A survey of 500 physicians from healthcare technology company AthenaHealth (Watertown, MA) finds that 47% believe that the possible shift to ACOs will have a negative impact on physician profitability. The survey also found that physicians have a less favorable view of electronic health records than a year ago.
More warning signs that healthcare utilization is about to increase. Notes Google Flu Trends:
We have found a close relationship between how many people search for flu-related topics and how many people actually have flu symptoms. Of course, not every person who searches for ‘flu’ is actually sick, but a pattern emerges when all the flu-related search queries are added together. We compared our query counts with traditional flu surveillance systems and found that many search queries tend to be popular exactly when flu season is happening.
Click here and here for slide presentations from WellPoint’s investor day, which provide a pretty good feel for the strategic direction and general mood of both the company and the managed care industry in general. WellPoint expects 2011 net income to fall 6.5%; however, profits are expected to grow at least 10% annually for the next five years. Membership is expected to grow, but so are costs. The company expects medical cost trend to accelerate in 2011 to between 7% and 8%, compared to 6% to 6.5% in 2010, driven by unit cost increases, rising utilization, higher flu costs, rising drug trend and reform-related expenses. Strategic initiatives include rationalizing existing products, driving volume growth in others as margins tighten, and expanding into non-core businesses. Also on the agenda, lower administrative costs.
Stocks are up, 2012 payment rates are up and membership continues to rise, according to the latest issue of Health Plan Market Trends Letter. Total Medicare Advantage lives – including HMO, PPO and PFFS – rose 5% to 11.1 million as of Jan. 1, 2011, compared to a year earlier. UnitedHealth Group had the most Medicare Advantage lives at 2 million, up 7%. Humana followed with 1.8 million, up 2%.
So much excitement over a measly 1.6%. Still, shares in health plans with heavy Medicare exposure are soaring today after Friday’s announcement by CMS that Medicare Advantage payment rates are expected to rise 0.7% in 2012 (1.6% after adjusting for quality bonuses). For example, shares in Humana are up 5% in midday trading, while HealthSpring shares are up 3%. The projected 2012 increase is way better than what was expected by Wall Street analysts. Notes Christine Arnold of Cowen:
Friday’s announcement secures the payment outlook for 2012, in our view, which will enable companies to maintain and/or expand margins while maintaining and/or growing membership.
From the perspective of investors, that’s good and/or great news.
Scott Gottlieb, M.D., a fellow at the conservative American Enterprise Institute, suggests in this Health Policy Outlook that the Obama Administration may view accountable care organizations as a replacement for traditional health plans and may be crafting rules that provide ACOs with favorable treatment in health insurance exchanges.
If ACOs contract directly with patients on a health exchange by setting themselves up as entities that resemble staff-model HMOs (similar to the way Kaiser Permanente operates), some may partner with traditional health insurers to re-insure a portion of the risk they will be taking on. But on the whole, the problem with cutting out the health insurers from these arrangements is that consumers will ultimately be left with fewer provider options if they become tied to a local ACO.
The Obama administration believes that the ACOs, and the hospitals that operate them, will invest in new innovations in the delivery of medical care that lead to better coordination of health care services. The trouble with this vision is that hospitals have never been sources of innovation in the way medical care is organized and delivered. Over the last several decades, most of the notable innovations in health care services have been developed in for-profit companies, often run by entrepreneurs and backed by venture capital.
Here’s yet more data working against health plans attempting to justify rate hikes. Medical expenses for 852 health plans declined 1.6% through nine months of 2010, according to an analysis by Weiss Ratings (Jupiter, FL) of state health plan regulatory filings. Weiss expects the plans to finish 2010 with a 3% decline in medical expenses, the first time in 10 years medical costs haven’t risen. Gavin Magor, senior insurance analyst for Weiss, notes:
This is a critical change from the steady and rapid increases of prior years. If it continues in 2011, it should help boost health insurer profits while pressuring companies to curb premium increases and give consumers some much-needed relief.
Magor’s comments don’t take into consideration new taxes and rebates tied to medical cost ratio regulations under healthcare reform. Nor is Magor clear on exactly why costs declined in 2010; however, he points to some likely suspects. Membership among the plans was down about 2.6% through nine months, hospital days were down 2%, and office visits were down about 3%. Cost shifting from health plans to members is also a likely factor, he says. Magor also says it’s likely some members are foregoing care or price-shopping given the difficult economy.
The data doesn’t include California, which has different health plan financial reporting requirements than other states. Furthermore, the data is muddy because it encompasses all lines of business in the plans’ filings, which in addition to commercial HMO may also include vision, dental, behavioral, Medicare, Medicare Supplement, Medicaid, Federal Employees Health Benefits Plan and other members.
