The revenge of the nerds

It’s about understanding medical care, cost drivers, and components thereof.

Several years ago (ok, more like ten) I was in a client CEO’s office discussing medical care cost drivers, competitors, and possible differentiation strategies.  He stepped out for a few minutes to take a call, and, finding myself with nothing to do, I pulled out the latest Health Affairs to catch up on the latest and greatest in health policy research.

Upon this august gentleman’s return to his office, he asked me if I actually read Health Affair. When I said I did, he said something to the effect of “no one reads that, they just carry it around to look smart.”

And therein lies the problem.

And no, it’s not that I don’t need all the help I can get to look smart.

It is a lack of attention to the underlying drivers, influencers, issues.  It is a failure to think about how Medicare’s physician reimbursement affects commercial rates, how Medicaid enrollment drives provider behavior, how Part D enrollment influences drug pricing, how the lack of coverage among certain populations increases facility costs to commercially-insureds, how low adoption of evidence-based medicine makes for poor outcomes, how productivity is affected by insurance coverage status, how payment reform will affect workers’ compensation medical expense ratios.

There’s also a predilection on the part of some to ignore, or more commonly discount, information that runs counter to their worldview.  I see this all the time with workers’ comp execs when discussing Obamacare; they allow their political blinders to affect their business decisions.

There is so much happening in health care delivery and financing and reimbursement and evaluation and coverage that no one can possibly keep up.

What does this mean for you?

The ones who take the time to read and listen objectively, to think about import and impact are going to be more prepared, more aware, and better equipped than those that, for ideological or other reasons, have tunnel vision.

And thus more successful.

 

Friday catch-up

It’s been a very busy week.

Today Mitchell announced they’re going to buy specialty bill review firm FairPay Solutions.  Makes sense for Mitchell, as FPS’ technology and expertise is unmatched in the business, and will add a lot of value to Mitchell’s WC and auto BR solutions. Looks like current FPS CEO Chad Birckelbaw is only sticking around for a few months.  That’s a BIG loss for Mitchell; Chad is not only one of the best people in the work comp services business, he’s also the guy who automated what had been a mostly-manual process and kept FPS moving forward in what has become a very competitive business.

Notably, Mitchell’s announcement said FPS will continue to support other bill review entities.  That’s not going to last.  I very much doubt the other BR companies are going to keep working with FPS; there’s just too much inherent conflict and the other firms are likely very concerned about KKR’s future plans for Mitchell.

There are a couple other transactions in process now which should close shortly.  Looks like the trend is positive for strategic buyers – other companies with related businesses as they are winning most of these bidding wars.

WCRI has just released their annual CompScope Medical Benchmarks reports; the latest info on what’s happening in 14 states; haven’t had time to dig into them but hey, that’s what weekends are for!

The Benchmarks will be discussed at length at WCRI’s annual meeting – if you haven’t signed up yet, best get on it as they do max out.  March 12-13 in Boston…details are here.

On the I-Can’t-Wait-Till-We-Drive-A-Stake-In-Their-Black-Hearts front, Pennsylvania, Arizona, Hawai’i and Maryland are doing their best to control physician dispensing in work comp.   Alas, bought-and-paid-for legislators are much more interested in taking cash from dispensers than saving taxpayer dollars and employer jobs; in a hearing in the PA legislature, Representative Donna Oberlander asked Labor and Industry Secretary Julia Hearthway how much money the Workers Compensation Program would save if the General Assembly ended physician dispensing.   

The response – $18-$26 million.  

 

 

The GOP’s Alternative to Obamacare

Three republican senators have proposed a bill – the Patient CARE Act – to replace PPACA aka Obamacare.

Kudos to Senators Burr Coburn and Hatch for their efforts – and for staying away from the useless ideas of selling insurance across state lines, high-risk pools which are never adequately funded, and that favorite non-solution, tort reform.

