Jan

Coventry’s Medicare business

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

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

Jan

Coventry Health – it’s about medical, folks!

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

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

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

Jan

The harsh reality of health reform

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

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

Jan

The Ingenix settlement and physician income

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

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

Jan

The Ingenix settlement – you wanted details…

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

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

Jan

So, what does the UHC Ingenix settlement mean?

Posted by Joe Paduda on Wednesday, January 14th, 2009 | Comments

Likely quite a bit. But not for a while.
Here’s the quick and dirty. NY Attorney General Andrew Cuomo has been after UHC sub Ingenix for over a year, accusing them and other insurers of defrauding consumers by manipulating reimbursement rates. Yesterday the first round came to a conclusion with the announcement of a settlement. According to the NY Times, Cuomo “ordered an overhaul of the databases the industry uses to determine how much of a medical bill is paid when a patient uses an out-of-network doctor”.
Ingenix will pay $50 million to help fund development of an independent charge database by a not for profit; until the new vendor is selected Ingenix will continue to provide the UCR data through its MDR and PHCS products. Cuomo is still pursuing negotiations with other payers including Aetna.
Cuomo voiced concern that UHC, a very large payer, owned the company that determined how much it should pay in some circumstances to some providers (out of network physicians primarily) and therefore an inherent conflict of interest existed.
Some background is in order. Years ago, the health insurance industry’s lobbying and service arm (HIAA) aggregated and compiled physician charge data as a service to its members. HIAA collected the data and fed it back to members, who then used the data to determine how much they should pay providers in specific areas for specific services (services defined by CPT codes). HIAA was taken over/disappeared about a decade ago, and Ingenix took over the aggregation and distribution of the data, which has become known as “UCR” for “Usual, Customary, and Reasonable”.
For about ten years, all was fine, at least as far as most insurers were concerned. Sure, physicians complained at times and consumers railed about the low reimbursement paid by companies citing their UCR, but the complaints didn’t really make any difference until Cuomo got involved. The problem arose when a few folks in New York complained about the amount they still owed providers after their insurers had paid their portion – according to Ingenix’ UCR. After a lengthy investigation, Cuomo found reason to charge UHC and other insurers, and that action resulted in yesterday’s announcement.
It is too early to tell how this will affect insurers, but there’s no doubt it will. Here are a couple things to consider.
= providers that are paid by UCR will find it much easier to challenge the reimbursement, and payers will likely be plenty nervous if all they have to stand behind is a largely-discredited Ingenix database. Expect higher payments to providers and claimants.
– attorneys in other states may see this as a big opportunity for class action on behalf of physicians and claimants.
– payers will redouble their efforts to negotiate reimbursement prospectively with out of network providers.
– policy language is going to change, and change fast. Look for significant changes in the SPD (summary plan description) and other plan documents more clearly describing the payer’s liability for non-network provider charges. There may even be some movement back to scheduled payments.
– in the work comp world, there’s going to be turmoil and drama in states that do not have physician fee schedules (e.g. NJ, MO). Expect employers and insurers to work much harder to get claimants to network providers, where the UCR issue is much less significant.
There’s some precedence here for the property casualty industry. Last year in a suit in Massachusetts, a court found that Ingenix could not prove that the underlying data was accurate, that it was a fair representation of provider charges in an area, or that the results were anything more than “dollar amounts resulting from the statistical extrapolations from whatever bills were actually included in its database.”

What does this mean for you?
More power to the providers, higher cost for payers, and more business for attorneys.

