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 (1)

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)

Update (correction re revenue figures) While flying home from LA yesterday, thru the miracle of airplane wifi I got a note from a colleague stating "MES contributed $13.2 million in revenues in the first quarter of 2011. MES had approx. $129 million in revenues for 2010 (a run-rate of approx. $32 million per quarter).

Am I reading this right??" the net is not exactly, but the earnings report does raise. Few questions.

For those not immersed in this tiny little business, Examworks is a rollup of IME firms, companies that contract with independent doctors to do Independent Medical Exams, primarily for workers comp insurers. Among several other acquisitions last year, Examworks bought MES for some $175 million in cash plus $10 million in assumed debt plus 1.4 million shares of Examworks stock (worth about $25 million) for a total of about $210 million .

If their new acquisition generated about forty million for the first three months of 2010, (deal closed 2/28, so the $13 million was for one month) the obvious question is "was it worth $210 million?"

My colleague was referencing yesterday's earnings release which was followed by a press conference/call last evening. I didn't hear the call, so don't know what was said (will see the transcript by the end of the week). As my investment portfolio demonstrates quite convincingly, I'm no Warren Buffett. But I do know a bit about this business, have helped on a few private equity deals, and can operate a calculator with some facility.

MES' 2010 EBITDA was about $23.4 million. So, Examworks paid a 11x multiple for MES, a rather princely price. Especially given the Q1 revenue figures.

So, if I was on the call - which I was not - I'd want to ask:

What savings are you seeing from synergies? What kind of synergies have you found?

Here's hoping someone did.

Posted by Joe Paduda at 7:10 AM | Link to this post | Comments (2)

We usually find out about things first when there's a report out of California; growing facility costs, surgical implants, physician repackaging, compound meds, narcotic usage are among the cost drivers that received wide-spread attention after publicity in California.

Yesterday's news that medical costs have resumed their seemingly-inexorable rapid climb may be the most troubling revelation yet from the Golden State.

Here's what CWCI had to say about their review of recent medical cost trends:

The results confirm the findings of the earlier studies, again showing a sharp reduction in medical payments immediately after the reforms were enacted in 2004, followed by a distinct trend of increasing medical payments associated with work injuries beginning in AY 2006 and continuing through the end of the study period. This trend has pushed average medical expenditures per claim significantly above pre-reform levels, with all four of the medical expense categories continuing to rise. [emphasis added

According to CWCI, the growth in medical costs was far outweighed by the increase in medical management/cost containment expenses. That's concerning, but without these cost containment investments, medical costs would have been much higher.

CWCI again - "Although the utilization review and the Medical Provider Network access fees represent significant, ongoing medical cost containment expenditures for workers' compensation claims administrators, prior CWCI studies have shown that they are associated with an estimated $12.8 billion to $25.3 billion in medical cost saving between 2004 and 2008. [emphasis added] I would note the terminology is somewhat indirect, cost containment programs are "associated with" the savings. It is impossible to say what would have happened if those programs had not been in place, thus we can only make (well-)educated assumptions.

Which leads to this rather troubling conclusion - despite major reforms, huge investments in what look to be much-more-effective cost containment programs, and ongoing attempts to close regulatory loopholes, medical costs are once again zooming up.

And if its happening in California, a state with pretty strong managed care, it may well be much worse in other jurisdictions.

What does this mean for you?

Do you know where your medical costs are heading?

Posted by Joe Paduda at 7:11 AM | Link to this post | Comments (1)

WorkCompCentral's [sub req] Greg Griggs reported the Division of Workers' Comp's public hearing last week was dominated by providers complaining about moves to reduce reimbursement for Ambulatory Surgery Centers (ASCs) and spinal implant hardware.

I have a [very] tough time ginning up much sympathy for the ASCs.

First, a quick review. Back in 2004, California's Division of Workers Compensation (DWC) set payment for ASCs at 120% of Medicare - identical to hospital outpatient departments. The new recommendation is to pay the ASCS at 100% of the Medicare rate.

According to WCC, several of the provider groups attending the hearing stated they would suggest/encourage their physicians not treat workers comp patients because WC is a hassle and the reimbursement cut would be too deep. There's no question WC is more of an administrative burden than your typical WC case; dealing with UR, complaints from adjusters, employers, and injured workers, documentation requirements and potential for involvement in litigation as well as addressing return to work are all present in comp - and not in Medicare.

And that's precisely why physician reimbursement in comp, is higher than for Medicare - the docs, and their staffs, are the ones dealing with those issues. They should be paid more - and in California, as in most other states, they are.

For facilities, it is hard to see why they should be paid more for WC cases than for Medicare - the bricks-and-mortar, tools, staff, supplies and other operating expenses are what their reimbursement covers.

To listen to the ASC owners, any reduction in comp will be catastrophic: here are a couple of their comments as quoted in WCC, with my observations interspersed:

- "the reason I built the Pleasanton surgery center is because hospitals are so inefficient"... under the new FS this physician's three surgery centers "will have some procedures where it just broke even "and many where there would be a significant loss."

MCM - If hospitals are "so inefficient", how can an ASC not be more profitable at the same reimbursement as those 'inefficient' hospitals? There's a logical fallacy here that refutes the physician's own argument.

- another CEO said "we need to select those parts of the business where we could make a profit, but the reality is a 20% cut is big for any business. The brutal reality is that will impact jobs."

MCM - with all due respect to the CEO, your profits are employers' costs. The "brutal reality" is high workers comp costs do impact jobs - especially for employers forced to pay for your profits.

What does this mean for you?

A helpful reminder that workers comp is a zero sum game - excessive reimbursement profits providers and penalizes employers.

Posted by Joe Paduda at 7:29 AM | Link to this post | Comments (3)

Is medicine science, art, some combination of the two, or something else?

That's not an idle question.

If you're trying to get more scientific about how you practice medicine or what services/procedures/drugs/treatments you pay for, you are likely relying on clinical guidelines to help provide a little more perspective, hopefully one based on something other than best guess or generally accepted knowledge or tribal wisdom.

A recent study may well give you pause - the key finding is rather alarming - many guidelines are NOT based on solid research, but on work that is kindly described as rather more superficial.

Published in the Archives of Internal Medicine, the research found "More than half of the current recommendations of the IDSA (Infectious Diseases Society of America) are based on level III evidence [expert opinion] only." [emphasis added] Note that the research focused solely on IDSA guidelines, which cover a relatively small fraction of all the guidelines in use today. Largely as a result of that conclusion, the researchers concluded "Until more data from well-designed controlled clinical trials become available, physicians should remain cautious when using current guidelines as the sole source guiding patient care decisions."

This isn't exactly new news. This from research on guidelines published in The Journal of the American Medical Association over a decade ago "Less than 10% of the guidelines used and described formal methods of combining scientific evidence or expert opinion. Many used informal techniques such as narrative summaries prepared by clinical experts, a type of review shown to be of low mean scientific quality and reproducibility.18​ Indeed, it was difficult to determine if some of the guidelines made any attempt to review evidence, as less than 20% specified how evidence was identified, and more than 25% did not even cite any references."

The risk here is our sound bite-long attention span will lead some to use these studies to discount guidelines in their entirety, ignoring entirely the "Until more data from well-designed controlled clinical trials become available" recommendation.

Truth is there are lots of guidelines based on standards of evidence significantly higher than 'expert opinion'. The pre-eminent organization in this area, and the one with the most rigorous standards, is the Cochrane Collaboration. And while not all will meet the randomized double-blind control methodology that most believe is the gold standard, many will indeed provide an ample and durable foundation on which to base medical decisions, treatment recommendations, and reimbursement.

With that said, there are organizations that trumpet their 'guidelines' as providing the basis for coverage and payment decisions, when a more-than-superficial examination indicates the 'guidelines' are built on mighty shaky ground.

The Agency for Healthcare Research and Quality maintains a database of evidence-based clinical guidelines; the listing is not comprehensive as many organizations choose to not submit their guidelines for business reasons. However, while not meeting the 'gold' standard described above, the standard employed by AHRQ is far superior to that of "expert opinion only"; AHRQ requirements include "Corroborating documentation can be produced and verified that a systematic literature search and review of existing scientific evidence published in peer reviewed journals was performed during the guideline development." (while their science is solid, they really need to get some English majors involved in the whole writing thing...)

What does this mean for you?

If an organization or vendor is touting their medical criteria or guidelines, prepare - and ask - pointed questions about the methodology, development process, quality of the evidence, and staffing of the effort. The good ones will be only too happy to share their work, and the others will either not know why you aren't impressed and/or be exposed.

A thoughtful piece on ranking the evidence used in medical guideline development can be found here. [opens pdf]

Lots more info on guidelines is available here.

Posted by Joe Paduda at 6:55 AM | Link to this post | Comments (11)

According to AHIP, over the last ten years, private insurers' hospital costs in California are up 159%.

One hundred and fifty nine percent.

Instead of an intelligent and helpful discussion of the causes and impact, there's an all-too-familiary orgy of finger-pointing and 'oh yeah, sez you' as hospitals blame insurers and insurers wail about the unfairness of it all and everyone complains about Medicare.

Time to call Whine-one-one...

Here's what we should be focusing on.

1. Clearly (some) private insurers and health plans cannot - or more likely will not - do anything to control hospital costs. For all their bitching and complaining, this is yet more evidence that health plans have not fulfilled their primary mission - control costs and deliver quality care.

Here's how a healthplan exec put it: "The report's focus on California hospital costs just reinforces what we have been saying the past couple of years. Steep increases in medical costs must be addressed. Our country and state cannot sustain this kind of growth," said Patrick Johnston, president of California Association of Health Plans.

No kidding. I don't get the AHIP strategy - bitch about government intervention then complain that outrageous health care cost inflation isn't your fault.

2. Private insurers are clearly asking for help from government - the same government they pillory in their multi-gazillion dollar PR and lobbying campaign as too incompetent to run a health plan.

3. Controlling costs will require health plans to build small, tight, highly-managed networks of excellent providers, an approach most seem quite unwilling to pursue, citing the 'managed care backlash' from the late nineties. (there are a few notable exceptions)

Execs, that was then, and this is now.

4. If health plan execs think their life is tough, they should sit behind the desk of a work comp claims exec. Work comp is getting murdered by facility costs; many payers would kill for a 159% increase over a decade.

Last week Kaiser Health News reported several large health plans appear to be frustrated with AHIP and are looking to set up their own DC lobbying entity - albeit one that is a 'subcommittee' within AHIP. Evidently they feel the smaller health plans and not-for-profits have hijacked AHIP and aren't representing their interests.

Bob Laszewski sees a historical parallel: "This reminds me of the early 1990s. In the wake of the insurance industry being made to be the bad guys during the Clinton Health Plan debate, many of the largest members exited the historically dominant Health Insurance Association of America (HIAA) for the competing HMO dominated trade association.

At the time, many observers saw a cynical irony in the move; it was those dominant members that drove much of the policy that got the industry in trouble."

What does this mean for you?

At this rate we'll all be covered by the VA health plan in a decade - which is just fine with me. They are the only ones that consistently control costs and deliver quality care.

Posted by Joe Paduda at 7:50 AM | Link to this post | Comments (1)

In an announcement a few minutes ago, healthplan company Humana announced it intends to buy occ clinic firm Concentra for $790 million.

Currently Concentra has about 300 facilities and 240 on-site clinics and revenues of $800 million.

The deal does two things for Humana.

First, it diversifies the health plan's revenue sources; Concentra handles over 10 percent of all work comp primary care, a very different business form Humana's group/medicare business.

More importantly, Concentra's three hundred plus clinics are located near many of Humana's current - and hopefully future - members. This solves a very big problem for Humana - and every other health plan - the dearth of primary care.

Concentra also has very strong relationships with local employers, relationships that Humana is certain to leverage as it rolls out its new offerings in the near future.

Concentra's facilities will be able to provide Humana with a significant advantage in many markets - tight control over primary care costs, integrated electronic medical records, access to wellness and health promotion activities and resources (currently a top priority for Concentra).

This is a smart move for both organizations, and will likely get other big health plans thinking harder about creative ways to address primary care access.

Posted by Joe Paduda at 9:53 AM | Link to this post | Comments (1)

Anne Zieger has written a brief, very compelling piece about how a certain large teaching hospital crossed (at least technically) ethical boundaries by telling a patient she was covered, then that she wasn't, but only after she had a procedure that was billed at $25,000.

I don't know why the insurer didn't cover the procedure, or why the hospital didn't tell her it wasn't covered, just like I'm sure the patient has no idea how she's going to come up with $25k. It could be a breakdown in communication at MassGeneral, or it could be the patient was told and can't remember, or perhaps there's some other explanation.

Regardless, it certainly points out - as if we needed more evidence - exactly how screwed up our financial reimbursement 'system' is.

Yecch.

Posted by Joe Paduda at 3:35 PM | Link to this post | Comments (2)

Cost-shifting - the practice of seeking higher reimbursement from some payers and patients to cover shortfalls due to low or no reimbursement from others - is rampant in the US health care system. Having worked with providers, health care systems, and payers, I can attest to the pervasive nature of the beast - it happens all the time, everywhere.

More evidence came across my virtual desk yesterday in the form of a study by the Insurance Research Council entitled "Hospital Cost Shifting and Auto Injury Insurance Claims" [available for purchase thru IRC]. The study compared auto injury hospital costs in Maryland to those in 38 other states that don't have the all-payer hospital rates mandated in Maryland. Thus, whether a patient is covered by a health plan or auto insurer in MD doesn't matter - all are reimbursed at the same level.

Here are a few of the highlights.

- the "percentage of a state's population without health insurance was found to be the strongest predictor of avearge hospital costs for auto injury claimants"

- "another important predictor of average hospital costs for auto injury claimants is the percentage of a state's population covered by Medicaid"

- IRC estimated of the impact of cost shifting to auto insurers totaled $1.2 billion in 2007.

It is clear that cost shifting is rampant, particularly to property and casualty payers. Work comp payers are particularly vulnerable as their network arrangements are under growing pressure from hospitals seeking higher reimbursement.

What does this mean for you?

Your hospital costs are headed up. What are you going to do about it?

Posted by Joe Paduda at 9:40 AM | Link to this post

There's been a minor flurry of articles about the Veteran's Administration health care system recently, a flurry that is both welcome and a bit tardy. It would have been helpful indeed if these had come out during the furor over health reform. Better late than never.

Let's tackle cost first. The CBO's most recent report indicates the VA does a much better job controlling cost than the private sector delivery system (used by Medicare). According to the CBO,

"Adjusting for the changing mix of patients (using data on reliance and relative costs by priority group), the Congressional Budget Office (CBO) estimates that VHA's budget authority per enrollee grew by 1.7 percent in real terms from 1999 to 2005 (0.3 percent annually) [emphasis added] .2 Though not the decline in cost per capita that is suggested by the unadjusted figures, that estimate still indicates some degree of cost control when compared with Medicare's real rate of growth of 29.4 percent in cost per capita over that same period (4.4 percent per year)."

In contrast, the private insurance sector [pdf] saw premiums increase over 70% over the same period (I know this isn't exactly apples-to-apples, but no matter how you slice the apple, 70% is still a lot more than 1.7%)

How about patient satisfaction? Again, the VA scores better than the private sector.

"In 2005, VA achieved a satisfaction score of 83 (out of 100) on the ACSI for inpatient care and 80 (out of 100) for outpatient care, compared with averages for private-sector providers of 73 for inpatient care and 75 for outpatient care...For VA, the scores for inpatient and outpatient care were 84 and 83, respectively, while the average scores for the private sector were 79 and 81."

In the press, Maggie Mahar posted on Phillip Longman's new edition of Best Care Anywhere; Why VA Healthcare is Better than Yours; quoting Longman's foreword "Health care quality experts hail it [the VA health care system] for its exceptional safety record, its use of evidence-based medicine, its heath promotion and wellness programs, and its unparalleled adoption of electronic medical records and other information technologies. Finally, and most astoundingly, it is the only health care provider in the United States whose cost per patient has been holding steady in recent years, even as its quality performance is making it the benchmark of the entire health care sector."

Merrill Goozner published an interview with Longman, who noted "In study after study published in peer‐reviewed journals, the VA beats other health care providers on virtually every measure of quality. These include patient safety, adherence to the protocols of evidence medicine, integration of care, cost‐effectiveness, and patient satisfaction. The VA is also on the
leading edge of medical research, due to its close affiliation with the nation's
leading medical schools, where many VA doctors have faculty positions."

Longman's book is a timely update to his 2007 edition, providing new insights into the effectiveness of the VA's VistA IT infrastructure and coverage of adoption by the private sector of VistA.

Another recent article noted the system is responsible for 24 million veterans (treating about 5.5 million last year), has a budget of "$50 billion and operates more than 1,400 care sites, including 950 outpatient clinics, 153 hospitals and 134 nursing homes."

The piece quoted Elizabeth McGlynn, associate director of Rand Health and author of a study of the VA: "You're much better off in the VA than in a lot of the rest of the U.S. health-care system," she said. "You've got a fighting chance there's going to be some organized, thoughtful, evidence-based response to dealing effectively with the health problem that somebody brings to them."

Which brings up this question -

Where would you like to get your health care, and which inflation rate would you prefer?

Posted by Joe Paduda at 7:00 AM | Link to this post | Comments (18)

On Thursday I'll be speaking at the Geisinger Clinic in Danville, PA on Comparative Effectiveness; the Payer's ethical dilemma.

This is one of those 'honored to be asked', followed almost immediately by 'I've a lot of work to do' things. And a lot of work it indeed has been, but the deeper I've gotten into this, the more...gratifying it has become.

One example. In my research I came across Jim Sabin, MD. Dr Sabin, clinical professor in the departments of Population Medicine and Psychiatry at Harvard Medical School; he also directs the ethics program at Harvard Pilgrim Health Care and writes an excellent blog, Health Care Organizational Ethics.

Here's a few of the things I've learned from Dr Sabin.

1. Harvard Pilgrim may be the only health insurer in the country that has an inhouse ethics program that includes members, employers, brokers, community members, administrators and physicians. (If there are others out there I'd love to hear about them)

2, This isn't a program set up merely for PR; rather it has studied significant issues, taken tough stands, and been public about its role and results.

3. The issue of ethics in medical research on effectiveness has another dimension, one that I hadn't thought thru or explored in enough detail - health plans and health systems can be and in many cases are 'sites' for research; there are several ethical issues inherent in that role, issues that involve informed consent, public involvement and education, funding sources and use of those funds, the balance of cost and effectiveness, and the potential impact on the physician-patient relationship inherent in many research efforts.

4. Perhaps the most helpful discussion was around the not for profit status of HPHC. As a not for profit, Harvard Pilgrim doesn't have to deal with the primacy of stockholder returns inherent in the for profit world; that's not to say it doesn't have to ensure financial stability and long-term viability. The difference is in what's most important - profits or patients.

The primacy of stockholder returns influences ethical and business decisions, or rather should. For profit companies must consider shareholder returns first and foremost; to do otherwise would be an ethical problem. There are for-profit health plans and insurers that work diligently to deliver services ethically and responsibly, bending over backwards to do the right thing. Aetna is one that comes first to mind. And there are others that don't bend at all.

Which is 'right'? A compelling argument could be made for either position.

