Good news is bad news – Medical cost inflation’s continued decline

Perhaps the biggest news to hit this summer is the decline in medical inflation.

Make no mistake, this is very, very important.

Important – as in huge decreases in the federal deficit.

Important – as in low-single-digit health premium increases.

Important – as in placing huge pressure on health care systems, hospitals, and other providers – because low premiums for employers equals less income for providers.

Here’s what the data shows.

Today, CBO projects the 2019 Medicare spend will be $95 billion less than it projected four years ago.  That’s equivalent to a fifth of the military budget.  Or the entire budget for welfare, Amtrak, and unemployment.

Over a decade, the reduction is about $700 billion.  According to a piece in the NYTimes (link above);

much of the recent reductions come from changes in behavior among doctors, nurses, hospitals and patients. Medicare beneficiaries are using fewer high-cost health care services than in the past — taking fewer brand-name drugs, for example, or spending less time in the hospital. The C.B.O.’s economists call these changes “technical changes,” and they dominate the downward revisions since 2010…[CBO analysts say] the economy is playing a negligible role in what’s happening in Medicare, meaning that they’re more confident that the practice of medicine really is changing. (emphasis added)

That’s all good, right?  The fiscal cliff is farther away, and not nearly so steep and scary as it was even a couple years ago.

Not so fast. One person’s savings is another one’s income.  In this case, that “other one” is the healthy care delivery system – doctors, pharmaceutical companies, hospitals, device companies, health systems.

Those stakeholders are adapting as fast as they can, and making great strides.  But a big part of that adaptation is revenue maximization – making darn sure they are getting as many dollars from every patient as possible.

What does this mean for you?

Pretty obvious, methinks…


Great news for taxpayers may be bad news for workers’ comp

The just-released report of the Medicare Actuary finds that hospital costs have been increasing at a historically low rate – below 1 percent – for the last four years.

And that’s not likely to change.

Medicare is pushing facilities to reduce costs, driving down readmission rates, using a variety of tools including Value-Based Purchasing, MS-DRGs, and increasing the emphasis on other types of pay-for-performance (basing a small part of compensation on quality measures).  While these can be somewhat blunt instruments and may lead to some unwanted consequences, overall the strategy is working – costs are coming down.

In the 24 states that have not (yet) expanded Medicaid, the effects of Medicare’s changes are even more stark. Payments to safety-net hospitals under the Disproportionate  Share Program have been drastically reduced, while the additional revenue anticipated from Medicaid expansion did not.  The result is a budget shortfall that many are scrambling to address.  The issue is particularly acute in Texas, Florida, and Georgia, which account for about half of the 5 million people in the “coverage gap”.

Non-DSH facilities (which accounts for most of the hospitals) in non-expansion states have a similar, if somewhat smaller problem; their indigent patient loads are (very likely to be) significantly higher than they would be with Medicaid expansion.

Impact on workers’ comp

In a phrase, cost-shifting.  Sure, hospitals are doing better post-PPACA than they were before, however they are also much more focused on financials, developing ever-more sophisticated coding, reimbursement maximization, and revenue-enhancement tools. (Google “hospital revenue maximization” if you are curious…).  They don’t apply these just to Medicare or Medicaid patients; in fact they look for other payers where they can increase revenue to make up for projected shortfalls.

And folks, workers’ comp is a very soft target.

  • Work comp networks’ ability to get deep discounts from hospitals and health systems is diminishing.
  • More and more physician practices are being acquired by health systems.
  • Facility fee schedules have not kept pace with technological or billing practice changes, and any effort to address these via regulation or legislation results in a battle with the (very powerful) hospital lobby.
  • Some bill review entities are playing games with network facilities, trying to negotiate
    prompt pay discounts instead of using the network rate.

What does this mean for you?

Watch those facility costs.


Up? Down? Sideways? What’s up with health care costs?

There’s been a good deal of confusion over health care cost trends for the first half of this year.  Initial reports indicated they were up dramatically; more recent intel paints a very different story.

So what’s the deal?

