.

"[MD Kent] Takemoto has been working with CMS for over a year in an effort to revise/revamp/redo the methodology used by CMS to calculate/estimate drug costs in Medicare Set-Aside allocations.

After multiple meetings, lots of analysis (both mathematical and scientific) of drugs commonly used in comp v drugs not commonly used, drug substitution, and plenty of persistence Kent's efforts have borne fruit...The methodology developed by PMSI and approved last week by CMS is a major step in the right direction."

I was contacted by several individuals who claimed that they or their organization were at least partially responsible for the revision; I asked each to provide documentation of their activity, noting I'd "be happy to amend my post if necessary." I'd hasten to add that some correspondents were professional and courteous; others engaged in name-calling and inferred I wrote the post to somehow ingratiate myself with PMSI, or because PMSI is a client, or was somehow duped by PMSI.

Let me address each in turn.

Name-calling - either grow up or shut up.

Clients - As long-time readers are well aware, I ALWAYS note when a client is mentioned on the blog. Therefore, insinuating that I wrote this to aid a client is flat out wrong.

Marketing - I have written complimentary posts about numerous companies and organizations that are NOT clients, including Aetna, Harbor Health, Broadspire, SRS, Progressive Medical, Mitchell, Medata, Datacare; heck, I've even written nice things about Coventry. Inferring that I wrote the post to schmooze PMSI, a company I've taken to task rather bluntly in the past, reflects poorly on those who would make that inference.

Duped - There's ample evidence that PMSI did, in fact, help CMS develop solutions to several key issues, solutions that will help the entire industry. Yes, this will certainly help PMSI, as their methodology was approved by CMS; it will also help payers, PMSI's competitors, and CMS over the long run.

As I stated in the original post, the CMS memo came "After multiple meetings, lots of analysis (both mathematical and scientific) of drugs commonly used in comp v drugs not commonly used, drug substitution...". I've seen research documents, email correspondence, visitor passes, and other materials pertaining to PMSI's efforts. It is abundantly clear that PMSI and Takemoto expended a lot of effort and brain power to develop a solution.

I spoke with PMSI CEO Eileen Auen about this (Auen is a highly respected and very well regarded executive and a person for whom I have the utmost regard). She verified my understanding of the research and analytical work put into the problem by PMSI, noting the level of effort was commensurate with the result. But what Auen really wanted to focus on was the positive impact of the revision on all payers, and her desire to see the industry working more closely together on this and other issues. As Eileen told me, "others have also worked to advocate for change - we applaud their efforts. Perhaps the lesson out of this, is that the MSA industry should find ways to collaborate more closely (like we have in Pharmacy and Ancillary Service) to drive an industry agenda."

I asked two of my critics to provide me with documentation of their role in effecting this change at CMS. One said they wouldn't as PMSI is an HSA client, the other said they would provide such documentation but as of this moment has not.

I've no doubt that many individuals and organizations spoke to CMS, sent letters, complained, called, sent emails, and met with individuals at CMS about issues related to MSA allocation calculation bases and methodology. Their efforts and attempts to resolve a very difficult issue are laudable. If any of them played a material role in effecting this change, they have yet to share evidence of that role with me. If and when they do, I'll review it, give credit where credit is due and write it up for your reading pleasure.

Until then, I stand by my post.

Now - could we please get back to work?

Posted by Joe Paduda at 9:59 AM | Link to this post | Comments (5)

Coventry released its Q1 2010 financials today, and looking at the numbers one would have to be a naysayer to find fault. The company is successfully exiting the Medicare Private Fee for Service business, growing its Medicare, Medicaid, and Part D revenues, and has also seen an increase in commercial membership.

From a financial perspective, earnings are on a solid path and guidance is up over previous numbers. Medical Loss Ratios are well under control across all products, reserve development has been positive, enrollment in governmental programs is strong, and commercial membership is up by a bit.

While one would think it's all good, I'm less sanguine.

Commercial membership was up due to an acquisition in Kansas, a region of growing interest at Coventry. Same store growth was actually negative by 20,000 members - not surprising given the economy, but nonetheless something to watch.

MLRs are being 'managed' more by rate increases than by 'managing' the medical; while Chairman and CEO Allen Wise talked a bit about the need to be the low cost provider, there wasn't much - if any - discussion of exactly how Coventry was going to do this beyond identifying good providers and narrowing their networks to focus on those providers.

That's all well and good, but any health plan can figure out who the 'good' providers are and strike a deal, and many of Coventry's competitors are quite a bit larger, have lots more members, and therefore have greater leverage.

The skills, assets, and capabilities a health plan will need to survive and prosper in the future are fundamentally different from those that Coventry has deployed so adroitly in the last few quarters. Successful healthplans will be those with:

- market share that enables them to negotiate from a position of strength in each geographic market

- a strong, positive brand image in the employer and individual sectors

- skill and deep knowledge in medical management, including data mining and especially chronic care management

Less successful healthplans will:

- not be among the market leaders in their geographic targets

- have long and highly successful traditions of risk selection and underwriting, attributes that are of far less importance in the brave new post-reform world

- be late to the medical management party, with a culture more akin to the old indemnity insurance companies than a true Health Maintenance Organization.

When you step back and look at what's made Coventry's resurgence possible, it's fairly simple - getting out of unprofitable businesses, risk selection and underwriting, careful management of the Medical Loss Ratio through pricing.

All valuable and necessary, but not nearly as important in the future as brand, share, and medical management

So what's the future hold for Coventry?

Corporate culture is brutally hard to change, and Coventry's culture is built on risk selection, tough price negotiation with providers, and an intense focus on the numbers. While one would think these are assets in any market and some of those skills are indeed critical in any market, some will actually be counterproductive in the post-reform world.

Despite what Coventry's leadership says, and I'm sure believes, Coventry is not now, and will never be, the low cost supplier in most of their markets - they just don't have the negotiating leverage with providers. In the past this was OK; what they didn't have in buying power they more than compensated for with admirable skill in risk selection.

Coventry appears to be working closely with Wichita Kansas health care system Via Christi; owners of the HMO just bought by Coventry, and the provider for a new Medicare Advantage product offered by Coventry as well. If Coventry is going to be successful they are going to have to build lots of similar relationships fairly quickly. I would be remiss if I didn't note that Coventry's HMO/PPO share in the state is second (at 19%) to the Blues at 37%.

That skill will be of very little value in the future.

Posted by Joe Paduda at 7:06 AM | Link to this post | Comments (3)

Recently NCCI released a white paper entitled "Medicare and Workers Compensation Medical Cost Containment". The report goes well beyond a discussion of the relationship between Medicare's physician and hospital reimbursement policies' impact on workers comp; not that it doesn't address that timely topic in some detail, but it also details the unforeseen implications of using Medicare reimbursement, the impact of the growing Medicare deficit on future health care, and the demographic factors and how they are felt differently in work comp and Medicare.

Ok, pretty geeky stuff I'll admit, but interesting nonetheless. (wait, isn't that contradictory?)

Here's my summary of takeaways you should know.

The Center for Medicare and Medicaid Services (CMS) projects health care as % of GDP will go up one full point to 17.6% this year, driven by a declining economy while the demand for health care decline. US health care costs continue to be the highest in the world, by far.

Unlike group health, there's an increasing disparity between Medicare reimbursement for specialty care, sx and radiology and Work comp fee schedule rates. Comp pays relatively more than group for these services.

One of the (many) issues inherent in basing WC on Medicare is that Medicare rates change for reasons specific to Medicare. As an example, the adoption of changes due to the budget neutrality factor legislation in 2008 changed the basic formula used in setting physician reimbursement. The changes increased relative value units (RVUs) and decreased conversion factors (CF). For those WC states that only adjust CFs, this may well have unintended consequences. The NCCI report stated "simply updating CFs for inflation and not offsetting the RVU change will give MARs that are about 8% higher than is likely to be intended."

One conclusion in the study really stood out: CMS says the vast majority of Medicare patients "have access to specialty care, so it follows that many wc specialty care MARs (fee schedules) are well above what is needed to assure access [for wc patients]".

As an example IL work comp pays 450% of Medicare, AK 510%, CT 360% for surgery.

That does raise a question: If most reimbursement for WC is below the WC fee schedule, does that not at least partially negate the importance of the FS as a price setting mechanism?

Finally here's another finding worthy of consideration. The percentage of comp medical costs subject to physician fee schedules has declined from 58% in 2001 to 53% in 2006 (+/-). And, more and more procedures are being done on outpatient basis, and many states don't have outpatient reimbursement schedules that have limits on utilization or even address it like Medicare's methodologies do.

What does this mean for you?

Watch what happens with Medicare. Closely.

Posted by Joe Paduda at 7:28 AM | Link to this post

As industry insiders have known for almost a year, Average Wholesale Price as published by First DataBank, is going away. Triggered by a settlement in a lawsuit filed in Boston in 2006, as of March 2011 FDB will no longer publish their version of AWP. (There's a bit of disagreement as to timing, as one authoritative source indicates FDB is scheduled to discontinue the publishing of AWP in October 2011 (not March). I'll find out what I can find out)

Regardless, FDB's publication of AWP is going to cease. Sources indicate the National Association of Chain Drug Stores (NACDS) is suggesting a move to a new pricing methodology based on Wholesale Acquisition Cost, or WAC.

What's with WAC?

WAC is the manufacturer's list price for drug wholesalers and direct purchasers, excluding prompt pay or other discounts. (Note WAC may not bear much resemblance to the actual price paid, a problem it shares with AWP...)

NACDS and drug retailers would like to see a conversion to WAC; in fact NACDS has been advocating WAC for at least five years. WAC is generally accepted in broad swaths of the payer community; around ten states use WAC in their Medicaid pricing; the huge TriCare program is also WAC-based.

Here's a bit of history.

The original legal case rested on FDB's selection of McKesson as the sole source of drug pricing data. FDB's AWP was based on the actual price that McKesson paid for the drug, plus a margin. For years the typical margin was 20%; six years ago McKesson changed the margin to 25% to make it 'simpler to administer pricing internally'.

The price increase also earned McKesson points with its customers, retail pharmacies, who saw an immediate increase in profitability - profits on Lipitor immediately jumped three-fold after the 2002 increase. As part of the settlement in the 2006 case, FDB agreed to stop publishing prices two years after the finalization of the settlement (which is March of next year).

As cognoscenti are well aware, the suit has already had repercussions. On September 26, 2009, First DataBank and MediSpan, the firms that publish Average Wholesale Pricing tables changed their methodology to revert to the 20% margin, thereby reducing the drug's AWP cost by almost four percent.

Wait, it gets more complicated. FDB is not the only publisher of AWP, and AWP, as published by RedBook and MediSpan, may be around in some markets for a while. The case for the persistence of AWP is that it is broadly used today, and RedBook and Medispan have not been charged with the kind of pricing manipulation that led to the FDB settlement.

Conversely, for some time AWP has been disappearing in generic pricing, where it is being replaced by MAC (maximum allowable cost), FUL (Federal upper limit), and other methodologies that seem to provide a more objective and less fungible baseline.

There's another reason AWP may be on life support; it is broadly reviled as few payers believe, and with good reason, it has any real objective basis.

Implications for workers' comp

As I reported several months ago, work comp regulators are wrestling with the issue, as 33 states base their work comp fee schedule on AWP (California doesn't). Where they end up will be heavily influenced by the metric chosen by group/Medicare/Medicaid; drug spend in comp is about 2% of the nation's total bill of $220 billion.

