Fixing health reform – Part Two, Medical Loss Ratios

A couple weeks ago I started what was going to be a discussion of how we should ‘fix’ health reform that was intended to run on consecutive days – only to have that sidetracked by goings-on in the health, political, and financial worlds that pushed reform to my back burner.
Let’s get back to reform.
First, the easy part. There’s no question Congress has to address the 1099 issue – the requirement that all businesses have to inform the IRS when they pay anyone more than $600 over a year. As a small business person myself, I have zero time to send out 1099s to my cell phone, internet access, web hosting, legal, accounting, admin support and other suppliers. No brainer.
Here’s a much harder one. Medical loss ratios (MLR).
For politically-obvious reasons, the Senate included requirements that health insurers spend a set percentage of their premiums on actual medical costs and quality improvement activities; at least 80% for individual/small group policies and 85% for larger group coverage. If an insurer’s admin expense (all costs EXCEPT medical costs are higher than 20%/15%, policyholders get a refund/rebate of the ‘extra’.
The rebate requirement kicks in on January 1, 2011; insurers are already scrambling to figure out how to identify, aggregate, and report costs; lobbying HHS and the National Association of Insurance Commissioners to consider medical management and prevention expenses part of the medical cost category; and crunching numbers to figure out what their medical costs will be in 2011, and based on that, what premiums they can charge.
The MLR requirement is going to require health plan execs to spend an inordinate amount of time and energy figuring out what costs go where and how they need to report those costs to HHS. If they screw up and their medical costs and quality improvement expenses are below the threshold, they have to pay a penalty.
While one can make a rather superficial argument that this is all to the good as it improves transparency, I’m hard pressed to understand how this ultimately benefits anyone.
Health plans that do a great job managing chronic conditions may well be ‘penalized’ for that success. Plans that contract with providers who deliver excellent preventive care, ensure expectant moms take their vitamins and don’t smoke, and get their tubby patients to drop a few pounds may find they are cutting checks come MLR audit time. Payers channeling patients to hospitals with low infection rates and few re-admissions will be in the same situation, as would those that carefully monitored potential diabetics’ health status and clinical signs.
These programs are costly, many have unproven benefits and/or won’t pay off for some years, and therefore the cost of the programs today (if they don’t qualify as ‘quality improvement’) will add to expenses, driving down the MLR.
While I‘m not a believer in the infinite wisdom of the free market, I do know that the health plans that deliver lower costs – over time – will have a major competitive advantage over their less-capable competitors. While insurers and providers need very, very close watching when it comes to risk selection, rescission, underwriting, and care authorization, we don’t need to waste their time – and ours – worrying about their MLR.


