Here are our top blog posts for 2010, ranked by number of readers who accessed the story during the year.
Nifty New York Times worksheet allows you to calculate how to fix the federal budget deficit by deciding which cuts to make through 2015 and again through 2030. Check out the huge long-term savings from capping Medicare spending growth starting in 2013. Also noteworthy is the impact of raising the Social Security retirement age to 70 and letting the Bush tax cuts expire. (Note: My 10-year-old daughter went through this exercise and fixed the federal budget in about 10 minutes — without cutting military spending aside from nukes and by pretty fairly distributing the rest of the pain).
UnitedHealth Group (Minnetonka, MN) says it expects 2011 earnings per share to fall 7.7% to between $3.50 and $3.70 per share on revenues of about $100 billion. United is the second publicly traded health plan to project a decline in 2011 earnings. Humana said last week it expects 2011 earnings to fall 16%.
Citi analyst Carl McDonald says that minimum medical cost ratio requirements released by HHS this week (see prior post) will result in lower individual health plan premiums or at least dampen the rate of premium increase.
It won’t be universal, but yes. If you’re running an individual health plan that has a 60% loss ratio today, and after all the adjustments plans are allowed, the adjusted MLR is 70%, the plan is still going to owe a big rebate to get to the 80% minimum. I think what you’ve started to see and will be seeing more of is plans lowering premium rates to bring that adjusted loss ratio closer to 80%. The thought is that a lower priced product will be better at attracting new members than maintaining the same price and writing a rebate check in July 2011. Doesn’t always mean that absolute premium dollars go down, but it could mean that a plan that was planning on raising rates 10% because of increasing cost trends doesn’t have to do that anymore.
You’ll recall during the healthcare reform debate, there was a lot of arguing over the likely impact of reform on health plan premiums. The Congressional Budget Office projected a year ago that under reform premiums for 134 million people in large groups would be flat to down, premiums for 25 million people in small groups would be flat to down, costs for 18 million people with subsidized individual plans would be down (a lot) — and costs for 14 million unsubsidized individuals would be up 10% to 13% because they’re getting much better coverage.
If you believe McDonald, the “premiums will fall” crowd may indeed have been right.
New minimum medical cost ratio regulations could force health plans to rebate $600 million to $1.4 billion to customers annually from 2011 through 2013, or an average of about $1 billion per year, according to the U.S. Dept. of Health and Human Services. The regulations, which HHS adopted on the recommendation of state insurance regulators, require 80% of individual and small group premiums to go toward medical care and quality improvement activities; 85% in the large group market. HHS estimates 2.8 million to 9.6 million Americans could be eligible for rebates each year.
But Carl McDonald of Citi thinks the HHS estimate is too low.
The biggest issue is that the forecast is based on 2009 data, while commercial MLRs have improved dramatically in 2010 because of lower medical costs….WellPoint has quantified its exposure to minimum medical loss ratios at approximately $300 million, while we think United will talk about rebates of around $600 million at its investor day next week. So between these two plans alone, we’re nearly to $1 billion in rebates. Granted, these are the two largest plans in the industry, but we think rebates for the industry would easily exceed $1.5 billion based on this year’s margins.
Either way, MCR rebates will reduce health plan profits by 3% to 6% — assuming total industry profits in the $25 billion to $30 billion range.
A Commonwealth Fund study of 11 nations found that in the past year U.S. adults had the highest out-of-pocket costs, struggled the most to pay medical bills and were the most likely to forgo care because of cost:
Compared with the residents of 10 other industrialized countries, U.S. adults are the most likely to report health care problems related to access, cost, and insurance complexity….One-third (33%) of U.S. adults went without recommended care, did not see a doctor when sick, or failed to fill prescriptions because of costs, compared with as few as 5 percent of adults in the United Kingdom and 6 percent in the Netherlands….One-fifth (20%) of U.S. adults had major problems paying medical bills, compared with 9 percent or less in all other countries.