Posted by Joe Paduda at 8:52 AM | Link to this post | Comments (6)

Next month I'm going to be speaking at the Geisinger Clinic on the subject of Comparative Effectiveness - the payer's ethical dilemma. I'm fascinated by this issue as it strikes at the heart of the problems with, and perhaps solutions for, the health insurance crisis.

If we are to solve the access and cost problem, payers, providers, and patients must be comfortable with the decision process and methodology. Today, there's precious little 'comfort' with the current 'system'. And that's understandable.

There's a lot of 'art' in medicine; physicians diagnose conditions and recommend specific treatments based on what they think will help, often without much in the way of peer-reviewed research supporting their views. Much is based on their own training and experience and the knowledge passed on to them by their medical school professors and colleagues, provided in specialty society and other medical journals, passed on by medical device and pharmaceutical firms, and learned at conferences and symposia.

Most of the time this knowledge delivers the 'right' outcome; the patient gets better. But in some instances there are at least a couple different treatment options for the patient's condition. Physicians recommend what they think will work based on the patient's unique characteristics (physical, emotional, financial, history), and these 'recommendations' may be several. For example, chronic lower back pain treatment options may include surgery, physical therapy, medications, some of the above, all of the above, and variations of each of the above.

Sticking with the back pain issue, think of this from the payer's perspective. The wide variation in back surgery rates is well-documented, with Medicare data indicating a 500% variation between Ft Myers and Miami Florida. We don't know why there's such a wide difference, but it is safe to assume that the rate is too high in Ft Myers, too low in Miami, or perhaps both.

When a physician in Ft Myers recommends surgery for a patient with a back condition, it is understandable why payers would have concern over the appropriateness of the procedure. To address this concern, payers utilize clinical treatment guidelines in an effort to determine if the recommendation is 'appropriate'.

In some cases, the guidelines provide clear and convincing support for or against the procedure, but in many others the finding is not so clear cut. The patient may have some but not all of the clinical findings that are 'necessary' to support surgery; there may be other medical conditions present that complicate treatment determination; the patient may want one type of treatment for their own reasons.

The result is the payer - and the physician - are functioning in a somewhat grey area.

There are obvious financial factors in play as well. The physician gets paid to do the procedure, the pharma company gets paid if the patient takes their meds, the device company gains revenue for each device sold, the payer saves money if expensive procedures aren't performed, the patient may want drugs for inappropriate reasons.

The ethical issues are apparent. While we would hope that decisions would be based solely on the evidence, there often isn't enough of the right type of evidence to arrive at a clear cut decision. When that occurs, what other factors affect the decision? How are disagreements resolved, and what is that resolution? When there's strong disagreement, what factors, evidence, criteria are 'used' to support the parties' different positions?

If you have experience with situations that speak to this ethical dilemma, I'd appreciate hearing from you.

Posted by Joe Paduda at 7:35 AM | Link to this post | Comments (5)

As anyone who has studied physician practice patterns is only too aware, there is wide variation in how physicians practice; the kinds of tests they order, whether they admit patients to the hospital or treat on an outpatient basis, the drugs they prescribe and the outcomes they deliver.

If we are to gain control over health care costs and ensure patients receive the right treatment and payers get value for their dollars, we have to force more science into the art of medicine.

Texas' Division of Workers Comp's push to publish data [sub req] on work comp physicians' compliance with clinical guidelines is a step in the right direction. While only in the formative stage, and pretty limited at that, the effort is long overdue but nonetheless a critical step in reforming the dysfunctional mess that is our health care system.

Unlike any other good or service, when employers 'buy' health care they have no idea of what that investment returns; they don't know what they get for their dollars. When an automobile manufacturer buys tires, it makes its decision on which tires it buys based on the performance of those tires, their durability, ability to carry the car's weight, handling, cost, and value compared to other tires on the market.

That same auto manufacturer has no idea what it gets when it spends millions on health care. What is the return on investment on the premiums paid and the services bought with its dollars? How does it measure the value of the office visit, the return on the MRI, the 30 day supply of medication?

Because employers don't know and can't measure the return on their medical spend, they focus on spending as little as possible - they have to provide health and workers comp insurance, but want to spend as few dollars as they can because there's no way to know what the return is on that investment.

Which is why Texas' efforts are so important. While one can (and I'm sure some will) argue that they are starting too small, (WorkCompCentral reports that one recommendation is to begin looking "at compliance by doctors with treatment guidelines in ordering MRIs for back and spine injuries"), it is far more beneficial for all concerned to begin the effort, to engage providers, payers, regulators, and claimant advocates than to wait till there's broad consensus on multiple performance measures.

What's great about workers' comp is that unlike group health or medicare or medicaid, the same dataset includes information about return to work, the cost and duration of disability, and the final 'functional' outcome (I'll concede that these data aren't always accurate or consistent). When we're evaluating medical care, the ultimate outcome should always be based on the degree to which the patient recovered and returned to functionality.

What does this mean for you?

Do not let the perfect be the enemy of the good - encourage Texas' DWC to proceed quickly with their initial efforts, engage with them in a positive way, share data, and push for more measures, more results, more openness. Understand that physicians have concerns about outcomes, many of them legitimate, and work with them wherever possible.

Posted by Joe Paduda at 6:47 AM | Link to this post | Comments (1)

Over the next few weeks, I'm going to be writing extensively about the death spiral of the American health insurance system, a fate as certain as it is unthinkable.

As enrollment in private insurance plans declines, and the Medicaid population increases, providers will have to increasingly rely on the remaining private pay patients to cover the costs of the uninsured and, in the case of Medicaid, under-reimbursed. I'll begin the discussion with a story that clearly illustrates the problem.

Hartford Hospital's announcement that its primary strategic focus is to achieve a "Solid Foundation" is prima facie evidence of the future of health care - the continuation of the private insurance death spiral.

In its press release, HH says:

"Negotiating with managed care companies is one key element of Solid Foundation. In 2010, Hartford Healthcare has two more major contracts to negotiate, and these contracts have a common thread - historic underpayments from private insurance companies. Hartford Healthcare physicians and hospitals have been paid too little for too long compared to hospitals across the country with similar services and capabilities."

That's not to say they're out there looking to make billions; HH is aiming for margins in the 1% - 2% range.

But in order to make those modest margins, HH is going to have to fill beds - and the data indicate the Hartford area has too many beds, which will result in higher costs without an improvement in quality of care.

Compared to New Haven, CT, [link opens the Dartmouth Atlas for New England as pdf] Hartford has 23% more excess bed capacity and hospital costs that are more than 10% higher per capita.

I don't know if the hospitalization rate in New Haven is appropriate or not; I don't know if the hospitalization rate in Hartford is appropriate or not. I do know that one of the two, or perhaps both, aren't the 'right' rate.

Hartford Hospital is responding to its need to preserve it's organizational existence, and therefore will push hard to raise reimbursement while filing beds, a double hit for private insurers and employers who are being 'taxed' to help offset declining reimbursement from CMS and an increase in the number of Connecticut citizens without health insurance.

An intelligent approach to our nation's coming health care disaster would be to address the supply issue. Reduce the number of beds in Hartford (while I don't know there are too many in Hartford, that's a pretty good guess).

What does this mean for you?

Until intelligence appears in the health care reform debate, you'll see more and more announcements like Hartford Hospital's. While they work to solidify their financial foundation, we'll be watching our nation's health care system crumble.

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

Probably a lot. Perhaps most. And certainly a big chunk of the bucks your insurer/TPA is paying.

Unlike surgery, imaging, drugs, and other types of medical treatment, PT has long been a bit of a black art.

The clinical guidelines for PT that do exist (with one exception I'll get to in a minute) usually say something like 'two visits a week for four weeks', without describing what is to be done during those visits, who's supposed to do what gets done, and equally important, what shouldn't be done.

That's the primary reason physical medicine (PT and chiro) accounts for about one out of every five dollars spent on medical care in work comp, and would account for big bucks in group if it weren't for tightly written benefit limits (x visits at a 50% copay).

Before the PTs out there start flaming me, know that I'm a believer in the ability of appropriate PT and have seen lots of data that support the use of PT in helping injured folks return to functionality. But I've also audited many work comp claims where the claimant had been to PT hundreds of times. I recall one where the claimant had over five hundred (500) visits over a three year period, with each PT note looking identical to the previous one. The payer couldn't cut off the treatment because the treating physician had ordered it, and the clinical guidelines weren't robust enough to force the issue in court.

Last month the NYTimes had an excellent article by Gina Kolata on just this issue. Here's an excerpt:

"My doctor at the Hospital for Special Surgery in New York, Joseph Feinberg, seems to share my opinion [that much of PT is waste]. "Very often, I think the hot packs, cold packs, ultrasound and electrostimulation are unnecessary," he said, adding, "For sure, in many cases these modalities are a waste of time."

So has physical therapy been tested for garden-variety sports injuries like tendinosis? Or is it just accepted without much question by people who urgently want to get better?

It depends, says James J. Irrgang, a researcher in the department of orthopedic surgery at the University of Pittsburgh and president of the orthopedic section of the American Physical Therapy Association.

"There is a growing body of evidence that supports what physical therapists do, but there is a lot of voodoo out there, too," Dr. Irrgang said. "You can waste a lot of time and money on things that aren't very helpful."

(not in Ms Kolata's article, but helpful for perspective...)

Sometimes, manual stretching by a physical therapist can actually eliminate a sports injury, he said...They are the exceptions. More common are the "voodoo" treatments, he said. And what might those be? None other than ice and heat and ultrasound, Dr. Irrgang said.

Ice and heat, Dr. Irrgang said, "can control pain a little bit" but "are not going to take care of the problem." The underlying injury remains."

But the lack of credible evidence-based clinical guidelines can make it difficult for payers to contest unnecessary treatment, especially in those states where regulations make it tough for payers to stop paying for unnecessary treatments.

There are credible, thoroughly researched clinical guidelines specific to PT, with the best focused not only on how many visits over how many weeks, but what should be done during those visits. I've reviewed all of the guidelines used in work comp for PT, and the most thorough are published by Expert Clinical Benchmarks, a subsidiary of MedRisk. (MedRisk is an HSA client)

Guidelines can't be developed in six months; rather they must be carefully researched, assessed by acknowledged experts in the field, tested against claims and medical billing data, and reviewed periodically. There are far too many companies touting their 'utilization review' programs which are based on little more than the 'same old same old' guidelines that have never worked in the past, or quickly-assembled amalgamations of journal articles, neither of which will be of any help in front of a work comp judge.

What does this mean for you?

If you're serious about managing PT, start with science.

UPDATE

I received an email from a good friend and colleague in the PT business who felt my post was an insult.

Let me reiterate - there are good PTs, and bad PTs.

There is good PT management, and bad PT management.

Some PT is quite useful, appropriate, and necessary, and some is not. When payers don't use solid clinical guidelines it makes it very difficult for adjusters, case managers, peer reviewers, and hearing judges to differentiate between appropriate and inappropriate PT. And there's lots of inappropriate PT in work comp.

In the course of my consulting practice, I've seen dozens of cases where claimants received more than a hundred PT visits over a year, and many where the total number was well over two hundred. This type of utilization is simply indefensible, and unfortunately often results in adoption of regulatory control mechanisms.

Some states have chosen to use caps on visits as proxies for utilization management, with 24 appearing to be the most common limit. This is at best a blunt instrument, but nonetheless it appears to have resulted in lower costs for physical medicine in the jurisdictions that have adopted the '24 visit rule'.

Posted by Joe Paduda at 8:08 AM | Link to this post | Comments (2)

Florida is scheduled to dramatically change the way hospitals get paid to care for workers comp patients, and if payers don't get their act together, they're going to be paying more - a lot more - for medical care.

WorkCompCentral reports today that a hearing, tentatively scheduled for this Wednesday to review the change, will not be held if no public comments have been submitted. That was the case as of the day before Thanksgiving.

Here's why payers should shuck off their post-prandial lethargy and get their comments/objections/concerns in to DWC.

The revised fee schedule would have payers owing hospitals 174% of Medicare for surgeries and 395% of Medicare for other compensable charges. Workers comp is already the most profitable line of business for Florida hospitals, and this methodology makes it even more lucrative.

Clarification - in the original post, I noted that "according to an analysis performed by FairPay Solutions, this methodology will increase payers' costs - today - by 181% for surgeries and 330% for other hospital outpatient services." This was actually from FPS' review of the Florida Dept of Financial Services' 2006 analysis.

Not only are the hospitals going to prosper under this new scheme, work comp networks contracted with hospitals at a percent off charges are going to be rolling in dough, as the charges are going to be much higher, and their 'savings' are going to be as well.

It's not just a price issue - Expect to see many surgeries and other services currently performed on an outpatient basis shifted to inpatient to take advantage of the much higher reimbursement. Thus procedures which were being done in offices will now be billed - at the much higher rates - by hospitals.

This isn't just speculation. South Carolina put in a Medicare+ hospital fee schedule on 10/01/06. NCCI recently filed a 23.7% WC rate increase. Even though SC's adoption of a Medicare+ hospital fee that pays hospitals less than the fee schedule proposed by Florida (140% of Medicare in SC vs 174% to 395% of what Medicare pays being proposed for Florida by DFS), paying SC hospitals more has significantly increased medical costs and utilization in SC.

For more detail on this (and be careful what you ask for), see here and here and here.

What does this mean for you?

If you're a payer, higher costs - much higher costs.

Posted by Joe Paduda at 1:39 PM | Link to this post

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)

Few things I've encountered in my twenty-five-plus years in the insurance business are as outrageous as the prosecution of Sandy Blunt, the former head of the North Dakota work comp fund.

I've posted on this case several times; what originally caught my attention was the announcement that Bryan Klipfel, a former State Trooper had been named the head of the ND work comp fund.

According to a local paper in ND, when asked about his qualifications, Klipfel said "I'm going to work with Bruce (Furness) for a couple of weeks, and I'll just have to learn some of that information as time goes on...My strong points are that I have leadership ability, and I understand human resources, how to deal with people. And I think that's the big part (of the job) right now."

That got me thinking - "He's going to learn on the job? While getting mentoring for a 'couple of weeks"? In a business that is incredibly complex? At a time when investments and reserving practices are critically important? And his qualifications are his understanding of human resources and leadership ability?" - with the result that I dug deep into the story, only to find out what can only be characterized as a witch hunt, conducted for unknown reasons by a prosecutor's office that went way beyond what could be construed appropriate behavior.

The deeper I dug, the stinkier it got. Blunt was convicted of felony charges, which could only be brought because the prosecutor 'rolled up' several smaller charges related to gifts for workers (trinkets, food for parties, etc) and his authorization of sick leave. In fact there aren't any charges that Blunt took money himself.

At the time, I thought 'Ok, so Blunt made a few bad decisions and/or didn't follow all the rules by the book. But a felony conviction for a sick leave authorization and some inexpensive 'gifts'?' Seemed wildly excessive - at any other big organization - public or private - this wouldn't merit anything more than a reproachful email from the corporate compliance officer/legal counsel.

Turns out it was way more than 'wildly excessive'; the Blunt conviction was the result of egregious prosecutorial misconduct.

The prosecutor didn't give Blunt's attorney exculpatory evidence - evidence that would have proven that the sick leave charge was insignificant - it wasn't even a concern to state auditors who had gone thru the state fund's books with a fine-toothed comb. More importantly, the prosecutor didn't give the memo from the state auditor pertaining to this issue to Blunt's attorney.

Anyone who's watched even a little TV knows that prosecutors MUST give all evidence to the defense. Anyone except Cynthia Freland, the assistant state's attorney who tried the case.

I have no idea what in the hell is going on up in North Dakota, but I do know this. Sandy Blunt is a decent, honest, very capable guy who has been absolutely screwed, apparently in no small part by a prosecutor who broke the law.

Blunt is currently appealing the case before the state supreme court, primarily on the basis of the prosecutor's 'roll-up' of charges. His contention appears to be because one of the charges was thrown out, the jury should have been allowed to consider each of the other charges independently, which not coincidentally may well have resulted in acquittal as the remaining alleged offenses may not have met the standard for a felony conviction.

If there's any justice in this country, Blunt will be acquitted and Freland fired and investigated for possible commission of a crime. Regardless, Blunt's reputation will be forever tarnished with his professional life ruined due to some bizarre personal vendetta on the part of an at-least incompetent and possibly criminal state prosecutor.

Disclosure - I've come to know Sandy pretty well. I called him to hear his side of the story earlier this year. He is a very smart, humble, positive gentleman who is a consummate professional. Sandy and I have worked together on a couple projects, and I have been very impressed. Sandy's performance at the ND Fund speaks for itself - and I can - and will - put my personal reputation on the line for him.

It's a no-brainer.

Posted by Joe Paduda at 5:55 PM | Link to this post | Comments (1)

Depends on who you ask. If you ask group practice administrators about how Medicare compares to the private insurance industry, it is pretty darn good - in several categories, Medicare Part B is rated higher than any other large payer.

That's partly due to the lousy performance of some of the private insurers, but administrators actually rate Medicare's responsiveness, transparency, prompt payment, and overall administrative functions highly.

Yes, you read that correctly.

On a five-point scale, with 5 the highest rating, the much-maligned and oft-decried public plan for the aged has an overall satisfaction rating of 3.6, with Aetna at 3.1 and UnitedHealthcare bringing up the rear at 2.5.

Medicare was considered the most timely responder to inquiries, with Aetna second and UHC at the back of the pack; the same standings hold for accuracy and consistency of the payer's responses to questions, speed of payment (Medicare 4.1, Aetna 3.5, UHC 3.1), disclosure of payment policies, and claims appeal process (Aetna was excluded from the report).

Medicare doesn't appear on the list of questions regarding satisfaction with the contracting process, except in the 'willingness to disclose the fee schedule' category, where it is again rated at the top. This isn't surprising, as CMS is not engaged in '2-way good-faith negotiations' nor do practices have 'leverage during the negotiation process'. I don't know if responders didn't ask about Medicare or if Medicare was ranked at all; I'll let you know when I hear back from the Medical Group Management Association (MGMA), the organization that conducted the study.

As with any study or survey, you can find data to support any perspective.

That said, the ratings of the health plans are generally consistent with those reported by the Verden Group, an independent firm focused on helping providers deal with managed care organizations.

Aetna received top marks for clarity of communications, and was rated the most 'provider friendly network' by respondents to the Verden Survey in 2008.

As the public option becomes possible once more, and opponents lament the inefficiency, lousy service, and incompetence of the faceless bureaucrats that run Medicare, it is helpful to know what the people on the other end of the transaction think.

If you listen to them, on a number of fronts, Medicare's a darn sight better than most of the private insurers they have to deal with

Posted by Joe Paduda at 7:13 AM | Link to this post | Comments (6)

A new RAND study reports California's employers are paying $60 million more than they should for surgical implants. Not the surgery, or the follow up care, or the facility costs - just the devices themselves.

According to Jim Sams' piece in today's WorkCompCentral,

"the state's fee schedules allow hospitals to bill separately for the hardware that is used in spinal fusion surgeries plus an administrative fee. [lead researcher for the cost-savings project Barbara] Wynn said the resource-based relative value scale that Medicare uses to calculate the appropriate fee for spinal surgery hardware procedures already includes the cost of the hardware, and California's fee schedule pays 120% of the Medicare rate.

