President Obama defended healthcare reform on The Daily Show with Jon Stewart . Click here to view the video.
WellPoint’s firing “without cause” of its third highest ranking executive Dijuana Lewis, 51, was actually a mutual decision tied to her dissatisfaction with an organizational change that shifted some of her responsibilities to a newly formed business unit, according unnamed sources quoted in the Indianapolis Business Journal, where the company is based. More in this week’s issue of Health Plan Market Trends Letter.
The Integrated Healthcare Assn. has released a report on the lessons of accountable care organizations in California, which contains some interesting tidbits for health plans. (hat tip: Charles Boorady, Credit-Suisse). Among the lessons cited in the report:
- “ACOs are not a panacea for health care spending control: Some of California’s provider organizations have been able to use their market clout to extract high payments from health plans, as the plans’ ability to exclude providers from their networks is limited by consumer demand and regulatory network adequacy requirements. Higher-cost and inefficient providers have not faced enrollment penalties because the current California market does not incentivize purchasers or consumers to choose lower-cost or more cost-efficient providers. As ACOs are rolled out across the country, health insurance benefit designs should reward patients for choosing higher-value ACOs.”
- “ACOs must be agnostic to insurance type: Most provider organizations in California have focused on commercial, Medicare, and Medicaid HMO plans…but for ACOs to be viable across the country, mechanisms must be found to encourage PPO and traditional Medicare and Medicaid patients to use their services.”
- “Health plans acting in concert on payment methods and performance measurement helped facilitate the growth of California’s provider organizations, and should also play an integral part in fostering ACO development nationally:…In the early days of medical group formation, plans often acted in concert and adopted similar capitation payment parameters, which lessened the administrative burden on groups….Health plans must be ready and willing to foster ACO formation along similar lines, as a critical mass of payers will be pivotal to their success.”
Citi analyst Carl McDonald has downgraded WellPoint Inc. to “hold” from “buy,” in part because shares in the company have done well of late. “WellPoint’s stock is up 11% over the last three months, and it now trades at 9x [i.e., nine times projected 2011 earnings], which we think is a fair multiple given how much reform related exposure the company has,” McDonald says.
“Like many other plans in the industry, WellPoint’s growth opportunities are limited, and margin expansion will be difficult,” McDonald says. He expects WellPoint’s commercial risk membership to fall in 2011 — as more employers go self-insured. He also expects margins to be capped by minimum MCR regulations. The establishment of insurance exchanges in 2014 will impact WellPoint’s individual and small group business, historically an area of strong profitability for the company, McDonald says. “The standardized benefits on the exchange will commoditize the products, and make premium rates the primary variable consumers will [look] at in selecting a plan,” he says.
I’ll have more to say in my weekly newsletter Health Plan Market Trends on last week’s two big health plan management changes:
1. Aetna announced that chairman and chief executive Ron Williams, 60, (my choice for the smartest guy in managed care) was retiring from the company. Aetna president Mark Bertolini, 54, will take over the CEO slot effective Nov. 29 and join the company’s board. Williams will hold the title of executive chairman until April 2011, after which Bertolini will become chairman as well.
2. WellPoint fired Dijuana Lewis (my choice for the best name in managed care) without cause from her position as president and chief executive of the company’s comprehensive health solutions business unit, according to an SEC filing. She will remain with the company through 2010 to “assist in the transition of her duties.”
by Wendell Potter
Bloomsbury Press, 2010
Reviewed by Carl Mercurio
About forty-five thousand people die in America every year because they have no health insurance. I am partly responsible for some of the deaths making up that shameful statistic. – Wendell Potter, Deadly Spin
Who in the managed care industry could forget Wendell Potter?
He’s the former health plan public relations executive who skewered the industry in Congressional testimony last year – playing the role of “whistleblower” during the final months of the healthcare reform debate.
Now, two years after pulling the plug on a 20-year managed care career and a six-figure job as Cigna’s top PR man, Potter has released a tell-all book: Deadly Spin: An Insurance Company Insider Speaks Out on How Corporate PR is Killing Health Care and Deceiving Americans.
