Jan

Why is Minnesota increasing work comp hospital costs?

Posted by Joe Paduda on Tuesday, January 27th, 2009 | Comments

South Carolina* is a great example of what happens when hospitals are financially incentivized to treat workers comp claimants. Costs go up dramatically, and – surprise! premiums quickly follow.
That hasn’t stopped Florida from merrily marching off the cliff.
But suicidal behavior isn’t limited to those who listen only to southern rock. No, even folks in the frozen north can succumb. The latest victims are in Minnesota, where hospitals and insurance companies are haggling over a hospital inpatient payment standard that would pay smaller Minnesota hospitals about 90% of their billed charges; larger hospitals would get about 85% of their billed charges on higher-dollar inpatient bills.
Are they nuts? Has the cold frozen their brains solid? Too much time in the ice-fishing shack?
Whatever the reason, the result will be the same. Hospitals, which have been absolutely hammered by the recession and accompanying decline in reimbursement, drop in elective surgeries, and increase in the uninsured, are going to be relying on comp to offset their losses and shortfalls, and with fees based on a reduction below billed charges, what’s to stop hospitals from just raising their billings as high as they want?
(the real answer is there are some very tenuous and weak controls, but they will have little effect – hospitals are pretty much free to bill what they wish)
And that’s not all: Minnesota hospitals’ billed charges are rising far faster than hospitals’ costs. Ignored is the fact that, as WCRI’s analyses have shown, it is those states (such as Maryland, Massachusetts & Connecticut) that have made WC a reasonable but not generous payer for hospitals where the WC system is most cost-effective for employers.
And injured workers have better outcomes, too.
*South Carolina put in a Medicare+40% hospital fee schedule on 10/01/06. Now, per NCCI, there is a 23.7% WC rate increase filed and pending.
What does this mean for you?
Higher hospital costs in Minnesota. A lot higher.

Jan

Coventry’s management shakeup

Posted by Joe Paduda on Tuesday, January 27th, 2009 | Comments

Yesterday’s announcement that Coventry had replaced CEO Dale Wolf with former CEO Allen Wise came after an internal review of the company’s performance, a review that didn’t come out too well.
According to Dow Jones, “The move comes after a series of missteps the health insurer took late last year. The company lost nearly half its market value in October after it slashed its 2008 forecast, citing higher medical costs at its commercial and Medicare health plans, unexpectedly low business volume and higher overhead spending.”
As I noted last week, Coventry’s talk at the JPMorgan investor day meeting was given for the most part by CFO Shawn Guertin; other investor meetings and calls were usually split between Wolf and Guertin, or conducted primarily by Wolf. In retrospect, the change is apparent.
The company’s stock value increased somewhat today, rallying after a positive review by Wachovia. It is still quite a bit (about $43) below its 52-week high of $57.22.el
Wolf is one of the smarter and more experienced people in the small group HMO business. He has extensive experience in this space, including a stint running the old Travelers’ small group block back in the late eighties and early nineties (where he was an internal customer; I was responsible for the UR/CM customer relations at the Travelers). He knows this business very well. Wolf also learned a lot about the HMO business from Allen Wise; the former- and current-CEO of Coventry. Wise is well-named.
From listening to Wolf and watching his moves over the last few years, my sense is he got a bit over-confident. He and his colleagues relished investor calls, bragging about their abilities and sense of the business, delighting in describing their business knowledge and disciplined management. As long as the results backed up the talk, it was all good. But self-confidence can look an awful lot like blind arrogance when problems arise – as they did not once but twice last year.
Missing the medical loss ratio last spring stunned analysts, and a somewhat similar mistake in the fall killed whatever credibility remained.
The final blow may have been the announcement last week that earnings would come in below expectations; during the JP Morgan call Guertin and Wolf all but begged analysts to be patient and wait till 2010, when the turnaround plan would show results. Twelve months is way too long for Wall Street, especially when the request is coming from someone who has lost all credibility.
Wolf’s expansion in secondary and tertiary HMO markets, while not universally successful, was smart. The company’s early move into Medicare Advantage and related businesses was also the right play at the time. And his takeover of the work comp managed care market brought solid cash flow, great profits, and the comfort of a non-risk business into the portfolio. In the end, the failure to execute on the basics of the business coupled with an overweening self-confidence made all the good moves irrelevant.
What does this mean to you?
Don’t read your own press clippings.

