December 30, 2009
I’ve never been a big fan of minimum medical cost ratios for health plans, but this suggestion from The Value At Risk blog on how health plans might respond if minimum MCRs were including in the final healthcare reform legislation isn’t fair — and it isn’t very nice either.
Medical costs and operating expenses combined have come close to – or in most cases exceeded – premiums received by the major health insurance companies. Therefore, health insurance firms are not able to turn a profit from premium revenue alone. Profitability, it seems, is achieved by two other sources of revenue: fees and investment income….If I could make a recommendation to the industry, it would be to arbitrarily “invent” new fees. Maybe introduce another stage to the application process that would require payment of additional fees. To introduce a little bit of irony to the situation, the industry could pretend that it now faces burdensome ratio compliance costs, and must assess a few cents worth of compliance fee upon every claim. Remember: Focus on the Fees.
December 25, 2009
The U.S. Senate gave the nation a Christmas gift yesterday with the passage of a substantial healthcare reform bill, which when reconciled with the House bill will help improve the lives of millions of people. The bill has flaws and shortcomings, as I’ve noted before. But it’s a significant step in the right direction on the road to universal coverage. And who knows, maybe all the debate over whether the bill will or won’t save money at the very least gets us thinking about one day actually affecting administrative simplification, evidence-based medicine and real cost savings (Hey, it’s Christmas, I can dream).
One more thing, you know, being the birthday of Jesus Christ and all: The Economist offers yet further proof of the need to include immigrants in the healthcare safety net. (Hat tip: Infectious Greed):
Immigration keeps America young, strong and growing. “The populations of Europe, Russia and Japan are declining, and those of China and India are levelling off. The United States alone among great powers will be increasing its share of world population over time,” predicts Michael Lind of the New America Foundation, a think-tank. By 2050, there could be 500m Americans; by 2100, a billion. That means America could remain the pre-eminent nation for longer than many people expect. “Relying on the import of money, workers, and brains,” writes Mr Lind, America is “a Ponzi scheme that works.”
This has special meaning for me as I sit down to Christmas dinner with my Japanese-born wife, my Italian-American mom, and my half-Japanese, half-Italian, All-American daughter.
December 24, 2009
House Minority Leader John Boehner (R-OH), following passage of the Senate healthcare reform bill, which doesn’t include a public option and assures private insurance companies an important role going forward:
“Not even Ebenezer Scrooge himself could devise a scheme as cruel and greedy as Democrats’ government takeover of healthcare.”
In the spirit of Christmas, I’ll refrain from comment.
December 23, 2009
In an opinion piece in BusinessWeek, C.J. Bolster of the Hay Group sees in healthcare reform the potential for real changes — and cost-savings — tied to the shift from a fee-for-service model to bundled, global or other types of payment arrangements.
One thing is certain: The government and insurance companies won’t be paying more for services than they pay now. So health-care providers are becoming more efficient and effective. Regardless of what the final health-care reform bill looks like, private insurers will be driving down costs. In our work at Hay Group with some of the nation’s major health-care organizations, we are observing significant changes including effective implementation of new medical and surgical technologies that improve outcomes and conserve resources.
December 23, 2009
CVS Caremark has named Per Lofberg as head of its pharmacy benefit management business, effective Jan. 4, 2010. Let’s take it from the top.
Lofberg, 62, is co-founder and chief executive of genetic testing company Generation Health, an organization that CVS took a minority stake in last month. The same day CVS announced Lofberg’s appointment, the company also said it was increasing its stake in Generation Health. (There must not be any connection between the two announcements because they were made in separate CVS press releases).
Lofberg is a former top executive of leading PBM Medco and later chairman of Merck-Medco Managed Care, the wholly owned unit that drug maker Merck formed after its acquisition of Medco in 1993. That ill-fated merger — which struggled with various conflicts of interest — resulted in Merck spinning off Medco in 2003. This happened about three years after Lofberg had already left the PBM unit to head up Merck Capital Ventures.