Michael Moore and Wendell Potter on Countdown with Keith Olbermann. (Video here)
From the Center for Studying Health System Change:
Wide variation in private insurer payment rates to hospitals and physicians across and within local markets suggests that some providers, particularly hospitals, have significant market power to negotiate higher-than-competitive prices….Looking across eight health care markets—Cleveland; Indianapolis; Los Angeles; Miami; Milwaukee; Richmond, Va.; San Francisco; and rural Wisconsin—average inpatient hospital payment rates of four large national insurers ranged from 147 percent of Medicare in Miami to 210 percent in San Francisco. In extreme cases, some hospitals command almost five times what Medicare pays for inpatient services and more than seven times what Medicare pays for outpatient care….While not as pronounced, significant variation in physician payment rates also exists across and within markets and by specialty. Few would characterize the variation in hospital and physician payment rates found in this study to be consistent with a highly competitive market.
Is the staff-model health plan making a comeback?
Humana Inc. (Louisville, KY) has announced a definitive agreement to acquire Concentra Inc. (Addison, TX), which provides occupational care and other medical services at more than 300 stand-alone clinics in 40 states and at 250 employer work-site facilities. Said another way, Humana — which was the nation’s largest for-profit hospital company until 1993 when it narrowed its focus to health insurance — is getting back into the business of providing care.
Humana is shelling out $790 million in cash to acquire closely held Concentra from private-equity firm Welsh, Carson. The deal works out to about one times revenues, but the valuation isn’t as interesting as the strategic implications. With the healthcare world abuzz over accountable care organizations and patient-centered medical homes, Humana is buying an organization that employs 1100 providers, including 650 physicians. About 3 million Humana members live near one of Concentra’s clinics, which are already a part of the Humana network.
In addition to physical therapy and other worker’s comp-related care, the clinics provide preventive and urgent care. Services include physicals, health risk assessments, lab tests, x-rays, screenings and treatment of cuts, bruises, burns and other minor ailments. Prices range from $85 for a basic office visit with lab work to $200 for a visit that includes an x-ray or administration of medication plus a procedure like a suture, asthma treatment or splinter removal.
According to a Humana spokesman, the deal is about both diversification and insuring members access to care. More broadly, the deal could give Humana insight into new care delivery models. It could also broaden the array of insurance products, network configurations and price-points Humana offers. Furthermore, these types of clinics could enjoy gains when healthcare reform kicks in full-force, adding 32 million people to the ranks of the insured looking for basic care.
On the downside, retail clinics offering cookie-cutter services in general serve a tiny niche of the healthcare market; although the Concentra clinics do provide x-rays, physical therapy and other services not offered by typical retail clinics. The largest purveyor — CVS’ MinuteClinic – still hasn’t broken even on the business. Staff-model health plans, meanwhile, never caught on in a big way — aside from notable exceptions like Kaiser in California. Concentra may have a great business in providing worker’s comp care and a growing urgent care business. Whether there is synergy in a merged Humana-Concentra business remains to be seen.
Still, you can expect other health plans to sit up and take notice of this deal, and don’t be shocked to see other plans play follow the leader.
Concentra Clinic Pricing For Uninsured
Health plans can deduct state and federal taxes from premiums when calculating medical cost ratios, according to new regulations issued by the U.S. Dept. of Health & Human Services. It’s a big win for health plans, but not a big surprise. The language in the legislation was pretty clear (see prior post). Plans won’t be allowed to deduct taxes on investment income and capital gains. The regulations on taxes are in keeping with recommendations from the National Assn. of Insurance Commissioners, which crafted the MCR rules. Expanded coverage appears in the Nov. 22 issue of Health Plan Market Trends.
CMS has suspended futher Medicare Advantage enrollment in plans offered by Health Net (Woodland Hills, CA), Universal American (Houston) and Arcadian Management Services (Oakland, CA) — citing “violations of Medicare’s rules and regulations.” CMS also suspended Health Net from enrolling additional Medicare drug members. The actions, which don’t impact the 1 million Medicare members already enrolled by the three plans, take effect immediately for Health Net and on Dec. 5 for Universal and Arcadian.