Jan

Coventry CEO Dale Wolf resigns

Posted by Joe Paduda on Monday, January 26th, 2009 | Comments

Coventry Health announced late today the resignation of CEO Dale Wolf. Allen Wise, who preceeded Wolf in the position, will be the new CEO.
Wolf’s resignation comes after a tough ten months at the company, and may be a result of the continuing problems at Coventry (that’s speculation on my part). As reported on this blog last week, Coventry’s recovery program did not exactly resonate among Investors.
More to come…

Jan

The political winds and health reform

Posted by Joe Paduda on Monday, January 26th, 2009 | Comments

There’s a little more clarity about who’s handling health reform on Capital Hill and which proposals are currently in the lead.
In the Senate, sources indicate the Wyden-Bennett bill is currently off the table, set aside in deference to the proposal advanced by Sen Kennedy. I’m not particularly happy about this, as the Wyden-Bennett bill already has bipartisan support (a half-dozen Republicans and six Democrats are co-sponsors) and may actually reduce costs. But, no one is going to stand in the way of Sen Kennedy; he’s the chair of the Health, Education, Labor and Pensions (HELP) Committee and his current situation along with relationships built up over three decades further strengthen his hand. Word on the Hill is Sen Barbara Mikulski of Maryland has been tasked with shepherding the health reform initiative thru the Senate. She takes over this responsibility from former Sen Hillary Clinton, who has moved on to better if not bigger things. (Mikulski is getting her feet wet on the HIT part of the stimulus package.)
In the House, reform is the province of Rep Henry Waxman’s Energy and Commerce Committee. Political junkies will recall Waxman won his chairmanship in a bit of an upset over John Dingell of Michigan, much to the rejoicing of greens and health care reformers. Those close to the Representative from California are looking pretty good right now.
Timing is a bit murky right now, as all attention is on the stimulus bill. It is also worth noting the recent passage of the S-CHIP expansion in committee came about because a single Republican Senator voted for the expansion. This may well indicate the Democrats are going to woo Republicans very selectively, adding just enough to pending legislation to get a couple sure GOP votes. If this tactic works, the Dems will essentially isolate the more conservative wing of the GOP, thus rendering them largely ineffective.
So far, oppositon to major reform is somewhat amorphous. Expect that to crystalize very quickly when the details start coming.

Jan

A tuneful Health Wonk Review

Posted by Joe Paduda on Friday, January 23rd, 2009 | Comments

Jaan Sidorov, MD ME (Musical Expert) hosts this biweek’s Health Wonk Review. Hosts are always challenged to find a new and fresh approach; Jaan has come up with musical accompaniment for each post – and his tastes are quite diverse.
An excellent HWR, made all the more so by the post-inaugural timeframe.

Jan

Coventry’s Medicare business

Posted by Joe Paduda on Thursday, January 22nd, 2009 | Comments

Coventry’s presentation at the JP Morgan investor day last week was puzzling for a couple reasons. As noted yesterday, there was almost no discussion of medical cost drivers, either by CFO Shawn Guertin or Dale Wolf (Chairman and CEO) or by any of the analysts present.
The other puzzlement was the company’s continued emphasis on Medicare Advantage as a core business. According to Guertin, the company’s biggest success in 2008 was better than expected Medicare sales. He went on to note that this was one of Coventry’s key drivers; in terms of member volume, Medicare Advantage is a close second to group health followed by Medicare D. And, Coventry is spending about $45 million in 2009 to expand the company’s Medicare network footprint, which they call their coordinated care network. The network has to be built in 2009 so they can file the additional network coverage areas with CMS in 2010.
If I heard that right, they are looking to invest $45 million in Medicare Advantage, and it is a key driver of the company’s success.
Here’s more detail. Guertin noted that 2008 was an “exceptional year in Medicare Advantage”; they filed for 9 new markets, Medicare private fee for service (PFFS) growth was also solid and it will continue. Total membership is projected to hit 455k by the end of 2009 up from 380k in 2009. Leaving aside the potential for Congress and the new President to make dramatic changes in MA funding, Coventry’s strategy makes sense. They are currently conducting a detailed review of products and margins as well as the positioning around zero premium products (Medicare products that don’t require any additional premiums from members) and how they stack up in each market. They are growing in these products, the ones without rich benefits, but medical losses are around 90%.
So Coventry’s growth is in the right products; ones with lower risks and less rich benefits that are likely to be selected by people with lower health risks. However, their Medicare HMO business is doing better financally as it has an MLR significantly less than the PFFS’ 90% MLR. The strategy is to build out their networks in those areas with lots of PFFS members and hope to convert those members to the HMO, thereby taking advantage of the lower MLR delivered by the HMO. Currently about 58% of Coventry’s PFFS membership is in states with MA plans in existence – some percentage of that PFFS population will likely switch to an HMO product.
By converting members from PFFS to network products Coventry’s margins increase by five points, making the payback on the $45 million investment one year.
Guertin and Wolf did acknowledge the politics surrounding MA, but their acknowledgement did not reflect any real concern. Instead they noted their plans’ value proposition; with one saying: words to the effect that “there’s no question the enhanced benefits for seniors and overall reduction in medical expense for the system and society and better quality of care and life they get thru various health management program seniors…its indisputable that MA brings a lot of value”.
That may be the case. I’m not so sure it will be enough to prevent Congressional action to eliminate the MA subsidy.
I don’t understand why a health plan would bet it’s future on a business that may well change a lot and quickly.
Anyone?