The structure of the spin-off left the new entity, Medco Health Solutions, holding the bag (Merck came out smelling like roses). But Medco’s new management team led by David Snow was able to right the ship — and enjoy tremendous success — in part because as onerous as Medco’s separation agreement was with Merck, at least the two companies were separate. Medco could eventually move on, and it did.
I have no doubt Lofberg knows a thing or two about PBMs. But let’s be clear. The issue here isn’t management per se. The issue is the lack of synergy and the channel conflicts between a PBM and a drugstore chain, in the same way the issue for Merck-Medco was the conflict of interest inherent in the merger of a drug company (which makes its money selling drugs) and a PBM (which is supposed to make its money helping manage drug costs).
Merck-Medco, which Lofberg headed for seven years, still ended up a bad marriage. Why should we think CVS Caremark with Lofberg running the PBM operation will be any different?
December 21, 2009
Others have addressed this question before (see prior post), but here’s a good piece by David Leonhardt of The New York Times on how concerns about healthcare can stifle American innovation.
In the cradle of American innovation [Silicon Valley], workers are making career choices based on co-payments, pre-existing conditions and other minutiae of health insurance. They are not necessarily making decisions based on what would be best for their careers and, in turn, for the American economy…Economic research suggests that more than 1.5 million workers who would otherwise have switched jobs fail to do so every year because of fears about health insurance. Some of them would have moved to companies where they could have contributed more, and others would have started their own businesses….Just consider the economic research showing that people married to someone with health insurance are more likely to work at small companies than people who aren’t so lucky.
December 21, 2009
Jonathan Gruber of M.I.T. compares the Senate healthcare reform bill to the House bill (from The New York Times):
Take the Senate on cost control and the House on affordability, and you’ve the best possible bill.
December 21, 2009
A few years back, Corporate Research Group hosted a series of high-level conferences on various managed care topics, and we’ve decided to revisit a few key areas of interest – the first being managed care information technology.
We’re very happy to announce that Aetna chief information officer Meg McCarthy will be the keynote speaker at the Managed Healthcare Industry Forum on Emerging Technology, Monday, March 29, 2010 in New York City.
She will discuss the role of technology in facilitating transactional capabilities that yield administrative savings; care management capabilities that help members achieve better outcomes, including Health 2.0 and member engagement; and the challenges still inherent in getting everyone connected.
We had a lot of success with these meetings in the past — and several requests from previous attendees to re-launch the program. It seems like the time is right given the challenges facing the managed care industry going forward. These include healthcare reform, the erosion of the industry’s fully funded membership base, and the shift to low-premium consumer-directed health plans – all of which mean tighter industry margins going forward.
To survive, health plans must do a much better job of reducing administrative costs and managing care. Health information technology will play an increasing role in both, and that’s why the first industry forum will cover managed care IT. We are expecting 150 or so representatives from leading managed care organizations, benefit consultants, the Wall Street and investment communities, provider organizations, and the pharmaceutical industry.
See you there.
December 18, 2009
Nate Silver of the FiveThirtyEight blog has 20 questions for liberals who believe the Senate healthcare reform bill is too compromised to be supported and should be killed – a viewpoint expressed by Howard Dean in a Washington Post opinion piece and by Keith Olbermann on Daily Kos. Here are two questions that stood out and one more that made me laugh:
Over the medium term, how many other opportunities will exist to provide in excess of $100 billion per year in public subsidies to poor and sick people?
Where is the evidence that the plan, as constructed, would substantially increase insurance industry profit margins, particularly when it is funded in part via a tax on insurers?
How many of the arguments that you might be making against the bill are being made out of anger, frustration, or a desire to ring Joe Lieberman by his scruffy, no-good, backstabbing neck?
I’ll put it another way. Dear Howard and Keith, I feel your pain — and to the extent your comments are simply aimed at motivating the public and political communities to improve the legislation, I’m on your side. But the bottom line is that for all the legislation’s flaws — and there are many and they are real — there’s simply too much good here to just kill the bill.
