So-called “specialty hospitals“, facilities typically owned by for-profit firms and/or practicing physicians, have been the subject of much debate by the Centers for Medicare and Medicaid Services (CMS). Now, it looks like CMS will continue their ban on new facilities at least until the end of the year (and just possibly till 1/1/2007) while they study their impact on cost, quality, and the full service hospitals they compete with.
Specialty facilities focus on a relatively narrow branch of medicine (e.g. spine, cardiac, orthopedics, cancer), are often owned by a partnership including the physicians admitting patients and a for-profit corporation, and rarely have an Emergency Department, overnight stay capacity, or trauma units. What they do have is state-of-the-art facilities, excellent “customer service”, efficient management, and lots of profit potential for the owners.
At issue with CMS is the definition of hospital and whether the specialty facilities meet the CMS definition. This is important because reimbursement is typically better for “hospitals” than for non-hospital facilities (many of these specialty hospitals would likely be classified as ambulatory surgery centers which receive lower reimbursement).
According to Congressional Quarterly,
“The (CMS specialty hospital internal) review also could lead the agency to require some specialty facilities to add emergency departments, which “ten[d] to attract Medicaid and other low-income patients,” CQ HealthBeat reports (CQ HealthBeat, 5/12).
California HealthLine also reports “In addition, CMS is expected to adjust Medicare reimbursement rates for all providers to better reflect the severity of patients’ illnesses, which could lower reimbursement rates for some specialty services.”
Congress appears to favor allowing new specialty hospitals into the CMS provider world, with House Energy and Commerce Cmte Chair Barton (R TX) noting he considers McClellan’s action to be a reasonable compromise.
“The rise of specialty hospitals will press traditional community hospitals to become leaner, faster and better,” he said (AP/Las Vegas Sun, 5/12). Speaking in response Democrats’ concerns about physician self-referrals, Barton said, “The real fight … here is not about quality of care,” adding, “It’s about control and ownership.” He said that banning specialty hospitals goes “against everything in the American culture that says specialization is good.”
What does this mean for you?
As the Centers for Medicare and Medicaid Services (CMS) goes, so go commercial payers. The moratorium on specialty hospital construction has served to halt, or at the least reduce, the number of new facilities seeking licensure throughout the country. If CMS moves forward and allows new construction, watch for changes in reimbursement.
It is possible, and some say likely, that reimbursement levels for these facilities will be lower than for full-service hospitals. As many commercial and state (e.g. workers’ comp and auto liability) fee schedules and reimbursement contracts are based on CMS’ Medicare rates, there will likely be a significant impact on the volume of services delivered through these facilities and the price as well.
California HealthLine has an excellent roundup of Medicare news. Most significant is their take on physician reimbursement, which is slated to be cut by 4% on 1/1/2006. Lawmakers appear to be interested in rescinding the cut, which would be consistent with their actions the last time Medicare physician reimbursement cuts were slated to take place.
Expect changes late in the year or early next – I know, early next year would be after the cuts are scheduled to take effect. The political winds are moving in that direction, with the AMA and AARP staking out positions (no surprises there)
What does this mean for you?
1. With most state WC and other fee schedules tied to Medicare rates, cuts in physician reimbursement will directly affect payouts in these lines of insurance.
2. If Congress does not act until early next year, companies tasked with implementing fee schedule changes will find themselves burning the midnight oil to build fee schedule tables that can meet either eventuality -cut or no cut.
3. PPO discounts are often pegged to Medicare, so their revenues will either increase or stay the same, depending on what Congress does.
4. And most important, a decrease in reimbursement will lead to more physicians dropping out of Medicare, Medicaid, and any reimbursement program tied directly to Medicare. Today physicians ask for, and receive, reimbursement higher than the state fee schedule in WC in Massachusetts. Florida raised its fee schedule from 87% of Medicare (on average) to 114% in large part due to physicians refusing to take the lower reimbursement. Early evidence is physicians are returning to the system, and utilization has not increased.
Editorial statement – price controls simply do not work. When will the politicians, managed care “experts” and PPO companies learn this?
Interesting notes from their analyst’s call, focusing on their First Health acquisition…
They are “achieving synergies” by reducing headcount and consolidating purchasing. On the pink-slip front, the combined First Health-Coventry operations will shrink by about 450 positions by year end. In total, they expect to exceed $25 million in synergies.
They are also successfully renegotiating vendor contracts; examples include telecom where expenses were $21 million between FH and Coventry. They have renegotiated deals to achieve savings of over $5 million, with no operational change.
In April, they completed conversion to FH for OON emergencies from an outside vendor who supplied that OON service.
During the call, Coventry’s CEO, Dale Wolf, was quick to note the value of FH, and specifically their workers’ comp products which are generating slightly more than $210 million in revenue per year (about 3% of Coventry’s total), but a surprising 11% of their margin. A profitable product line indeed. In total FH revenue was under $142 million in Q1 which was less than expected but not materially so.
