Insight, analysis & opinion from Joe Paduda


Bush official states health care crisis could bankrupt the country

In a refreshing acknowledgement of reality, a top Federal official noted that “if there’s one thing that can bankrupt the country, it is health care. It is out of control.” US Comptroller David Walker made this statement while referring to the growing US budget deficit in a speech in New York last Wednesday.
Walker’s comment came during a talk on the budget deficit where he referred to the health care system and federal government health care programs as key contributors to last fiscal year’s $412 billion budget deficit.
Why is this obvious statement of such interest to your author? Because it is the first public acknowledgement by a Bush official of the primacy of health care over Social Security (although Walker did not mention SocSec specifically) as a threat to the economic wellbeing of the nation. It is likely Walker’s comments were not officially vetted, but regardless, they are one of those “emperor has no clothes” statements that may add a level of urgency to the health care debate.


Provider quality-based plan design

One of the newer ideas to hit employee benefit health plan design is tiering copayments according to the quality of the provider accessed by the insured. United Healthcare and Medica are two of the health plans that have introduced these plans.
The idea is simple in concept – insureds’ copays are higher for those providers deemed to be less than optimal. The issues lie in the criteria and methodology used to determine the rankings.
A critic, Al Eldendary, president of the St. Louis Metropolitan Medical Society, notes that UHC uses bills and claim data instead of medical records, and therefore the assessment of quality is not based on a complete picture of the patients’ situations.
United’s head of clinical strategy noted that the analytics uses survey as well as patient data, and also acknowledged that the criteria also includes some cost data.
Fof those of us who have been criticizing medical treatment guidelines, provider profiles, and clinical pathways for years, this is another piece of evidence casting doubt on the entire process and the results thereof. Few would dispute that medical bill data is rife with errors of accuracy, that diagnosis and procedure data is not only inconsistently coded but reflects a desire to maximize reimbursement and not to accurately represent the actual care delivered to the patient. Moreover, there is no assessment of the patient’s functionality at the end of treatment.
How can any reimbursement system that supposedly focuses on “quality” fail to consider whether the patient got better, died, returned to full functionality, or was partially disabled? After all, is not the goal of health care to ensure the health and wellbeing of the patient?
What does this mean for you?
Be very wary of medical guidelines, provider reimbursement schemes, and profilign activities that do not take into account the patient’s functionality. Without that end point, you are just looking at the left side of the equation, as the result is unknown.


It gets worse for AIG

The mess at AIG may be getting worse. According to Reuters, on Wednesday, the state of Florida ordered American International Group Inc.:
“to turn over information about the company’s previously disclosed accounting misrepresentations or possibly be suspended from doing business in the state. The Office of Insurance Regulation order also requires AIG and its 43 units operating in the state to name and remove any culpable parties responsible for misrepresentations made on the insurer’s financial statements.”
Among other lines, AIG is one of the largest writers of workers comp in the state, with an estimated $200 million in premiums (plus claims administrative responsibilities for large self-insured risks). AIG also administers managed care programs throughout the state through its HealthDirect subsidiary. It is unclear from the report if there would be any impact on either the TPA or managed care programs.
According to Reuters;
“The Florida order also requires AIG to file by July 1 “true and correct” financial statements for the years of 2000 through 2005 for all AIG entities licensed in Florida. The company has said it expects to file its 10-K annual report with securities regulators by the end of May. If AIG does not comply with Florida’s order, the state said it will suspend the insurer, among other potential actions.”
What does this mean for you?
This is serious. It indicates a lack of faith in the veracity of AIG’s financial statements, and possibly concern about its finances. No one is suggesting, even remotely, that AIG is in financial difficulty. However, given how fast Kemper sank, and the very few indicators before their demise, one would be well-served to watch this developing situation closely.


Center for Study of Health System Change

The Center for the Study of Health System Change is a non-partisan organization that is focused on finding intelligent, practical means of improving the nation’s health care system. Under the leadership of Dr. Paul Ginsburg, CSHC provides a forum for discussion of topics ranging from pharmaceutical issues and the problems of uninsurance, to macro trends shaping health care policy.
CSHC has an excellent seminar planned for July in Washington. Here’s the details:
HSC’s Wall Street Comes to Washington Conference Scheduled for July 13
The 10th annual Wall Street Comes to Washington conference will be held on Wednesday, July 13. The conference will feature roundtable discussions with Wall Street health care industry analysts and Washington health policy analysts. A partial list of panelists includes:


Medicaid and hiding assets to qualify

An interesting post in HealthSignals New York addresses the “problem” of seniors hiding or transferring assets to qualify for Medicaid reimbursement for nursing home care. According to a study done by Georgetown University, the problem is not nearly as pervasive as one might think, nor does it have much of an impact on total Medicaid expense.
However, the caveats are that the data used are somewhat dated. Nonetheless, this may be less of a problem than politicians’ rhetoric indicate.
To quote HealthSignals New York:
“As they say, “absence of evidence is not evidence of absence.” This report is helpful and it sets a balanced tone, but by no means does it end the argument.”
What does this mean for you?
Probably not much, but it does indicate how important it is to look beyond the rhetoric to the underlying data.