December 18, 2009
An email sent today by the University of Michigan Health System reads:
You may have received an e-mail in the last two days that contained a press release about the U-M Health System going trans-fat free. I apologize that you received the message as it was sent in error and we are looking into why that occurred.
December 18, 2009
The Employee Benefit Research Institute’s latest report on consumer-directed healthcare confirms a lot of what we already knew or suspected. Members of CDHPs tend to be healthy, wealthy and educated. They are also more cost-conscious and engaged than members of traditional health plans, but less satisfied with the quality of care they receive and less likely to stick with their current plan when given a choice. “Differences in satisfaction with out-of-pocket costs may explain a significant portion of the difference in overall satisfaction rates,” the study notes. And like the wealthy, members of CDHPs represent a tiny share of the overall population. Some counterintuitive findings:
There was no significant variation in the frequency with which people with chronic conditions followed their treatment regimen across plan types, with one exception: CDHP enrollees with allergies were less likely than traditional plan enrollees with allergies to follow their treatment regimen. Generally, these 2009 findings are in contrast to somewhat mixed findings in 2007. In 2007, people in CDHPs with arthritis and hypertension were significantly less likely to say that they followed their treatment regimens for their conditions carefully. But people in CDHPs with depression were significantly more likely to say they followed their treatment regimens carefully than did those with traditional coverage.
December 17, 2009
Shameless promotion time. We’ll be releasing the 18th annual edition of our Outlook for Managed Care next month, our best-selling report. This year’s 100-page edition includes a special section on the “7 Things You Need to Know About Managed Care in 2010.” Here’s a taste.
1. Strategy: Cigna, Humana and United are just three health plans that have announced a new strategic emphasis for a post-reform world. But will these new strategies move the needle in any considerable way? Hint: No.
2. Individual: Reform will boost membership but strain margins – with Blue Cross Blue Shield plans most at risk.
3. Medicaid: Plans will struggle with a growing but changing membership mix that includes childless adults suffering from a variety of untreated conditions and lacking complete medical histories. Bottom line: More members, strained margins, market exits.
4. Medicare: The real impact of reform on various Medicaid Advantage offerings will be as follows: really bad for PFFS and special needs plans, and a toss-up for HMOs. Meanwhile things will be at least O.K. — perhaps even very good — for Medicare PPOs and group.
5. Prospects: Despite the rhetoric that managed care will enjoy some kind of big windfall from reform, we just don’t see it playing out that way long-term — which is one reason why shares in these companies are trading at all-time low multiples.
6. The Big Picture: It will be difficult to remember that managed care is a struggling industry when the underwriting cycle turns up, boosting industry profits. That’s especially true as the up-cycle will likely gain momentum coincident with rollout of the initial elements of reform — masking longer-term challenges such as the erosion of the industry’s lucrative fully funded business lines.
7. Consumer-Directed Healthcare: An important year as CDHPs test whether they will ever be more than a niche product for the relatively healthy and wealthy. We continue to see niche status for this line, but you never know.
December 16, 2009
I was so busy back in October writing about the hyperbolic study sponsored by America’s Health Insurance Plans on the projected cost impact of healthcare reform that I forget to mention on another AHIP report published the same month — the group’s helpful analysis of individual health plan premiums and underwriting approval rates.
Based on an analysis of 2.6 million individual and family policies covering 4.2 million people, AHIP found that 87% of applicants who undergo underwriting for individual health insurance are offered coverage. Young people — under age 18 — were offered coverage 95% of the time. Older people — age 60 to 64 — were offered coverage 71% of the time. Annual individual premiums averaged $2985 single, $6328 family in mid-2009. Premiums varied widely by age, e.g., annual single premium ranged from $1350 for people under 18 to $5755 for those age 60 to 64. Premiums also varied widely by state, as shown in the chart below.
