Insight, analysis & opinion from Joe Paduda

Apr
26

Medicaid Reform, round 4

A number of Governors are considering working together on Medicaid reform in an effort to present a united front to the Bush Administration and Congress. As we have been reporting here, Medicaid reform, a major goal of Bush et al, has been stymied by the refusal of Governors to make major concessions, a refusal backed by their allies in the Senate.
This has led to a stalemate, as States are seeking to preserve the Federal dollars that fund a large part of their Medicaid programs in a time when their own budgets are under pressure. On the other end of the seesaw is the Bush Administration, which has made cutting the Federal deficit a primary goal of the second term.
The Governors in question are evidently circulating a “straw man” memorandum in an effort to gain consenseus and present a united front to the Administration. While the contents of the memorandum are closely held, the following details about the memo have been reported:
–it includes a proposal that would make it more difficult for seniors seeking to qualify for nursing home benefits to transfer their assets to family members or others.
–Another proposal would allow the state to investigate more thoroughly a beneficiary’s finances and seek repayment for government-provided care
— one section floats a “trial balloon” re the establishment or increase of deductibles and copayments for beneficiaries. The idea is this would require beneficiaries to contribute to the cost of the program and discourage overuse and abuse.
–“The proposals also would try to discourage businesses from eliminating retiree health benefits or otherwise shifting employees to Medicaid, by establishing incentives such as tax credits” (Tanner, AP/Long Island Newsday, 4/25).
The good news here is this represents a serious attempt on the part of state legislators to address the Medicaid crisis. It also reflects their power and influence, a strength that the Bush Administration appears to have seriously discounted in their early calculus.
Reforming Medicaid is a critical component of national health reform, and some of these measures make a lot of sense. However, as most states have frozen physician reimbursement levels, and there have been no reports re any increases in their compensation, it is highly likely that there will be fewer docs who will accept Medicaid, thereby reducing access and therefore quality of care.
What does this mean for you?
Freezing MD reimbursement is a blunt instrument, which will have serious consequences not only for the health of Medicaid and Medicaid recipients, but also lead those docs to seek higher reimbursement from commercial payers.
Cost shifting will increase, and so will pressure on commercial loss ratios.


Apr
25

More on drugs in workers’ comp

The Hartford has just released an internal study of the costs of prescription drugs in Workers’ Compensation, and while it only covers the company’s own experience, the report does add a little more depth to the research released by Health Strategy Associates last month.
Key findings include the Hartford’s Rx trend (inflation) rate of 6%. This is about half of the average increase reported by the 24 respondents to HSA’s Survey, and demonstrates what can be accomplished through the vigorous application of intelligent programs.
The report also noted one of the key drivers was the growth in “off-label” use of prescription drugs such as Actiq and Neurontin. The release stated:
“Actiq is a powerful painkiller approved by the FDA for cancer patients with breakthrough pain, but it jumped to number nine from 15 in 2003,” said Dr. Bonner (Medical Director of the Hartford). “The drug is a narcotic that comes in a lollipop or lozenge form and takes just a few minutes to enter the bloodstream. The FDA is concerned about its potential for diversion and abuse. Actiq’s climb up the chart suggests it is being used for a much wider group of patients than those the FDA originally intended.”
Similarly, the drug Neurontin held steady at number two on the list, despite its owner paying more than $430 million to settle state and federal charges relating to the drug’s promotion and marketing to physicians. The FDA approved the drug in 1999 to treat seizures in epilepsy, then approved it in 2002 to treat pain following shingles outbreaks (post-herpetic neuralgia). Even so, the percentage of patients for workers’ compensation injuries being treated for either condition is dramatically smaller than the usage of the drug suggests.”
Not noted in the press release is the name of the entity that is providing pharmacy benefit management services for the Hartford; Tmesys/PMSI. (Sponsor of HSA’s survey).
What does this mean for you?
If you are a WC payer, there is hope. Data-driven programs, applied intelligently and appropriately, can and do reduce prescription drug expenses.