"Passing through WC device costs on top of 120% of the Medicare payment results in paying for the spinal hardware twice, creates incentives for unnecessary device usage, and imposes unnecessary administrative burden," she said in her report.

Wynn said repealing the rules that allow pass-through charges would save $60 million annually."

There's a lot more to the RAND study, but this highlights a big problem area - one much larger than $60 million.

First, why is work comp paying 20% more than Medicare?

Second, surgical implants are not "one and done". It is fairly common for patients to have to undergo surgery to replace defective or incorrectly used devices.

Third, the cost of the implant can often push total expense for inpatient care past the outlier limit, making the stay substantially more expensive.

Fourth, the cost of implants is growing much faster than overall medical inflation - one projection has the spinal implant market increasing 16% per year.

What does this mean for you?

California hasn't fixed this problem yet, despite knowing about it for eight years. And don't think this is unique to the Golden State (a term likely coined by implant manufacturer Stryker); the use of implants is up all over the country.

Posted by Joe Paduda at 9:25 AM | Link to this post

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

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

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

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

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

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

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

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

Posted by Joe Paduda at 9:13 AM | Link to this post

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)

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

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

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

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

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

Here's one example.

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

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

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

What does this mean for private payers?

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

Heads they win, tails you lose.

Posted by Joe Paduda at 6:47 AM | Link to this post | Comments (1)

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

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

What are the implications for health plans? Several.

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

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

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

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

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

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

What does this mean for you?

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

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

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

Here's how.

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

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

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

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

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

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

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

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

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

Good question.

Posted by Joe Paduda at 10:05 AM | Link to this post | Comments (3)

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

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

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

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

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

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

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

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

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

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

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

What does this mean for you?

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

Posted by Joe Paduda at 3:55 PM | Link to this post | Comments (5)

Likely quite a bit. But not for a while.

Here's the quick and dirty. NY Attorney General Andrew Cuomo has been after UHC sub Ingenix for over a year, accusing them and other insurers of defrauding consumers by manipulating reimbursement rates. Yesterday the first round came to a conclusion with the announcement of a settlement. According to the NY Times, Cuomo "ordered an overhaul of the databases the industry uses to determine how much of a medical bill is paid when a patient uses an out-of-network doctor".

Ingenix will pay $50 million to help fund development of an independent charge database by a not for profit; until the new vendor is selected Ingenix will continue to provide the UCR data through its MDR and PHCS products. Cuomo is still pursuing negotiations with other payers including Aetna.

Cuomo voiced concern that UHC, a very large payer, owned the company that determined how much it should pay in some circumstances to some providers (out of network physicians primarily) and therefore an inherent conflict of interest existed.

Some background is in order. Years ago, the health insurance industry's lobbying and service arm (HIAA) aggregated and compiled physician charge data as a service to its members. HIAA collected the data and fed it back to members, who then used the data to determine how much they should pay providers in specific areas for specific services (services defined by CPT codes). HIAA was taken over/disappeared about a decade ago, and Ingenix took over the aggregation and distribution of the data, which has become known as "UCR" for "Usual, Customary, and Reasonable".

For about ten years, all was fine, at least as far as most insurers were concerned. Sure, physicians complained at times and consumers railed about the low reimbursement paid by companies citing their UCR, but the complaints didn't really make any difference until Cuomo got involved. The problem arose when a few folks in New York complained about the amount they still owed providers after their insurers had paid their portion - according to Ingenix' UCR. After a lengthy investigation, Cuomo found reason to charge UHC and other insurers, and that action resulted in yesterday's announcement.

It is too early to tell how this will affect insurers, but there's no doubt it will. Here are a couple things to consider.

= providers that are paid by UCR will find it much easier to challenge the reimbursement, and payers will likely be plenty nervous if all they have to stand behind is a largely-discredited Ingenix database. Expect higher payments to providers and claimants.

- attorneys in other states may see this as a big opportunity for class action on behalf of physicians and claimants.

- payers will redouble their efforts to negotiate reimbursement prospectively with out of network providers.

- policy language is going to change, and change fast. Look for significant changes in the SPD (summary plan description) and other plan documents more clearly describing the payer's liability for non-network provider charges. There may even be some movement back to scheduled payments.

- in the work comp world, there's going to be turmoil and drama in states that do not have physician fee schedules (e.g. NJ, MO). Expect employers and insurers to work much harder to get claimants to network providers, where the UCR issue is much less significant.

There's some precedence here for the property casualty industry. Last year in a suit in Massachusetts, a court found that Ingenix could not prove that the underlying data was accurate, that it was a fair representation of provider charges in an area, or that the results were anything more than "dollar amounts resulting from the statistical extrapolations from whatever bills were actually included in its database."

What does this mean for you?

More power to the providers, higher cost for payers, and more business for attorneys.

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

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've gotten several queries about the future of work comp if/when health reform occurs. The real answer is - no one knows. But I'm happy to take an educated guess.

I very much doubt comp will be directly impacted by or addressed in any health reform bill. It is going to be difficult at best to pass health reform legislation; adding comp is unlikely to increase support but would almost certainly drive work comp stakeholders to lobby against the bill. There's just no upside for including comp in health reform.

Back in the Clinton health reform days, comp was part of health care reform, where it ran into objections (most warranted) from employers, industry types, insurers, and providers. Work comp was addressed in Title X, which "would have required that employees receive all of their health care through the same insurance plan, regardless of whether the injury or illness occurred at home or at work." For lots of reasons, this was a non-starter.

President Elect Obama may well have learned from his future Secretary of State's errors: nowhere do the words 'workers compensation' or similar terms appear in President Elect Obama's website, policy papers on health reform, or in the several speeches he has made on the subject.

Finally comp is not linked to/mentioned in the Baucus plan, Wyden/Bennett Healthy Americans Act, or on Sen. Kennedy's policy pages. These should be viewed as drafts of final bills; if policymakers were actively considering incorporating work comp it is likely we'd have seen it appear in one or more of these bills.

What does this mean for you?

Don't expect to see work comp directly addressed in reform legislation on the Federal level.

But, any reform initiatives will undoubtedly affect workers comp. Here are a couple specifics.

Physician reimbursement
The fall will be highlighted by a debate over Medicare physician compensation. With docs scheduled to see their reimbursement drop by around 20% in 2010, the caterwauling will be heard loud and clear inside the Beltway. Don't look for a major policy change, but rather something to satisfy the physician community and build a little equity for the future. My sense is CMS will increase reimbursement for E&M codes (cognitive services). Almost all WC fee schedules are based on Medicare, so any change in Medicare directly and immediately impacts comp reimbursement. Watch Capitol Hill carefully; if Congress passes legislation signed by future President Obama affecting Medicare reimbursement, clinic companies may be big winners.

This will also be good news over the long term for comp in general. Good work comp medical care requires physicians to spend time listening to patients, and talking with employers, adjusters, and case managers. Docs don't get paid (at least not adequately) for this time, therefore any increase in reimbursement for office visits will encourage docs to spend time with claimants instead of doing procedures. Well, at least not discourage doctor-patient discourse...

Medical care delivery
If there is a major reform initiative passed, there will likely be fundamental changes in the way health care is delivered, the virtual ‘location’ delivering that care, and the evaluation of care.

And that would dramatically affect workers comp.

Today, health care is delivered episode by episode; diagnosis, care plan, treatment, assessment, and repeat steps 2-4 until the situation is resolved. This episodic model of care will (over time) change to one based on functional outcome management – care focused on returning the patient to functionality, and maintaining that functionality.

This will be in large part driven by the growing influence of chronic care and need to develop a better care model to address chronic care, one that will heavily emphasize patient education and monitoring. It will also require a different ‘location’ of care – the medical home.Dr Kathryn Mueller of the University of Colorado sees the medical home model as a big part of the solution in workers compensation, as the medical home may well be the dominant model for delivery of care throughout the health system in years to come. Studies indicate the home decreases medical errors and improves the quality of care delivered. Notably, the medical home model is NOT a primary-care gatekeeper model – but rather a model wherein the physician is tasked with and responsible for coordinating care and educating the patient.

Drugs
If Congress calls for the Feds to negotiate drug prices, this will affect comp in one of two ways. Either comp payers will be able to piggyback on the Feds' negotiated rates, in which case per-pill prices will come down, or (more likely) comp payers find their per-pill prices increase due to cost shifting.

Posted by Joe Paduda at 8:33 AM | Link to this post | Comments (2)

Companies routinely pay outside experts to help them improve their products. Louisville Slugger pays baseball players, Porsche pays race car drivers, medical bill review companies pay consultants - it's just common practice.

Companies that make surgical implants - Zimmer, Biomet, Stryker et al - also pay experts. But there's a bit of a difference; these companies are directly benefiting when their 'experts' implant a device in a patient. Nissan pays a driver to test a car, not to sit down with potential customers and, as part of a much larger transaction, include a car.

That's what surgeons are doing with and for the implant firms. Patients have just about zero say in which manufacturer's device is implanted in their body - that's up to the doctor. But the physicians often are the source of innovation; as they use the devices and tools to implant the devices, they make improvements, tweak the devices and enhance the product. Docs who perform this service contribute to the success of the device manufacturer by making their product better. While this is certainly a valuable service, it is difficult to discern how this is materially different from TRG hiring Patrick Long to drive its cars and provide feedback to improve the company's products.

The Feds got involved in the industry, and after a lengthy investigation busted the five leading makers of artificial joints last year. That's a bit of an exaggeration; the Feds and device makers reached a settlement that required public disclosure of the company-physician financial relationship and a total fine of over $300 million. As part of the settlement, device manufacturers were required to post lists of physicians and payments to those physicians.

These lists are revealing. Past disclosures from manufacturers indicate 48 docs were paid more than a million dollars each for their services. In total, Zimmer et al paid 6500 docs over $800 million over a four year period. Zimmer decided to get in front of the problem, and has started publishing names of physicians it has worked with and the amounts paid to those docs during 2007. A few of the payments are rather stunning; Dr Jorge Galante of Clinton WI was paid $1,951,810; Kenneth Gustke MD of Tampa received $582,648; and Aaron Hoffman MD of Salt Lake City was paid $4.3 million.

I don't have a problem with Dr Hoffman being paid by Zimmer; he has fourteen patents and likely is paid royalties by Zimmer for sales of devices incorporating these patents. The ethical issue is rather more complex than a payment for royalties. Orthopedic implants are outrageously expensive; my sense is this is in large part because they are difficult for health plans to accurately and fairly price. Physicians who own patents on devices with little price elasticity can make relatively minor changes and earn huge rewards from the manufacturers - who can charge more for the 'enhancement'.

In my post yesterday, I noted consumers attribute much more of the blame for rising health care costs to health plans than to other players. I'll bet their opinions will change if and when they find out the doc operating on their hip got paid over $4 million by the company that makes the device he's bolting onto their pelvis.

What does this mean for you?

Health costs are out of control, and these outrageous payments are one more example of the corrupting nature of the American health care system.

Posted by Joe Paduda at 6:13 AM | Link to this post | Comments (1)

Last week I posted on the perils of evaluating hospitals on the basis of 'discounts', noting that some hospitals' charge to cost ratios are so high that it is relatively easy for them to offer large discounts - it's the old 'raise the price by 50% and offer a 30% discount to make them think they're getting a deal' technique.

(note - I got a call from and spoke with Tenet's Chief Managed Care Officer about the post; he's going to send me material supporting his claim that Tenet (the subject of last week's post) has reformed its ways. Will post on this if/when I hear more)

Hospitals have adopted this policy in part due to low Medicare and Medicaid reimbursement and the rising number of uninsured (and in part to suck more money out of insurers' coffers). Hospital execs rationalize their pricing by noting (accurately) that Federal law requires them to treat everyone, regardless of their insurance status, so treat they do. (It's called EMTALA and is discussed here). Medicaid is a notoriously lousy payer, and Medicare, while better, doesn't do much to offset the costs of indigent care and underpayments from Medicaid. So, the hospital charges private payers a lot more, a policy known as cost-shifting (and one not only well-documented but acknowledged by many hospital execs).

Part of the reason Tenet jacked up charges ten years ago was to game the Medicare reimbursement system. By inflating charges, more of their patients became 'outliers', and therefore Tenet got paid more - even though the patients' severity wasn't materially different. Tenet paid a $900 million (!!) fine for this behavior, and by several accounts has been working to clean up its act. The Tenet case shows why it is all but impossible for states to 'reform' health care. About a third of all medical care is paid for by the Feds (states contribute to Medicaid, but reimbursement is largely driven by CMS). CMS' reimbursement methodologies are also widely used by commercial payers, and when the Feds change policies, the impact moves thru the health care community like a tidal wave, swamping some businesses, flooding others, and occasionally lifting others to high ground.

Refusing to pay for never-ever events and off-label use of Actiq, changing hospital DRGs, pharmaceutical pricing methodologies, changes in physician reimbursement - all are recent moves by CMS and related entities that have sent shock waves through group health, individual insurance, workers comp, pharmacy, hospital charge policies, and health plan medical policies. The effect is no different on state-specific reform policies.

Any state initiative will find itself trumped by CMS. And CMS may well be forced to make drastic changes, changes that up until a few weeks ago were unthinkable. We are heading for a deep economic recession/decline/really bad time, one that will force Congress to think the once-unthinkable - make major changes to entitlement programs. As Maggie Mahar pointed out yesterday,

"Make no mistake: we’re heading into a long and deep recession. And it will effect everyone. Both blue collar and white collar unemployment will soar... (Today, speaking at Harvard, Bill Gates predicted that unemployment will hit 9 percent. Whatever you may think about Gates, he is good with numbers.) Not only will people lose their jobs, they will lose their employer based insurance..."

Maggie knows of what she speaks - she covered the financial world for Barron's for years and wrote a best-selling book about the stock market boom.

What does this mean for you?

We're in a very deep financial hole, one that will force major changes in health care and health insurance. There's a decent chance that change will begin with reform of the insurance markets on a Federal level. And don't be surprised if next on the table is big changes in Medicare and Medicaid reimbursement, changes that will reshape the health care industry in ways unthinkable a month ago.

Posted by Joe Paduda at 6:32 AM | Link to this post

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

Logical, and likely wrong.

Let's take Tenet Hospitals as an example.

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

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

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

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

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

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

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

And:

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

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

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

What does this mean for you?

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

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

Posted by Joe Paduda at 6:21 AM | Link to this post | Comments (3)

Some hospitals in Connecticut are throwing what amounts to a temper tantrum. They are outraged that workers comp payers are actually paying them according to state law.

Strange, but true.

Sources indicate that Yale-New Haven Hospital and their affiliates have informed several payers that they will no longer provide elective procedures for the offending payers' insureds. There are also reports of an effort on the part of Y-NH to get other hospitals to join in the fun.

The reason for their displeasure is several payers have ditched their hospital networks and begun paying hospitals according to the Workers Compensation Act.

The Act reads, in part, "The liability of the employer for hospital service shall be the amount it actually costs the hospital to render the service".

But many payers in Connecticut (including the State itself) are not paying costs, but paying billed charges, or something close to it, and they've been doing it for years. Workers comp has been a huge moneymaker for Connecticut hospitals; on average commercial payers reimburse between 41.65% and 45.14% of charges.* Contrast that with comp payers' reimbursing hospitals at billed charges or a few points off (in a network arrangement).

*(The variation between 41.65% and 45.14% depends on which measure you use; the former is based on recent data, the latter from data reported to the State). I'd also note that commercial payers are paying 122% of costs (again from CT State statistics).

Sources also indicate the good folks from Yale (several of whom live in my town) understand, and even agree with, the methodology the payers are using to reimburse the hospital. But they don't want to accept that reimbursement, as they would rather go back to the good old days when they were making a fortune off all workers comp payers (when hospitals were being paid three to four times more than they should have been). (Most payers are still paying billed charges or close to it)

I'll leave aside the obvious fiduciary responsibility issue here, except to note that as a CT taxpayer, I'm not too happy that the State has been paying way more than it should to hospitals for State employees' workers' comp bills. Instead, I'll note that this amounts to a hidden tax on employers - all of whom are forced by regulation ot buy workers comp insurance. Those employers (and their insurers) that are paying billed charges, or a discount off billed charges, are helping those hospitals to pay for care delivered to those without insurance, make up the underpayments from Medicare and the state's HUSKY program (kid health insurance), buy big new machines and build new facilities.

That's nice, and its also grossly unfair to employers.

Workers comp insurance companies need to "Man Up" and not give into what is tantamount to blackmail on the part of providers. Policyholders need to tell their insurers not to spend one dime more than legally required.

The US health care system is incredibly screwed up, unfair, and dysfunctional, and hospitals are a key part of that system. But it's not up to Connecticut employers and taxpayers to solve hospitals' financial problems by paying a hidden tax.

Posted by Joe Paduda at 12:07 PM | Link to this post

We're going to stick with the hospital story for just a bit longer. So far posts have discussed the significant profits generated by workers comp payments, the inability of comp networks to manage facility costs, and a cornucopia of other hospital-related issues.

The thesis statement for all could be summed up thusly - Hospitals are gaining power at the expense of commercial payers.

Here's the proof.

The largest hospital/surgery center company in the nation, HCA reported a 21.6% jump in profits in the last quarter. Revenues "increased 3.7 percent to nearly $7 billion despite a decline in surgeries and flat admission numbers. "

Lets parse that statement out.

Profits were up much more than revenues, indicating the company (also known as Hospital Corp of America) has been able to keep expenses under control while delivering higher margin services.

Revenues were up even though surgeries (which tend to be very profitable) were down (albeit slightly at 0.5% for inpatient and 0.7% for outpatient facilities) and admissions were flat. The only way that can happen is by changing the mix of services delivered and improving the payer mix (think private insurance instead of Medicaid).

HCA's success wasn't an anomaly. Unlike the other hospital companies, Universal Health Services (could we please get just a bit creative with the company names here?) enjoyed an increase in profits and revenue. UHS saw its profits increase 35%, driven by a big increase in inpatient admissions (up 8.5%) and smaller, yet significant increase in the length of hospital stays (up 3.1%). This wasn't just a one-quarter event; looking at the first half of the year, revenues were up 8% and net income rose 34%. Note that UHS is one of the smaller for-profit hospital companies with fewer than 31 hospitals.

Revenues and profits were also up at HMA, with top line increasing 3.9% despite a decline in patient volumes. HMA, which operates 58 hospitals, also had a good first half of the year with profits almost doubling on a 4% increase in revenue. Interestingly, surgery counts also declined slightly at HMA over the same quarter in the prior year.

We'll round out the review with a quick look at Tenet - the 58 hospital company saw admissions up almost 2%, driven mostly by 'governmental managed care admissions' which jumped 16%. (I wonder, does that mean the Medicaid and Medicare Advantage programs are seeing higher inpatient admission rates? or is it just a shift from unmanaged Medicare?) Tenet also enjoyed a 7.5% increase in 'same hospital commercial managed care revenues'. (which brings up the rather uncomfortable question - is Tenet a preferred partner with the big managed care companies, or are the big managed care companies seeing a jump in hospital admits?)

