It looks like the Anthem-Wellpoint merger is going to go through after all. John Garamendi, the Insurance Commissioner of California, was holding up the merger, claiming it would cost California’s members in both dollars and health care quality.
Garamendi successfully negotiated with the merger parties, getting them to provide over $100 million in payments to fund rural health, child health, nurse training, and other initiatives. In addition, Anthem-Wellpoint promised to not raise CA premiums to pay for the merger; the actual language mentioned that the entity will not pass along merger costs to Blue Cross (Anthem) customers in CA.
This is exactly what we had predicted would occur; the only surprise is it took longer to get the deal done than I thought.
What does that mean? Maybe something, perhaps not much. There are any number of reasons for premium increases, and lots of ways to change premiums that could be used to “hide” merger-associated costs. These could include:
–plan design changes
–different provider panels
–amortization of capital expenses
–different risk pooling
–increased distribution expenses
— and on and on.
The net is this – Garamendi got some additional concessions, the “rate increase” deal is probably unenforceable, and he, and Anthem-Wellpoint, can move on to other priorities. For Garamendi, it may likely be contingent commissions, sham-bidding, and other broker-consultant games. Your author’s opinion is this elected official can’t stand to be upstaged by another regulator, and Mr. Spitzer’s press is likely driving Mr. Garamendi nuts.
While Anthem and Wellpoint are free to move on, brokers, agents, et al are likely to feel the “wrath of a regulator scorned.”
The Piper Report, a well-respected weblog focused on all issues healthcare, published a great piece about techniques for encouraging enrollment in high-quality health plans.
Briefly, the piece documents the success some states see when they use “performance based auto-assignment”. This is engineer-ese for enrolling people in health plans based on the performance of the plan. States practicing “PBAA” (my acronym, not their’s) assign Medicaid recipients to health plans based on a comprehensive analysis of plans’ performance – quality, cost, access, patient satisfaction may be used in this analysis. This assignment only occurs if the recipient has not picked their own plan within the required time frame.
“PBAA” is being extended to Medicare prescription drug beneficiaris, in January of 2006. The first of that year, over 7 million Medicare recipients will find themselves participating in prescription drug “auto-assignment”.
There will be clear winners and losers, but among the winners will be taxpayers and beneficiaries. No topic has generated more heat and less light than the issue of “pay for performance” – here is the best example to date of why performance matters.
Perhaps employers should consider employing the same method in selecting health plans for those workers who can’t seem to enroll on time…
Hospital costs are among the key drivers of medical inflation. In turn, one of the largest components of hospital costs is labor.
What may not be “new news” to many is the nationwide nursing shortage. This shortage is leading to closure of wings or departments, hospitals raiding each other for staff, importation of nurses from the Phillipines and other countries, and chronic overtime for the majority of nurses.
Nowhere is this shortage more acute than California, where the “rock” of the RN shortage has run into the “hard place” of the law. A 2003 California law requires all hospitals to maintain a staffing ratio of one nurse to each eight patients. It further limits the number of vocational nurses, and prohibits all but RNs from caring for critical trauma patients. That’s today.
California’s nursing shortage
In less than two months, hospitals will have to staff at a 1-to-5 standard. However, regulators are asking for, and will likely receive, a delay till 2008 for implementation of that standard. This looks like a foregone conclusion, which is certainly appropriate as many hospitals can’t meet the standard today. In fact, according to a piece on the California nursing shortage in California Healthline,
“A California Healthcare Association survey found that 85% of hospitals do not comply with the regulations, and a California Nurses’ Association survey found that 42% not do comply. ”
Here’s the link. Penalties for non-compliance are significant, and will likely be enforced with more alacrity in coming months. With state laws mandating more nurses, and few nurses to be found, the price elasticity rules of economics will come into play. Big demand for few nurses mean all nurses will make more money – probably a lot more.
The result – higher hospital costs in California, and, short of importing nurses, little any managed care firm, insurer, or employer can do about it.
The latest information on the Coventry acquisition of First Health may provide a sense for the future of the merged entity.
Profits at First Health are down, ostensibly due to “merger related charges” and steep declines in revenues from FH’s MailHandler’s employee benefit program.
The MailHandler’s program is a federal employee health benefit plan, formerly administered by CNA Insurance. Several years ago FH won the contract, taking it from CNA (who happened to be a FH customer at the time). It accounts for a significant portion of FH’s topline (revenue).
Coventry EVP Tom McDonough has been named to oversee the integration of FH and Coventry. McDonough joined Coventry from UnitedHealthGroup, where he was responsible for their large, multi-state employer groups. Clearly, this experience is highly relevant to FH’s present market mix.
Several years ago, UnitedHealthCare divested itself of its’ Workers’ Comp entities, specifically Focus Healthcare and MetraComp, after the MetraHealth acquisition. McDonough was at United at the time, as were other current Coventry executives (e.g. Harve DeMovick, now CIO).
Coventry and FH stock prices have not fared well since the acquisition announcement. The Motley Fool, long a critical observer of FH management, had this to say just after the announcement:
“No sooner had the buyout news gone out than 11% of Coventry’s market capitalization vanished, and McGraw-Hill’s (NYSE: MHP) Standard & Poor’s placed Coventry on its watchlist for a possible debt-rating downgrade. The reason: Coventry may be overpaying for this underperforming business. Coventry plans to pay for its purchase roughly half in stock (at a 0.1791:1 exchange rate) and half in cash ($9.375 per share of First Health). At Coventry’s Wednesday closing price, that would value First Health at $18.75 per share, imputing a valuation of $1.7 billion to First Health. Factoring in Coventry’s own share price decline in response to the deal’s announcement, however, brings the agreed value of First Health shares down closer to yesterday’s close — about $17.70.”
