Coventry Healthcare’s acquisition of FirstHealth (closed 1/28/05) was viewed with some concern by FirstHealth’s workers comp payer customers. Several of Coventry’s key management staff came from organizations that had divested workers comp managed care SBUs, causing speculation (on this blog as well as among present FH customers) about the future of WC at Coventry.
Indications now point to a commitment to the WC business for at least the near and mid-term. Sources indicate Coventry senior management has met with some of FH’s key customers to discuss past issues, get input on future directions, and assure customers of Coventry’s commitment to the business. While this last point (assurance) may be viewed with skepticism, Coventry’s moves appear to indicate it is more than a platitude. These include
–Coventry’s search for a senior leader for the FH WC business, which will be separated from the group health business (now directed by Skip Creasy). They are looking for the right person with the right blend of credibility, understanding of the WC industry, and insights necessary to move the WC business forward.
–seeking input from present customers on general and specific topics ranging from candidates for the top job, to bill review technology, to gaps in systems, operations, customer service, and network coverage
–early indications the company is rethinking the acquisition and expansion strategy implemented by the old management staff.
–some evidence of increased flexibility in regards to customer requests for specialty managed care carve-outs and the like.
Perhaps most notably, Coventry’s decision to lop off the top managers at First Health sent a clear notice that big changes were to come.
I believe that is good news for present customers, as well as the rest of the market. A reinvigorated First Health may actually bring new approaches, new ideas, and a more flexible attitude to the industry, all of which are desperately needed.
A new report indicates what many have perceived for some years; the world of health care insurance is increasingly dominated by larger payers. Conning & Co.’s report indicates that larger insurers/managed care firms are buying up smaller ones in an effort to grow market share.
This is consistent with HSA’s own experience; as the larger plans seek to keep their stock prices moving up, revenue growth becomes increasingly important. Their growth choices are pretty limited –
1. grow organically by taking market share from a competitor by cutting price (a really bad long term plan) or
2. buy up other plans.
The acquisitions of FirstHealth, Oxford, Connecticare, et al are all indicative of this trend. Good news if you own a smaller managed care firm; bad news if you are a provider or employer operating in an oligopoly environment.
The health care market is rapidly maturing, and will come to be dominated by a selection of large players – Aetna, UHG, Anthem, and a few others.
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.
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.
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!”
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.
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
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 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?
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.”