Wolf stated that Coventry wants growth in their 3 areas at FH (WC, network rental, and the Federal Employee Health Benefit Program (FEHPB)), and noted that the equity markets appear to have confirmed their belief in FH.
Wins for FH for the unit include an expanded relationship with AIG, a new customer in Fireman’s Fund (which had been in the works for some time), (both in workers comp) and selling (non WC) services to a Fortune 100 employer. Wolf also cited new business wins in rental network. Coventry expects FH will continue to grow modestly in 2005 but more in 2006
On the network side, it sounded like Coventry is working to renegotiate facility deals to drive better discounts, although this was somewhat unclear.
Looks like FEHBP is a potential problem with declining enrollment, but high premium increases appear to have moderated somewhat and Coventry sounds hopeful.
The company has added one more position at senior level, one more to go. Wolf says they have assimilated FH and are in execution mode. Sources indicate the slot that is still open is for the leader of the Workers Comp unit; they continue to look outside the combined company (search has been going on for about two months to date).
While I have every confidence in Coventry’s ability to maximize the return from the FEHBP and network rental business (this is fairly similar to their core group health business), my sense is the optimism about FH’s WC business may be somewhat misplaced. Here’s why:
1. FH’s largest customer is Liberty Mutual, which accounts for about a fifth of their business in WC. Liberty has their network contract out to bid, and I would be quite surprised if First Health retains all of their present business. Expect them to lose several states to competitors.
2. The Hartford’s recently announced deal with Aetna to access their WC network in PA noted that they plan to expand their relationship into other states. Sources indicate this is not a hollow promise, so I would expect the Hartford to move other FH states to Aetna over the next 9-12 months.
3. FH’s WC network continues to suffer from “hollowing out”, as payers hire specialty managed care vendors such as OneCallMedical and MedRisk to provide imaging and physical medicine networks respectively. (note MedRisk is an HSA client). WIth imaging at slightly less than 10% and PM at about 20%, the loss of network access revenue for FH will grow as more payers adopt this strategy.
4. EDS manages FH’s medical repricing technology, and their ongoing struggles with the FH medical bill repricing system are well known, and are not helping the company solidify relationships with existing customers. This has always been a “loss leader”, strategically identified by the ex-FH leadership as a way to “lock in” customers for the FH network. It remains to be seen if the new bosses continue to support that strategy.
What does this mean to you?
Coventry management is quite strong, and has made signficant progress in fixing some of FH’s problems. If you are working with FH, patience may be the watchword, but additional progress, in the form of a defined IT strategy, an increased willingness to partner with specialty networks, and a demonstrated understanding of the huge asset that is their medical bill database will be a requirement for success.
There has been lots of news about Medicare lately; a good round-up is available at California HealthLine. News includes:
Physician reimbursement – the current fee schedule expires in 2006, after which reimbursement is scheduled to decline by 5% annually from 2006 to 2012. While some are predicting, with apparent confidence, that the cuts will be eliminated, it appears that others on Capitol Hill, searching for ways to deliver on Bush’s commitment to cut the Federal deficit, are turning their attention to Medicare.
Medicare will be covering more services performed at Ambulatory Service Centers. Most of these are minimally invasive surgeries, and many have been performed at ASCs for years. It looks like CMS is just catching up with normal practice. However, some procedures, such as laparoscopic cholecystectomies, which are routinely done in ASCs, will not be covered in this setting by CMS.
CMS will increase payment for stays in long term care hospitals by 3.4% on July 1 of this year and make it easier for LTC facilities to receive payment for “outlier” cases (those patients that consume significantly more resources).
Drugs – under pressure from the retail pharmacy industry, CMS will require health plans to cover 90 days of drugs whether they are obtained at a retail or mail order pharmacy.
What does this mean for you?
As goes CMS, so follows commercial insurance. Here are the potential effects.
1. Physician fee cuts – physicians will seek to recover lost income from other payers, and those other payers tend to be their group health, auto, and workers’ comp patients. Watch for cost-shifting
Workers’ Comp Insider is published by LynchRyan Associates, a company with a long-standing, and well-deserved, reputation for excellence in injury prevention and return to work. Disclaimer – the folks at LynchRyan are also friends, and we follow each others’ blogs religiously.
At the risk of appearing incredibly incestuous, there is an excellent posting on their blog of a real life example of the impact of the lack of health insurance on an employee, employer, and the financial situation of both. I tend to be somewhat abstract in my posts about the impact of uninsurance on other lines of coverage; their posting makes this problem real.
In another sign that the Workers Comp world has gotten much better as of late, Zenith Insurance announced yesterday that it’s earnings had jumped from $26 million from Q1 2004 to $39 million in Q1 2005. Zenith is primarily a workers comp writer, with both primary and reinsurance lines, both of which showed improvement.
Most striking was the combined ratio, a measure of the ratio of total claims and administrative costs to premium. The latest quarter showed a combined ratio of 84.9% for the primary workers comp line, a stellar result by any measure.
Also notable was the increase in premium written of 29%.