Notably, Tenet's revenues were up 6.3% on that 1.9% increase in admits, a rather surprising jump given that the Feds are not exactly a generous payer. And digging deeper into Tenet's earnings report, one learns that commercial insurer admits actually declined 2.2% and patient days dropped 3.1%, while outpatient visits were also down 1.8%. So, revenues were up 7.5% on fewer admits and shorter stays...Cost-shifting, perhaps?

Here are a couple statements from Tenet's earnings report that shed additional light on the situation.

• Outpatient pricing outpaced the growth in inpatient pricing due to an improving mix of procedures performed in our outpatient facilities.
• Pricing improvement was evident across all key metrics, primarily reflecting the improved terms of our commercial managed care contracts [emphasis added]

And this from Forbes "Price increases from better terms in its commercial managed-care contracts also helped boost Tenet's profit and revenue."

Looks like a trend to me - hospital revenues are up slightly, profits are up much more than revenues, and this despite (mostly) flat patient volumes and lower surgical volumes.

The source of all these profits? Commercial managed care companies.

Which brings us back to a question I asked a while ago; "what exactly are 'managed care' companies managing?"

Thanks to FierceHealthcare for the heads up

Posted by Joe Paduda at 7:08 AM | Link to this post | Comments (3)

Pundits (myself included) are detecting a sea change on the Hill - the health plans' power meter is just barely registering while physicians are pegging the needle. If you're wondering why physicians were so adamantly opposed to the Medicare reimbursement cut, it is because their compensation is barely keeping up with inflation.

Recall that the GOP was going to cut their Medicare reimbursement by 10.6% (while also reducing Medicaid and other Medicare-linked compensation). And this after physicians had gone several years with their income not even keeping pace with inflation.

According to the latest data from 2007, primary care docs enjoyed a 3.35% increase in compensation after inflation (6.3% before accounting for the 2.85% CPI uptick last year). This rather modest increase is way better than their specialist colleagues saw - inflation-wise, specialists broke even. However, specialists' median income was almost a third of a million bucks, while specialists were just over $182k, so the primary care docs have a long way to go to catch up.

And some of them have a really really long way - median general practice income was $119k, whlle Family practice docs made $129k.

Not bad money, but not exactly huge bucks either. The other part of the equation has to do with job satisfaction - if you love your job, you're likely to be less concerned with how much you make. But if you don't love your job, and some damn President/Congressperson is threatening to cut your already low income, while paying big health plans billions more than they should...

Job satisfaction amongst primary care docs is declining. 60% of PCPs (primary care practitioners) would not choose primary care if they got a do-over. 39% would pick surgery or diagnostics, and over one-fifth would not choose medicine.

Looking at changes from 2006 to 2007, the percentage of docs who counted themselves as 'very satisfied' declined from 24% to 18%, while those who were 'very dissatisfied' went up from 9.4% to 13.2%.

So what do these newly-empowered, angry docs want?

36% want a Canadian-style single payer system.

66% agreed that the "US should move to a market driven system that reduces the role of third party payers."

(note these were separate questions and therefore don't add up to 100%)

Yes, working with physicians has heretofore required cat-wrangling skills. And their egos require outdoor meetings as no hall is big enough. And all want more for their specialty and their patients are sicker than average. And they are all better than average.

And they've recently found out what they can accomplish when they stop acting like Augustus Gloop and work together.

Thanks to FierceHealthcare for the triggering tip.

Posted by Joe Paduda at 6:16 PM | Link to this post | Comments (2)

Workers comp medical expenses account for less one-fiftieth of total US health care costs - $30 billion(see WC report pdf) out of $2 trillion.

Yet workers comp generates almost one-sixth of hospital profits.

Here's how the numbers work. About one-third of comp medical payments are issued to healthcare facilities. The average US hospital cost-to-charge ratio (what it costs the hospital to provide a service compared to what they bill for that service) is approximately 31.2%; in comparison workers’ compensation payers reimburse about 55% of hospitals' billed charges.

Thus workers comp payers pay hospitals 176% of their costs.

(There is another, very big argument over the methodology hospitals use to calculate their 'costs', my opinion is there is conclusive evidence that costs are exaggerated and overstated)

In dollar terms, in 2007 workers comp insurers and self-insured employers paid facilities roughly $9.1 billion. $3.9 billion of that $9.1 billion was profit for hospitals.

The entire US hospital industry generated profits of roughly $25 billion, workers’ compensation – which you will remember represents only about 1.5% of total hospital revenues – accounts for approximately 16 percent of all the profits for US hospitals.

Few dispute that workers comp insurers and SI employers should adequately reimburse hospitals. It is equally indisputable that under the current systems, comp payers are paying much more than their fair share.

How much should workers’ compensation payers pay? According to Vincent Drucker of FairPay Solutions, "something between what Medicare pays and the costs + twenty percent that group payers are reported to be paying." (FPS is an HSA client)

Why are comp payers overpaying hospitals? That's a subject for a later post.

Posted by Joe Paduda at 7:53 AM | Link to this post | Comments (3)

Providers are now rating payers. And in the ratings game, Aetna looks to be doing better than other big health plans.

There are several 'payer rating' sources now available, each with their own approach. One of the more intriguing is published by the Verden Group. The VG tracks the policy changes that payers make on a daily basis, alerting providers "to any administrative and clinical policy, procedure and reimbursement changes occurring in the networks in which you participate, at the time these changes are occurring." Think of VG's service as a 'policy aggregator' that 'pushes' notice of policy changes out to specific providers (providers that sign up for their Alert service).

From a broader perspective, this business model is a classic example of niche identification. Providers are forced to proactively monitor the websites of the networks in which they participate for changes in areas such as prior authorization procedures, mailing addresses, credentialing requirements and processes, claims submission and approval, benefit design, and communications standards and protocols. VG removes the burden from providers - albeit for a fee.

A side benefit of all this monitoring and data collection is VG's quarterly Managed Care Company Ratings report. The Report analyzes each major health plan's impact on providers in the areas of cost of compliance, timeliness of notification of policy changes, volume of changes, and ease and clarity of communication. VG then weights these areas and the result is an aggregate rating.

In contrast, athenahealth's payer rating system, PayerView(sm) is designed to evaluate the "ease of doing business with a payer." Compared to Verden, PayerView appears to cover a broader spectrum of the provider-payer relationship, and is more financially oriented, although it does consider administrative performance and medical policy complexity (similar to Verden). athenahealth acts as a billing agent for their provider clients, and thus has extensive, hands-on knowledge of the gritty business of submitting bills and getting paid (or not).

(observation - while athenahealth's information depth is certainly impressive, it is not very accessible - they do a poor job of explaining acronyms and use jargon extensively with little explanation)

I'll let interested readers puzzle thru athenahealth's PayerView on their own. The good news for Aetna is they come out on top - paying claims quicker and more accurately than other health plans. The health plan also reduced its denial rate by 10.6%, and remained the fastest paying health plan. Aetna was closely followed by CIGNA.

Aetna looks pretty good to the folks at Verden too, scoring at the top of the 18 payer list in cost to provider (changes that added admin expense, altered reimbursement, increased admin time and/or complexity) and clarity of communication.

One of their lower-weighted areas is notification period - the time between initial posting of a policy change and that change's effective date. If there's one thing that drives providers nuts it is the denial of a claim or procedure because the provider did not follow a process that no one told them about.

HealthNet ranked worst in this area followed closely by GreatWest. But most health plans were only marginally better.

This reflects poorly on health plans; providers will likely (and justifiably) assume this is due to a lack of concern about these issues on the part of management.

What does this mean for you?

Health plans that understand the importance of the provider - and do more than just talk about it - are going to do better than their rivals that don't value providers.

Thanks to fiercehealthcare for the initial heads-up.

Posted by Joe Paduda at 6:47 AM | Link to this post | Comments (1)

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)

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

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

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

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

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

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

Thanks to Fierce Healthcare for the heads' up.

Posted by Joe Paduda at 6:24 AM | Link to this post | Comments (3)

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)

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

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

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

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

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

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

Can you sense the frustration?

Posted by Joe Paduda at 7:21 AM | Link to this post | Comments (1)

Alex Swedlow and the good folks at CWCI have published a study that clearly demonstrates the amount of waste in the US health care system, waste generated by nothing other than greed and lousy medicine. While the analysis focused on workers comp, the lessons cross all coverage.

The great thing about workers comp is that unlike health insurance, payers are actually concerned about and financially motivated to ensure claimants get the amount and type of care needed to help them recover and get back to work. And there is a wealth of data to evaluate the effects of medical treatment on RTW.

California changed its workers comp rules a few years ago to limit the number of physical or occupational therapy or chiropractic visits a claimant would get covered by workers comp. The limit was 24 (for each, not together), which all the data suggest is more than adequate to take care of 90%+ of WC medical conditions - surgical or non.

So, what happened?

The average number of PT, OT, or chiro visits per patient dropped by almost half, and the number of patients with more than 24 visits dropped from 30.4% to 9.7% (a decline of 68%). Costs declined dramatically as well.

But did this lead to poorer outcomes?

The results, while encouraging, are not as clear.

While there are data from California that appear to show reductions in the length of disability, the results are muddled by a cap on benefit payments that was also part of the WC reforms. The duration of disability (the length of time claimants were out of work) did decline post-reform. Comparing disability duration two years post-injury, the median length of disability declined by 21.4% (average was down 17.4%).

My sense is the reduction in physical medicine visits contributed to the drop in disability duration - without endless visits to PTs and Chiros to receive 'care' that was not helping them recover but merely extending the process, claimants were more likely to be released to return to work.

There's a lesson here for the non-workers comp world, and policy wonks in particular. It is this - providers overtreat, to the detriment of the patient and the payer. Draconian measures such as flat limits on the amount of treatment do work.

With health reform on the horizon, here's a great example of the waste in our health care 'system', waste that benefits the provider.

Posted by Joe Paduda at 6:26 AM | Link to this post | Comments (4)

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)

Among thought leaders in occupational medicine, three of the most influential have to be Ed Bernacki, Gideon Letz and Jen Christian. All three are speaking at a workers comp conference in San Diego in early February, along with Barry Eisenberg, Exec. Dir of ACOEM and Larry Yuspeh of the Louisiana Workers Comp Corp. (LWCC developed one of the first physician-centric delivery systems in WC). Conference details are here.

The conference is sponsored by HCN, a firm working in the WC space. HCN will waive the registration fee for Managed Care Matters readers; email dparkerAThcn-usDOTcom for details.

Note - Neither my firm nor I have any relationship, business or otherwise, with HCN or any of their principals. This conference looks to be different in that it has a strong clinical focus, a concentration that is missing from other trade functions.

Posted by Joe Paduda at 9:33 AM | Link to this post | Comments (3)

The cost of surgical implants is increasing by over 7% annually; and even more in workers comp spinal cases. In audits my firm has performed we have seen costs ranging up to $27,000 for the hardware and related bits and pieces used (or allegedly used) in a neurosurgery case.

It looks like one of the contributors to those high costs is that old reliable - fraud. Blackstone Medical, a spinal implant manufacturer, is in deep legal trouble, facing allegations that it paid doctors kickbacks to use the company's devices.

And as I've noted before, surgeons select the specific devices used in surgeries, with little or no apparent concern about the cost.

Continue reading "Why implants cost so much" »

Posted by Joe Paduda at 1:31 PM | Link to this post | Comments (4)

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

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

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

Posted by Joe Paduda at 7:53 AM | Link to this post | Comments (1)

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

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

Continue reading "Two can play that game" »

Posted by Joe Paduda at 6:14 AM | Link to this post | Comments (4)

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

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

Continue reading "Humana's good effort" »

Posted by Joe Paduda at 7:29 PM | Link to this post | Comments (2)

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)

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)

If you want to know why you are getting more physician bills with meds on them, it's simple - physician dispensing generates big profits.

Continue reading "Physician dispensed meds" »

Posted by Joe Paduda at 8:44 AM | Link to this post | Comments (3)

Texas just released workers comp medical payment data for 2005 and 2006. There's some really great stuff here.

Continue reading "Applause applause for the Lone Star State" »

Posted by Joe Paduda at 8:37 AM | Link to this post | Comments (3)

The manufacturer of oxycontin agreed to pay $20 million in penalties for encouraging docs to prescribe the drug more often than approved by the FDA.

And that's just for starters.

Continue reading "Really expensive off label shenanigans" »

Posted by Joe Paduda at 10:46 AM | Link to this post | Comments (1)

Richard Eskow of Sentinel Effect reports on the latest revelations about a bit of book-cooking at the VA. Seems the VA has been a bit, or perhaps more than a bit, overly positive about its record.

More troubling than boosterism is the allegation that the VA selectively reported results, and even fabricated conclusions to make the system appear better than it actually is.

As a fan of the VA, I'm concerned about two things.

Continue reading "The VA's been cooking the books" »

Posted by Joe Paduda at 7:13 AM | Link to this post

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)

The folks over at Fierce Healthcare have posted their Hospital Innovation Awards. These aren't the standard JCAHO-type plaques, but rather focus on creativity and novel solutions to common problems.

Continue reading "Hospital innovation" »

Posted by Joe Paduda at 5:14 AM | Link to this post

Big pharma woos docs with free food, trips, and samples. Now that's a "dog bites man" story. The reason for the ongoing marketing to docs is obvious - more contact, more drugs sold.

But the world is starting to look much more closely at the pharma-physician relationship, and that examination is likely to bring changes.

Continue reading "Direct to Doc marketing" »

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

Just to be clear, I'm talking about the ones used in spine surgery, bone and joint surgery, and other orthopedic procedures. The use of surgical implants has grown dramatically, as have their prices, and the impact of utilization and price means big bucks for WC payers.

Big bucks as in $72 million in California alone. As in adding 11% to 33% to inpatient hospital bills in the Golden State.

Continue reading "Implants" »

Posted by Joe Paduda at 7:15 AM | Link to this post | Comments (3)

Jason Shafrin reports on the link between physician compensation mechanisms and surgery rates.

Here's the "money quote" -

"When specialists are paid through a fee-for-system (FFS) methodology rather than a capitation or salaried basis, surgery rates increase 155%. There is suggestive evidence that surgery rates fall when primary care physicians are paid on a fee-for-service basis compared to capitation or salaried payments."

Not addressed is the key question - is the rate of surgery appropriate under either compensation mechanism?

Posted by Joe Paduda at 7:24 AM | Link to this post | Comments (2)

Continue reading "Docs don't think about patient costs" »

Posted by Joe Paduda at 4:29 PM | Link to this post | Comments (2)

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

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

Continue reading "those damn vendors" »

Posted by Joe Paduda at 8:20 AM | Link to this post | Comments (6)

More evidence is emerging about the rather minimal impact medical malpractice has on medical costs.

Continue reading "Debunking the med mal monster" »

Posted by Joe Paduda at 5:49 AM | Link to this post | Comments (14)

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)

Controversy over treatment types, overly generous payments to physicians to endorse a product, lawsuits alleging faulty research, the FDA under fire for inadequate evaluation, fights over reimbursement for a new procedure, and confusion over the usefulness of a common and very expensive procedure.

If you want to know why the US health care system is so dysfunctional, I give you low back pain.

Continue reading "my aching back" »

Posted by Joe Paduda at 8:11 AM | Link to this post | Comments (2)

Health care outsourcing to India was a $300 million business last year. And a just-released Health Affairs article indicates that the total market may be a lot, and I mean a LOT, bigger.

Continue reading "Over there" »

Posted by Joe Paduda at 12:09 PM | Link to this post | Comments (1)

You're better off getting treated at a not-for-profit hospital. Unless you qualify for treatment at a VA hospital, in which case you're the luckiest of all. At least that's the conclusion drawn by researchers at Harvard who evaluated care for three common conditions at over 4000 hospitals.

Continue reading "Not for profits deliver better care" »

Posted by Joe Paduda at 6:10 AM | Link to this post | Comments (1)

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

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)

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

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

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

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

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

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

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

Continue reading "Direct contracting" »

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

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

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

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

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

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

What does this mean for you?

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

Posted by Joe Paduda at 6:33 AM | Link to this post | Comments (14)

Actiq, the lollypop pain killer, is rapidly becoming the biggest problem drug in workers comp. FDA approved only for treating cancer pain, the potent narcotic is now on most payers' top 5 drug list (ranked by dollars spent).

There are likely several factors that have enabled a drug clearly not approved for musculo-skeletal conditions to achieve this high "honor".

Continue reading "Workers comp's top problem drug" »

Posted by Joe Paduda at 7:20 AM | Link to this post | Comments (14)

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

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

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

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

Posted by Joe Paduda at 5:22 AM | Link to this post | Comments (1)

As a public service, I've put together a (partial) list of firms that repackage drugs for physician dispensing. This is primarily a workers comp issue, as comp insurers and TPAs are increasingly concerned about the cost of drugs dispensed by physicians. In some circumstances, the billed and payable amount can be several times higher than the cost for the same type of drug dispensed through a pharmacy.

Continue reading "Drug repackagers and physician dispensing" »

Posted by Joe Paduda at 3:39 PM | Link to this post | Comments (10)

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

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

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

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

What does this mean for you?

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

Posted by Joe Paduda at 7:17 AM | Link to this post | Comments (4)

Some "quality" awards are based on rather shaky ground. And the Mercury Awards, which used to be handed out by HCIA (now Solucient) appear to fit that category.

According to the website for the North Ohio Heart Center (a cardiology practice in Elyria Ohio), "EMH Regional Medical Center had the top score for quality of care in Cardiology. According to the award, "It had the lowest complication rate and the most efficient length of stay. Its Patient Services score was boosted by its staff ratio and broad offering of cardiac services."

That's great, and if you were looking for a place to get your ticker checked, this impressive award may influence your decision. But the basis for the award should get anyone thinking, and at the very least asking a few pointed questions.

For example, the center had "the lowest complication rate". That could be because the cardiologists are really great. Or it could be because they perform a lot of procedures on low risk patients , patients that are likely to require relatively short lengths of stay and experience low complication rates.

Evidence indicates that the latter may be reality. In fact, compared to national averages, there are four times as many angioplasties performed by the docs at EMH than in the rest of the country. More procedures = more experienced docs; more experienced docs doing procedures on low risk patients = good outcome scores, lower complication rates, shorter lengths of stay.

This looks more like an award for doing too many procedures including procedures on patients that may not have needed them in the first place, resulting in lots of income for both the docs and the hospital.

And the money ain't bad either. (reg. req.)

Posted by Joe Paduda at 7:26 AM | Link to this post | Comments (2)

In what appears to be straight out of alternative papers' "News of the Weird" column, several private equity firms are looking to buy HCA and take it private. These are really smart people who make lots of money finding gold where others only see dross; they must see something here that I (and lots of others) don't.

Pro, demographics favor the deal; older folks need more hospital care. Con, there is a growing recognition that end-of-life care is too expensive, and hospitals are the most expensive place to deliver this care. Expect to see a push to relocate terminal patients from hospitals to hospices and other less-intensive facilities.

Pro, hospitals' profitability has been improving. Con, legislators and regulators are looking to reduce hospital costs.

Pro, hospitals have been investing heavily in profitable lines, e.g. cardiology and orthopedics. Con, in some areas ambulatory surgical centers partially owned by physicians (where that's possible) have been capturing a significant number of profitable cases, leaving the hospitals to handle the more severe and less profitable patients.

