Health Reform to Stay the Bumpy Course


Posted by: Joel Wittman

As this is my first post since the presidential election, I thought that this would be a good time to look at how the ACA may play out.  Fierce Healthcare published an article about this soon after the election.  I thought it would be of interest to you.

Reelected for a second term, President Barack Obama is expected to carry out the landmark Affordable Care Act of 2010–but not without some resistance from a split Congress.

Many health reform provisions that hung in the balance during election season could see implementation in 2013 and 2014. The Democratic presidential win particularly confirms the forth-coming health insurance exchanges, the phasing out of annual insurance limits and protections for those with pre-existing conditions. However, it also leaves certain controversial provisions–namely, Medicaid expansion and the Independent Payment Advisory Board–in the hands of a divided Congress that may slow reform.

According to the Healthcare.gov timeline, the healthcare industry can expect:

Higher Medicaid payments for primary care physicians – Jan. 1, 2013
Under the Affordable Care Act, primary care physicians can expect Medicaid payments that resemble reimbursements for Medicare. Family doctors, internists and pediatricians next year will see Medicaid payments increase by up to 7 percent, estimated at $11 billion, although specialists have complained they are largely left out of the increased payments.

Medicaid expansion – Jan. 1, 2014
Perhaps one the most contentious issues that could see continued partisan politics is Medicaid expansion. Individuals who earn less than 133 percent of the poverty level (approximately $14,000 for an individual and $29,000 for a family of four) will be eligible to enroll in Medicaid. Although the Obama administration envisioned Medicaid expansion would be implemented across the country, the U.S. Supreme Court decision in June left it up to the states. Red, Southern states, in particular, have been particularly resistant to Medicaid expansion.

“The surprise Medicaid ruling by the Supreme Court will put hospitals in direct conflict with Republican governors who may want to not participate in the Medicaid expansion for political reasons,” Kent Bottles , senior fellow at the Thomas Jefferson University School of Population Health in Philadelphia and FierceHealthcare editorial advisory board member, told FierceHealthcare in an interview. “States not participating will be terrible for hospitals that are depending on the increased coverage to offset the decreased revenue from the federal government contained in the PPACA,” Bottles said.

With an expected 16 million uninsured Americans to enter the Medicaid system, provider reactions have been mixed, with some saying greater coverage for all will be a welcome relief, while others worry the patient volume will tax already overburdened staffs and resources.

“The ACA will increase the number of Medicaid beneficiaries, but it does not guarantee access to primary care,” Jesse Pines, director of the Center for Health Care Quality and associate professor of emergency medicine and health policy at George Washington University in Washington, D.C., told FierceHealthcare. Pines, a FierceHealthcare editorial advisory board member, noted many primary care physicians are turning away Medicaid patients, opting for higher-yielding patients who have commercial insurance or are on Medicare. “So it may be difficult for people to get in to see primary care doctors. With no other option (but with insurance), many will come to the ED,” he said.

Jeremy Tucker, medical director of the emergency department at MedStar St. Mary’s Hospital in Leonardtown, Md., and FierceHealthcare advisory board member, added his area already has physician shortages that may push newly insured patients to turn to emergency departments and urgent care centers to get their care.

“We are already seeing tertiary care hospitals that we transfer patients to asking us insurance status questions, and while they do not refuse to accept the patient, they will absolutely limit what they do for the patient [by simply stabilizing and discharging].”

He also said the physician shortage, coupled with increased patient volume, will lend to a higher reliance on non-physician providers, such as nurse practitioners and physician assistants.

Divided Congress could slow reform
With the Democratic hold on the Senate and Republicans maintaining the House, Congress will look much like the past four years–a political landscape that worries some in the industry.

“We should see more of the same–stalemates and gridlock in Washington,” Tucker told FierceHealthcare when asked the possibility of a Republican repeal.

A bitterly divided Congress could mean delays in appropriating money to fund the health law’s provisions.

The American Medical Association, while congratulating the President, also took the opportunity to point to the lingering question about the ever-present fiscal cliff–what will happen with the doc fix?