December 14, 2009
Carl McDonald of Oppenheimer says that the Medicare buy-in for people age 55 to 64 is a silly idea for seniors and an unfair compromise for “liberal members of Congress who saw their government run health care plan suffer an inglorious defeat.” Notes McDonald:
Medicare generally costs between $800-1,000 per month. How many 60-year-olds do you know that have $900 lying around that they can use to pay for health care every month? Not too many I’m aware of. So it seems likely to us that there would be two groups of people that would participate in the Medicare buy-in. The wealthy, and people with severe chronic conditions….
The annual Medicare premiums would represent almost 40% of median household income of $57,265 for the age group. This calculation excludes Medicare cost sharing and assumes Medicare premiums of $900 PMPM (per member per month), or $21,600 annually. However, if the government offers a generous subsidy of $600 PMPM (60% of total cost), the plan quickly becomes more affordable as the annual premium drops to $7,200, representing 13% of household income for the median household.
McDonald sees this level of subsidy as a “non-starter.” Meanwhile, Jacob Hacker of Yale, who is most closely associated with the public plan and still strongly supports the concept, writes on The New Republic‘s web site:
I like the idea of a Medicare buy-in for uninsured Americans aged 55 to 65….This could be a simple, popular way of providing affordable coverage. It’s also one, valuably, that could be made available almost immediately, not almost a half decade from now, like the rest of the Senate bill’s big steps.
As for me, I’ll be 55 in just five years, so the idea that I can buy into Medicare with the help of a government subsidy (especially if I get really sick) is reassuring to say the least.
December 14, 2009
I don’t doubt the implications behind the World Health Organization’s ranking in 2000, which placed the United States 37th in healthcare even though we spend more per capita than any other nation. I just wonder if things are a bit more complicated than the topline suggests. New data from the Organisation for Economic Co-Operation and Development offers some perspective:
The United States and Canada have good cancer care, screening more people than most other countries and saving the lives of a greater number of cancer patients. Japan also has higher survival rates for people with cancer than most countries. The Netherlands, Italy, Switzerland and Germany provide good primary care, reducing costly hospital treatment for chronic conditions such as asthma or diabetes. But no one OECD country provides high quality care in all areas….All OECD countries provide universal or near-universal coverage for a core set of health services, except the United States, Mexico and Turkey.
I remember asking Standard & Poor’s chief economist David Wyss back in 2007 (see video) if the high cost and low ranking of the U.S. system is proof that we need to move to single-payer healthcare. His response: “It’s certainly an argument for changing what we’ve got now. I’m not sure you have to go to a single-payer system. Germany does fine with an insurance system, but it has to be a universal coverage.” The sad truth is that after reform, we’ll be closer to universal coverage, but still not there.
December 11, 2009
Since I’ve been hammering CVS Caremark for its recent missteps — a direct result in my view of the ill-conceived merger of the CVS drugstore chain with the Caremark pharmacy benefit management operation — it’s only fair I acknowledge some good news for the company. The Wall Street Journal reports that CVS Caremark has won a two-year renewal beginning September 2010 of its contract to provide PBM services to the Teacher Retirement System of Texas, a pact valued at about $1 billion. The contract comes with four additional one-year options — bringing the total potential to six years.
Notes Lisa Gill of J.P. Morgan:
We view this win as a nice positive for CVS Caremark, mainly from a sentiment standpoint….The company’s ability to retain this contract is important given the heightened concern over business losses.
But Gill also points out that, “As is typical in the PBM industry, we believe pricing will be slightly lower than that of the previous contract.” If Gill is correct, then the news is that CVS Caremark didn’t loss a big client but will be making less money off said client — which is still a lot better than the alternative. Our calls to CVS and the Texas TRS went unreturned, but I’ll update if I do hear back.
Update (Dec. 15, 2009): Texas TRS provided some additional details via an email on Dec. 11, as follows:
In FY 2011, the PBM benefits and fees are projected to be $480 million, according to TRS’ health care consultant, Gabriel Roeder Smith & Company. At this time, we are projecting an 8% trend, so the value of the contract in 2012 would be about $518 million. The contract amount is the amount that will be paid to local pharmacies and the PBM for Rx costs.
