What’s Going On With Health Care Costs?


Posted by Joel Wittman

Egads!  Is it truly possible?  Has the increase in health care costs been at its lowest in almost four decades?  And this in spite of the Baby Boomer generation fast approaching retirement age?  What could account for such a phenomenon and is it sustainable?  All relevant questions that have health care experts scratching their heads in search of answers and have politicians scrambling to enact programs to further the slow down in the increase in health care costs.  But, perhaps inaction at this time is the appropriate response.  Can we afford to have the fractured political process impede the progress that has been achieved?  Eduardo Porter, in an article in his Economic Scene column in the New York Times, opines on his take on the subject.  The article is shown below.  I thought this would be of interest to you.  Comments, please.

 

Economic Scene

Medicare Needs Fixing, but Not Right Now

By EDUARDO PORTER

What’s the rush? For all the white-knuckled wrangling over spending cuts set to start on Friday, the fundamental partisan argument over how to fix the government’s finances is not about the immediate future. It is about the much longer term: how will the nation pay for the care of older Americans as the vast baby boom generation retires? Will the government keep Medicare spending in check by asking older Americans to shoulder more costs? Should we raise taxes instead?

Experiments by health care providers on cheaper and more efficient ways to deliver care appear to be helping push costs down.

Health Spending Slows

It might not be a good idea to try to resolve these questions quite so urgently. Partisan bickering under the threat of automatic budget cuts is unlikely to produce a calm, thoughtful deal.

“We don’t have to solve this tomorrow; not even next year,” said Jonathan Gruber, an economist at the Massachusetts Institute of Technology who worked on the design of President Obama’s health care reform.

More significantly perhaps, some economists point out that the problem may already be on the way toward largely fixing itself. The budget-busting rise in health care costs, it seems, is finally losing speed. While it would be foolhardy to assume that this alone will stabilize government’s finances, the slowdown offers hope that the challenge may not be as daunting as the frenzied declarations from Washington make it seem.

The growth of the nation’s spending slowed sharply over the last four years. This year, it is expected to increase only 3.8 percent, according to the Centers for Medicare and Medicaid Services, the slowest pace in four decades and slower than the rate of nominal economic growth.

Medicare spending is growing faster — stretched by baby boomers stepping out of the work force and into retirement. But its pace has slowed markedly, too. Earlier this month, the Congressional Budget Office said that by 2020 Medicare spending would be $126 billion less than it predicted three years ago. Spending over the coming decade, it added, would be $143 billion less than it forecast just last August.

While economists acknowledge that the recession accounts for part of the decline, depressing incomes and consumption, something else also seems to be going on: insurers, doctors, hospitals and other providers are experimenting with new, cheaper and more efficient ways to deliver care.

Prodded by President Obama’s Affordable Care Act, which offers providers a share of savings reaped by Medicare from any efficiency gains, many doctors are dropping the costly practice of charging a fee for each service regardless of its contribution to patients’ health. Doctors are joining hundreds of so-called Accountable Care Organizations, which are paid to maintain patients in good health and are thus encouraged to seek the most effective treatments at the lowest possible cost.

This has kindled hope among some scholars that Medicare could achieve the needed savings just by cleaning out the health care system’s waste.

Elliott Fisher, who directs Dartmouth’s Atlas of Health Care, which tracks disparities in medical practices and outcomes across the country, pointed out that Medicare spending per person varies widely regardless of quality — from $7,734 a year in Minneapolis to $11,646 in Chicago — even after correcting for the different age, sex and race profiles of their populations.

He noted that if hospital stays by Medicare enrollees across the country fell to the length prevailing in Oregon and Washington, hospital use — one of the biggest drivers of costs — would fall by almost a third.

“Twenty to 30 percent of Medicare spending is pure waste,” Dr. Fisher argues. “The challenge of getting those savings is nontrivial. But those kinds of savings are not out of the question.”

We could be disappointed, of course. Similar breakthroughs before have quickly fizzled. Just think back to that brief spell in the mid-1990s when health maintenance organizations seemed to beat health care inflation — until patients rebelled against being denied services and doctors dropped out of their networks rather than accept lower fees.

The Centers for Medicare and Medicaid Services already expects spending to rebound in coming years. Without tougher cost control devices, be it vouchers to limit government spending or direct government rationing, counting on savings of the scale needed to overcome the expected increase in Medicare rolls may be hoping for pie in the sky.

