Independence BC To Reward Physician Quality

From Philadelphia.com:

In a bid to boost beleaguered primary-care doctors and encourage more preventive care for the public, Independence Blue Cross announced a plan Thursday to pay physicians more if their patients' health improves.

Independence, the region's largest health insurer, will spend an extra $47 million a year to increase base pay and double incentive programs that already encourage primary-care doctors to deliver higher quality and less costly care.

Starting July 1, a doctor with 850 Keystone HMO patients could earn up to $150,000 more a year, said Steven Udvarhelyi, executive vice president of health services at Independence.

"We think this is a significant opportunity for primary care physicians who are doing a good job," he said. "It is a great incentive for them to improve over time."

Eric Grossman, a senior partner at the consulting firm Mercer, in Norwalk, Conn., said that while insurers have dabbled with so-called pay-for-performance models, Independence's effort was a significant development.

The insurer "has definitely, by this announcement, inserted themselves into the early adopters of that movement," Grossman said.

A key element of the program rewards doctors who meet standards as so-called patient-centered medical homes. Such practices offer greater access for patients, follow treatment guidelines, educate people to better manage their own health, and prescribe drugs by computer.

The initiative expands on a number of local and national efforts that seek to transform the way primary care is delivered and financed. One goal is to ease a primary-care doctor shortage that is likely to worsen as millions of uninsured Americans get insurance coverage in 2014.

"We are doing this . . . to create the right foundation for real reform in the way care is delivered," Udvarhelyi said.

Philadelphia internist Richard Baron applauded the effort, but said he fears it will fail to alter medical practice unless other insurers here and the giant federal Medicare program join in.

"I am thrilled that they are talking about bringing increased resources to primary care," Baron said. "But I hope we will have more of a conversation about what those resources are and need to be."

Baron and the four other doctors at Greenhouse Internists in the city's Mount Airy section have an electronic medical record and have added staff to gain the highest level of patient-centered home certification from the National Committee for Quality Assurance.

But he said: "I need to know that there will be an ongoing revenue stream to support the infrastructure."

Under the current payment system, doctors get paid for patient visits, but not much of the related administrative work.

In a New England Journal of Medicine article published Wednesday, Baron detailed how much time he and his colleagues spend responding to e-mail and phone calls from patients, ordering prescription refills, and reviewing laboratory reports, specialist consultations as well as X-ray and other imaging tests.

Traditionally, insurers have not paid for these tasks. But Baron argues that they are a crucial part of delivering high quality, cost effective care.

"We have to have an honest conversation about what care really is and what the work really is to deliver that care," Baron said.

Baron's group was one of the original 32 practices in Gov. Rendell's chronic-care project to improve treatment of adults with diabetes and children with asthma.

Over the last two years, the number of patients in that effort has grown from 220,000 in this region to 437,432 here and nearly 1.2 million statewide.

"We have the largest initiative in the country," said Ann S. Torregrossa, executive director of the Governor's Office of Healthcare Reform. "With nine months left in this administration, we are looking to ensure that it can continue" after Rendell leaves office.

And after almost two years, the program has had success in reducing avoidable hospitalizations and ER visits by diabetics and asthmatics.

A formal review of the program will be conducted by the Rand Corp., a nonprofit research group in California.

Independence, however, already has enough evidence that the initiative is working, Udvarhelyi said.

Overall, diabetics at practices in the chronic-care initiative have had nearly a 25 percent improvement in their blood-sugar levels and blood pressure. There has been a 43 percent improvement in patients meeting cholesterol goals, and far more diabetic patients are getting recommended foot and eye examinations.

Moreover, he added, "the physicians who are practicing in a medical-home model are much more satisfied with their ability to provide good care to their patients. And patients are more satisfied with the access to care in those practices."

The insurer's new plan will be available to all 1,800 general practitioners, internists and pediatricians who treat Keystone HMO and Point of Service patients in the five-county region.

Latest on Provider "Bundling"

From the Dallas Morning News:

In one closely watched test beginning in August, several of California's best-known health care providers – including Cedars-Sinai Medical Center, the UCLA Health System and Hoag Memorial Hospital Presbyterian in Newport Beach – will begin charging lump-sum fees for hip and knee replacements.

That's a radical departure from the traditional practice of hospitals and doctors charging separately for their services, a fragmented system that drives up costs while leaving no one to coordinate decisions about patient care.

Leading experts say the California experiment and others like it nationwide offer a glimpse into the future of health care spending.