Apr
22

Hartford and Aetna

The Hartford announced this week that they will be using Aetna’s Workers Comp PPO network in Pennsylvania, effective 6/1/05. This is a big step for Aetna, which has been struggling to achieve traction in the WC network business since starting this initiative some two years ago.
On the plus side for Aetna, this is the first large WC payer that has adopted their network, and indications are that Aetna’s analytical capabilities and provider profiling were strong plusses for the Hartford. Also, the press release indicated that Hartford will/may be using the AWCA network in additional states in the future.
On the negative side, after two plus years, and hundreds of thousands of dollars invested, Aetna has one top five carrier accessing their network in one state.
My take is the powers-that-be at Aetna seriously underestimated the amount of effort needed to build a WC network, and overestimated the interest among large payers. As part of their “due diligence” Aetna hired an outside consulting firm (not HSA) to analyze the market, determine key success factors and required capabilities, and estimate the opportunity. The report, which likely cost tens of thousands, was perhaps the weakest, least-informed, and most superficial market assessment I have had the misfortune to read.
Thus, no surprise that success to date is…rather limited.
In addition to the comments on analytics, the press release also notes that AWCA has over 100,000 providers in their currently active states (most of which are actually employer direction states). This reflects a complete lack of understanding of where the WC network business is heading, which is towards smaller networks of expert providers.
While I have a lot of respect for Aetna on the group health side, I wonder what they are thinking re WC.
What does this mean for you?
If you are a group health network contemplating WC, think carefully, study thoroughly, and understand the market before you build a business plan. Yes, there is an opportunity. It simply requires a thorough understanding before making an investment decision.
If you are a WC payer, AWCA’s entry into this space is a good thing; it adds competition from a strong managed care firm, and may actually provide an alternative to First Health et al.


Apr
20

PBMs in Workers

After walking the exhibit halls at the RIMS Conference in Philly for two days, it has become apparent that pharmacy management is the new hot business. Here are a few of the indicators


Apr
18

RIMS results

The RIMS conference in Philly has been quite interesting, especially for those following managed care trends. Conversations with three large insurers have been remarkably similar; all are focusing their efforts these days on so-called “specialty networks”; smaller networks of physicians who have demonstrated their ability to manage WC cases cost-effectively.
We have covered this topic before, both in this blog and in prior articles, but this is the first time I have seen what could loosely be described as a trend in workers comp medical management .
One large payer indicated that although they (the carrier staff) believes in the effectiveness of smaller networks built around docs that are WC experts, many of their customers are “still not there yet”. That is, these policyholders are still wedded to the “percentage of savings” model for buying health care.
Kudos to the carriers for their efforts, and best of luck educating their customers.
What does this mean for you?
If you have yet to understand that the party with the most impact on a WC claim is the treating physician, now’s the time to educate yourself.


Apr
12

Massachusetts’ workers comp problems

The state with one of the lowest fee schedules has been experiencing rapidly rising medical costs. The result of this trend has been that Massachusetts, long known for its draconian fee schedule, has seen total claims costs increase 10% from 2000-2002, after a period when costs were only going up 5.5% per year on average. The data come from the Workers’ Comp Research Institute, one of the preeminent analytical bodies in the WC world.
According to “Insurance Journal”,
“The major cost drivers of growth in the most recent year were continuing double-digit growth in medical costs per claim and very rapid growth in benefit delivery expenses per claim


Apr
12

Disabling disability

Jon Coppelman has written a great posting about the disability-enhancing powers of disability payments in “Workers Comp Insider”.
To quote Mr. Coppleman:
“In an article by E. J. Mundel at drkoop.com, a “meta-analysis” of 211 research studies from across the globe reveals that indemnity (lost wage) payments have a strong influence on medical outcomes. In all but one of the studies, workers receiving financial compensation for work-related injuries were almost four times more likely to have poorer long-term medical outcomes than uncompensated workers.”
If you are in the workers’ comp or disability businesses, read the posting. It provides a scientific foundation for the gut feeling that many of us industry long-timers have sensed for years. If people get paid to be out of work, it is harder to get (some of) them back on the job.
It’s just common sense.
What does this mean for you?
Probably makes you feel better that what you thought was going on really is.


