Health care cost increases, which appeared to be moderating last year, appear to be stepping on the accelerator again. The Center for Studying Health System Change’s recent analysis indicates that health care costs continue to grow much faster than either overall inflation rates, or, more importantly, worker incomes.
CSHC’s analysis indicates that hospital price increases are one of the key factors driving health cost inflation, with prescription drug costs continuing to accelerate as well.
CSHC’s analysis and review of the numbers forecasts the impact of continued inflation, noting :
“Health care costs likely will continue to grow faster than workers’ income for the foreseeable future, leading to greater numbers of uninsured Americans and raising the stakes for policy makers to initiate effective cost-containment policies or accept the current trend of rapidly growing health care costs and gradually shrinking health coverage.”
With the number of uninsured exceeding 45 million by most counts, 18% of the non-Medicare population is now uninsured. This compares to an uninsured rate of 0.1% in Germany, a country with health care costs as a percentage of GDP some 50% less than ours.
The Piper Report, a well-respected weblog focused on all issues healthcare, published a great piece about techniques for encouraging enrollment in high-quality health plans.
Briefly, the piece documents the success some states see when they use “performance based auto-assignment”. This is engineer-ese for enrolling people in health plans based on the performance of the plan. States practicing “PBAA” (my acronym, not their’s) assign Medicaid recipients to health plans based on a comprehensive analysis of plans’ performance – quality, cost, access, patient satisfaction may be used in this analysis. This assignment only occurs if the recipient has not picked their own plan within the required time frame.
“PBAA” is being extended to Medicare prescription drug beneficiaris, in January of 2006. The first of that year, over 7 million Medicare recipients will find themselves participating in prescription drug “auto-assignment”.
There will be clear winners and losers, but among the winners will be taxpayers and beneficiaries. No topic has generated more heat and less light than the issue of “pay for performance” – here is the best example to date of why performance matters.
Perhaps employers should consider employing the same method in selecting health plans for those workers who can’t seem to enroll on time…
The latest information on the Coventry acquisition of First Health may provide a sense for the future of the merged entity.
Profits at First Health are down, ostensibly due to “merger related charges” and steep declines in revenues from FH’s MailHandler’s employee benefit program.
The MailHandler’s program is a federal employee health benefit plan, formerly administered by CNA Insurance. Several years ago FH won the contract, taking it from CNA (who happened to be a FH customer at the time). It accounts for a significant portion of FH’s topline (revenue).
Coventry EVP Tom McDonough has been named to oversee the integration of FH and Coventry. McDonough joined Coventry from UnitedHealthGroup, where he was responsible for their large, multi-state employer groups. Clearly, this experience is highly relevant to FH’s present market mix.
Several years ago, UnitedHealthCare divested itself of its’ Workers’ Comp entities, specifically Focus Healthcare and MetraComp, after the MetraHealth acquisition. McDonough was at United at the time, as were other current Coventry executives (e.g. Harve DeMovick, now CIO).
Coventry and FH stock prices have not fared well since the acquisition announcement. The Motley Fool, long a critical observer of FH management, had this to say just after the announcement:
“No sooner had the buyout news gone out than 11% of Coventry’s market capitalization vanished, and McGraw-Hill’s (NYSE: MHP) Standard & Poor’s placed Coventry on its watchlist for a possible debt-rating downgrade. The reason: Coventry may be overpaying for this underperforming business. Coventry plans to pay for its purchase roughly half in stock (at a 0.1791:1 exchange rate) and half in cash ($9.375 per share of First Health). At Coventry’s Wednesday closing price, that would value First Health at $18.75 per share, imputing a valuation of $1.7 billion to First Health. Factoring in Coventry’s own share price decline in response to the deal’s announcement, however, brings the agreed value of First Health shares down closer to yesterday’s close — about $17.70.”
Currently, Coventry’s stock price remains significantly below the pre-acquisition level (from $53.50 to $44.01 today). I doubt either Coventry or FH management are terribly pleased with this…
One of the criticisms advanced by analysts is the potential for Coventry management (which is highly respected) to become distracted by the merger and the non-core FH business – PPO, Workers’ Comp, etc.
Net is this – if the Coventry stock price continues to languish, expect to see a “return to the core” – perhaps spinoff of some of the non-core assets.
I live in Madison, Conn., a town of some 18,000 located between New Haven and Old Saybrook on the Connecticut shoreline. Madison is a pretty well-off place; schools are excellent, services good, and government responsive.
To fulfill my civic responsibility, I have been working on a couple of projects with the Superintedent of Schools, a very professional, and very capable, woman. Of late, the topic of interest has been health care. Madison has some 550 employees, including teachers, administrators, police, and town office staff. Most of these employees are covered under one of another union-negotiated health plan, and all get great (read “expensive”) health benefits.
The Town is now in negotiations with the unions on new contracts, which will include health insurance coverage. The contracts will run for three years, and benefits are fixed for that period.
Here’s the issue. Costs are around $7000 per employee per year, and increasing over 12% per year.
Think about that. Costs will be $14,000 per employee in 5 years, and $28,000 in 10. That is not a long way off.
These increases are simply unsustainable. Like many others, I have been predicting we would finally reach a point where we could not afford health insurance. Clearly, for the taxpayers of Madison, that point will be reached in the next ten years.
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?
Coventry Health Care announced yesterday it is going to acquire FirstHealth Group for stock and cash equivalent to about $18.70 per share. Coventry is a second-tier managed care company focused on small group, fully insured business, in 15 states.
This may well indicate a change in Coventry’s strategy, as it evolves from its tight focus on small group insurance in limited markets. The acquisition gives Coventry a national PPO for work comp and group, ownership of the federal MailHandler’s health benefit program, and ancillary or related services including PBM capabilities and Medicaid services.
Notably, there were no indications on the part of Coventry senior staff of a desire to retain FH senior management over the long term; while this is conjecture the tone and wording of their statements does not give one the sense that the top layer of FH management is around for the long term.
One interesting question is what will Coventry do with the WC business? Coventry is managed by people who have little past experience with WC, and actually worked for firms that rid themselves of WC subsidiaries (UnitedHealthGroup selling MetraComp and Focus) to focus on core business. My sense is Coventry will leave the WC alone for now, and see what develops – stay tuned over the next six months, as any change in this may happen around the middle of next year.
Interesting item from Workers Comp Insider today:
There is an interesting convergence of issues concerning the pain killer, Oxycontin. Originally developed to combat cancer pain, Oxycontin has been aggressively marketed over the past three years by its manufacturer Purdue, to the point where the drug is now the pain-killer of preference for work related injuries. This drug is twice as powerful as morphine and, while not technically addicting, it can create withdrawal symptoms when a person stops taking it. According to a study by NCCI, Oxycontin is prescribed for pain in 69% of permanent partial disability cases. This same study also points out that 49% of these prescriptions go to people with back injuries. When you combine that with the next interesting piece of data – Oxycontin is almost always dispensed in 50 day supplies (100 tablets) — you have a potentially volatile mix.