Posted by Joe Paduda at 7:25 AM | Link to this post | Comments (1)

I've been working with a mid-sized self-insured employer on their health benefits plan; they got hit hard with costs from diabetes last year and the (relatively thin) data available suggests it's going to get worse in the near future; there are many more individuals at high risk for diabetes (among other ills). If they don't do something to reduce their employees' risks, their costs are going up, and fast.

While muddling thru the data, we all agreed that if we all exercised, maintained a reasonable weight, ate healthy foods and amounts, drank in moderation, and didn't smoke, their costs would be much lower; heck, as a nation there'd be no health care financial crisis.

Good luck with that.

Alas, we're getting fatter, lazier, and many of us are getting sicker as a result. With so much of our health care budget spent on lifestyle-driven diseases, it's increasingly obvious that getting people to change behaviors - stop smoking, reduce their drinking, get off their duffs and get out for a walk/ski/cycle - would go a long way to reducing expenses.

So I've been investigating motivational techniques and results, looking for ways to help my client get their employees to make long term commitments to healthy behaviors/ There's been lots published about this; Employers try to motivate healthy behavior by paying for gym memberships and smoking cessation, reducing premiums for employees who earn points for maintaining healthy weight levels, and hire fitness and health promotion experts to staff their wellness centers. These efforts have had some positive effect, but only on the margins.

Turns out the positive, reward-based motivation may well be misdirected. Instead of rewarding people for good behavior, the evidence suggests that penalizing them for 'bad' behavior by taking something away is much more effective.

Here, from a brief piece in The Economist:

In a new paper Tanjim Hossain of the University of Toronto and John List of the University of Chicago explore a real-world use of these insights. The economists worked with the managers of a Chinese electronics factory, who were interested in exploring ways to make their employee-bonus scheme more effective. Most might have recommended changes to the amounts of money on offer. But Mr Hossain and Mr List chose instead to concentrate on the wording of the letter informing workers of the details of the bonus scheme.

At the beginning of the week, some groups of workers were told that they would receive a bonus of 80 yuan ($12) at the end of the week if they met a given production target. Other groups were told that they had "provisionally" been awarded the same bonus, also due at the end of the week, but that they would "lose" it if their productivity fell short of the same threshold.

Objectively these are two ways of describing the same scheme. But under a theory of loss aversion, the second way of presenting the bonus should work better. Workers would think of the provisional bonus as theirs, and work harder to prevent it from being taken away.

This is just what the economists found. The fear of loss was a better motivator than the prospect of gain (which worked too, but less well). [emphasis added] And the difference persisted over time: the results were not simply a consequence of workers' misunderstanding of the system.

What does this mean for you?

For managed care companies and employers, think of basing benefits on a plan with relatively modest employee coinsurance/contribution level, adjusted upwards for failure to comply with health standards. Yes, there will be complaining about what constitutes lifestyle issues v genetics, and how it may be unfair to penalize this or that lack of compliance, but while you're dickering around with these points, your costs are continuing to escalate.

Posted by Joe Paduda at 7:57 AM | Link to this post | Comments (5)

The chances of some variety of health insurance reform passing are looking more likely and big pharma is getting ready.

By raising branded drug prices nine percent (so far) this year., and this at a time when the Consumer Price Index fell by 1.3%.

You may recall the big press event when pharma and the White House announced their 'agreement' whereby pharma would agree to not fight reform in exchange for reductions of about $8 billion a year in pharma costs. That deal is either off the table, or it wasn't carefully enough crafted on the front end, because drug companies have been steadily raising prices for brand drugs this year, evidently in anticipation of big changes in the future. In fact, it looks like the increase so far this year more than compensates for the agreed-upon 'cuts' announced earlier.

Readers will remember the last time drug prices jumped significantly was just after the Medicare Part D program went into effect, when the largest quarterly increase in years just happened to coincide with the beginning of the program.

There are political as well as practical implications of these price increases. From a political perspective, pharma may be doing to itself exactly what healthplans did with the disastrous release of the PwC 'report'. Health plans thought they had a deal with the Administration, only to infuriate the White House and Congressional Democrats with the flawed and incomplete 'analysis' (even though the concept was right and conclusions accurate, the presentation killed any chance of objective consideration).

With the release of this analysis, Congressional Democrats have yet more evidence of the profit-driven mentality that many believe is directly responsible for our dysfunctional health care system. Do not be surprised if the reaction from Congress is loud, fast and brutal.

What does this mean for you?

This is more of an issue for group and Medicare/caid operations than for workers comp, as comp has a greater percentage of generic fills. But there's no doubt all payers' drug costs are going up significantly this year.

If you're a PBM, get ready to explain higher drug prices.

Posted by Joe Paduda at 6:50 AM | Link to this post | Comments (3)

Because that's what it is going to 'cost' to replace the current Medicare physician reimbursement scheme with something else. And make no mistake, as Trudy Lieberman of the Columbia Journalism Review points out, most of the nation's physicians are adamant about 'fixing' Medicare reimbursement.

The issue is the Medicare Sustainable Growth Rate (details here). The net is simple - if the SGR formula/process is eliminated, a quarter trillion dollars gets added to the deficit, because that's the amount the formula/process says has been paid to docs over and above SGR 'limits'.

Current Congressional protocol requires CBO to 'score' any and all health reform proposals; unsurprisingly the SGR 'fix' has not been included in any reform measure, because it will push the cost way, way over a trillion dollars.

Thus, thru legislative legerdemain, Congress is avoiding talking about and being held responsible for the real cost of reform.

As long as we have to 'fix' the SGR - and I'm not arguing that Part B (physician reimbursement) doesn't badly need fixing, hows' about we 'trade' SGR elimination for some real reform, like, say, bundled pricing for specific procedures/conditions? Like, maybe, a flat cost for treating an asthmatic patient over a year including facility and physician and lab and other costs?

Or, for those chronic patients with more than one condition, a formula that pays for all their care based on a multiplier indexed to the number, cost, and severity of their conditions?

Or a requirement that all physician bills from practices that don't have all patients on a share-able electronic medical/health record are paid under a non-fixed SGR, while bills from practices using 'certified' EMR are paid under a new schema?

Pretty draconian, you say? Not as draconian as anteing up another quarter trillion bucks, I respond. Sure it will be hard and take some time and isn't easy and all that other blather. It's a huge knotty ugly problem, requiring some ugly solutions, and none of them are going to be perfect. But they will be a damn sight more perfect than what we have if we don't get reform-with-cost-control done this time around - family health care costs above $30,000 within ten years.

It's time we got more from stakeholders than just their agreement to not block reform. We need a good more arm-twisting and a lot less gentle cajoling.

What's the net?

Watch to see how Congress and the President handle the SGR redo issue. Do they use SGR as a lever, or do the docs use it as a club?

Posted by Joe Paduda at 7:01 AM | Link to this post | Comments (5)

The use - and misuse - of technology in medicine is not only a major cost driver, it is also a major cause of unnecessary pain and suffering.

Far too many carotid endarterectomies were performed in a misguided effort to reduce

If we are to have any hope of slowing down the rate of increase in medical costs, we have to stop the abuse of unproven and potentially harmful technology.

WorkCompCentral [sub req] has a great piece on a program run by the State of Washington that does just that. The Health Technology Assessment program "assesses various devices, procedures, medical equipment and diagnostic tests, then issues recommendations that public payers must follow[emphasis added]. Those public payers include the Department of Labor & Industries, which runs the state's monopoly workers' compensation program."

According to an article in the New England Journal of Medicine, HTA determines reimbursement on these technologies for programs including:

"Medicaid, the workers' compensation program, the state government employee benefit plan, and the corrections department [which] provide $2.9 billion in benefits annually to approximately 773,000 Washington citizens through direct fee-for-service plans"

Before the wingnuts start spouting about death panels, know that the HTA has been widely accepted by politicians from both parties, it passed with a single 'nay' vote in 2006, supported by both the state Hospital and Medical Associations, and while individual conclusions may draw opposition, the program itself is viewed very positively.

The process is rigorous. According to the NEJM;

"The program's assessments are based on a thorough, systematic review of the evidence related to the effectiveness, safety, and cost-effectiveness of a product or service, with each type of evidence examined separately. After considering the "most valid and reliable" evidence on all three of these dimensions, the health technology clinical committee -- which must be made up of practicing clinicians -- arrives at one of three recommendations: covered without conditions, covered with conditions (such as criteria defining medical necessity), or not covered. The entire process must be transparent."

HTA is important because it shows what can happen when government intervenes intelligently and carefully. So far, HTA has rendered opinions and set policy on:

* Arthroscopic surgery for osteoarthritis of the knee. (Not covered.)
* Discography for uncomplicated degenerative disk disease. (Not covered.)
* Implantable drug-delivery systems for chronic, non-cancer-related pain. (Not covered.)
* Lumbar fusion for uncomplicated degenerative disk disease. (Covered, with conditions.)
* Upright or positional medical resonance imaging. (Not covered.)
* CT colonography. (Not covered.)
* Pediatric bariatric surgery. (Not covered for patients 18 or younger. Covered with conditions for patients between the ages of 19 to 21.)

These actions have reduced costs by over $20 million since its inception three years ago.

What does this mean for you?

Payers should look closely at following Washington's lead.

Posted by Joe Paduda at 6:38 AM | Link to this post | Comments (4)

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 Joe Paduda at 6:26 AM | Link to this post | Comments (2)

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 Joe Paduda at 9:39 AM | Link to this post | Comments (5)

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 Joe Paduda at 7:49 AM | Link to this post | Comments (7)

Coventry's presentation at the JP Morgan investor day last week was puzzling for a couple reasons. As noted yesterday, there was almost no discussion of medical cost drivers, either by CFO Shawn Guertin or Dale Wolf (Chairman and CEO) or by any of the analysts present.

The other puzzlement was the company's continued emphasis on Medicare Advantage as a core business. According to Guertin, the company's biggest success in 2008 was better than expected Medicare sales. He went on to note that this was one of Coventry's key drivers; in terms of member volume, Medicare Advantage is a close second to group health followed by Medicare D. And, Coventry is spending about $45 million in 2009 to expand the company's Medicare network footprint, which they call their coordinated care network. The network has to be built in 2009 so they can file the additional network coverage areas with CMS in 2010.

If I heard that right, they are looking to invest $45 million in Medicare Advantage, and it is a key driver of the company's success.

Here's more detail. Guertin noted that 2008 was an "exceptional year in Medicare Advantage"; they filed for 9 new markets, Medicare private fee for service (PFFS) growth was also solid and it will continue. Total membership is projected to hit 455k by the end of 2009 up from 380k in 2009. Leaving aside the potential for Congress and the new President to make dramatic changes in MA funding, Coventry's strategy makes sense. They are currently conducting a detailed review of products and margins as well as the positioning around zero premium products (Medicare products that don't require any additional premiums from members) and how they stack up in each market. They are growing in these products, the ones without rich benefits, but medical losses are around 90%.

So Coventry's growth is in the right products; ones with lower risks and less rich benefits that are likely to be selected by people with lower health risks. However, their Medicare HMO business is doing better financally as it has an MLR significantly less than the PFFS' 90% MLR. The strategy is to build out their networks in those areas with lots of PFFS members and hope to convert those members to the HMO, thereby taking advantage of the lower MLR delivered by the HMO. Currently about 58% of Coventry's PFFS membership is in states with MA plans in existence – some percentage of that PFFS population will likely switch to an HMO product.

By converting members from PFFS to network products Coventry's margins increase by five points, making the payback on the $45 million investment one year.