The GOP and Medicare deficits – this is gonna hurt

It looks like the GOP is going to win, and win big today, their success driven in large part by voter outrage about taxes and spending, with concern about the cost of reform a strong supporting actor.
If those voting for the GOP think they’re about to see restraint in spending, they are going to be sorely disappointed. We need look no further than Medicare Part D, which, according to a piece in Forbes, the mouthpiece of American Liberals for generations, “U.S. Comptroller General David Walker called “the most fiscally irresponsible piece of legislation since the 1960s.”
The Forbes piece went on to say “Recall the situation in 2003. The Bush administration was already projecting the largest deficit in American history–$475 billion in fiscal year 2004, according to the July 2003 mid-session budget review. But a big election was coming up that Bush and his party were desperately fearful of losing. So they decided to win it by buying the votes of America’s seniors by giving them an expensive new program to pay for their prescription drugs.”
Here’s how Walker put it in an interview with CBS:
“…we promise way more than we can afford to keep. Eight trillion dollars added to what was already a 15 to $20 trillion under-funding. We’re not being realistic. We can’t afford the promises we’ve already made, much less to be able, piling on top of ’em.”
With one stroke of the pen, Walker says, the federal government increased existing Medicare obligations nearly 40 percent over the next 75 years. [emphasis added]
“We’d have to have eight trillion dollars today, invested in treasury rates, to deliver on that promise,” Walker explains.
Asked how much we actually have, Walker says, “Zip.”
So where’s that money going to come from?
“Well it’s gonna come from additional taxes, or it’s gonna come from restructuring these promises, or it’s gonna come from cutting other spending,” Walker says.
Forbes again:
Moreover, there is a critical distinction [between Part D and reform]–the drug benefit had no dedicated financing, no offsets and no revenue-raisers; 100% of the cost simply added to the federal budget deficit, whereas the health reform measures now being debated will be paid for with a combination of spending cuts and tax increases, adding nothing to the deficit over the next 10 years, [emphasis added] according to the Congressional Budget Office…the unfunded drug benefit, which added $15.5 trillion (in present value terms) to our nation’s indebtedness, according to Medicare’s trustees, was worth sacrificing his [Rep Trent Franks (R) of Arizona] integrity to enact into law. But legislation expanding health coverage to the uninsured–which is deficit-neutral–somehow or other adds an unacceptable debt burden to future generations.”
Readers may recall Part D passed in the dead of night and only after GOP leader Tom Delay (currently on trial for money laundering) strong-armed three GOP Representatives into switching their ‘nays’ to ‘yeas’, thereby ensuring your kids, and my kids, would be saddled by an unfunded debt of $8 trillion.
(BTW, all but 16 Democrats voted AGAINST the Part D bill…)
One of the vote-switchers was Trent Franks, who is now a top contender for Hypocrite of the Year. Here’s what Franks said about health reform: “I would remind my Democrat colleagues that their children, and every generation thereafter, will bear the burden caused by this bill. They will be the ones asked to pay off the incredible debt”.
As bad as he is, Franks has some tough competition for the HotY award; Among the GOP deficit hawks who voted for Part D, and are now outraged by the cost of health reform are Senators McConnell (KY), Cornyn (TX), Crapo (ID), Hatch (UT), Grassley (IA), Hutchinson (TX), Sessions (AL), Enzi (WY), Roberts (KS), and Inhofe (OK).
If you think these conservative deficit hawks are going to do anything different this time around, you’re delusional – at best.
I am continually amazed by the inability of the American voter to separate fact from fiction, lies from truth, pandering from honesty. Some, including me, will argue that the Democrats have done a lousy job of pointing out the ‘inconsistency’ on the part of these Republicans.
But at some point the people pulling the levers in the voting booth have to take responsibility.
And that time is now. The reason – the only reason – we have huge deficits and no path to paying for them is because the American voter is too damn lazy to engage.
As HL Mencken said: “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.”
And this one is gonna hurt.


Health reform – better than doing nothing?

I haven’t posted on the reform process not out a lack of interest but because every time I pick up the virtual pen I despair. I’ve been trying to decide if passing this bill is better than a continuation of the status quo, and the more I ponder the less sure I am.

But it’s time.
After months of negotiation, compromise, and horse-trading, we’re getting close to a health reform bill that will come to a vote – probably in the next couple or three weeks. There’s much work to be done to get to the magic sixty Senate votes, but it looks like no compromise, concession, or giveaway is too big to stand in the way of this must-pass (for the Democrats) legislation.
Yet after all this, we’re going to end up with a bill that won’t work – it will not appreciably reduce health care costs today, tomorrow, ever.
Sure, we’ll end up with lots more Americans covered, better/smarter regulation of insurers, and maybe even lower Medicare costs. But ten years from now, the system will be pretty much the same – a fee-for-service based health system with costs increasing well above inflation.
Why, you say? Aren’t there cost controls in the bill? Pilot programs that promise to reduce cost inflation by rationalizing the care delivered to patients?
No, there aren’t. What we have is a mishmash of ideas that have long been on the table, demonstrated to work, and completely without traction. Not to mention the huge costs not addressed in the current bill – like the current quarter-billion dollar deficit in the Medicare physician reimbursement program, a deficit that will have to be added to the total cost of any reform initiative that changes how docs are compensated under Medicare.
Fortunately for Senator Reid, no one is asking what he plans to do about physician compensation, as the Senate bill assumes the 20.5% cut in physician reimbursement goes into effect on January 1, 2010. Does anyone believe that will actually happen?
But that’s just one of the many failings of the current bill.
We have insurance reform with a mandate so weak it will not force anyone to buy coverage they don’t really really want.
– We have pharma still enjoying margins the envy of every other stakeholder in the ‘system’ and a government prohibited from negotiating with pharma for drugs bought with Medicare dollars.
– We have a “fix” that relies on private insurers to control costs, despite overwhelming evidence of the industry’s complete inability to have even the slightest impact on inflation.
– We have tough cost controls and cost reductions that will likely reduce Medicare’s costs over time – but no way for private insurers to stop providers from shifting those costs to them.

