Feb

Daschle withdraws nomination

Posted by Joe Paduda on Tuesday, February 3rd, 2009 | Comments

Politico.com just announced that Tom Daschle withdrew his name from nomination for Secretary of Health and Human Services. The former Senator’s failure to pay taxes on his multi-year use of a car and driver and huge income from his work on behalf of insurers and providers have raised a political wall too high for Daschle to overcome.
Reports indicate Daschle made the decision this morning after reading an editorial in the New York Times. The editorial said, in part,
“Mr. Daschle, who failed to pay $128,000 in taxes, primarily for personal use of a car and driver provided to him by a private equity firm for which he consulted. Although the firm — headed by a major Democratic donor — had not issued a form 1099 for the value of the car service, Mr. Daschle said he became concerned last June that he might owe taxes on it and instructed his accountant to investigate. Neither was concerned enough to actually pay the taxes.
Only after the Obama transition team flagged unrelated tax issues that would require filing amended returns did Mr. Daschle and his accountant address the need to report the personal use value of the car service — more than $255,000 over three years — as income. Only after he had been chosen to be the health secretary did Mr. Daschle tell the transition team about the unpaid taxes. He paid some $140,000 in back taxes and interest on Jan. 2 to settle several tax problems — and he acknowledges owing more.
In both the Geithner and Daschle cases, the failure to pay taxes is attributed to unintentional oversights. But Mr. Daschle is one oversight case too many. The American tax system depends heavily on voluntary compliance. It would send a terrible message to the public if we ignore the failure of yet another high-level nominee to comply with the tax laws.
Mr. Daschle’s financial ties to major players in the health care industry may prove to be even more troublesome as health reform efforts proceed. Like many former power players in Washington, Mr. Daschle cashed in on his political savvy and influence to earn $5 million in recent years, including more than $2 million from Alston & Bird, a law and lobbying firm; more than $2 million from the private equity firm, InterMedia Advisors, which provided the car and driver; and hundreds of thousands of dollars for speeches to interest groups, including those representing health insurance plans, medical equipment distributors and pharmacy boards.
Although Mr. Daschle was not a registered lobbyist, he offered policy advice to the UnitedHealth Group, a huge insurance conglomerate. He was also a trustee of the Mayo Clinic in Minnesota, on whose behalf he voiced opposition to a federal loan for a freight rail line near the clinic’s headquarters in Rochester, Minn. The loan was subsequently denied by the Federal Railroad Administration.”

Feb

The horrors of effectiveness research

Posted by Joe Paduda on Monday, February 2nd, 2009 | Comments

Horrors! Those big-government Democrats are at it already, actually trying to get taxpayers to fund medical effectiveness research!
How dare the government actually fund research. The nerve! The gall! The (sputter sputter) utter brazenosity! (I know it’s not a word but it fits)
Why, doctors would actually know what works and what doesn’t! Care would improve, costs would drop, people would be healthier, there would be fewer medical errors; oh, the horror of it all!
And worst of all, taxpayers would get better results for their tax dollars!
Everyone knows there is just nothing more to learn about medicine, disease, physiology. We have learned all there is to know, and any money spent on effectiveness research would be wasted.
That, and the government might actually use that information to decide what types of care to pay for, and what types will not be reimbursed. Wow, what a concept. Why would the government ever contemplate basing reimbursement on effectiveness?
We would never want the government to be careful how they spend our tax dollars. Why, we never want to use taxpayer dollars to study the effectiveness of, say, military equipment. Or air traffic control. Or emergency preparedness. Or flood control. No, we should just pay vendors for any services they provide, regardless of whether or not those services actually work.
OK, forgive me for the over-the-top sarcastic rant. I’m completely disgusted with the hypocrisy of the libertarian right; those who have screamed for years about the ineffectiveness of government, ranting nonstop about how government can’t do anything right, yet are now screaming even louder as government attempts to make sure they are responsible stewards of the public’s funds.
Here’s an example from the health care experts at the National Review. “The [stimulus] bill provides $1.1 billion for a new program of comparative effectiveness research. The idea is to study medical practice patterns, new products, and new technology to determine what is “cost effective.” In the UK, a similar program run by the National Institute for Clinical Evidence (NICE) is used to deny payment by the government for certain drugs and procedures that are said to be “cost ineffective.”
Democratic lawmakers will deny that rationing is their intent, but that is not credible. Why create a government program to study what’s cost effective if not to use the information to inform payment and coverage decisions?”
Notice the use of the scary word ‘rationing’ to define appropriate coverage and payment. Using the author’s (James Capretta) reasoning, Medicare should pay for voodoo, cancer treatment with peach pits, snake oil, rhino horn, and universal cancer vaccines.
Why, not paying for these ‘treatments’ would be ‘rationing’…at least according to Capretta.
Capretta has zero experience in the real world of health insurance. Insurance companies make decisions every day to not pay for treatments that have been proven ineffective. If Mr Capretta had ever worked in the insurance or health care industries, he would know that. But he hasn’t.
That’s not ‘rationing’, it’s good business. Would you not want your government to only pay for services that work?

What does this mean for you?
Everyone knows government is the problem; how dare they try to be part of the solution?