Guertin and Wolf did acknowledge the politics surrounding MA, but their acknowledgement did not reflect any real concern. Instead they noted their plans' value proposition; with one saying: words to the effect that "there’s no question the enhanced benefits for seniors and overall reduction in medical expense for the system and society and better quality of care and life they get thru various health management program seniors...its indisputable that MA brings a lot of value".

That may be the case. I'm not so sure it will be enough to prevent Congressional action to eliminate the MA subsidy.

I don't understand why a health plan would bet it's future on a business that may well change a lot and quickly.

Anyone?

Posted by Joe Paduda at 12:44 PM | Link to this post | Comments (1)

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 Joe Paduda at 7:42 AM | Link to this post | 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 Joe Paduda at 4:05 PM | Link to this post

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 Joe Paduda at 6:58 AM | Link to this post | 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 Joe Paduda at 6:15 AM | Link to this post

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 Joe Paduda at 8:32 AM | Link to this post | Comments (3)

Bowing to the reality of the market, the New York Work Comp Board has issued a revised pharmacy fee schedule for workers comp.

The previous fee schedule based WC pharmacy fees on Medicaid - a linkage that was problematic for at least a dozen reasons. Here are the major ones.

1. Medicaid has 'positive enrollment' - members' eligibility is determined instantly, electronically. In WC, there is no upfront enrollment, therefore retail pharmacies don't know where to send the claim, or even if the claim has been accepted by an insurer. Work comp requires a lot of manual work, while Medicaid is electronic and instant.

2. The Medicaid reimbursement schedule has been a political football of late, as state legislators, under pressure from declining revenues and increasing service demands, have looked to cut Medicaid costs by cutting prices paid for drugs. California's decision to cut reimbursement by 10% has resulted in a political/judicial back and forth that is apparently still not resolved. By tying WC reimbursement to Medicaid, pharmacies, PBMs, and payers would be batted back and forth, not knowing from day to day what they should pay for drugs.

3. Medicaid has a formulary which reduces the cost of the drugs to the pharmacies. There is no such formulary in WC (except in a very few states such as Washington), and therefore drug manufacturers won't give discounts in return for preference in a therapeutic class.

4. The Medicaid FS is actually significantly lower than the contracted prices PBMs pay retail pharmacies. Thus there is no benefit to payers, or retail pharmacies, in working with PBMs. This despite the strong evidence that PBMs, properly implemented and managed, can dramatically reduce utilization (the volume of scripts dispensed).

What drove NY to make the change? Access issues. Claimants were not able to get their scripts filled as pharmacies could not afford to do so under Medicaid reimbursement, and PBMs could not afford to operate in the state while losing money on every script.

That's not to say the revised FS is much better. In fact, as the second lowest fee schedule in the nation, it represents an incremental improvement at best, and may not be sufficient to keep all stakeholders participating.

Cynics may point to California, and note that PBMs and pharmacies stayed in that market after the FS was based on Medicaid. True, but each state's Medicaid FS is unique, and CA's is significantly more reasonable than NY's.

Posted by Joe Paduda at 10:21 AM | Link to this post

Bob Laszewski has a great post today debunking the myth of Medicare Advantage and Medicare private fee for service.

Both were supposed to help reduce Medicare's costs via a short-term subsidy enabling private insurers to get into the market, figure it out, and use their free-market skills to improve on a moribund, bureaucrat-run government health care program.

Instead it has turned into a gravy train for insurers, who have been getting fat on the subsidy. Meanwhile, physicians are facing a cut of 10% in Medicare reimbursement.

For once it would be nice if the so-called free market advocates would wipe the (taxpayer-subsidized) gravy off their multiple chins before they start spewing peans to capitalism.

Bob asks this key question:

"If the HMOs really want to effectively defend Medicare Advantage they need to demonstrate value. Where is the industry data showing that after five years in this recent version of Medicare Advantage, and 20 years all told in the program, the private sector delivers a better cost/quality result?"

I'd add they damn well better come up with a strong case and soon; health reform is coming. Between recissions, medical underwriting, and medicare advantage/pffs private insurers are making a compelling case - for single payer.

Posted by Joe Paduda at 11:58 AM | Link to this post | Comments (1)

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 Joe Paduda at 8:07 AM | Link to this post | Comments (6)

Disclaimer - This is the kind of post that makes one want to take a shower after reading. My apologies to readers without convenient access to bathing facilities.

One of the fastest growing segments of the surgical industry is the spinal implant business. In what may be the most comprehensive review of the problem, the Orange County Register reported:

"About 70 percent of U.S. adults -- or 153 million people -- have lower back pain, according to Millennium Research Group. Of those, about 15 million require medical treatment, and most eventually get spinal implants." My take is that is a wildly overstated estimate; one survey reported that the total world market for devices was $4.2 billion; note this study used 2006 data. Another indicated the market was $5 billion in 2005, and predicted growth to $20 billion by 2015. Stryker, one of the major manufacturers, expects growth of 16% per year in the spinal implant market. Yet another report(note opens .pdf) indicated the 2007 worldwide market was $7 billion, with the US accounting for $5.4 billion of that total.

And boy is it profitable. One manufacturer (Allez Spine) sold screws to an implant device company for $79.31 each - screws that were then sold to hospitals for $1000 each (who then marked them up even more when billing insurers).

Yep, there are $480 worth of screws in this xray (wholesale), $6000 retail, and probably $9-12,000 to the insurer/patient. And that doesn't include the other parts...

Medtronic, one of the larger device companies with about 45% market share in the US and the same worldwide, reported sales of $869 million for spinal implants last quarter, driven in part by a big jump in sales of its Kyphon technology. The $869 million represents growth of 35% from the same quarter last year.

The Kyphon story is an ugly one, and points to one potentially significant problem in the spine surgery industry - the focus on devices as a tool to maximize reimbursement.

Kyphon (the company) was acquired by Medtronic in 2005. The company settled a lawsuit filed by the Feds, agreeing to pay $75 million in fines. Kyphon agreed to stop providing inappropriate advice on reimbursement to providers, advice that resulted in hospitals filing inflated claims with Medicare for a spine procedure with the otherworldly name of kyphoplasty.

The details of the case, as reported by the New York Times, are revealing.

Kyphon "persuaded hospitals to keep people overnight for a simple outpatient procedure [bold added] to repair small fissures of the spine. Medicare then reimbursed the hospitals much more generously than it otherwise would have for the procedure, which was developed as a noninvasive approach that could usually be done in about an hour.

By marketing its products this way, Kyphon was able to artificially drive up demand among hospitals, bolstering its revenue and driving up its stock price. Medtronic subsequently bought the company, its competitor, for $3.9 billion, greatly enriching Kyphon’s senior executives. "

Margins for Kyphon's devices approached 90%, due in large part to the high price the company charged, a price that hospitals offset by extending hospital stays (as advised by Kyphon's sales reps and reimbursement experts), thus generating higher bills and much higher revenue.

Another major contributor to the rapid increase in spinal implant surgeries may be the growth of device companies that have spine surgeons as stockholders. The OCR article reported that physician-owned companies are now under investigation by HHS' Office of the Inspector General (OIG). In testimony before the Senate Special Committee on Aging, Gregory E. Demske, Assistant Inspector General for Legal Affairs at the OIG said:

"These financial relationships [between device manufacturers and physicians] can benefit patients and Federal health care programs by promoting innovation and improving patient care. However, these relationships also can create conflicts of interest that must be effectively managed to safeguard patients and ensure the integrity of the health care system...during the years 2002 through 2006, four manufacturers (which controlled almost 75 percent of the hip and knee replacement market) paid physician consultants over $800 million [bold added] under the terms of roughly 6,500 consulting agreements. Although many of these payments were for legitimate services, others were not. The Government has found that sometimes industry payments to physicians are not related to the actual contributions of the physicians, but instead are kickbacks designed to influence the physicians’ medical decisionmaking [bold added]. These abusive practices are sometimes disguised as consulting contracts, royalty agreements, or gifts."

All this growth may well be based on a focus on surgical treatment that is just not supported by research. Some studies indicate surgery is not the best treatment for a substantial number of patients. According to the OCR article (source above);

a "2005 study of patients with back pain published in the journal of the British Medical Association concluded: "No clear evidence emerged that primary spinal fusion surgery was any more beneficial than intensive rehabilitation."

"You look at the number of procedures and the rate of growth and it seems to far outstrip the number of patients who need this," said Dr. Steven J. Atlas, a back specialist and Assistant Professor of Medicine at Harvard Medical School."

And that old nemesis, provider practice pattern variation, is nowhere as obvious as with back surgeries. Looking at Medicare data, the back surgery rate in Fort Myers, Florida was 5 times higher than in Miami. Same population demographics, same state, but different providers.

Perhaps the best explanation for the considerable growth in the use of implants and spine surgery is the lack of evidence either for or against these procedures. There are some reports that indicate positive or negative outcomes, but nothing definitive has been published that could be used by payers and providers to judge the appropriateness of surgery for most patients with back injuries or degenerative conditions.

Posted by Joe Paduda at 7:10 AM | Link to this post

Medicare is to Workers Comp as:

a) Mars is to deck stain
b) surgery is to literature
c) a jelly sandwich is to Colorado
d) all of the above
e) none of the above

If you chose (d), congratulations, you understand there few similarities between the two systems, other than both involve paying health care providers to deliver care.

Beyond that, Medicare and Work Comp are, as the Brits say, chalk and cheese. Yet many regulators and legislators still try to base reimbursement under workers comp to Medicare's RBRVS system (resource based relative value scale). The latest effort is in California, where a recent study by the Lewin Group has come under fire from providers in the Golden State. Critics contend Lewin's analysis does not accurately assess the inherent differences between the two systems or the way providers deliver care, and bill for that care, and therefore the study's conclusion is inappropriate.

I think the critics are right. As I've noted before, the additional paperwork, different procedures, complex and dynamic treatment rules and approval process, additional communications requirement, and different demographics make work comp a very different animal from Medicare.

I'll have more on this later, as the reports and analysis require more time than I've got right now.

But there are two more (very) current examples of the problems inherent in linking WC reimbursement to governmental programs. Both involve drugs, and in both cases WC drug costs are linked to Medicaid. The states are NY and CA. In both cases, the FS will also drop in July; to AWP-16.25% in NY for brand and an across-the-board cut of 10% (below the current very low rates) in California.

There are already myriad examples of claimants unable to fill comp scripts in New York today, and that is at the current, slightly more generous FS. There have been fewer reports of this issue in CA, but the new rate reduction has pharmacy chains screaming.

As well they should. Here's how Workers comp and Medicaid are different

1. Unlike Medicaid, there are no copays, restrictive formularies, or other cost- and utilization containment measures in WC. Thus all cost containment efforts in WC for drugs involves Drug Utilization Review processes that can involve pharmacists and clinicians reviewing scripts for appropriateness, medical necessity, potential conflicts and adverse outcomes, and relatedness to the WC medical condition.

2. PBMs pay pharmacies more for WC drugs than for Medicaid drugs; a typical brand discount is AWP-12%, generic is MAC or -25-35%. The Medicaid FS is substantially lower, at AWP-15+% for brand and FUL (>-40%)for generics.

3. Unlike Medicaid, to the extent they exist at all, rebates are much lower in WC. In NY, Medicaid rebates are a minimum of 11% of the Average Manufacturer’s Price per unit. The rebate revenue significantly reduces states’ costs for drugs. As these rebates are much lower or nonexistent in WC, PBMs do not have rebate dollars to offset their drug costs.

