Friend and colleague Hank Stern is hosting this week’s Health Wonk Review edition.
Hank’s summary is concise and a fast read.
May
29
Insight, analysis & opinion from Joe Paduda
May
29
Disclaimer – This is the kind of post that makes one want to take a shower after reading. My apologies to readers without convenient access to bathing facilities.
One of the fastest growing segments of the surgical industry is the spinal implant business. In what may be the most comprehensive review of the problem, the Orange County Register reported:
“About 70 percent of U.S. adults — or 153 million people — have lower back pain, according to Millennium Research Group. Of those, about 15 million require medical treatment, and most eventually get spinal implants.” My take is that is a wildly overstated estimate; one survey reported that the total world market for devices was $4.2 billion; note this study used 2006 data. Another indicated the market was $5 billion in 2005, and predicted growth to $20 billion by 2015. Stryker, one of the major manufacturers, expects growth of 16% per year in the spinal implant market. Yet another report(note opens .pdf) indicated the 2007 worldwide market was $7 billion, with the US accounting for $5.4 billion of that total.
And boy is it profitable. One manufacturer (Allez Spine) sold screws to an implant device company for $79.31 each – screws that were then sold to hospitals for $1000 each (who then marked them up even more when billing insurers).
Yep, there are $480 worth of screws in this xray (wholesale), $6000 retail, and probably $9-12,000 to the insurer/patient. And that doesn’t include the other parts…
Medtronic, one of the larger device companies with about 45% market share in the US and the same worldwide, reported sales of $869 million for spinal implants last quarter, driven in part by a big jump in sales of its Kyphon technology. The $869 million represents growth of 35% from the same quarter last year.
The Kyphon story is an ugly one, and points to one potentially significant problem in the spine surgery industry – the focus on devices as a tool to maximize reimbursement.
Kyphon (the company) was acquired by Medtronic in 2005. The company settled a lawsuit filed by the Feds, agreeing to pay $75 million in fines. Kyphon agreed to stop providing inappropriate advice on reimbursement to providers, advice that resulted in hospitals filing inflated claims with Medicare for a spine procedure with the otherworldly name of kyphoplasty.
The details of the case, as reported by the New York Times, are revealing.
Kyphon “persuaded hospitals to keep people overnight for a simple outpatient procedure [bold added] to repair small fissures of the spine. Medicare then reimbursed the hospitals much more generously than it otherwise would have for the procedure, which was developed as a noninvasive approach that could usually be done in about an hour.
By marketing its products this way, Kyphon was able to artificially drive up demand among hospitals, bolstering its revenue and driving up its stock price. Medtronic subsequently bought the company, its competitor, for $3.9 billion, greatly enriching Kyphon’s senior executives. ”
Margins for Kyphon’s devices approached 90%, due in large part to the high price the company charged, a price that hospitals offset by extending hospital stays (as advised by Kyphon’s sales reps and reimbursement experts), thus generating higher bills and much higher revenue.
Another major contributor to the rapid increase in spinal implant surgeries may be the growth of device companies that have spine surgeons as stockholders. The OCR article reported that physician-owned companies are now under investigation by HHS’ Office of the Inspector General (OIG). In testimony before the Senate Special Committee on Aging, Gregory E. Demske, Assistant Inspector General for Legal Affairs at the OIG said:
“These financial relationships [between device manufacturers and physicians] can benefit patients and Federal health care programs by promoting innovation and improving patient care. However, these relationships also can create conflicts of interest that must be effectively managed to safeguard patients and ensure the integrity of the health care system…during the years 2002 through 2006, four manufacturers (which controlled almost 75 percent of the hip and knee replacement market) paid physician consultants over $800 million [bold added] under the terms of roughly 6,500 consulting agreements. Although many of these payments were for legitimate services, others were not. The Government has found that sometimes industry payments to physicians are not related to the actual contributions of the physicians, but instead are kickbacks designed to influence the physicians’ medical decisionmaking [bold added]. These abusive practices are sometimes disguised as consulting contracts, royalty agreements, or gifts.”