Other analysts have complimented Reid et al for trying everything, for not leaving any cost control mechanism, trick, or option out of the bill. That’s precisely the problem – the bill’s ‘experiments’ and pilots are way too little far too late.
Folks, health care costs are increasing a helluva lot faster than inflation. Our economy is increasingly hobbled by legacy and current health care costs, not to mention future liabilities. Governments are going to have to raise taxes – a lot – to deal with retiree health care costs. By the time these pilots and experiments are even ready for dissection in the pages of Health Affairs, (forget broad-based implementation) we’re going to be spending well north of $3 trillion a year on health care.
I’m disgusted by the political grandstanding of people like Joe Lieberman, whose incredibly self-important preening is just the most repulsive example of elected officials using this crisis to show us all how principled and irreplaceable they are. Mitch McConnell’s Medicare advocacy is so blatantly hypocritical it would be laughable if it weren’t so cynical. How he can scream about not cutting Medicare while protesting its expansion to the 55-64 year old cohort is a testament to his complete lack of self-awareness. Meanwhile the Democrats are so eager to expand coverage to as many as possible, they are completely ignoring the future cost of that expansion. The campaign contributions rolling in to Reid and Dodd and other players couldn’t possibly be influencing their legislation…they just don’t think it makes sense to put strong cost controls into health reform.
The public plan advocates have yet to make a compelling case for their statements that it will control costunless Congress requires all providers to participate at or close to Medicare rates, the public option will have zero impact on health care costs. Yet they’re spending untold hours and mountains of political capital trying to include some version of a public option in the reform bill.
Which leads back to the opening question – is the current health reform bill better than the status quo?
Yes, ever so slightly.


From Harry and Louise to Thelma and Louise

AHIP – did they jump or were they pushed?
I’m not pointing any fingers, but if I were, all ten would be pointed right at Bob Laszewski.
Yesterday Bob pointed out that AHIP could not possibly have screwed up any more than it did when it released the PwC ‘analysis’ of the Senate Finance Committee reform bill. Here’s how Bob put it.

When you are going to issue a report of the kind AHIP and PwC did–in terms of its intended consequences on a national political debate–you better be sure you can back-up everything you say in simple and unambiguous terms.
The ineptitude on the part of AHIP and PwC is startling. That either organization was not able to clearly and decisively defend their conclusion in the midst of the health care reform finals is one thing. That they couldn’t defend a conclusion that is generally right and consistent with common sense [emphasis added] is even more startling if not aggravating.
But then AHIP starts from way behind anytime it has tried to do anything in this town… there was the Congressional hearing this summer where three of their members told a House committee that they planned to continue retroactively canceling individual health insurance contracts even when they found only inadvertent and immaterial errors on the original applications.
Then, of course, there was the silly $2 trillion cost savings offer they spearheaded at the White House this spring, which Republican Chuck Grassley dismissed as nothing more than “fairy dust.”
When you have that kind of track record and lack of credibility and you want to issue a game-changing report you better have every duck in line. I swear, if AHIP issued a press release on a crystal clear day telling DC the sun was shining no one would believe them [emphasis added].

But you can’t blame Karen Ignani alone – her board, which includes CEOs of pretty much all the big and most of the medium-sized health plans, obviously played a big role in developing AHIP’s ‘strategy’, such as it is. There are some really bright and capable folks on that board, many of whom are likely stunned at the blindingly inept way AHIP tried to make their point – a point that I absolutely agree is entirely valid, and for which there is ample historical support.
Alas, the correctness of their opinion has been overwhelmed by the way it was ‘presented’ – a bucket of cold slops dumped over the heads of the Democrats who were (at the time) warming to the idea of sending forty million more paying customers their way.
Unless…unless Karen Ignani is a secret single payer zealot, the only explanation is they just woefully miscalculated – or the accelerator got stuck…
(much as I’d like to take credit for the Harry and Louise to Thelma and Louise, I stole it from someone on the toob)


A Quarter Trillion Dollars – from where?