Sure, it is easy for lazy insurers, regulators, legislators, and employers to think they are doing something positive by cutting the price they pay for drugs.

It is also a big mistake.

Posted by Joe Paduda at 10:24 AM | Link to this post | Comments (1)

Why do regulators base WC reimbursement on Medicare? It's easy, simple, and already familiar to legislators and regulators alike. It is also a big mistake.

Medicare is a program for America's elderly - over-65, mostly sedentary, and mostly not employed. Workers comp covers 'working age' folks; primarily 18-65. ) Many of the surgeries being performed on Medicare vs. workers’ compensation patients are fundamentally different.

The types of outpatient surgeries that can be performed on workers’ compensation patients, who are generally young and in overall good health, are different than the outpatient surgeries Medicare covers (pays) for. Medicare sharply restricts outpatient surgery for good reason as Medicare patients are frail and surgery followed by an inpatient stay is safer given their complicated medical conditions and health risks of prolonged general anesthesia. WC claimants are younger, in better physical condition, and much better suited for outpatient surgeries - yet basing WC reimbursement policies on Medicare would forbid, or at the least financially dis-incent, outpatient surgery in favor of inpatient.

Medicare fee schedules (like the one Florida's Three-Member Panel is considering adopting) result in more specialist care and more procedures being performed. (opens pdf) National studies show this frequently leads to poorer outcomes and more suffering for patients, in addition to higher costs for payers.

Medicare recipients' medical conditions are very different from comp claimants'. The top ten Medicare DRGs (Medicare's coding for inpatient care) are:

• Heart Failure & Shock
• Simple Pneumonia & Pleurisy
• Specific Cerebrovascular Disorders
• Psychoses
• Chronic Obstructive Pulmonary Disease
• Major Joint & Limb Reattachment Procedures, Lower Extremity
• Angina Pectoris
• Esophagitis, Gastroent & Misc Digest Disorders
• G.I. Hemorrhage
• Nutritional & Misc Metabolic Disorders

No spine conditions, multiple trauma, burns, TBIs, crushing injuries, joint surgeries...

Inflation in Medicare billing is rampant - if you think it is bad in WC generally (and you would be right) it is an order of magnitude worse in Medicare. In Florida, the current annual inflation rate is north of 14% for Medicare outpatient services.

Medicare reimbursement disproportionately favors hospital-based care. With facilities reimbursed at levels much higher than free-standing doctors' offices and clinics, basing reimbursement on Medicare encourages providers to affiliate with, provide care in, and bill thru facilities. In Florida, the impact is dramatic; basing reimbursement on hospital outpatient service charges will increase costs by an estimated $1,675 to $2,320 per claim (calculations courtesy of FairPay Solutions, an HSA client).

What provider would want to treat in their own, lower cost clinic or office, if they could more than double their fees by working through a hospital?

Finally, CMS itself has warned against using their payment methodologies for non-Medicare patients. “The cost-based relative weights were developed solely using Medicare data. We do not have non-Medicare data…For this reason we are concerned that non-Medicare payers may be using our payment systems and rates without making refinements to address the needs of their own population.” (page 272)

I could go on, but you get the picture. The populations are starkly different, claimants' health status is different, their motivations are different, provider types are different, and reimbursement should reflect these differences.

Unfortunately, Medicare is the easy choice. Easy, but dead wrong.

Posted by Joe Paduda at 7:01 AM | Link to this post | Comments (2)

Regulators are increasingly seeking politically low-cost ways to reduce workers comp costs. Some have decided to use the Medicaid reimbursement rate for drugs for Workers Comp, evidently figuring that if pharmacies accept it for Medicaid, they'll do the same for WC. Same 'logic' evidently goes for PBMs.

The only problem is it is dead wrong.

1. Unlike Medicaid, there are no copays, restrictive formularies, or other cost- and utilization containment measures. Thus all cost containment efforts in WC for drugs involve resource-intensive Drug Utilization Review processes; pharmacists and clinicians reviewing scripts for appropriateness, medical necessity, potential conflicts and adverse outcomes, and relatedness to the WC medical condition.

2. PBMs pay pharmacies more for WC drugs than for Medicaid drugs; a lot more.

3. Unlike Medicaid, to the extent they exist at all, rebates are much lower in WC. Medicaid rebates are a minimum of 11% of the Average Manufacturer’s Price per unit (and even higher in many states). The rebate revenue significantly reduces states’ costs for drugs. As these rebates are much lower or nonexistent in WC, PBMs do not have rebate dollars to offset their drug costs.

Unlike Medicaid, most workers comp claimants have no idea how WC works, much less who their insurer is; the chances of the claimant presenting with a card is therefore quite low (less than 25% of all WC first fills go to the appropriate PBM). When a Medicaid recipient shows up at a pharmacy, they have been enrolled and thus have a card, and the transaction process is instantaneous and very low cost.

There is no positive enrollment in WC, unless the claimant presents a card, the pharmacy has no way to identify the appropriate PBM. This presents pharmacies with a high level of risk, a level that is not balanced by a reimbursement that makes that risk level tolerable. Specifically;

1. pharmacies are 'at risk' for initial fills where they cannot be sure the carrier/employer will accept the claim - this higher risk level requires a higher reimbursement. There is nothing preventing an individual from writing ‘WC’ on a paper script, thereby perpetrating fraud on the pharmacy.

2. the current regs pay pharmacies 25% more for scripts that are 'controverted'; that is, where the carrier/employer has said they will not (yet) accept the claim

3. The 'controverted' situation is very similar to first fills - the carrier/employer has not indicated they will accept the claim, yet the pharmacy is required to fill it, without guarantee of reimbursement

4. the additional risk forced upon the pharmacies may lead them to:
• not fill scripts without a claim number/specific notice from the carrier/employer
• use the claimant’s existing profile (usually a group health PBM card) to fill the script, thereby increasing group health costs
• require the claimant to pay cash which they may, or may not, be able to do

We're all for reducing work comp medical expense, but the blunt instrument of deep, and inappropriate, cuts in reimbursement for drugs is also counterproductive.

The key driver of prescription drug cost inflation is not the price per pill but utilization – the volume and type of drugs dispensed. The National Council on Compensation Insurance’s recent study on drug costs in workers comp stated “Utilization changes are the driving force in drug cost changes for WC…Utilization is the biggest reason for cost differences between states” (Workers Compensation Prescription Drug Study, 2007 Update; Barry Lipton et al; NCCI, p. 4, 6).

PBMs have adopted and are continuously improving programs designed to address inappropriate utilization. These programs include
• development of clinical evidence-based guidelines for the use of drugs for musculoskeletal injuries
• outreach by PBM physicians in specific cases where the drug treatment plan may be inappropriate
• data mining to identify potentially questionable prescribing patterns including off-label usage of drugs such as Actiq and Fentora
• Prior Authorization of specific drugs (e.g. narcotic opioids, cardiovascular medications).

What does this mean for you?
If PBMs don't operate in a state or can't generate any margin, they'll eliminate any and all utilization control measures.

And drug costs will increase.

Posted by Joe Paduda at 10:47 PM | Link to this post | Comments (3)

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 Joe Paduda at 6:58 AM | Link to this post | Comments (1)

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

Adding to the seemingly-endless list of compelling arguments in favor of universal coverage is the rather obvious “if we insure them now, we won’t have to pay for more expensive care tomorrow.”

Specifically, I’m referring to a recent Commonwealth Fund/AHRQ study on health care costs for new medicare enrollees; the study found that new Medicare enrollees with chronic conditions that previously lacked health insurance incurred substantially higher treatment costs than those that had health insurance before enrolling.

While all previously-uninsured Medicare recipients had higher utilization, this was particularly noticeable for those with hypertension, diabetes, heart disease, or stroke, where prevention and routine care can prevent costly and calamitous acute episodes. The uninsured with these conditions reported more doctor visits (13% relative difference), more hospitalizations (20% relative difference), and higher total medical expenditures (51% relative difference) from ages 65 to 72 years than previously insured adults.

Each year, approximately 2.3 million seniors qualify for Medicare. Of this population, 57% had chronic conditions. The average medical cost (2003 numbers) per Medicare enrollee in the 65-74 age group was $9473. While the information available doesn't allow a precise calculation of the additional cost involved in treating this group, the amount is certainly well up in the billions.

According to the original article in the NEJM, "The costs of expanding health insurance coverage for uninsured adults before they reach the age of 65 years may be partially offset by subsequent reductions in health care use and spending for these adults after the age of 65, particularly if they have cardiovascular disease or diabetes before the age of 65 years."

What does this mean for you?

Covering the uninsured would reduce Medicare's expenses.

Posted by Joe Paduda at 9:21 AM | Link to this post | Comments (10)

Yes, they are innocent until proven guilty. But it doesn't look good for Wellcare, the Florida-based Medicaid and Medicare health plan.

And what's bad for WellCare may be bad for private insurers.

Continue reading "WellCare - the bigger implications" »

Posted by Joe Paduda at 7:58 AM | Link to this post | Comments (3)

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 Joe Paduda at 6:20 AM | Link to this post | Comments (10)

CMS will no longer pay for medical treatment(reg req) for injuries or illnesses resulting from hospitalization. Expect private insurers to follow suit.

Its about time.

Continue reading "Pay for non-performance" »

Posted by Joe Paduda at 8:17 AM | Link to this post | Comments (7)

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 Joe Paduda at 8:14 AM | Link to this post

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 Joe Paduda at 9:36 AM | Link to this post | Comments (1)

The latest shot in the battle against drug costs comes from the Centers for Medicaid and Medicare Services, which is reported to be denying coverage for off-label use of drugs such as Actiq and Fentora.

Whenever CMS moves, the healthcare world shakes, and this is no exception. There are a host of possible 'downstream implications' in areas as diverse as workers comp, formulary management, and hospice.

Continue reading "CMS denies off-label Actiq coverage" »

Posted by Joe Paduda at 6:35 AM | Link to this post | Comments (2)

I'm on a brief vacation mountain biking in Moab, Utah. A gorgeous place, great people, great riding. And upon return from a long and tiring but very fun ride this am, I open up the latest from Fierce Healthcare to read reports about not one, but two reimbursement scams and one piece on docs who don't disclose when they make mistakes.

That just crushed the hard-earned buzz.

Continue reading "A buzz kill" »

Posted by Joe Paduda at 3:24 PM | Link to this post | Comments (3)

I've been following Bob Laszewski's views on Medicare Advantage with some interest. My take is the program is about to embark on a financial bread-and-water diet, a regimen prescribed by the Democratic Congress seeking funds to offset physician reimbursement increases (or more accurately to prevent decreases) and fund the S-CHIP program.

Bob's view is that the rural programs will not suffer too much, while MA plans located in urban areas may well have their subsidies reduced. The MA program sponsors are now pulling out the lobbying stops, employing a variety of questionable and downright distasteful marketing.

The latest descent-to-previously-unplumbed-depths is their manipulation of minority groups as "victims" of the heartless Dems.

Posted by Joe Paduda at 10:53 PM | Link to this post

Two timely topics are in the news; the likelihood of cuts in the additional payments for Medicare Advantage programs and reductions in Medicare reimbursement rates for physicians.

The juxtaposition is just too...obvious to pass without comment.

Continue reading "Physician pay v. Insurer overpay" »

Posted by Joe Paduda at 4:05 PM | Link to this post | Comments (2)

Pundits and experts on the right side of the political spectrum are claiming that giving CMS the authority to negotiate drug prices will cost Americans $500 billion in lost productivity due to an annual loss of five million life years.

