Author: Joe Paduda

Feb
16

Comparative effectiveness – what’s left after the sausage-making process

Posted by Joe Paduda on Monday, February 16th, 2009 | Comments

For we policy types, one of the most important provisions in the stimulus bill, aka the American Recovery and Reinvestment Act, addressed comparative effectiveness research.
Alas, the $1.1 billion+ invested in transforming medicine from art to science has been fed through the sausage grinder, and what has come out doesn’t look terribly appetizing. But after you chew on it for a while, it does taste better than it looks.
Merrill Goozner sees the end result as a partial victory noting “The House conferees also insisted on keeping the phrase “comparative effectiveness” throughout the authorizing language, removing the Senate’s insertion of the word “clinical.” However, the report language did note its removal was “without prejudice.”
But he also cites this language from the conference report itself:
The conferees do not intend for the comparative effectiveness research funding included in the conference agreement to be used to mandate coverage, reimbursement, or other policies for any public or private payer [emphasis added]. The funding in the conference agreement shall be used to conduct or support research to evaluate and compare the clinical outcomes, effectiveness, risk, and benefits of two or more medical treatments and services that address a particular medical condition.
A quick read is disheartening as the language seems to make the whole thing rather irrelevant. But parsing the words makes it less concerning. Note the use of the words “do not intend…to mandate coverage, reimbursement or other policies…” The key here is”mandate”, the meaning and intent of which is likely to gladden the hearts of many an attorney.
The definition of the term is “An official or authoritative command; an order or injunction; a commission; a judicial precept.” But there’s a good bit of flexibility left here. It may well be that creative bureaucrats (that term is not used pejoratively) will be able to use the results to encourage certain types of treatment while discouraging others; to require physicians requesting approval for procedures lacking justification provide support for their request to use those procedures, while approving procedures immediately that comply with research recommendations.
The findings of research conducted by the three agencies that will disburse the funding (Agency for Healthcare Quality and Research (AHRQ), the Center for Medicare and Medicaid Services (CMS), and the National Institutes of Health) may be used by payers as part of the criteria set used to select providers that use certain treatment methods and de-select those docs that don’t.
As I noted, the use of the term mandate will undoubtedly drive up litigation and associated expense. Although the legislative process is far from perfect, at least we’re heading in the right general direction. As the Gooz said;
“Based on the experience of the past few weeks, it’s clear the U.S. is still many years away from having a rational discussion about limiting access to technologies that have been priced far beyond a societally-agreed upon benchmark for what constitutes affordable care.”
Why would we ever want government to ensure that it spends taxpayer dollars wisely?

Feb
13

The stimulus bill and workers comp

Posted by Joe Paduda on Friday, February 13th, 2009 | Comments

With the passage of the stimulus bill, it’s timeti consider the implications fir workers comp. I’ll get to the details next week, but there are a few broad statements we can make today.
First, the unemployment rate will not drop much more. Comp insurers, Occ Med clinics, managed care firms and TPAs started feeling the effect of a rapid drop in frequency last summer, a drop that would have accelerated throughout this year. For carriers, the decline was good news/bad news, as fewer claims meant lower claims expense, while fewer employees produced lower premiums.
The funding for COBRA and Medicaid will help keep folks insured, thereby decreasing cost shifting (below what it would have been without the bill). This is very good news indeed; although it is impossible to calculate what cost shifting would have done to comp, it would undoubtedly have driven medical costs up significantly.
Over the long term the effectiveness research funding will be a big help to payers and providers. Solid guidelines for back injuries will be most welcome.
There’s much more to come.

Feb
12

Is Corvel a TPA or a managed care company?