Currently, Coventry’s stock price remains significantly below the pre-acquisition level (from $53.50 to $44.01 today). I doubt either Coventry or FH management are terribly pleased with this…
One of the criticisms advanced by analysts is the potential for Coventry management (which is highly respected) to become distracted by the merger and the non-core FH business – PPO, Workers’ Comp, etc.
Net is this – if the Coventry stock price continues to languish, expect to see a “return to the core” – perhaps spinoff of some of the non-core assets.
I live in Madison, Conn., a town of some 18,000 located between New Haven and Old Saybrook on the Connecticut shoreline. Madison is a pretty well-off place; schools are excellent, services good, and government responsive.
To fulfill my civic responsibility, I have been working on a couple of projects with the Superintedent of Schools, a very professional, and very capable, woman. Of late, the topic of interest has been health care. Madison has some 550 employees, including teachers, administrators, police, and town office staff. Most of these employees are covered under one of another union-negotiated health plan, and all get great (read “expensive”) health benefits.
The Town is now in negotiations with the unions on new contracts, which will include health insurance coverage. The contracts will run for three years, and benefits are fixed for that period.
Here’s the issue. Costs are around $7000 per employee per year, and increasing over 12% per year.
Think about that. Costs will be $14,000 per employee in 5 years, and $28,000 in 10. That is not a long way off.
These increases are simply unsustainable. Like many others, I have been predicting we would finally reach a point where we could not afford health insurance. Clearly, for the taxpayers of Madison, that point will be reached in the next ten years.
Mari Edlin in “Managed Healthcare Executive” highlights some of the factors driving inflation in prescription drug expense in workers comp.
Edlin’s article includes interviews with a number of industry sources (your humble author included), but perhaps the most insightful piece relates to the role of the physician in managing drug costs.
“George Furlong, director of medical payment products for CHOICE Medical Management Services in Tampa, agrees that managing utilization is key to controlling costs and places the onus on physicians. “Since no copayment exists in workers’ compensation, there is no incentive for the patient to ask for a less expensive drug
Tom Lynch’s “Workers’ Comp Insider” blog provides interesting news related to return to work, safety and risk management among other topics. The latest post is a synopsis of state-specific WC news.
A good site to bookmark and check frequently; the archives are a treasure trove of information on these topics.
CMS, the federal agency that oversees Medicare, announced yesterday that it will be increasing payments to physicians across the board effective 1/1/05. The increase will directly affect Worker Comp fee schedules, which (in large part) are based on Medicare’s fee schedule.
CMS’ announcement includes the following:
“The Physician Fee Schedule sets rates for how Medicare pays more than 875,000 physicians and other health care professionals. In 2005, CMS projects that aggregate spending under the fee schedule will increase 4 percent to $55.3 billion, up from $53.1 billion in 2004. The spending increase is due in part to an MMA provision that increased physician payment rates by 1.5 percent, a move that negated a previous law’s planned cut of payment rates by 3.3 percent for 2005.”
We have been telling clients and state agencies for years that basing fee schedules on Medicare is a bad idea for several reasons. Here is a clear demonstration of one of them – the state effectively cedes control over pricing to the feds.
Others include a much different mix of services (comp – musculoskeletal, Medicare geriatric, oncology, cardiac) and completely different communications requirements (none in Medicare, intensive in comp for RTW, care management, etc.)
Here’s the net. Comp insurers and self insured employers will be paying more for physician services (on a unit cost basis) than they did this year. Moreover, with the change from the planned reduction to an increase, the impact is almost 5%.
The news is not all bad for the simple reason that price per unit of service is but one of the drivers of medical inflation in workers comp. But therein lies the rub; with the overwhelming emphasis on price controls in the WC managed care industry, many have neglected utilization and frequency which are significantly more important contributors to medical trend increases.
The wide geographic variation in treatment has received extensive coverage in the Medicare and group health arenas, with one of the most-cited studies coming from the Dartmouth Medical School. The Dartmouth Atlas of Health Care uses Medicare data to illustrate the difference in frequency and utilization across states and MSAs, and is required reading for anyone pursuing this subject.
One of the questions raised by the Atlas is “does this variation also occur in other lines of coverage?” While there is not nearly as much data available on this subject, two fairly recent studies in Texas indicate that disparities in cost are not limited to the Medicare world.
The Research and Oversight Council’s (ROC) Analysis of the Cost and Quality of Medical Care in the Texas Workers’ Compensation System provides an excellent (and brief) summary of the two studies, one by the Council itself and the other by the well-respect Workers Compensation Research Institute (WCRI). Of note, the ROC’s study indicates that the average annual medical cost per claim range from $4242 in the Dallas/Fort Worth area to $2835 in San Antonio/Austin.
Undoubtedly this variation exists in other states as well. This raises some interesting issues, including:
–In states with regulated rates, do underwriters select risks based on lower-cost medical areas? If not, why not?
–Can payers focus their managed care efforts on high cost areas and away from low cost areas, and if not, why not?
–What is going on? Are treatment patterns different? Are costs higher? Are injuries or illnesses different? Is there a different mix of providers?
Clearly, medical care is delivered in different amounts, by different types of providers, via different procedures, in different areas. That being the case, why are managed care programs so generic? And could that be one of the reasons why they are both frustrating to the provider and ineffective at moderating health care cost increases?
I recently had a conversation with an attorney at a major insurer regarding the “Spitzer investigations.” When asked his opinion of the emerging scandal, he all but brushed it off, saying “these risk managers knew what was going on all along.”
My reaction was one of disbelief mixed with alarm. Disbelief at the cavalier brush off of what is becoming a rapidly growing scandal, and alarm that this attorney thought it was OK as long as the victims knew they were being victimized. I also felt somewhat na