In a nutshell, the GOP bill does away with most PPACA regulations including the mandate, reduces the tax break on employer-sponsored insurance, does away with Medicaid expansion, and gives low income folks tax credits to buy insurance.  There’s not a lot of detail, and it’s clear this is a work in progress.  I would note the GOP’s claim that their bill expands coverage without increasing taxes is sophistry;  according to many in their party, eliminating a tax break IS raising taxes.

There is no mechanism or approach or tools that would reduce health care costs, no assurance that those with pre-existing conditions will get coverage (unless they constantly maintain insurance, something that many folks don’t do), no control over benefit design (which is skillfully employed by insurers to discourage the unhealthy from signing up)

While a home-team analysis indicates the GOP bill will reduce uninsurance by about the same amount as Obamacare, the analysis isn’t credible.  For one thing, the “coverage” provided under the GOP bill would be a LOT thinner than that provided under Obamacare – they’d have to be, as the maximum credit for young singles would be $1,560, hardly enough to pay for anything but the skimpiest of catastrophic coverage.  This may be “insurance” but it certainly isn’t “coverage” .  In addition, doing away with the Medicaid expansion would dump millions of just-covered folks back on the safety net, aka emergency rooms, charity care, and community health centers that have been hammered by budget cutbacks.

 

Finally, the provider, payer, information technology, supplier and health system communities have all been working feverishly to prepare for and implement Obamacare.  This train left the station four years ago, and Burr, Coburn, and Hatch are just now showing up trackside with a revised itinerary.

Moreover, the passengers on this train – the middle class, health care providers, and older folks – are going to be adamantly opposed to the GOP plan as it:

  • raises taxes on the middle class;
  • undoes Medicaid expansion thereby harming health care providers; and
  • increases insurance costs for older people.

Politically brilliant it’s not.

As Jonathon Cohn notes; “It would have been a lot more productive if these three senators, or any other Republicans, had been similarly constructive back in 2009…”

He also thinks it is better late than never – I disagree.

Obamacare is the law of the land.  It is not going to be repealed.  The triad would have better spent their time working on something more productive; say immigration reform or revamping the tax code.  Alas, this is an election year, and the GOP bill is a political ploy.

But it’s not a very smart one.

What does this mean for you?

Not much.

 

 

Opioid guidelines are about to get a whole lot better

In about ten days, providers and payers struggling with opioids will get a big hand up.

ACOEM will be releasing their just-completed Opioid Guidelines; they are comprehensive, extremely well-researched and well-documented, and desperately needed.

I learned about the guidelines from a presentation delivered by Kurt Hegmann MD MPH, Professor at the University of Utah and Chair of the Occ Med Division at the University of Utah’s Compensable Disabilty Forum.  In his spare time, Kurt is also responsible for ACOEM’s guidelines as the Editor-in-Chief, a role he’s filled for eight years.

Affable and engaging, Dr Hegmann walked the audience through the development process (quite rigorous, involving 26 professionals with NO conflicts of interest using the Institute of Medicine methodology), the research and (960) references behind the guidelines and the ranking/categorization of individual guidelines.

Here are a couple of takeaways.

  • Of the 220 pages, the vast majority are tables of evidence – some practitioners may peruse them, but most will focus on the couple dozen pages specific to individual treatments
  • The guidelines address acute and chronic treatment, with chronic defined as > 3 months
  • The detail, specificity, and depth of research and their application to guidelines are impressive indeed.  What these guidelines add to our understanding of what works, why, and what doesn’t is impressive by itself; how they blow apart pre-conceived notions of “appropriate” care and challenge long-held conventional wisdom was – at least for me – rather jarring.

