Insight, analysis & opinion from Joe Paduda

Feb
25

Future health care costs

The article referenced in yesterday’s blog entry about health care cost trends is available at Health Affairs. Here’s the abstract…
“National health spending growth is anticipated to remain stable at just over 7.0 percent through 2006, the result of diverging public- and private-sector spending trends. The faster public-sector spending growth is exemplified by the introduction of the new Medicare drug benefit in 2006. While this benefit is anticipated to have only a minor impact on overall health spending, it will result in a significant shift in funding from private payers and Medicaid to Medicare. By 2014, total health spending is projected to constitute 18.7 percent of gross domestic product, from 15.3 percent in 2003.
The slowdown in national health spending growth is expected to continue into 2004, with growth edging downward to 7.5 percent from 7.7 percent in 2003 (Exhibits 1 and 2).1 Over the next ten years, growth is expected to slow to 6.7 percent between 2013 and 2014, well below the peak of 9.3 percent growth that occurred between 2001 and 2002. Despite the anticipated deceleration, these growth rates outpace the milder inflationary experience of the mid-1990s, when growth averaged 5.3 percent from 1993 through 1998. Over the 2003-14 period, national health spending is forecast to continue growing faster than gross domestic product (GDP). The consequence is a projected increase in health’s share of GDP from 15.3 percent in 2003 to 18.7 percent by 2014.”
And here’s the takeaways…
1. Prescription drug costs will be the largest single contributor to growth in public health care costs.
2. Private coverage for drugs will decrease among Medicare eligibles as the Medicare Prescription Drug coverage program goes into effect starting in 2006.
3. While overall medical inflation will remain 2-3 times the overall rate of inflation, private health care plans will very likely see signficantly highertrend rates . As public programs cut expenses, cost-shifting will undoubtedly follow.


Feb
25

Any willing provider law to pass in AR

It is highly likely that Arkansas will pass so-called “any willing provider” legislation in the very near future. For those of us who thought those days had thankfully passed, do not despair as it is unlikely this will spark a wave of similar ill-conceived moves in other jurisdictions.
The impetus for the new law was the inability of a member of Arkansas’ legislature to obtain care at his facility of choice for prostate cancer. Interesting how these things happen…
While the bill passed both the AR house and senate with overwhelming majorities, and will be signed into law by Gov. Mike Huckabee, it comes at a time when medical trend rates continue their stubborn ways, sitting at three times the overall rate of inflation. While a nice idea, practically speaking, “any willing provider” laws fly in the face of mounting evidence as to the importance and significant positive impact of the “right provider”. They also remove the “volume v. discounts” incentive used by managed care plans to convince providers to participate.


Feb
24

Another sign that the apocalypse is on us

When an issue hits the front page above the fold in USAToday, you can be certain it is a crisis. Today’s paper features the looming crisis in health care, noting recent rapid rises in costs have outstripped wage increases.
The article does a good job of presenting the facts and is fairly objective, despite the somewhat alarmist headline. Notably, it does mention that governmental programs will account for just under 50% of total health care spending in 2014 (up from 45% in 2003). This is a scary number, and is the main driver behind the recent activity on Capitol Hill.
USAToday’s source was CMS’ annual report, which was the subject of numerous articles in other papers. According to California HealthLine,, in the report, the CMS analysts said that public health care expenditures in 2014 will represent “a record share that could have important implications for the budget as a whole” (AP/St. Petersburg Times, 2/24). According to CMS analysts, “barring enormous tax increases,” public health care spending in 2014 “would crowd out virtually all other spending except for the military and interest on the national debt,” the Raleigh News & Observer reports (O’Rourke, Raleigh News & Observer, 2/24
Paul Ginsburg, president of the Center for Studying Health System Change, said, “This is going to lead to continued erosion of health insurance coverage,” adding that rather than pay increased health insurance premiums, “low-income workers would just as soon have the money because they can’t afford to spend so much of their income on health care.”
Implications? Several…
In a talk at the Institute for The Future’s annual conference last year, I prognosticated (pessimisticaly) that it would be several years before the US was forced to do something about the uninsured. At the risk of now swinging too far to the “wildly optimistic” side, it appears that the stars may be forcing themselves into an alignment that favors some sort of national debate on the topic of health care costs, access, and coverage. That would be a very good thing.
More pragmatically, it is clear that the government cannot afford, or rather tax payers will not pay, the forecasted amounts. Inevitably this decision will lead to
–more uninsureds,
–slashed provider reimbursements,
–ever higher premiums,
–cost shifting to insureds from providers seeking to recoup lost revenue,
–higher medical costs for those fortunate enough to have private health insurance, and
much higher costs for others whose care is paid by third parties (workers’ comp, auto, liability, etc.)
Not a pretty picture.