Zenith has long been noted as a carrier that refuses to cut prices to build share, and the results of that intelligent approach are now apparent. Their one gap has been a lack of focus on the managed care side, a situation that appears to be on the mend. If Zenith can bring the same discipline and focus to managing medical expenses that it exemplifies in underwriting, results should improve even more.
What does this mean for you?
While all looks rosy, now is the time to watch warily for signs of cost-cutting and lax underwriting, harbingers of a decline in profitability and potentially a return to a softer market. While Zenith is one of the few carriers to avoid this type of suicidal behavior, do not be surprised if other carriers decide they want more volume, and start cutting prices. Unfortunately, workers comp writers seem quite unable to make a good time last
The Hartford has just released an internal study of the costs of prescription drugs in Workers’ Compensation, and while it only covers the company’s own experience, the report does add a little more depth to the research released by Health Strategy Associates last month.
Key findings include the Hartford’s Rx trend (inflation) rate of 6%. This is about half of the average increase reported by the 24 respondents to HSA’s Survey, and demonstrates what can be accomplished through the vigorous application of intelligent programs.
The report also noted one of the key drivers was the growth in “off-label” use of prescription drugs such as Actiq and Neurontin. The release stated:
“Actiq is a powerful painkiller approved by the FDA for cancer patients with breakthrough pain, but it jumped to number nine from 15 in 2003,” said Dr. Bonner (Medical Director of the Hartford). “The drug is a narcotic that comes in a lollipop or lozenge form and takes just a few minutes to enter the bloodstream. The FDA is concerned about its potential for diversion and abuse. Actiq’s climb up the chart suggests it is being used for a much wider group of patients than those the FDA originally intended.”
Similarly, the drug Neurontin held steady at number two on the list, despite its owner paying more than $430 million to settle state and federal charges relating to the drug’s promotion and marketing to physicians. The FDA approved the drug in 1999 to treat seizures in epilepsy, then approved it in 2002 to treat pain following shingles outbreaks (post-herpetic neuralgia). Even so, the percentage of patients for workers’ compensation injuries being treated for either condition is dramatically smaller than the usage of the drug suggests.”
Not noted in the press release is the name of the entity that is providing pharmacy benefit management services for the Hartford; Tmesys/PMSI. (Sponsor of HSA’s survey).
What does this mean for you?
If you are a WC payer, there is hope. Data-driven programs, applied intelligently and appropriately, can and do reduce prescription drug expenses.
The Hartford announced this week that they will be using Aetna’s Workers Comp PPO network in Pennsylvania, effective 6/1/05. This is a big step for Aetna, which has been struggling to achieve traction in the WC network business since starting this initiative some two years ago.
On the plus side for Aetna, this is the first large WC payer that has adopted their network, and indications are that Aetna’s analytical capabilities and provider profiling were strong plusses for the Hartford. Also, the press release indicated that Hartford will/may be using the AWCA network in additional states in the future.
On the negative side, after two plus years, and hundreds of thousands of dollars invested, Aetna has one top five carrier accessing their network in one state.
My take is the powers-that-be at Aetna seriously underestimated the amount of effort needed to build a WC network, and overestimated the interest among large payers. As part of their “due diligence” Aetna hired an outside consulting firm (not HSA) to analyze the market, determine key success factors and required capabilities, and estimate the opportunity. The report, which likely cost tens of thousands, was perhaps the weakest, least-informed, and most superficial market assessment I have had the misfortune to read.
Thus, no surprise that success to date is…rather limited.
In addition to the comments on analytics, the press release also notes that AWCA has over 100,000 providers in their currently active states (most of which are actually employer direction states). This reflects a complete lack of understanding of where the WC network business is heading, which is towards smaller networks of expert providers.
While I have a lot of respect for Aetna on the group health side, I wonder what they are thinking re WC.
What does this mean for you?
If you are a group health network contemplating WC, think carefully, study thoroughly, and understand the market before you build a business plan. Yes, there is an opportunity. It simply requires a thorough understanding before making an investment decision.
If you are a WC payer, AWCA’s entry into this space is a good thing; it adds competition from a strong managed care firm, and may actually provide an alternative to First Health et al.
After walking the exhibit halls at the RIMS Conference in Philly for two days, it has become apparent that pharmacy management is the new hot business. Here are a few of the indicators
The RIMS conference in Philly has been quite interesting, especially for those following managed care trends. Conversations with three large insurers have been remarkably similar; all are focusing their efforts these days on so-called “specialty networks”; smaller networks of physicians who have demonstrated their ability to manage WC cases cost-effectively.
We have covered this topic before, both in this blog and in prior articles, but this is the first time I have seen what could loosely be described as a trend in workers comp medical management .
One large payer indicated that although they (the carrier staff) believes in the effectiveness of smaller networks built around docs that are WC experts, many of their customers are “still not there yet”. That is, these policyholders are still wedded to the “percentage of savings” model for buying health care.
Kudos to the carriers for their efforts, and best of luck educating their customers.
What does this mean for you?
If you have yet to understand that the party with the most impact on a WC claim is the treating physician, now’s the time to educate yourself.