“The AMA is … committed to working with Congress and the administration to stop the nearly 27 percent cut scheduled to hit physicians who care for Medicare patients on Jan. 1, [2013],” AMA President Jeremy Lazarus said in a Wednesday statement. “It is time to transition to a plan that will move Medicare away from this broken physician payment system and toward a Medicare program that rewards physicians for providing well-coordinated, efficient, high-quality patient care while reducing healthcare costs.”

What are your thoughts about the ultimate success of the health care reform act?  Can a split Congress put aside their partisanship for the betterment of those in need of health care services who otherwise could not afford coverage?  While not perfect, the ACA is at least a start in the right direction.  Your comments are always welcome – let me hear from you.

Joel Wittman is an Adjunct Associate Professor at the Wagner School of Public Service of New York University.  He is the proprietor of both Health Care Mergers and Acquisitions and The Wittman Group, two organizations that provide management advisory services to companies in the post-acute health care industry. He can be reached at joel.wittman@verizon.net.


The Drivers of Health Care Costs


Posted by Joel Wittman

With health care costs continuing to comprise a huge portion of the nation’s Gross Domestic Product, efforts are ever-continuing to identify the drivers of these costs and, ultimately, devise methods to slow or decrease health care expenses.  A recent article in Kaiser Health News addressed seven factors that contribute to the rise in spending.  I thought that this article would be of interest to you.

There is no one villain in the battle against rising health care costs. Currently, the United States spends more on health care services than any other country, exceeding $2.6 trillion, or about 18 percent of gross domestic product. Most years, medical spending rises faster than inflation and the economy as a whole. Many factors — and nearly everyone — contributes to those increases.

Here are seven ways you or your medical providers play a role, based on a recent report from the Bipartisan Policy Center, a think tank in Washington, D.C.

1. We pay our doctors, hospitals and other medical providers in ways that reward doing more, rather than being efficient.

Most insurers — including traditional Medicare — pay doctors, hospitals and other medical providers under a fee-for-service system that reimburses for each test, procedure or visit. Coupled with a medical system that is not integrated, this encourages over treatment, including repetitive tests, the report says. New efforts in the federal health law and among some private insurers aim to move payments toward a flat rate for a specific condition, such as a knee replacement, or for a patient’s entire episode of care, in order to streamline costs. Medical systems and doctors are also looking to electronic medical records as a way to improve coordination and reduce unnecessary, repeated tests.

2. We’re growing older, sicker and fatter.

As we get older, we tend to need more medical care. The baby boom generation is heading into retirement, with enrollment in Medicare set to grow by an average of 1.6 million people annually. Additionally, nearly half the U.S. population has one or more chronic conditions, among them asthma, heart disease or diabetes, which drive up costs. And two-thirds of adults are either overweight or obese, which can also lead to chronic illness and additional medical spending.

3. We want new drugs, technologies, services and procedures.

Medical advances can help us get well, avoid disease and delay death, but they also drive up spending. Much new technology comes on the market after being tested only for safety or whether the new treatment is comparable to existing ones or even placebos. Patients and doctors often demand the newest treatments, even if there is little or no evidence that they are better. Prices for newer treatments are often higher than for the products they replace.

4. We get tax breaks on buying health insurance — and the cost to patients of seeking care is often low.

The majority of people with insurance get it through their jobs. The amount employers pay toward coverage is tax deductible for the firm and tax exempt to the worker, thus encouraging more expensive health plans with richer benefits, the report says. How that coverage is designed also plays a role: Low deductibles or small office co-payments can encourage overuse of care, the report says. Increasingly, however, employers are moving toward high-deductible coverage as a way to slow premium growth and require workers to pay more toward the cost of care.

5. We don’t have enough information to make decisions on which medical care is best for us.

While medical journals, the Internet and the popular press are awash in health information and studies, professionals and patients find there is no broad standard for evaluating individual treatments, or how specific treatments compare with others. Even when evidence shows a treatment isn’t effective, or is potentially harmful, it can take a long time for that information to actually change how doctors practice or what patients demand, the report says. Additionally, Americans vary widely in how they view end-of- life issues, with some desiring every possible medical intervention to stave off death in every situation, no matter how small the possibility of success.