The deal has passed the FTC approval process, and now is closer to reality. However, don't expect this to be the first of many deals; the private equity community does not seem enamored with the industry, but rather sees HCA as the best bet in a troubled business.

Posted by Joe Paduda at 4:40 PM | Link to this post | Comments (1)

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)

Three workers comp physicians and one medical practice were recognized as the best comp providers in Florida at the fourth annual Florida Choice Awards for Workers Compensation banquet last night in Otlando. Sponsored by Choice Medical Management (a consulting client), the awards are one of the few, if not the only, attempt to recognize the second-most important player in workers compensation, the physician.

These are the folks who diagnose the injury, assess causality and relatedness (is the injury work-related and to what extent is work responsible) write the scripts, encourage the patient, talk with the employer about alternate duty, fill out the innnumberable forms, develop treatment plans, and deliver the care.

The Choice awards represent the right way to work with comp docs - respect them, recognize them, reward them.

They are also in marked contrast to the way other networks, payers, and insurers think about and act towards physicians. For example, the head of claims for a large work comp insurer, speaking at the Florida Work Comp Institute conference (host of the Choice Awards) noted in his speech that driving greater network penetration and "savings" was key to reducing work comp expense. That mis-prioritization is largely responsible for the explosion in medical expense in work comp.

And physicians are beginning to reject the discount-oriented "managed care" approach employed by many work comp payers. Sources indicate that the Florida chapter of the American College of Occupational and Environmental Medicine (the professional association of occupational medicine physicians) will be forming a committee to develop a position statement related to managed care networks.

Here's hoping it is direct, definitive, and blunt.

Posted by Joe Paduda at 7:37 AM | Link to this post

According to several providers in Florida, Aetna is recruiting physicians for its workers comp network while requesting discounts that are quite aggressive.

I'm attending the Florida Workers Compensation Institute annual conference in Orlando, and spent much of Sunday moderating a session for physicians. I caught up with several providers after the meeting, and the conversation turned to work comp networks (in my opening comments at the physician seminar, I posed the question "why are you, the acknowledged experts in treating WC patients, providing care at a discount?).

Several of the providers had been recruited by Aetna for participation in their AWCA workers comp network; all were already participating in Aetna's group health and other arrangements. According to these providers, Aetna's letter, which was sent regular mail and was thus no different from the dozens of letters they get each week from managed care firms, stated that unless the provider informed Aetna that they did NOT want to be part of their WC network, they were going to be listed as a participating provider.

That runs counter to what I have been hearing from Aetna, so perhaps there is some confusion on the part of these providers. Or perhaps Aetna is assuming that because the providers are already in their group network, this is all they have to do to enroll them in the WC version. If that is the assumption, Aetna may want to rethink their strategy.

(virtual Sidebar - I'm not an Aetna basher, and believe that on balance Aetna is one of the better mega-healthplans. My sense is their people really try to do the right thing, their leadership is smart and thoughtful, and their "brand" of health care is much preferred over that of their major competitors.

But no one is perfect.

(Back to the main post)
There was no confusion regarding the reimbursement offered by Aetna, which ranged from 30% off the work comp fee schedule to 20% off to 20% below Medicare. These were seasoned, intelligent veterans of the managed care world, well-versed in contract negotiations and reimbursement, and all agreed that the proffered rates were, to say the least, inadequate.

Perhaps that is why Aetna is having a bit of trouble launching a FL workers comp network.

I'd also note that the providers were quite clear in describing the contents of the letter, and the requirement that they inform Aetna if they declined to participate.

Discounting key providers is not the way to reduce workers comp costs. And if Aetna is requiring its group health docs to inform them if they do not want to participate in the group health network, it is setting itself up for major confusion on the part of the physicians, anger on the part of injured workers, and frustration on the part of WC claims adjusters.

For the reality is most practices will either not read the letters, understand the contents, and respond in a timely fashion.

What does this mean for you?

A likely delay in implementing in FL, and potential problems when you do.

Posted by Joe Paduda at 7:20 AM | Link to this post | Comments (3)

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

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

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

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

What does this mean for you?

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

Posted by Joe Paduda at 6:48 AM | Link to this post | Comments (2)

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

Not so.

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

Posted by Joe Paduda at 6:50 AM | Link to this post | Comments (15)

Kevin at Kevin MD posted a quick piece on the contention by researchers at Dartmouth College that there are too many providers, and he struck a nerve or three. And one appears to be the sciatic, for the amount of pain it has created amongst Kevin's readers.

The study, which was published in my-favorite-journal Health Affairs, contends that there are presently enough physicians in the US to provide all of us with adequate care. Moreover, the lead researcher opines that spending additional money to increase the number of physicians will divert funds from more critical needs.

If you agree w the study's results, it looks like we will soon have too many docs. And the more docs we have, the more procedures are performed, and the more bills generated. I'm also dubious about a return on that investment, as the health status of the average American will likely remain unchanged..

Posted by Joe Paduda at 7:12 AM | Link to this post | Comments (2)

Dartmouth's study on the number of physicians required to treat Americans includes an observation which bears directly on the USNews report on the nation's best hospitals. One of the top ten, the Mayo Clinic,needs one-third as many physicians to treat patients in the last six months of life as an unranked facility, New York University Medical Center (also a teaching institution).

That being the case, it is clear that being the best does not require having a lot of docs. And that has significant implications for the type and volume of procedures performed and the cost of care.

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

US News' annual rankings of the nation's "best" hospitals by specialty is out, and hospital execs and PR staff around the country are either studiously ignoring the release or aggressively trumpeting their selection. Expect to see more billboards, especially around Baltimore, where Johns Hopkins got the top rank, Rochester MN (Mayo Clinic), Florida and Ohio (Cleveland Clinic).

There are several good things about this highly public presentation of "quality". First, it gets people's attention. Second, it gets hospital execs' attention. Third, it provides a somewhat objective review of providers' quality. Any time the industry is forced to focus on quality, however defined, that is a good thing. While we can, and I will, argue that one set of criteria is flawed, or another is somehow unfair or biased, in the larger scheme the attention paid to "quality" is just as, if not more, important than the actual criteria used. I'm sure I'll get some heated email on this, but the point is we do not pay enough attention to "quality", so any device, however cumbersome, that increases focus on quality is good.

Continue reading "Is rating the "best" hospitals "good"?" »

Posted by Joe Paduda at 4:12 PM | Link to this post | Comments (5)

Physicians choose surgical implants and devices, hospitals order and pay for them, patients get whatever the docs choose, device manufacturers make lots of profits, and payers foot the bill. A process that is seemingly designed to completely avoid any price sensitivity, and the results to date have shown that there is remarkably little concern about cost on the part of the doc or patient, and at least to date, little ability to reduce costs on the part of the hospital, or payer.

A column in today's New York Times describes the results of an analysis performed by investment firm Sanford Bernstein (registration required) which compared the costs of surgical implants (artificial hips, knees, etc) at 100 hospitals. Many of these institutions thought they were getting preferential pricing, but the results of the study show that their costs may have been substantially higher than other hospitals'.

The net of the article is that the days of price opacity in surgical implants is likely coming to an end; the research, combined with inquiries by regulators and the US Justice Dept. will shine a blinding light on the arcane world of implant pricing, likely bringing to an end the annual 8% price increases.

There is a subtlety missed in the article, which pertains to the small but important role of the workers comp payer. Sources indicate that a substantial portion of surgical implants are covered by workers comp, a portion much greater than the miniscule overall market share of comp (about 2% of all medical dollars are spent on comp, but figures indicate over a third of surgical implants are paid for under workers comp).

In comp, specifically in DRG states like New York, the cost of the implant is added to the DRG cost, which can increase the cost of the care by 50-70%. Therefore, the wounded parties in comp are not the hospitals (who typically price these procedures on a bundled basis in the group health and Medicare worlds and thereby absorb the cost) but the WC insurers.

What does this mean for you?

More light shining on the murky world of medical costs and procedures is always welcome; be sure to make sure you understand how the bundling and unbundling applies to your contracts and reimbursement.

Posted by Joe Paduda at 8:43 AM | Link to this post | Comments (2)

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

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

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

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

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

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

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

What does this mean for you?

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

Posted by Joe Paduda at 4:50 PM | Link to this post | Comments (5)

Ohio's Bureau of Workers Compensation will no longer be subsidizing indigent care at the state's hospitals. The recent announcement that BWC is cutting reimbursement for inpatient care to Medicare plus 15% is one of the positive outcomes of the Hydra-headed scandal at Ohio's Bureau of Workers Compensation.

And it appears likely that BWC will next cut payments for outpatient services, which make up a much larger slice of the medical expense pie.

Ohio joins several other states, including Pennsylvania. Connecticut, Rhode Island, California, and Maryland, all of which base workers comp reimbursement on Medicare costs plus a percentage.

Notably, the press has been somewhat neutral in its coverage of the change, with a recent editorial allowing that the reduction will simply result in cost-shifting to other payers. That is an inevitable result; however there is no logical, ethical, or legal requirement that the state's employers pay for the inefficiencies or hospitals or society's failure to provide insurance for all citizens.

Work comp has been a very profitable line of business for the state's hospitals, generating over a half-billion dollars over a seven year period. That figure covers both inpatient and outpatient care, with outpatient significantly larger.

What does this mean for you?

On a micro level, lower costs for workers comp in Ohio; on a macro level another push for universal coverage.

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

Reimbursement policy has long been one of the more misused means of managing the cost and quality of care. Providers and payers have long fought over risk withholds, capitation, per diems, case rates, and their kin, all in an effort to maximize, or minimize, payout.

By fighting over these issues, the parties are getting no closer to a resolution, and are doing themselves no favors. Instead of this no-win battle, providers and payers should be focusing on the real problem - the un- and under-insured.

But first, the detail on this squabble. The latest trend comes out of California, where Wellpoint has decided to pay docs less for performing colonoscopies in hospitals than in their offices or ambulatory centers. The cut in reimbursement for hospital-based procedures is about 20%, while the increase for non-hospital-based services is 5%.

Readers will no doubt be shocked to hear the hospitals are crying foul, using patient safety as the instrument to bludgeon Wellpoint. Unfortunately, this dispute breaks no new ground in the care v cost dialogue, with CA Hospital Association president Duane Dauner saying "Health plans shouldn't force doctors to make patient-care decisions based upon money."

The response from Wellpoint was predictable; "It's really litigation over dollars, not patient safety," WellPoint spokesman Robert Alaniz said", noting that hospital-based colonoscopies could cost "up to ten times" more than non-hospital services.

Without data on actual quality outcomes and specific cost differentials (something a little more specific than "up to ten times more expensive"), it's hard to cut thru the sound bites. That said, I'm having a tough time with Dauner's statement that health plans should not ask docs to factor in cost when considering patient care decisions. That's the attitude that has gotten us to where we are - runaway costs are due in large part to the "buyer's" ( the physician exerts the most control over the buying decision ) complete lack of concern over costs.

There is a separate issue here; hospitals continue to rely on overpayments by private insurers such as Wellpoint to pay for the underpayments of Medicaid and nonpayments by the uninsured.

If providers and payers addressed the underlying disease state (access) instead of fighting over the symptoms (payment differentials) they might actually have some chance of getting to a solution. Instead, they insult, degrade, and denigrate each other, eliminating any chance for constructive dialogue.

When do the adults take over?

Posted by Joe Paduda at 6:57 AM | Link to this post

Hospitals in Ohio are complaining that proposed cuts in reimbursement by the Bureau of Workers Compensation are unfair, even though the proposed reimbursement level is Medicare +15%. According to one spokeswoman for the hospitals, "There is a misconception that a broken arm costs the same in Columbus, Ohio, as it does in Los Angeles, Calif.," said Tiffany Himmelreich, spokeswoman for the Ohio Hospital Association, which has 170 member institutions.

Well, talk about a non sequitur. No one is claiming that hospitals in LA have the same costs as hospitals in Columbus. What Ms. Himmelreich is missing is that the proposal would pay the hospital their costs plus a 15% margin. And, with Medicare hospital reimbursement generally accepted as satisfactory, I have a tough time following the Hospital Association's argument that the cuts are unfair.

Here's why. Ms. Himmelreich went on to say ""For instance, a hospital with a high level of uninsured patients might charge more than a hospital with a lower level of uninsured." Since when is it the responsibility of BWC, or Ohio employers, to cover the costs of the uninsured?

I'm as vocal as anyone about the problems of the uninsured, the drag they place on our economy, and the desperate need for our elected officials to get out of their golf carts and fix the problem.

But shifting costs to workers comp payers is not the solution. It hides the problem, and in the long term the Hospital Association's complaints will do them more harm then good.

Workers compensation premiums are a significant cost of doing business. The BWC is well within its rights to refuse to subsidize a problem that is societal. In fact, between 1997 and 2004, Ohio's employers overpaid hospitals over half a billion dollars. Think about what that money could have done if it was invested in employee training, new technology, alternative energy sources...

BWC and the Ohio Hospital Association should be working together on the uninsured issue, not fighting.

What does this mean for you?

A reminder to look deeper into issues, because there is a lot of common ground among payers and providers.

Posted by Joe Paduda at 7:27 AM | Link to this post

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

The latest health care plan to enter into a very public battle with a large provider is Oxford Health, a subsidiary of United Healthcare. And their opponent, Jamaica Hospital of Queens, New York, appears to be on the losing end of an unfair battle. Evidently (free registration required) Oxford and Jamaica Hospital completed negotiating a new contract about 18 months ago that increased reimbursement rates significantly. Jamaica signed the deal, sent it on to Oxford, and went on about its business.

Jamaica’s business is providing health care, which it does for many poor, uninsured, and underinsured folks in and around Queens. The hospital was counting on the new deal with Oxford to help it continue to provide these services to this population.

A few months later, Jamaica figured out Oxford had not changed its reimbursement amounts, and complained to the payer. After a bit of wrangling, Oxford told Jamaica that it would not honor the contract (which it had yet to sign) until the hospital helped Oxford negotiate a deal with an anesthesiology group at another hospital in the same system. Jamaica said no, and after more wrangling, Oxford threatened to terminate the contract.

A termination would have jeopardized Jamaica’s ability to provide a broad range of health care services to the uninsured and underinsured.

As a for-profit health plan, United Healthcare is one of the three remaining dominant national health plans (with apologies to Coventry and CIGNA). United is tough, very aggressive, and not afraid of a fight. While one can take issue with its negotiating tactics, my real objection is to the company’s bad battle selection. Instead of strong-arming a hospital system to force a group of docs to kowtow to its demands, United should be screaming about the unfair nature of the health care system that requires its contracted providers to shift costs to United to make up for revenue lost by caring for people without insurance.

United Healthcare’s obligation is to its customers, patients, and shareholders. It is not United Healthcare’s responsibility to pay for care for those people it does not insure. By using childish tactics in its fight with Jamaica over what are really petty issues, United is ignoring a much larger problem, and one it could, and should, actually win.

While I’m no apologist for United or its management, they are getting a raw deal. Too bad they haven’t figured out they are doing it to themselves.

Posted by Joe Paduda at 7:27 AM | Link to this post | Comments (2)

It is axiomatic that one's income is based on one's value. If recent studies on physician income are any indicator, society still places a lot more value on doing procedures than on keeping people healthy.

According to physician recruiting firm Merritt, Hawkins & Associates, job offers for internists and family practice docs came with average salaries of $162,000 and $145,000 respectively. In contrast, cardiologists and radiologists were offered $$342k and $351k. The first group of docs provide primary care; diagnosing conditions, encouraging healthy behaviors, finding early indicators of life-threatening disease. They get paid for their time. Yes, they do procedures (excisions, tests, x-rays and the like) but their time is spent not doing things but figuring out what's wrong with patients and making recommendations to fix the problems.

The second group of docs do procedures - yes, they diagnose, albeit on a patient that arrives with records in hand, preliminary work-up completed, and some indicators of a problem that falls into the specialist's area of expertise - but they get paid to do things - analyze images, perform surgeries and invasive procedures, apply radiation to attack cancers and the like.

And primary care physicians are not (Lowes R. Earnings: Primary care tries to hang on. Medical Economics. September 17, 2004) seeing their incomes increase, while invasive cardiologists enjoyed an 11% jump in income from 2002 to 2003. Internists who are looking to generate more income are encouraged to sub-specialize in gastroenterology, cardiology, and other more lucrative areas.

The Lowes article provides an excellent perspective on the causes and results of the rise of "proceduralists".

"The proceduralists have benefited from the waning of the gatekeeper model, since they're now more accessible to patients. And they're kept busy by graying baby-boomers anxious to preserve their hearts, knees, and various organs. Specialists also have managed to make up for meager third-party reimbursement by generating income from ancillary services such as diagnostic imaging, outpatient surgery centers, and even specialty hospitals."

What does this mean for you?

The free market in healthcare is working. For specialists. It is most definitely not working for payers, taxpayers, and patients. And it is continuing to drag down our nation's commercial and industrial competitiveness.

Posted by Joe Paduda at 6:42 AM | Link to this post | Comments (2)

Several sources indicate Concentra will announce a major acquisition in Q3 2006. Speculation is that the deal will involve adding a significant number of occupational medicine clinics to Concentra's present 300 or so.

The next question is likely to be who/what clinics would be acquired. Here's where the speculation turns to outright guessing.

One candidate may be HealthSouth. The troubled chain needs cash, has a lot of clinics, some of which actually generate decent patient volumes, and does a fair job of marketing itself to doctors and employers. However, HealthSouth sold its occ med clinics to another potential target several years ago.

The acquirer was USHealthWorks, a much smaller company company with strong traction in markets that are complementary to Concentra, including 56 occ med clinics in California alone. USHW is privately held, making a transaction smoother and likely faster than a deal with a publicly-traded firm. Concentra is owned by private equity firm Welsh Carson Anderson Stowe, which apparently remains enamored with the company's potential.

Headquartered in Alpharetta GA, USHW has more than 160 clinics, 450 docs, and treats over 10,000 patients per day.

Adding USHW to the Concentra operation would result in one company with over 450 clinics touching over 13% of all workers comp injuries.

What does this mean for you?

More consolidation in the health care industry is quite consistent with recent developments, and while it may help streamline operations and reduce some overhead while improving claims and medical record document flow, my guess is some of the larger payers will be concerned about the growing market power of Concentra as the "initial treater" of WC injuries.

Posted by Joe Paduda at 8:24 AM | Link to this post | Comments (3)

My post last week on Medical Malpractice generated a good bit of virtual commentary, some calling me to task for supporting one point of view and others saying I missed the central issues. Thanks to all for their considered and thoughtful comments. I'll address them and do my best to be brief and factual.

Continue reading "Readers' views on med mal and my biases" »

Posted by Joe Paduda at 8:12 AM | Link to this post | Comments (6)

The malpractice insurance crisis does not exist. Actually, it does, but only in the popular press and in the minds of the AMA, a few politicians and alarmists. In the real world, the cost of malpractice insurance as a percentage of total practice expenses changed little over the last 30 years, rising from 6% of expenses in 1970 to 7% in 2000.
The finding comes from a report based on data collected by the American Medical Association and published in the MarketWatch section of Health Affairs’ May/June 2006 issue.

