Nov

Coventry’s earnings – doing quite well

Posted by Joe Paduda on Tuesday, November 9th, 2010 | Comments

There was a lot of good news for Coventry Health last quarter, much due to what CEO Allen Wise called “unusually low medical trend”.
That said, 2011’s numbers are not likely to be as robust as this year, and Wise spent a good bit of his podium time discussing the whys and wherefores. While the change in MLR is key, he also noted the company laid off 900 people, has assigned various health-reform-preparation tasks to specific groups, and is hiring (or has hired) three execs to focus on specific functions. Coventry is also working hard to adapt by forming partnerships with provider groups and investing in care management.
As it must.
In his opening comments, Wise noted the company’s ‘cost structure’ will enable Coventry to compete effectively when medical loss ratio requirements are instituted in 2011. MLR will be critical going forward, and if this year’s numbers are any indication, Coventry may have a problem – they’re too profitable. The commercial group operation’s premiums and membership were up, while the MLR was kept at a strong 78.4%. Wise’ sense is that medical trend will remain in the eight percent range. Depending on what the final regulations count as ‘administrative expense’, Coventry may be faced with a need to lower prices as it may be ‘too profitable’.
(Ed note – this MLR requirement is going to be a major pain in the neck for all parties – insurers, consumers, regulators, bloggers. I’m still at a loss as to understand how this is going to help control cost; I can see it adding a lot of administrative cost, which will decrease profitability even more…)
In discussing what has now become a major change in direction and emphasis for the mid-tier healthplan operator. Wise spoke at some length about Coventry’s strategy to acquire small provider-owned health plans, thereby gaining share in secondary and tertiary markets while solidifying relations with delivery and health systems. Here’s an excerpt from his comments.
“Our two acquisitions in 2010 are more than revenue and membership. It’s about our future cost structure and more important, our ability to improve care for members and develop long term strategic relationships with high quality health systems. I think it’s worth a minute to stay with this topic. We feel the best way to care for members and provide the best value proposition is by having collaborative relationships with provider systems and physicians and working to develop affordable products.
These relationships are rooted in collaboration, including shared incentives, quality incentives, data sharing, and in some cases, more focused networks. We have and will continue to build these types of relationships whether as a part of an ACO model, medical home, or variation of both. We believe we’re able to offer our provider partners creativity, flexibility, and local market commitment, whether it’s part of an acquisition or a contractual collaborative relationship or both, in some cases.”
Coventry appears to be seeking to carve out a niche, or perhaps more accurately develop a business strategy based in part on acting as the plan administrator for local health systems.
This is an interesting strategy, and one that may position Coventry well for the future. However, the company may find there just aren’t that many smaller regional health plan acquisition targets, there will certainly be other plans following the same strategy, and margins may not be very attractive in what may be a commodity, transaction-processor business.
While there was solid growth overall, the company’s organic growth was less than one percent, only the second quarter of growth since the end of 2007. There were other mentions of growth, but they were a little puzzling; for example, Wise actually noted the company had added 47 people to their Nebraska Medicaid plan…
Coventry looks to be entering the care coordination business as well in at least one market, although details were scarce.
The company’s workers comp business was mentioned a grand total of once during the call, and then only in passing as the market leader.’

Nov

Genex buys Intracorp – more than just another deal.