Jan

Coventry Health – it’s about medical, folks!

Posted by Joe Paduda on Wednesday, January 21st, 2009 | Comments

It’s no secret that Coventry Health had a tough 2008. After several years of continued growth in profits, revenues, and market cap, management was nothing if not self-confident. Perhaps not self-aware, but certainly self-confident. That ended a little less than a year ago, with the announcement that financial results had suddenly plummeted due to higher medical loss ratios.
The earnings debacle of 2008 started in the spring and recurred in October with additional bad news. The overall impact was more analogous to total immersion in the Barents Sea (think Deadliest Catch) than a dash of cold water in the face. The result is not heightened alertness and awareness, but rather a serious case of hypothermia, with the accompanying symptoms of lethargy, impaired decision-making, and a rather tenuous prognosis.
As I said back in June; my sense is that Coventry’s management has been spending way too much time managing the numbers and nowhere near enough time managing medical. Those are not the same thing. Reflecting back on the calls I’ve listened to and management reports I’ve read, I can’t recall any detailed discussion of disease management, hospital expense management, outpatient utilization, or centers of excellence. There was a bit more discussion of facility costs in a lengthy equity analyst presentation last week, with CFO Shawn Guertin and Chairman Dale Wolf noting (this isn’t an exact quote but pretty close) “it is really clear that it [the biggest cost driver] continues to be facility [costs] – facility patterns of care and units cost – and we are going everything to plug any leak we can find to tighten everything down. It is a unit cost issue…” In response to a follow up question, Wolf said Coventry’s network discounts look “very very competitive” (compared to other larger competitors).
That’s great. Yet Coventry’s medical trend is still projected to be higher than (most of) the competition, and it doesn’t look like this is due to pricing.
I’d also note that (yet again) there was precious little in the way of insightful questions from the assembled equity analysts. A couple individuals asked questions that sorta addressed underlying cost drivers, but there was no real due diligence, no digging deep into the facility cost issue, and absolutely no question about or reference to utilization. This is particularly surprising; it is abundantly clear to anyone who has spent more than a few minutes examining health care cost drivers that utilization is THE key driver.
I’m also a little confused given Wolf’s comments that Coventry’s network discounts look good, yet in an earlier statement, Guertin noted facility unit costs were problematic. Perhaps I misunderstood.
Here’s the net. A somewhat-chastened management team wants analysts and investors to look forward to 2010, as that’s when all their efforts will bear financial fruit. Yet I don’t see any real evidence that they are paying any attention to their ‘cost of goods sold’. Sure, they know the numbers, the loss ratios, pricing, and the impact of all that on EPS, but there’s precious little evidence that they understand, or are addressing in any meaningful way, the underlying drivers of technology, chronic illness, utilization.
What does this mean for you?

Network discounts are not a managed care strategy.
Tomorrow we’ll address Coventry’s Medicare strategy.

Jan

The harsh reality of health reform

Posted by Joe Paduda on Tuesday, January 20th, 2009 | Comments

I watched President-Elect Obama’s speech from the concert on the steps of the Lincoln Memorial. Boy, what a downer. All that talk about crisis and lost jobs and war, about enormous tasks, long roads and steep climbs and hard work, and pulling together, about going beyond oneself to improve the entire country – and this after what looked to be a pretty fun, upbeat, enjoyable albeit chilly cavalcade of stars in one of the most scenic spots in the District (that’s what we former residents call Washington DC).
In fact, it sounded more like a speech setting the stage for national health reform than one following Mary J Bligh (although ‘Lean on Me’ does lend itself to the topic…).
Perhaps that’s because I watched Mr Obama after reading Bob Laszewski’s latest post, wherein he continues his effort to inject a healthy – and all too necessary – counterpoint to the “we’re gonna get health care fixed before the Cherry blossoms bloom” position.
As much as I’d like to believe the battle for health reform will commence soon and while tough and unpleasant, end soon thereafter, experience teaches otherwise. I’d suggest that anyone who thinks this will get done quickly recall DC pundits’ statements about the Civil War (lets watch the fun at Bull Run, win the war, then ride home for dinner), the First World War (trench, what’s a trench?), or for those more current on their history, the Iraqi conflict (they’ll welcome us with open arms).
Health care reform will require all of us give up things we hold dear; income, stock options, long-held beliefs, positions of influence and importance, status, profits. It is going to be brutally difficult.
Darn that Obama; he certainly harshed my mellow.
But he also revealed the depth of his understanding. For a guy who’s a few years younger than me, he has wisdom beyond his years.
Don’t take this as bad. Rather, realize that we are fortunate to have as President a person who is walking into this with his eyes wide open. He knows what a tough uphill slog it is going to be, with big pharma, the AMA, the AHA, insurance companies and device manufacturers, pundits and bloggers, Republicans and Democrats, all working as hard as they can to make sure their side wins. And the heck with the rest.
What does this mean for you?
Until and unless there is broad consensus about health reform, it isn’t going to happen.
Until. And Unless.