Posted by Joe Paduda on Thursday, February 12th, 2009 | Comments

Both. At least that’s how company execs want to ‘brand’ Corvel – but it isn’t what their TPA customers want to hear.
Me? I’m not so sure.
Here’s how Corvel described itself in a recent SEC filing:
“CorVel Corporation is an independent nationwide provider of medical cost containment and managed care services designed to address the escalating medical costs of workers’ compensation and auto policies.”
Interestingly, the company’s website does not describe itself as a TPA, and combines its TPA business with case management in case management. While this hasn’t changed since this time last year, it does muddy the waters – is Corvel a TPA with managed care services, or a managed care company that does a bit of claims adjusting?
In last week’s earnings call, CEO Dan Starck said “We also continued with our Enterprise Comp expansion; our strategic initiative of bringing a new approach to claims management and our overall transition to becoming a full service provider to the workers’ compensation market…The addition of our claims administration product expands our service offering in this area and continues to open new opportunities.”
Starck went on to say a lot about Enterprise Comp:
“Moving forward in 2009, we will continue to focus on our four key initiatives and their role in transitioning the organization to a full service provider. The first initiative is the continued expansion of Enterprise Comp. Despite the continued decline in the overall volume of claims; we believe that this initiative is on point. In fact in this market environment, we believe that this initiative continues to grow their importance.
Traditionally, through our managed care services, CorVel has only had access to a small number of employer customer opportunities. The employers that purchased their TPA services and managed care services separately. This group of employers is the minority in the workers comp market.
Enterprise Comp provides the ability for CorVel to meet the needs of the larger segment of the employer market, the employers that buy their services in a bundled format. By owning all of the major components of the workers’ compensation continue, claims administration, managed care and the software applications needed to integrate and execute the different business lines. We feel we are in a strong position to bring the truly differentiated product to the market.
Over the course of the past few quarters, our field operations have been busy with the all of the integration activities that must take place after acquisitions have been completed. At the same time, our IT team has been busy developing our claims management software application into one that begins to realize the vision of Enterprise Comp in the future.
Much of the December quarter involved laying the foundation of the software into our production systems and the beginnings of field implementation. Although I discussed the Enterprise Comp imitative [sic] at times it’s just getting started, our claims administrations today as a company are strong.
We currently administer workers’ compensation claims in 45 states, and have the ability to deliver service in all 50 today. We expect to see improving growth in this product line as our software and system’s integration process continues and our sales force gain the momentum.”
Whew. That’s a lot to digest – but the net is the two guys who run the place obviously believe Enterprise Comp is a big part of their future.
After reading all that, I contacted Corvel. Here’s what they had to say about the TPA business, their strategy related to that business, and where they’re headed.
“…selling services to employers is where we’ve moved some emphasis. We didn’t really choose this path so much as the managed care market matured. Beginning in the mid-’90’s the TPA’s began to see that they could control the managed care business if they first won the claims administration business. So, they priced the claims work down to control accounts and then began to participate economically in the managed care subcontracting that had previously just been purchased from independents such as CorVel or Intracorp or the many others…CorVel continues to expand in our Enterprise Comp initiative and to gradually reduce our older more commoditized services. I believe we have a unique new technology for claims management and that we’ll see a breakthrough in that area over the next two years similar to the big changes we enjoyed in what we call Network Solutions.”
From a financial perspective, Corvel looks like a managed care company with a small presence in the work comp/P&C TPA business. Corvel paid about $15 million apiece for two TPAs (Schaffer, Baltimore MD and Hazelrigg, SoCal). Corvel’s TPAs account for 8.6% of annual revenues. The company reported both TPAs produced $24 million in revenues; annualizing that number to account for the partial year for Schaffer gives an annual TPA revenue of just under $26 million. It is highly doubtful their revenues have been increasing; TPAs have been under tremendous price pressure over the last two years. It could be the TPAs are driving more network, bill review, and case management revenues to the parent company, but the revenue picture doesn’t support that view. Corvel paid about 1.2x revenues for the two TPAs, a reasonable number – although the deals were done during a soft market when valuations are typically lower than normal.
As a side note, the TPA acquisitions aren’t mentioned in the company’s history.
Financially, Corvel has been hampered by the decline in claims frequency; revenues were essentially flat last quarter from the previous year’s quarter at around $77 million. This was noticeably better than the profit picture as EPS dropped from $0.43 to $0.34. The news was better for the last three quarters, with revenues increasing a few points from the same period in 2007 ($225 million to $233 million). However, gross margins declined over that time from 25.5% to 24.2% primarily due to a 9.5% increase in G&A costs.
The company’s stock is also pretty low these days – not that stock value is related to actual value today, as pretty much anything that doesn’t have ‘beer’ in its name has been hammered recently.
Which leads back to the original question – what is Corvel? From here it looks like the TPA strategy hasn’t generated growth or profits to date – overall revenues are flat over the last few years and profits down, while the patient management segment (where TPA revenues are reported) declined from 44.4% of revenues in 2005 to 42.4% in 2008. The company is investing heavily in Enterprise Comp, and perhaps this investment will pay off in a couple years. With that noted, as I’ve said before, Corvel’s entry into the TPA business infuriated some customers – including a couple very big ones. It remains to be seen if their managed care business will stabilize, or at least shrink slowly enough to allow Corvel enough time to build their TPA capability and business.
What does this mean for you?
Be very careful not to antagonize current customers when you change strategies.
But be equally careful your customers don’t move your services inhouse.
thanks to SeekingAlpha for the transcript.