There are so many flaws in their arguments it's hard to know where to start, but let's plunge in.

Continue reading "Drug price negotiation and lousy research" »

Posted by Joe Paduda at 7:44 AM | Link to this post | Comments (2)

Coventry CEO Dale Wolf presented at the JPMorgan Healthcare Investment Conference earlier this week; I was particularly interested in his comments re the business opportunity in Medicare and Medicaid.

Medicare Advantage (MA) programs are likely to suffer a significant cut in funding this year as the Democrats, led by Rep. Pete Stark (D CA) take a chain saw to the subsidies paid to MA plans.
Coventry will be close to a $9 billion business in 2007.

The loss of a good chunk of the subsidy will make the MA business less attractive for many health plans; Wolf believes there is a significant opportunity for Coventry as it has successfully become the low cost producer in their markets, an achievement of which Wolf is quite proud.

Continue reading "Medicare as a business - Coventry's perspective" »

Posted by Joe Paduda at 2:21 PM | Link to this post

Bob says it better than I could.

Posted by Joe Paduda at 4:35 PM | Link to this post

Boston's Mayor is outraged at Humana's decision to raise premiums on it's basic Part D plan by 130%. Humana's stockholders should be equally upset.

Continue reading "Humana's Part D problems" »

Posted by Joe Paduda at 6:57 AM | Link to this post | Comments (8)

Among the health reform plans likely to be considered is an expansion of Medicare, allowing non-seniors to "buy in" to Medicare.

This is a bad idea.

Continue reading "A not very good idea" »

Posted by Joe Paduda at 7:18 AM | Link to this post | Comments (4)

In what will come as no surprise to anyone, Congress will eliminate the pending cut in Medicare physician reimbursement. Not only that, but docs who agree to report certain data to CMS will actually get a 1.5% increase in reimbursement from the Feds.

If you listen very closely, you can almost hear the medical community's resounding "yippee".

The reasons docs are not exactly ecstatic about the news are two-fold.

Continue reading "Medicare reimbursement's downstream impact" »

Posted by Joe Paduda at 9:58 AM | Link to this post | Comments (2)

It's starting.

Rep. Stark (D CA) is already talking about cutting subsidies for Medicare Advantage programs, which he claims are costing taxpayers over 12% more than standard Medicaid programs.

This comes as no surprise to loyal readers and those who are old enough to remember when "Pete" Stark was a major player in national health care policy.

Continue reading "Pete Stark fires the first shots" »

Posted by Joe Paduda at 2:08 PM | Link to this post | Comments (1)

Yawn.

It didn't take the HHS Secretary Mike Leavitt long to start in with the tired rhetoric about the evils of government-run health care(free reg req). Leavitt does not want the Feds to negotiate drug prices. Heck, he doesn't even want Congress to give the Feds the power to do so.

Why not? What's the Secretary scared of?

According to him, it's the old archenemy of all things good - government-run health care. While I too am a firm believer in the power of the free market, Leavitt's logic falls apart upon even the most rudimentary exam.

Continue reading "Why Mike Leavitt needs Dale Carnegie" »

Posted by Joe Paduda at 7:52 AM | Link to this post | Comments (1)

By any accounting, Part D has been a boon to the pharmaceutical industry (free registration required). Revenues and profits at Pfizer, Lilly, and other manufacturers have jumped. This will undoubtedly lead to more research dollars available to search for cures for awful diseases, an effort exclusively funded by the US taxpayer that will benefit the entire world.

Aren't we generous?

Continue reading "Drugs, profits and politics" »

Posted by Joe Paduda at 6:40 AM | Link to this post

The annual Medicare physician price cut season is on us. Next year's reduction will average 5%, although payments for office visits (evaluation and management codes) will increase by up to 30%, but reimbursement for other procedures will be slashed up to 20%.

Don't expect this to actually happen; every year the Medicare reductions are reversed by Congress. And this year will be no different. I'd expect Congress will do something to reverse the cuts, at least in part.

Continue reading "Medicare games" »

Posted by Joe Paduda at 6:25 AM | Link to this post

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

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

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

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

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

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

Mark McClellan is leaving his post as head of the Center for Medicare and Medicaid Services. He served long and loyally, sticking to the Administration's line even when facts indicated otherwise, remaining a calming force when Part D enrollment was going nowhere. McClellan is also known for listening hard to suggestions and criticism from all sides, and working diligently to address problems.

Here's what's happened during his tenure.

Part D was passed, implemented, and operational. This was a monumental task, and one McClellan was instrumental in accomplishing. It's not his fault it is a fatally flawed program; well, maybe it is, in some small part, as he was probably involved in writing/editing/opining on the legislation. Nevertheless, under McClellan the program became reality, with the initial enrollment problems addressed (in large part).

Continue reading "McClellan's legacy" »

Posted by Joe Paduda at 6:35 AM | Link to this post

Two recent articles highlight the massive inefficiencies in the US health care system. In Philadelphia, five hospitals now have heart transplant programs, even though there are only enough patients for two. The result? Hospitals will not perform enough to gain the experience needed to improve safety and efficiency while lowering variable costs.

A few hundred miles away, a (reg req)group of cardiologists in Elyria Ohio have evidently decided that their Medicare patients need angioplasties four times more frequently than the national average. I wonder if it's the fried dough at the Elyria fair?

Continue reading "Too much health care is bad on many counts" »

Posted by Joe Paduda at 7:15 AM | Link to this post | Comments (2)

CMS is going to change the way it pays physicians. Really. Well, CMS Director McClellan says they will, and soon. Policy types will recall that every year, physician reimbursement for procedures under Medicare is slated to drop by between 3% - 5%, depending on total expenditures the prior year and a really complicated formula (that is never followed). So each year, physicians scream, and every year, politicians say "no, just kidding", and tweak the reimbursement to send a few more dollars to the docs. And I do mean "few".

This year expect the same to happen; it is an election year, there are lots of powerful (read "lots of money") forces in play here, and few elected officials want to take the political hit for cutting Medicare. So far, 80 senators have signed a letter asking that reimbursement levels be increased, not reduced.

Despite the political realities, McClellan is of the opinion that our elected officials will come up with a pay-for-performance scheme for CMS. Whether it ever gets through Congress is another story altogether.

For further edification, I'll pass on the perspective of Bob Laszewski, long-time national health care policy expert and good friend. Bob's view is that the increase in utilization driven by physician practice patterns is leading to the huge cost increases we are seeing in Medicare, and the stats back him up. Medicare's per-service reimbursement in 2006 is essentially unchanged from five years ago, while utilization has gone up dramatically. So, price controls have not worked to hold down medical inflation.

Thus the interest in pay for performance for physicians. While it sounds interesting, it's really hard to do.

As tough as it's going to be, I see no better alternative.

Posted by Joe Paduda at 1:23 PM | Link to this post | Comments (1)

Prof. Regina Herzlinger, a well-known advocate of consumer-driven health care and professor at Harvard Business School, has come out in favor of a plan proposed by South Carolina Gov. Mark Sanford that would add choice to the state's Medicaid program.

According to Dr. H, "Every recipient would obtain catastrophic and preventive coverage as well as a personal health account (PHA). Enrollees could then use their PHA funds to pay for a consumer-driven option of a traditional Medicaid hospital insurance, along with a doctor of their choice; a managed care policy, with its deductibles and copayment; or a network group of local physicians." OK, sounds reasonable.

She then goes on to say:

(Critics) "believe that Medicaid recipients will overwhelmingly choose the consumer-driven opportunities. But when consumer-driven plans are offered along with other health insurance choices, they are not necessarily the most popular. A 2005 Kaiser Family Foundation survey, for example, found that when enrollees were offered other insurance plans, only about 7 to 15 percent went the consumer-driven route. They also contend that Medicaid enrollees are too poorly educated and lack access to sources of information like the Internet. Although these sources are depicted as high tech, much of what patients learn actually comes from the phone and face-to-face interactions."

I'm not sure what to make of this. Is Dr. H's contention that critics need not worry because most Medicaid beneficiaries won't pick consumer-drive plans? Or is it that Medicaid folks, despite their lower educational level, will grasp health care information as quickly and completely as privately insured people? Or both?

I'm not disagreeing with Dr. H, I'm just not sure where she's going with this.

I am somewhat confounded by her later assertions in the same article that individuals with chronic conditions covered under consumer-directed plans did a better job complying with treatment, testing, and preventive care directions than individuals in non-consumer-directed plans. Methinks the good doctor confuses a statistical relationship with a causal one.

Back in the day, HMOs recruited members by offering health club memberships, knowing that individuals who were already using clubs and those committed to/interested in improving their health status would join up, incur few claims, and therefore the net expense would be considerably less than if the HMO offered comprehensive diabetes care. Marketing and market segmentation at its best.

Just because these HMOs had a lot of people in health clubs does not mean that their members were healthier because they joined the HMO, it could mean that because the members were healthy to start with, they joined the HMO.

My bet is that the folks with chronic conditions that took care care of themselves in the consumer-directed plans were doing so before they joined. Not, as Dr. H says, that "These plans appear to have transformed how some enrollees approach their healthcare."

a nod to fierce healthcare for the head's up.

Posted by Joe Paduda at 6:39 AM | Link to this post | Comments (1)

The latest budget projections have federal spending on Medicaid programs dropping below projections, while Medicare is suffering from the reverse. It appears that the shifting of reimbursement for drugs from Medicaid to Medicare is at least partially responsible for the financials, but increased utilization of physician and outpatient hospital services is also a major contributor to the increase.

This last point illustrates just how ineffective the price controls used in Medicare have become. While per-service prices have been held flat, utilization, driven by the use of more services and higher-cost services, has been the driving force behind the need to increase Part B premiums by 11% for 2007.

Meanwhile, preliminary indications are that Part D costs will come in under (the already highly inflated) expectations, although how this can be determined based on one quarter's worth of data is a mystery to me.

Perhaps those actuaries have gotten much better at predicting direction by looking in the rear view mirror.

Posted by Joe Paduda at 12:40 PM | Link to this post

Prices on branded drugs increased 3.9% in Q1 2006(registration required), the largest increase in six years. Coincidentally, the Medicare Part D drug coverage program went into effect 1/1/2006. Part D has resulted in somewhere around ten million new customers for insurers, who will now pay 4.7% more for Lipitor and 13.3% more for Ambien.

In terms of dollars, AARP calculates the average senior's costs will increase by almost $20 per month, as the Part D providers are passing the cost increases along to their subscribers.

There has been the usual rash of outraged protests from various mouthpieces for big pharma, all of which are either disingenuous, outrageously self-serving, misleading, or poor attempts at deflecting blame towards insurers et al.

So what happens when pharma decides to increase prices?

Well, the mass media starts looking at what the Veterans Administration pays for drugs. Compared to the VA, the only federal entity allowed to negotiate prices, Part D prices are now 46% higher on average.

Here are a couple examples, quoted from the Families USA report.

"For Zocor (20 mg), the lowest VA price for a year’s treatment was $127.44, while the lowest Part D plan price was $1,275.36, a difference of $1,147.92 or 901 percent.

For Fosamax (70 mg), the lowest VA price for a year’s treatment was $265.32, while the lowest Part D plan price was $727.92, a difference of $462.60 or 174 percent."

So here we have big government, in the form of the VA, delivering prices that are about half of what private industry can obtain. While that's kind of interesting, it gets way more than "kind of" interesting when you consider that Part D has added $8 trillion to the nation's long term debt. That's a quarter of the entire Medicare deficit...