Feb
23

Positions on Medicaid stiffen

The Bush Administration’s efforts to address the rising costs of Medicaid came under attack again by state governors from both parties.
The Bush budget proposal includes cuts of $40 billion in the program, at a time when program costs have been increasing at an annual rate of 9% for each of the last four years. Governors are concerned not only with the proposed cuts, but also want to have more freedom to broaden coverage to other uninsured populations. At present, this requires a waiver, which can only be obtained after a somewhat cumbersome and time-consuming process involving the Centers for Medicare Services (CMS).
According to the Associated Press, there is an uncommon amount of bipartisanship evident in the governors’ pronouncements…
“One thing governors feel, Democrats and Republicans alike, is that we have a health care system that, if you’re on Medicaid, you have unlimited access to health care, at unlimited levels, at no cost,” said Arkansas Gov. Mike Huckabee, a Republican. “No wonder it’s running away.”
Republicans have been the most sweeping in their push toward market reforms, aiming to encourage patients to spend Medicaid dollars more wisely. Democrats, however, also are turning to concepts that require people on Medicaid to bear part of the costs, through copays or deductibles. Most try to spare additional costs, or cuts, from children and the poorest of the poor.”
Medicaid funds come from state and federal coffers, with the feds’ contribution tied to the state’s average income level (New York gets less, Mississippi gets more). Thus, any cuts in federal dollars either have to be made up with state funds, or programs cut. My bet is providers will see their reimbursement rates affected.
As Medicaid takes a hit, providers will likely seek alternative revenue sources.


Feb
19

Workers Comp in California

The Workers’ Comp Research Institute, one of the three top research entities focused on WC, will be delivering a comparison of California’s workers comp to eleven other states at a seminar in San Francisco on March 23.
WCRI’s research typically lags eighteen to twenty-four months behind, for very good reasons. So, don’t expect to see any indication of the impact of recent changes in CA WC. With that caveat, I can assure you attendance at these seminars is well worth the time and travel.


Feb
19

Greenspan on Medicare

Testifying before Congress, Fed Chair Alan Greenspan (free registration required) noted that while Social Security is indeed at risk, Congress must address “far larger shortfalls in Medicare”.
However, Greenspan also noted that we are not yet ready to take on the task. According to California Healthline;
“However, he emphasized that despite the larger problems in Medicare, lawmakers “probably ought not to address the medical issue quite yet, until we get much further down the road in the advance in information technology in the medical area,” which could help reduce costs. He added, “If we do it now or even next year, I’m fearful we would be restructuring an obsolete model and have to come back and undo it.”
Greenspan’s comments agree with a report just released by the Employee Benefit Research Institute, which stated that Medicare will soon account for a “greater and rapidly growing share of the nation’s gross domestic product, sending Medicare into insolvency 23 years before Social Security,”.
EBRI says that Medicare’s nearly $28 trillion in unfunded liability is more than seven times Social Security’s $3.7 trillion.
The news here is individuals whose pronouncements are widely followed are finally talking about the real issue facing the economy – health care costs.
GM’s health care costs just went up by over a billion dollars. The uninsured population is increasing every year, and is now over 45 million. Medical trend rates in Property and Casualty insurance are the most significant driver of premium inflation. Health care costs for municipalities are now over $7000 per employee, leading to higher property and other taxes.
David Lazarus in the San Francisco Chronicle puts it this way. It is a “big mistake” that “Americans are talking about problems facing the Social Security system” while paying “little attention” to Medicare, San Francisco Chronicle columnist David Lazarus writes in his “Lazarus at Large” column.
Lazarus adds that most experts “believe that Medicare’s issues can’t be adequately addressed without overhauling the nation’s entire health care system.” (thanks to California HealthLine)
Perhaps, just perhaps, we are nearing the tipping point when real health care reform is possible.


Feb
16

The death knell for COX-2s

California HealthLine reports today that three studies indicate strong links between COX-2s and cardiovascular problems. In fact, the link is so strong that the studies, reported in the New England Journal of Medicine, may well lead to the complete withdrawal of COX-2s from the market.
The three studies investigated Vioxx, Celebrex, and Bextra; all had significant negative side effects, ranging from delayed wound healing to double the risk for heart attack and stroke to kidney damage.
The NEJM editorialized that, based on the results of the studies, “physicians are dismayed, pharmaceutical companies are embarrassed and financially threatened, and patients are injured.”
If the physicians had seen fit to prescribe COX-2s only for those patients who clearly could not take other drugs, the scope of this problem would have been drastically dimished. But one cannot point the finger only at physicians; Merck, Pfizer et al spent hundreds of millions promoting these drugs.