First, let’s not confuse “costs” with “insurance premiums”.  Unfortunately, many mass media outlets don’t understand that insurance premiums are not costs…which certainly contributes to the confusion. Overall, premium increases for large employers have been trending generally downward for years, with 2014’s 4.4% rise just a touch over 2013’s record-low 4.1% increase. A big part of that is from increased deductibles and employee cost-sharing; today employees pay over a third of the cost of their insurance, a big change from way back in the day when many employers covered the entire cost (yep, I’m old).

Second, let’s not confuse “price” with “cost”, as this report does.

Recall cost is the price per service times the volume of services – so the price matters, as does the utilization of health care.

Fortunately, some sources – the PWC annual report being one of the better ones, don’t conflate or confuse.  Their latest estimate is health care costs will go up 6.5% this year, while premiums will only rise 4.5%.

That makes sense – more coverage means more utilization especially among folks who just got insurance.  Early indications are the recently uninsured are less healthy than the general population, a finding that should surprise no one.  Many may have long-term but relatively low-severity chronic conditions, while some undoubtedly could not get or afford coverage.  These newly-insureds will seek care for their long-term conditions, and that care will be pretty expensive. Think of this as a one-time big bump in cost due to pent-up demand; I would not be surprised to see spikes in cost for surgery, orthopedics, cardiology, pulmonology, rheumatology, and other areas with high chronicity over the next couple of years, followed by a reduced inflation rate.

What does this mean for you?

Don’t get too wrapped up in any forecasts or reports of recent cost trends; wait a year before putting much stock in inflation rates and you’ll find you have a lot less back=tracking to do. 





Is PPACA – the Affordable Care Act – working?

That depends on how you define success.

Are more people covered?  Is health insurance more affordable? Are patients “protected”?

In general, the data says yes.

From Jonathan Cohn, a summary of PPACA’s impact on coverage:

the proportion of working-aged adults without insurance dropped from 20 percent in the late summer of 2013 to 15 percent in the late spring of 2014...there are still a lot of Americans walking around without health insurance today. But there are about 9.5 million fewer of them than there were last fall… [emphasis added]

re Affordability, among those who enrolled in a PPACA-compliant plan, about half saw premiums increase – with the other half seeing a reduction.  Notably, the self-reported health status of enrollees was generally lower than the overall population.  This isn’t surprising; many likely couldn’t get coverage due to pre-existing conditions before PPACA.

Of course, many got subsidized insurance, which significantly reduced their premium cost.  Some may say this is a problem; I’d suggest that one can’t fairly evaluate PPACA on individuals’ ability to afford health insurance without accepting the need for and role of subsidies.  Which, btw, are paid for by various fees and taxes on health plans, devices, tanning beds, and rich benefit plans and reductions in reimbursement for Medicare.

The patient protection piece is harder to assess; the elimination of medical underwriting, requirement that plans cover kids to age 26, mandated enrollment, subsidies for small employers, and enforcement of actions against health plans who try to finagle their way to excluding certain groups (AIDS patients, for one), are all helpful.  However, given that health insurers have always made their money by not insuring those who might have claims, this will be a long, difficult, and up-and-down struggle.

Old ways don’t change without a lot of continued, intense, focused pressure.

What does this mean for you?

PPACA is here to stay. It is pretty far from perfect, but it’s better than the alternative.


Obamacare premium increases for 2015…

Are averaging 8 percent for individual plans in nine states.  

An analysis by Avalere Health of filed rates indicates rate changes vary from a decrease of 1.4 percent in OR to a 16 percent jump in IN.  Before anyone starts celebrating, let’s remember that these rates barely qualify for educated guesses as many plans are still finalizing and sorting thru enrollment.  With a big chunk of membership not coming in until April, many members haven’t even figured out how to access care, use websites, contact their plans.

Thus the actual underlying cost and utilization trends are essentially unknown.

To say that plans publishing rates are guessing would be accurate indeed.  Therefore it is likely rates  – and the list of plans participating in the Exchanges – will shift more dramatically the next of-round, which is a year from now.

What does this mean for you?

Don’t declare victory or trumpet defeat until we know.  And we won’t – not for a long time.



Friday catch-up – Obamacare rollout and WC Rx

Another week on the road, and looking forward to a whole week of NO TRAVEL…oh, the luxury of it!

Enough whining – on to the news of import from the last few days.