    For example;

  • Other guidelines say it is Ok to be on safety sensitive jobs and take opioids – that is NOT supported by the research
  • The researchers found NO link between opioids and improved function – studies that show there is a link almost always use self-reported data.
  • No trials indicate opioids are superior for acute pain than NSAIDs.
  • The MAXIMUM dosage recommended is 50 MEDs (morphine equivalent dosage), significantly lower than most guidelines which use 100-120.  The reason is the research – there is a much lower risk at this level, with the data indicating a sharply higher risk profile for higher dosage.
  • Drug testing is recommended with a baseline and random tests 2-4x a year; the higher the dosage – more screening
  • Pain rating scales are all but useless as data points as lots of patients indicate their pain is a 10 and yet are working full time.  This is not possible, and indicates the uselessness of subjective ratings/scores/data.

Are they perfect?  No.  But that’s due to the lack of research on specific issues, and not to the diligence and perseverance of the developers.  If the research is solid, it is in the guidelines.

What does this mean for you?

A lot of confidence in the guidelines, and hope that we can begin to gain control of the epidemic of opioid overprescribing.

The health insurance world in 2014 – lots of uncertainty but no death spiral

Uncertainty.

That’s the best way to describe health insurance execs’ views on their business these days.  The massively-screwed-up-but-steadily-improving rollout of the federal exchange is the biggest reason for that uncertainty, but there’d be huge uncertainty even if things had gone flawlessly.

Health care providers are consolidating rapidly, increasing their negotiating leverage.  More and more physicians are working for health systems.  Some employers are dropping coverage, while others are moving to narrow-network based plans. All this against a backdrop of an aging population, increasing income inequality, major growth in Medicaid enrollment, reduced Medicare reimbursement for facilities and a possible “fix” to the fatally-flawed physician reimbursement system/mechanism.

And, the metrics they use to measure performance are in flux as well; the old measurements were fine when insurers could underwrite, adjust benefit designs, change deductibles and copays, and negotiate with providers from a position of strength.

Add to that the uncertainty over who is going to enroll via the exchanges – will there be enough “young immortals” to balance the older, sicker folks who sign up?  More importantly, how will that play out for individual health plans; Plan A isn’t concerned about the overall picture, but is very, very concerned about the demographics of their member group.

It’s no wonder senior management – and other stakeholders – are “uncertain” about the short-term, much less the longer-term.

Amongst all this confusion, there’s one thing that is clear – there isn’t going to be an “Obamacare death spiral”, at least not for three years.  The scaremongering about death spirals and adverse selection that might result from too many old folks and not enough young folks signing up is mis-informed.

There is a financial back-stop in the form of reinsurance that protects insurers from high cost claims for the next three years.  Bob Laszewski has an excellent description of the program and implications thereof here.  Funded by a tax on each insured, the program provides coverage for insurers “selling coverage on the state and federal health insurance exchanges as well as in the small group (less than 50 workers) market…”

By then, things will have settled down, insurers will have figured out what works, what doesn’t, and what they need to do to operate profitably.  Some will drop out of the exchange(s), while others will expand their service offerings and coverage areas.

What does this mean for you?

Lots of uncertainty means lots of opportunity for those aware, nimble, and stalwart enough to take advantage.  Not that there are many in this business that fit that description!

Friday’s catchall and catch-up

It’s been a crazy busy year for all; in the run-up to the Christmas holiday I missed a few items that well deserve mention.

First, my post about female CEOs missed a couple women in that role; Liz Haar is CEO of Accident Fund Holdings Inc.  What’s worse is AFHI has been an HSA client for some time, proving I can on occasion be dense as a rock . Artemis Emslie runs myMatrixx, one of the more innovative workers’ comp PBMs.  Deborah Pfeifle was also disappointed I forgot about her.

My apologies to you all; I’ll strive to do better in the future.

On the good news front, medical trend is at an all-time low, with inflation running 1.3 percent since 2010.  That is nothing short of amazing/incredible/mind-boggling.  As a result, CBO projections of Medicare/medicaid spending over the next six years is down $147 billion, or 0.6% of GDP.

On a more esoteric note, CMS announced they are cutting reimbursement for interventional pain procedures; epidural steroid injections will be lowered by 36%+,  fees for spinal cord stimulation and kyphoplasty will be cut as well.  Here’s the issue; interventional pain docs may decide non-work comp patients aren’t worth their time, and focus even more on work comp. Comp payers should very carefully monitor interventional pain docs and claimants treated by those docs and be alert for practice or treatment plan changes.  