6. Our hospitals and other providers are increasingly gaining market share and are better able to demand higher prices.

While mergers or partnerships among medical providers or insurers may improve efficiency and help drive down prices, consolidation can also have the opposite effect, allowing near-monopolies in some markets and driving up prices, the report says. Increasingly, hospitals are buying up rivals and directly employing physicians, creating larger medical systems.

7. We have supply and demand problems, and legal issues that complicate efforts to slow spending.

Malpractice premiums and jury awards are part of what drives spending. A larger problem, although hard to quantify, is “defensive medicine” — when doctors prescribe unnecessary tests or treatment out of fear of facing a lawsuit, the report says. Fraudulent billing or unnecessary tests by medical providers seeking to “game the system” are another concern.

Finally, the report notes that state laws sometimes limit the ability of nurse practitioners or other medical professionals, who are paid less than doctors, to fully perform work for which they are trained. The U.S. faces a shortage of primary care doctors, so more advanced practice nurses and others will be needed to help care for patients who gain insurance coverage under the federal health law. Conversely, the U.S. has a higher ratio of specialists than other countries, which can serve to drive up spending. Specialists have more advanced training than primary care doctors, and are paid far more.

Joel Wittman is an Adjunct Associate Professor at the Wagner School of Public Service of New York University.  He is the proprietor of both Health Care Mergers and Acquisitions and The Wittman Group, two organizations that provide management advisory services to companies in the post-acute health care industry. He can be reached at joel.wittman@verizon.net.


Building a Health Exchange Strategy – Part III


Understanding Your Operational Readiness – Step 1
Posted by Errol Pierre

In Part I of Building a Health Exchange Strategy the discussion centered on how payers will have to be more consumer centric in their approaches to delivering health care. Part II focused on being aware of the political climate and how that will impact strategic decisions on whether to enter a Health Exchange market and upon entrance how to operate within one. Both dynamics, though critical, outlined external factors. Part III dives into internal factors; particularly around operational readiness.

It is clearly recognized that Health Exchanges offer a tremendous opportunity for health insurance companies to broaden their consumer base and expand their market share. By making health coverage more affordable it is likely that 30 million of the 45 to 50 million uninsured Americans will enter the market and purchase coverage through a Health Exchange.  Despite this opportunity, there is a high degree of complexity behind implementing and operating a Health Exchange book of business. The work in 2012 and 2013 provides a barrier to entry for smaller firms who may not have the financial and human capital to build the necessary tools and operational foundation to effectively compete with the larger players. Additionally, there are many interdependencies that exist with heavy reliance on each individual state as well as select Federal agencies to coordinate the coverage and manage the financing of the Health Exchange. The three main areas of concern that health insurance companies are grappling with are (1) product and plan design, (2) subsidy calculations and premium collection, and (3) eligibility and enrollment. Today’s article, (Part III, Step 1) will focus specifically on products and plan designs.

Product and Plan Design
Health Exchanges require at a minimum four levels of benefit offerings; bronze, silver, gold, and platinum. The different metals denote the level of coverage each plan must provide. For example, a bronze plan must cover up to 58% and no more than 62% of the health care costs for the health benefits a state deems “essential “ for a health insurer to provide. Likewise, a platinum plan must cover up to 88% and no more than 92% of the health care costs. These plan designs may be dictated by the individual state depending on the type of Health Exchange the state decides to run. Active Purchaser states like New York would be more inclined to create standard plan designs while Facilitator state like Utah would allow health insurance companies to come up with products and plan designs independently.

Within the “Silver” plan offerings the Health Exchanges will require the reduction of cost-sharing levels such as deductibles, co-payments, coinsurance, and out of pocket maximums depending on the consumer’s federal poverty level (FPL). For example, a silver plan may have a $1,000 deductible before coverage from the health plan kicks in. However, if a consumer with a FPL below 250% purchases a silver plan, the $1,000 deductible would need to be lowered by up to $500. This provides a level of complexity for health plans that has not been seen before. Lowering the deductible actuarially increases the price of the plan since the plan will provide more coverage. However, that cost of lowering the deductible is returned back to the health plan by the Federal government and not the purchasing consumer.