Feb
16

Latest news on State WC initiatives

The recent changes in WC laws in California appear to be just the proverbial tip of the iceberg, as several additional states are seriously considering changing their regulations, rate-making process, managed care programs, or all of the above. Here is a summary of recent news.
Texas
According to Insurance Journal, legislation has been proposed that would have major implications for Texas Workers Compensation, including abolishing the Texas Workers’ Comp Commission.
“State Rep. Burt Solomons (Carrollton) recently filed a bill that would make major changes to the workers’ compensation system in Texas. According to an announcement released by the House of Representatives, House Bill 7 abolishes the Texas Workers’ Compensation Commission (TWCC) and focuses on four main system improvements: streamlining the regulatory process by moving regulatory functions to the Texas Department of Insurance (TDI), allowing workers’ compensation networks, applying group health laws and rules to the workers’ compensation system, and focusing the entire system back on the injured worker.”
Ohio
While the OHP regs in Ohio were touted as leading edge, innovative, and a model for the rest of the country, these claims were, at the very least, overblown. The OHP program was not terribly innovative and, if anything, represented a me-too approach. Now, James Conrad, Administrator of the Ohio Bureau of Workers’ Comp, has proposed new legislation that has rather broad, if somewhat minor, implications for WC in the state. Here is a summary from Business First:
“The bureau is proposing more than 30 changes to workers’ comp law. The changes range from allowing people with traumatic brain injuries to earn minimal income without jeopardizing their disability benefits, to prohibiting doctors and other medical providers who treat injured workers from paying or receiving kickbacks for referral of services.”
Rhode Island
Twenty insurers licensed to sell Workers Comp in Rhode Island (free registration required) have notified the state that they will adopt NCCI’s revised rate guidelines, potentially lowering premiums on average by 20%. However, Beacon Mutual, with 75% of the state’s WC market, is not in favor or the move, claiming that it has already factored in the better performance of the WC market through “merit-based premium reductions”.
South Carolina
A bill has been introduced that would deny WC benefits to workers who failed to follow posted safety instructions and were injured on the job. Don’t look for this to succeed


Feb
16

Navigating the health care jungle

HealthAdvocate is a relatively new company that is making a business (and by all accounts a fairly successful one) by helping consumers deal with the increasingly complex, frustrating, convoluted world of health care. I don’t have any personal experience with them, but their approach and business model makes sense.
They sell their services to employers, TPAs, insurers, unions, and other organizations as an add-on to employee benefit programs. The service, which is billed on a per employee per month basis of $1-$4, provides several benefits:
1. assists employees in locating health care providers with specific experience and expertise
2. negotiates with health plans for coverage and payment for specific procedures and treatment
3. facilitates claims handling by working with providers and health plans
As Tom Schell of Paradigm Health puts it, ” this type of service offering will be the norm in several years as companies look to get more bang out of their healthcare dollar — since it enables the users to maximize the coverage they currently have and increase the overall patient satisfaction level.”
I agree. “Consumerism”, patient-directed health care, and all the other “make the patient responsible for their own healthcare” efforts have one major obstacle – people are mystified, overwhelmed, and frustrated by healthcare processes and requirements. And it is not likely to get any better. The worse it gets, the more valuable HealthAdvocate and similar firms will become.


Feb
15

Spitzer continues…

AIG thought it had successfully negotiated NY Attorney General Spitzer’s treacherous path, at least until yesterday. Evidently AIG is still under investigation for business practices that might be construed as unethical or illegal by the AG.
These business practices involve the sale of financial instruments that serve to “smooth” earnings for public companies, thereby making them appear to be more consistent, thereby pleasing analysts and investors.
To those of us in the managed care field, this is mildly interesting. What is more interesting is the spread of the investigations, from sham bids to contingent commissions to financial products to inappropriate business practices. Some industries, notably Workers’ Comp managed care, may be particularly vulnerable to this type of inquiry, as it is rife with special deals and considerations.
The Concentra subpoena is likely a reflection of the growing scope of Spitzer’s investigation. As other AGs, notably Blumenthal in Connecticut and Insurance Commissioners such as Garamendi in CA take note, they may well want to add their investigative prowess to the mix.


Joe Paduda is the principal of Health Strategy Associates

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