Jan

Health reform – Debunking the argument against the government plan option

Posted by Joe Paduda on Tuesday, January 13th, 2009 | Comments

There’s been much talk about the pros and cons of Medicare for All as one option in a national health reform plan. Think Progress addressed the major complaints opponents of a governmental option have; Merrill Goozner’s piece last week focused on one of the major issues – the claim by some that governmental plans could set lower prices, thereby lowering reimbursement.
Merrill notes that this might not be such a bad thing. He’s right.
Alas, it’s also not likely a Federal health plan option would have much control over provider pricing.
Recall that the major reason health care costs in the US are so much higher than in every other developed country is price per service. Not rationing, or lines, or less technology, or any of the other hoary red herrings cited by those who mindlessly claim the US has the best health care system in the world. It’s price.
According to the Commonwealth Fund, “Americans do not have access to a greater supply of health care resources than people in most other OECD countries. In fact, the U.S. has fewer per capita hospital beds, physicians, nurses, and CT scanners than the OECD median.” It’s not rationing, we just pay more per service than other countries do. Again quoting the Fund “higher prices for health services such as prescription drugs, hospital stays, and doctor visits, are the main reason for higher U.S. spending.”
The logical misstep made by opponents of a government option is in thinking the Feds would have more market power than a private plan, market power that would enable them to force down prices and thus unfairly compete against private plans. Opponents claim that the Feds would have an unfair advantage due in part to their sheer size; they’re just so big that private plans could not compete.
Unlike the folks at Cato and Heritage, those of us who work in the real world of health insurance know better. Let’s start with a basic question. Exactly how would a governmental option change the market?
There’s been so much consolidation in the health plan industry that many markets are monopsonies (few buyers and many sellers).
Back in 2005, in 96 percent of MSAs one insurer had a combined market share of at least 30 percent. In two-thirds of MSAs, one insurer had market share equal to or greater than 50 percent, and in a quarter of MSAs, one insurer had market share of at least 70 percent.
Now, would a new governmental plan have an advantage over, say, Blue Cross of Alabama, which has market share ranging from 67 percent in Tuscaloosa to 95 percent in Gadsden? Or Blue Cross of Arkansas, with share from 63 percent in Hot Springs to 97 percent in Texarkana? Or the two dominant health plans in Ohio, with combined share ranging from 46 percent to 80 percent?
It wouldn’t; in fact it would be an uphill climb on a very icy slope for a governmental plan to reach market parity, much less market dominance in most of the country’s MSAs. Health plans execs spend every waking hour, and some while asleep, thinking about how they can steal share from their competition. They beat each others’ brains out on a daily basis, fighting over each employer, each member, each new contract. And most are very, very good at it.
Yes, a governmental plan could try to force docs to accept lower fees, and physicians could and would tell the Feds to pound sand. There is precedence for this – try and find a doc who will accept Medicaid in New York. Recall the revolt of physicians last summer when they were facing a dramatic cut in Medicare reimbursement. Physicians do not have to work with any health plan – governmental or private. If the Feds tried to cut reimbursement, private insurers’ provider relations pros would eviscerate them in the provider community.
There just isn’t any logical basis for the argument that a governmental option would somehow be unfair for competition, or drive out private plans, or lead to a government monopoly. Those who argue otherwise ignore the facts, relying instead on anecdotes about rationing, the horrors of lines, and instances of poor treatment in countries with national health care.
Multiple anecdotes do not equal data. If opponents of a governmental option want to stop it, they’d do well to get serious and use their JDs, Ph.Ds and extensive policy world experience to come up with real objections.
I’ll be waiting.

Jan

The future of health plans – predictions for 2009

Posted by Joe Paduda on Monday, January 12th, 2009 | Comments

This is one tough year to be putting on the swami hat and dusting off the crystal ball. There are so many moving pieces affecting the group health/individual/Medicare/ Medicaid world that it will be hard enough to analyze what happened after the fact, much less before.