While the overall percentage increased by just one point over that period, there were significant changes during the thirty years. From 1970 to 1986 malpractice expenses jumped from 6% to 11% of total practice expense before falling back to 6% in 1996. Premiums bumped back up by a point to 7% in 2000.

Notably, the cost of other practice expenses, including non-physician labor, utilities, rent and medical equipment and supplies, increased much more rapidly than med mal premiums.

Let’s contrast this reality with the hyperbole and outright misinformation generated by some; Ohio Rep. Deborah Price is a great example. She is one of the supporters of med mal reform who have cited some highly doubtful statistics, including one noting that "Four out of 10 Ohio physicians have retired or plan to retire in the next three years due to rising liability insurance premiums".

If physicians are retiring because med mal premiums are now consuming a couple points more of their practice's overall expenses, they are lousy business people and probably should join a large group practiice anyway.

NOTE - the AMA has published a comment on their website in an attempt to refute the original article claiming that the analysis stops in 2000 which makes it inaccurate (a possibly valid argument, although one that is refuted prospectively by the authors in their article) and arguing that the data used by the authors is misleading (although the authors make a solid case for their selection of data sources).

My take - the med mal "crisis" can affect pockets of physicians significantly while having relatively minimal effects on the overall population; and the inefficiencies in the insurance market are much greater contributors to the problem than are tort costs. And, most potential suits are never filed anyway.

What does this mean for you?

More wasted time arguing about non-factors when we could be trying to actually solve the real problems driving health care costs up and access down.

Posted by Joe Paduda at 6:00 AM | Link to this post | Comments (6)

The deeper you dig into health care data, the more interesting the stuff you learn. For years, insurers and health plans have been analyzing patient, physician, procedure, and facility data in an effort to learn more about the inter-relationships of costs, outcomes, demographics, and scores of other factors. A lot of this is arcane, a good bit useful, and some downright intriguing.

Into the latter category comes a study that shows surgeons performing the same procedures at the same hospital on similar patients with similar outcomes can incur very different costs.

The study, authored by Washington University in St Louis, indicates that costs can vary by as much as 45%.

What does this mean for you?

When assessing provider performance, you have to consider all aspects, including the total costs for their patients, and not just the physician components,

Posted by Joe Paduda at 6:16 AM | Link to this post | Comments (2)

One health insurer has at least 30% market share in virtually all of the nation's major markets. This finding, published in the AMA's "Competition in Health Insurance; A comprehensive study of US markets", indicates that the market's consolidation has resulted in a monopsony wherein there are few buyers (in this case of provider's services) and many sellers (again, in this case, providers).

The market is even more consolidated than the above statistic indicates; in 56% of the markets studies, one health plan has over 50% market share, and in one of five markets, a single health plan controls over 70% of the market.

This makes for a small group of companies controlling the buying and selling of health care; they have created a monopsony on the buying end and an oligopoly on the selling end.

What does this mean for you?

US health care may be devolving to a not-quite-single payer system; with three plans dominating the marketplace, providers have little control over selling their services, and health plan purchasers have few sources from whom to buy their health insurance.

The health care market does not lend itself to new entrants as barriers to entry are quite high. Provider contracts are required, and without market share, providers won't give meaningful contracts. And without meaningful contracts, employers won't sign up.

So new entrants are stuck in a Catch-22. The result - continued market consolidation, leading to fewer options for providers (sellers) and employers (buyers).

While the "market" may be working here, the result is likely unfavorable for both providers and employers. Wealth is indeed being created at the health plan level, but at the expense of their suppliers and customers.

The net is this. Is it acceptable to allow companies to exert this level of control over health care ?

Posted by Joe Paduda at 10:19 AM | Link to this post | Comments (3)

Despite the huge influence of managed care and third-party payers in health insurance, about 10% of physicians work on a cash basis, wherein patients pay them directly for services rendered. Most of these docs are in the primary care specialties, where patients place a premium on face-to-face interaction,and where fees are generally manageable for the merely well-to-do.

I would not expect this trend to spread, as many of the more lucrative specialties have a relatively high per-procedure cost, thereby making them unaffordable for most folks without insurance.

Posted by Joe Paduda at 1:27 PM | Link to this post

Health Affairs has published an excellent review of the impact of aging on hospital demand, one that any hospital exec or regulator would be well served to study and keep near. The study, authored by the good folk at the Center for the Study of Health System Change, indicates that while the aging population will have a significant impact on inpatient utilization and cost, the impact may well be over-shadowed by changes in technology.

Here's an example.

Demographic changes will increase the number of cardiovascular admissions by 1.5% annually over the next ten years, as older people are more likely to require treatment for heart attack and chest pain. While that's a significant change, historically the adoption of angioplasty resulted in a much more dramatic shift in utilization patterns.

Over the ten years following 1993, the number of angioplasties jumped 7% per year. Meanwhile, the number of bypass operations grew only 0.2% per year (a figure lower than that predicted by demographic changes). Angioplasty, a relative new-comer to the cardiovascular treatment scene, appears to have been used instead of the more complicated, expensive, and risky open-heart bypass operation for a portion of the population, and, in addition, was used in many cases where bypass was not likely to be considered.

So, technology not only trumped demographics, it did so in convincing fashion.

What does this mean for you?

While demographic shifts look huge, they may well be overshadowed by changes in technology.

Posted by Joe Paduda at 6:21 AM | Link to this post | Comments (1)

Colleague and friend Peter Rousmaniere has an excellent column in the latest Risk and Insurance detailing some of the issues with Ambulatory Surgery Centers. To net it out, while they can get patients in quickly, are usually much nicer (in appearance) than hospitals, and can have equivalent outcomes, they are also wicked expensive (that's my New England accent) , especially in states without an ASC fee schedule.

As a result, payers are increasingly looking to outside expert firms to assist in determining an appropriate reimbursement level. One that is especially adept in this area is Fair Pay Solutions (also an HSA client).

Posted by Joe Paduda at 11:19 AM | Link to this post | Comments (4)

One of the main drivers of health care cost inflation is hospital expense. New information reported in the Detroit News reveals that despite layoffs, a dramatic increase in uncompensated care, and flat inpatient admissions, hospitals throughout the Detroit metro area enjoyed a very profitable 2005. Meanwhile, Sutter Health, the big hospital/health care company on the West Coast, also reported increased profits - $442 million on revenues of $6.7 billion.

The good financials are a result of aggressive cost cutting, an influx of sicker patients requiring more services, and increased reimbursement from private payers.

One item of interest is the huge growth in uncompensated care. According to the News, "uncompensated care reported by the region's major health systems rose to about $740 million in 2005, up $163 million from 2004."

My bet is that this rapid growth is due in large part to big increases in billed charges, and not necessarily to more services provided to more folks without insurance. The growth in billed charges is rampant throughout the US, as hospitals seek to offset their "losses" on uncompensated care by cost-shifting to other payers.

What does this mean for you?

If I was in the commercial insurance business I'd watch my hospital expenses really really carefully.

Posted by Joe Paduda at 9:27 PM | Link to this post

I'm in my hotel in Salt Lake City (a beautiful place) checking out what fellow bloggers are talking about, and hop over to Over My Med Body to see what Graham is up to. One of his recent posts is about the difference in health care costs in the US and Canada, wherein Graham notes the Canadians are spending about $900 less per person than we are, funds which could go to higher wages, etc.

In the comments section, a physician moans about the problems with rationing inherent up North, and states that no red-blooded American would put up with that, while placing most of the blame for our exorbitant health care costs squarely upon defensiivce medicine.

Which inspired the following rant.

If I hear one more doc complaining about defensive medicine and tort costs I'll throw them under the wheels of their golf cart. Care is rationed in the US - for the 45 million uninsured, for Medicaid recipients, and for those in staff and group model HMOs as well as anyne who has to comply with precert rules.

This rationing argument is nonsense, not only because have de facto rationing but also because it is a red herring. Canadians, Swiss, Norwegians, and citizens of 33 other countries are healthier than Americans, yet we pay about 50% more than they do.

So the good Dr. Thompson et al are delivering an inferior product and charging much more for it.

Finally, what is wrong with rationing of care? The question is NOT how many MRI machines does Canada have compared to Portland, it is what is the right number of MRI machines? And my bet is many of Portland's MRI machines are owned by docs, who make money by sending patients there, all the while hiding behind the covers of "defensive medicine".

And this before the morning caffiene...

Posted by Joe Paduda at 7:52 AM | Link to this post | Comments (6)

An alert reader from Aetna called me to correct what looks like a misinterpretation by several docs in Florida. According to this individual, Aetna's requirement for med mal is $250,000 per occurence; the million dollar level (mentioned in the original post) is for general liability. This is not what I heard from some of the docs Aetna has been recruiting; looks like there's a "failure to communicate..."

From sources in the Sunshine State comes news that Aetna is attempting to contract with docs as part of their effort to build a workers' compensation provider network. The lack of affordable med mal insurance in Florida is well-documented; in some counties docs are "going bare"; working without any med mal coverage at all.

Posted by Joe Paduda at 6:18 AM | Link to this post | Comments (2)

The medical malpractice insurance business is either back under control and meeting the needs of the market without the benefit of major and widespread tort reform, or is in crisis, near death, and likely to expire without major tort reform.

Where you sit determines what you see.

From consumer watchdog group Americans for Insurance Reform comes the following excerpt from their press release:

"Americans for Insurance Reform (AIR) released a new study today confirming the wholesale decline of medical malpractice insurance rates nationwide. The AIR study also shows that this phenomenon is occurring whether or not states enacted restrictions on patients' legal rights, such as "caps" on compensation. The medical malpractice insurance "crisis" is over, according to the study.
AIR's study is based on the most recent Council of Insurance Agents and Brokers survey of market conditions, showing that the average rate hike for doctors over the past six months has been 0 percent. This is following similar results for the last quarter of 2004, which saw rates rising only 3 percent at the end of that year. By comparison, rates jumped 63 percent during the same quarter of 2002. "

In contrast, the Council of Insurance Agents and Brokers released their own interpretation of the numbers, noting:

"� to interpret that data to mean that the 'crisis' is over is a gross misrepresentation of the situation," Crerar said. "First of all, having rates stabilize for one or two quarters doesn't mean those rates have gone down. It only means that they have not gone up any farther. It is like saying that just because gasoline costs $2.50 a gallon today, down from $3 a gallon last year, we don't have an energy crisis, and gas is cheap."

CIAB also finds fault with AIR's math, and reading CIAB's interpretation it does appear the Americans for Insurance Reform could do with a little more practice with the calculator.

So, what's the real deal?

Well, the malpractice "crisis" is partially related to insurance cycles (we're in a transition from a hard market to a confused one right now), and as I've noted before, has a relatively small impact on overall health care costs. While the med mal debate is interesting, it is a sideshow - med mal is not a major force in US health care.

That said, the interesting point is that the drop in rates is occuring in states that implemented tort reform and those that did not. Makes one wonder what influence tort reform has on costs...

Posted by Joe Paduda at 10:49 AM | Link to this post | Comments (1)

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)

An excellent review of the realities and myth behind medical malpractice is on Kate Steadman's Health Policy blog. The series of posts are a sort of book report on Tom Baker's The Medical Malpractice Myth.

I've posted on med mal before, as has Ezra Klein - both using the article published in Health Affairs last year as the basis for the posts. But Kate's is the best rebuttal of the myth I've come across.

What does this mean for you?

Medical malpractice insurance is NOT a meaningful contributor to health cost inflation. Medical errors certainly are - remember to distinguish between the two.

Posted by Joe Paduda at 12:02 AM | Link to this post

A (free subscription required) lawsuit filed against medical device manufacturer Medtronic claims the company paid over $50 million over four years to doctors for highly questionable "consulting services". Some physicians were paid several hundred thousand dollars a year for a few days' work. The suit, filed by a whistleblower, sheds light on what some view as the highly questionable practice of combining marketing and research efforts, with the apparent goal of "encouraging" consulting physicians to use Medtronic devices.

With technology adoption one of the major drivers of health care cost inflation this is a particularly troubling accusation.

According to an article in the New York Times describing the suit, physicians' use of Medtronics devices was closely tracked, with dollar values attached to each doc;

"A spreadsheet compiled by Medtronic for a June 2003 meeting in Dana Point, Calif., indicated what Medtronic hoped to accomplish with each doctor attending an event, Ms. Poteet said. This list of 230 or so doctors included an estimate of the dollar value of the devices each doctor used in surgery, including the value of the devices made by Medtronic. One doctor is described as "a 100 percent compliant M.S.D. customer," while others were cited for "special attention." M.S.D. referred to Medtronic Sofamor Danek, the largest competitor in the spinal device market.

A surgeon in Phoenix, who used an estimated $400,000 in devices, favored a rival maker, Spinal Concepts, the spreadsheet said. Company representatives were urged to make overtures to him. "M.S.D. corporate involvement at this program," it said, "would help us earn a bigger share of his business on a grand scale� Dr. Thomas A. Zdeblick, the Wisconsin surgeon, signed a 10-year contract in 1998 that required him to consult with the company for two days every three months, a total of eight days, for which he would be paid $400,000 a year, according to a copy of his contract."

The cost of implants for spinal surgery average $13,000 per patient, and the total market value is around $4 billion.

What does this mean for you?

With conflicting evidence on the efficacy of spinal surgery, perhaps its time to revamp pre-cert for spine surgery.

Posted by Joe Paduda at 11:18 AM | Link to this post | Comments (1)

A new report published in Health Affairs provides an excellent history of cost-shifting, gives an excellent analogy and and quantifies its impact on private payers.

Cost shifting occurs when providers, typically hospitals, recoup lost revenue resulting from underpayments by some patients by charging other patients more. The article provides an excellent statistical summary of the issue, noting that private payers reimburse at a rate that is around 122% of costs, while Medicare is about 95% and Medicaid even lower.

Of course, the uninsured are at the bottom, with reimbursement rates at about 5% of charges.

While I have a couple minor arguments with the article's authors, the overall message is quite clear - those of us with private health insurance are subsidizing the care for those covered under governmental programs or with no coverage at all. Yes, Virginia, we do have universal access, we just don't have universal insurance.

This gives the lie to statements to the effect that we as a nation can't afford universal coverage. In fact, we do have it, and pay for it via these hidden taxes.

Taxes that are quite inefficient, that are inappropriately targeted, and that penalize employers who offer health insurance (at rates their employees can afford) at the expense of those who do not. This is leading some states (Maryland is the most prominent) to try to force employers to offer health insurance at affordable costs. This is an effort on their part to get some employers' workers off the Medicaid rolls.

What does this mean for you?

As uninsurance and underinsurance increases, so will these hidden taxes, further adding to the burden placed on employers and covered employees.

Posted by Joe Paduda at 3:37 PM | Link to this post

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

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

While the rest of the country's physicians have been fighting to keep their financial heads above water due in part to Medicare reimbursement issues, their colleagues in the northernmost state have been enjoying a rare display of Federal largesse.

Showing the power that politicians have, Alaska's physicians actually were the beneficiaries of a $53 million increase in Medicare reimbursement over the last two years. Engineered by powerful Sen Ted Stevens (R), the program ran for 2004 and 2005, before ending at the end of last year. According to news reports, the idea was to see if the increased reimbursement would lead more docs to accept Medicare patients.

The Anchorage Daily News notes the impact on reimbursement is significant:

"The office charges $133 for a 20- to 30-minute office visit with a regular patient. Blue Cross Blue Shield and Aetna -- both preferred insurance providers for the clinic -- cover about $113 of the $133, Warner said. Medicaid, the government insurance program for people with low incomes, pays $77.61.

Starting in 2006, Medicare will pay the least of all. While the extra money was available, Medicare would cover $87.97 of $133, or 66 percent. Now that the money is gone, Medicare will pay $53.30 for the same visit, or only 40 percent, Warner said. The federal government allows patients to make up some of the difference but not all of it. "

Perhaps the providers would have liked to trade a continued subsidy for a couple of bridges to nowhere. These bridges, both in Alaska, have been widely seen as evidence of Congress' predilection to spend money on projects that benefit their own constituents at the cost of others'. The much-derided bridge project would have funded the subsidy for about eight more years.

Posted by Joe Paduda at 11:05 AM | Link to this post | Comments (2)

Price-fixing, the bluntest of economic policy instruments, is enjoying a resurgence among health care policymakers at the national and state levels. In California, Medi-Cal reimbursement rates for physicians have been cut 5%, effective the first of this year. The cut is expected to save the state some $65 million while in effect (it is slated to expire at the end of the fiscal year).

California's action was initiated under former Gov. Gray Davis (D), but the cut was suspended until approved through the legal appeals process. The cuts do not affect facilities, pharmacies, or other ancillary providers.

Reimbursement cuts may lead to more physicians refusing Medi-Cal; today about half of the state's docs don't accept the state program and about 2/3 of surgeons have opted out as well. One pediatrician noted that he gets about $26 for an office visit, and $13 pmpm for those kids on capitation.

Notably, Gov Schwarzenegger has declined to reduce benefits or cut eligibility; that willingness to hold the line, coupled with the rising costs of Medi-Cal which now accounts for 15% of the state budget, led to the reimbursement reduction.

Meanwhile, Congress has yet to resolve the 4.4% reduction in Medicare physician reimbursement scheduled to go into effect 1/1/2006. While both the House and Senate have agreed to rescind the cuts, the implementing legislation is stuck in a procedural process (the Senate's version and the House's differ, so a conference committee is working on resolving the differences). It appears likely that the cuts will be reversed.

The AMA and other physician groups note that the cuts go into effect simultaneously with implementation of the new Part D prescription drug program. The result, according to some, is physicians will be inundated with questions from concerned patients at the same time they are getting paid less money to see said patients.

For those who are interested, the "logic" behind the cuts is based on something called the "sustainable growth rate" formula. Here's the summary from "Medical News Today"...

"The SGR formula unfairly ties the fees paid for physician services to the performance of the overall economy. Because costs of taking care of an aging population, many of whom have multiple chronic diseases, continue to increase at a faster rate than overall growth in the economy, calculating physician payments using the SGR formula would trigger across-the-board cuts. As a result, Medicare payments for physician services keep decreasing while the cost for doctors to provide care keeps climbing."

What does this mean for you?

Price fixing is the last resort of the policymaker unable to address a problem intelligently. The unintended consequences will be significant. However, the good news is the potential rebellion by providers will add to the pressure to reform health care.

Posted by Joe Paduda at 7:38 AM | Link to this post

Insurance Journal reports on changes in the way the State of Maryland will deal with investigations of potentially problematic physicians in yesterday's edition. In a study conducted by the Baltimore Sun newspaper, 120 of the state's approxinmately 17,000 physicians were found to have five of more malpractice claims in a ten-year period.

The review of the state's policies was initiated when a new review board found the staff was swamped and overloaded, investigating too many situations where problems did not appear to be significant. In revamping the criteria, the review board decided to:

"investigate automatically only when doctors settle three cases for $150,000 or more each over five years. Pinder (head of the review board) said the board also reviews any doctor who resolves a claim about care in the past five years with a payment of at least $1 million"

There were 11 settlements over $1 million, and only 4 physicians met the three cases for $150,000 or more over five years criterion.

There are wide differences among the states in the criteria and process for investigating physicians, ranging from Nevada and Pennsylvania which investigate each and every claim, to Massachusetts which reviews any physician with three or more claims in a ten year period.

