Month: February 2013

Feb
6

IRS, health care premiums under ObamaCare, and right-wing distortions

Posted by Joe Paduda on Wednesday, February 6th, 2013 | Comments

There’s a bunch of nonsense circulating on the web claiming the Obama Administration has said the average family premium under Obamacare will be $20,000 in 2016.

The sources, primarily lousy journalists, right-wing ideologues and wingnuts (Betsy McCaughey), are either:

a) unable to read and understand basic English; and/or

b) quite willing to distort, mis-inform, slant and obfuscate.

The kerfuffle began with a lengthy IRS memo released last week.  [opens pdf] Ideologues took one sentence (page 70, third paragraph) out of the document and claimed it said something which it absolutely did NOT.

The nut-o-sphere mis-read the IRS’ statement and interpreted an example as the IRS’ estimate of cost.

IT IS NOT.

If you read the para at the beginning of the relevant section, it reads “The following examples illustrate the provisions of this section.”  Note the use of the words “example” and “illustrate”.

In fact, no one knows what the premium for a bronze-level plan for a family of 5 will be in 2016.

Now that we’ve thrown out that trash, let’s talk about family premiums, shall we?

First, let’s be precise about definitions. Employers’ costs are almost always lower than individual coverage, so be precise when talking about costs – are they for individual coverage, Medicaid, or employer-based plans.

Second, most individuals/families with incomes below 400% of the Federal Poverty Level will have a subsidy so their “cost” on the individual (or small employer” market will be less than the “list price.”

Third, the cost for a medium cost area is about $19,138 for a family of four for the Silver plan with no subsidy. If you make $80 grand, your cost – after the subsidy – is $11,528.

Fourth, my family – with four covered, all of us healthy, and no subsidy now or later, is paying $756 in premiums for a policy with an $11,900 deductible TODAY. That’s $20,972 TODAY. I can’t wait for Obamacare, as our costs will go DOWN and coverage vastly improve if the IRS’ figures are correct.

The best resource for calculating cost is the Kaiser Foundation’s calculator –
http://healthreform.kff.org/subsidycalculator.aspx

Unfortunately this is yet another example of ideologues taking statements out of context to advance their own agenda. Of course I didn’t read news of this revelation about Obamacare in the credible press; they ignored it because it isn’t a story. There is no story here. Unless it is about distortions for political gain.

This first came to light (for me) in the Workers’ Comp Advisory Group’s forum; not sure why it was there.

Feb
6

The last Coventry earnings report ever

Posted by Joe Paduda on Wednesday, February 6th, 2013 | Comments

As Coventry prepares to become part of Aetna, Coventry’s earnings report marks the last quarterly report we’ll see from Allen Wise and Co.  As par usual, I’ll split my review into two parts; workers comp (of most interest to many readers) and the rest of their business in a future post.  There’s no earnings call scheduled, so no Q&A with investors or presentation from management to mull over…

First, overall it was a strong quarter for Coventry with revenues up 10% driven by big growth in public-sector programs; commercial membership declined slightly. Quarterly profits also rose, altho annual profits were down about 4 percent.

Today, it’s work comp.

As far as revenues a tough quarter for the work comp division, actually a tough series of quarters.  Revenues dropped each quarter, albeit slightly.  However, the total decline was over $14 million over the four quarters, and the year saw a drop of $26 million or 3.3 percent from the prior year.

There were several business losses over the last year that undoubtedly contributed to the drop in revenues.  ESIS switched PBMs from Coventry’s FirstScript to Progressive, and moved other services from Coventry as well.  The PBM move probably had the largest impact on the WC Division’s financials, as the entire pharmacy spend counts as top line for CVTY thus losing tens of millions of pharmacy has a big impact on reported revenues.  The loss may have been a wake-up call to management, as there have been some indications that FirstScript is working to elevate its game.  However, it has a ways to go to catch up to the offerings of its competitors, almost all of which have a pretty significant head start.

While that was a significant loss, it was likely a good deal smaller than one that has yet to be felt; the US Postal Service moved their PBM business from FS to PMSI.  The deal was done late last fall and it should hit the financials sometime early this year.

To the credit of the WC Division and boss David Young, they were able to add enough incremental revenue thru price increases and smaller account wins to mitigate a good chunk of the loss of the ESIS business  and other losses.

So, where does that leave Coventry work comp?

A recent re-shuffle will put the division under former-CFO-now-head-of-National-Business Joe Zubretsky. Interestingly, former Coventry CFO Shawn Guertin is now working for Aetna in a top finance slot.  Guertin’s experience with the WC business will likely be the subject of a discussion or two between these two gentlemen…

Zubretsky’s most recent public comments about work comp have been pretty positive.  I fully expect Aetna to embrace the business; it has less regulatory risk than their core business, zero insurance risk, and may have some strategic benefit as Aetna looks to the future of disability management. And let’s not forget the strong positive cash flow generated by the division, cash that will be sorely needed by mother Aetna as they continue to prepare for 2014.

Net is we can expect Coventry’s comp division to flourish under Aetna; there may be some changes but I’d expect them to be positive, and we may even see investment in the unit.  

 

 

Feb
5

What we nerds love…

Posted by Joe Paduda on Tuesday, February 5th, 2013 | Comments

is research that helps us understand why things are the way they are.

And while we rarely get to make out with supermodels like the guy in the SuperBowl ad (word is it took 45 takes to get it “right” (good for him!!),

Bar Rafaeli and…

we do get pretty excited about great research.  Which makes today a pretty good day.  Two studies were released – one from Washington on back surgery outcomes and complications and the other from CWCI discussing the use and cost of compound medications in worker’s comp.