“It makes no sense,” said Eugene Steuerle, an economist at the Urban Institute, to expect the government will reap vast Medicare savings without having an impact on the quality of care.

The Affordable Care Act already contemplates fairly big cuts to Medicare. In its latest long-term projections published last year, the Congressional Budget Office estimated that under current law, growth in spending per beneficiary over the coming decade would be about half a percentage point slower than the rate of economic growth per person.

To understand how ambitious this is, consider that Medicare spending per beneficiary since 1985 has exceeded the growth of gross domestic product per person by about 1.5 percentage points per year. Slowing down that spending would require deep cuts in doctor reimbursements that, though written into law, Congress has never allowed to happen — repeatedly voting to cancel or postpone them.

Under a more realistic situation, the Budget Office projected that the growth of Medicare spending per capita over the next 10 years would be in fact 0.6 percentage points higher than under current law and accelerate further after that.

Yet despite the ambition of these targets, they would not be enough to stabilize future Medicare spending as a share of the economy. A report by three health care policy experts, Michael Chernew and Richard Frank of Harvard Medical School, together with Stephen Parente of the University of Minnesota, concluded that to do that would require limiting the growth of spending per beneficiary at 1.25 percentage points less than the growth of our gross domestic product per person.

“The Affordable Care Act places Medicare spending on a trajectory that is historically low,” Mr. Chernew said, noting his opinion was not an official statement as vice chairman of Medicare’s Payment Advisory Commission, which advises Congress on Medicare. “Could we do better? Of course. Will we? That requires a little more skepticism.”

Yet even if it is unrealistic to expect that newfound efficiencies will stabilize Medicare’s finances, the slowdown in health care spending suggests that politicians in Washington calm down. It offers, at the very least, more breathing room to carefully consider reforms to the system to raise revenue or trim benefits in the least damaging way.

There are many ideas out there — from changing Medicare’s premiums, deductibles and coinsurance to introducing a tax on carbon emissions to raise revenue. Some of them are not as good as others. Until recently, President Obama favored increasing the eligibility age for Medicare. Then research by the Kaiser Family Foundation concluded that raising the age would increase insurance premiums and cost businesses, beneficiaries and states more than the federal government would save. The nation would lose money in the deal.

“As we do this, there are smarter and dumber ways to do it,” Mr. Gruber said. “It would be a problem if we were to do things in a panic mode that set us backward.”

                                                                                                                                               

 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.


Do Health Care and Profits Mix?


Posted by: Joel Wittman 

The debate continues: can a social service such as health care operate in a profit-generating mode?  Undoubtedly, there are fierce opinions on both the pro and con aspects of this question.  Those who support the notion that health care can operate as for-profit entities point out that the financial difficulties encountered by not-for-profit health care providers.  Their mantra is “No Margin, No Mission”; the patient population will receive fewer, or no, services if health care companies are not managed in financially responsible and profitable ways.  On the other hand, those who favor the realm of the non-profit universe contend that the quality of care is compromised and patients not receiving care because of the emphasis in the profit mentality.  So, who’s correct?  It’s a difficult conundrum to address.

An article in the January 8, 2013 edition of the New York Times focused on this issue.  The article appears below:

Health Care and Profits, a Poor Mix

By EDUARDO PORTER
Published: January 8, 2013

Thirty years ago, Bonnie Svarstad and Chester Bond of the School of Pharmacy at the University of Wisconsin-Madison discovered an interesting pattern in the use of sedatives at nursing homes in the south of the state.

Patients entering church-affiliated nonprofit homes were prescribed drugs roughly as often as those entering profit-making “proprietary” institutions. But patients in proprietary homes received, on average, more than four times the dose of patients at nonprofits.

Writing about his colleagues’ research in his 1988 book “The Nonprofit Economy,” the economist Burton Weisbrod provided a straightforward explanation: “differences in the pursuit of profit.” Sedatives are cheap, Mr. Weisbrod noted. “Less expensive than, say, giving special attention to more active patients who need to be kept busy.”

This behavior was hardly surprising. Hospitals run for profit are also less likely than nonprofit and government-run institutions to offer services like home health care and psychiatric emergency care, which are not as profitable as open-heart surgery.