Regarding pricing, TRS says, “we will negotiate the best possible contract for our members.”
December 10, 2009
I would argue that Medpac is a better place to go for data on the relative inefficiency of Medicare Advantage compared to traditional Medicare, but the study released yesterday by the House Energy and Commerce Committee won’t make any friends at the water coolers of the nation’s managed care plans either. The study notes:
From 2005 through 2008, the average Medicare Advantage insurer spent over 15% of premium revenue on profits, marketing, and other corporate expenses. Two-thirds of the Medicare Advantage insurers surveyed by the Committee had a medical loss ratio below 85% during at least one of the four years examined. Six of the insurers had medical loss ratios below 75% in one or more years. In comparison, traditional Medicare spends less than 1.5% on administrative expenses and over 98% on health care. In the aggregate, the Medicare Advantage insurers spent $1,450 per beneficiary in 2008 on profits, marketing, and other corporate expenses, nearly ten times as much as traditional Medicare spent on administrative expenses per beneficiary.
As a point of reference, 15% is more or less what the entire managed care industry spends on administration and profits, which isn’t a defense of Medicare Advantage, but rather an indictment of the managed care industry. Taken a step further, profits are less a problem than administrative costs and hassles — which affect not just the plans, but the entire provider community.
The only way this industry is going to survive long-term (and this goes for Medicare Advantage and managed care at large) is to simplify administration and start doing a better job of reducing the cost of care without resorting to the hammer of denials, rescissions and other tricks that may save money but are ultimately harmful to real people. It’s a tall task, but that’s why these cats make the big bucks.
December 10, 2009
Todd Swim of Mercer comments in an article in the Los Angeles Times on the Senate compromise that would allow people age 55 to 64 to buy into Medicare.
“This is the biggest news in this whole reform thing. Those 55 to 65 are the most expensive for employers to cover, and they pay the most if they have to buy coverage on their own. Access to medical care is one of the biggest inhibitors to retiring early, and a lot of people are going to be looking at that as an option.”
December 9, 2009
Word is the Senate will drop the public option as part of a compromise. Here’s how Matt Perry of Wachovia sums up the deal:
Under the compromise, instead of creating a government-run insurance plan, the Senate bill would empower the Office of Personnel Management (OPM) to contract with insurers to set up non-profit plans that would be offered on state-based exchanges. Currently the OPM manages the Federal Employees Health Plan…In giving up the public plan, liberal Democrats look like they’ve received two important items in return – both of which are negative for diversified managed care companies, in our view. 1) Medicare buy-in for people aged 55-64. We have no detail on how this would work, but it could shrink the market for private sector insurance….2) Minimum MCRs. The compromise would require insurers to spend 90% of every premium dollar on medical care.
December 8, 2009
I love nurses, but I feel sorry for them. They have more impact than anybody on the care of sick people in the country, yet I wonder if anyone listens to a damn thing they say when it comes to “reforming” the healthcare system.
I’ll never forget when we asked Dorrie Fontaine, dean of the University of Virginia School of Nursing, what she’d like to see in a healthcare reform package (see video). She said, “We would most like to see that nurses are at the table so that access to healthcare for the poor and underserved in America can truly be accomplished.” In other words, please just listen to what we have to say.
Maybe things will change with yesterday’s formation of National Nurses United, a super union of 150,000 members created through the merger of the California Nurses Assn., Massachusetts Nurses Assn., and United American Nurses. What the new group seeks is “a major escalation in campaigns to expand union representation of nurses and an expanded voice in healthcare reform.” Sounds reasonable to me.
December 8, 2009
I’ve always considered the concept behind eHealthInsurance.com to be a good one — i.e., provide a web site that consumers can use to get insurance quotes, compare competing health plans, and apply online. But I have to admit that an online brokerage for individual and small group insurance isn’t the best business given the likelihood healthcare reform will create exchanges that do pretty much the same thing.
