Year: 2006

Jan
25

Why should Medicare negotiate drug prices?

Posted by Joe Paduda on Wednesday, January 25th, 2006 | Comments

A reader asked why I’m in favor of allowing the Feds to negotiate prices with pharmaceutical manufacturers. The reader’s colleagues had the idea that since the PBMs and health plans in Part D are already negotiating, why have the Feds involved?
Here’s my response.
First, the whole Part D mess is a great example of how overcomplicated programs generate huge problems. Medicaid claimants were getting their drugs just fine before Part D went into effect, and are now having all kinds of problems. While those problems will likely go away in the near future, the problems did occur when the claimants were switched from a governmental to a private program. A little ammunition for the single payer advocates, if nothing else…
1. “price” is an elusive concept in pharma. The AWP and most other pricing mechanisms are based on the price but do not factor in rebates or any other funds transfer mechanisms that effectively reduce the actual, real “price”. So, while PBMs are in fact negotiating for “price”, we do not know in most cases what the actual real price is.
2. PBMs by definition have much less purchasing power than governments. As an example, the Veterans Administration is the only federal entity that is allowed under the law to negotiate drug prices. The VA is entitled under the law to receive either the minimum 24% discount off the non-federal average manufacturer price or the “best price” the manufacturer gives anyone, whichever is lower. These rates are much more favorable than any PBM gets.
3. The PBMs make money on the delta between what they buy the drugs for and what they charge CMS. So, while the PBM is incented to get the lowest possible price, they are more concerned w maximizing the price to CMS.

Jan
24

Medtronic’s questionable practices – “bribing” docs?

Posted by Joe Paduda on Tuesday, January 24th, 2006 | Comments

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

Jan
24

Why seniors are saying NO to Part D

Posted by Joe Paduda on Tuesday, January 24th, 2006 | Comments

More on the adverse selection problems with Part D from a research study by DSS Research. The study indicates more than half of eligible seniors have no plans to enroll in a Part D program. And, their characteristics should set alarm bells ringing at every Part D sponsor:
“Disinterested, non-buyers are lowest users of medical services. Those who said they had not chosen a plan and had no plans to do so take fewer prescriptions; spend less on prescriptions; go to the doctor less often; and make fewer ER, inpatient hospital and outpatient clinic / surgery center visits.”
In other words, they are healthy, aren’t likely to need the coverage any time soon, and aren’t interested in subsidizing the costs of their less-healthy fellow seniors. This is exactly why Part D is a really bad idea, poorly executed too.

Jan
23

HSAs. CDHPS, and FOOLs

Posted by Joe Paduda on Monday, January 23rd, 2006 | Comments

This blog world is getting incestuous…
Ezra Klein posted an excellent summation of the issues inherent in HSAs on his blog about the time I was posting here on CDHPs, and the two crossed paths in the ether.
Here is an excerpt from Ezra’s commentary (for a non-insurance guy he certainly understands adverse selection) –
“Because what HSA’s really do is separate the young from the old, the well from the sick. Currently, insurance operates off of the concept of risk pooling. Since health costs tend to be unpredictable and illness isn’t thought a moral failing, we all pay a bit more than we expect to use in order to subsidize those who end up needing much more than they ever thought possible. The well subsidize the sick, the young subsidize the old, and we all accept the arrangement because one day we will be old, and one day we will be sick, and no one wants to shoulder that alone.
But HSA’s slice right through this intergenerational, redistributionist arrangement: they’re a great deal for young, healthy folks because they don’t force subsidization. Just don’t get sick. And if you’re already sick, don’t think you can hide by remaining in traditional insurance plans: when the healthy rush towards HSA’s, older plans will hold only the ill, and insurance companies will send premiums skyrocketing to recoup the difference.”
While this was happening, Matthew Holt’s The Health Care Blog was commenting on both matters; and…
all three have been picked up by the DailyKOS, with much intelligent and insightful commentary. If you think no one is paying attention, the 90 comments elicited by the dailykos post will change your mind.
Here’s an excerpt:
“HSAs are (1) a terrible idea that look like another give away to corporations and (2) a sellable idea that can easily be spun into sounding like the greatest health plan ever” (say this last word with teenage girl enthusiasm, stretching it out and heavily accenting the “ver” part of e-VER).
I try (really) to avoid histrionics on this blog, but the CDHP/HSA cure-all for the world’s sins thing makes me nuts. It reveals a superficial at best understanding of health care, the economics thereof, and the real drivers of health care cost inflation.
Can we please drive a stake in its non-existent heart and start thinking about real issues, like aging, technology, drug utilization, uninsurance…..