All this growth may well be based on a focus on surgical treatment that is just not supported by research. Some studies indicate surgery is not the best treatment for a substantial number of patients. According to the OCR article (source above);
a “2005 study of patients with back pain published in the journal of the British Medical Association concluded: “No clear evidence emerged that primary spinal fusion surgery was any more beneficial than intensive rehabilitation.”
“You look at the number of procedures and the rate of growth and it seems to far outstrip the number of patients who need this,” said Dr. Steven J. Atlas, a back specialist and Assistant Professor of Medicine at Harvard Medical School.”
And that old nemesis, provider practice pattern variation, is nowhere as obvious as with back surgeries. Looking at Medicare data, the back surgery rate in Fort Myers, Florida was 5 times higher than in Miami. Same population demographics, same state, but different providers.
Perhaps the best explanation for the considerable growth in the use of implants and spine surgery is the lack of evidence either for or against these procedures. There are some reports that indicate positive or negative outcomes, but nothing definitive has been published that could be used by payers and providers to judge the appropriateness of surgery for most patients with back injuries or degenerative conditions.
May
28
Productivity.
Lost in the great debate about the role of the employer, the individual, and the government in health care reform is the critical link between health insurance, care, and productivity.
Years ago when I was responsible for the Travelers’ utilization review account management function I met with Bruce Bradley, who was then the head of employee benefits at telecom giant GTE. I was going thru the data, reporting on how well Travelers had done reducing this and cutting that, when he stopped me and asked about the ER and inpatient admissions rate for children with asthma. I didn’t have the data, and asked why he wanted to know.
Bradley proceeded to educate me on GTE’s workforce and their functions. To summarize, they had a lot of employees who were single parents or one parent in a dual-income family. Many of their employees worked in line maintenance, directory assistance, and other blue- and pink-collar jobs.
And when one of these workers was out of work, caring for a child experiencing an acute asthmatic attack, the lines didn’t get fixed and calls didn’t get answered. Bradley wanted to know what the Travelers was doing about this. Truth was, we weren’t doing anything.
GTE is long gone, swallowed up in the telecom mergers in the nineties. But Bradley’s point is as true now as it was then – keeping workers, and their families, healthy and productive is the primary objective of health insurance.
I’ll grant that few policy wonks look at it from this perspective. Perhaps that’s because they didn’t have the pinned-to-the-wall-like-a-butterfly-in-a-display-case experience I went thru. But because they don’t consider the impact of health insurance on employer productivity, they miss the reason employers offer health insurance in the first place – to attract, and keep, good workers.
If employers are removed from the process of vetting and selecting health insurance vendors, individuals would be responsible for choosing their carrier. Insurance companies would ‘win’ based on how cheaply they could provide insurance to individuals and families, and the less care delivered, the lower the premiums. I don’t see what would prevent those vendors from suggesting each and every injured or ill worker or dependent tried bed rest and over the counter drugs for two weeks, then an x-ray or basic lab test, and only then would they get to see a diagnostician.
What does this mean for you?
Health care reform based on an individual market would work against employers’ desires and needs, and over the long term, against the nation’s best interests.
May
27
Medicare is to Workers Comp as:
a) Mars is to deck stain
b) surgery is to literature
c) a jelly sandwich is to Colorado
d) all of the above
e) none of the above
If you chose (d), congratulations, you understand there few similarities between the two systems, other than both involve paying health care providers to deliver care.
Beyond that, Medicare and Work Comp are, as the Brits say, chalk and cheese. Yet many regulators and legislators still try to base reimbursement under workers comp to Medicare’s RBRVS system (resource based relative value scale). The latest effort is in California, where a recent study by the Lewin Group has come under fire from providers in the Golden State. Critics contend Lewin’s analysis does not accurately assess the inherent differences between the two systems or the way providers deliver care, and bill for that care, and therefore the study’s conclusion is inappropriate.
