Lewin Group and the Impact of a Public Health Plan

April 9, 2009

This week, The Lewin Group released The Cost and Coverage Impacts of a Public Plan: Alternative Design Options, which projects the likely competitive impact on private health insurers of President Obama’s proposed public plan for the uninsured and small business.  Allow me to sum up Lewin’s findings: Way bad for the health insurance industry. 

Premiums for the public plan would be 30% lower than for comparable private health insurance, Lewin projects.  This assumes the public plan would pay the same rates as Medicare for provider services and have lower administrative costs. 

Lewin projects that 32 million people would leave private insurance for the public plan.  If the public plan is eventually opened up to large employers (in addition to individuals and small business), then 119 million people are expected to leave private insurance for the public plan.  That’s about 70% of all people with private coverage.  (Note: Hospitals and physicians would also take a big hit).

The shift would be far more muted if the public plan paid similar rates to providers as private plans.  Under this scenario, premiums would be 9% lower, Lewis estimates, and private insurers would lose just 6% to 8% of its membership. 

You have to wonder, however, why a public plan would deprive itself of such a huge cost-savings mechanism—at a time of economic crisis and limited funding—just to save the bacon of the health insurance industry. 

Health insurers will need to consolidate and innovate to survive.  Yes, the industry will be smaller by some order of magnitude should the public plan become a reality.  But if you can’t compete and win with a better product, find another career.

Addition (April 14, 2009): Sorry, forgot to note that Lewin Group is owned by UnitedHealth.

Leave a Comment » | Managed Care | Permalink
Posted by Carl Mercurio

Health, Well-Being of Americans Down

April 9, 2009

How you doin’?  If you’re like most Americans, the answer is not as good as a year ago, according to the Gallup-Healthways Well-Being Index.  The index stood at 64.3 in March 2009, down 3% from a year earlier.  In December 2008, the index hit an all-time low of 59.7.  The index, based on interviews with 1000 Americans, measures emotional, physical and behavioral health, attitudes toward work, and something called “life evaluation,” which captures individuals’ attitudes toward their lives to-date and belief in the future.  The life evaluation component fell 16% in March 2009, compared to a year earlier.

Leave a Comment » | Wellness/Disease Management | Permalink
Posted by Carl Mercurio

‘Pain Over Poverty’ for Rheumatoid Arthritis Patients

April 8, 2009

Another good example of the kind of consumer-directed healthcare we don’t want comes via Adam Feuerstein’s blog on TheStreet.com.  Reporting on a new J.P. Morgan study showing that the weakened economy is causing rheumatoid arthritis patients to forgo certain drug treatments, he writes:

“Doctors polled in the survey indicated that more rheumatoid arthritis patients are canceling scheduled appointments or want to space out appointments even further. Patients and insurance companies are asking for less-expensive drugs or requiring more medical proof that higher-priced drugs are needed. And for patients who have lost their jobs or insurance coverage, expensive anti-TNF therapy is no longer an option.”

1 Comment | Pharmaceutical and Biotech | Permalink
Posted by Carl Mercurio

Medicare Advantage Update: 0.81% Beats 0.5%, But Not By Much

April 8, 2009

Reimbursement rates for Medicare Advantage plans will rise 0.81% in 2010, the government said Monday, which beats preliminary expectations of a 0.5% increase, but not by much.  Factor in risk adjustments and the likelihood of a fix for physician payments, and rates for Medicare plans will probably be anywhere from flat to down 4% in 2010.  We’ve gone through the implications of all this in a prior post.  What’s news here is that word of the higher-than-expected rate increase boosted managed care stocks.  But it didn’t change the overall outlook.  Medicare health plan profits will be squeezed, benefits will be cut and plans will retreat from certain markets and product lines.

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Posted by Carl Mercurio

Walgreens, Medicaid and the Business of Healthcare

April 6, 2009

The business of healthcare is filled with contradictions, complications and challenges.  For your consideration:

On Thursday, March 30, Walgreens announced it would provide free healthcare services at its Take Care retail clinics to anyone who loses their job and has no health insurance, which the company said demonstrates its “commitment to families during tough economic times.”

On Friday, March 31, Walgreens announced it would no longer fill Medicaid prescriptions at 44 pharmacies in Washington state because of proposed reimbursement cuts on brand-name drugs.  These cuts, Walgreens said, will “severely impact…the economic viability of doing business in Washington.”  Walgreens also said that limited access to pharmacies would negatively affect patients and drive up costs.

Where to begin? 