(this is the letter ASIPP is requesting docs send to their representatives…)

Finally, a piece from JAMA provides sobering statistics on why health care in America is so expensive.  (thank you to Vincent Drucker for the tip, and kudos to the Incidental Economist for posting on it long before I did)

  • 84% of medical costs are for the treatment of chronic conditions
  • Price increases – not utilization – accounted for 91% of medical cost increases since 2000.  Price is driving cost, with hospitals increasing the most.
  • The aging of the population is pretty much a non-factor, while provider consolidation is a major contributor to pricing power.
  • IT is a driver as well; “investment has occurred but value is elusive.”

So what’s to make of the super-low inflation numbers while historical research indicates prices are up?  Couple things spring to mind.

First, CBO numbers are for total spend, and governmental programs have done quite well in controlling cost; commercial payers not so much (except in Mass, where average group health premiums have gone down over the last two years!)

Second, the JAMA piece includes data from the 2000 decade while CBO is just 2010 on.  Different sample set.

What does this mean for you?

Taking all these cost items together, watch out for cost-shifting!

Investors may well keep their focus on work comp

I’m thinking the investment community’s current obsession with workers’ comp is not going to end anytime soon.

For several months I’ve been saying investors will move away from work comp when the next new thing comes along.  As one who spends waaaay too much time perched on the bleeding edge, I’ve learned to revisit my assumptions and question my firmly-held views more often and more deeply.  Here’s what’s causing the re-think.

First, market forces.

The Affordable Care Act has already caused huge changes in the US healthcare industry; medical homes, ACOs, tech adoption, provider-payer partnerships, accelerated consolidation of health care providers and payers, new reimbursement models.  Those changes are driven in large part by the need to prepare for a very different competitive dynamic.  That different competitive dynamic, coupled with the growing influence of HHS due to the aging population (more Medicare folks) and Medicaid expansion and the rollout (deeply flawed as it is) of the mandate, makes investors very nervous.

Investors wake up in the middle of the night in a cold sweat with visions of some HHS staffer writing a regulation that kills their entire business plan/profit.  With so much riding on ACA implementation, and so much budgetary pressure on entitlements (Medicare and Medicaid specifically), entities who focus on health care investing are looking to diversify, to spread the risk into industries that, while not too different from the overall health care market, are protected from the regulatory risk present in Medicare, Medicaid, and ACA-regulated businesses.

KKR’s purchase of Mitchell International last month is evidence of just such a move.

So, that’s the logic.  What about evidence?

  • Last week I spent an hour talking with a sovereign wealth fund from a very wealthy Asian country about all things workers comp.  The capital these guys have dwarfs even the largest PE firm; just the fact that they’re looking into comp tells you a lot about the visibility of our tiny little industry.
  • A couple of very big transactions are going to close this fall, and when they do they’ll grab a lot of attention.  That will generate even more interest, and the snowball will keep rolling.
  • At least two more mid-sized transactions are in the works; while they likely won’t close – or perhaps hit any radars – for a few more months, when they do they’ll likely generate more buzz.
  • There are also several smaller deals likely to close before the comp conference; while no one outside the industry will pay any attention, the transactions will keep owners thinking about selling and potential buyers looking for acquisitions.

Which brings me to a somewhat-related topic; Aetna’s purchase of Coventry Healthcare.  Sources indicate Coventry’s work comp business was, if not an afterthought, more of a “nice to have” part of the transaction.

A few hundred million in free cash flow is very much “nice to have”.

As mother Aetna has begun to absorb Coventry, there’s a growing awareness in the huge brick headquarters that the Coventry WC business has two really nice features; it is NOT ACA-related (see above), and it is fee-based, not risk-based.

