Insight, analysis & opinion from Joe Paduda


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.


HHS’ new leader’s views on drugs

In testimony before Congress last week, Mike Leavitt, Secretary of HHS nominee, stated he did not believe the Secretary should have the ability or power to negotiate for drugs on behalf of Medicare recipients.
Here’s how the NYTimes reported it:
“Mr. Leavitt said he did not believe that the secretary should have the power to negotiate with drug manufacturers to secure lower prices for Medicare beneficiaries.
The current secretary of health and human services, Tommy G. Thompson, said last month that he wished Congress had given him that power. But Mr. Leavitt said that a healthy, competitive market was a better way to hold down drug prices.”
Huh? No fiduciary responsibility to his employers, the taxpayers? No mention of using the power of the position to encourage stronger competition? And this at a time when Medicare and Medicaid costs are accelerating at rates more than twice that of general inflation.
Kudos to for highlighting this…


Drug prices and the Feds

A very interesting, if politically skewed, column claiming that the Veteran’s Administration’s ability to negotiate drug prices amounts to “drug price-fixing” appears in the January 21 issue of the LATimes.
The column is authored by an economist working for an institute which receives funding from the pharmaceutical research and manufacturers ass’n (PHRMA) and is somewhat breathtaking in its claims. For example, the author, Benjamin Zycher, senior fellow in economics at the Pacific Research Institute, states that the drug companies are forced to participate in the “price fixing” scheme required by the VA, for if they do not, they would be excluded from “a market accounting for roughly 10% to 15% of their sales.”
News flash to Mr. Zycher – for-profit companies do this all the time – if a potential customer can’t afford a Mercedes, Mercedes does not have to sell to them. Many companies would be delighted to have their products priced such that they are affordable for 85% of the total potential market.
Next, Mr. Zycher states
“Despite many casual assertions about “huge profits,” the truth is that pharmaceutical companies face enormous research-and-development costs


Cox-2s – the cure is worse than the disease

To no one’s surprise, a recent study indicates the vast majority of patients for whom Vioxx, Celebrex et al were prescribed would have been fine with older NSAIDS – (non-steriodal anti-inflammatory drugs). In fact;
only 2% of participants were at “high risk” for gastrointestinal side effects and should have taken COX-2 inhibitors rather than older nonsteroidal anti-inflammatory drugs (Dai et al., Archives of Internal Medicine, 1/24).”
Recall that the main benefit of COX-2s was their alleged benefits for those patients at risk for gastrointestinal side effects. Price was no benefit, as the COX-2s are much more expensive than a common substitute, ibuprofen (Advil).
California HealthLine summarizes the findings succinctly:
“Randall Stafford, a Stanford University internist and an author of the study, said that marketing efforts by Merck, which in 2000 spent $161 million to promote Vioxx, contributed to the increased number of COX-2 inhibitor prescriptions. Stafford said, “There’s an assumption that newly approved drugs somehow have proven themselves to be better than what’s already available” (USA Today, 1/24).
G. Caleb Alexander, a University of Chicago professor and an author of the study, said, “What we saw was widespread, rapid adoption of an interesting and promising but expensive and largely untested medication by millions of people with little or nothing to gain from long-term use” (Los Angeles Times, 1/22). ”
So, Merck paid $161 million in a single year to
–get people to take drugs which were not demonstrably better than much cheaper alternatives;
–get doctors to greatly over-prescribe to many people who would not benefit from their main selling point:
–thereby increasing health care costs by
—-forcing insurers and patients to pay more money for drugs they did not need;
—-selling a drug that causes cardiovascular problems (requiring treatment, not to mention killing patients) when used at high dosage over a long period of time; and
—likely leading to litigation against insurers, managed care firms, physicians, and employers brought by workers comp patients who received COX-2s for treatment of a WC injury.
An executive at a top-five WC TPA told me that their legal department is keeping a “very close eye” on COX-2s. Undoubtedly, so is the plaintiff bar.

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.



© Joe Paduda 2022. We encourage links to any material on this page. Fair use excerpts of material written by Joe Paduda may be used with attribution to Joe Paduda, Managed Care Matters.

Note: Some material on this page may be excerpted from other sources. In such cases, copyright is retained by the respective authors of those sources.