Tell me again how privatizing health care for seniors is a good deal for taxpayers, seniors, and the country?

Posted by Joe Paduda at 6:20 AM | Link to this post | Comments (3)

The Fresno Bee editorial page picked up on a study published in the New England Journal of Medicine about the impact of deductibles and copays on compliance. The study analyzed what happened to seniors once they met their coverage limit under a drug program known as Medicare Premium Plus. (this limit was set at $1000)

The results are not terrible surprising - visits to the ER rose, compliance with drug regimens diminshed, blood pressure rose.

We may well see the same result around October, when many seniors will hit the "doughnut hole"; after they have incurred about $2250 in costs, they are responsible for the next $3000 or so, after which coverage kicks in again. If they stop taking their medications, we can expect to see a bump up in ER visits and potentially other services. When you add in their copays and the doughnut hole payouts, a beneficiary who hits $5100 in total expenditures will have paid $3,600 out of pocket.

About 25% of beneficiaries are projected to hit the doughnut hole; 10% will hit the $5100 level and therefore be defined as catastrophic cases.

It is likely that these folks will be less healthy than the seniors who don't spend that much on drugs. And for many, the drugs are keeping them out of the hospital by managing their blood sugar, hormone levels, lipids, hypertension, psychiatric issues, and chronic pain.

If they stop taking their meds, Part D costs may well come in under projections. The other Medicare "Parts" wiil not be so fortunate.

Posted by Joe Paduda at 11:58 AM | Link to this post | Comments (1)

To much fanfare, CMS released several data files containing hospital charge and payment data by state, county, (but not by individual facility) for the 30 most common DRGs and elective procedures. National, state and county financial ranges are included, and the volume of services provided at individual facilities are also available.

This is the first of three planned data releases; the next scheduled for this summer is for ambulatory surgical centers followed this fall by hospital outpatient numbers.

Promoted by the Administration as a part of Bush's "commitment to make health care more affordable and accessible, President Bush directed the U.S. Department of Health and Human Services to make cost and quality data available to all Americans", the data is available at CMS' website. I'm not sure how this data will help consumers become better...consumers, but in the meantime here's my positive spin on the effort.

Here's my take on what you can do with the data.

1. FIgure out how your payments compare to the Feds', and use that to assess your contracting strategy.

2. Identify the hospitals that do the most specific procedures, and direct your patients/insureds/injured workers to those facilities...and away from the others.

3. Publish the data (after translating it into English) on your website so patients can draw their own conclusions.

4. Examine the volume of procedures at specific facilities and compare that to your payments to same see if there is a link between experience and efficiency (or at least billing practices).

5. Look at the payment to charge ratio and wonder.

6. Wonder how the release of the data will help consumers make better decisions, as individual hospital charge and payment data is not available.

There seems to be a problem here. How are consumers going to improve their ability to consume if individual facilities' results are not posted? How could an individual consumer use these data to make better decisions? Do the Feds have a clue?

Here's the detail on what's in the files.

"Top 30 Elective Inpatient Hospital DRGs" contains the volume and ranges of Medicare payments between the 25th and 75th percentiles for a limited set of conditions treated in U.S. states and counties. Included are the 30 conditions that had the highest utilization rates among all Diagnosis Related Groups (DRGs). Data are aggregated at the county, state and national level.

"Other Inpatient Hospital DRGs of High Utilization" contains ranges of Medicare payments between the 25th and 75th percentiles for a limited set of conditions treated in U.S. states and counties. These conditions are not among the top 30 utilized Diagnosis Related Groups (DRGs), but were deemed of interest to the Medicare community. Data are aggregated at the county, state and national level."

What does this mean for you?

See above.

Posted by Joe Paduda at 6:44 AM | Link to this post

Part D’s enrollment deadline came and went, and along with it the orgy of claims, counter claims, blames and counter blames. So now that at least a bit of the dust has settled, where are we?

Confused.

Depending on whom you read or watch or listen to, the program has either been a success or a failure, is working or is not, is profitable or a loser, has enrolled “enough” people or has fallen well short.

The reality is as confusing as the perceptions appear to be. In any effort to cut through the spin, I checked in with Bob Laszewski of Health Policy and Strategy Associates. His take is it is too early to tell how things are going, and in the absence of truly meaningful metrics, we’re just going to have to wait and see.

Here’s why there is so much confusion.

There is no consensus on how many seniors have signed up for Part D or have alternate drug coverage under other plans. For starters, health plans and the Feds can’t agree on who is signed up by whom. Some health plans have been told they have thousands more members than they can account for, while others are being told large numbers of their “enrollees” actually signed up for Part D when they already had coverage under Medicare Advantage or another plan.

As near as I can figure it, there are between 8 million and 4.5 million seniors still without coverage. More details to follow...

Meanwhile, Humana, one of the more “successful” health plans in terms of signing up seniors for its Part D programs, recently saw its debt ratings outlook downgraded by AM Best from ‘stable” to “negative” in part due to large Part D enrollment and associated reliance on government contracts and increased capital requirements.

And AM Best may be on to something. The Medicare Trustees recently projected that the Part D program’s costs would increase by 11.5% annually over the next ten years. If those projections hold true, early claims about the currently “favorable” loss ratios may be short-lived.

We'll have to wait until at least mid-July for reasonably accurate enrollment figures, and accurate financials will take another five months or so. If someone provides numbers in either category before those dates, be skeptical.

Posted by Joe Paduda at 6:49 AM | Link to this post

A new study released by Part D advocacy group Medicare Today makes a compelling case for seniors' enrollment in Part D. Authored by the Lewin Group (an excellent and unbiased health care reseach and analysis firm) the study makes a compelling case for seniors to enroll.

It makes an equally compelling case for adverse selection.

The only seniors who are signing up are those that can make money on the program. They make money because their premiums will be less than what they are spending on drugs today (or would be tomorrow). The Lewin report provides details on who benefits the most, what the average cost is ($37.43/month), and what benefits accrue to individuals with which conditions. It's really well done.

Make no mistake; this is not insurance.

The Part D program is akin to an ATM card where you can withdraw any amount you want, as long as you pay a set minimum price. So, seniors, no dummies when it comes to managing money, can pretty quickly figure it out.

What's missed in the discussion about Part D is the better off seniors are, the worse off taxpayers are. The ATM account has to be funded by someone, and that someone is the beleagured taxpayer.

This is nothing short of bizarre. The Feds are actively and aggressively encouraging enrollment in a program that will cost three-quarters of a trillion dollars over the next ten years, while cutting taxes that will be needed to pay for this program.

What does this mean for you?

Really high taxes in a few years. Followed by a taxpayer revolt. After which Congress will likely authorize the Feds to negotiate pricing with big pharma. Because the only other choice is to cut benefits, and seniors would never allow that.

Posted by Joe Paduda at 11:05 AM | Link to this post | Comments (4)

Listening to all the noise about the upcoming Part D enrollment deadline you'd think if you don't sign up now you'll never be able to. Nothing could be further from the truth.

For seniors who enroll in Part D after the "deadline", their premiums will be increased by 1% for each month post-deadline. So, if the premium is $25.00 now, it will be $28.00 in a year. Now, I know many seniors live on fixed incomes, but the extra three bucks is not likely to break most individuals.

Especially when one considers the decision process seniors are going thru. They look at their drug bills today, see if they can save money by enrolling in Part D, and if they can, they do, and if they can't, they don't. And when they can save money by enrolling, they will.

Plan sellers could change their premiums between now and when a senior decides its finally worth it to enroll, but they can do that anyway.

So the deadline is not a "line in the sand", but it sure makes for good press. It's too bad that the mass media is not doing a better job of educating seniors about the soft deadline, instead choosing to create a false crisis.

Posted by Joe Paduda at 6:58 AM | Link to this post | Comments (1)

Rather than do the 'reinvent the wheel' thing, I'll just refer you to other folks who have been "fact checking" the Administration's claims about the 30 million who have "signed up for" Medicare Part D.

The net is this - out of the 21.3 million eligibles (not covered under some other Medicare or other Rx program), a bit over one-third have signed up for stand-alone Part D.

Matt Holt replays a Wall Street Journal article that (finally!) breaks down the actual enrollment stats by source (something Kate Steadman, Matt, and I have been blogging on for months...).

This makes me nuts because it will be used by some to make the point that governmental approaches to health care coverage do not work. And in this case, they'll be dead on.

Posted by Joe Paduda at 6:16 AM | Link to this post | Comments (1)

Physicians will be getting coal in their stockings from Uncle Sam come Christmas, 2006. It looks like Medicare reimbursement will be cut by 4.6% for 2007, just in time for those holiday credit card bills.

For several years, these cuts have been mandated to take place on the first of the year as part of Medicare's legal requirement to maintain expenses under a "sustainable growth rate", or SGR. Up till now Congressional action has prevented the cuts from taking place, but the budgetary constraints on Medicare growth are likely to force Congress' hand.

While that is bad enough, this is by no means the end of the bad news. According to California Healthline, the potential cut "represents the first in a series of reductions that will decrease reimbursements by 34% over the next nine years, during which time physician costs likely will increase by 22%."

The cuts are a result of calculations by CMS based on 2005 increases in utilization of minor services and increased prices. Not surprisingly, the major driver was utilization.

Price fixes are a blunt instrument, but an effective one, at least for the Feds. While these cuts will reduce Federal expenditures, they will undoubtedly lead to higher costs for private payers, as physicians shift costs to their group health patients.

If this continues for many more years, we will have private payers and their insureds subsidizing more than 50% of the cost of Medicare patients.

Sounds like nationalized health care...

What does this mean for you?

Priivate payers' costs will increase as physicians seek to recoup lost income.

Posted by Joe Paduda at 7:10 AM | Link to this post | Comments (1)

The Washington Post published results of a study that indicate a generally modest level of satisfaction with Part D among enrollees. According to the Post, "Three-fourths of Medicare beneficiaries enrolled in the drug benefit say paperwork to sign up was easy to complete, and almost two-thirds say the program saves them money..."

I'd just point out that seniors are pretty sharp consumers, and the ones who signed up for Part D are likely those who did the math to figure out the cost-benefit.

This is called adverse selection, and is the main reason the program will not be successful over the long term. Simply put, the ones who sign up are the ones who will get more in benefits than they will pay in premiums.

Matt Holt's Fierce Healthcare points out that the Post erred in stating that 29 million had signed up for Part D - this number actually included all seniors with some form of drug coverage from Medicaid, Medicare Advantage, or other sources, and grossly overstates the actual enrollment - which is about 30% of eligibles.

Also of note is this stat - among all seniors surveyed, (those with and without Part D coverage), 41% approve of the benefit and 45% don't. Leaving aside the health policy issues of Part D, it sure does not look like a political win for the current Administration.

Posted by Joe Paduda at 3:05 PM | Link to this post | Comments (3)

I noted a couple weeks ago the problems pharmacies in Texas have been encountering with Part D - slow pays, no pays, missing information, higher staffing costs, and the like. Now word comes that California pharmacies seem to be suffering the same side effects of Part D.

The news comes from the Sacramento Bee (free registration required), and was triggered by reports of a home-delivery pharmacy shutting its doors, at least in part due to payment problems associated with Part D. According to the Bee;

"In a CPA (California Pharmacy Association) survey about Medicare Part D, 55.8 percent of independent pharmacies said the drug program's timing of payments has created a "significant negative financial impact" on their business."