If anything, I’d expect Aetna to invest in work comp and other non-ACA business.  There are a lot of rumors circulating about potential transactions involving various work comp service/tech companies.  As of now, they’re just rumors, but I would not be surprised if CEO Mark Bertolini et al decided to get just a bit more involved in the comp space.

What does this mean for you?

Long ignored by the rest of the world, we’re now the prettiest girl at the dance.  Or, if not the prettiest, perhaps the most desirable.  

Limited provider networks…that’s the point, folks!

There’s a good bit of hand-wringing and wailing by physicians and their support groups over healthplans limiting their networks to relatively small subsets of the entire provider community.

As if this was somehow a bad thing.

Health plans are contracting with smaller groups of providers to

  • a) drive more patient volume to those providers in return for
  • b) better financial terms and
  • c) tighter integration between the healthplan and the selected providers.

I find it darkly funny that the AMA and other groups are moaning about the potential impact on patient access to health care of these smaller networks; one of the primary reasons many don’t have health care is because physician services COST SO MUCH.

Instead of whining about the injustice of it all, the AMA – and the provider groups who aren’t part of the smaller networks – could decide to, oh, I dunno, maybe reduce their fees, agree to strict evidence-based medical guidelines, implement system-wide electronic health records and EDI for billing and encounter data…

After all, I’m quite sure the health plans with small network options would love to have bigger networks – but only if the cost of care makes the health plans’ product offerings cost-competitive.

It would be easy to miss the real significance of this tempest-in-a-teapot, and that would be this – By leveling the playing field, ACA and the Exchanges enable consumers to quickly and efficiently compare health plan offerings.

THE key decision criterion is price.

These health plans understand it, have gotten some providers to agree to help them reduce their “cost of goods sold”, and therefore are going to win more business.

Big networks work when HR people are the buyers; they don’t want to hear from employees and spouses complaining that their pediatrician or ob/gyn or cardiologist is not in-network.  When consumers and small business people are doing the buying, they are much less likely to be concerned about every Dr Tom, Dr Dick, and Dr Mary being in-network; they are choosing between a plan they can afford and one they can’t.

What does this mean for you?

You can have a huge network or a reasonably priced health plan, but you can’t have both.

Health insurance costs under PPACA…not what you’ve heard

There’s been a lot of yelling about insurance costs under PPACA/Obamacare of late, most of which is uninformed, unintelligible, ideologically based or just plain wrong.

Here’s the scoop.

As of 8/30, 17 states and DC have released comprehensive rates for insurance plans bought via their Exchanges. And the news is quite good.

The CBO’s  projected rates for a  40 year old individual were $320; the benchmark rates in 15 of 18 states out so far are lower than CBO projection.  Benchmark rates are based on the second lowest priced Silver plan.  The two highest cost states – VT and NY – are anomalies as the rates and plans are affected by current rate limits and the existing ban on medical underwriting, both of which drove rates up.

Because the actual premiums are lower than projections, the federal budgetary cost of subsidies is actually going to be lower than projected.  This assessment is based on a comprehensive analysis done by the good folk at Kaiser Family Foundation did a comprehensive analysis.

If a 40 year old individual with income at 250% of the FPL uses tax subsidy to buy a bronze plan, insured’s rate can be as low as $97 in Hartford CT.

So what accounts for the differences in today’s premiums vs ACA premiums?

Rates are higher than today’s because:

-       pre-existing conditions will be covered under ACA will increase premiums

-       coverage is more comprehensive; for many people, their coverage will improve; todays plans often have (much) higher deductibles, limits on specific types of services,

-       limits on cost variation by age, medical underwriting, and gender rating

Rates are lower than projected because:

-       80/20 MLR threshold lowers premiums (insurers have to pay at least 80% of premiums for actual health services

-       rate review by states/feds will reduce premiums; in some states it already as as the local regulators have required insurers to cut premiums to earn a place in the Exchanges

-       federal reinsurance for high risk members will lower premiums

-       most purchasers will get subsidies, either via credits based on their income (declining subsidies based on income from 100% to 400% of the federal poverty level) or credits for small employers.