Enough with the dissembling. Here goes.
1. Consolidation will accelerate. After a hiatus due to the still-slushy credit markets, big health plans will start acquiring second tier ones. Expect this to happen after mid-year, for reasons due not only to the credit markets but also to goings-on on Capitol Hill. Among the health plans likely to get attention are Humana, MVP Health Plan, AmeriHealth, and Priority Health.
1.a. Coventry will also be on the list; it has solid penetration in a number of second-tier and tertiary markets along with a strong workers comp managed care business. The company has been hamstrung by operating issues; if these appear to be under control it will likely be in play in 2009. Check their talk at the JP Morgan conference later this week for an early indication of progress. (Note I own shares in Coventry)
2. Health plans will split in their reaction to legislation pending in DC. Some will wail and whine, while others will look for the opportunities. Among those already reasonably well positioned are Aetna and UHG (particularly their AmeriChoice unit). Count on AHIP to bemoan the unfairness of it all, and ask for subsidies in the form of risk pools and governmental coverage of high cost claims.
3. Expect more scrutiny of healthplans serving Medicaid and Medicare populations, as the Feds are ramping up their efforts to crack down on abusive and fraudulent practices. The new Administration will want to send a message to health plans that an expansion of S-CHIP and other governmental programs is not a license to steal. There will likely be more Wellcares hitting the headlines in 2009.
4. Health plans will begin to focus more effort on being easy to work with – especially for providers. Increasing frustration with the administrative burden placed on them by health plans is causing providers to become more selective about participation; the health plans that are ‘low-maintenance’ will have better relations with more providers, and the ones on the other end of the spectrum will not. See the Verden Group’s reports for a heads-up on how health plans stack up in the eyes of providers.
5. The Medicaid population will grow substantially, as well the percentage enrolled in some variation of a managed care plan (currently above 60%). Health plans active in this market will do well – if they are priced right.
6. The economic stimulus plan is critical for health plans. Enrollment depends on jobs; with unemployment at a sixteen-year high at 7.2% and smaller employers dropping coverage as they attempt to stay afloat, expect enrollment to continue to drop thru mid-year. This will hit the big commercial plans hardest, although a few are somewhat insulated as the drop in commercial will be offset by growth in Medicaid.
7. Don’t expect much growth in the individual plans; they are unaffordable for many and restrictions on pre-ex make them unattractive for others. Until and unless the pre-ex and medical underwriting issues are resolved, growth will be slow – at best.
Check back in twelve months.

Jan

The THCB Health Wonk Review Issue

Posted by Joe Paduda on Friday, January 9th, 2009 | Comments

Brian Klepper is hosting the New Year’s edition of Health Wonk Review, and has a lot of new contributors to start out 2009. There’s a wealth of information and insight on reform, costs, regulation and care management – all timely and pertinent. Head on over.

Jan

The Sanjay Gupta pick – another Brownie?

Posted by Joe Paduda on Friday, January 9th, 2009 | Comments

Today’s Politico.Com reports Rep. John Conyers has come out publicly against the nomination of Sanjay Gupta for US Surgeon General. Conyers’ objections come on the heels of revelations that Gupta has been less than forthcoming about his relationships with pharmaceutical and medical firms.
There’s no question Gupta would bring a fresh face and dynamic persona to the US Public Health Service. He’d also help the new Administration’s efforts to drive changes in the health system. But he has little managerial experience and less in the public health sector. Gupta’s resume contains no evidence of any managerial or leadership experience, much less a track record leading a large organization. He has also been forced to retract several statements he made in a much-publicized televised brawl with Michael Moore. This last, coupled with the links to big medicine, has led to some expressing concerns about his objectivity.
Gary Schwitzer writing in 2007 in HealthNewsReview.com noted Gupta promoted the use of medical screening tools, tools that could lead to increased use of drugs. Schwitzer, a journalism professor, has criticized Gupta’s reporting as misleading and incomplete at other times as well. This isn’t an issue in and of itself, but what is troubling is the failure on the part of Gupta or CNN to disclose his relationships with potential beneficiaries of his reporting.
I’m not as concerned about Gupta’s relationships with the same industry the administration will be working to reform (although I’m plenty worried about that) than I am about a possible repeat of the Brownie situation. As the leader of the US Public Health Service, Gupta would play an important role in the nation’s response to a SARS outbreak, biological weapon attack, radioactive event, epidemic or major natural disaster. From my reading of the doctor’s resume, his qualifications to address such an event appear slim.

Author: Joe Paduda