Let’s start with Take Care, which like most retail clinics offers easy access to routine treatments of minor conditions such as colds, coughs, soar throats, allergies and urinary tract infections.  Fees start at $59 per visit. 

CRG published a study on retail clinics back in 2007, and our conclusion then and now is that generally speaking the retail clinic business model is a work in progress.  In some respects, these clinics act as loss leaders driving foot traffic to retail outlets.  So offering free services to a small percentage of an already relatively small patient base isn’t that big a sacrifice in business terms; although it might mean something to some actual people.

Eating a hefty reimbursement cut on brand-name drugs, however, is a bigger deal from Walgreens’ perspective.  “The State of Washington now has the worst payment rates in the country for brand name medications and one of the lowest…for generic medications,” Walgreens said.

A state spokesman admitted that the proposed reimbursement rate of 80% of Average Wholesale Price for brand drugs, compared to 86% currently, would likely be the lowest in the nation.  However, he said the state’s dispensing fee of $4.25 to $5.25 is generous.

The reimbursement cuts alone are expected to save $14 million.  Other initiatives, including an increased emphasis on generics and an effort to control narcotic prescriptions, are expected to bring total savings to $109 million.  (Hospitals and physicians also face cuts as the state attempts to deal with an unforgiving budget crisis).

The drug reimbursement cuts were expected to take effect April 1; however, a U.S. District Court Judge issued a temporary restraining order at the request of the drugstore industry. 

Assuming the cuts go through and assuming Walgreens pulls 44 pharmacies, the state will attempt to ensure access through mail order and other programs.  The state spokesman noted that in 2002, when the state reduced reimbursements to 86% of AWP from 89%, it lost about a dozen rural pharmacies; all but a couple eventually returned.

All of which suggests just how ugly the healthcare debate can get when push comes to shove.  That’s true for government organizations hard-pressed to cut costs and even for companies “committed to families.”

Leave a Comment » | Retail Healthcare | Permalink
Posted by Carl Mercurio

Thoughts on Value vs. Cost of Drugs

April 2, 2009

Given the permanent debate on drug costs relative to their value, here are 15 points on how drugs should realistically be viewed and dealt with in the context of delivering cost-effective healthcare:

1. Many drugs are extremely useful in saving, prolonging or improving lives

2. High value drugs deserve premium pricing and long patent protection

3. Most drugs can “only” improve symptoms, not cure the underlying disease, but this is often just as important

4. There are many drugs with marginal or no real clinical benefits

5. Current pricing doesn’t take into account the value of a drug (e.g. high-value aspirin in the setting of acute heart attack costs only pennies!!) 

6. To discover and develop new high value drugs isn’t easy, and companies can spend billions on research and not find any such drug

7. Companies should return to missions that emphasize true patient needs, not Wall Street needs

8. Research and development should again be the focus, not marketing

9. Companies should stop inventing new minor diseases that justify questionable therapies   

10. Marketing directly to consumers should be curbed or stopped

11. Companies should stop downplaying or hiding safety risks

12. Physicians should act as barriers (not accomplices) to questionable practices by drug companies

13. Drugs for life threatening diseases should get a much easier path to the market

14. FDA should be able to issue conditional approvals, with automatic withdrawals of approved drugs if promised post-approval studies are not taken by the companies

15. A private, independent organization (not insurance companies or the government) should be set up to rate drugs, procedures and optimal standard of care, with payments closely following the rating. Any costs above and beyond optimal care should be born by the patient, not the insurer.          

By recognizing these realities and following these “principles,” costs will go down without losing value.  Pharmaceutical companies will have to adjust their business models over time if these points will be adopted.  Some companies won’t make it, but the good ones will emerge even stronger. The lack of adequate innovation, which is at the root of most of their more controversial practices, will force pharmaceutical companies to adapt and evolve in order to survive.

Leave a Comment » | Pharmaceutical and Biotech | Permalink
Posted by Boas Gonen, M.D.

Healthcare Reform Ironies: Part I

April 1, 2009

No doubt there will be plenty of ironies associated with healthcare reform.  Here’s one from today’s New York Times.  It concerns a potential compromise on Obama’s proposed government-run health plan for the uninsured and small businesses, a measure health insurers adamantly oppose:

“Congress would authorize a new government-run insurance program, but it would come into existence only if certain conditions were met—if, for example, private insurers failed to rein in health costs by a certain amount after several years. Such a condition would serve as a strong incentive for insurers to ratchet down payments to doctors and hospitals.”

Got irony?  Send along your favorites.

Leave a Comment » | Healthcare Reform | Permalink
Posted by Carl Mercurio

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