What’s truly novel about Deadly Spin is that it provides an inside look at how health insurance industry spinmeisters mobilize to justify the actions of health plans that deny care, to discredit supporters of healthcare reform, and to position the industry as “part of the solution” to our healthcare problems. The formula: extensive use of industry-funded front groups, fearmongering campaigns, disinformation and reliable industry allies (third-party advocates and pundits) to disseminate pro-health plan messages that can’t be traced to insurers.
Potter describes, for example, a successful stealth campaign in the late 1990s to kill the Patient’s Bill of Rights – which would have required external review of health plan coverage denials. He outlines how the industry hired PR firm Porter Novelli to form the Health Benefits Coalition as a front to conduct “a fearmongering campaign” to convince the public and lawmakers that the bill would lead to “a tidal wave of frivolous lawsuits that would cause health insurance premiums to skyrocket.”
In another example, Potter describes the use of PR firm APCO Worldwide in the industry’s campaign to bash Michael Moore’s HMO-bashing documentary Sicko. APCO established a front called Health Care America to place industry-friendly advertising, news and commentary — a strategy the firm had used in its work with Big Tobacco.* (See my review of Sicko).
Cigna itself used a similar strategy in the case of a 17-year-old health plan member who died of cancer after being denied coverage of a liver transplant, hiring APCO “to place stories with reporters, editors, and producers it had good relationships with and to get ‘third parties’ to convey Cigna’s messages.”
It’s commendable that Potter has come clean about his role in the industry’s PR machine. (More broadly, Deadly Spin gets a lot right about what’s wrong with the U.S. health insurance industry — albeit, much of it well-covered ground). Still, it’s hard to feel much empathy for a guy who was paid handsomely to lie to news reporters, deceive the public, demonize the uninsured, suppress HMO horror stories, and undermine efforts to reform the U.S. healthcare system – all with very little remorse.
I didn’t feel then that we were doing anything unethical or underhanded. We were all well read and well educated….We all wore nice clothes and ate at the best restaurants and had kids in good schools and houses in the right zip codes. We knew people in Congress and the White House. We talked every day to reporters at the Wall Street Journal and the New York Times. We were powerful and influential….The American dream didn’t get any better than this.
Potter can also sound a bit presumptuous at times, such as when he says of his Congressional testimony: “Telling the truth is very cathartic. I highly recommend it” – advice that’s probably unnecessary for those Americans who never made “deep into six figures” or ate off gold-rimmed dishes on corporate jets and yet still managed to tell the truth for much of their lives.
Potter’s says his epiphany came in 2007 in Wise County, VA, in the southern Appalachians at a health fair organized by Remote Area Medical – a relief group founded to deliver basic medical care to third-world countries and now meeting similar needs among the uninsured and underserved in the U.S.
Hundreds of people, many of them soaking wet from the rain that had been falling all morning, were waiting in lines that stretched out of view….Some of those lines led to barns and cinder block buildings with row after row of animal stalls, where doctors and nurses were treating patients….Those people in Wise County would not have had to stand in line in the rain for hours to get care in animal stalls if so much of the money Americans spend for health care didn’t wind up in the pockets of insurance company executives and their Wall Street masters.
The Last Straw
Potter cites three other drivers of his 2007 spiritual awakening. The first: He attended the first U.S. public screening of Sicko, which depicts the very type of HMO horror stories Potter had worked so hard to suppress over the years. “I had to fight to hold back tears,” he writes. (The next day, Potter relates, APCO launched the industry’s campaign to discredit Moore and Sicko).
The second: The case of Nataline Sarkisyan, the 17-year-old Cigna member who lost a three-year battle with leukemia after initially being denied coverage for a liver transplant. (A week later, Cigna reversed its decision in the face of public protests; however, Sarkisyan died before the procedure could be attempted).