That’s what it is going to cost to ‘fix’ Medicare’s physician reimbursement problem. A bill introduced into the Senate, and now scheduled for a vote within days would eliminate the Medicare Sustainable Growth Rate (SGR) program (which determines, or is supposed to determine, what docs get paid by the Feds for procedures) while adding another quarter trillion dollars to the program’s deficit.
The Medicare SGR formula/process was set up six years ago to establish an annual budget for Medicare’s physician expenses. Each year, if the total amount spent on physician care by Medicare exceeded a cap, the reimbursement rate per procedure for hte following year would be adjusted downward.
And for the last six years, reimbursement – according to SGR – should have been cut, but each year it was actually raised, albeit marginally. The result is a deficit that is now almost 250 billion dollars, a deficit that we’\re carrying on our books, and, by the way, is not addressed in the Senate Finance Committee’s reform bill. In order to pass, the bill, S 1776, will have to get at least 60 Senators to agree to waive a budget point of order because the measure is not offset in the budget – that is, there isn’t a cut of a quarter trillion in spending elsewhere in the budget, so the bill, which goes by the feel-good title of Medicare Physician Fairness Act of 2009 (MPFA) will add a quarter-trillion bucks to the deficit.
Physicians are, not surprisingly, all in favor of the bill – even if there are no details on what the ‘new reimbursement’ methodology or levels will be. Certainly not in the bill itself, which takes less than a minute to read. If you’re looking for what replaces SGR, and how Medicare will control costs, don’t look in the bill – it isn’t there. It looks like the docs think anything is better than the SGR; at least that’s what their thinking appears to be today.
But what about the cost? Where are we going to come up with a quarter trillion dollars, while adding another eight hundred billion or so for the big health reform bill? Does the MPFA have some magic bullet, a money tree, a golden goose provision?

Sources on Capitol Hill tell me this isn’t just a Democratic measure, but one that will likely garner perhaps a half-dozen Republicans voting ‘aye’. Both Harry Reid (D NV) and Minority leader McConnell have agreed the Senate will proceed to vote on S. 1776 next week.
Well, what can you expect from a body that voted in favor of Medicare Part D, and as a result added $8 trillion to the Medicare unfunded liability? This is a measly quarter-trillion, less than 3% of the Part D boondoggle.
Jeezus H Flippin Christmas. This is nuts.


The Baucus bill is out of committee…and that means exactly what?

Over the last few weeks, all the media focus (as well as here at MCM) has been on the Senate Finance Committee’s health reform legislation, aka the Baucus bill. Now that the eponymous bill has been voted out of committee, it is no longer the only game in town, but rather one of six.
As the most ‘conservative’ of the six bills, it is highly likely the final version’s details will reflect a less ‘conservative’ approach, perhaps with some version of the public option, which the other Senate and all House versions contain.
First, the Senate is going to compare, contrast, and possibly combine it with the bill voted out of the Senate Health Education Labor and Pensions (HELP) committee – the one formerly chaired by the late Senator Kennedy. Among the major differences between the two; the HELP bill includes a public option; phases in the mandate penalty of $750 immediately (Finance doesn’t get to $750 till 2017); has a tougher employer mandate with higher penalties; expands Medicaid to individuals earning up to 150% of the Federal Poverty Level (Finance is 133% and is delayed till 2014); and the HELP bill does not contain the excise taxes that are included in Finance’s effort.
The differences with the House Tri-Committee bill (HB 3200) are even more stark (no pun intended).
HB 3200 has a much stiffer individual (2.5% of adjusted gross income up to the cost fo the average plan premium thru the Exchange) and employer mandate (almost all employers would have to contribute at least 75% of the cost of individual/65% family coverage or pay 8% of payroll into the Exchange; and offers up to 50% premium credit for smaller employers to help pay for insurance; increases Medicaid reimbursement to 100% of Medicare (Medicaid is usually significantly lower). HB 3200 also sets up an Insurance Exchange, is funded thru a higher tax on families making over $350,000 annually, increases rebates from drug companies, and significantly reduces Medicare Advantage subsidies. (there are several version of this bill, see the Kaiser site for additional detail).
CBO estimates HB 3200 will cost slightly over a trillion dollars over ten years, significantly more than Finance’s $850 billion.
These are by no means the only differences; they do serve to illustrate the yawning gap between the Finance bill and the other major bills before Congress.
So, what’s going to happen?
Can it get thru the Senate is the standard by which all revisions and edits will be judged. Just a week ago, that made it highly likely the final bill would look much like the Finance version, but the release of the PwC report by AHIP may have given potentially-wavering Senate Democrats the push they need to adopt some of the provisions from HELP and HB 3200. Democrats are outraged by what they (I think somewhat unfairly) view as a last-minute stab in the back by the health insurance industry, which heretofore had been publicly in favor of reform.
Democrats are also keenly aware that a failure to pass health reform will be a political disaster.
I’ve long doubted the votes are there to pass reform, but of late the odds are moving – slightly – in favor of reform.
The Kaiser Foundation has an excellent tool that enables side-by-side comparison of all of the bills, proposals, and suggestions; the NYTimes has a comparison of the several bills before Congress here.