Shares in the company are still up 7% to $14.27 for the year through Dec. 7, but are just a bit higher than the company’s 2006 IPO price of $14. According to Deutsche Bank analyst Gregg Genova — who initiated coverage on eHealth yesterday with a “hold” rating — investors are worried that “many provisions in the health reform bills could significantly disrupt the company’s core individual and small group market.”
Health plans may be forced to cut broker commissions or scale back their presence in the individual and small group market, he says. Commissions from health plans account for 90% of eHealth’s revenues — with three top plans (Aetna, United and WellPoint) accounting for 46%. On the bright side, eHealth “could see a revenue lift from powering new state-based exchanges under certain scenarios.”
Who was it who said in every crisis there is opportunity?
December 8, 2009
As the folks at Medco and Express-Scripts dance in the halls, CVS Caremark eats crow.
The pharmacy benefit management operations of CVS Caremark – which has suffered billions of dollars in lost business – will take “slightly over a year” to recover now that it has rehashed its marketing message to emphasize its PBM capabilities rather than its ties to a retail drugstore chain, according to John Malley, pharmacy benefit consulting practice leader at Watson Wyatt. Malley made the comments during a conference call sponsored by UBS.
As previously reported (see prior post), CVS Caremark had been pushing its Maintenance Choice PBM product, which is designed to drive traffic to CVS stores in part by making 90-day prescriptions available at retail and offering price breaks. The approach — which Malley says left clients “cold” — was part of chairman Tom Ryan’s vision that a combined PBM and drugstore chain could offer enhanced products, services and synergies.
Now Malley says the PBM sales team is stressing the company’s ability to increase generic use, manage specialty drug trends, and most importantly to control overall healthcare costs through drug adherence regimens, personalized medicine and behavior change – similar to the aims of Medco’s Therapeutic Resource Centers and Express-Scripts’ Consumerology initiative. “It really does read very much like…a Medco presentation but not too far departed from an Express-Scripts presentation,” says Malley of the new CVS pitch.
Most surprising, Malley says, CVS is claiming its PBM unit was doing these things even before Medco and Express. “It’s almost like a trust me, trust me, wink type of thing,” he says. But Malley notes, for example, that the concept of personalized medicine is widely considered an initiative from Medco, not CVS Caremark. “Whenever a PBM changes their market message so dramatically and so frequently all the employer clients get a little anxious,” Malley says; “It indicates to them that….you’re A) playing catch-up; or B) are trying to pull the wool over their eyes.”
December 7, 2009
Analyst Matt Perry of Wells Fargo has downgraded the managed care sector to hold from buy, citing the likely passage of the Senate healthcare reform bill. Perry maintained buy ratings on Amerigroup, CVS Caremark, HealthSpring, Humana and WellPoint. Notes Perry:
It’s a case of getting bad news before good news. 1) The Senate is likely to pass a bill in the next several weeks that is relatively unchanged from the bill currently being considered. Thus, investors expecting the bill to be watered down or passage to be delayed could be disappointed. This could cause sector valuation to remain at current levels or contract. 2) After the Senate passes its bill we think the final bill could be watered down, scaled back and/or delayed in conference with the House. This is likely to cause managed care cause sector valuations to expand. After the Senate bill passes we could re-visit our current cautious view, all else equal.
December 7, 2009
From a new analysis by the Commonwealth Fund and the Center for American Progress:
The combination of provisions in the House and Senate bills would save $683 billion or more in national health spending over the 10-year period 2010–2019 and lower premiums by nearly $2,000 per family. Moreover, the annual growth rate in national health expenditures could be slowed from 6.4 percent to 6.0 percent.
December 7, 2009
The Congressional Budget Office says that insurance premiums after reform will be flat to down for the vast majority of people. Those forced to pay more will get much better coverage. What’s this mean for the reform debate? Carl McDonald of Oppenheimer and Carl Mercurio of CRG comment. From the Nasdaq Market Site in New York.