Sarkisyan’s case is a complex example of a very real problem: what happens when an insurer denies coverage to one of its own sick members. It’s complex because Sarkisyan was a very sick woman. She was suffering serious complications from a bone marrow transplant, and she was on life-support. Other credible independent transplant specialists also questioned the efficacy the procedure. Nor is it clear the transplant would have been approved in nations with nationalized healthcare. Even Potter admits, “Who was right? The reality is that in many cases no one ever knows.” The real issue is that a conflicted for-profit company shouldn’t be making this kind of decision. (See Maggie Mahar’s excellent coverage of the Sarkisyan Case).
Potter had to spin the story of Sarkisyan – a girl just three years younger than his own daughter – and that was the last straw for him: “I didn’t feel up to the task of spinning. I felt, instead, burned out.” But he did spin, and shortly after, quit.
It’s ironic that such a complicated case pushed Potter over the edge – as opposed to a clear-cut example of a health plan denying warranted coverage. All of which brings us to the final driver of Potter’s spiritual awakening: he quit drinking on Oct. 17, 2006.
If I had not quit drinking, I would not have been affected by Sicko the way I had been, and I probably would not even have thought about going to the [Remote Area Medical] expedition in the first place. I also doubt that I would have allowed myself to get so emotionally involved in the life and death of Nataline Sarkisyan.
The alcohol made him do it? Just kidding. But Deadly Spin does feel like the story of a 50-plus American executive who has a midlife crisis as much as it’s about one man’s realization that spending 20 years lying to cover-up the unconscionable practices of the health insurance industry is a bad thing:
I couldn’t get out of my head the nagging belief that I was put on this earth to do something much more important than what I had been doing for the last twenty years.
Dude, what guy in his fifties doesn’t feel that way?
*Addition, Nov. 23, 2010: Potter later clarified that APCO originally formed Health Care America with funding from the pharmaceutical industry.
Big win for Catalyst Health Solutions, which renewed its contract to administer pharmacy benefits for 1.2 million Wellmark Blue Cross Blue Shield of Iowa and South Dakota members following a competitive bid. Shares in Catalyst are up 2% in afternoon trading today on word of the seven-year pact. Wellmark accounted for 18% of Catalyst revenues in 2009, making it the company’s biggest client.
It’s been a busy couple of months for Catalyst. In August, for example, Catalyst agreed to acquire FutureScripts, the 1-million member PBM unit of Independence Blue Cross, in a deal valued at $225 million. The agreement includes a 10-year contract for Catalyst to provide PBM services to Independence.
Michael Minchak of J.P. Morgan projects that the Wellmark and Independence accounts will generate $1.3 billion in revenues for Catalyst in 2011, representing 25% of total projected company revenues for the year. “This should help to minimize some renewal risk going forward,” Minchak says, adding, “The company should see less than the typical one third of its book up for renewal in any given year.”
As far as I can tell, the key to the Justice Dept.’s antitrust lawsuit against Blue Cross Blue Shield of Michigan isn’t that “most favored nation” clauses in hospital contracts guarantee a health plan receives competitive prices for medical services; rather it’s the allegation that the clauses provide BCBS-MI with a competitive edge by driving up the cost of doing business for competing plans.
Attorney Art Lerner of Crowell & Moring (Washington) tells me that MFN clauses aren’t inherently illegal. They can be legitimate hedges in long-term contracts to ensure a health plan pays no more than the “market price” for provider services.
Concerns may arise, however, when a health plan’s market share is so big it can effectively set the “market price.” For example, a hospital would think twice before offering a small health plan a discount to win its business when any gains would be outweighed by having to provide the same low rate to a market-dominant MFN plan.
The Justice Dept. argues that BCBS-MI goes even further, in some cases stipulating that competing health plans must pay up to 40% higher rates. BCBS-MI has even agreed to increase the rates it pays a hospital in order to win MFN status, the Justice Dept. says, “thus buying protection from competition by increasing its own costs.”