“There’s no way to spin a CMS marketing suspension as a positive,” says Carl McDonald of Citi. He adds, “While this is Health Net’s second suspension in 3 years, the issue is far more significant for Universal.” McDonald expects the sanctions to have a profit impact of $0.25 per share for Universal and $0.05 for Health Net.
Additional details appear in the Nov. 22 issue of Health Plan Market Trends Letter.
Scott Fidel of Deutsche Bank thinks so. Shares in Humana fell 2% yesterday after the company projected a 16% decline in 2011 earnings per share (see prior post) in part because of lower Medicare Advantage margins. Notes Fidel:
Humana submitted its 2011 MA bids to target a 5% pre-tax margin as the company does every year. The Medicare margin exceeded this forecast in 2010 yet the guidance assumes the margin resets back to the 5% level in 2011. This assumption has the potential to prove conservative given recent improvements in medical cost trends….The company also expects that MA rates could grow at a 3.5-5.0% CAGR in 2012-2017 since the cuts included in health reform are expected to be more than offset by FFS trend inflation updates, positive look-back adjustments to pricing from CMS, and quality bonus payments.
Maybe health plans have been slow to release 2011 profit projections because the future ain’t so bright.
Humana Inc. (Louisville, KY) – the first of the major plans to come clean – says earnings per share will fall 16% to between $5.35 and $5.45 next year in part because of Medicare reimbursement cuts and rising commercial medical costs. The company will also begin to feel the sting of the loss of its Tricare government healthcare contract in early 2012. Shares in Humana were down 3% in morning trading.
Humana expects a 5% Medicare pretax operating profit margin in 2011. Medicare membership will be up 3% to 4% (membership as of Sept. 30, 2010 was 1.736 million) as the company expects premiums and benefits to remain stable next year. In other words, Humana will take a margin hit in its Medicare business rather than sacrifice membership by significantly raising member premiums or cutting benefits. The company also expects membership gains in the commercial individual market over the long haul.
“Scale matters now more than ever before,” says Humana chairman Michael McCallister. He adds, “Our 2011 guidance reflects near-term challenges….Longer term, as demographic and reform-related trends expand Medicare and the individual market, our strength in retail sales and our growing emphasis on cross-selling opportunities position us favorably.”
Remember when news broke earlier this year that trade group America’s Health Insurance Plans had secretly funnelled up to $20 million to the U.S. Chamber of Commerce to run ads aimed at killing or significantly watering down healthcare reform? Turns out the sum was $86.2 million — more than AHIP’s entire budget from the previous year – according to a Bloomberg report. As John Wanamaker said, ”Half the money I spend on advertising is wasted. The trouble is I don’t know which half.”
CMS has chosen eight states to participate in a medical home demonstration project “to evaluate the effectiveness of doctors and other health professionals across the care system working in a more integrated fashion and receiving more coordinated payment from Medicare, Medicaid, and private health plans.” The states are Maine, Vermont, Rhode Island, New York, Pennsylvania, North Carolina, Michigan and Minnesota. The Multi-Payer Advanced Primary Care Practice Demonstration is expected to include 1200 medical homes serving up to 1 million Medicare members.
CMS also announced the formation of the new Center for Medicare and Medicaid Innovation to help find ways to improve care and reduce cost for Medicare and Medicaid. Donald Berwick, M.D., CMS Administrator, says:
For too long, health care in the United States has been fragmented — failing to meet patients’ basic needs, and leaving both patients and providers frustrated. Payment systems often fail to reward providers for coordinating care and keeping their patients healthy reinforcing this fragmentation…The Innovation Center will help change this trend by identifying, supporting, and evaluating models of care that both improve the quality of care patients receive and lower costs.
New York State has used its power under a new “prior approval” law to slash proposed 2011 health plan premium rate increases by up to 22%. The new law took effect Oct. 1. Charts here and here show the requested rate of increase by health plan and the rates approved by the state. Notes Troy Oechsner, deputy superintendent for health for the New York State Insurance Dept.:
We had to balance reducing the requested increases against the need to ensure companies remain solvent….For example, MVP Insurance Company said its plan had been severely underpriced and asked for increases of more than 20% for 83% of its subscribers. We reduced their request so now only 35% of subscribers will get an increase of 20% or more….MVP…is on pace to lose more than $54 million this year and end up more than $50 million below its required surplus. That can’t continue if the company is to remain a viable competitor.