Feb
11

Why did Coventry’s medical loss ratio increase?

Posted by Joe Paduda on Wednesday, February 11th, 2009 | Comments

Because they allowed workers comp and national accounts to dictate provider contracting strategies, a decision that drove up the core group business’ medical loss ratio.
Here’s how.
The beginning of the tough times for Coventry came last spring. Up till then, things had been moving along quite nicely – just a year ago, I noted “For Coventry, 2007 was an excellent year. Total revenue (including group and medicare) came in just short of the $10 billion mark, the commercial group medical loss ratio (MLR) was a stellar 77.3%, and there was modest membership growth in group, Part D and the individual health lines.”
Just before the wheels came off, I said “this is a company that, justifiably, prides itself on its ability to predict and price for medical trend. It is not expert in nor does it even emphasize medical management, chronic care management, outcomes assessment, provider profiling, or any other form of ‘managed care’. Coventry is expert at managing the balance between pricing and reimbursement.”
Well, I was half right – and half wrong. Coventry may be expert in managing pricing but it is now obvious that it doesn’t understand reimbursement.
Now that new CEO Allen Wise is on the job, Coventry’s staff is conducting a top to bottom review to determine, in part, what drove medical costs up so high without anyone noticing/understanding/fixing it early on. Here’s how Wise characterized what happened in the earnings call earlier this week, as provided by the good folks at SeekingAlpha in the transcript.
“When I was conducting a review of the company, I was trying to determine the cause of the 300 or 350-basis point deterioration in the commercial medical loss ratio, and I think it is impossible for me to determine precisely what happened there. You heard a little bit about the flow and you heard a little bit about MSDRGs [new medicare hospital pricing methodology], and you heard a little bit about [hospital] unit costs, and I think it’s a probably a little bit of every thing, but there was not any question there was stress at the local health plan of a contractual nature by some of our other businesses, and by that I mean the network rental business, the Workers’ Comp business. I am not sure on the Medicare front, but when you interviewed people here and in the field, look at our litigation count on litigations for network-related issues, there was stress enough there, and enough of frequency to people recounting stops among major providers they started off with that until you solve X or Y problem, none of which were connected to the commercial health risk thing that your rates are going to go up or something.…[emphasis added] I think there was a bit of pressure on unit cost. I expected to find some deterioration in local patient management activities. I did not find that. The core competency of the company, while there is plenty of clutter with new activities and a feeling of a lot of things going on at one time, I did not find a loss of focus at the local health plan levels. Many of those medical directors have been with us for a decade, and I didn’t see much change there. If you take the unit cost level, I just think in meeting with our new guy Allen Karp and best practices in each of the plans and having more quantitative information on what really happens on a month to month basis out there, I think there’s just room for improvement there.”
Shawn M. Guertin, Coventry’s CFO, went on to say “…There is no doubt that the facility unit cost experience was worse than it had historically been and worse than we had expected in ’08…”
Coventry’s local provider relations folks were tasked with getting contracts with providers, contracts wherein providers would agree to discount their prices to patients affiliated with Coventry – either health plan members, employees of larger employers who used Coventry’s PPO contracts, workers comp claimants, and Medicare members. It appears the contracting effort was hampered by the need to include all these ‘products’ in provider contracts – especially for hospitals. As Wise said, during the contracting process, “[recruiting and contracting] people [were] recounting stops among major providers they started off with that until you [Coventry] solve X or Y problem, none of which were connected to the commercial health risk thing that your rates are going to go up or something…”
Coventry has determined that their group health MLR was higher than it should have been because their hospital costs were too high. This was driven by their hospital contracts – and the contracted rates were too high because Coventry wanted their payers to accept all products. When hospitals dug in their heels, Coventry’s staff gave away some discount for the group health rates in return for discounts for workers comp and PPO claimants.
Remember group health is the big business at Coventry – work comp accounts for less than 7% of the company’s total revenues. I get the sense that Wise is wondering why the needs of the workers comp and PPO businesses were allowed to take precedence over his core business – and increase the group business’ MLR.
Good question.