Jan
23

Bush on health care reform

Posted by Joe Paduda on Monday, January 23rd, 2006 | Comments

President Bush’s health care reform efforts appear to focus on expansion of Health Savings Accounts. I’m not sure how that reforms health care; it does have some impact on health care financing by switching some of the reimbursement from insurers to individuals, but other than that I’m hard pressed to see how HSAs will help lower health care costs.
In his January 21 radio address, Bush said “he would push to limit health care costs by expanding tax-free “Health Savings Accounts,” which let people set aside money for routine medical expenses.” (Houston Chronicle).
Most folks who know anything about health care costs attribute inflation to the aging population; the growth in technology; rising labor costs for hospitals; the burden of costs shifting from the uninsured to the insured; rising drug utilization and pricing; and perhaps a soupcon of defensive medicine.
In his address, Bush also said “For the sake of America’s small businesses, we must … make health care more affordable and accessible,” Bush said He also called for better price disclosure for medical services and expansion of health care coverage for the uninsured. (Reuters/Houston Chronicle, 1/21), as quoted in California HealthLine.
“I decided this is a national issue that requires a national response,” Bush said, adding that the government must ensure “that health care is available and affordable”…
Where health savings accounts fit on this list as a cure for a cause I can’t see. Are there limits on technology? Authority for CMS to negotiate with big pharma? A major new effort to train nurses? Stringent application of technology review by CMS? An effort to cover the uninsured through the expansion of Medicaid?
No.
What does this mean for you?
I guess it is up to the rest of us to fix health care. The Bush program is not exactly “reaching for the stars”.

Jan
23

Enthoven on CDHPs

Posted by Joe Paduda on Monday, January 23rd, 2006 | Comments

I recently had the opportunity to meet Dr. Alain Enthoven of Stanford University at his offices in California. One of the topics about which we have corresponded is the relatively new “consumer directed health plans” or CDHPs. Faithful readers will know that I am no fan of CDHPs; my take is they are simply the old indemnity insurance programs with higher deductibles coupled with broad based PPOs.
My problem with CDHPs is rooted in a belief that they will have no real impact on health care costs, except for the very real potential to increase acute episodes and associated costs due to lower compliance with preventive treatment plans. This opinion is backed up with facts, and has been the subject of an energetic debate on this blog.
Dr. Enthoven recently debated Regina Herzlinger on this very subject. Here are a few excerpts from his comments.
1. CDHP will be ineffective at moderating growth of health expenditures in the long run and in improving value for money. Health expenditures are very concentrated on relatively few people. In any given year, some 85% of health expenditure dollars will be spent on people who have exceeded their deductibles or can reasonably expect to do so, for any level of deductibles that is reasonable for most people. For them, the marginal cost of more care will be small, probably near zero, certainly not enough to affect their decisions once they are hospitalized.
2. The main appeal of CDHP is to employers who are eager to find a way to shift costs back onto employees, to “rebalance their compensation portfolios,” as benefit consultants say. The costs will be shifted to people with chronic conditions who will usually reach and exceed their deductibles. CDHP, including HSAs, will be great for the healthy and wealthy who can benefit from the tax shelter aspect more than ordinary workers. So CDHP can be expected to grow rapidly.
3. About three quarters of health care spending is now on people with chronic conditions. The emphasis in our health care delivery system needs to be on teaching and motivating these patients to change their life styles and adopt much more healthy patterns of behavior. CDHP is based on the idea that a key to economy is keeping people away from the doctor

Jan
20

Part D – the real problem

Posted by Joe Paduda on Friday, January 20th, 2006 | Comments

No, it is not going well. Despite what the spokespeople at HHS claim, enrollment in Medicare Part D has been a failure to date. Perhaps not a dismal failure, but certainly a lot further towards the “failure” end of the spectrum than the “exceeding our expectations” end. Here’s why, with thanks to Bob Laszewski for boiling down a complex topic to an understandable conclusion.
Enrollment goals
Only 21.3 million Medicare enrollees have the ability to make a decision on enrollment in Part D. Sure, there are a lot more Medicare eligibles, but many are covered under their employer’s plan (11 million), Medicaid (6.2 million of the so-called “dual eligibles”), and 4.5 million under MedicareAdvantage programs.
Of the 21.3 million, 17% have signed up so far. That’s right, 17%. As I have been noting for months, the stage is now set for big problems with Part D. You can read about the issues inherent in adverse selection here; briefly it is what happens when only sick people sign up for insurance.
In general insurers need at least 70% of eligibles to sign up to get a good spread of risk. If there is not a good spread of risk, it is highly likely that the only people who signed up are the ones who will gain more in benefits than they will pay in premiums. Result – insurers will lose money hand over fist on this deal (although their losses will be covered by the government, i.e. the taxpayer, for a period of about two years).
There continue to be problems with dual eligibles enrolled in the wrong plans, missing information, coverage issues, etc. But, as Bob points out, that is not the real problem (although it certainly is to those folks who can’t get their meds.) The real problem is taxpayers are going to foot the bill for a program that is a poster child for adverse selection.
What does this mean for you?
If you are a drug company, lots of profits. Eligibles, a great benefit. Taxpayers, bad news.