I think the critics are right. As I’ve noted before, the additional paperwork, different procedures, complex and dynamic treatment rules and approval process, additional communications requirement, and different demographics make work comp a very different animal from Medicare.
I’ll have more on this later, as the reports and analysis require more time than I’ve got right now.
But there are two more (very) current examples of the problems inherent in linking WC reimbursement to governmental programs. Both involve drugs, and in both cases WC drug costs are linked to Medicaid. The states are NY and CA. In both cases, the FS will also drop in July; to AWP-16.25% in NY for brand and an across-the-board cut of 10% (below the current very low rates) in California.
There are already myriad examples of claimants unable to fill comp scripts in New York today, and that is at the current, slightly more generous FS. There have been fewer reports of this issue in CA, but the new rate reduction has pharmacy chains screaming.
As well they should. Here’s how Workers comp and Medicaid are different
1. Unlike Medicaid, there are no copays, restrictive formularies, or other cost- and utilization containment measures in WC. Thus all cost containment efforts in WC for drugs involves Drug Utilization Review processes that can involve pharmacists and clinicians reviewing scripts for appropriateness, medical necessity, potential conflicts and adverse outcomes, and relatedness to the WC medical condition.
2. PBMs pay pharmacies more for WC drugs than for Medicaid drugs; a typical brand discount is AWP-12%, generic is MAC or -25-35%. The Medicaid FS is substantially lower, at AWP-15+% for brand and FUL (>-40%)for generics.
3. Unlike Medicaid, to the extent they exist at all, rebates are much lower in WC. In NY, Medicaid rebates are a minimum of 11% of the Average Manufacturer’s Price per unit. The rebate revenue significantly reduces states’ costs for drugs. As these rebates are much lower or nonexistent in WC, PBMs do not have rebate dollars to offset their drug costs.
Sure, it is easy for lazy insurers, regulators, legislators, and employers to think they are doing something positive by cutting the price they pay for drugs.
It is also a big mistake.
May
23
Bob Laszewski posts today on the Center for American Progress’ report on the additional costs inherent in Sen McCain’s health care plan.
Bob – one of the most insightful people in the industry – notes:
“It’s interesting that when I am out in the country meeting with insurance execs in their conference rooms–people who do understand the market–it never fails that they all just roll their eyes at the lack of sophistication when we discuss McCain’s market-based solution–specifically his individual health insurance product ideas.”
And this demographic – well compensated executives – is one that you would think would be in favor of McCain.
I’d echo Bob’s observation. Industry insiders may disagree with Obama’s platform, but most agree that it is fairly well thought thru. In contrast, McCain’s is superficial – by that I mean a few microns thick superficial.
May
22
It’s minutiae time again!
That is, if pricing in a $216 billion industry is minutiae.
Readers interested in pharmaceutical pricing may recall the court case 18 months ago wherein pharma pricing publisher First Databank was accused of intentionally inflating drug prices. (FDB’s version of AWP results in prices that are about 5% higher than those provided by the other sources.)
There’s a new lawsuit alleging drug distributor McKesson illegally manipulated brand name drug pricing by increasing the spread between WAC (wholesale acquisition cost) and AWP (average wholesale price) – a practice that increased the prices paid by insurers, consumers, and employers.
The suit was filed by the City of San Francisco in US District Court in Boston – the same court that heard the 2006 case.
The 2006 case involved FDB’s selection of McKesson as the sole source of drug pricing data. FDB’s AWP was based on the actual price that McKesson paid for the drug, plus a margin. For years the typical margin was 20%; six years ago McKesson changed the margin to 25% to make it ‘simpler to administer pricing internally’. (this is the same allegation referenced in the most recent suit)
The price increase also earned McKesson points with its customers, retail pharmacies, who saw an immediate increase in profitability – profits on Lipitor immediately jumped three-fold after the 2002 increase. As part of the settlement in the 2006 case, FDB agreed to stop publishing prices two years after the finalization of the settlement.