Apr
11

Another COX-2 disaster

The latest casualty among drugs falling victim to over-promotion and under-testing is Bextra, Pfizer’s COX-2 inhibitor. This time around it is not just cardiovascular issues that are the problem.
Bextra appears to be linked to a significantly higher incidence of a serious skin reaction, a problem not found in the other COX-2s. This skin condition is what led the FDA to “request” that Pfizer pull the drug last week. Earlier, Pfizer was asked to add additional safety warnings to Bextra’s labeling, a move that fell short of a withdrawal request.
Reactions ran the gamut from shock and disbelief to “I told you so”; perhaps the most telling appeared in the New York Times:
Thalia Segal, a pain specialist at New York University, said, “We used to just put people on these drugs for life and not think about it, but we can no longer commit them to lifelong therapy with impunity. We have to use these medications judiciously and follow people more closely. We have to rely on a much more individualized approach” (O’Connor, New York Times, 4/8).
It is becoming painfully (no pun intended) obvious that the “side effects” of various medications can not only be quite serious, to the point where people die or suffer debilitating conditions, but also have been under-considered by administrators and big pharma alike. And, the treatment expense and other liability associated with these side effects will contribute to our rising health care costs. Over the short term, financial results of the pharmas will suffer (“Pfizer, which on Wednesday announced plans to reduce costs by $4 billion annually and restated 2005 earnings estimates, might have to make additional cost reductions to return to double-digit earnings growth by 2006


Apr
10

Medical technology facts and impact

Dr. Paul Ginsburg of the Center for the Study of Health System Change has stated that technology and the increasing income of the US population are the top drivers of health care costs. The two are interrelated, as health care is a “luxury good” as defined by economists, so the more income one has, the more “luxury” one can afford. While everyone “knows” this, they might not be aware of the “share” of the medical dollar that goes to technology.
Here are a few factoids that may put this in a little clearer perspective.
Total medtech market is about $200 billion annually, and is growing 10% per year.
Medical equipment costs account for 3-6% of total US health care costs.
For radiology, equipment costs account for 10% of procedure costs.
43% of the medtech industry is located in the US, 24% in the EU, and 15% in Japan. So, while we spend a lot for technology, we also benefit from salaries paid to US medtech company workers, taxes paid by the workers and their employers, as well as profits and downstream expenditures from these firms.
The history of the Magnetic Resonance Imaging machine (MRI) in the United States provides an excellent perspective on technology in health care. Originally approved by HHS for very limited use in a handful of settings, MRIs were quickly found to have much broader application than assumed in the original license (American creativity at its best). Physicians, manufacturers, and MRI owners were able to fill the available time slots with patients so quickly that a new, and quite large, market for advanced diagnostic imaging was created within a very short time. This is but one example of the ability of technology and technologists to find lots of new billing opportunities for their new creations.
Interesting sidebar
Qatar, a particularly wealthy Gulf oil exporter with a tiny population, will be spending $150 million per year on research and development. In fact, the Emir (leader) has set aside all income from a substantial portion of their liquid natural gas exports for investments in medical research. Qataris know their petroleum revenues will run out over time, and they’ll need to replace a substantial portion of those revenues. Medtech looks like a potentially promising source.
What does this mean for you?
If you’re a medtech company, prospects are rosy, although watch out for India. For the rest of us, technology is a curse if someone else is using it and you are paying for or attempting to “manage” its use; a blessing if your doctor is using it to diagnose or treat you or someone you love. Technology’s impact on costs is likely to increase over time, as new devices are created to perform new tasks and better perform tasks that used to be done by older (and usually cheaper) technology.


Joe Paduda is the principal of Health Strategy Associates

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