Posted by Joe Paduda at 7:31 AM | Link to this post

Pay for performance, or P4P, is gaining traction amongst health care organizations, policy types, and some health plans as a potentially promising way to link compensation to outcomes. A study published in October indicates that P4P as presently practiced is in need of refinement and improvement.

The study published in JAMA and sponsored by the Commonwealth Fund, found that physicians compensated under a P4P program improved their performance in one of three metrics, showed no significant improvement in the other two, and three-quarters of the physicians receiving bonuses under the program were performing at the standard before the program's inception.

The program compared 200 physician groups in two of Pacificare's networks with a P4P program and compared them to a control group in another network that did not have a P4P program. Of note, the quality of care for two of the indicators, mammography and hemoglobin-A tests, improved for both the test and control groups, while the P4P groups' performance improved 5.3% for Pap smears while the control group's performance was only up 1.7%.

That said, physicians with the lowest quality scores before the P4P was initiated showed the most significant improvement. One wonders if this was not deviation towards the mean, or the Hawthorne effect, or if the improvement was driven by the program itself.

Obviously these programs need some improvement, and this study should not be interpreted as conclusive evidence that P4P is a non-starter. However, the industry would be well-served to take to heart some of the findings. One of the more obvious is that 75% of the physicians winning bonuses were already performing at that level before the program started. There are two views of this. One is that the payment reflects appropriate compensation for high-performing docs, and this compensation is a just reward for performance.

The other view is that the additional payment, as high as $270,000 for a physician group with 10,000 patients performing at the highest possible level, is a waste of resources as the extra pay is not justified by any improvement in performance.

Clearly, pay for performance is a contentious subject, with various groups including CMMS (contemplating P4P in Medicare) taking an active interest.

What does this mean for you?

Provider compensation is a dynamic field, with previous efforts at capitation, risk-withholds, Fee for service, U&C, DRGs and others all found to have limitations.

This may be overly simplistic, but simply finding the best docs and sending patients to them strikes me as the smartest, and easiest, thing to do.

Posted by Joe Paduda at 8:10 AM | Link to this post | Comments (3)

Concentra's naming of Norm Payson MD as the company's new "non-executive" chairman of the board appears to be yet another sign that Concentra is positioning itself for sale or IPO. Long rumored to be preparing to go public, Concentra may be closer now than at any time in the past few years.

Payson got his start in managed care at HealthSource in New Hampshire 20 years ago. He and others built that HMO from the ground up and sold it to CIGNA in 1997. He then joined Oxford in 1998, was there through the turnaround and left it in excellent condition in 2002.

Payson's role appears to be "non-operational" to say the least; he will be working on strategy issues, providing guidance to senior management, etc. He will be making an investment of $10 million in the firm; before you jump to conclusions, understand that Payson will also be receiving "awards of restricted and unrestricted stock and options�" So, the investment may be more symbolic than actual.

Analysis
The interesting point about the announcement is Payson's experience is on the group health side, while Concentra is primarily a workers comp managed care firm. Yes, Payson is a great name for Wall Street; the turnaround at Oxford has given him well-deserved credibility in the financial markets and will likely lead to more attention from analysts and investment firms. That's where Payson will really help.

That said, Concentra is clearly working hard to add more non-workers comp injury care business. In the company's third quarter investor conference call, CEO Dan Thomas (webcast available)(and here I am paraphrasing) noted at least twice that one of Concentra's goals was to increase the non WC care delivered through its 300 occupational health clinics. That makes strategic sense, as the clinics (according to Thomas) are treating one out of every ten WC injuries today (note to reader - they may only be seeing them for an initial visit and sending them on; do not interpret Thomas' statement to imply the clinics are providing full care throughout the entire episode for all cases).

In another intriguing development, Concentra's parent company, Welsh Carson Anderson Stowe, appears to be the front runner in the bidding to acquire third party administrator Sedgwick CMS. The process has been going on for some months now, with other private equity firms and at least one other TPA involved in early discussions about Sedgwick.

Whether Welsh Carson intends to somehow integrate, combine, or otherwise establish a strategic relationship between the two is unknown, but there are solid strategic reasons to consider doing so.

What does this mean for you?

Watch the Sedgwick-Welsh Carson developments; if Concentra is one of your vendors an alignment there could have implications for their focus going forward.

Posted by Joe Paduda at 8:38 AM | Link to this post | Comments (2)

A fascinating article about the role of genetics, race, and societal interactions is in today's New York Times. Before you blow this off, consider the following points.

1. so-called "personalized medicine" is touted by some as the next big breakthrough in medicine, using genomics to customize therapies for individuals
2. there has been a considerable increase in the investment in and marketing of drugs that are targeted to distinct "racial groups".
3. there is some evidence that this makes sense, and other evidence that it makes no sense whatsoever.
4. the push to unravel the human genome is both supporting and detracting from the "race-based drug development" effort.
5. billions will be invested in research in these areas�

The article is an interview with Dr. Troy Duster, a sociologist who is skeptical of the importance of race in medicine. I may be a little harsh in that characterization, but here are a few quotes.

"When you're talking about genetic diseases, there's usually something in the environment that triggers their onset. Shouldn't we be talking about the trigger?
Take the case of black men and prostate cancer. African-American males have twice the prostate cancer rate that whites do. Right now, the National Cancer Institute is searching for cancer genes among black men. They're not asking, How come black men in the Caribbean and in sub-Saharan Africa have much lower prostate cancer rates than all American men?"

"Definitions of race are constantly changing. Not all that long ago, Jews and Armenians were considered separate racial groups. Today, they are white. Genetically, is Strom Thurmond's daughter white or black? Millions of Americans have her mixed genetic history written within them.

In a time when most physicians see their patients for only brief moments, if they're using these definitions of race in prescribing pills or treatments, they're bound to make mistakes."

"There are genetic diseases in population groups. I don't believe they are race based. These diseases are a marker for the regions where certain populations originated. Sickle cell anemia, for instance, is thought of as a black disease. But it's also to be found among Greeks who hail from a swampy area north of Athens and among people from the Arabian Peninsula." (sickle cell anemia is thought to be an evolutionary adaptation to malaria, which attacks red blood cells. While sickle cell anemia is highly debilitating and can be fatal, it reduces the impact of malaria by altering the shape of the blood cell, thereby allowing individuals to live long enough to procreate)

Duster's point is that scientists focusing solely on genetics miss the "messy stuff" that happens when people interact, live in a stressful society, move away from their places of origin, and change lifestyles.

What does this mean for you?

I have no idea.

Posted by Joe Paduda at 12:04 PM | Link to this post

Fellow blogger DB's Medical Rants has an interesting take on pay for performance. Citing a study published in the New England Journal of Medicine, the post notes:

"One underlying principle of the pay for performance movement stems from the belief that we can use incentives to improve adherence to evidence based quality indicators. The crux of evidence based medicine (EBM) follows from an examination of high quality data. EBM eschews belief.

This study tries to understand how P4P might influence physician practice. It finds no positive impact. Rather P4P may simply be a scheme for rewarding high performers...
However, as I hear the debate, most proponents see P4P as a means to improve quality. This article argues against that."

Changing physician behavior is a windmill that has absorbed billions of dollars and millions of hours of tilting, with little evidence of impact. While the objective is noble, the business case is highly suspect.

What does this mean for you?

Identify the best performing physicians and direct your patients to them. Let others shatter their lances.

Posted by Joe Paduda at 5:46 AM | Link to this post | Comments (1)

ACOEM, the American College of Occupational and Environmental Medicine, is reaching out to payers - TPAs, employers, insurers, managed care companies, to find out about their interests, priorities, and views on occupational medicine.

The "conversation" between payers and providers is usually limited to voice mail, email, and fax, with the occasional mutterings under one's breath. Here's a chance to help improve the dialogue.

If you are involved in this area, take the time to fill out their survey.

Here's more information.

"Effective occupational medicine: opinions wanted

Want to have an impact on the future of occupational medicine? Do you purchase (or influence the purchase) of occupational medicine services for your organization? Do you manage relationships with medical service providers for your company? If so, the American College of Occupational & Environmental Medicine (ACOEM) invites your opinion via an online survey.

The purpose of the survey is to assist the American College of Occupational and Environmental medicine (ACOEM) in learning more about the current practices, priorities, and point of view of those who pay for and use occupational medical services. In particular, ACOEM wants to learn how company managers and executives in organizations are currently viewing a few major issues in organizational and occupational health. ACOEM also wants to hear what companies look for when choosing physicians to provide either hands-on or consulting medical services for their workers compensation and disability programs.

The survey is being conducted by Crescendo Consulting Group, a national research and consulting firm based in Portland, ME. Results will go directly to Crescendo Consulting Group to preserve anonymity.

The survey should take less than 15 minutes of your time, and individual responses will be confidential. In exchange for participation, ACOEM will provide an executive summary of results to any participants who supply contact information. "

Posted by Joe Paduda at 7:25 AM | Link to this post

Concentra Inc.'s presentation at the Bank of America Investor Conference earlier this month focused on their continued growth, focus on workers comp, and impact of the acquisitions of Beech Street and Occupational Health and Rehab.

Here are some of the highligts from the presentation and comments on same.

Revenues for 2005 are projected to be $1.1 billion, with EBITDA of $156 million and operating cash flow of $101 million. Revenues are growing organically about 5% per year, while operating cash flow is down from $114 million in 2003 to $98 in 2004 to $101 in 2005.

Workers comp is by far their largest market, driving 70% of revenues. The Beech deal will certainly help diversify Concentra's revenue base, as Beech is a strong mid-tier group health PPO. Beech's provider contracts will also be compared to the Concentra contracts to identify the ones with the best rates. This, coupled with the greater buying power brought by Beech, may help Concentra drive better deals with some providers.

Of Concentra's three distinct business units, by far the highest margin business is network services, with a margin of 31%, followed by the clinic business' 14% margin. The care management sector, which is primarily field and telephonic case management, was hurt by declining revenues and price compression and returned 6%.

Of note, the clinics saw same store revenues up 6.6% on a 5% increase in visits. This at a time when the WC injury rate has been declining by about 4%.

Thomas made the point several times that after the completion of the OH+R deal, Concentra's clinics will see one of of every ten workers' comp injuries for initial care. While that sounds impressive, and is impressive, it is important to note that the clinics only see the routine injuries, and most of the dollars that are spent on WC medical go to the more complex cases that are treated by specialists.

The Beech Street and OH+R acquisitions were expensive at $210 million +. The Beech deal adds significantly to Concentra's group health product offering. while OH+R will add 26 clinics after 8 existing clinics are closed.

Both Thomas and Kiraly repeated their assertion that Concentra is the industry leader in the WC managed care business, and is a full service integrated services provider. From a sheer numbers perspective, they are correct. However, other entities are leaders in segments of the WC business. For example, Coventry's First Health is by far the leader in the WC PPO sector. MedRisk is the industry leader in management of physical medicine; and PMSI in pharmacy management.

Thomas noted that because Concentra manages all aspects of the claim, it therefore impacts more claims dollars than other competitors. Not exactly. Intracorp has case management, networks, bill review, peer review, and access to specialty managed care. So do Genex and CorVel. Concentra's out of network bill negotiation entity (Concentra Payment Services) may well be the industry leader in non-network bill processing, but a host of competitors are now in this space.

While Concentra is not a public company, rumors have been rampant for years of their desire to become one. That, coupled with the large amount of debt outstanding, is evidently the reason for their continued participation in these road shows.

Posted by Joe Paduda at 9:58 AM | Link to this post | Comments (4)

The latest news from Washington indicates the cut in Medicare reimbursement scheduled to go into effect on 1/1/06 may actually occur. The reduction of 4.3% is a hot topic amongst physicians, many of whom are claiming they will not continue to treat Medicare patients if the cuts go through.

Two of the key Senators on the Finance Committee (which has jurisdiction over CMS) have stated their desire to rescind the cuts. According to Congressional Quarterly, "Sen. Max Baucus (D-Mont.) said he and Senate Finance Committee Chair Chuck Grassley (R-Iowa) are "not going to let those cuts go into effect this year".

The fate of the proposed fee reduction will not just affect Medicare. Many group health and HMO reimbursement arrangements as well as states' workers compensation fee schedules are based on Medicare.

Yet more evidence that when CMS gets a chill, the rest of the health care payers catch a cold.

What does this mean for you?

Keep an eye on Congress' actions, or lack thereof, on this reduction. Regardless of the action taken or not, it will affect health care payers' bottom lines.

Posted by Joe Paduda at 8:14 PM | Link to this post

I've been hard pressed to keep up with the blog; seven days in Florida starting at the Florida Workers Comp Institute annual conference followed by a three day audit of a managed care firm is to blame. One of the biggest events at the conference was the third annual CHOICE Awards for excellence in workers compensation.

These awards are presented to physicians who exemplify the highest standard of care and demonstrate thorough understanding of workers comp and return to work while communicating clearly and effectively with all parties in the process.

Physicians are the key to effective workers comp and other medical programs.

They diagnose the condition, assess the patient, develop the treatment plan, write the scripts, schedule the imaging, refer for surgery, deal with managed care's questions and requests for information, monitor progress, and remove obstacles.

In workers comp, docs also identify limits and restrictions, develop return to work programs, recommend job accomodations, coordinate with employers, assess relatedness, and cajole, badger, encourage, and push injured workers back to work.

Many docs do this despite the request from insurers that they perform these services for a "discount" below their list price or fee schedule.

The unfortunate thing is the CHOICE awards are one of the few efforts by payers to publicly recognize those physicians that outperform their peers. And it is not a few docs getting a black plastic award and handshake from an insurance company exec. Over 200 nominations were received, a rigorous judging process was conducted, and all finalists were invited to the banquet. (disclosure - CHOICE is a client).

The keynote speech was given by University of Miami president and former Secretary of HHS Donna Shalala. The sit down dinner was attended by 400+. The band played for each recipient and for all the guests before and after the awards.

And the award recipients deserved all of it.

What does this mean for you?

If you have yet to figure out that physicians are the most important contributors to the success of managed care programs, get with the program.

Posted by Joe Paduda at 6:36 AM | Link to this post | Comments (1)

Aetna announced they will be offering a new health plan network option in northern California and the Central Valley that ranks specialists by several cost and quality indicators. The program, which goes by the unfortunate name of Aexcel, will only include those specialists that meet the Aexcel standards, and will be offered to larger self insured employers.

According to California HealthLine,

"Aetna evaluates them on factors including:

Number of hospital readmissions within 30 days;

Adverse events;

Adherence to clinical guidelines; and

Cost of care -- adjusted for the severity of a patient's illness -- relative to the geographic area.

The health plan considers Aexcel specialists to be the top-performing in an area with regard to cost and quality. Employers can include Aexcel in Aetna's non-HMO health plans, either as an option or a requirement."

Kudos to Aetna for their courage - physicians who do not meet their criteria will undoubtedly protest, and some may have valid points. But the key is to start somewhere, and this is a great start. The best physicians deserve more business, and docs who underperform deserve less.

What does this mean for you?

More incentive to differentiate your health plan, or select a health plan, based not on a spreadsheet but on the value they deliver, defined as the plan's ability to help you improve outcomes and costs.

Posted by Joe Paduda at 6:31 PM | Link to this post | Comments (1)

Surgeons who are top performers in Washington's Department of Labor and Industries (L&I, i.e. workers comp) program will no longer be subjected to utilization review hassles. 111 physicians have been identified as providing all necessary documentation to the state's UR program, and all of the surgeries they recommended were approved. The result - they won't have to ask permission anymore.

The UR program is run by Qualis Health, and focused on carpal tunnel, shoulder, and knee surgeries performed over a two year period. According to the report in Insurance Journal, the 111 surgeons' results will be monitored over the next year.

"If it is determined that the number of unnecessary surgeries doesn't rise as a result of less oversight, L&I likely will expand the program to train and include additional physicians.

L&I-funded studies, conducted by the University of Washington, show that injured workers who get prompt and appropriate medical treatment tend to recover and get back to work more quickly. That results in lower workers' compensation claim costs and less missed work. One obstacle to receiving timely treatment is unnecessary delays in authorizing procedures."

No kidding.

While it is gratifying to see that physicians who perform well get treated differently by managed care overseers, it is indeed frustrating to recognize that this is one of the few programs of its type, and managed care in the form of precert has been around for more than two decades.

Here's hoping this is just the first of many intelligent decisions to identify the good docs and leave them alone.

What does this mean for you?

If you are a physician, perhaps a little hope. For managed care firms and folk who contract with them, get with the program. Stop monitoring everyone and start using that huge amount of data resident on your systems to identify the good docs.

Posted by Joe Paduda at 11:14 AM | Link to this post

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

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

According to California HealthLine;

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

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

What does this mean for you?

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

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

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

Another excellent physician blog is Health Care Renewal.

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

Posted by Joe Paduda at 8:00 AM | Link to this post | Comments (1)

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

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

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

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

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

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

What does this mean to you?

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

Posted by Joe Paduda at 10:30 AM | Link to this post

There are several signs that indicate a growing awareness of the importance of the physician in managing workers comp injuries. While many in the industry have paid lip service to the treating physician, their actions have been louder than words. Utilization review requirements, onerous communications protocols, invasive medical management procedures, requirements that physicians provide care at a discount to an already-low fee schedule are representative of the way physicians have been treated by the community.

Now, that is starting to change. Here's the evidence.

--a major workers comp insurer is considering using a PPO network that includes physicians paid above the workers comp fee schedule. This despite their long-held and loudly trumpeted historical attachment to large discount-drive networks.
--another carrier is closely examining its data to identify the physicians with the best outcomes. The plan is to pursue a contractual relationship with those physicians that is predicated not on discounts but on results.
--large employers such as Supervalu have been working directly with certain providers in specific locations that they deem to deliver excellent care. Again, outcomes, not discounts, are the measure of quality.
--a large Longshore-Harbor Workers insurer has arrangements with many physicians where they pay a negotiated rate that is typically above the fee schedule. This gets them prompt, effective treatment, speeds communications, etc.
--Choice Medical Management, the fastest growing workers comp care management firm in the Southeast (also a client) has been recognizing the physicians of the year for several years. This year the number of physicians nominated and the volume of nominations have been significantly higher than in years past, forcing the company to adopt a more streamlined method of evaluating nominees.

This is great news, but a few items do not a trend make. The encouraging sign is that this growing recognition appears in large carriers and small carriers, in TPAs and at employers, among adjusters and execs.

What does this mean for you?

If you don't have a physician-centric approach to managed care, it is time to start thinking about how you are working with the people who have the most influence over your claimants.

Posted by Joe Paduda at 5:39 PM | Link to this post

Workers' Comp Insider has a fascinating post on workers comp in Iraq. Jon Coppelman discusses safety issues, premium rates (as high as $80 per $100 of payroll, for people making $100k a year!), the "competitive bidding" situation between AIG and ACE, and other intriguing points.

I highly recommend it.

Another interesting post discusses the costs and benefits of Ambulatory Surgery Centers, with particular attention paid to safety issues. An issue not covered in the post or resources on the post is the issue of ASCs siphoning off the profitable, private pay patients from hospitals, leaving hospitals with sicker, poorer patients. The result, hospitals' outcomes go down, costs go up, and profits disappear.