Surprise! The settlement is not yet final, thus FDB continues to publish its version of AWP, the version that inflates payer drug costs by 5%.
Both suits, along with a number of other legal actions, have been filed by the Prescription Access Litigation Project, a Boston-based group funded by several foundations and charitable organizations.
The PAL folks are tenacious, well-funded, and allied with, among other heavy hitters, AARP. While tiny, their ability to win cases, highlight possible illegal activity and focus attention on their cause is impressive.
What does this mean for you?
At a time when more Americans than ever are taking drugs regularly, every penny matters. Watch PAL and their progress carefully – their work will likely have a significant impact on pharmaceutical pricing methodologies.
Thanks to California HealthLine for the tip.
May
21
A while ago I posted on the use of distorted data by folks seeking to promote an agenda. Recently Insurance Newscast arrived on my virtual doorstep with a textbook example under the intriguing headline ” Most Companies Oppose Single-Payer Health Care System, State Coverage Mandates”.
The survey purportedly found that “Most U.S. companies do not support a single-payer health care system or state legislation mandating coverage[italics are mine].”
The press release noted that the number of respondents that did not support “Universal system such as single-payer” was 50%. What exactly does that mean? Did respondents not like universal coverage mandates, or a universal ‘system’, or single payer? Or all three? What is a ‘universal system’ exactly? Given the poor phrasing of the report, the reader is left with no idea what the results mean.
Further complicating matters is the position of the survey’s sponsor, the National Business Group on Health on mandated universal coverage – they endorse it, unequivocally. To wit: “the National Business Group on Health announced today that it would support efforts to require individuals to have health insurance coverage for themselves and their dependent children.” I know, this is an individual rather than employer mandate, but that distinction may well be lost in translation.
The reason for my upset should be obvious; the response to this survey of larger employers, co-sponsored by a widely-respected business group, will find its way into the popular press, to be bandied about by pundits and ‘experts’ while suffering further distortion along the way.
The question itself (which was not provided and not on the sponsors’ websites, neither of which provided access to the detailed survey report) looks to be specifically designed to promote an anti-universal coverage, anti-single payer agenda.
This is neither helpful nor ethical, nor is it consistent with the stated objectives of the NBGH. If business groups and consultancies that promote themselves as objective want to be taken seriously, they need to do a much better job than this.
Note – I am no fan of single-payer, I am a fan of universal coverage, but have no idea what a ‘universal system’ is.
May
20
Something has been bothering me about Sen. McCain’s health reform proposal, but till yesterday I couldn’t put my virtual finger on it. Something just underneath the coverage of the details of the McCain plan’s treatment of tax rates, personal health records, chronic disease prevention, and consumerism.
And much much more important, and in retrospect, very obvious.
McCain’s plan would almost certainly increase the number of uninsured in the US – by a lot.
McCain calls for greatly expanding individual insurance at the expense of the current employer-based system.
Employers would jump at the opportunity to dump their very expensive insurance plans, perhaps increasing employees’ pay and perhaps not. Remember, more and more employers are dropping coverage these days, a trend that would likely accelerate under McCain’s plan. There’s one obvious problem – administrative expense in the individual market is much higher, and one estimate puts the added cost at an additional $20 billion; I believe that is far too modest and the added admin expense will be much higher than $20 billion.
But that problem pales in comparison with the real issue – in general, there is no medical underwriting for larger employer plans (and limited underwriting for smaller groups) – anyone is eligible, and pre-existing conditions are usually covered (albeit with some limitations in some areas for a limited period of time).
That’s not the case in the individual market – most states allow medical underwriting.