The federal government already is testing similar "bundled" payments for its Medicare program in Colorado, Texas, New Mexico and Oklahoma. And President Barack Obama's new health care law calls for exploring additional arrangements for surgical services for the elderly and the poor.

Advocates believe that greater cooperation among health care providers will ultimately slow the rise of spending and drive down insurance premiums.

"The idea is to provide an incentive for doctors and hospitals to sit down together to figure out the best way to care for their patients," said Weslie Kary of the nonprofit Integrated Healthcare Association, which is heading up the California experiment.

Kary said the lumped charges for hospitals and doctors have not yet been set but are expected to cover most aspects of medical treatment from surgery through 90 days of recovery.

Doctor bills, X-rays, artificial joints, tests and hospital care are among the fees that will be wrapped together for commercially insured patients who would otherwise be charged for each service. The single charge will vary from hospital to hospital based on the fee each negotiates.

Under the new approach, hospitals and doctors say they expect to share in savings when patients recover promptly, while bearing the risk of additional expenses when complications arise.

"We want to innovate," said Dr. Richard Afable, chief executive of Orange County's Hoag Memorial. "This is not about making money. It's about how we align financial arrangements so we can get the best outcomes for patients while reducing costs for all involved."

But even advocates of the bundled approach say it alone cannot solve the conundrum of rising health care costs.

Bundled payments may work for procedures with defined outcomes such as joint replacements, but health care officials wonder how the fixed fees will apply to chronic conditions such as diabetes that require ongoing care.

New billing systems also will not deter doctors and hospitals from performing extra tests and surgeries that generate revenue but do not necessarily improve medical outcomes, physicians acknowledge. And bundling will not stem the rising expenses of labor and prescription drugs, two of medicine's biggest cost drivers.

"The bundled payment is a step in the right direction ... but it's no panacea," said Dr. Thomas Rosenthal, chief medical officer of the UCLA Hospital System. "We're taking baby steps in rethinking how these payment methodologies can provide the right kinds of incentives."

Some health care economists believe the bundling approach won't save a dime. They argue that it could actually drive up health care costs and insurance premiums by giving hospitals and doctors greater influence over price negotiations with insurers.

Analysts say that large insurance companies exert their own leverage over prices, particularly with smaller hospitals that have limited bargaining power.

Insurers say bundling can control escalating medical spending, which in turn can reduce overhead.

What is Necessary for a Successful ACO?

From a Deloitte Study:

To move forward, though, four challenges will need to be addressed:

Physician buy in. The American Association of Family Physicians, the American College of Cardiologists, and the American Medical Association have stated their support for payment reform—specifically for ACOs. However, considerable physician opposition is likely to arise if an adequate physician business case cannot be made. In particular, physician groups may resist capitation and penalties that put physicians at risk—which in turn could decrease the ability of an ACO to reduce overall healthcare costs.

Taking lessons learned from physician/hospital organizations, governance issues could surface immediately. In addition, the relationships between primary care providers and specialists have the potential to be an issue. The criteria for physician inclusion or exclusion in the ACO—separate from the issues of credentialing and hospital admitting status—could require considerable thought, according to the study.

Consumer response. Several legislative proposals suggest that patients could be assigned to an ACO based on their primary care physicians. However, patients could be free to see providers outside of their ACOs and could even switch ACOs.

A medical home could serve as an entry point to an ACO. However, unless restrictions are made on provider selection (such as with an HMO), ACOs, payers, and employers may need to capitalize on consumers’ desire for more coordinated healthcare in order to get buy in to the ACO model.

Payments and incentives. No single, agreed upon ACO payment structure exists. The Senate pilot project proposes a voluntary fee-for-service bonus payment—but also adopting capitation if the Senate proposed global payment pilot proves effective.

In the commercial market, health plans may use performance based threshold goals—or milestones—to align payments with provider performance. Health plans would be expected to initiate provider report cards and implement optimal network design—such as open networks versus closed networks or tiered networks—to align provider performance with incentives.

Infrastructure to manage risk. The use of information systems or medical management protocols—plus adherence to state and federal laws—will requires capabilities not usually found within a provider organization. To meet those needs and to manage risk, outsourcing may be necessary.

The "maturation of the ACO model" will necessarily require an "increased willingness to accept substantial risk and effectively manage costs, outcomes and compliance"—all of which should be seamless to patients, efficient for payers and strongly supported by provider, the study noted.

Initial Good News on Meeting Mandated MLR Requirements

From Bloomberg News:

Health plans led by WellPoint Inc. and UnitedHealth Group Inc. can subtract taxes and include as costs “activities that improve health care quality” to meet mandates in the U.S. health-care overhaul on how much they spend on medical care, a draft report says.