-       Most importantly, and I’d argue most significantly over the long term, PPACA’s Exchanges will engender fierce price competition, price competition that doesn’t occur today because consumers don’t know what their cost will be until they’ve completed the underwriting process.  In the Exchanges, they’ll be able to directly and quickly compare plans from multiple insurers, without having to wade thru the minutia of different benefit designs, coverage limits, and exclusions and limitations.

Notably, in Oregon, two insurers’ plan costs came in high; the insurers realized they were priced out of the market and reduced their premiums to compete – this is very different from today where medical underwriting and the application process hides actual prices.

What does this mean for you?

Perhaps the biggest benefit of PPACA’s Exchanges is they level the playing field, making it easy for consumers to figure out what their costs will be for which plans.  This is going to force insurers to compete based on value, not on how well they can underwrite – aka avoid selling insurance to anyone who might actually have a claim.

 

 

“Rate shock” explained

Obamacare is going to raise rates by 88% in Ohio while California officials think health reform has “hit a home run for consumers.”  As these are the only two large states with published rates (not that I don’t love and respect Vermont), we’ll focus on OH and CA.

(For the quick net-net, see the last paragraph)

As Jonathan Cohn points out, this is really an apples to grapefruit comparison.  In order to accurately assess the cost differential, one has to do an actuarially accurate comparison.

Alas, I can’t find any that are credible; Ohio’s doesn’t factor in benefit design differences or the impact of no medical underwriting and fewer age bands; there are several other factors that affect what consumers will actually pay.

First – this only affects people who get coverage thru the exchanges.  That’s about 14 percent in California. Most get insurance thru their employers, Medicaid, or Medicare, so they are unaffected.

Second, a LOT of people will get subsidized coverage, so what they pay will be less – sometimes a lot less – than the advertised price. In California, about half of those getting benefits from the Exchange will get coverage at a lower cost; a 40 year old who makes just under $24,000 a year will get very good insurance at $90 a month (Health Net Silver plan). (I know, taxpayers, hospitals, drug companies, and insurers will pay for those subsidies, but most of the press has been focused on what the insured’s cost will be, so we’ll focus on that)

Third, it’s NOT just the cost of the insurance, it’s the cost of care – premiums and out-of-pocket expenses.  The benefits covered by the Exchange plans are much richer than the lowest-cost plans now offered in many states.  For example, the individual Bronze plan in Ohio has an out-of-pocket cap of $6,350, compared to UnitedHealthcare’s Saver 80′s $13,000 max out of pocket.  But the Saver 80 doesn’t cover maternity, vision, mental health care, drugs or office visits (except for very limited wellcare visits).  So consumers who pay less in premiums for today’s Saver 80 than tomorrow’s Bronze plan will spend much more out of pocket, far outweighing any premium savings.

Fourth, costs for younger people will likely be higher under the Exchange, while costs for older folks may well come down.  That’s a function of the reduced number of “age bands”;  insurance-speak for charging us older folks more because we are worse risks than you young pups.

Fifth, because medical underwriting is banned under Obamacare, many individuals who can’t get coverage at any price today will get coverage tomorrow.  Today, many folks with a history of heart disease or cancer or other serious conditions can’t get any coverage in some states, and only at incredibly high prices in others – due to pre-existing medical conditions.  For those people, any conversation about higher costs is irrelevant, because no one will sell them insurance, or if they do it will be at rates unaffordable to anyone but the top 0.1%.  So, if you have high blood pressure, a family history of heart disease or cancer, a BMI above an acceptable range, lupus or diabetes or high cholesterol or asthma or depression or any of dozens of other “conditions”, you will be able to get coverage next year – at the same price as anyone else your age.

Here’s the net.

For older folks, benefits will likely be richer, out-of-pocket expenses and premiums lower.  Younger people will likely pay more for better coverage than they have today.