The result? Under McCain’s plan, folks with pre-existing medical conditions would not be able to get coverage for those conditions (if they could get coverage at all). McCain’s ‘plan’ will almost certainly lead to many more uninsured Americans, and many of those that could get coverage in the individual market will almost certainly not have coverage for their current, pre-existing medical conditions.
I know, the Senator’s website has some mumbojumbo about how he would work with the states, and encourage this and that, and talk with governors; meaningless words that spin his position well beyond Pluto.
McCain’s’ faith in the ‘market’ as the solution is nothing short of laughable. We know he wouldn’t get coverage in the individual market today due to his pre-existing conditions; somehow he thinks that this would change if the market is further deregulated? Not likely – the states with more regulation happen to be the ones that limit, or prohibit, medical underwriting.
It is painfully obvious that McCain knows precious little about health insurance, or private enterprise for that matter. No profit-seeking entity would ever voluntarily insure someone with MS, or heart disease, or asthma, or Crohn’s disease, or melanoma, or hypertension, or high cholesterol, or any of the other medical conditions that are all too common in the US. At least not at a premium anyone other than a top McCain donor could afford.
And this guy is running for President? What a country.
May
20
With a case load of 160 lost time claims, how does any workers comp claims adjuster have any time to ‘manage’ any case?
That’s the point Bob Kulbick, CMO at Cypress Care (HSA consulting client) made in a talk last week, a point I’ve been thinking about since that meeting.
The obvious answer is ‘they don’t’. There is no possible way an adjuster can dedicate the time and brain power necessary to effectively manage claims with a case load that high. And that is not an unusual case load – in fact most TPAs keep case loads well above 120. Even that load is excessive – it breaks down to about an hour a month per case.
Yes, an hour a month per case.
I’ll grant that some of those cases are old and there’s little going on – little except continued use of medications, in many cases physical therapy, and the odd surgery to repair an older fix or replace a surgical implant worn out by use or otherwise defective.
That is certainly not the situation with newer claims. Adjusters have to initiate the three point contact (actually four in most cases) within a predetermined time, set up the case, conduct an investigation into causality, establish liability, ensure reports are filed in a timely manner, determine the initial reserve, and coordinate with medical management.
Established cases require ongoing contact with case management, voc rehab, the injured worker, attorney(s) if represented, employer, and likely the injured worker’s family. Medical bills have to be approved, drugs authorized, surgeries and hospital cases ok’ed, voc rehab plans reviewed, and then discussed with management.
This just hits the highlights – there are dozens of other discrete tasks involved in the process of adjusting comp claims, tasks that take time, careful thought, and professional judgment.
All of which are going to be in short supply with a case load of 160 LT cases.
Here’s the message. Employers who buy claims adjusting services on the cheap will get exactly what they bargain for – poor quality from overburdened, frustrated, ineffective adjusters.
May
16
For some, red ink.
Most workers comp TPAs are struggling. The softening market has pushed many larger employers back to insured programs – for good reason. If a policyholder can buy fully-insured coverage for less than their projected losses plus admin expenses plus reinsurance premiums, most will.
This is particularly true in New York, Florida, and California, states where premiums have/are dropping precipitously. In Florida, the number of self-insured employers has dropped by over half since reforms went into effect.
The decline in California has likely paralleled the other sunshine state. Reports are that TPAs are slashing admin expenses in an effort to hold onto business – actually adding new business is a pipe dream for any TPA not willing to give admin services away.
So how are TPAs surviving? Slashing costs, cutting staff, merging, and creatively raising prices on managed care services. Or, working to educate their customers on the long term benefits of a continuous focus on cost drivers – loss prevention, return to work, network direction, medical management. That’s where a long-term focus on the part of the employer will pay off – at some point the market will harden, and when it does the employer will be on the other side of the negotiating table, pleading with TPAs and insurers to provide comprehensive services at a price they can afford.
Take a long term view. Paying a bit more for services now will earn loyalty when the market hardens. And that investment will more than pay for itself.