Additionally, the silver plan created by a health plan will have to be replicated up to 4 times over to accommodate for the variations in cost-sharing reductions that change the plan design of the product for each FPL level. Operationally, this inevitably means multiple people can buy the same exact silver plan. However based on their income level, they will have very different plans and very different utilization trends. Accumulator calculators that help health plans count up health care dollars will be imperative to ensure that physicians, hospitals, health plans, and most importantly health care consumers know when they have reached their deductibles and coinsurance maximums. The costs of administering such a complex set of plan designs are still unknown to many health plans; however this has not deterred them from pursuing the Health Exchange opportunity. However, the bigger impact to the cost of administration is how it will work in parallel with minimum loss ratio requirements that mandate the percentage of health care revenue that must be spent on providing health care as opposed to administrative costs; particularly if administrative costs increase due to the complexity of administering these plans.  This undoubtedly eats away at the profit margins of health care plans that already operate with very low margins (2-4% on average).

Basic Health Option
In addition to the four metal plans a state may opt to offer a Basic Health Option. This basically extends the state’s current Medicaid plan eligibility from beyond the 133% FPL up to 200% FPL. It behooves a state to pursue such an option because the Federal government would reimburse 95% of the costs. Today, the Federal government only pays 50% of a state’s Medicaid costs. As a result, states could potentially realize huge savings by shifting a portion of its Medicaid population to this Basic Health Option.

However, this route is very complex. The nuances here are that the Basic Health Option must have the essential health benefits deemed by the state even though the current Medicaid plans do not. So the population over and above the 133% FPL level will have a similar product however the underlying benefits could be substantially different. This poses complexity to the providers with coding and claim submissions. The states will be free to choose the methodology for their essential health benefit package as long as it represents (1) the most popular small group health plan, (2) the most popular HMO health plan in the state, (3) the health plan offered by the State to its employees, or (4) the health plan offered by the Federal Government to its employees in that state. There is also added complexity to the Basic Health Option when it comes to cost sharing. Deductibles and coinsurance levels are regulated within the health care reform bill to be based on FPL as well. So a health plan would have to administer two different types of Basic Health Plans based on whether a consumer is 133% to 150% of the FPL or if they are 150% to 200% of the FPL. These intricacies cause added complexity when it comes to administering a health plan, accumulating consumers’ deductibles and out of pocket maximums, and ensuring the plan designs receive actuarially sound price increases and adjustments year to year.

Catastrophic Plan
Lastly, individual states will also have the ability to create catastrophic plans that can only be offered to health care consumers under the age of 30. Many industry insiders refer to this population as the “young invincibles”. These plans must also meet the essential health benefit requirements, however the deductibles and out of pocket maximums are allowed to be higher. As a safeguard against consumers forgoing care because of high out of pocket healthcare expense there are a number of protections put in place as well. For example, preventive care and particular routine care must be covered in full and not be subject to the deductible. Additionally, three to four primary care office visits must also be covered in full and not subject to the deductible as well. Pricing for these plans provides a unique opportunity for health insurers since the risk pool and experience of the population will reflect a younger demographic. This means that pricing should in theory be more affordable and subsidies from the Federal government potentially could go a longer way.

In the End
Health Exchanges present standardization of plan designs to the health care consumer market with the potential of commoditization of health insurers as they compete for market share. As a result, the emphasis on products and plan designs becomes imperative. How an insurer operationally administers health care products in this space will be the differentiator to the consumer. Innovation in finding the ability to be unique in a very regulated space produces an opportunity for insurers to make product development the focal point of their Health Exchange success strategy.