The health-care law signed by President Barack Obama in March requires some health insurers to spend at least 80 percent of premium revenue on customers’ medical care. A preliminary review by state regulators asked to help implement the mandate found that most companies can meet it, said an April 24 memo from the National Association of Insurance Commissioners.

The determination, if true, means the overhaul may not squeeze insurer profits as much as some investors feared, said Joshua Raskin, a Barclays Capital analyst in New York, in a note to clients today. Insurer shares have fallen 12 percent since the U.S. House approved the law March 21, as measured by the Standard & Poor’s 500 Managed-Health Index.

How the mandate is written “will be one of the most important events of the year for the managed-care stocks,” said Raskin. “Several of the comments in the report point to the potential for a definition that is not as harmful to the managed-care industry as currently expected.”

The health law will mandate insurers spend at least 85 percent of their premium revenue on medical care for large group plans, and at least 80 percent of revenue for small-group and individual plans. It requires the federal government to develop a standard definition of what constitutes medical care, a determination now left to insurers

Early Take

The memo, written by Rick Diamond, an actuary with the Maine Bureau of Insurance, is an early take on the new rule and will likely change before it is offered to federal regulators to be turned into a final regulation, said Jeremy Wilkinson, an association spokesman, in a telephone interview today.

“It’s a draft document,” he said. “I think you’ll find a lot of people going in and editing it.”

The state group has until June 1 to deliver its final recommendations.

WellPoint, the largest U.S. insurer by enrollment, fell 64 cents, or 1.1 percent, to $55.92 in composite New York Stock Exchange trading at 4 p.m. UnitedHealth, the second biggest, dropped 5 cents to $29.80. WellPoint is based in Indianapolis. UnitedHealth is in Minnetonka, Minnesota.

Since the House passed the overhaul, WellPoint shares have fallen 13 percent and UnitedHealth has dropped 11 percent.

Diamond’s memo said insurance companies will be able to meet the standards for large- and small-group policies under either of two different ways that regulators could decide to calculate medical spending and administrative costs.

Government Taxes

Meeting the standard will be easier because the law appears to allow health plans to subtract state and federal taxes they pay from premiums and to include as costs activities that improve health care quality, as defined by the association, Diamond wrote.

State insurance commissioners are writing recommendations for the medical-spending rules before handing them over to the federal Health and Human Services Department to complete.

Overall, UnitedHealth spent 82.3 percent of revenue from premiums to pay customers’ medical expenses last year, while WellPoint spent 82.6 percent, according to company filings.

Feds Move to Regulate Premium Hikes

As I mentioned in my previous posts, there is concern that the new market of customers created by health care reform will not be very profitable. To compensate for this, it is thought that insurers may start to unnecessarily increase the price of premiums in the next few years. From the NY Times:

Fearing that health insurance premiums may shoot up in the next few years, Senate Democrats laid a foundation on Tuesday for federal regulation of rates, four weeks after President Obama signed a law intended to rein in soaring health costs.

After a hearing on the issue, the chairman of the Senate health committee, Tom Harkin, Democrat of Iowa, said he intended to move this year on legislation that would “provide an important check on unjustified premiums.”

Mr. Harkin praised a bill introduced by Senator Dianne Feinstein, Democrat of California, that would give the secretary of health and human services the power to review premiums and block “any rate increase found to be unreasonable.” Under the bill, the federal government could regulate rates in states where state officials did not have “sufficient authority and capability” to do so.

The White House offered a similar proposal in the weeks leading up to approval of the health care legislation last month. But it was omitted from the final measure, in part for procedural reasons.

Reviving the proposal on Tuesday, Mr. Harkin said: “Rate review authority is needed to protect consumers from insurance companies’ jacking up premiums simply because they can. Protections must be in place to ensure that companies do not take advantage of current market conditions before health reform fundamentally changes the way they do business in 2014.”

“Currently,” Mr. Harkin said, “about 22 states in the individual market and 27 states in the small group market do not require a review of premiums before they go into effect — and perhaps even more. This is a gaping hole in our regulatory system, and it is unacceptable.”

Under the new health care law, starting in 2014, most Americans will be required to have insurance. Insurers will have to offer coverage to all applicants and cannot charge higher premiums because of a person’s medical condition or history.

Michael T. McRaith, director of the Illinois Department of Insurance, told Congress on Tuesday, “There is a distinct possibility that less responsible companies will raise rates to price out people who are sick or might become sick between now and 2014.”