Posted by Joe Paduda on Thursday, November 4th, 2010 | Comments

In what has to go down as the worst-kept secret in the investment community ‘EH-ver’ (say out loud like a 14 year old female), Genex announced today that they will buy Intracorp’s workers comp business from CIGNA.
I’m particularly pleased as I predicted this as an addendum to my annual ‘Hope I don’t Make a Fool of Myself with these Predictions’ post, and time was running short.
So what’s the deal.
Well, Intracorp has some pretty solid management folks who may be looking for jobs soon. Despite a notable lack of investment (and attention) from mother CIGNA, they’ve managed to keep body and soul together, won back a bit of business, and done some pretty innovative things in the network area. If you’re looking for talent…
Genex has to grow – or its private equity owners will be very unhappy – and buying a competitor is a time-honored – and pretty effective – way to do that in what is an overly-mature market dealing with declining claims volume and too many vendors chasing too many of those claims.
There’s a larger lesson to be learned here, one straight out of ‘The Innovator’s Dilemma’ (as long time readers know, my favorite business book).
This more-than-a-theory holds that companies that are very successful in their fields keep improving their products, believing that what their customers want is more and better versions of the same. What these companies don’t do is think up new ways of meeting their customers’ needs; ways that are cheaper/faster/easier. Instead, they work diligently on making their existing product a tiny bit better every year. And in the process, they don’t pay attention to what their customers actually need – the problem they are trying to solve.
Intracorp dominated the managed care world in the mid-eighties, believing its business was nurse case management. It owned the space for at least a decade afterwards. Upper management made a couple ill-fated attempts to get into the network business, neither of which had adequate commitment or resources behind it. As the comp managed care business became increasingly network-centric, IC was relegated to renting other vendors’ networks.
At first that was fine. But as time went on, the networks got more powerful, and the case management companies (which was really what IC was) woke up one day and found out they were no longer driving the bus.
Intracorp also failed to commit to a serious upgrade of their original, in-house, homegrown bill review system, patching it together and struggling along until the wheels finally came off and they had to switch to a third-party system. By then, it was too late. Several large customers had left, and when ACE/ESIS started to move away, the writing was on the wall.
Why?
I’d posit that Intracorp didn’t understand its real business was managing medical costs. It thought it was in the case management and bill processing business – a typical product/service centric mistake made every day – probably by most of the companies in this space.
What does this mean for you?
What business are you in? If you just said something about what you do, you’re wrong. You are in the business of solving a customer’s problem. And there may well be other products and services out there, or in development, that also attack that problem.

Nov

Update on Texas’ voluntary network regs

Posted by Joe Paduda on Thursday, November 4th, 2010 | Comments

A source in the Lone Star State indicated that Commissioner Bordelon will shortly release a statement concerning the use of voluntary networks after 1/1/11.
Loyal readers will recall a post a few days ago that encouraged all to NOT implement any voluntary networks – or continue with their current ones – unless and until they carefully think thru the potential implications.
I’d suggest that is still good advice.

Nov

Rick Scott’s win in Florida; bad news for workers comp

Posted by Joe Paduda on Wednesday, November 3rd, 2010 | Comments

The next Governor of Florida will be Rick Scott. Democratic candidate, and current state CFO Alex Sink just conceded defeat, and her loss bodes ill for Florida’s workers comp insurers and employers.
Recall that Sink was a major supporter of a bill to prevent price-gouging by physicians dispensing drugs to workers comp claimants, a practice that has added millions to work comp loss costs. Departing Gov. Charlie Crist veto’ed the bill after a flurry of last minute lobbying by a variety of interested parties, including my nemesis, Automated Healthcare Solutions.
AHCS and its principals Paul Zimmerman and Gerald Glass donated hundreds of thousands to Crist and his supporters, donations that occurred around the time Crist was considering whether or not to sign the anti-physician dispensing bill. Let’s not miss the key issue here; AHCS makes enough profit from billing employers and insurers for physician dispensing to donate over $1.6 million to politicians.
Now news reports indicate that AHCS, Zimmerman, Glass, et al got behind Rick Scott in a major way:
“Automated Healthcare Solutions, a Miramar company headed by a pair of doctors, Paul Zimmerman and Gerald Glass, steered $605,000 to the party after also helping finance some of the primary’s fiercest attacks on McCollum.
The doctors, who played a central role in fighting legislation supported by Sink that would have reduced the cost of prescription drugs in workers’ compensation cases [emphasis added] – a measure vetoed by Crist — donated $1 million through companies they lead to political spending committees controlled by incoming legislative leaders Sen. Mike Haridopolos, R-Merritt Island, and Rep. Dean Cannon, R-Winter Park. The money was used to air TV ads during the primary against Scott.”
So, after their initial efforts to help Crist didn’t pan out, AHCS threw its financial muscle behind Rick Scott. Who will be the new Governor.
And will likely have the opportunity to sign, or veto, a bill to eliminate the loophole that enables physician dispensers to charge much more than retail pharmacies for the same drugs. Insurers and employers in the Sunshine State would likely favor such a bill; According to the Workers Compensation Research Institute, physician dispensed drugs are the main reason Florida’s prescription drug costs were 38% higher than a 16-state average.
But somehow I don’t see future Gov. Scott signing a bill bitterly opposed by donors who gave his campaign over six hundred thousand dollars.
Even if it would help reduce employers’ workers comp premiums, and improve the business climate in Florida.
What does this mean for you?
Higher workers comp costs in Florida.
(BTW, I finally got an official copy of AHCS’ suit against me, my attorneys have filed a response, and I’ll provide a more detailed update shortly.)