What’s wrong with the US health care system

is exemplified by drug manufacturer Cephalon’s drug pricing strategy. The company’s narcolepsy drug Provigil is coming off patent in 2012. So, like any good corporation seeking to maximize shareholder wealth, it has developed a replacement drug – Nuvigil, that is a longer-acting version of the same medication.
But Cephalon is not content with just doing what other pharma companies do – patenting a long-acting version of an old standby, and releasing that LA version just as the older drug goes off patent. Instead, the fine folks at Cephalon are jacking up the price of Provigil now, to make it even more expensive. Then, when Nuvigil comes out, it will be priced less than Provigil, encouraging patients to switch.
And because there won’t be a generic for Nuvigil for years, Cephalon holds on to a nice revenue stream.
Cephalon is the poster child for sleazy pharma marketing practices. Just a couple months ago Cephalon pled guilty to illegally marketing Provigil and pain drug Actiq, and paid a $444 million fine for their criminal behavior. The company has been shoving Actiq down the throats of workers comp patients for years, despite the drug not being FDA approved for anything but breakthrough cancer pain.
No matter to the profit-at-any-cost execs at Cephalon. In their dedicated, unending quest for more shareholder wealth, they have proven they will do anything to gain more revenue.
Realists will understand that Cephalon’s strategy is short-sighted at best. With national health reform coming, one of the earliest items on the agenda is likely to be legislation encouraging/allowing the Feds to negotiate prices with big pharma. Although few industries are as adept at marketing as big pharma, there’s a new sheriff in town.
House Energy and Commerce chair Henry Waxman’s record on pharma is mixed. Co-author of the landmark 1984 Hatch-Waxman Act in 1984, which has had the effect of speeding up the introduction of generics while offering some protections for branded drugs, Waxman has more recently taken a more aggressive stance, putting drug development firms on notice that their attempts to circumvent patent expiration terms is unacceptable.
In a speech in 2005, Waxman stated:
“Current law does not strike the right balance. We cannot continue to have a system that
effectively enshrines permanent monopoly status for some of our most important medicines. Of course, some intellectual property protections are needed to encourage innovation by brand-name manufacturers. But permanent monopolies are neither needed nor wise.”
Waxman has been a loud and consistent critic of pharma’s reaction to Part D. Here’s an excerpt from the Congressman’s letter to the GAO in January 2006:
“A report I released in November showed that prices for brand-name drugs under the new Medicare drug benefit are 84% higher than the prices that the Department of Veterans Affairs negotiates for the federal government.[13] An analysis that GAO did for me in October 2000 showed that on average, Medicaid’s prices for brand-name drugs were 43% higher than the prices negotiated by the VA.”
What does this mean?
Cephalon’s shareholder-wealth-maximization strategy is short-sighted. There will be a major push in the next Congress to find the money to do something big in health care reform, and pharma profits may be a very attractive source. Cephalon’s blatantly greedy practices make it even more likely the Feds will negotiate price.