First, Gary Franklin MD and colleagues published a study in the February edition of Health Services Research on the safety of lumbar fusion, an all-too-common procedure in workers’ comp.  Here’s my non-clinical take on the key findings.

  1. Outcomes  – defined for this study as complications within 90 days of a fusion – for workers’ comp patients were not nearly as bad as I thought they’d be. Surprisingly, they were somewhat better than the average!
  2. However – and it’s a BIG “however”, that may be due in part to the Washington state fund (L&I)’s tough stance on authorizing fusions.  In turn, that was based on priori research that indicated fusions had generally poor outcomes.  So, L&I’s numbers for outcomes may have been better because they do a good job of winnowing out those claimants more likely to have poor outcomes.
Pretty cool, eh? Gotta love the power of the monopolistic carrier.
Well, here’s some not-so-cool news.
Eileen Auen, CEO of PMSI and Alex Swedlow and his colleagues at CWCI have co-authored a study examining the cost and trends associated with compound medications in California. (disclosure – both are friends and I was a reviewer of the draft report)
And the results are about as appealing as Ms Rafaeli’s ad-mate.
For the blissfully-unaware, compound medications are concoctions of various real and pseudo-medications fabricated by parties evidently more interested in sucking money out of employers and taxpayers than healing patients.  There is precious little evidence supporting the use of these medications for the kinds of conditions suffered by workers’ comp claimants; nonetheless they are inordinately popular among a subset of providers.
California instituted controls on the use of compound meds 1/1/2012, the thinking being these “controls”would reduce compounds in comp.
The good news is compounds dropped from 3.1 percent to 2 percent of scripts.
The bad news is while there were fewer compounds dispensed, the cost of each went up over 68 percent, so compounds’ share of drug costs increased from 11.6 percent to 12.6 percent.
That’s right – fewer compounds cost more money.
How’d that happen?
Well, compound prescribers and dispensers quickly figured out how to game the “controls” by adding more ingredients and more of each ingredient to each compound.  
There it is, another example of unintended consequences.
What does this mean for you?
Unscrupulous providers will quickly figure out how to game regulations/controls that are not well-developed and carefully considered. Better to do something right than to do it quickly.
Feb
4

Rapid change in California’s health system

Posted by Joe Paduda on Monday, February 4th, 2013 | Comments

The pace of change  – mergers, consolidations, physician/hospital affiliation, new construction and shifting of services – in California’s health care system is fast and accelerating.  Several area-specific reports just out from the California Healthcare Foundation provide a great overview of the changes in specific markets, and are well worth study for any payer working in the Golden State.

In a quick review of CHCF’s report on San Diego a few things jump out.

  • Hospital systems’ profitability is generally increasing rather substantially, this in a period when many are investing big bucks in new plant and equipment.  Margins for several systems are into the double digits.
  • Lots of investment is occurring in the wealthier (read – privately insured) areas, such as La Jolla.  No surprise that.
  • Safety net providers are benefiting from federal largesse, using funds to expand services to low-income communities and add medical home capacity as well.

For Los Angeles, the title of the report says it all “Fragmented healthcare system shows signs of coalescing.”  Whether it’s physicians aligning with health systems, hospitals joining together, or health systems merging, there’s lots of efforts to get bigger, increase service areas, and expand services themselves.

Unlike San Diego, LA is a pretty fragmented market, with too many hospital beds, no dominant systems or facilities, and many systems looking to consolidate the market.  Kaiser is the only system with a double-digit share of hospital discharges at 11.8%.  And, also unlike SD, margins for many facilities are negative to just barely above break-even.  There are exceptions; Cedars-Sinai had a 7.6% operating margin in 2010 and UCLA’s was almost twice that.

The study indicates that one driver of the relatively poor financials in LA may be an over-supply of hospital beds at 205 beds/100k people vs the state average of 181.

There’s a wealth of useful information in these studies.  Payers of any stripe doing business in California would be well-advised to read them carefully, and consider the implications for their future.  

Feb
1

Work comp hospital costs – what WCRI’s report says, and what it means

Posted by Joe Paduda on Friday, February 1st, 2013 | Comments

The good folk at WCRI have produced a very useful – and very timely – analysis of outpatient facility costs, cost drivers, regulatory mechanisms, and trends in 20 key states.  Timely because the upcoming changes to Medicare and Medicaid’s hospital reimbursement bode ill for workers’ comp, and doubly timely because payers are seeing significant increases in facility costs in many states.

There’s a lot to consider in the study, here’s what struck me.

  • States without fee schedules are way more costly than those states that have outpatient facility fee schedules based on a fixed amount (not percentage-of-charges) reimbursement methodology.
  • States with percentage-of-charges “fee schedules” are about as costly as states with no fee schedules at all.
  • Even states with fee schedules based on a fixed reimbursement can be problematic; Illinois is a great example as it has the highest costs of all 20 study states.
  • Changing or modifying fee schedules appears to drive changes in billing patterns, which are supposed to be based on actual services delivered.

What stands out most is the overall trend.  Costs went up over the study period, sometimes a lot, other times there was an initial decrease after a fee schedule change went into effect after which an upward trend resumed.  And while some methodologies seem to do a better job controlling cost inflation than others, all can be gamed.

Cap reimbursement on a per-procedure basis, and watch utilization go up.

Base reimbursement on a lower percentage-of-charges, and miraculously charges escalate dramatically.

But start with low costs, and those low costs will likely persist; the ten lowest cost states in 2006 were still in the bottom half in 2010.  Yes, some had moved a notch and others down, but no state moved more than two slots.

What does this mean for you?

Watch FS changes in your key states very carefully, but don’t hold out much hope that any big changes will dramatically impact costs over the long term.