Nov

The GOP and Medicare deficits – this is gonna hurt

Posted by Joe Paduda on Tuesday, November 2nd, 2010 | Comments

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.

Nov

Kafka was a work comp attorney

Posted by Joe Paduda on Monday, November 1st, 2010 | Comments

Yes, it’s true. And if he wasn’t a half-bubble off plumb when he started, he certainly was after spending a few years behind his desk at a workers comp insurer.
Franz Kafka worked for the Workers Accident Insurance Company, and is credited by no less a personage than Peter Drucker with invention of the hard hat. (with perhaps little support for that assertion)

For anyone who slept thru, or has been trying to forget those weird, more-than-slightly bizarre stories of man-waking-up-as-a-cockroach, or Trials held in low-ceilinged-rooms with death as the inevitable result, it may be time to dust off the college English anthology and revisit once again Kafka’s world.
Why?
Kafka can’t be any stranger (sorry, Camus fans) than today’s work comp world.
Kafka’s literary ‘angle’ has been discussed and debated for decades. Some think his work focuses on people’s tendency to invent their own struggles. Others interpret Kafka differently, believing much of his work describes the futility of existence, the hopelessness that comes from a complete lack of control over one’s own future.
Perhaps most believe Kafka was more interested in the absurdity of bureaucracy and law, the overwhelming focus on process and following rules, no matter how ridiculous or pointless, and the primary importance of the process over the outcome, the proveeding over the result. Several of his writings centered on, or included significant reference to, legal proceedings – the Trial the most obvious.
Today, we have workers comp – supposedly designed to remove lawyers from occupational injury and reimbursement for same – heavily influenced by lawyers for plaintiffs, defendants, and myriad other legal hangers-on.
– We have lawyers, for reasons known only to themselves, pushing drugs on their clients.
– We have employers neglecting to, or actively discouraging – the reporting of occupational injuries.
– We have medical fee schedules that discourage certain types of treatment while wildly overpaying for others.
– We have court hearings that drag on, and on, and on, marked by discussions seemingly unrelated if not completely foreign to the subject at hand.
– We have judges deciding that contracts signed by providers aren’t legal, even though the language was clear and the providers didn’t have any guns pointed at them at the time of signing.
– We have managed care contracts that reward managed care vendors, and managed care execs for sending injured workers to providers that bill a lot – and often.
– We have payers arbitrarily denying coverage for procedures one day, and approving the same procedure, for a claimant with similar injury the next.
And that’s just what I can think of in a few quick minutes; there are many more instances that amplify the absurdity inherent in this industry.
But, if nothing else, we can thank workers comp for helping Franz Kafka become one of the last century’s most creative fiction writers. Yet one has to wonder, who in the industry will become the next great author? Who has both the literary talent and has experienced enough career-provided absurdity to become the ‘next’ Franz Kafka?