Jan

Health plans in the hunt for acquisitions

Posted by Joe Paduda on Friday, January 30th, 2009 | Comments

The low share prices of health plans make for cheap deals – that’s the growing sense among the larger health plans, who see the current dip in values as a buying opportunity.
Among the big boys likely to be looking are Wellpoint, United, and HealthNet. While Cigna and Humana would love to be growing via acquisition, that’s not in the cards as they are struggling mightily. In particular, Cigna is in the midst of layoffs, an event that likely precludes any deals over the near term.
Wellpoint is among those looking to do deals. CEO Angela Braly was quoted recently saying “I even feel stronger about that [their ability to acquire health plans] in terms of the execution that we’ve really displayed over this past year…We really have a much more stable and efficient and effective claims operation, and we can bring that to new partners in an acquisition.”
UnitedHealthcare was built on acquisitions; the once-small midwest health plan grew by buying up other health plans in regional markets, later getting big enough to snap up giants including Pacificare. I expect United is already talking with Coventry CEO Allen Wise.
California-based Healthnet is the big health plan least likely to be looking for acquisitions. It has been hit hard by scandal and operational problems, and appears to be working on straightening out internal operations.
Aetna is a bit of a wild card. The most conservative of the big plans, it typically does not look to buy plans, but rather grows organically and through strategic acquisitions of companies with specific expertise in targeted markets. Lately that has meant Medicaid and specialty business. I don’t see that changing. That said, there may be some very good deals out there; low stock prices may cause even the staid ‘mother Aetna’ to open her pocketbook. In the end, the cautious nature of Aetna senior management will likely stop any deal before it goes too far. And who can blame them?; there’s a lot of damaged goods out there.
What does this mean for you?
The big will keep getting bigger.

Jan

A letter to Coventry employees

Posted by Joe Paduda on Thursday, January 29th, 2009 | Comments

Among the loyal readers of ManagedCareMatters are more than a few with Coventry email addresses. I consider a few to be personal friends, know some quite well, worked with others, and have heard good things about many.
I know Coventry has a strict don’t-do-it-or-you’re-fired policy against talking with the media – a category that includes yours truly. That’s dumb.
This is a big mistake on the part of Coventry management. In the four and a half years I’ve been publishing this blog, I have reached out to several individuals within Coventry, as well as soon-to-be former CEO Dale Wolf many times in an effort to get their side of the story – and have been rebuffed each time. So, I’m left with what I gather from customers, competitors, investor calls (I own stock in Coventry), and my own intuition and interpretation thereof. Most of that isn’t pretty, or more accurately hasn’t been pretty lately. But there is another side to the story, and Coventry management’s myopic media strategy means the fifteen hundred readers stopping by every day don’t get to hear that side.
The company is going through a very tough time, and may well be broken up and/or sold off. Customers on the work comp side are none too pleased with management’s ‘my way or highway’ approach, and many are looking hard for alternatives. Brokers are frustrated with what they perceive to be a “screw everything but the medical loss ratio” marketing ‘strategy’, which they view as nothing more than an attempt to show Wall Street that management is fixing the problems created by underlings. Employees from among Coventry’s acquisitions have found things to be much different than they were led to believe (or perhaps than they led themselves to hope).
All this hides what would otherwise be a decent success story. The secondary market strategy for the small group HMO business made, and makes, sense. The distribution strategy worked reasonably well, as did pricing discipline. Some of the work on Medicare Advantage was creative and intelligent. The forays into the individual market boded well for the coming of national health reform. Unfortunately, these good moves, and the people who drove them, have been overshadowed by the big mistakes made by management.
Here’s the ugly truth – and it reflects not on you, but on Coventry management. Their arrogance and hubris has been the cause of their downfall. So confident were they in their abilities that they ignored the basics of the business – issue cards on time, monitor IBNRs, track medical trend and all its components, stick to what you know, treat customers as you would like to be treated. Now that it’s too late, we finally hear a chastened, perhaps even humble tone from Coventry management.
Fortunately the experts on Wall Street finally removed their heads from wherever they were storing them and figured out these guys (and they are almost all guys) didn’t have a grasp on their business.
There’s plenty of talent at Coventry, and whatever happens to the company, that is recognized in the industry.

Jan

What now for Coventry?

Posted by Joe Paduda on Wednesday, January 28th, 2009 | Comments

Friday will be Dale Wolf’s last day at Coventry. After diversifying the company into workers comp, Medicare Part D, Medicare Advantage and private fee for service, and individual insurance, he leaves behind a much different Coventry than the one he took over in 2005. Don’t shed too many tears for Mr Wolf, he leaves after earning over $13 million last year alone.
The health world is also much different. Insurance itself is rapidly approaching the unaffordable level, participation rates are dropping (fewer employees signing up at companies that offer insurance), the Bush administration’s massive attempt to privatize Medicare and Medicaid will likely be reversed, hospital costs are exploding, and national health reform is around the corner.
And Coventry’s stock is a quarter what it was a year ago, while solutions to the company’s problems look ever further away.
Lots to consider, but I offer these thoughts.
The CEO is out, two weeks before the company releases its 2008 earnings report. The 65 year old former CEO is back. The company is not looking for a new CEO. Coventry’s commercial business is hamstrung by the factors noted above. It is not doing so well in Medicaid and Medicare growth will likely slow considerably. The company has not shown any expertise in managing care; it appears to rely solely on price increases to manage medical inflation. It has stumbled badly twice in the last year, both times failing to accurately forecast medical costs.
There is some thought that the company may be for sale. I’m one who leans in that direction. Recent news makes it more likely the company will not be sold in its entirety, but rather sell off pieces/markets/health plans. There are just too many moving parts in the 2009 version of Coventry; this complexity would make a comprehensive due diligence effort long and miserable – and given Coventry’s historical inability to predict health costs, potentially inaccurate.
But it is cheap.
Never one to forgo an opportunity to say something that will come back to haunt me in the future, I’m going to go out on a thin and ice-bound limb and opine that Coventry will sell off some health plans, and perhaps the work comp and other specialty businesses (e.g. mental health). A little less likely is a sale of the entire company.
What is unlikely is Coventry is essentially unchanged a year from now.

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.

Author: Joe Paduda