Feb
10

Coventry’s earnings call – facility costs are the problem

Posted by Joe Paduda on Tuesday, February 10th, 2009 | Comments

The Allen Wise II era has begun with today’s release of Coventry Health’s fourth quarter 2008 earnings. Wise, who occupied the CEO/Chairman’s office before the recently-departed Dale Wolf, resumed the position ten days ago after Wolf resigned.
Here’s my key takeaway. Wise has figured out that Coventry’s non-group lines of business – work comp and Medicare – were in part responsible for higher medical loss ratios for their group business. Recall that Coventry’s medical loss ratio (MLR) sent up more than 300 basis points last spring, sending shock waves through the company.
It appears that Coventry’s local network negotiators/provider relations staff had to consider medicare and WC when negotiating contracts with providers (especially facilities), and the larger providers said that if Coventry wanted deals on those lines, then their unit prices were going to increase. This led to higher MLRs on their core group business. For Coventry, higher costs are being driven by facility expense.
More to follow as I digest the call and comments.
Here are a couple highlights.
– Medicare Advantage membership increased 34% in 2008. I suppose that’s good news, although the pending termination of the MA premium subsidy isn’t going to help the profitability of that segment (expect a rapid cut in the Feds’ 13% average subsidy this year).
– Commercial group membership declined each quarter in 2008, leading to a decline of ust under 100,000 members for the full year. This isn’t necessarily bad news, as the company raised prices a lot after last summer’s surprise disclosure that the Medical Loss Ratio unexpectedly jumped.
– The workers comp business is muddling along, with no evidence of growth. It’s not possible to tease out the precise WC numbers as they are combined with other businesses in the Specialty Services Revenue line item – but that line was essentially flat quarter over quarter throughout 2008. And although it grew nicely (if my guess-timations are accurate), in the past, it looks like that growth leveled off during the last three quarters of 2008. For more on Coventry’s WC top line growth strategy, click here.
Finally, what does the future hold? As I noted a year and a half ago, the company has “a tight focus on managing the medical loss ratio (MLR), although that ‘management’ appears to emphasize financial rather than medical management – the MLR strategy is driven much more by increasing premiums ahead of medical inflation than by actually ‘managing’ medical care and costs.
This will serve the company well over the near term, but the ‘MLR management approach’ has to change over the longer term.”
What does this mean?
A change in management personnel may not mean any change in how the company operates. Simply put, Coventry has to change its business model from one that is financially driven (raise prices) to one that emphasizes medical management (actually add value). This is CEO Wise’s second stint in the job; we’ll see if he changes course.
Note – there’s a lot to interpret, these are initial takeaways so more to follow

Feb
10

Sebelius – probably NOT the next HHS Secretary

Posted by Joe Paduda on Tuesday, February 10th, 2009 | Comments

The New York Observer has a terrific piece on President Obama’s search for an HHS Secretary. Although Kansas Governor Kathleen Sebelius (D) has been mentioned as a top candidate, the NYO thinks not. The reason? She is so popular in her home state that she could well run for the Senate, thereby a) possibly giving the Dems a cloture-proof majority, and b) help expand the Dems further into the ‘Heartland’, thereby forcing the GOP to play defense on formerly-unassailable terrain. Sebelius leads both potential Republican candidates by double-digit margins.
Could Sebelius take the HHS job and then resign to run for the Senate? No. The HHS job has to be a long-term one; shepherding reform is going to take at least four years and likely many more; Obama can’t afford to have to replace an HHS Secretary two years into the job, especially as that will be just as things are really ramping up. This is a slot for someone who wants to be there over the long term; Sebelius is too much a rising star to take four plus years ‘off’ to take on what is going to be a very tough, highly visible job requiring decisions that will undoubtedly antagonize just about everyone.
Controlling the Senate is far too important to President Obama, and running for the Senate is likely a much better choice for Ms Sebelius than taking on what will likely be a thankless task that will alienate just about every constituency and could well end any hopes she might have of future elected office.

Feb
9

Can government deliver quality health care?