First up, a quick synopsis of the top news re PPACA rollout:

  • there’s been a great deal of publicity about employers cutting jobs and hours due to health reform and the costs thereof; now comes news from a Harris Survey that 28% of employers surveyed plan to add workers compared to 15% who will cut staff. Also, 10% are going to cut benefits for dependents but 9% are going to add coverage for dependents.
  • Premium increases will be a big driver; VERY early indicators are that they will be all over the place, with some increases tiny and others well into the double digits.  Before anyone gets too excited, remember health plans have almost no data on which to base rate increases – enrollment lagged in some states due to the well-documented problems with the federal exchange, as a result there’s precious little utilization data on which to forecast future costs.
  • states that have not expanded Medicaid are shooting themselves in the wallet.  Medicaid rolls increased by 550,000 in 17 states that did not expand Medicaid; these so-called “woodwork” people included 99,000 in GA and 58,000 in NC.  Of note, the non-expansion states are NOT going to benefit from the Feds’ payment for the increase unlike other states, which won’t be paying a dime until 2017 – and then only 10 cents on the dollar.
  • Ready for a pity party?
    Looks like at least one big health plan is whining about the increased competition due to the Exchanges and new health plans coming into some markets. UnitedHealthcare is moaning about the prices offered by competitors in New York, a huge market for UHC. Execs are claiming other health plans are underpricing UHC’s offerings... (With the news that UHC is the least trusted health plan among hospitals, a little less whining and a bit more introspection might be warranted…)

WCRI’s latest intel on opioid usage in work comp is mostly bad news; the overuse (my word) of the highly addictive drugs did not decline over the study period, which ended in March of 2012. Sure, some states saw slight decreases (yay MA and CT) but others had similar increases (boo MI). Get a copy of the study here.

On the other coast, CWCI reported there’s not been much change in opioid usage in California either.  Their synopsis is:

the use of these drugs has remained at record levels since 2010, that virtually the same 3% of high-volume Schedule II opioid prescribing doctors continue to write more than half of the prescriptions, and that nearly half of the prescriptions are for minor injuries where medical evidence does not clearly support Schedule II opioid use. [emphasis added]

The fine folks in Minnesota are pushing science into the art of pain management; WorkCompCentral reports Minnesota is tightening rules re pain pumps and spinal cord stimulators. Three cheers for L&I…

Of note, several work comp PBMs have released their annual drug trend surveys; I’m reviewing them and will report back early next week.

Finally, our friends at IAIABC are hosting a free webinar on compound medications in work comp May 29 from 1-2 CST; I’m emceeing; the real experts presenting Phil Walls of myMatrixx and Sarah Randolph of Express Scripts.



Insurance saves lives and costs money – and we’re surprised?

That’s the finding of a massive study of the impact of health reform on mortality rates in Massachusetts.  The death rate declined by 3 percent after universal coverage went into effect in 2006, and the carefully-constructed study found that the decline was mostly among the poor.

By any measure, that’s a huge win.

For the green-eyeshade folks, a decline in death rates means more productive years for more people leading to more economic production, altho they’d balance that against the costs of caring for those folks. For those of us who are a bit more “human”, it is even better – longer lives for more people means more time with our loved ones.

Juxtaposed against that finding is the increasing evidence that health care costs are going up.  That’s no surprise; a lot more people have coverage and they are using health care services.  The early indicator comes from pharmacy utilization; giant PBM Express Scripts reports there are more scripts going out these days and some of this MAY be due to more coverage, altho this is expected coming out of a recession as well. There appear to be more hospital admissions as well (again not surprising; people who didn’t have insurance couldn’t get knee/hip replacements and now that they have insurance they’re lining up to get those things fixed).

Notably, utilization, not prices, is by far the biggest inflation driver.

In total the VERY EARLY data suggests consumer purchases of health services was up almost 10 percent in Q1 2014.

That said, it would be hard to find anyone  – at least anyone who gets math – who didn’t think health care costs would go up as more folks are covered.  In fact, projections way back in 2009 called for just such a bump.

So there you have it.  People who get insurance who didn’t have it use a lot of health care services.  Longer lives are associated with higher health care costs.

At least for now.

I’d hazard a guess that health plans are working their collective fannies off to hold down costs and thereby remain competitive in the battle for members.  A safe guess, as all the news I’ve seen indicates this is precisely what’s happening.