Jan

The Ingenix settlement and physician income

Posted by Joe Paduda on Monday, January 19th, 2009 | Comments

FierceHealthcare reported last week that Aetna paid $20 million to settle charges related to its use of the Ingenix UCR database (their term is MDR). There will likely be announcements from other health plans of their settlement amounts; expect them to be in the Aetna range or less.
This is related but not really to the $350 million settlement for damages related to out of network claims dating from 1994. The settlement, announced last week, will result in UHC paying AMA $300 million to distribute to physicians. However, physicians will have to file claims to receive compensation; one MCM reader noted that in a related case her six-physician practice will receive a whopping $225.
In a related note, I’d remind readers that physician income has been flat to declining over the last several years. Why? Medicare increased fees by 13% from 1997 to 2003, while the underlying inflation was 21%. And, private payers’ reimbursement declined from 143% of Medicare’s rate in 1997 to 123% in 2003.
I’m thinking we now know at least part of the reason physician income was declining; unfairly low reimbursement from payers using the Ingenix databases.
We already know about health play overpayments – they’re called Medicare Advantage.

Jan

The Ingenix settlement – you wanted details…

Posted by Joe Paduda on Thursday, January 15th, 2009 | Comments

The phone and email has been buzzing today. So has the blog-o-sphere, at least among those bloggers who follow this. Both of us.
Today’s follow up announcement by Ingenix’ parent UHC revealed the giant health plan will pay $350 million to settle a class action lawsuit directly related to the use of the Ingenix UCR database. This brings the total (to date) cost for legal settlements to $400 million after yesterday’s NY settlement. Here’s the key language from UHC’s statement today.
“UnitedHealth Group (NYSE: UNH) announced today that it has reached an agreement to settle class action litigation related to reimbursement for out-of-network medical services. The agreement resolves class action litigation filed on behalf of the American Medical Association (AMA), health plan members, health care providers and state medical societies.
Under the terms of the proposed nationwide settlement, UnitedHealth Group and its affiliated entities will be released from claims relating to its out-of-network reimbursement policies from March 15, 1994, through the date of final court approval of the settlement. UnitedHealth Group will pay a total of $350 million to fund the settlement for health plan members and out-of-network providers in connection with out-of-network procedures performed since 1994. The agreement contains no admission of wrongdoing.”
The real problems with the Ingenix UCR database weren’t the subject of much discussion in the settlement documents or the various analyses of the settlement. But underlying the case are some significant problems with the database, how it is put together, and its uses. These issues were highlighted in the Davekos case in Massachusetts, and are discussed in the court record. Among the problems are:
– the accuracy and consistency of the underlying data is questionable. Ingenix cannot assure that the entities (health plans and claims administrators and insurance companies) that supply the data that Ingenix uses to determine what usual customary and reasonable charges are in specific areas are all using the same criteria, are coding consistently and accurately, and are aggregating the data in the same way.
– Ingenix may not always have enough charge data to provide a statistically valid sample for every CPT code. In that case, it appears that Ingenix may aggregate data from similar codes to produce a large enough sample. The potential issue with this work-around is obvious. In some instances, Ingenix actually called medical providers in specific areas where it did not have enough data to ask what they would charge for specific procedures. Thus they were combining telephonic survey data with actual charge data in their UCR databases, a commingling of very different data from very different sources with varying reliability.
– Ingenix itself defines the sociodemographic region boundary lines that are used to determine which charges are relevant for which geographic areas. In the Davekos case, the court appeared to be concerned when Ingenix could not give a defensible rationale for the logic or process they used to determine the boundaries for charge areas.
– Ingenix scrubs the data to extract charges that they decide are outliers for reasons that appear to be subjective. It also appears Ingenix removes high end values but not low end outliers. If this is the case, it would likely skew the charge data towards the lower end.
Those are some of the details behind the Ingenix UCR settlements. As to what will happen next, Bob Laszewski’s perspective provides insights as only he can.
What does this mean for you?
If you are using the Ingenix UCR database, you may want to look for other options.

Year: 2009