Not clear. Citi analyst Carl McDonald says, “United’s results are a positive indicator for the rest of the industry,” with the implications of lower cost ratios obvious. But UBS analyst Justin Lake notes, ”We would caution that UNH business momentum is beyond that of its peers and others may not have the same” benefit from prior period development. Complete coverage appears in the latest issue of Health Plan Market Trends.
Click here to watch David Blitzer of Standard & Poor’s discuss rising healthcare costs withMark Haines of CNBC. Below is an excerpt
Blitzer: Despite all the excitement about technology and drugs, healthcare is a very labor intensive activity, and people — labor — costs a lot of money, and that seems to be the key factor driving it up.”
Haines: “Logically, then you would find the worst or the most inflation occurring in hospitals.”
Blitzer: “You would and indeed on the commercial side you do. On the Medicare side you don’t, and I think that brings up a different aspect. Over the last few years, we’ve heard a lot of arguments about single-payer plans versus other kinds of plans. Single payer means Uncle Sam pays for all the healthcare. We pay him. Medicare for people over 65 is a single-payer plan, and indeed we consistently see smaller rates of increase in Medicare items than we do in commercial insurance — the kind of insurance that employers provide for their employees.”
Haines: “O.K., I’m going to leave that lying there because some of our viewers right now are going apoplectic, thinking that you have just endorsed single-payer healthcare.”
Blitzer: “I haven’t. I’ve only reported the numbers. I’m not endorsing anything.”
Haines: “Believe me, I understand you’re just quoting the facts. Some people think facts are partisan. I don’t know how they get there, but they do.”
For what it’s worth, here’s a UnitedHealth white paper — based on a roundtable discussion — titled Slowing the Impact: The Role of Specialty Pharmacy in Managing Progressive and Chronic Diseases. Among the recommendations from members of the forum was the need to convene more forums.
Here are some of the featured speakers at the ACO Provider Forum, June 24, 2011 in Chicago.
Tom James, M.D., Medical Director, Kentucky Operations, Humana Inc.
Keith Pugliese, Vice President of Accountable Care and Public Policy, Brown & Toland
Scott Saran, M.D., Chief Medical Officer, Blue Cross Blue Shield ofIllinois
Norm Wu, CEO, Qliance Medical Management
Carl Mercurio, President, Corporate Research Group
By Alan Gilbert
Vice President, Business Development
Managed Clinical Networks (MCN) are an important component in the support of better patient access and treatment through a coordinated care approach. The MCN concept was created in Scotland in 1999 by the Scottish Department of Health.
Their definition of MCNs is defined as “linked groups of health professionals and organizations from primary, secondary and tertiary care, working in a coordinated manner, unconstrained by existing professional and Health Board boundaries, to ensure equitable provision of high quality clinically effective services throughout Scotland.”
Like a fine wine, this definition has aged well and seems to translate into the current goals of ACOs.
Some features of a MCN include:
- The application integrates primary, secondary and tertiary care services
- A care plan is established which will serve all network stakeholders
- The care plan has the capability to incorporate evidence-based medical practices
- All participating members of the multi-disciplinary care team will have equality of access to the care plan (access rights can be granted, partly or whole)
- Multi-disciplinary team meetings are facilitated through the telemedicine and teleconferencing. Experts at remote sites are able to discuss the patient review patient notes simultaneously
- Automated generation of referral letters, summary documents and discharge letters
- Educational and patient advice leaflets can be accessed and distributed
A specific client example is a Gynecological MCN for the West of Scotland that was established in 2000 to ensure the highest standard of care for all patients with gynecological cancers across the region. This was to be achieved by enhancing the referral system for specialist opinion and treatment, encouraging a multidisciplinary approach and educating all clinicians involved in the care of these patients by open discussion and debate. Participants would include medical & clinical oncologists, gynecologists, radiologists and pathologists. A weekly videoconference was instituted to enable clinicians from across the region to participate in discussions on their patients. The patient data was redacted so that the care-giver did not know if the patient was in their hospital or one of the other 9 hospitals in the region.
Benefits Realized by implementation of the Gynecological MCN included:
- Reduced travel and delays – The MCN was able to discuss individual cases without extensive travel and patients are able to be referred and seen without delay
- Equitable access to care – Patients are guaranteed that they will receive specialist review regardless of geography and that all clinicians involved in their care participate in establishing and reviewing their care plans
- Improved care delivery – The speed of delivery of the treatment plan has improved as all relevant information such as laboratory reports and pathology is recorded and collated through one central system
- Improved education – Clinicians have benefited from the sharing of knowledge through the cross specialty discussions and the meetings also provide an excellent training ground for junior doctors and other clinical staff who attend
- Improved data quality – through a central repository with better audit trail and introduction of standardization and accountability
I believe that as ACOs continue to form collaborative patient care in a community, that models like Managed Clinical Networks should be studied.