Ohio pharmacies, especially the independents, are also experiencing financial troubles they attribute largely to Part D. While many of these issues were recognized early this year, the financial impacts are only now really starting to be felt.

The independents don't have large chains' financial backing nor buying power; this will make it very difficult for those in anything less than excellent financial shape to survive while Part D is sorted out. As independents account for 43% of all pharmacies, this is no small issue.

The good news is few eligible seniors have signed up for Part D. This presents us with an interesting picture - the success of a program designed to get more drugs to more people may well have killed off many independent pharmacies.

Only in Washington could they have come up with something so creatively destructive.

Posted by Joe Paduda at 2:21 PM | Link to this post | Comments (3)

It’s not often the President of the United States does health benefit plan enrollment meetings, so Bush’s recent national tour touting Part D stands out as one of the more unique moments in health benefits history. But this is more than an interesting factoid, because Bush’s speaking tour came about because of the dismal enrollment rates seen to date. And with the enrollment period ending in less than two months, it does not look like things will get much better.

While the President touts the enrollment of 25 million seniors into the program so far, 20 million of those had coverage before the program started. That leaves a total of 23 million seniors eligible for enrollment – out of which 5 million, or less than 22% have taken the plunge.

As I’ve been saying all along, any voluntary benefits plan with participation under 70% is in trouble – so Part D looks to be in big trouble.

If enrollment stays slow and low, Congress may well have to extend the enrollment period. While Bush has said that is a non-starter, he also threatened to veto any Congressional action on the Dubai Ports deal. This turned out to be a hollow threat, and with Congress increasingly independent of the White House, and Republicans seeking to salvage anything from the ashes of Part D, an extension could well be in the works.

(Bob Laszewski was the first to characterize Bush's role in enrollment meetings)

Posted by Joe Paduda at 7:28 AM | Link to this post

The law of unintended consequences continues to dog the much-maligned Part D program. So far, seniors and states have been depicted as the primary victims of the program's operational, structural, and marketing faults. Now there's news that the program's impact on pharmacists is resulting in political fallout for the White House.

The New York Times reported yesterday that a (free registration required) group of pharmacists from Texas met with White House political boss Karl Rove to voice concerns about Part D. While their complaints include the additional time required of pharmacists to explain the program to seniors and advise them on which of the myriad offerings works best for them, by far the more significant issue appears to be the financial fallout.

Pharmacies' problems include slow payment by Part D vendors; lower reimbursement rates; extra labor costs incurred while (free registration required) pharmacists wrestled with administrative nightmares; and the cost of free scripts given away to seniors lost in the bureaucratic mess.

According to a pharmacist in California: "It's really bad and it's been a disaster for us...Our reimbursement rates have gone down. Medicare Part D has really hurt us."

While the administrative and operational issues look to be solvable, the reimbursement issue will not go away. Pharmacists are discovering that in many cases their reimbursement under Part D is less than it was under Medicare, making Part D significantly less attractive. And that comes on top of a reduction in Medicaid drug dispensing fees that went into effect last year.

According to the pharmacists from Bush's home state, these problems have combined to push many pharmacies, especially the mom-and-pops, to the financial brink. The result is these independent business people, many of which have been ardent supporters of the President, feel victimized by the program. Bush's recent comment that "It's not immoral to make sure that prescription drug pharmacists don't overcharge the system" further alienated pharmacists.

The winners in Part D look to be big pharma, PBMs, managed care firms, and employers. In addition to taxpayers, seniors and pharmacies, losers may include the President and his allies on Part D.

Posted by Joe Paduda at 7:29 AM | Link to this post | Comments (4)

Reports out of Washington indicate Pres. Bush's plans to expand HSAs by increasing the amount individuals can set aside tax-free are not gaining much traction on Capitol Hill. Sen. Chuck Grassley (R Nebraska) and other Republicans are not in favor of the move.

This is not Bush's only problem related to health care. Some 60 House Republicans have refused to back the Bush Medicare budget cuts, breaking wiith the President despite calls for fiscal prudence. One wonders if election year politics has anything to do with this. Actually, there's no wondering.

Republicans, faced with a President with historically low approval ratings (well, pretty close to historical lows) look to be scrambling for cover - and with seniors particularly upset with the GOP over the Part D mess, a cut to Medicare would increase their problems.

The situation on the Hill makes CMS Director McClellan's recent pronouncements about adding HSAs to Medicare (Part G?!) somewhat...puzzling? Faced with concerns about both HSAs and Medicare among their own party leaders, why is McClellan floating this trial balloon? One can only imagine the reaction among seniors who have been tearing their hair out over Part D. If we thought Part D was complicated and hard to explain, I can't wait to see our nation's political leaders on a bus traveling around talking to seniors about HSAs.

What are these people thinking? Or rather, are these people thinking?

What does this mean for you?

Politics in an election year can be good and bad - killing the ill-conceived HSA expansion while not addressing some of the real concerns with Medicare are two great examples.

Posted by Joe Paduda at 8:32 AM | Link to this post

Jason Shafrin at Healthcare-Economist.com has provided a brief timeline of the development of Medicare in the US.

Jason's blog is quite good; heavy on the policy side (no surprise there) with several excellent summaries of data-rich topics such as price elasticity of employer-based health insurance.

I recommend it to fellow policy wonks.

Posted by Joe Paduda at 6:49 AM | Link to this post

There are lots of moving parts, political agendae, and battling priorities in the pay for performance movement, and it is getting even complicated-er. Today's announcement by the AMA that it will produce metrics for assessment of physician quality (registration required) is a clear indicator that financial motivations have, at least temporarily, outweighed physicians' measurement phobia.

There are two distinct but closely related and very powerful forces at work here - one financial and the other political. Financially, the key issue is concern among docs that these "quality indicators" will be used to reduce reimbursement. And that fear is not unfounded. One has to look no further than the latest Federal budget proposal and the annual battle over the mandatory reduction in Medicare physician fees to understand that the phobia has a solid foundation in reality.

Politically, Bush's pronouncements in favor of consumerism as the solution to the health care cost crisis have painted him into a corner. Critics (myself among them) have noted many problems and challenges (read near insurmountable obstacles) with this approach, chief among them its breathtakingly na�ve faith in consumers' ability to somehow ferret out "information" that will enable them to make intelligent, informed decisions about medical care. Faced with criticism on this (and other points), Congress and the administration has been pushing hard to address the information deficit. And one component (but only one) of the consumer information deficit is some means of assessing physician quality. (and as difficult as that is, the complexity pales in comparison to the challenge of proving the efficacy of specific procedures and courses of treatment for specific disease states in defined populations�but that's another subject)

Faced with either doing it themselves or having others do it to them, the AMA took the lesser of two evils.

But it's still an evil. Tthe AMA's decision to develop 140 "uniform measures of the quality of care" by the end of the year is leading to conflict within the medical community, who are angry with the Association for agreeing to do this without first consulting the specialty societies (including orthopedics, neurosurgery and gynecology). And the AMA would not do that lightly; typically physicians band together to form a united front when confronted with challenges to their inalienable right to do whatever they want and charge for it. My sense is the AMA went ahead without the specialty societies precisely because they knew the societies would be a hindrance, and the stakes are too high.

The AMA's public statements about the deal with CMS to produce metrics ring true. If the docs don't come up with measures, then the Feds will; and many commercial payers are well down the quality indicator path. And commercial payers are already doing so. So the AMA has taken the smart approach, deciding to be part of the solution, and taking a leadership role in that effort, rather than their usual obstructionist tendencies.

What does this mean for you?

So far, so good...so far.

The end product may well be measures that are so pedestrian and easily attainable that they are all but meaningless. If that's the case, the AMA will have won the battle and be close to losing the war.

Posted by Joe Paduda at 6:57 AM | Link to this post | Comments (3)

Director of the Center for Medicare/Medicaid Services Mark McClellan was up on Capitol Hill yesterday testifying on Part D, conveying the message that all was going better, improvements were being made, and the cost of the program was lower than anticipated.

When one remembers that McClellan is the brother of White House press secretary Scott, his facile comments and ability to re-interpret reality are more understandable.

I'm reminded of the comments whispered to me by the mother of the young lad named "most improved" at a youth football dinner: "he was so bad at the start of the season that just running without falling down was a huge improvement". While the Part D program is nowhere near running, and has yet to even advance beyond the crawling stage, it is likely to improve. That's the good news. The bad news is the fatal flaw of adverse selection, discussed here ad nauseum, but still eluding the denizens of Capitol Hill.

One highly contentious issue continues to be the law preventing HHS from negotiating directly with pharmaceutical companies on drug prices. According to ABC News; Sen. Snowe (R ME) and what a great name for a senator from Maine...

"questioned the way the program was working and pushed for legislation that would allow the government to negotiate for better drug prices. The initial legislation included no such provision, an omission that at the time was seen as a boon to drug companies.

Snowe and Sen. Ron Wyden, D-Ore., have drafted bipartisan legislation that would give government the power to negotiate prices.

"I can't imagine why we'd spend $700 billion on this benefit and not allow the secretary to maximize the taxpayers' money," Snowe said.

Me neither.

Posted by Joe Paduda at 8:04 AM | Link to this post

A June 2005 CMS Office of the Actuary report estimated there would be a total of 36.8 million enrolled in Part D in fiscal year 2006. Thus HHS Sec. Leavitt's stated goal of 28-30 million enrolled in Part D by the end of 2006 either reflects an updated guesstimate or indicates the previous goal is now viewed as unreachable, or perhaps both. (remember almost 22 million seniors were automatically enrolled in Part D on 1/1/06) Especially when one recalls that the calendar year has three more months than the fiscal one.

As Bob Laszewski points out, historically the big enrollment date for employee benefits and health plans has been January 1. With all the hype, publicity, politicians-on-the-road-show circuit and marketing leading up to that date, and with that date well behind us, it looks very doubtful that enrollment numbers will even come close.

The well-publicized enrollment mess surely has not encouraged seniors to jump into a plan that had already confused them.

So, despite the taxpayer funding 75% of the costs of the program, millions of dollars in advertising and strong support from elected leaders (sell, some of them at least) and six weeks into the program, we have enrolled a grand total of less than 4 million into the voluntary program.

Not exactly a ringing endorsement of a privatized health care plan based on competition in the private sector.

What does this mean for you?

Bad news for advocates of national health insurance provided by private payers. That was me too, but I'm not nearly as convinced today as I was this time last year...

Posted by Joe Paduda at 2:50 PM | Link to this post | Comments (3)

There is an excellent objective review of the role of PBMs in managing Part D costs at California HealthLine. While I hesitate to summarize what is already a summary, here are the main points.

1. The absence of any "transparency" requirements in the Part D enabling legislation makes it impossible to determine without legal investigation how PBMs may benefit from rebates and other confidential financial transactions.

2. There was an amendment proposed that would have addressed this but it was shot down due to the administrative expense ($40 billion over ten years).

3. Self-dealing, namely the direction of patients to a PBM-owned pharmacy, is not illegal, and is a likely fallout from Part D. This is not bad per se, as mail order costs are significantly cheaper, and the home delivery service means folks do not have to get out of the house to get their scripts (which may actually be a good or bad thing).

4. Not noted is the failure of the legislation to allow CMS to negotiate drug prices, not even as a last resort. I don't get this.

PBMs Medco, Express Scripts, and Caremark have been besieged by allegations of impropriety, civil complaints, and customer action. While this PBM-pharmacy manufacturer-pharmacy-CMS-employer-patient thing is enough to make your head spin, this will confuse you even more -

If PBMs screw up really badly and lose a lot of money during the next two years, the taxpayers will bail them out .