Errol Pierre is the Assistant Vice President of Product Management at a regional health insurance company focused on business development, sales, and strategy planning around Health Exchanges. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu


The Hidden Healthcare Election


Posted by Errol Pierre

It’s Healthcare, Stupid!
James Carville famously coined the phrase “The Economy, Stupid!” while he was a campaign strategist for the 1992 Clinton Presidential campaign. Fast-forward to 2012 and for good reason both campaigns seemed to take heed to Carville’s advice. For good reason, the unemployment rate hovers around 8%.  On top of that 40% of the unemployed have been jobless for more than 6 months. The labor force participation is barely 64%. Lastly, more than 8 million people last month were employed only part-time specifically due to economic reasons.

However, there seemed to be an undercurrent of Healthcare specific issues in this election that never really surfaced or was given its due attention.  Many of these issues revealed themselves in the exit polling of the most contentious battle ground states.

Obamacare & Florida
16% of the U.S. population lacks health coverage. Obamacare would provide substantial subsidies to individuals that otherwise could not afford insurance. Even though Mitt Romney has proven experience with health care by being the first Governor to ever pass universal healthcare legislation in a state, he ran to repeal President Obama’s healthcare bill even though it closely mimicked the Massachusetts bill Romney himself signed into law just 3 years prior.

Florida has the highest uninsured rate and uninsured population of any battleground state standing at 20% and 4 million people respectively. Over 90% of the uninsured population falls below the 500% federal poverty level ($55,000 for an individual). In Florida roughly 50% of the electorate earns below $55,000 a year. Exit polling showed Obama carried 60% of that population with Romney winning only 40%.

Auto Bailout & Ohio
November 18, 2012 will mark the 4 year anniversary of Mitt Romney’s infamous New York Times Op-Ed entitled Let Detroit Go Bankrupt. Romney called for a managed bankruptcy for General Motors, Ford, and Chrysler standing in strong opposition to a pure bailout. He also called for the heads of the companies to step down and acknowledged that autoworker benefits, including health care, would need to be reduced in order to alleviate the $2,000 burden of additional costs Detroit cars had that made their cars foreign counterparts did not.  During the last leg of the Presidential election, Mitt Romney became unpopular in parts of Ohio for this stance. In fact, President Obama ran on the auto bailout with his Vice President claiming, “Osama Bin Laden is dead and General Motors is Alive!”

The Obama administration ended up moving forward with a plan that very much resembled the Romney Op-Ed. The Obama plan called for the heads of the car companies to step down, sought to have GM and Chrysler pursue Chapter 11 bankruptcy filings, and acknowledged that auto unions would face “belt-tightening in wages, healthcare, and retirement benefits”.  In the end, based on Ohio exit polling, 56% of Ohio voters approved of Obama’s auto bailout and Romney was never able to properly articulate how close his auto plan was to the President’s.

Minority Unemployment Rates & Ohio/Nevada/Colorado/Virginia
The majority of the country receives their health insurance from an employer-sponsored program. That means a job is more than just a paycheck, it’s a means to get health coverage as well. The unemployment rate for African Americans is 14%; six percentage points higher than the national average. Obama won 89% of the African American vote in Nevada, 93% of the African American vote in Virginia, and 96% of the African American vote in Ohio. The unemployment rate for Hispanics is 10%; two percentage points higher than the national average. In the battleground state of Colorado, Obama won 74% of the Hispanic vote. In Nevada  Obama won 69% of the Hispanic vote. In the end, Minorities were convinced that President Obama could grow jobs that offer comprehensive benefits like healthcare better than Mitt Romney.

Abortion & Ohio
Abortion is indeed more than a religious issue. It’s a healthcare issue as well.  Mitt Romney went on record vowing to defund Planned Parenthood during a campaign stop in Ohio. This was after Republican candidate, Todd Akin, interjected the phrase “Legitimate Rape” into the American lexicon justifying it as information he garnered from physicians. Overlay these two instances with Ohio exit polling and we witness that 56% of voters believe Abortion should either always or mostly be legal.  As a result, Obama won 80% and 63% of those votes leaving Romney on the losing end of an important Ohio issue.

Errol Pierre is the Assistant Vice President of Product Management at a regional health insurance company focused on business development, sales, and strategy planning around Health Exchanges. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu