Insight, analysis & opinion from Joe Paduda


WCRI CompScope reports published

The Workers’ Comp Research Institute has just published the latest edition of CompScope, their annual report on trends and comparisons across 12 states.
CompScope is used by regulators, managed care firms, and WC payers to assess the market environment in individual states. Some of HSA’s clients use this publication when determining market strategy, as it provides an objective comparison of key markets for comp.
WCRI also publishes their Anatomy reports, which are more detailed analyses of the medical and other aspects of WC claims in individual states. The Anatomy report has proven to be quite useful for claims execs and managed care professionals in the business.
WCRI charges for both publications.
Yes, I’m a fan of WCRI, but have no other affiliation.


Greenberg leaving AIG

Several sources reported the imminent departure of Hank Greenberg, long-time Chairman and CEO of AIG, from the company effective tonight.
According to MarketWatch, “Greenberg, 79, the long-time chief executive of insurance giant American International Group, is expected to officially step down after an AIG (AIG: news, chart, profile) board meeting Monday night, paving the way for Martin Sullivan to ascend to the $166 billion global insurance conglomerate.”
There are some indications that the Board at AIG is working to move as quickly as possible to address issues related to alleged stock price manipulation (prior to the purchase of American General); fallout from the Spitzer investigation of alleged bid-rigging and sham-bidding, and inappropriate usage of “insurance products” to smooth earnings for certain AIG customers.
Mr. Greenberg’s age, 79, may be cited by some as contributing to the decision, but I wouldn’t buy it. He has remained one of the more engaged and energetic CEOs of late.


Medicare drug battle marches on

Two Republican Senators have introduced legislation that will cap annual Medicare drug expenditures. Here’s the article from “California HealthLine” –
Sens. Lindsey Graham (R-S.C.) and Jeff Sessions (R-Ala.) on Thursday introduced legislation that would cap spending on the Medicare prescription drug benefit to the original Congressional Budget Office estimate of $395 billion over 10 years, CongressDaily reports. The new CBO estimate for the benefit is $849 billion between 2006 and 2015.
The bill would establish annual spending caps for the benefit, and the president would be required to submit legislation to scale back the benefit if spending goes beyond that amount. Graham said, “I was always concerned the projected costs of the Medicare prescription drug benefit would turn out to be wrong. Even I was surprised at how quickly and dramatically the projected costs of the program spiked” (CongressDaily, 3/11).
This is rather significant, to say the least. There are clearly cracks in the Republican wall, cracks that appear to be generated by deep concern over the cost of this huge entitlement.
As one wag put it when talking about the Medicare drug bill, “I didn’t realize conservatives could be THAT compassionate!”


Briefs on WC managed care firms

Notes on some of the goings on in the WC managed care world.
Concentra has laid off the IT staff in Minnesota (effective 3/31) responsible for maintaining both the “Advancer” case management system (acquired in the purchase of NHR) and the company’s “datamart”. Evidently Concentra is switching maintenance of the system to their Dallas IT staff, and will be transitioning to a flat file format for reporting purposes.
Tom Cox, an executive in the company’s network operations, will be leaving the company sometime this summer. Cox has been with the company and their predecessor organizations since the early nineties.
Coventry’s First Health continues their search for an executive to lead their WC business line. The position is located in Illinois, and the company is looking both within and outside the WC world.
One of the new boss’ first steps may well be to mend fences with the company’s larger clients. First Health has been known for their somewhat-heavy-handed approach to customer relations; while this had diminished over the latter part of 2004, recent indications are they are back to their old tricks. More than one customer has been ‘surprised’ by First Health’s recent demands or inflexibility in contract re-negotiations, systems enhancements, or customer-specific requirements.
The company recently landed Fireman’s Fund as a network and bill review client. FFIC left Fair Isaac after a somewhat troubled relationship.