Another post in Medpundit lead me to a great article about an American's experience in the British health system. One quote from the article (originally in the Wall Street Journal) in the Medpundit post is particularly telling:

"There is much better teamwork among doctors, nurses and physical therapists in Britain. In fact, once a week at Queen's Square, all the hospital's health workers--from high to low--would assemble for an open forum on each patient in the ward. That way each level knows what the other level is up to, something glaringly absent from U.S. hospital management."

Posted by Joe Paduda at 10:23 AM | Link to this post

A very interesting post from a surgeon defending his profession from an attack by someone stating that surgeons are no different from carpenters plumbers and engineers.

Those of us on the payer side of the table would do well to remember that there are passionate, highly intelligent, motivated and great people on the "other" side. Perhaps we should make that table round instead of rectangular?

What does this mean to you?

We are in this together, and insulting comments, intended or not, damage our mutual desire to deliver for our mutual customers.

Posted by Joe Paduda at 9:15 AM | Link to this post

There has been a substantial increase in the use of emergency departments in recent years. A new report from the Centers for Disease Control indicates the number of ED visits reached an all-time high of 114 million in 2003.

The increase was attributed to adults, and more specifically Medicaid recipients who used EDs four times as often as those with private insurance. One of the report's editors noted that the ED has become the provider "of first resort" for many of the poor and uninsured.

With the present political wrangling over the future of Medicaid and the uninsured, this report points out one of the most troubling aspects of the "delivery systems" used by the poor. Care delivered through the ED is typically more expensive, time-consuming, and less coordinated than care delivered through a primary care provider. Tests and imaging are often duplicated, there are often problems with continuity of care, and patients with chronic conditions seek care for acute episodes in the ED rather than through their primary doc.

It is impossible to calculate exactly how much money is wasted in this process, but it is certainly in the billions of dollars.

Clearly the industry needs to do a better job of directing patients to appropriate levels and locations of care. Having been involved (albeit years ago) in a state Medicaid reform effort, I have some understanding of the problems involved. However, it is clear that the quality of care delivered is too low and the cost of that care is too high when it is provided at an emergency department.

What does this mean for you?

Redouble efforts to direct patients to primary care. Work with providers to set up streamlined primary care access next to the ED. Yes this is a big problem with lots of issues, but we can't afford to not address it.

Posted by Joe Paduda at 7:03 AM | Link to this post

Although health plan profits were up substantially in the first 9 months of 2004, only five companies were responsible for over half of those profits. Weiss Ratings' (along with Fitch, my favorite rating firm) analysis excluded Kaiser, which had gains of $1.2 billion primarily from a regulatory change.

Four of the top five were HMOs owned by Blues plans, with the leader Blue Cross of California posting over $400 million in profits for the period.
Even more notable was the overall improvement in the industry's financial condition, Weiss upgraded 65 HMOs and only downgraded 3. This improvement was driven by a 33.6 percent increase in profitability.

Other reports indicate the decline in the rate of medical inflation coupled with increased premiums have been largely responsible for the improvements. United HealthGroup, Coventry, Aetna, and others have all reported this "decrease in the rate of increase".

Good times never last; consolidation in the industry has led to its' present oligopolistic condition. Thus, health plans have three choices if they are to grow - take market share by cutting price; acquire other health plans; or seek other sources of revenue. Actually, there is a fourth - seek to reduce "cost of goods sold" by reducing reimbursement to providers, but this is highly unlikely to succeed.

The pace of acquisition will likely slow for the simple reason that there are fewer health plans to acquire. Potential candidates include Coventry, but their high-flying stock price likely precludes any move in the near future.

Plans are actively and aggressively, seeking new sources of revenue. The move into workers comp network rental by Aetna and Wellpoint are but two examples. However, it is highly unlikely that there is enough revenue in the ancillary lines to please the Street's demands for ever-increasing growth.

That leaves price cutting. Yes, all will claim they will never repeat the mistakes of the past, and most will do so anyway. Good times never last, especially in the insurance industry.

What does this mean for you?

Three things.

1. If you are a provider, watch the new contract offers carefully.

2. If you are a workers comp payer, lock these new entrants into long term contracts with significant exit penalties - their interest will likely wane when they figure out how little money there is in workers comp, leaving you high and dry.

3. If you are an analyst, monitor pricing and medical inflation, especially the components of inflation (frequency and utilization) more than unit price. That is where renewed inflation will first appear.

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

Roy Poses MD has posted an insightful, brief, and trenchant look at the trend for new physicians to select specialties other than internal medicine, family practice and the like.

To quote Dr. Poses,

"However, as demonstrated by the issues discussed on this blog, not only are generalists at the bottom of the economic pecking order, they seem particularly impacted by the huge rise in health care bureaucracy, and particularly vulnerable to challenges to physicians' professional values instigated by large organizations lead by leaders with conflicting interests. They will need more than new "chronic care models" to survive these threats."

The continued trend to more highly compensate specialists is driving physicians to select specialties. The root of this is compensation, followed closely by the hassles inherent in today's managed care bureaucracy.

What does this mean for you?

For once, this is simple - the more specialists, the more specialty care, the more expensive the care, the higher the medical expense.

Posted by Joe Paduda at 9:51 AM | Link to this post

So-called "specialty hospitals", facilities typically owned by for-profit firms and/or practicing physicians, have been the subject of much debate by the Centers for Medicare and Medicaid Services (CMS). Now, it looks like CMS will continue their ban on new facilities at least until the end of the year (and just possibly till 1/1/2007) while they study their impact on cost, quality, and the full service hospitals they compete with.

Specialty facilities focus on a relatively narrow branch of medicine (e.g. spine, cardiac, orthopedics, cancer), are often owned by a partnership including the physicians admitting patients and a for-profit corporation, and rarely have an Emergency Department, overnight stay capacity, or trauma units. What they do have is state-of-the-art facilities, excellent "customer service", efficient management, and lots of profit potential for the owners.

At issue with CMS is the definition of hospital and whether the specialty facilities meet the CMS definition. This is important because reimbursement is typically better for "hospitals" than for non-hospital facilities (many of these specialty hospitals would likely be classified as ambulatory surgery centers which receive lower reimbursement).

According to Congressional Quarterly,

"The (CMS specialty hospital internal) review also could lead the agency to require some specialty facilities to add emergency departments, which "ten[d] to attract Medicaid and other low-income patients," CQ HealthBeat reports (CQ HealthBeat, 5/12).

California HealthLine also reports "In addition, CMS is expected to adjust Medicare reimbursement rates for all providers to better reflect the severity of patients' illnesses, which could lower reimbursement rates for some specialty services."

Congress appears to favor allowing new specialty hospitals into the CMS provider world, with House Energy and Commerce Cmte Chair Barton (R TX) noting he considers McClellan's action to be a reasonable compromise.

"The rise of specialty hospitals will press traditional community hospitals to become leaner, faster and better," he said (AP/Las Vegas Sun, 5/12). Speaking in response Democrats' concerns about physician self-referrals, Barton said, "The real fight ... here is not about quality of care," adding, "It's about control and ownership." He said that banning specialty hospitals goes "against everything in the American culture that says specialization is good."

What does this mean for you?

As the Centers for Medicare and Medicaid Services (CMS) goes, so go commercial payers. The moratorium on specialty hospital construction has served to halt, or at the least reduce, the number of new facilities seeking licensure throughout the country. If CMS moves forward and allows new construction, watch for changes in reimbursement.

It is possible, and some say likely, that reimbursement levels for these facilities will be lower than for full-service hospitals. As many commercial and state (e.g. workers' comp and auto liability) fee schedules and reimbursement contracts are based on CMS' Medicare rates, there will likely be a significant impact on the volume of services delivered through these facilities and the price as well.

Posted by Joe Paduda at 8:18 AM | Link to this post

Gary Schwitzer has posted a quick item in his blog providing more detail about the financial benefits to physicians of "leasing" imaging services. For those who missed the article in the Wall Street Journal, Schwitzer's blog has a link and excerpts.

The net - a physician referring two MRIs per day would net over $120,00 annually.

What does this mean to you?

Hmmmmm, some perverse incentives to increase imaging utilization, perhaps? A more subtle way to cost-shift, to capture more income to offset lost income due to reduced Medicare reimbursement? Outright fraud? or all of the above?

Posted by Joe Paduda at 6:55 PM | Link to this post

California HealthLine has an excellent roundup of Medicare news. Most significant is their take on physician reimbursement, which is slated to be cut by 4% on 1/1/2006. Lawmakers appear to be interested in rescinding the cut, which would be consistent with their actions the last time Medicare physician reimbursement cuts were slated to take place.

Expect changes late in the year or early next - I know, early next year would be after the cuts are scheduled to take effect. The political winds are moving in that direction, with the AMA and AARP staking out positions (no surprises there)

What does this mean for you?

1. With most state WC and other fee schedules tied to Medicare rates, cuts in physician reimbursement will directly affect payouts in these lines of insurance.
2. If Congress does not act until early next year, companies tasked with implementing fee schedule changes will find themselves burning the midnight oil to build fee schedule tables that can meet either eventuality -cut or no cut.
3. PPO discounts are often pegged to Medicare, so their revenues will either increase or stay the same, depending on what Congress does.
4. And most important, a decrease in reimbursement will lead to more physicians dropping out of Medicare, Medicaid, and any reimbursement program tied directly to Medicare. Today physicians ask for, and receive, reimbursement higher than the state fee schedule in WC in Massachusetts. Florida raised its fee schedule from 87% of Medicare (on average) to 114% in large part due to physicians refusing to take the lower reimbursement. Early evidence is physicians are returning to the system, and utilization has not increased.

Editorial statement - price controls simply do not work. When will the politicians, managed care "experts" and PPO companies learn this?

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

One of the more distasteful practices in the medical profession is the subject of an article in today's Wall Street Journal. The practice is so-called self-referral of patients by a physician to an imaging facility where they stand to gain financially. Yes, there are laws against this. Yes, physicians and business folks make lots of money thinking up creative ways to circumvent these practices.

This is one of the more creative I have heard of. To quote the Journal;

Imaging centers "structure referral deals as leases, under which physicians, each time they send over a patient, are renting the scan center's facilities and employees." The physician then bills the insurance company whatever rate they deem appropriate, and receives payment directly.

Imagine what they could accomplish if they worked to create value and better health, instead of thinking up ethically-challenged ways to generate even more physician income.

What does this mean for you?

If you are contracting with physicians, be very careful about the language re self-referrals; although many tend to turn up their noses at the mention of contract law, this is a great example of why the details are critical.

If you are evaluating an upsurge in diagnostic imaging, tie the referrals back to referring physicians, and look for any sudden increases. Then, have a talk with the doc.

Posted by Joe Paduda at 6:09 PM | Link to this post

Even though it's just a small one, it is stilll significant. Rep Nancy Johnson (R) CT (my home state) is promoting a drastic change in the way Medicare pays physicians. Rep. Johnson is calling for a pay-for-performance scheme to replace Medicare's fee schedule arrangement.

Details below, but in case you can't read that far, think of this.

1. many state workers comp fee schedules are based on Medicare's. What are the implications for state programs?

2. Group health reimbursement is often tied to Medicare as well...

3. Medicare is based on paying for services needed for and delivered to a population that is over 65. If the reimbursement arrangement changes, and it factors in some kind of "performance" metric, will it even be possible to adapt that to younger populations?

Now that your head hurts, here's the details...

According to California HealthLine;

"Johnson said that, although physician performance measures and systems to collect data on performance are not perfected, lawmakers must move to address the issue because of scheduled reductions in Medicare physician reimbursements over the next several years. Elimination of the SGR (Sustainable Growth Rate) system "is the only possibility," Johnson said, adding, "It's unfortunate that we have to do this two years in advance of the technology."

Johnson also indicated that lawmakers could enact "a one-year fix of physician payment while a more permanent system is being designed," although she hopes to enact permanent revisions to the Medicare physician reimbursement system this year, CQ HealthBeat reports. She estimated that the replacement of a 1.5% reduction in Medicare physician reimbursements for fiscal year 2006 with a 1.5% increase would cost $11 billion over five years."

Posted by Joe Paduda at 6:52 AM | Link to this post

Two reports on so-called "specialty hospitals" were released yesterday in hearings on Capitol Hill. The Medicare Payment Advisory Commission's (MedPAC) report calls for an extension of the ban on construction of new specialty hospitals. For those who have not been keeping up on this rather esoteric (but critically important) issue, there has been a Federal ban in place preventing the construction of these facilities, which are typically for-profit and partially owned by the physicians practicing at the facilities.

The rationale behind the ban was a concern that these facilities were "skimming" the profitable patients, leaving tertiary and primary hospitals the indigent, Medicaid, and less-healthy patients. According to California HealthLine, the report addressed this concern directly, noting:

"The MedPAC report, presented to the Senate Finance Committee on Tuesday, states that physician-owned specialty facilities could "corrupt clinical decisions and lead to inappropriate care." The report also said that, relative to full-service hospitals, specialty hospitals generally treat healthier patients, focus on higher-cost procedures, treat fewer Medicaid beneficiaries and do not have lower costs.

The report recommends that Congress recalculate Medicare prospective payments to acute care hospitals to more accurately reflect the cost of care and prevent financial incentives for hospitals to select healthier patients (CQ HealthBeat, 3/8).

MedPAC's findings were not entirely echoed by a CMS report presented at the same hearing. (Source California HealthLine)

"CMS "unexpectedly released" its preliminary report on specialty hospitals. Thomas Gustafson, deputy director of the CMS Center for Medicare Management, said the CMS study shows "measures of quality at [physician-owned] cardiac hospitals were generally at least as good and in some cases better than the local community hospitals."

In addition, "[c]omplication and mortality rates were lower at cardiac specialty hospitals even when adjusted" for patient-sickness levels, he testified. CMS conducted its study by examining six markets, which represent 11 of the 59 cardiac, surgery and orthopedic specialty hospitals approved in 2003 as Medicare providers.

The CMS report also found that doctors who have invested in specialty facilities do not refer patients exclusively to the specialty hospitals but they do refer a greater share of patients to specialty facilities than to full-service hospitals. "

Out here in the real world, there is evidence that specialty facilities do skim the patient pool. A full-service, multi-hospital health care system (client of Health Strategy Associates) has been losing patients to a physician-owned ambulatory surgery center for over a year. Anecdotal information strongly indicates that the patients seen at the doc-owned ASC are more likely to be privately insured or covered by workers' comp (a profitable payer in this state).

Posted by Joe Paduda at 8:33 AM | Link to this post

Fed Chairman Alan Greenspan's recent gloomy pronouncements about the potential impact of the federal deficit have focused even more attention on entitlement programs. Interestingly, Greenspan specifically mentioned governmental health programs, such as Medicaid and Medicare, noting that their contribution to the deficit may well outstrip that of Social Security.

Pres. Bush's efforts to rein in Federal expenditures on Medicaid has focused on cutting drug reimbursements; eliminating some of the ways seniors have shifted assets to qualify for governmental funding of long term care; and closing "accounting loopholes. As of today, these recommendations have run into a stone wall, as Republican and Democratic governors alike have strongly resisted any Federal cuts to Medicaid funding. Their resistance, combined with less-than-overwhelming support from Congressional Republicans, make it unlikely that Mr. Bush will get all, or much, of what he desires.

If Bush is unable to cut Medicaid significantly, today's $300 billion in annual costs will continue to escalate at near-double-digit rates. Combine that bad news with the Administration's refusal to consider any changes to the new Medicare Prescription Drug program (slated to start next year), and it is clear that any progress in reducing governmental expenditures on health insurance programs will have to come from other sources.

So, who's going to feel the pain?

In a word, providers.

Doctors are slated to receive an automatic 5% fee cut in 2006. Historically, Congress has eliminated or reduced these cuts in the past�but budgetary pressures will make this "simple" approach to deficit reduction more appealing than the other, even less palatable options.

Hospitals are also likely to get hit, and hit hard. Bob Laszewski of Health Policy and Strategy Associates has said that despite "earnings problems among publicly owned hospitals, there is the sense that hospitals are doing well and can afford to take the hit."

With the Medicare drug program's costs estimated at $720 billion over the next ten years, Medicaid costs increasing at about 9% a year, our aging population, and the Administration's refusal to raise taxes or negotiate with drug companies for lower prices, something has to give. It looks like among those who will be asked to give the most are health care providers.

Posted by Joe Paduda at 11:57 AM | Link to this post

A very good discussion of the contentious relationship between (and among) hospitals, employers, and insurers can be found on healthsignals new york.

The article refers to recent developments in the Denver market that are worth reflecting upon.

Posted by Joe Paduda at 6:59 PM | Link to this post

Why do doctors contract with large networks to provide care at a deep discount? Do they expect to get more business from those relationships? If so, does that additional business ever arrive at their examining room? How many other physicians in their area are also contracted with that network? If there are many, are they merely joining to maintain their patient base?

Have they actually done the math to determine the impact of the discount on their finances?

Here's an admittedly simplistic analysis of the financial impact of a discounted patient visit.

• The "non-discounted" price would be $100
  
• The discount is 20%
  
• The net profit on the average patient visit (non-discounted) is 30% (an unreasonably high number, but easier to work with for our purposes)

The doctor makes a profit of $10 per discounted patient visit, and therefore must see three times as many patients to justify that 20% discount. And that's before one factors in the additional fixed costs associated with the larger patient load - more parking, more staff, a larger waiting room, more examining rooms, and more of his/her professional time.

Perhaps more physicians are "doing the math", and that is why managed care firms are having a much tougher time getting discounts.

The network deep discount model has other fundamental flaws, flaws that are only now beginning to be fully appreciated.

Posted by Joe Paduda at 10:48 AM | Link to this post | Comments (2)

The wide geographic variation in treatment has received extensive coverage in the Medicare and group health arenas, with one of the most-cited studies coming from the Dartmouth Medical School. The Dartmouth Atlas of Health Care uses Medicare data to illustrate the difference in frequency and utilization across states and MSAs, and is required reading for anyone pursuing this subject.

One of the questions raised by the Atlas is "does this variation also occur in other lines of coverage?" While there is not nearly as much data available on this subject, two fairly recent studies in Texas indicate that disparities in cost are not limited to the Medicare world.

The Research and Oversight Council's (ROC) Analysis of the Cost and Quality of Medical Care in the Texas Workers' Compensation System provides an excellent (and brief) summary of the two studies, one by the Council itself and the other by the well-respect Workers Compensation Research Institute (WCRI). Of note, the ROC's study indicates that the average annual medical cost per claim range from $4242 in the Dallas/Fort Worth area to $2835 in San Antonio/Austin.

Undoubtedly this variation exists in other states as well. This raises some interesting issues, including:
--In states with regulated rates, do underwriters select risks based on lower-cost medical areas? If not, why not?
--Can payers focus their managed care efforts on high cost areas and away from low cost areas, and if not, why not?
--What is going on? Are treatment patterns different? Are costs higher? Are injuries or illnesses different? Is there a different mix of providers?

Clearly, medical care is delivered in different amounts, by different types of providers, via different procedures, in different areas. That being the case, why are managed care programs so generic? And could that be one of the reasons why they are both frustrating to the provider and ineffective at moderating health care cost increases?

Posted by Joe Paduda at 4:29 PM | Link to this post