From a Citi research note on not-for-profit Blue Cross Blue Shield plans:
We didn’t think minimum medical loss ratios would be much of a concern for the non-profit Blues, but after the big improvement in financial performance in 2010, that is no longer universally the case. Health Care Service Corp., for example, enrolled almost 307,000 individual members in Illinois in 2010, generating just over $800 million in premiums, and a loss ratio of just 72.1%. In Oklahoma, the 2010 individual loss ratio on the company’s 73,500 individual lives was just 73.5%. And in Texas, where HCSC enrolls 415,000 individual lives, the loss ratio was just 64.4% last year. Everything else being equal, and assuming the Blue were able to increase the reported medical loss ratio by 400 basis points through SG&A and tax adjustments, we estimate the rebate on the individual product from just these three states alone would have amounted to $146 million last year.
So clearly this is one Blue plan that will likely have to adjust its premium rates going forward, particularly in the Texas market, since the bulk of the rebate relates to that market. By our calculations, in order to have achieved an 80% loss ratio on the individual product in Texas, the Blue would have needed to price its individual product almost 12% lower than it did in 2010.
BusinessWeek hit all the right notes in this analysis of why pressure is on for CVS to sell its Caremark pharmacy benefit management unit:
Using its rivals’ valuations would give CVS Caremark’s two units a combined market capitalization of $73 billion in a break up, an increase of 51 percent from its current equity value.
In other words, about $25 billion in shareholder value could be unlocked by a break up. Last I checked, $25 billion is still a lot of money.
The market reacted quickly and negatively to news from CMS that Medicare Advantage rates will rise a just 0.4% on average in 2012 — driving down shares in health plans with a lot of Medicare membership like Humana, United and HealthSpring. Humana, for example, was down 0.8% yesterday — the day after the CMS announcement — and another 1% in midday trading today.
Initial CMS expectations announced in February called for a 1.6% increase in 2012; however, CMS says medical expenditure aren’t rising as fast as expected. CMS doesn’t think the lower payment will have an impact on plan enrollment: “When payment rates for MA plans were frozen from 2010 to 2011, Medicare Advantage enrollment increased by 6% while at the same time beneficiaries’ premiums decreased by 6%.”
Wall Street analysts remain upbeat about the prospects of Medicare plans despite the lower-than-expected 2012 rate increase. Christine Arnold of Cowen notes that the announcement will enable companies to maintain margins in 2012, with membership flat to up. “The news is most favorable for Humana,” she says. Justin Lake of UBS notes, “While stocks may see some pressure…we would be buyers on any weakness as we expect plans will have no difficulty managing benefits/margins for 2012.”
Whether you’re an experienced ACO or a newbie, HHS has a shared-savings plan for you. Rules released by HHS propose two separate financial models that allow participating ACOs to share in savings relative to Medical expenditure targets for a risk-adjusted population of patients.
The “two-sided model” is a three-year contract designed for organizations with experience managing financial risk. Under this model, ACOs would receive 60% of shared savings – assuming the ACO also meets certain quality requirements. However, ACOs would be at risk for a portion of expenditures that exceeds targets (5% in year one, 7.5% in year two and 10% in year three).
The “one-sided model” is a three-year contract designed to be “an entry point for organizations with less experience managing care and accepting financial risk.” These might include physician organizations and small ACOs that need to “gain experience with population management.” ACOs would receive 50% of shared savings in the first two years of the contract with no downside risk. In the third year, the contact would automatically switch to a two-sided model with both upside and downside risk. Shared savings are net of a 2% threshold.
Proposed ACO rules released yesterday by HHS project that up to 5 million Medicare beneficiaries will receive care from providers participating in ACOs, with savings from the program expected to be $510 million over three years from 2012 through 2014. HHS says many of the beneficiaries served by ACOs are expected to be located in high-cost areas of the nation, suggesting the ACO program “can have a significant impact on lowering Medicare expenditure growth.” (Note: the savings projections assume assignment of 1.4 million to 4 million beneficiaries to ACOs over the first three years).
In other words, up to 11% of the nation’s 45 million Medicare beneficiaries will be served by an ACO. In comparison, about 11 million — or 24% of total Medicare beneficiaries — are enrolled in a Medicare Advantage plan. I hate to break it to the health insurance industry, but a successful Medicare ACO program — i.e., one that lowers costs and improves quality – can only put additional pressure on Medicare plan profits and prospects. The chart below from HHS shows projected high-end, low-end and median savings from Medicare ACOs.
Pimco founder William Gross in the company’s April 2011 Investment Outlook.
Medicare, Medicaid and Social Security now account for 44% of total federal spending and are steadily rising. Previous Congresses (and Administrations) have relied on the assumption that we can grow our way out of this onerous debt burden. Unless entitlements are substantially reformed, the U.S. will likely default on its debt; not in conventional ways, but via inflation, currency devaluation and low to negative real interest rates