A shareholder might even applaud the creativity with which profit-seeking institutions go about seeking profit. But the consequences of this pursuit might not be so great for other stakeholders in the system — patients, for instance. One study found that patients’ mortality rates spiked when nonprofit hospitals switched to become profit-making, and their staff levels declined.

These profit-maximizing tactics point to a troubling conflict of interest that goes beyond the private delivery of health care. They raise a broader, more important question: How much should we rely on the private sector to satisfy broad social needs?

From health to pensions to education, the United States relies on private enterprise more than pretty much every other advanced, industrial nation to provide essential social services. The government pays Medicare Advantage plans to deliver health care to aging Americans. It provides a tax break to encourage employers to cover workers under 65.

Businesses devote almost 6 percent of the nation’s economic output to pay for health insurance for their employees. This amounts to nine times similar private spending on health benefits across the Organization for Economic Cooperation and Development, on average. Private plans cover more than a third of pension benefits. The average for 30 countries in the O.E.C.D. is just over one-fifth.

We let the private sector handle tasks other countries would never dream of moving outside the government’s purview. Consider bail bondsmen and their rugged sidekicks, the bounty hunters.

American TV audiences may reminisce fondly about Lee Majors in “The Fall Guy” chasing bad guys in a souped-up GMC truck — a cheap way to get felons to court. People in most other nations see them as an undue commercial intrusion into the criminal justice system that discriminates against the poor.

Our reliance on private enterprise to provide the most essential services stems, in part, from a more narrow understanding of our collective responsibility to provide social goods. Private American health care has stood out for decades among industrial nations, where public universal coverage has long been considered a right of citizenship. But our faith in private solutions also draws on an ingrained belief that big government serves too many disparate objectives and must cater to too many conflicting interests to deliver services fairly and effectively.

Our trust appears undeserved, however. Our track record suggests that handing over responsibility for social goals to private enterprise is providing us with social goods of lower quality, distributed more inequitably and at a higher cost than if government delivered or paid for them directly.

The government’s most expensive housing support program — it will cost about $140 billion this year — is a tax break for individuals to buy homes on the private market.

According to the Tax Policy Center, this break will benefit only 20 percent of mostly well-to-do taxpayers, and most economists agree that it does nothing to further its purported goal of increasing homeownership. Tax breaks for private pensions also mostly benefit the wealthy. And 401(k) plans are riskier and costlier to administer than Social Security.

From the high administrative costs incurred by health insurers to screen out sick patients to the array of expensive treatments prescribed by doctors who earn more money for every treatment they provide, our private health care industry provides perhaps the clearest illustration of how the profit motive can send incentives astray.

By many objective measures, the mostly private American system delivers worse value for money than every other in the developed world. We spend nearly 18 percent of the nation’s economic output on health care and still manage to leave tens of millions of Americans without adequate access to care.

Britain gets universal coverage for 10 percent of gross domestic product. Germany and France for 12 percent. What’s more, our free market for health services produces no better health than the public health care systems in other advanced nations. On some measuresinfant mortality, for instance — it does much worse.

In a way, private delivery of health care misleads Americans about the financial burdens they must bear to lead an adequate existence. If they were to consider the additional private spending on health care as a form of tax — an indispensable cost to live a healthy life — the nation’s tax bill would rise to about 31 percent from 25 percent of the nation’s G.D.P. — much closer to the 34 percent average across the O.E.C.D.

A quarter of a century ago, a belief swept across America that we could reduce the ballooning costs of the government’s health care entitlements just by handing over their management to the private sector. Private companies would have a strong incentive to identify and wipe out wasteful treatment. They could encourage healthy lifestyles among beneficiaries, lowering use of costly care. Competition for government contracts would keep the overall price down.

We now know this didn’t work as advertised. Competition wasn’t as robust as hoped. Health maintenance organizations didn’t keep costs in check, and they spent heavily on administration and screening to enroll only the healthiest, most profitable beneficiaries.

One study of Medicare spending found that the program saved no money by relying on H.M.O.’s. Another found that moving Medicaid recipients into H.M.O.’s increased the average cost per beneficiary by 12 percent with no improvement in the quality of care for the poor. Two years ago, President Obama’s health care law cut almost $150 billion from Medicare simply by reducing payments to private plans that provide similar care to plain vanilla Medicare at a higher cost.

Today, again, entitlements are at the center of the national debate. Our elected officials are consumed by slashing a budget deficit that is expected to balloon over coming decades. With both Democrats and Republicans unwilling to raise taxes on the middle class, the discussion is quickly boiling down to how deeply entitlements must be cut.

We may want to broaden the debate. The relevant question is how best we can serve our social needs at the lowest possible cost. One answer is that we have a lot of room to do better. Improving the delivery of social services like health care and pensions may be possible without increasing the burden on American families, simply by removing the profit motive from the equation.

 

Granted this is one person’s view of the matter. What are your thoughts?  In my course, “The Business of Health Care”, this issue is a key component of the subject matter.  Care to learn more and hear both points of view?  Register for the class.  I look forward to meeting 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.


Hospital Pay-for-Performance [P4P] for NYC’s Public Hospitals


Posted by: Jan Blustein

According to a recent press release New York City’s public hospitals will begin to pay its MDs for meeting targets relating to health care quality and efficiency.  The targets are quite varied, and include enhanced coordination of care, reductions in readmissions, decreases in ER wait times, and reductions in length-of-stay.

Using pay-for-performance [P4P] to improve hospital care is not new.  The concept has been used by private insurers and some state Medicaid programs, and the Medicare program has long had a national demonstration project on hospital P4P.  Last year hospital P4P was extended to most US acute care hospitals, under Medicare.   Historically, incentive payments have gone to hospitals, as organizations.  But under the proposal, some of those dollars will in turn go to the physicians who work in the city’s public hospitals.

How effective has hospital P4P been?  While the evidence is mixed, it has generally has not been particularly effective in improving the quality of hospital care.  My colleague Andy Ryan and I review the evidence and discuss some of the possible reasons here.

However, the New York City approach offers a new twist: it makes MDs the direct beneficiaries of high hospital performance ratings.  Indeed, it is no coincidence that the metrics that the city’s public hospitals will use in its program are the very metrics that the hospitals will be held accountable for by Medicare and other regulatory bodies.   In other words, if the hospitals perform well, the public hospital system will receive bonuses from regulatory bodies.  Under the program that was just announced, if the hospitals perform well, that wealth will be shared with the physicians who work in those hospitals.

This is a promising and interesting approach.


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


SOTU: What Obama Didn’t Say


Posted By Errol Pierre

President Obama filled up close to 90 minutes of TV airtime giving his 3rd State of the Union Address last week. With 6,953 words (about 12 pages) to choose from political pundits filled the airwaves all across the country with animated reactions commenting on everything from the details of his plans to his tone, his demeanor, and overall performance. But all too often we forget that with great orators, it is more important to focus on the words that were not said than the ones that were….

Here are the facts:

- “Health” was used only 7 times during his speech (roughly 0.001% which takes up less than 1 line on a page).

- His comments regarding Healthcare made up only 332 words. That represented 4.7% of his speech (about a page and half). A little better but still severely lacking in substance.

How can that be?

- Health expenditures in this country represent more than 16% of our GDP while the average percentage among high income nations is roughly 10%.

- 13.1 million Americans lack a job but more than 50 million Americans in this country lack health insurance. Doesn’t healthcare deserve more attention?

- Since inauguration, he has spent 60% of his time in office getting what he called his #1 domestic policy agenda, healthcare reform, passed through Congress. If you recall, he entered office on January 20, 2010 and healthcare reform was passed on March 23, 2011. So 15 out of his now 25 months were dedicated to the pursuit of universal healthcare.

- Lastly, most of the popular provisions of the law have already been instituted. Millions of young adults in their twenties have been able to get insurance through their parents. And even more promising, no child under 18 can be denied coverage for pre-existing conditions.

So why were there so few words on healthcare? Discussing income inequality yet avoiding healthcare is not having an honest discussion about the problem. America spends more money on healthcare than any country on the planet. What is not widely known are the percentages spent by the government versus the private sector and how that impacts the American pocketbook. This country is actually on par with other high income nations spending 7.4% of their GDP on government health expenditures like Medicare, Medicaid, and Veteran healthcare. For a comparison, countries like France (8.7%) and Germany (8.1%) are at higher levels with government run universal healthcare. However, when it comes to expenditures from the private sector, America spends an additional 8.5% of its GDP representing almost half (52.2%) of total health costs for the entire country. That is 4 times higher than most like nations. In fact those private sector figures put us in 50th place between Rwanda (49th) and Gambia (51st) according to the World Health Organization.

WHY IT MATTERS

Most Americans get health insurance through their employer leaving American businesses on the hook for large portions of the country’s private health expenditures. It’s been the catalyst for corporations moving jobs overseas. It’s why the United States Postal Service is teetering on the edge of insolvency. It’s why America bailed out General Motors and restructured their Union contracts to be the #1 car company in the world again.

Most Americans work for businesses with 200 or more employees. According to the Kaiser Family Foundation, 99% of the time these businesses are offering health insurance to those employees. The foundation goes on to highlight that the cost of these employer health plans have gone up by 113% over the past 10 years with employers paying close to 73% of those costs on behalf of their employee population. As a result they have shielded much of the exorbitant healthcare increases from their employees. This has had grave repercussions to the average American salary. You cannot talk about income inequality and ignore non-salaried benefits like health insurance. These increases have poked huge holes in the bucket of funds that corporations use to payout employee compensation. You also cannot blame health insurance companies for these increases either. Their profit margins barely surpass 4% compared to pharmaceutical companies that enjoy 15% margins. The blame really goes to the actual cost of providing healthcare.

The U.S Social Security Administration has tracked the national average wages in this country since 1951. In 2001 it was $32,921. In 2010 it is $41,673. So despite the increases in health insurance costs, wages have still gone up 27% in the past 10 years. American employees however have seen 131% growth in the amount of money they must contribute to their health plan. It has gone from $1,787 in 2001 to $4,129 in 2010. So Americans have literally went from paying 5% of their salary on health insurance to 10% in 10 years not even accounting for the increase in co-payments, deductibles, and out of pocket costs.

If you truly want to tackle income inequality, look no further than tackling the increases in healthcare spending. Healthcare reform did not go far enough on this issue. It increased access via health exchanges, protected more patients via insurance regulations like profit ceilings and mandated benefits. But it did nothing to tackle costs. Even worse, our healthcare system will continue to shield costs from the consumer by giving subsidies to lower income Americans so that insurance can be more affordable. But these subsidies are paid for by taxes and fees levied on health insurance companies ($60 billion), on Americans with rich “Cadillac” type health plans ($32 billion), on pharmaceutical companies ($27 billion), and on high income earners use of hospitals ($210 billion). The only problem with these types of revenue streams are the laws of economics. Since individual Americans and large businesses will be required by law to purchase insurance by 2014, they as consumers will be more inelastic than their suppliers. In the end most of these taxes and fees will be passed on to the most vulnerable consumers further eating away at their hard earned income.

President Obama concluded his healthcare remarks conceding that he was “willing to look at other ideas to bring down costs, including one that Republicans suggested last year — medical malpractice reform to rein in frivolous lawsuits.” The only problem is here is the sad reality. According to the Kaiser Family Foundation only 11,000 malpractice claims were paid in 2009 amounting to $3.6 billion. That sounds like a big number but it is only 0.2% of total U.S. health costs. So the only question left is how much medical malpractice reform could help to actually close the income inequality gap. Well, the average malpractice suit is only $11.99 per capita, putting $12 bucks back in everyone’s pocket. I guess the good news is this kind of policy change would help fight the common cold giving every American the extra disposable income to buy a bottle of Robitussin from CVS.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. 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

 


Building an Exchange Strategy Part I – Changing Your Vantage Point


Posted By Errol Pierre

Health benefit exchanges are set to be fully operational by 2014. As part of the Patient Protection and Affordable Care Act (PPACA), these exchanges seek to be a marketplace for consumers to purchase affordable coverage. Subsidies to reduce both the cost of insurance and the out of pocket expenses from copayments and deductibles will be available to eligible consumers as well. Estimates suggest close to 30 million Americans will find coverage through this avenue lowering the uninsured rate to 3%.

These exchanges will revolutionize the way health insurance companies operate. Most Americans receive insurance through their employer. As such, insurance companies have built their world around marketing to them rather than directly to individual consumers. Over the years, insurance company processes, products, and strategies have all conformed to employer choice and preferences. Even the way customer service is organized and how information is shared caters to an employer-centric business model.  However, by 2014 health insurance companies will need to operate differently to capitalize on the million of new health consumers entering the market.

Consumers purchase products much differently than employers. Consumer motivation is largely based on personal preferences and emotions while companies make rational decisions based on economic value.  So business to consumer (B2C) marketing has been much more demanding and onerous than business to business (B2B) marketing. Health insurance companies as a result have gotten away with minimal efforts in advertising using business publications and newspaper ads that reach CEOs, CFOs, benefit consultants, and decision makers. Marketing campaigns targeting decisions makers has been an easier road to handle than attempting to market the average consumer.  In fact most of the insurance policies sold in the United States are through brokers or independent agents hired by a business that receives compensation from the company whose product gets sold. Consequently, the construct of this industry has kept marketing innovation and ingenuity at bay. For years the basic message segmentation for B2B advertisements has been limited to industry and firm size.

Not all insurance companies suffer from this lack of consumer centric segmentation however. The car insurance industry is a perfect example of what the health insurance industry will aspire to be by 2014. Geckos and cave men, made up stores with humorous sales representatives, over the top actors representing natural disasters and unfortunate accidents, and catchy jingles all represent the car insurance industry’s push for market share catering to consumer preferences. Geico, Progressive, Allstate, and State Farm have all used innovative TV, internet, and other media ads recently to differentiate themselves. One main reason is because car insurance is largely purchased at the consumer level. As such, the industry caters solely to the wants, needs, and desires of the personal shopper. They have developed enhanced customer service levels, easy to use online tools, and a wide array of products and services all with a focus on consumer appeal. The consumer is essentially the center of the strategy. After all, it is the consumer who has the power to terminate the policy at any time; not the consumer’s employer.

Health insurance companies have a tough road ahead if they wish to compete at the same level. Moving from an employer-centric model to a consumer-centric model is more than just a mission and a vision. It really is a shift in corporate culture. It starts from the top down as much as it does from the bottom up. The CEO must believe in the change as well as the customer service representative answering the phone. There must be a commitment to innovation, ease of use, positive public perception, and consumer preference. The products offered must allow for customization and flexibility. The policies for grievances, appeals, and complaints must be customer friendly and aimed at pleasing the client. Such attributes have unfortunately been foreign to the health insurance industry and they have less than 2 years to quickly figure it all out.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. 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


Medicaid Health Homes – The New York Story – Part 1


Posted by Professor John Billings

New York, like most states, is moving rapidly to implement a new initiative to provide care coordination/management to high risk Medicaid patients.  Stimulated by the 90-10 federal match rate that was established in the Patient Protection and Affordable Care Act, the New York Health Home Initiative is initially targeted at more than 700,000 Medicaid recipients who have at least two chronic conditions or a serious and persistent mental health condition.  In 2009, New York spent more than $8.7 billion for these patients, and the goal of the initiative is to improve health outcomes and reduce costs through improved care management and coordination that lowers rates of hospitalization and emergency department use.

In New York, the Medicaid program will pay a monthly fee to a “Health Home” to manage and coordinate care for each qualifying patient.  The fee is expected to range from about $50-$350 per patient per month depending on the level of risk as determined by the patient’s CRG acuity score and predictive modeling on the risk of a hospital admission in the next 12 months.  As currently envisioned, for patients enrolled in managed care, the fee will paid to the managed care plan where the patient is enrolled, and the plan will determine where the “Health Home” will be located and how the care coordination fee will be distributed.  For fee-for-service patients, the state has asked for submission applications from providers interested in qualifying as a Health Home, and the state will assign patients to a Health Home based on prior outpatient utilization patterns (based on a “loyalty” analysis), or based ED/inpatient use or geographically for patients with no recent outpatient utilization.  The program will be implemented in three phases beginning with 12 counties (including Brooklyn and the Bronx) in January, 2012, with an additional 14 counties expected in April, 2012, and the remaining 35 counties expected in June, 2012.  For further information on New York’s plans, see:  http://www.health.ny.gov/health_care/medicaid/program/medicaid_health_homes/.

From a policy perspective, this initiative and its roll-out are of significance along multiple dimensions.  First the level of interest among providers has been enormous – the State received more than 200 letters of intent for applications to become a Health Home, with more than 90 in New York City alone.  Of course, with new money on the table in a time of Medicaid cutbacks, perhaps that’s not all that surprising.  But of more policy import is the extent to which the letter of intent process generated an unprecedented level of dialogue among medical, behavioral health, and social service providers, many of whom had no prior history of interaction.  Again, perhaps this is not so surprising – these are complex patients, with multiple conditions, often with a history of substance abuse or mental illness, many with housing problems, and many isolated with little or no social support structure.  Some potential applicants went solo or brought and handful of providers and community based organizations together.  But most applicants listed scores of medical provider organizations, behavioral health providers, social service providers, and other community based organizations, with four from New York City listing more than 100 organizations coming together for a potential Health Home application.

On one level, watching this diverse group of providers crawl out of their silos and begin to talk about what would be needed to coordinate the health and social needs was quite exciting.  But it also demonstrates the extent to which the current “system” is fragmented, with little integration within the medical care sector, but also little existing coordination (forget integration) between and among medical care providers, behavioral health providers, and community based organizations interested in the health and welfare of this vulnerable population.

This response also illustrates some of the challenges facing prospective Medicaid Health Homes (and the rest of health care services for that matter).  What will it take to be successful?  Optimally Health Homes would have the following capabilities and characteristics:

  1. A multidisciplinary approach for individualized needs assessment and care planning for participating patients;
  2. Integrated/organized/coordinated health and social service delivery system;
  3. Some sort of care/service-coordinators/arrangers, with a reasonable caseload size, a clear mission (to improve health and to reduce costs), an ability to engage and build trust with the patient, and a capability of respond to non-medical issues/needs
  4. Core IT and care coordination support capacity to track patient utilization in close to real time and to mine administrative data to help target interventions/outreach, provide feed-back to participating providers, and to examine utilization patterns that will allow continuous improvement and re-design intervention strategies;
  5. Ability to provide real time support at critical junctures, including ED visits (to help prevent “social admissions”, hospital discharge (to help develop effective community support/management planning), and or patient initiated contact for help for an emerging crisis; and
  6. Incentives/reimbursement policies to encourage and reward “effective and cost efficient care”, most notably to reduce hospital admissions and ED visits.

And how much of this currently exists?  How much is achievable in the short run?  Well, items 1 and 3 seem do-able.  The care coordination fee can help support the needs assessment and the costs of care coordinators.  The rest, not so much.  The biggest challenge will be coping with the fragmented medical, behavioral health, and social service delivery non-system.  It’s fine to come together on a letter of intent (talk remains fairly cheap) – it’s another matter to actually function as at least a quasi-organized, coordinated “system”.  The challenges of exchanging data among the non-integrated Health Home participants will be also daunting – just sharing and updating a patient care plan is likely to be difficult for some orgnaizations.  Assuring that the care coordinator knows in real time that a patient is in the ED or about to be discharged from the hospital present much bigger challenges, especially for the 30% or more Health Home patients not currently enrolled in managed care.  Of course, when the Medicaid card is swiped, Albany knows, but getting that information to the Health Home and its care coordinator is not currently including in the planning.

And what about incentives?  Clearly hospitals have the most to lose here, since the goal is to knock out hospital and ED visits.  In a managed care world where the hospital is included in some global capitation arrangement, incentives are somewhat aligned since the hospital can share in the savings.  But that sort of arrangement is relatively rare for most of managed care, and for fee-for-service patients, it is not existent.  Some form of shared savings arrangement for the Health Home Initiative is contemplated by the State, but currently it is just that:  contemplated.  Progress here will be critical to success of the initiative.

And as to success, what do we know about similar initiatives?  Well, another important policy issue related to Health Homes is that once again we are embarking on a major initiative without much evidence that it is likely to work.  It certainly sounds good on paper – care coordination makes sense and there is plenty of evidence that a lot of hospitalizations and ED visits are preventable/avoidable.  But less is known about how to do the preventing and avoiding.  This faith-based approach to policy making is actually pretty typical for Medicaid and most of health care.  Think back over the last 10-15 years for the last great Medicaid initiative:  enrollment of massive numbers of Medicaid patients in managed care.  What did we know about the effectiveness of managed care in improving outcomes and reducing costs then?  About as much as we know now for Health Homes.  And what do we know about how Medicaid managed care has worked so far:  shockingly little on some dimensions.

What is a bit frustrating on Heath Homes is that New York currently has an initiative that looks and smells a lot like Health Homes:  the Chronic Illness Demonstration Project (CIPD).  A monthly fee is paid to six demonstration sites to coordinate and manage care for fee-for-service patients at high risk of future hospitalization.  There is even a shared savings pool for projects that actually reduce costs (after including the costs of the intervention care coordination fee).  Unfortunately, the federal funding for Health Homes came along before we know how well and for whom CIDP is working.  We are going from a demonstration with a couple thousand patients to a ramp-up that ultimately may involve more than 700,000 patients.  Pretty classic.

This is not to say moving ahead with the Health Home Initiative is a bad idea.  The State has moved forward in a refreshingly open and transparent way, trying to keep the health community well-informed and trying to respond where possible to concerns of those likely affected as it rolls out the initiative.  And new federal money is new federal money.  And more coordination can’t be a bad thing.  And getting a broad range of medical, behavioral health, and community based social services providers to work together is fabulous, and it may stimulate more lasting and broader integration or at least coordination among these providers.  Perhaps even the first baby steps toward something that feels like an Accountable Care Organization?  One can only hope.  But what is fairly certain is that things are likely to get a bit messy along the way.  With the magnitude of change required to make Health Homes work, no one will get it all right the first time.  The goal should be to learn as much as possible along the way.  And it is important the State remain flexible and make necessary adjustments as the initiative is rolled out – the speed at which the initiative is being implemented should not be allowed to foreclose opportunities to encourage more lasting and fundamental change.  But stay tuned, it will be an interesting ride.

John Billings is an Associate Professor of Health Policy and Public Service, and the director of Wagner’s Health Policy and Management Program.  His research focuses on understanding  the nature and extent of barriers to optimal health for vulnerable populations.  He can be reached at john.billings@nyu.edu.


Who I Am and What I Hope to Achieve


Posted by Jacob Victory

While inaugural game-day outings, presidential swear-ins, or grand openings of the local laundromat tend to have a lot of noise, glamour and “a 15 percent discount on your first five pounds of laundry,” my premier blog post comes with a large dose of humility, a little about who I am and what I hope to achieve with this blog.

 About Me: As a kid, I was the one who batted a home-run but couldn’t catch the ball (the mitt was too tight remains my excuse). As an artist, I paint my portraits to zoom-in on what I think is going on behind the mask of someone’s face. As a person, I believe in merit and in understanding that the ego doesn’t matter. As a professional, I seek to make an impact in serving those who are vulnerable—in other words, those who are rich, poor or like spicy foods, anyone who needs health care, healthy or otherwise, is always in a vulnerable spot. Why am I sharing my thoughts? Well, I want to give you my angle and I remember what is was like to be a student or what it was like early in my career and I’d like to share my thoughts because I’ve learned a thing or two from my experiences that others could benefit from. I also want to open up a discussion so we all can learn more, too.

My Blogging Roadmap: My blog will primarily focus on two areas. First, I write as an NYU-Wagner alum whose goal is to encourage current students and fellow alums to focus on what is relevant, what I consider smart things to do and not do, and how to work with others to chip away at making an impact. I’d like to address the need for mentorship, for reflection, and for relationship building. Also, I think students and alums always need strategies for job hunting or an understanding of how to network and find who may seem to be an elusive mentor.

Second, as a quiet observer of, but an active participant in, the theatrics of health care delivery, outcomes and, these days, reform, I wish to offer the practical viewpoint of what matters, what gets in the way, and what, in my self-exalted viewpoint, we should focus on. I’ll zero in on the need to maintain the viewpoint that “patient care is the only reason we are here” and what is needed to support this view; the need for collaboration between clinicians and “those business folks;” how performance improvement and succession planning must be priorities; as well as what I think the federal, state and local levels need to tackle in order to help health care organizations, clinicians, and administrators make this health care reform work..

Perhaps most importantly, I’m looking for a dialogue with you. If I can stretch your thinking (or make you chuckle), I’ll consider this blog successful. I’m flattered to write and excited to share.

Jacob Victory, an NYU-Wagner alum, is the Vice President of Performance Management Projects at the Visiting Nurse Service of New York. Jacob spends his days getting excited about initiatives that aim to reform and restructure health care.  He’s held strategic planning, clinical operations and performance improvement roles at academic medical centers, in home health care and at medical schools. Jacob also exercises the right side of his brain. Besides drawing flow charts and crunching numbers all day, he makes a mean pot of stew and does abstract paintings, often interpreting faces he finds intriguing.