Strong words — even for a guy like me who has a brother named Rocco. But more important, Lerner argues, is whether BCBS-MI is using its size in combination with MFN clauses to lock out the competition. According to the Justice Dept., BCBS-MI has a 60% statewide market share (although that share may vary considerably by city and county) and at least 70 of the Michigan’s 131 hospitals have MFN clauses in their contracts with BCBS-MI.
BCBS-MI defends MFN clauses in general, noting that it’s bad business “to reimburse a provider at a higher rate than we can otherwise negotiate.” BCBS-MI adds that “low cost guarantees are widely used in a variety of contracts in a number of industries.”
The Justice Dept. says it will challenge misuse of MFN provisions by health plans nationwide – a potential problem for other BCBS plans like WellPoint, which tend to use MFN clauses the most, says Charles Boorady of Credit-Suisse. Boorady adds, however, that WellPoint’s contracts don’t appear to “require competitors to be priced higher,” only that WellPoint gets the same discounts as competitors.
The lawsuit also has potential antitrust implications for hospitals, says David Marx of McDermott, Will & Emory. “Healthcare providers should exercise caution in agreeing to explicit price differentials between an insurer and its competitors, especially if that insurer has a dominant market share,” he says.
HHS Secretary Sebelius is asking states to help ensure that health plans continue to offer child-only coverage in the individual market. In a press release, she notes that health plans Kaiser and CareFirst will offer individual child-only policies in Maryland through uniform open enrollment as part of an agreement with state regulators. She also points to a new California law that would bar health plans from the individual market for five years if they refuse to offer new child-only policies.
Several health plans stopped offering new individual child-only policies after Sept. 23, when healthcare reform made it illegal to deny coverage to sick children (i.e., kids under 19 with pre-existing conditions). Health plans argue that the lack of a strong mandate forcing people to buy insurance will result in adverse selection, i.e., the healthy will avoid buying coverage while the sick sign up. Adverse selection can intensify when a plan exits a market, leaving other plans holding the bag. Plans also worry people will game the system — i.e., wait until a child is sick before buying coverage.
“While we recognize industry concerns about adverse selection, we believe that there are options other than abandoning families who seek this coverage, as evidenced in states with similar laws already in place,” says Sebelius. For example, she says federal law doesn’t prohibit the establishment of uniform open enrollment periods, adjustment of rates by health status (until 2014), and surcharges for people who drop coverage and then reapply.
Mary Brainerd, chief executive of HealthPartners (St. Paul, MN), which has stopped offering new individual child-only policies (a tiny part of its business), says a uniform open enrollment period in which every plan participates simultaneously is key. Otherwise, she says, “There isn’t an insurance company in the country that is going to promote its open-enrollment for sick kids.” She said health plans are calling for a similar solution in Minnesota.
In Colorado, for example, insurance regulators recently passed emergency regulations establishing a uniform open-enrollment period for individual child-only policies. Kaiser and Rocky Mountain Health Plans agreed to offer the policies in the state.
As for Maryland, the uniform open enrollment periods will be in January and July. For Kaiser, individual child-only insurance will be a new product offering in Maryland. CareFirst had already offered the product in the state as had Aetna. According to Maryland acting insurance commissioner Beth Sammis, Aetna is still considering whether to sign on to the uniform open enrollment agreement. I’ve put a call into Aetna for comment and will let you know if I hear back.
(Note: edited 10-18-10 to add Colorado information).
Charles Boorady of Credit-Suisse has initiated coverage of Aetna (NYSE: AET) with a “neutral” rating:
AET is a leading diversified employee benefits organization that is navigating successfully through a repositioning year, which includes increasing yields and bolstering underwriting margins….AET must avoid a whole litany of landmines which are present in managed care, including regulatory risk, especially guarantee issue, minimum loss ratio and rate review….and funding challenges associated with the MA and Medicaid programs.
Pharmacy benefit manager Express-Scripts says it knows the answer to that question. Using what it calls a “set of proprietary computer models,” the company says it can identify with 80% accuracy the 10% of patients least likely to adhere to prescription drug regimens. And it can do so up to a year in advance — allowing for early intervention among people most at risk.