State approaches to health care coverage

Families USA sponsored a conference last month entitled “Health Action”, which pulled together a variety of leading lights from politics, policy, government and the private sector to discuss individual states’ efforts to improve access to and coverage for health care.
Key findings include:
1. many states recognize that health care is “an unavoidable issue, and every sort of option


Ban on specialty hospitals may be extended

Two reports on so-called “specialty hospitals” were released yesterday in hearings on Capitol Hill. The Medicare Payment Advisory Commission’s (MedPAC) report calls for an extension of the ban on construction of new specialty hospitals. For those who have not been keeping up on this rather esoteric (but critically important) issue, there has been a Federal ban in place preventing the construction of these facilities, which are typically for-profit and partially owned by the physicians practicing at the facilities.
The rationale behind the ban was a concern that these facilities were “skimming” the profitable patients, leaving tertiary and primary hospitals the indigent, Medicaid, and less-healthy patients. According to California HealthLine, the report addressed this concern directly, noting:
“The MedPAC report, presented to the Senate Finance Committee on Tuesday, states that physician-owned specialty facilities could “corrupt clinical decisions and lead to inappropriate care.” The report also said that, relative to full-service hospitals, specialty hospitals generally treat healthier patients, focus on higher-cost procedures, treat fewer Medicaid beneficiaries and do not have lower costs.
The report recommends that Congress recalculate Medicare prospective payments to acute care hospitals to more accurately reflect the cost of care and prevent financial incentives for hospitals to select healthier patients (CQ HealthBeat, 3/8).
MedPAC’s findings were not entirely echoed by a CMS report presented at the same hearing. (Source California HealthLine)
“CMS “unexpectedly released” its preliminary report on specialty hospitals. Thomas Gustafson, deputy director of the CMS Center for Medicare Management, said the CMS study shows “measures of quality at [physician-owned] cardiac hospitals were generally at least as good and in some cases better than the local community hospitals.”
In addition, “[c]omplication and mortality rates were lower at cardiac specialty hospitals even when adjusted” for patient-sickness levels, he testified. CMS conducted its study by examining six markets, which represent 11 of the 59 cardiac, surgery and orthopedic specialty hospitals approved in 2003 as Medicare providers.
The CMS report also found that doctors who have invested in specialty facilities do not refer patients exclusively to the specialty hospitals but they do refer a greater share of patients to specialty facilities than to full-service hospitals. ”
Out here in the real world, there is evidence that specialty facilities do skim the patient pool. A full-service, multi-hospital health care system (client of Health Strategy Associates) has been losing patients to a physician-owned ambulatory surgery center for over a year. Anecdotal information strongly indicates that the patients seen at the doc-owned ASC are more likely to be privately insured or covered by workers’ comp (a profitable payer in this state).


Kaiser profits increase

Kaiser Permanente, one of the oldest and largest HMOs, reported net income for last year increased by 59% to $1.6 billion on revenues of $28 billion. The HMO’s membership (registration required – free) was up slightly to 8.23 million as well.
According to California HealthLine,
“Kaiser officials said the gain in net income was boosted by rate increases, improved operating efficiencies and lower pharmaceutical costs. Unexpected adjustments to pension and post-retirement costs, workers’ compensation and liability expenses also contributed to Kaiser’s financial performance, company officials said.
Tom Meier, vice president and treasurer for Kaiser, said member rates increased by 10% to 11% in 2004, less than the 13% reported in recent years. ”
The message here is we may be approaching, if not already at, the top of the cycle. Stock prices for publicly traded health plans are way up over last year (see Coventry and United HealthGroup), PEs are up as well, and managed care stocks are once again “strong buys.”
A couple of other “take-aways”.
1. Kaiser’s (KP’s) rates were up 10-11% last year, well above overall medical trend rates. This is likely a key to the improved profits, especially when one considers their increased spending on capital expenditures (up 30% as KP tries once again to implement an electronic medical records system).
2. KP operates the tightest form of managed care; the large group model (all docs are members of the Permanente medical group). If their rates are up 10-11%, what does that mean for less-tightly managed models?