Here are the headlines from the January 2011 issue of ACO Market News:
- Tufts Medical Center Discovers How Complex Risk-Sharing Can Be
- BCBS-MA Says Provider Quality Contract Addresses Past Failures of Capitation
- Massachusetts to Move Toward Global Payments
- HealthSpring Funds Primary Care Clinics Under Capitated Model
- HealthPartners, Sanford, Coventry, MagnaCare to Speak at Conference
Blue Cross Blue Shield of Massachusetts (Boston) is reporting unprecedented interest in a new health plan that jacks up member copays for procedures at 15 hospitals on its list of “high-cost” facilities.
According to a spokeswoman, nearly 30% of BCBS-MA’s small business and individual clients renewing in January 2011 signed up for the Hospital Choice Cost-Share plan. Typically, a new plan option attracts just 1% to 2% of BCBS-MA businesses in the first year. A separate BCBS-MA tiered network product called Blue Options – launched in 2007 – has 95,000 members.
HCCS offers average premium savings of about 5% compared to traditional plans. However, member copays in six key areas are far higher. For example, inpatient copays at one HCCS plan are $1500 for high-cost hospitals versus $500 in low-cost hospitals (see chart). Outpatient day surgery copay is $1250 at high-cost facilities versus $250 a low-cost facilities.
Among the hospitals on the high-cost list are major academic centers like Brigham and Women’s Hospital, specialty facilities like Children’s Hospital Medical Center and community hospitals like Cape Cod Hospitals. Additional coverage, including comments from hospital officials and sample copay levels, appears in the Feb. 14, 2011 issue of Health Plan Market Trends Letter.
This is why I’m not a Wall Street analyst or fund manager. Who’s have guessed that health plan stocks would soar in 2011, up nearly 15% for the year through Feb. 11, according to a CRG tally of 14 leading issues. In comparison, the Dow Jones Industrials, Nasdaq Composite and S&P 500 are each up about 6% year-to-date. The biggest gainers included Amerigroup, up 25%; Aetna and Molina, up 23% and HealthSpring, up 21%.
Health savings account assets rose 32% to $6.2 billion at 20 leading banks in 2010, according to a tally in Health Plan Market Trends Letter. The number of accounts rose 26% to 3.9 million. ACS BNY Mellon HSA Solutions had the most HSAs at 815,000. OptumHealth Bank, a unit of UnitedHealth Group, was the leader in HSA assets at $1.1 billion.
Among the nine publicly traded managed care organizations reporting fourth-quarter 2010 financial results to date, combined net income fell 43% to $2.7 billion, according to a CRG tally. However, the falloff can be attributed largely to WellPoint, which recorded a $2+ billion gain in 2009 related the sale of its NextRx pharmacy benefit management unit, thereby skewing 2010 comparisons. Excluding WellPoint from the totals, net income rose 10% for the quarter and 24% for the year at the remaining eight companies. All told, it’s a pretty good showing. Publicly traded companies yet to report fourth-quarter results are Amerigroup, HealthSpring, Molina and Universal American.
We’re very happy to have Bob Ihrie, senior vice president of benefits for Lowes Companies, as the afternoon keynote speaker at our 2nd annual conference on New Directions for Health Plans: ACOs, Medical Homes, Product Innovation, Diversification, March 25, 2011 in New York City. Bob will discuss Lowes’ arrangement with the Cleveland Clinic to contract directly for heart surgery. Click here for a complete agenda and registration information.
Solid coverage – if I do say so myself – appears in the January issue of ACO Market News concerning the involvement of Tufts Medical Center and the New England Quality Care Alliance in a global risk-sharing contract serving 95,000 Blue Cross Blue Shield of Massachusetts HMO members.
NEQCA is a five-year-old network of 1500 academic and community physicians founded by Tufts. What stands out in comments from Jeff Lasker, M.D., chief executive of NEQCA, is just how messy global risk-sharing arrangements are – and how much care is outside the control of the provider organization at risk.
NEQCA doesn’t set or negotiate pricing at community hospitals involved in the arrangement or at third-party lab and radiology facilities. It has no say over benefit design, such as copay levels. It doesn’t control drug formularies, but is at risk for drug costs. It has no input into employee wellness programs. It has no say over premium dollars the insurer might devote to care and disease management programs. And it has nowhere near the level of reserves of an insurance company like BCBS-MA.
Another big challenge: while NEQCA can exert some influence over Tufts physicians – who are employees of the medical center – its influence over community physicians is mixed at best. At some community hospitals, both specialties and PCPs are affiliated with NEQCA and are at risk under the BCBS-MA contract. In other cases, only the PCPs are at risk – suggesting little incentive for specialists to fall in line.