For example, members with children living at home are less likely to take their medication than those without kids, the company says. People with diabetes who are age 65 or older are more likely to take their meds than 18-year-old diabetics. The company has developed models for people taking medication for diabetes, high blood pressure, and high cholesterol. Interventions include reminders, consultations, lowered copays, mail order delivery, auto refills and educational information.
Forget CVS Caremark’s stock price, which fell more than 2% today on word the company could miss 2011 profit targets. CVS held its annual investor day in New York this morning, and the company delivered projections suggesting things are back on track after a painful rough patch. The pharmacy benefit management unit Caremark – acquired in 2007 — is winning business again. Drugstore sales gains are outpacing the competition. Even the company’s MinuteClinic retail clinics are expected to breakeven in 2011.
Don’t get me wrong. This is hardly the company that chairman Tom Ryan envisioned would change the way healthcare is delivered. I still don’t think there’s much synergy in the integrated PBM-drugstore model; although there are plenty of conflicts of interest. And I still think CVS will eventually sell Caremark following Ryan’s retirement in May 2011. But things aren’t falling apart anymore. Extended coverage appears in the Oct. 11 issue of Carl Mercurio’s Health Plan Market Trends Letter.
From last night’s White House statement on mini-med waivers.
We have also implemented new rules that phase out by 2014 restrictive annual limits that cap the dollar amount health plans will pay for your care each year. In extreme cases, when this new policy will cause market disruption and decrease access to health care, the law allows the Department of Health & Human Services (HHS) to issue waivers from the ban on restrictive annual limits for “mini-med” policies – insurance plans that often come with high deductibles and strict annual limits.
The good news is that in 2014 “mini-med” policies will be a thing of the past. The bad news is that today they are the only option for many Americans who can’t afford coverage on the individual market. They provide minimal protection in the case of an illness or accident, with some plans providing as little as $2,000 worth of care each year. And in many cases, employees are paying the full cost of the insurance policy, with no help from their employer. Sadly, these are often the only insurance options that low-wage hourly workers have today.
But between now and 2014, we want to ensure that these workers are able to maintain their best available coverage option. And estimates from employers and insurers indicated that complying with the new rules could cause mini-med premiums to rise by more than 200 percent, force employers to drop coverage and send many Americans to purchase insurance on the individual insurance market, where they would get an even worse deal than what they have today. Many would simply go without insurance because the cost would be too high.
So, to ensure that we’re not creating a whole new population of uninsured Americans and causing significant disruption in the marketplace, HHS created a process to provide temporary waivers from complying with the new annual limit rules. These waivers are only granted if insurers and employers show that such rules would lead to significantly higher premiums or a significant decrease in access to care. In addition, these waivers are temporary. Insurance companies must reapply for the waivers each year, and they will not be available beginning in 2014 when annual limits are completely banned. This policy isn’t about mollifying insurers, it’s about protecting consumers.
Rene Lerer, chairman and CEO of Magellan Health Services, talks about the company’s successful diversification strategy. From the Nasdaq Market Site in New York, Oct. 6, 2010. Click here to watch video.
Nobody said this would be easy. The transition to a reformed health insurance market by 2014 is already hitting bumps. Insurers are dropping child-only plans for fear of having to cover too many sick kids. Employers are evaluating what to do about health plans that won’t comply with new federal regulations, e.g., limited benefit or mini-med plans. In response, the government is offering waivers to certain employers to ensure workers won’t lose even limited coverage before the benefits of the new law fully kick in.
In one high-profile example, The Wall Street Journal reported that McDonald’s was considering dropping limited-benefit healthcare coverage offered to 30,000 employees ($14 weekly for up to $2000 in annual coverage; $32 weekly for up to $10,000) because these plans couldn’t meet minimum medical cost ratio requirements. McDonald’s calls the report “completely false.”
No doubt, opponents of healthcare reform will latch onto these developments as “proof” the new law is robbing decent Americans of healthcare coverage and destroying our healthcare system. My guess, however, is that compromise will prevail. The Administration is level-heading enough to make exceptions through the transition phase. By 2014, these growing pains will largely be forgotten.
