Insight, analysis & opinion from Joe Paduda


Medicaid news round-up

California HealthLine has an excellent summary of two stories. One is related to Sec. Leavitt’s (HHS) recent pronouncements and possible future plans; as Medicaid comes under budgetary scrutiny, Leavitt may find himself squaring off against Republican governors over Federal budget cuts in the program. (Leavitt was the Republican governor of Utah)
The other article examines several states’ possible actions on Medicaid, specifically related to dental coverage. It appears several states, including Ohio, are considering reducing or altering dental coverage for Medicaid enrollees. One wonders if the recent press re dentists’ incomes exceeding those of some MDs is contributing to this.


Coventry hires Creasy

Coventry’s management has added an old colleague, Skip Creasy, to the executive team. Creasy worked with many of the present Coventry team in a prior life at Travelers’ Health Company; Shawn Guertin, Harv DeMovick, Tom McDonough, CEO Dale Wolf, and others were all affiliated with either Travelers, successor MetraHealth, or UnitedHealthCare after UHG acquired MetraHealth.
According to the press release, Skip “Creasy will be responsible for the development of Coventry health plans in new markets, including those markets to be added in the pending acquisition of First Health.”
Perhaps Eliot Gerson is next?


First Health and Coventry

The long-awaited acquisition of First Health by Coventry for cash and stock totaling $1.8 billion or so has closed. The “old” FH management (Wristen, Dickerson, Dills et al) has departed as of 1/28/05, leaving Mary Baranowski as the remaining SVP and Art Lynch as VP Workers Compensation.
Now, the only question is what will McDonough et al (Coventry exec tasked w managing the acquisition) do with the various pieces of First Health.
We’ll be paying close attention, as FH is the dominant player in the WC managed care business, has a major presence in the group health world, and has several ancillary businesses.


Hidden cost of obesity

Novation Inc. has just released a report (based on a survey of VHA hospitals) indicating that caring for obese patients increases the number of hospital worker injuries and requires the purchase of new equipment. I’m a little skeptical of the report’s claim that the cost of caring for the obese patient increased by 24% over the prior year; how do they find those numbers, what are they based on, etc.
That being said, the report’s other findings are more solid:
–90% of obese patients are seen in the ED
–53% of pediatric patients are obese
–28% of respondents indicated workers’ comp injuries increased due to dealing w obese patients
With the tight labor market for nurses and para-professionals, the rampant obesity in America certainly is not helping the labor shortage.


Private insurer profits

Bob Laszewski of Health Policy and Strategy Associates (no affiliation with HSA) notes that CMS’ latest health care cost report includes the following:
“in 2002, the percentage of health insurance premiums spent on profit and admin expense was 12.8%; in 2003, the expense and profit ratio had rised to 13.6%. Undoubtedly, this gain is not in expenses but in health insurance company profits.”
This occured at a time when overall health care costs were still increasing by almost 9% a year.
At the risk of stating the obvious, profits and admin expenses have increased at a rate greater than that of total medical expenses. Not only does this not say much for the “efficiency” of the private market, it also may add fuel to the argument againts private insurance.
We’ll have more details on the CMS report’s notable findings in a future post.


Health care spending stats

The journal “Health Affairs” reports that medical inflation in 2003 was 7.7%, significantly less than the prior year’s 9.3% rate.
However, the bad news is that the 7.7% was significantly higher than the rate of overall inflation, and the medical trend rate for workers comp (and probably other property and casualty lines) was 12%.
This likely is a result of cost shifting. To quote the report, “Financial constraints on the Medicaid program and the expiration of supplemental funding provisions for Medicare services drove the deceleration.” So, if governmental programs are paying less, some payers have to be paying more.
With the growing likelihood that Medicaid and Medicare reimbursements will continue to increase at a rate well under overall medical trend, we can expect cost shifting to continue, if not accelerate.