HMO enrollment drops in New England

A new study indicates HMO enrollment in New England has declined over the past year. HealthLeaders-Interstudy (here’s hoping the new company gets a new name shortly)’s just-released New England Health Plan Analysis indicates that all states save New Hampshire experienced a drop in HMO participation.
There is continuing migration to PPOs,” said Paula DeWitt, HealthLeaders- InterStudy analyst. “Massachusetts has strong regional plans and will likely continue to be an HMO stronghold, but even it isn’t immune to the migration into more open-access products. In addition, while all New England states reported net profits through the third quarter of 2004, profits were down in Massachusetts, New Hampshire, and Rhode Island compared to the same period in 2003.”
Insurance Journal noted “The firm also reported on other factors at play in the managed care fiel. Tufts Health Plan has formed an alliance with national player CIGNA HealthCare to offer an open-access PPO-type product to large- and medium-size businesses. Medicare HMOs in New England are adding options and some are enhancing benefits for 2005. For example, Fallon Community Health Plan is offering a new option called Fallon Senior Plan Saver with no premium.”


Medicare drug costs up…again

The latest projections from the Congressional Budget Office have the Medicare Drug Program’s costs over the next ten years at $849 billion. This is a rather substantial increase over the initial projections of some $400 billion, which were for the ten years ending 2014. Nonetheless, this does represent an increase of over $100 billion from the last CBO estimate, published less than a month ago.
According to California HealthLine,
“CBO’s projection does not include anticipated savings, which could make the actual cost lower than the Bush administration’s cost estimate of $724 billion over 10 years (Fram, AP/Detroit News, 3/5).
Analysts attributed the net spending increase to a higher estimated cost of basic benefits and a change in the cost of low-income subsidies under the original bill. About $36 billion of the $54 billion net spending increase would occur before 2013 — the period covered under the original cost projections (CQ HealthBeat, 3/4).”
There have been some rumors about possibility flexibility on the part of the Administration on the program, but any “flexibility’ in terms of cutting benefits and therefore costs may well be offset by the financial support CMS may have to provide to private insurers willing to participate in the Medicare Drug card program.
These private insurers are justifiably worried about the possibility of adverse selection. The program is voluntary, so logically, only those recipients that would actually gain financially from the program would sign up. This isn’t insurance, it is a guaranteed money loser.
That being the case, one wonders how and why private companies would sign up to lose money. My sense is they are being offered stop-loss assurances from CMS; or if not explicit protection, some other form of risk avoidance.


Medicaid round up

News in brief.
The Congressional Budget Office projects potential savings from Pres. Bush’s Medicaid cuts will be some $11 billion less (over the next five years) than the White House’s claims.
The National Governors’ meeting ended without an agreement from the governors on Medicaid program cuts, changes, or alterations. Here’s the news from California HealthLine on where the effort stands…
“We’ll now work to build on [common ground] and hopefully come up with a proposal that will be bipartisan and that we can take to Congress for the purpose of being able to substantially improve Medicaid and have it reach its promise,” Leavitt said (Smith, Salt Lake Tribune, 3/2).
Governors’ Concerns
Interviews with “numerous governors” indicate that the “consensus described by Leavitt does not exist,” according to the Times (New York Times, 3/2). “We are still far apart,” New Mexico Gov. Bill Richardson (D) said.
Ohio Gov. Bob Taft (R) said, “With the respect to the budget itself, we’ve made clear we oppose [the administration’s cuts], and we’ll see how that issue works out here in the next few weeks.”
Wisconsin Gov. Jim Doyle (D) said the administration’s proposed changes are “not acceptable,” adding, “What they are saying to states is, ‘We’re going to cut you and give you more flexibility,’ and the flexibility is you can cut people off.”
Indiana Gov. Mitch Daniels (R), Bush’s former budget director, said, “There’s a lot of substantive agreement but honest tactical disagreement” (Washington Post, 3/2).
Don’t expect this to happen any time soon…

Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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