Adam Fein over at DrugChannels has some interesting comments on the potential competitive impact of the new Medicare drug plan from Humana and Walmart:
I’ve been warning the pharmacy industry for years that they should prepare to compete on price, not just customer satisfaction. Excessive margins on generic prescriptions created an inevitable opportunity for Walmart and others to disrupt the pharmacy industry’s economic model. PBM mail-order pharmacy margins are next
From a study by Charles Courtemanche published in Economic Inquiry:
Increases in gas prices are associated with additional walking and a reduction in the frequency with which people eat at restaurants, explaining their effect on weight. My estimates imply that 8% of the rise in obesity between 1979 and 2004 can be attributed to the concurrent drop in real gas prices, and that a permanent $1 increase in gasoline prices would reduce overweight and obesity in the United States by 7% and 10%.
Hat Tip: Infectious Greed.
Ken Sperling, healthcare practice leader for Hewitt Associates, on the firm’s projection that group healthcare premiums will rise 8.8% in 2011, the highest rate of increase in five years:
Reform creates opportunities for meaningful change in how healthcare is delivered in the U.S., but most of these positive effects won’t be felt for a few years. In the meantime, employers continue to struggle to balance the significant healthcare needs of an aging workforce with the economic realities of a difficult business environment. While healthcare reform cannot be blamed entirely for employers’ increasing cost, the incremental expense of complying with the new law adds fuel to the fire, at least for the short term.
Banks continue to benefit from the growing market for health savings accounts.
Twenty leading banks had an estimated $5.605 billion in total HSA deposits as of June 30, 2010, up 35% from a year earlier. Total number of accounts rose 22% to 3.4 million. UnitedHealth’s Optum was the leader in HSA assets with $1.025 billion. ACS BNY Mellon HSA Solutions had the most accounts at 815,000. Complete coverage — with a breakdown of accounts, deposits and interest for each of the 20 banks — appears in the Oct. 4 issue of Carl Mercurio’s Health Plan Market Trends Letter.
Walmart and Humana are offering a co-branded basic Medicare Part D prescription drug plan with the lowest premium in the nation: $14.80 per month. It’s available at that price in all 50 states and Washington, D.C. Walmart is the preferred retail network, but members can use out-of-network pharmacies for a higher cost-share. Humana is the mail pharmacy. Company officials describe the fomulary as “competitive.”
The Humana Walmart-Preferred Rx Plan is expected to save the average enrollee more than $450 in 2011 premiums and cost-sharing versus an average 2010 Part D plan. The savings — i.e., the ways this works financially — is expected to come in part when members consult Walmart pharmacists and are directed to low-cost options. “Behavior change” is the phrase company executives used.
I spoke at length to Walmart and Humana executives about the program today, but when you come right down to it, I only had two questions.
1. Is the plan a loss-leader for Humana? William Fleming, vice president of Humana Pharmacy Serivices, says no. The plan is expected to generate a 5% operating margin, same as the average for all Humana Part D plans. He adds that the offering aligns with Humana’s strategy of expanding its Part D membership. Of Humana’s 1.8 million Part D members, only 8400 are in a basic plan. The company declined to say how many more basic members it expects to attract with the new plan.
2. How do you get around potential conflicts of interest given that Walmart offers both 30-day and 90-day retail scripts, while Humana offers 90-day mail? John Agwunobi, M.D., president of Walmart’s Health and Wellness division says, “We wanted to structure the deal in a way that the customer would have an unbiased choice.” Separately, Walmart will continue to operate its $4 generic program. Part D-eligible drugs from the $4 generic list are available to members of the new plan for a $2 copay.
Gov. Arnold Schwarzenegger after signing legislation making California the first state to establish a healthcare exchange under the new federal reform law:
For national reform to succeed, it will be up to the states to make it work, and California is moving forward on reforms that will provide affordable and quality healthcare insurance.