What does this mean for you?

The free market – a well- and intelligently-regulated one – will deliver better outcomes at lower cost.  And that’s exactly what PPACA is supposed to do.




When it comes to understanding how the ACA will affect your business, you have to separate the politics from the practical.

In this case, remember that “Politics are national; health care is local.”

The pundits (and I’d have to include myself in this category at times, altho I’m an amateur at best) use the national enrollment numbers to declare victory or defeat. That’s fine for a parlor exercise, but practically, the national data matters not one whit for health plans, providers, and work comp payers.

No, for business folks, what matters is what’s happened/happening in their state, and more precisely their operating area. In some states (Vermont – 280% of projections, California, Michigan, North Carolina – 155%), enrollment is robust.  In others (Ohio, Arkansas, West Virginia) enrollment is well under projections.

Medicaid expansion, state-based exchange success or failure, and the political environment greatly affected enrollment; politicians in some states actively discouraged/tried to prevent ACA enrollment while in others the exchange was a mess (e.g. Oregon).

Regardless, the higher the enrollment, the more likely you will see ACA impact;

  • the health care provider community,
  • adoption of different care delivery and reimbursement models,
  • more or less incentive to cost shift to work comp,
  • and access to key specialists.

Current state-specific enrollment data is here.

What does this mean for you?

Depends on where you do business…


Friday catch up and idle speculation

Lots of big info out this week, and a few tidbits about pending deals in the workers’ comp services space too.  Here are the highlights…(for the latest on deals in the work comp space, scroll down)

There’s a lot of confusion about the Obamacare signups; I’ll cover this in detail next week, but here are the facts as of today…

  • more than 7.1 million signed up via the federal and state exchanges (we won’t know the total for a week or so as some state exchanges haven’t posted final March numbers)
  • a lot more – i’d guess a million to two million – bought insurance via the private exchanges
  • about 20 percent won’t pay the premium and there’s some duplication between all the exchanges and other enrollment methods for reasons we’ll discuss next week
  • more than 5 million MORE Americans have insurance today than at the end of 2013.

The net – Obamacare has increased coverage substantially; the uninsurance rate has dropped by 2.7 points.

Meanwhile, Fitch reports the P&C industry is doing just grand, thank you.  Profits are up, loss ratios declined, underwriting margins are improving, and revenue is too.  Thank the continued hard market and expanding economy.

Work comp is doing better as well, altho there’s still a negative underwriting margin.  It remains to be seen if pricing discipline holds, or if some big carriers cross the stupid line.

The “doc fix” is in; Congress passed and the President signed a bill that will increase Medicare reimbursement for physicians by 0.5% for the next 12 months. The bill also:

  • delays implementation of ICD-10 for a year till October 2015 – for an excellent discussion of how this will affect workers’ comp, read Sandy Blunt’s piece at workers
  • and does some other stuff which you probably don’t care about and I won’t bore you with.

Work comp services Coventry is trying to sell their marginallyprofitable work comp service business lines – we’re talking CM, UM, MSA, peer review, and likely pharmacy. They will NOT be selling the jewels – bill review and the network, because a) they make huge profits; b) bill review really isn’t sellable as the application is quite dated and would require the buyer to transition to a different platform likely resulting in customer defections; and c) they can’t sell the network.

Coincidentally, another large case management firm is also for sale; word is Apax/OneCallCareManagement is currently the leading contender; most likely they will add the asset to their ever-growing list of companies.

And I’d be remiss if I didn’t speculate that Apax is looking hard at the Coventry assets as well. OCCM CEO Joe Delaney has certainly proved himself a competent manager, but methinks the thought of adding these two to the portfolio would give even the best of execs pause…

Enjoy the weekend, watch some baseball, get out in the gardens, and ride your bike.


HWR is up

As the March 31 “deadline” for enrollment in insurance approaches, the good folks at Health Affairs have put together the best health policy blog posts of the last two weeks and present them to you for your edification.

And managed to do this while keeping up on March Madness too – Christopher Fleming is one impressive guy…

In these days of less and less insight from the mass media, we’re fortunate indeed to have very smart – and very good writers – working for you – and for cheap, too!