Why MDs prescribe Vioxx

DB’s Medical Rants has an interesting discussion re why MDs prescribe Vioxx, Celebrex, etc. As MDs are the ones ultimately driving prescription volume, it bears reading.
HSA (my firm) is completing a study of prescription drug management in Workers’ Comp – one of the very preliminary findings is the strong opinion among WC payers that MDs are in large part responsible for Rx cost inflation.
Payers are frustrated that MDs are prescribing drugs patients don’t need, driving up short term costs with no attendant benefit to patients. Meanwhile, these decisions may very well lead to additional costs, as patients suffering cardiovascular events who also took COX-2s for WC injuries seek compensation from their WC payer.
The net – payers see MD prescribing behavior as abdicating responsibility, and increasing payer costs. Frustration is rampant.


CorVel results

CorVel Corp just announced its results for the quarter and nine months ending December 2004 , and the picture isn’t pretty. Both revenues (down about 7%) and profits (dropped about 30%) declined significantly from the same period in 2003, while G&A expenses actually increased by about 4%.
According to CorVel, the soft labor market and a purported decline in the rate of inflation in Workers’ Comp medical costs were responsible. While the former may have had something to do with the poor results, the latter appears to be a rationalization at best. Medical trend rates are running in the double digits, so it is hard to understand how that would increase would contribute to a decline in revenues and profits for a company primarily focused on WC.
CorVel has grown recently through acquisitions, and is still assertively pursuing this strategy. Meanwhile, their difficulty in handling large national WC accounts (due to distributed IT systems), spotty management (some regions are very well run, others less so), and poor discounts delivered by their PPO may be the more significant contributors to the bad news than the environmental factors cited in their press release.
As a maturing market, the Workers’ Comp managed care industry is seeing consolidation among the top players and significant growth among smaller, specialty entities. Expect this trend to continue, as the real innovation is occurring among specialty managed care firms such as Choice Medical Management (regional player in FL), MedRisk (physical medicine and claims workflow automation), OneCall (diagnostic imaging), and in selected firms in the PBM area.
(Note to reader – MedRisk and Choice are consulting clients of HSA)


Medicaid experiments in Sec. Leavitt’s state

Secretary-designate Mike Leavitt, ex Governor of Utah (R), was confirmed by the Senate today. We have alluded to his background in health policy matters, specifically Medicaid experiments, when as Utah Gov. he received approval from CMS to reduce benefits in return for expanding coverage.
As his approval nears, deeper consideration of the Utah experiment is required. While no one knows what will happen with Medicaid, it certainly appears that his efforts as Gov. did not hinder his chances for high office in the present administration.
The program reduced benefits for substance abuse and mental health, increased physician and prescription fees to some beneficiaries, and terminated a program for chronically ill low-income patients.
In return, (According to California Healthline) “The program covers physician visits, basic dental care and up to four prescriptions monthly.
In addition, hospitals in the state agreed to provide $10 million a year in no-cost care for PCN patients, and some specialist physicians also offered their services for no cost. The state anticipated that the new program would allow 25,000 people to obtain coverage for preventive medical care, the Journal reports.
Results have been mixed. “with critics calling the new levels of coverage “so basic as to be inadequate,” and supporters pointing to early data that suggest a drop in the number of people requiring hospital stays and emergency department visits…”
Expect to see many more states adopt variations of the “standard” Medicaid programs as they struggle with rising Medicaid costs and reduced federal reimbursement.


Drug price increases and price negotiations

Two interesting articles on drug pricing appeared in today’s California Healthline; one reporting drug manufacturers’ recent price increases, and the other noting the introduction of legislation authorizing Medicare to negotiate prices with drug companies.
Leaving aside the irony of juxtaposition (those CA Healthline editors know how to lay out a newsletter!), the rationales behind these related announcements is intriguing.
Price increases
According to one industry analyst, prices are going up because drug companies need to increase revenues to offset declines from other drugs going off patent and thus losing their high margins. Also, some feel that there will be downward pressure on drug prices after the Medicare prescription drug program goes into effect 1/1/2006.
Proposed legislation
As noted below, the Medicare Drug bill’s prohibition against CMS negotiation with drug companies for pricing has been contentious, to say the least. Outgoing Sec. Thompson has been rather blunt in his condemnation of the limitation. After all, every country in the EU and most of the rest of the world does negotiate with the manufacturers. However, there is some doubt whether the legalization of CMS’ negotiations with drug companies will have any material effect.
Nevertheless, expect this bill to get a lot of attention in the months to come, if for no other reason than the Democrats will use it to highlight perceived problems with the present Medicare program.

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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