The answer is deep in the polling numbers from the Kaiser Family Foundation. Yes, topline survey results show 49% of the 1502 respondents say repeal all or part of the law, compared to 40% who say keep the law as is or expand it.
But when asked about specific sections of the law, the vast majority (more than 70%) supports benefits like tax credits for small businesses that offer coverage to employees, closing the Medicare drug doughnut hole, subsidies for the uninsured, and guaranteed issue.
Even more striking, at least half of those who voted Republican in the midterm elections favor tax credits, closing the doughnut hole and guaranteed issue. Most striking of all, among the 49% who say the law should be repealed all or in part, half to two-thirds say we should retain tax credits for small businesses, subsidies for the uninsured, guaranteed issue, and closing the doughnut hole.
So basically, the majority of those who say repeal all or part of the law also say we should leave key elements of the law intact. Perhaps the answer to this contradiction is in this data point from the survey: about 32% of respondents say the word “angry” describes their feelings about healthcare reform. However, the vast majority (76%) of those who feel “angry” say it’s not specifically about healthcare reform; rather it’s about “the general direction in Washington and health reform is one of many upsetting things.”
A Kaiser Family Foundation poll finds that healthcare reform wasn’t the dominant factor influencing voters in the midterm elections. Instead, it was the economy. Only 17% of voters said healthcare reform was the “one factor that mattered most,” compared to 29% for the economy.
“We anticipate offering not just individual health insurance or traditional ancillaries like dental vision and voluntary, but also new products related to consumers’ overall well being. Our goal is to create lifetime relationships with our individual customers, offering a variety of products and services based on incentives, rewards and loyalty.”
So said Humana chief executive Michael McCallister during the company’s third-quarter 2010 earnings call with Wall Street analysts. As I’ve written before, individual is a small part of Humana’s business (just 3.7% of total medical membership of 10.1 million), but it has been a bright spot in terms of growth — up 4.5% to 374,900 as of Sept. 30, 2010, compared to a year earlier. Meanwhile, group membership has fallen 15% while ASO is down 6.8%.
Two separate readers — on opposite sides of the nation — have now asked me if there’s any truth to rumors that UnitedHealth is interested in acquiring physician practices as a stepping stone into accountable care organizations. So I asked UnitedHealth and was referred by their PR department to the reply UnitedHealth chief executive Stephen Hemsley gave to a similar question from CRT Capital analyst Sheryl Skolnick during the company’s third-quarter earnings call with investors.
Skolnick: “Might we perhaps see United step outside of its historic diversified business activities and move more directly into directly affecting healthcare decision making, spending, provider relationships through contracting or outright acquisitions.”
Hemsley: “Our care management initiatives have increasingly more integrated into the delivery community broadly. We have had initiatives like Evercare for many years which are clearly direct care initiatives and areas that we work with in recent years in terms of southwest medical clinics and so forth….So I don’t know what I could tell you beyond that. We continue to see if we can be helpful across the broad system and in some instances that takes us into deeper relationships in the primary and specialty areas and we’ll continue to probe that.”
Sounds like a definite maybe.
‘Twas a fun-filled day with solid information about the emerging market for accountable care organizations and patient-centered medical homes. I’m talking about the first annual CRG conference on Health Plan Involvement in Patient-Centered Medical Homes and ACOs. But here’s the rub: exactly where health plans fit in the mix is still unclear.
Dennis Horrigan, chief executive of CIPA WNY IPA (Buffalo, NY), put up a nifty chart (see below) of what an ACO might look like and wondered aloud just how premiums and risk will be divvied up among plans and providers. Horrigan said he showed this very chart to Aetna chief executive Mark Bertolini who according to Horrigan responded he’d be willing to pay a percentage of premiums to the ACO under this structure and guarantee reserves for three years.