Medicare Part D explored

Several readers have noted that there are other reasons for getting involved in the new Medicare drug program, citing the government’s “loss prevention” financial arrangements, the sophistication of PBMs in managing formularies, and the desire to enter what will be a growing and eventually huge market.
The Piper Report has an excellent summary of th program and pays particular attention to a partnership between Cigna and NationsHealth. The post also has numerous links to other sources that further explain part D.
While all this is interesting, I sense a “bleeding edge” aspect to these programs. For most entrants into this market, this will be their first large-scale initiative into senior drugs management. The challenges they face will include:
–inexperience about seniors and their drug-consuming habits
–the inherent problems with adverse selection noted in previous posts here
–their inability to control, or even impact, the treating physician, widely acknowledged as the primary driver of pharmaceutical utilization
This last may be the most significant. At the end of the day, PBMs are transactions processors, administering (in large part) what physicians order. If they can’t intelligently address and positively impact prescribing behavior in a way that does not put the beneficiary in the middle, they will find themselves caught between the doc and the patient – a very uncomfortable position.
What does this mean for you?
It is highly likely that early adopters will get burned in this deal, and slower movers will glean vital knowledge from observing without entering the fray. This is one of those rare circumstances where I would advise caution.


NCCI’s report on drugs in Workers comp

Workers’ Comp Insider has an excellent summary of NCCI’s recent report on prescription drug costs in workers’ comp. Author Jon Coppelman raises some interesting questions, including:
“why are doctors relying on brand names, when there are very powerful generic drugs available for pain? Why prescribe Oxycontin? Why is Neurontin so popular?
Is this what consumers want?”
Coppelman rightly cites the power of detailers, the armies of attractive, intelligent, well-dressed primarily young men and women who call on physicians to encourage them to write scripts for their particular drugs.
I would also note that PBMs make money only when scripts are filled through their contracted pharmacies. Therefore, while there is indeed an incentive to the PBM to drive network penetration, there is also no incentive to prevent scripts. Certainly some PBMs work hard to “do the right thing” and there are some notable successes, but when they are financially motivated to fill scripts, there is somewhat of a conflict of interest.
Moreover, some PBMs do not understand the WC business, but are jumping into the market because margins are much more attractive than those in group health.
What does this mean for you?
Watch drug utilization growth carefully, learn about this business, and start talking to your PBM about alternative fee structures. There is no quick answer but with drugs accounting for 12% of WC medical spend, it is well worth your time to look for a longer term solution.


Medicare’s drug answer

The growing popularity of Medicare Part D (the Medicare Drug program) among health plans pharmacy benefit managers (PBMs), is a mystery. As I have noted before, the program as presently conceived is guaranteed to drive adverse selection with only the seniors who will get more from the program than they will pay in likely to subscribe.
I asked national health policy expert Bob Laszewski of Health Policy and Strategy Associates (not affiliated with my firm) if I’m missing something, if there is a good reason why PBMs and health plans are jumping into this business. Bob pointed to a Brandeis University study that indicated those seniors who purchased the drug discount card tended to he high users of drugs. No surprise there – what is revealing is the underlying statistics. Drug card purchasers saved 20% (on average) but used the card twice as often as seniors who received a card automatically from their health plan.
Defenders of the Part D program cite PBMs’ expertise in formulary management, bulk pricing arrangements, cost-sharing with seniors (co-pays etc.) as evidence of their ability to control costs.
Perhaps most telling is the Federal government’s announcement that they will protect PBMs and health plans from excessive losses incurred as a result of their Part D drug programs.
The net – this is one of those “if everyone else is doing it, we better too” businesses. It is reminiscent of the pricing cycles in property and casualty insurance, where as soon as carriers start losing money they raise prices, and as soon as they start making money they cut prices to capture volume. This pattern has been as consistent as the tides, and likely as inevitable.
What does this mean for you?
For those of us on the sidelines, observing the outcome of the rush into Medicare Part D drug cards will be instructive. It is possible that I am missing something here, that PBM programs actually can address utilization (although I have never seen evidence that they do, and because they traditionally make money only when prescriptions are filled, utilization management is not in their DNA).
But I doubt it.


Ambulatory Surgical Centers’ future

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.

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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