Jan
19

Managed care costs in workers comp

Posted by Joe Paduda on Thursday, January 19th, 2006 | Comments

I have been on the west coast at a series of meetings with employers and insurers as well as managed care firms. A meeting earlier this week with a very large self-insured employer group highlghted some of the significant problems that still exist in work comp managed care. And these problems are not limited to California.
This group is self insured with a high deductible; the insurance, claims service, and managed care services are all provided by a top ten WC insurer. A common name, a fairly well-respected insurer.
This insurer is charging for medical bill review on a percentage of savings basis – that is, they get to keep 20% of the difference between what the provider bills and what is actually paid. Most of the providers in California bill way over the state fee schedule, which is all insurers legally have to pay in Ca. But this insurer wants to get paid an outrageous sum just for doing its job – for applying the law.
The right way to pay for bill review is on a flat rate basis – between $6 and $9 per bill.
Why? Simple – the percentage of savings method of pricing for bill review is costing this group five to ten times more than it should.
Note – I met with two gentlemen in FL last week who had a client with the identical problem – ridiculously, outrageously high charges for managed care – costs that were well in excess of the claims admin expense! This is not a rare occurence…
For more on this read my article on unintended consequences.
I bring this to your attention to encourage all to review how they are being charged for managed care, to scrutinize bills, referral rates, nurse case manager charges, and the like. Managed care has become a huge money maker for insurers and TPAs, and employers who fail to pay attention to this are being hammered.
What does this mean for you?
Hopefully not much – but if you aren’t paying attention you better start now.

Jan
19

Coventry’s work comp results and plans

Posted by Joe Paduda on Thursday, January 19th, 2006 | Comments

More from the Coventry investor call last week…
Coventry views its businesses as in two main sectors – health plans or specialty businesses. Workers Comp and Medicaid are the specialty businesses.
CEO Dale Wolf sees substantial growth in 2006 in WC. According to Wolf, Workers Comp will grow from $215mm (Estimated) in 2005 to $240mm in 2006. While I guess anything is possible, I’m somewhat surprised about the level of optimism given First Health’s recent difficulties in the WC arena. On top of their losses at the Hartford and elsewhere, another large carrier has just moved a major state away from First Health. While I don’t pretend to know all that goes on with their new business and renewals, sources also indicate that renewal contracts are being negotiated on terms somewhat less favorable to FH.
FH’s bill review and network customers are large insurers and TPAs. Wolf views Coventry’s WC sector as a nicely profitable business with a dominant market position, based on what he views as the leading network in the country. The slides accompanying the presentation indicated Coventry is expecting a 12% growth rate in 2006. Again, I’m sure he knows a lot that I don’t. Or perhaps the market knows a few things that have not yet hit the executive suite at Coventry…
Notably, Wolf stated that Coventry will invest additional capital in this business.
My view is FH, which is yet to name a leader for the WC business unit, will be significantly challenged by Aetna which is gaining traction amongst payers for its very strong discounts and more approachable style. If Kaiser can promote its excellent On-the-Job program, United gets its act together, and the Blues make any additional inroads into WC, FH will have a real battle on its hands.
What does this mean for you?
The drive for top line from Coventry may help WC payers negotiate deals on more favorable terms as FH seeks to replace lost revenue from major insurers.

Jan
18

Bush’s focus on health care reform

Posted by Joe Paduda on Wednesday, January 18th, 2006 | Comments

Pres. Bush is said to be shifting his domestic agenda to one featuring health care reform at the top of the priority list. According to California HealthLine’s synopsis of an article in the Wall Street Journal,
“Bush likely will propose expansions of previous health care plans, rather than new federal spending, and the proposals likely will focus on market forces, tax credits, competition among providers and individual health insurance, rather than employer-sponsored coverage.”
Earlier, Bush shot down a proposal by his own Tax Reform Committee to limit the tax deductibility of health care benefits provided by employers, frustrating some GOP supporters while heartening insurers.
The news that Bush may start moving away from employer-sponsored coverage is intriguing. The administration is under increasing pressure from employers to do something about health care costs, and this change in focus appears to be the first indication of a possible (albeit long shot) shift in funding sources for working Americans.
I wouldn’t make too much of this, except it appears to be the only innovative initiative reported by the Journal.