Oct

The spinal implant business – big and getting bigger

Posted by Joe Paduda on Friday, October 29th, 2010 | Comments

I’ve been tracking the spinal implant business for several years now, watching with interest – and growing dismay – as more and more patients have been getting more and more hardware implanted into their backs.
Why dismay?
Well, there have been problems with implants corroding, poor outcomes for a number of patients, inconsistent results, and unacceptable infection rates [opens pdf], much of this may be due to a basic problem – we don’t know much about why spines degenerate, are injured, cause pain, and/or ‘fail’, and thus solutions may well not address underlying problems.
This from the AMA:
“The lack of basic science understanding of spine degeneration, such as knowledge about genetics and biochemical and biophysical causes of pain, may be one reason why engineering structural principles alone have not led to success.”
Nonetheless, innovation marches forward, at an annual rate of better than 7%.
This from research firm GlobalData’s new report, “Spinal Implants – Global Pipeline Analysis, Opportunity Assessment and Market Forecasts to 2016”. [emphasis is mine]
“The global market for spinal implants is forecast to grow from $6.5 billion in 2009 to about $10.3 billion by 2016, with a Compound Annual Growth Rate (CAGR) of 7%. The global spinal fusion implants market is expected to reach a size of $9 billion by 2016. The market size in 2009 was $5.9 billion and is expected to grow at a CAGR of 6%. The global market for spinal non-fusion implants is expected to grow to $1.2 billion by 2016 from $606m in 2009 with a CAGR of 11%. The spinal fusion implants segment is the biggest in terms of market size, contributing about 90% of the revenue for the spinal implants market category.
…the other major factor driving growth in the market for spinal implants is the introduction of many new innovative products by various device manufacturers. More than 200 products are currently in different stages of development and are expected to be introduced in the market soon. By the end of the calendar year 2012, more than 150 products which are currently in different stages of clinical development are expected to get the necessary approvals and be ready for market launch. These products have various applications such as dynamic stabilization, artificial disc replacement, disc nucleus replacement and orthobiologics. The arrival of these products in the market is expected to drive the demand for spinal implants in the future.
The US is the Biggest Market for Spinal Implants and is expected to be driven by High Patient Awareness
The US is the biggest market for spinal implants. The market size for spinal implants within the US was about $3.8 billion in 2009 and is expected to reach $5 billion by 2016, with a CAGR of 7% in this period…
Medtronic, Inc. is the Leader in the Global Spinal Implants Market
Medtronic is the leader in the global spinal implants market with a share of 32%. The revenue of the company from spinal implants is about $2.1 billion. Medtronic has a large product portfolio in the spinal implants category and includes products such as the Prestiege Cervical Disc, CD Horizon Legacy Spinal System, Infuse Bone Graft and LT-Cage Device, Kyphon Balloon Kyphoplasty, and X-Stop Spacer. The other major players in this market are DePuy Inc., Synthes Inc., Stryker Corporation, NuVasive Inc., and Biomet Inc. There are also a growing number of start-ups which are expected to enter the market in the near future, and are predicted to flood the market with a slew of innovative and advanced products for the treatment of various spine problems.”
What does this mean for you?
For payers, probably higher loss costs, and for patients, questionable outcomes.

Oct

Halloween’s HWR

Posted by Joe Paduda on Thursday, October 28th, 2010 | Comments

The fine folk at the New America Foundation host this fortnight’s edition of Health Wonk Review – great stuff, done by really good writers.

Oct

How Medicare changes physician reimbursement

Posted by Joe Paduda on Thursday, October 28th, 2010 | Comments

The Wall Street Journal has an excellent report on the key step in determining Medicare physician reimbursement.
Here’s the intro:
“Three times a year, 29 doctors gather around a table in a hotel meeting room. Their job is an unusual one: divvying up billions of Medicare dollars.
The group, convened by the American Medical Association, has no official government standing. Members are mostly selected by medical-specialty trade groups. Anyone who attends its meetings must sign a confidentiality agreement.
Yet the influence of the secretive panel, known as the Relative Value Scale Update Committee, is enormous. The Centers for Medicare and Medicaid Services, which oversee Medicare, typically follow at least 90% of its recommendations[emphasis added] in figuring out how much to pay doctors for their work. Medicare spends over $60 billion a year on doctors and other practitioners. Many private insurers and Medicaid programs also use the federal system in creating their own fee schedules.”
The link probably expires tomorrow, so read it now, or print and read it on a plane later.
thanks to Advisen for the tip.