My guess — as the purported Bertolini comment suggests — is that health plans will continue to play a role as risk managers in any delivery system that emerges (short of single-payer or nationalized healthcare). Yes, ACOs pose a disintermediation threat to insurers; to wit, a self-insured employer could conceivably pay an ACO to manage care, bypassing the health plan. But a lock-out isn’t in the cards. More likely under the ACO model is a diminished role for health insurers, particularly in care management and provider network management.
Health plans are striving in their approach to PCMHs, for example, to prove they can drive physician behavior and care management. The hammer is payments and incentives, with most early models involving usual fee-for-service payments, a per member per month fee for care management, and in some cases bonuses or incentives for meeting care quality goals. But it’s not clear which of the new payment models best drive change — or whether health plan can sustain the additional PMPM payments without seeing immediate savings.
Brian Ebersole of the Pennsylvania Governor’s Office of Health Care Reform said the state has used several provider payment models in its chronic care PCMH project. In one, providers receive up to $20,000 in practice transformation funds, a care management PMPM of $1.50 and up to $2.50 PMPM for NCQA recognition. In another, providers receive $1.50 PMPM for practice support, $1.50 PMPM for care management and a bonus based on shared savings.
According to Ebersole, shared savings have “made a huge difference” in impacting physician behavior. But a study by the Integrated Healthcare Assn. argues that shared savings are limited in their ability to impact physician behavior because they create upside opportunity but no downside risk; instead, capitation is best because it offers both upside and downside. Donald Liss, M.D., senior medical director, Independence Blue Cross, said at the conference that global capitation might work today — despite its past failings — because of improved technology (registries and EHRs), risk stratification, and evidence-based medicine.
Robert Reid, M.D., associate medical director of Group Health (Seattle), said in the early 2000s Group Health had offered its staff physicians incentives — putting up to 20% of their pay at risk. Group Health had also instituted other initiatives to improve physician efficiency and care quality. All of which ultimately proved counterproductive. Group Health eventually dumped incentives in favor of straight salaries for staff physicians. It also added nurses and clinical pharmacists, reduced the number of patients a doctor sees annually by 22% to 1800, and added PCMH components such as next-day outreach to members admitted to the E.R. and pre-visit chart review. The increased emphasis on primary care delivered a 1.5 times return, Reid said.
One thing was clear from the one-day conference. Most of the initial efforts at PCMHs and ACOs are just tinkering around the edges. The concept may make intuitive sense. But getting there — and figuring out everyone’s role — won’t be easy.
Source: CIPA WNY IPA
Ron Williams, chairman of Aetna, during the company’s third-quarter earnings conference call with Wall Street analysts:
We continue to diversify our revenue streams by leveraging our medical management capability.
Publicly traded, for-profit managed care organizations had a great third-quarter of 2010, with net income soaring 29%, according to a Health Plan Market Trends Letter tally of 11 MCOs. Virtually every top MCO either exceeded Wall Street expectations in the third quarter, raised 2010 profit projections or both, including Aetna, Cigna, Coventry, Health Net, Humana, WellCare, UnitedHealth and WellPoint.
Republicans took the House in last night’s midterm election. Democrats retained the Senate. Last I checked President Obama was still in the White House. All of which suggests gridlock in Washington and little or no change to healthcare reform. Repeal? Forget it. Not that there was much of a possibility of that any way. Republicans also gained at least 10 state governorships, according to CNN’s latest projections – a significant swing given that so many healthcare regulations are decided at the state level.
As for the election being a referendum on Obama’s leadership, it’s hard to deny the scope of the defeat. Still, the party of the President tends to lose ground in the midterms, and when the economy is in the doldrums nobody is safe.
Other notes: Sen. Harry Reid (D-NV), who helped shepherd Obamacare through the Senate, retained his seat in a close race. And Democrat Jerry Brown — who inspired the Dead Kennedys’ song California Uber Alles: “Your kids will meditate in school.” – took the California governorship. Brown last served as governor of California from 1975 to 1983. Expanded coverage of the election appears in this week’s Health Plan Market Trends Letter.