Posted by Joe Paduda on Monday, February 9th, 2009 | Comments

The current debate in Washington has more than a few complaining about the expanding role of government in health care. The question should be, can government do a better job than private industry?
Heck yes.
I’ve never been one to buy into the ‘government can’t do anything right’ meme. Sure, government (which, incidentally, is run by people elected by us) can make mistakes – some pretty big ones at times. But it can also perform very well – NOAA, the CDC, the Coast Guard, Head Start, the NIH, the GI Bill, National Weather Service are a few examples.
But perhaps the best is the Veterans’ Administration and the health system run by the VA.
Here are a few factoids…
– compared to commercial managed care plans, the VA provided diabetics with better quality care on seven out of eight metrics by NCQA.
– In 2005, VA hospitals were the highest-rated health system, outperforming other systems including the Mayo Clinic and Johns Hopkins.
– the VA achieves higher scores than private hospitals for patient satisfaction, staffing levels, surgical volume and other significant quality measures
– for six years running, VA hospitals scored higher than private facilities on the University of Michigan’s American Customer Satisfaction Index.
And costs haven’t increased nearly as fast as they have in the private sector. In the ten years ending in 2005, the number of veterans receiving treatment from the VA more than doubled, from 2.5 million to 5.3 million, but the agency needed 10,000 fewer employees to deliver that care – as a result the cost per patient stayed flat. (costs for care in the private sector jumped 60% over the same period).
The VA did this by closing down unneeded facilities, developing an industry-leading electronic health record system, opening clinics, and dramatically increasing the quality of care, especially for patients with chronic conditions.
Oh, and patients can access their own health records – securely – anytime on the web.
It wasn’t always like this; two decades ago the VA’s quality was suspect, to say the least. Yet this Federal government organization has been able to turn itself around from a mediocre outfit to one of, if not the, best health systems in the nation.
In his recent piece in the New Yorker, Atul Gawande offhandedly suggests the Feds open up the VA to anyone who wants to buy in.
Sign me up. I’d be only too happy to ditch the Golden Rule (in the running for most misnamed company…) insurance/HSA policy and head down 95 to the VA facility in West Haven, Conn.

Feb
5

What the SCHIP vote means for health reform

Posted by Joe Paduda on Thursday, February 5th, 2009 | Comments

Passage of the SCHIP expansion came about when several Republican senators joined the Democrats to pass the bill by a substantial margin. Although the bill passed the House easily (290-135), the key was the GOP votes in the Senate.
This is big news – for two reasons.
In the signing ceremony, Pres. Obama said “”The way I see it, providing coverage to 11 million children through CHIP is a down payment on my commitment to cover every single American.” This marks the first step towards universal coverage, a goal set by President Obama during the Presidential campaign, and one many of his supporters are monitoring closely. The expansion of SCHIP continues coverage for seven million kids and provides funding for an additional four million.
Perhaps equally significant was the Senate vote, where nine Republican Senators joined their Democratic colleagues to pass the bill easily last week. This despite GOP complaints that legal immigrants would be eligible for coverage under the SCHIP. (Despite what CNN reported and nativist Lou Dobbs says, there are strong provisions in the bill preventing coverage of illegal immigrants including requirements for verification of immigration status by the states).
Among the GOP Senators voting ‘yea’ were Collins and Snowe of Maine, Alexander and Corker of Tennessee, and Hutchison of Texas (!). While the Snowe and Collins votes are not unexpected, the support of the two Tennesseans and Hutchison in Texas are somewhat surprising. I wouldn’t expect the latter Senators to be very supportive of future health reform legislation. That said, the fact that this initial bill passed with some bipartisan support is a positive signal for reform advocates.
What does this mean?
A much-needed success for the President – and perhaps a little momentum on the heatlh reform front.

Feb
4

Ron Wyden for HHS Secretary?

Posted by Joe Paduda on Wednesday, February 4th, 2009 | Comments

Now that the Daschle era at HHS is over before it began, who should ‘take over’?
Bob Laszewski recommends President Obama consider Oregon Senator Ron Wyden (D) for the post.
I agree.
Bob points out that Sen Wyden is respected on both sides of the aisle, has demonstrated an ability to subordinate his own ego when needed, and thoroughly understands health care. I met with the Senator in his offices early last year, and came away quite impressed with his deep understanding of the payer community, their motivations and limitations. Sen Wyden has taught gerontology and has been a nursing home regulator. He understands the new media (Wyden introduced his Healthy Americans Act to health care bloggers very early in the process) and communicates quite well.
The Healthy Americans Act remains my personal choice as the best solution on the table. It has:
– broad bipartisan support,
– is revenue neutral,
– eliminates most of the problems in the current system, and
– requires universal coverage.
There’s one other factor that may be just as important to the President in the selection process. Wyden is quite the basketball player; he was a scholarship athlete at UC-Santa Barbara.