Oct

How big a problem is physician dispensing of drugs in work comp?

Posted by Joe Paduda on Wednesday, October 27th, 2010 | Comments

First, I’d be remiss if I didn’t note that advocates for physician dispensing cite a couple of advantages. It is certainly easier for the patient to pick up their drugs on the way out of the doctor’s office than to make another stop at the pharmacy.
Some also contend that handing the patient their medication on the way out of the doctor’s office increases “compliance” – the chance that the patient will actually take the medication. This may well be true, but I haven’t found any solid research that proves this to be the case.
However, the cost per script is usually much higher than the same prescription dispensed by a retail pharmacy; details on that are provided below.
There is another potentially significant issue with physician-dispensed medications: patient safety. The dispensing physician may not always have access to, or check the retail pharmacy prescription database which includes information about the patient’s other medications. Some drugs can cause problems when they are combined with others, so a lack of information can be a problem.
When physicians dispense repackaged drugs, costs are often much higher than the same script purchased at a retail pharmacy.
A July 26, 2010 Business Insurance article written by Roberto Ceniceros, summarized the cost problem rather succinctly:

“An increase in pharmaceuticals dispensing by doctors in several states is likely driving up workers compensation costs, [emphasis added] experts say. As more doctors link with companies that provide repackaged drugs with irregular identity codes to physician offices, the arrangements add extra costs and bypass established means of capping drug costs, they say…” According to Boca Raton, Fla.-based NCCI Holdings Inc., physician-dispensed pharmaceuticals accounted for 17% of workers comp drug costs in 2008, the latest year for which data is available, up from 8% the prior year…”We think it may be increasing costs,” said John Robertson, an NCCI director and senior actuary… the nonstandard NDCs used on repackaged drugs often facilitate charging prices above those allowed by state fee schedules, several sources agreed…
A report by the Workers Compensation Research Institute (WCRI) found that the average payment per claim for prescription drugs in the Massachusetts workers’ compensation system was $289–30 percent lower than the median of the study states. The main reasons for the lower prescription costs in Massachusetts include lower prices paid to pharmacies due to a lower pharmacy fee schedule, more frequent use of less expensive generic drugs, and a ban on physicians dispensing medications directly to their patients.
WCRI also found the average payment per work comp claim for prescription drugs in Florida was $565–38 percent higher than the median of the 16 states in the study. The main reason for Florida’s higher than average prescription costs was that some physicians wrote prescriptions and dispensed them directly to the patient at their offices. When physicians dispensed, they often were paid much more than pharmacies for the same prescription. [emphasis added.]”

In a Research Update published by the California Workers Compensation Institute in September of 2009, authors Alex Swedlow and John Ireland reported repackaged drugs had grown to account for 54.7% of prescriptions, and 59.2% of dollars spent on drugs by 2006. The problem has shrunk dramatically since the passage of legislation n California addressing the issue, but alas, it has moved on to other states.
According to the Workers’ Compensation Research Institute’s March 2010 Prescription Analysis, “the prices paid to physicians [in Florida] were often much higher for common drugs. The most striking examples are Ranitidine HCL (more than double what pharmacies were paid), Carisoprodol (five times higher), Hydrocodone-Acetaminophen (one and a half times higher).”
But this isn’t just a Florida problem. In fact, most other states allow physician dispensing.
WCRI also reported that 22% of prescriptions in Illinois were physician-dispensed, and that prices per pill were “often 25-50 percent higher than the price paid to pharmacies for the same prescription.”
WCRI’s analysis of Pennsylvania data showed “when physicians dispensed commonly used drugs, the average price paid was often 20-80 percent higher than what pharmacies would be paid for the same prescription.”
What does this mean for you?
Higher costs. Potentially problematic drug interactions.

Year: 2010