Here’s a good segment on WGBH in Boston (click here for video) discussing physician global payment initiatives being implemented by Blue Cross Blue Shield of Massachusetts and being proposed by state Gov. Deval Patrick.
Shares in Aetna are up nearly 9% in morning trading, after the company announced a 15-fold increase in its dividend and a 2011 profit forcast that exceeded Wall Street expectations — good news from a major publicly traded health plan at a time of concern over industry prospects going forward.
Aetna said it was instituting a quarterly dividend of $0.15 per share, compared to an annual dividend of $0.04 previously. The yield is about 1.7% following the morning share run-up. Aetna is projecting 2011 operating earnings of $3.70 to $3.80 per share in 2011, up about 2% compared to $3.68 in 2010. Aetna expects premium increases in 2011 to mirror medical cost trends projected at about 7.5% to 8.5%. Medical membership is expected to fall about 4% to 17.8 million in the first quarter of 2011, compared to year-end 2010, and then stay flat over the remainder of the year.
Btw, you might be wondering which of the major Wall Street analysts had a “buy” rating on Aetna leading up to today’s announcement? Christine Arnold of Cowen and Scott Fidel of Deutsche Bank both did. Among other top analysts, Carl McDonald of Citi rates Aetna “hold,” and both Charles Boorady of Credit Suisse and Justin Lake of UBS rate Aetna “neutral.”
Here’s a chart from a new HHS study highlighting projections that without healthcare reform, premiums for individual and family health insurance would be 14% to 20% higher than with reform. The savings are expected to come from an expanded risk pool, reduced administrative overhead through the advent of health insurance exchanges, and increased competition and choice. Reform also provides families earning up to 400% of the federal poverty level subsidies or tax credits, further reducing their premium costs. Families paying the entire premium could save as much as $2300 annually on an $11,400 policy, the study notes. For families who receive subsidies the savings are much higher.
Trade group America’s Health Insurance Plans disputes the findings, noting that premiums tend to rise along with medical costs — and reform does very little to address cost trends. AHIP says the HHS report “overstates the cost savings associated with certain provisions of the new law and ignores major provisions that will raise premiums, including the new premium tax, age rating restrictions that impact younger workers, and benefit mandates.” Here’s a chart from AHIP illustrating the point:
Who’s correct? Maybe both HHS and AHIP. Costs do tend to drive premium increases — and costs are still rising. But as previously reported, there’s also the chance that the minimum medical cost ratio provisions of reform will cause plans to temper rate hikes rather than pay out big member rebates.
Hospital executives in a survey by Cowen & Co. say they don’t expect any near-term recovery in utilization of medical services for commercial health plan members, and nearly a third of those surveyed believe that this lower-than-average trend may be the “new normal.” To me that’s a sure sign that utilization is about to increase. Executives admit, however, that utilization picked up a bit in the fourth quarter of 2010. The survey notes:
Fewer surveyed hospital executives indicated large reductions in inpatient and outpatient volume in 4Q/10 relative to earlier in the year. Those hospitals witnessing down inpatient volume generally indicated declines in the 1-6% range versus 6%-plus. However, hospitals experiencing outpatient volume strength generally saw rises in the 1-3% range, with fewer indicating a rise of 4%-plus versus 3Q/10. Commercial volume trends in 4Q/10 seemed to consolidate towards an average of flat on both inpatient and outpatient metrics, with fewer extremes (either up or down).
The Cowen survey mirrors those of other Wall Street firms. An analysis by Credit Suisse finds that while hospital utilization volumes remained soft as late as the third-quarter of 2010, “volume trends improved as we moved through the quarter.” Deutsche Bank also finds that declines in MCO inpatient utilization trends appear to be moderating. In July, Deutsche Bank noted that MCO discharges were down 5.7%, compared to a 2.9% decline in September.
Is this the “new normal” or just the end of a downcycle? My guess is it’s the latter.
Health insurance industry profits are expected to fall at least 10% in 2011, according to the Outlook for Managed Care 2011.
Among the healthcare reform-related pressures on profits beginning in 2011, new minimum medical cost ratio regulations will likely force health plans to rebate up to $1.5 billion. Health insurers will also be saddled with new taxes.
Even without reform, the report notes, health plans face a variety of structural issues – including the continued deterioration of fully funded membership and the shift toward low-premium high-deductible health plans. The advent of ACOs also threatens the relevance of health plans by diminishing the industry’s central role in managing risk.
Faced with both structural and reform-related profit pressures, health plans are re-evaluating every aspect of their business, the report says. Initiatives include layoffs, international expansion, diversification, provider payment reform, retail-based and consumer-driven healthcare, slashing broker commissions, and using of technology to streamline administration, facilitate member decision-support and improve population management.