What does this mean for you?

less faith in "free-market" capitalism?

Posted by Joe Paduda at 8:03 AM | Link to this post

Health policy expert (and good friend) Bob Laszewski was interviewed on NPR this morning about the Part D program, bringing a little much-needed perspective to this over-spun topic. The net - if enrollment among "voluntaries" (those without present coverage) does not increase 500% the program is a disaster.

Here are the quotes from Judy Rovner's piece:

"�(HHS Secretary) Leavitt said new enrollment numbers show the efforts are working. "In the last 30 days more than 2.6 million people have enrolled in the plan, bringing the total to 24 million," he said. "We're on track to meet the 28 to 30 million goal this year."

But others say those numbers aren't as impressive as they sound. "They talk about well on their way to 30 million being covered," says Robert Laszewski, a political analyst and insurance industry health consultant, "but in fact 22 million people already had drug coverage before Part D went into effect."

Laszewski says the more important statistic is what the 21 million Medicare patients who didn't have drug coverage have done. "Only 3.6 million have signed up through Jan. 15. that's only 17 percent. And that's after more than 2 months of hype, of advertising, of the president going around the country giving speeches about it," he says.

In fact, judging from the early signup, Laszewski says he thinks the program is on track to enroll between 30 and 40 percent of seniors who previously lacked drug coverage, "and that's certainly not a public policy success. It's clearly not a political success for the president and Republicans because so many seniors are upset about the way this thing's been handled."

And Laszewski says the program could be on its way to being a business failure as well. "Because it's important in a voluntary program like this to get a good cross section of people, the sick and healthy both, coming together to finance the program. If we're getting just 30 to 40 percent of seniors, chances are we're getting just the ones who think they can make money on it, which means the insurance companies won't make money on it," he says.

Which means the taxpayers will have to subsidize it. Either the taxpayers or the Chinese, and they are looking increasingly reluctant to keep paying for our profligate government's excesses.

Here's what HHS said about the program's issues.

"Leslie Norwalk, deputy administrator of the Centers for Medicare and Medicaid Services, told the Kaiser Foundation forum yesterday that the Medicare program itself suffered some of the same growing pains when it began 40 years ago. "We probably have a stack over a foot long of newspaper articles between 1965 and 1966 that read almost identical to the articles we see on the front page of every paper today about the difficulty of implementation and confusion and so forth," Norwalk said."

Ms. Norwalk, does that mean you learned nothing in the last 40 years?

What does this mean for you?

As presently constructed, Part D is a loser - for insurers, tax payers, and so far for beneficiaries. It has a fundamental flaw - the only people who will sign up are those who will gain more financially then they will pay in premiums. In fact, the more "successful" CMS and friends are at getting enrollees (up to Bob's 70% number) the more money the program will lose.

What a great country.

Posted by Joe Paduda at 2:14 PM | Link to this post | Comments (2)

A reader asked why I'm in favor of allowing the Feds to negotiate prices with pharmaceutical manufacturers. The reader's colleagues had the idea that since the PBMs and health plans in Part D are already negotiating, why have the Feds involved?

Here's my response.

First, the whole Part D mess is a great example of how overcomplicated programs generate huge problems. Medicaid claimants were getting their drugs just fine before Part D went into effect, and are now having all kinds of problems. While those problems will likely go away in the near future, the problems did occur when the claimants were switched from a governmental to a private program. A little ammunition for the single payer advocates, if nothing else...

1. "price" is an elusive concept in pharma. The AWP and most other pricing mechanisms are based on the price but do not factor in rebates or any other funds transfer mechanisms that effectively reduce the actual, real "price". So, while PBMs are in fact negotiating for "price", we do not know in most cases what the actual real price is.

2. PBMs by definition have much less purchasing power than governments. As an example, the Veterans Administration is the only federal entity that is allowed under the law to negotiate drug prices. The VA is entitled under the law to receive either the minimum 24% discount off the non-federal average manufacturer price or the "best price" the manufacturer gives anyone, whichever is lower. These rates are much more favorable than any PBM gets.

3. The PBMs make money on the delta between what they buy the drugs for and what they charge CMS. So, while the PBM is incented to get the lowest possible price, they are more concerned w maximizing the price to CMS.

Posted by Joe Paduda at 5:49 AM | Link to this post | Comments (1)

More on the adverse selection problems with Part D from a research study by DSS Research. The study indicates more than half of eligible seniors have no plans to enroll in a Part D program. And, their characteristics should set alarm bells ringing at every Part D sponsor:

"Disinterested, non-buyers are lowest users of medical services. Those who said they had not chosen a plan and had no plans to do so take fewer prescriptions; spend less on prescriptions; go to the doctor less often; and make fewer ER, inpatient hospital and outpatient clinic / surgery center visits."

In other words, they are healthy, aren't likely to need the coverage any time soon, and aren't interested in subsidizing the costs of their less-healthy fellow seniors. This is exactly why Part D is a really bad idea, poorly executed too.

Posted by Joe Paduda at 7:54 AM | Link to this post

No, it is not going well. Despite what the spokespeople at HHS claim, enrollment in Medicare Part D has been a failure to date. Perhaps not a dismal failure, but certainly a lot further towards the "failure" end of the spectrum than the "exceeding our expectations" end. Here's why, with thanks to Bob Laszewski for boiling down a complex topic to an understandable conclusion.

Enrollment goals
Only 21.3 million Medicare enrollees have the ability to make a decision on enrollment in Part D. Sure, there are a lot more Medicare eligibles, but many are covered under their employer's plan (11 million), Medicaid (6.2 million of the so-called "dual eligibles"), and 4.5 million under MedicareAdvantage programs.

Of the 21.3 million, 17% have signed up so far. That's right, 17%. As I have been noting for months, the stage is now set for big problems with Part D. You can read about the issues inherent in adverse selection here; briefly it is what happens when only sick people sign up for insurance.

In general insurers need at least 70% of eligibles to sign up to get a good spread of risk. If there is not a good spread of risk, it is highly likely that the only people who signed up are the ones who will gain more in benefits than they will pay in premiums. Result - insurers will lose money hand over fist on this deal (although their losses will be covered by the government, i.e. the taxpayer, for a period of about two years).

There continue to be problems with dual eligibles enrolled in the wrong plans, missing information, coverage issues, etc. But, as Bob points out, that is not the real problem (although it certainly is to those folks who can't get their meds.) The real problem is taxpayers are going to foot the bill for a program that is a poster child for adverse selection.

What does this mean for you?

If you are a drug company, lots of profits. Eligibles, a great benefit. Taxpayers, bad news.

Posted by Joe Paduda at 12:21 PM | Link to this post

The news about the debacle that is the Medicare Part D roll-out has been well-publicized, along with the details that the individuals most heavily impacted are the 6 million dual-eligibles; those folks covered under both Medicaid and Medicare. They should have been automatically enrolled as of 1/1/06, but many states are experiencing big problems.

The key issue appears to be pharmacies are not able to access eligibility information in government databases through the normal EDI links, requiring the pharmacists to call Medicare where they spend hours on hold. Meanwhile, patients aren't getting their drugs.

If this was just a case of a few scripts for Propecia or Viagra going astray, no big deal. But we're talking beta blockers, insulin, cancer drugs, pain meds, scripts for Parkinson's and the like. Life and death stuff.

Many states have provided emergency funding to enable these people to get their scripts. And this will get ironed out at some point.

The larger issue is the canary-in-the-mine nature of the problem. Many health care experts, politicians, and even some politicians who claim to be experts are putting a lot of faith in technology to root out fraud and abuse, enable better delivery of medical care, enhance evidence-based medicine and streamline the delivery of electronic health records. The Bush Administration in particular is highlighting technology as a big part of the "solution" to the health care crisis.

While there is no doubt technology can help address some of the problems in health care, history is also replete with examples of how solutions made problems worse.

Here's hoping Sec. Leavitt and his colleagues at Health and Human Services get their act together before this gets really ugly.

What does this mean for you?

If you are a pharmacist, you don't have time to read blogs unless you do so while on hold.

Posted by Joe Paduda at 10:19 AM | Link to this post | Comments (9)

Medicare says they will compensate doctors for underpaying them if Congress succesfully rescinds the cuts in reimbursement that went into effect the first of this year.

CMS says they will simply figure out how much docs should have been paid and cut them a single check to make up the difference (the cut is 4.4%).

This is predicated on the belief that Congress will actually rescind the SGR cuts. It does not mention how much this bookkeeping will cost the doctors or Medicare processors, who may have to apply this amount retrospectively to specific bills, providers, procedures, etc.

Meanwhile, the Medicare fee schedule is the basis for most workers comp and other state-set fee schedules. Sources indicate some payers are not changing their WC payment schedules to reflect the official decrease, others are, and all are wondering what to do if Congress does something wierd.

Glad I'm not in operations...

What does this mean for you?

More work, probably more mistakes, and absolutely no benefit or increased profit, productivity, or pleasure for anyone.

Posted by Joe Paduda at 6:51 PM | Link to this post

A new study released by the Centers for Studying Health System Change indicates that almost three-quarters of the nation's physicians are still accepting Medicare patients. A relatively small fraction (3.4%) stated their practices were completely closed to all new Medicare patients. Both results were from the 2004-2005 period, and reflect a relatively static level of physician acceptance of Medicare patients.

Medicare access is roughly comparable to access by individuals with private insurance despite the fact that Medicare reimbursement is about 20% lower than commercial payers. The good news for providers is that this rate is much better than it has been; historically Medicare paid only about 71% of private payers' reimbursement for similar procedures.

Interestingly, the volume of services provided to medicare patients continues to increase, with the latest statistics showing an 18% increase in minor procedures from 2003-2005, after an average 6% annual increase in preceding years.

Perhaps physicians consider themselves fortunate to have Medicare and not Medicaid patients. The state-federal run Medicaid program is the worst payer, with rates over 30% less than Medicare.

The report did not delve into Medicare access results.

What does this mean for you?

Medicaid continues to get the short end of the stick, as do its patients and providers.

The data on the sharp increase in utilization in Medicare is potentially troubling; it may represent cost-shifting as providers seek to maximize compensation through additional billing.

Posted by Joe Paduda at 11:38 AM | Link to this post

The folks at SignalHealth have published an interesting paper on practice pattern variation in Medicaid within New York State. I've been interested in variation, small area analysis and the results thereof ever since reading John Wennberg's seminal study of hospital discharge variations in New England, and Signalhealth's contribution is quite useful.

For those not quite as geeky about these matters, practice pattern variation is simply the geographical differences in medical practice for similar demographic groups. Or, why do people in New Haven have significantly fewer hospital admissions than those in Boston (to quote Wennberg).

One of the problems with this somewhat-arcane topic is what do you do with the information? Yes, there are significant public policy implications involved here, but what could an employer, insurer, or managed care firm do about practice pattern variation?

My recommendation to clients is to figure out where differences in practice patterns exist, then either sell health insurance in the "good" places(underwriting approach) or target case/utilization management at the "bad" places (managed care approach).

There actually might be a positive public policy impact from these private initatives - increased attention focused on providers treating outside the norm may impact their practice patterns, and higher prices and reduced availability of insurance in certain areas may encourage employers to seek change.

In the meantime, smart companies can take advantage of the inherent inefficiencies in the market revealed by practice pattern variation analysis.

What does this mean for you?

See above.

Posted by Joe Paduda at 7:46 AM | Link to this post