Mr. McRaith said he and the governor of Illinois, Pat Quinn, a Democrat, “unequivocally support state-based insurance regulation,” because local officials understand local markets.

He endorsed Mrs. Feinstein’s bill, saying it would “provide an impetus” for states to regulate premiums if they did not already do so.

Karen M. Ignagni, president of America’s Health Insurance Plans, a trade group for insurers, said Congress should let the new law work before piling on additional requirements.

Congress, she said, has largely ignored the cause of rising premiums: the explosive growth of medical costs and the power of hospitals and other health care providers to dictate prices.

Ms. Ignagni said the law imposed new requirements, taxes and fees on health plans, which could further drive up costs.

Senator Lamar Alexander of Tennessee, the No. 3 Republican in the Senate, said: “Health insurance companies’ profits for one year equal about two days of health care spending in the United States. So even if we were to take away all the profits of the so-called greedy insurance companies, that would still leave 363 days a year when health care costs are expanding at a rate our country cannot afford.”

Grace-Marie Turner, president of the Galen Institute, a research center that advocates free-market health policies, said the Democrats’ proposal was unlikely to succeed in lowering insurance costs.

“Capping premiums without recognizing the forces that are driving up costs would be like tightening the lid on a pressure cooker while the heat is being turned up,” Mrs. Turner said.

Mrs. Feinstein said her bill would close what she described as “an enormous loophole” in the new law. And she said health insurance should be regulated like a public utility.

“Water and power are essential for life,” Mrs. Feinstein said. “So they are heavily regulated, and rate increases must be approved. Health insurance is also vital for life. It too should be strictly regulated so that people can afford this basic need.”

Mr. Harkin interrupted the hearing to note that one of the nation’s largest insurers, UnitedHealth Group, had just reported that its first-quarter earnings had increased 21 percent, to $1.19 billion, surpassing Wall Street expectations.

Some securities analysts say they doubt that insurers can sustain such gains after major provisions of the new law take effect.

Health Insurance Reform Impact on health Insurers Part II

Yesterday's post talked about how

In 2014, insurers will find that many of those new customers will be coming from low-income households. These are families who are not poor enough to qualify for Medicaid, but too poor to purchase insurance without the government subsidies that will become available in 2014.

Today about one-third, or nearly 15 million of the 47 million uninsured live in households earning between $25,000 and $50,000. These are the families who will be receiving good subsidies—and they are likely to sign up for insurance.

But many will need extensive care. According to a 2009 report issued by the Kaiser Family Foundation, 11% of the uninsured are in “fair “or “poor” health, compared to 5% of those with private insurance. About half of all uninsured adults suffer from a chronic condition. About 75% have gone without insurance for more than one year; 55% have not had insurance for more than 3 years. Some haven’t seen a physician during that time. Others have seen doctors, but have not been able to afford the medications physicians prescribed. These patients are likely to need more tests, treatments and surgeries than the average customer.

Keep in mind that, under the new reform law, insurance companies will not be able to charge these new customers more than they charge others in their community. Moreover, insurers will have to offer all patients comprehensive insurance that meets a high bar defining basic benefits. No more “Swiss cheese” policies filled with holes. This is all fair. But it does mean that insurers will be operating in an unfamiliar marketplace, where the rules are designed to benefit patients, not the corporations that sell them coverage.

Of course, not all of today’s uninsured are poor: 9.7 million live in households earning over $75,000 a year. Why don’t they have insurance? Some suffer from pre-existing conditions that have made it impossible for them to secure insurance. Most likely, they will buy coverage adding to the number of sick patents in their insurers' pool.

Many others in this income bracket are healthy, and haven’t bought insurance because they just don’t think it’s a good value. Under reform rules, most earn too much to receive government subsidies. Unless premiums are significantly lower than they are today, many may well decide to pay the penalty rather than buy insurance.

After all, the penalties for individuals who ignore the mandate are surprisingly low: $95 in 2014, $325 in 2015, $695 (or up to 2.5 percent of income) in 2016. Families will pay half the amount for children, up to a cap of $2,250 per family. After 2016, penalties are indexed to the Consumer Price Index.

In addition, roughly 40% or about 19 million of the 47 million uninsured are 18-to-34-years old. Most in this group are healthy, and just don't believe that they need protection. Under the reform legislation, some under the age of 26 will sign up for their parents’ insurance. But many of these invincible youngsters are likely to shrug, and pay the puny penalty.

As a result, analysts at Fitch, the bond rating agency, observe: “It is not unreasonable to envision that too many new sick customers will overwhelm the individual segment of the market, driving many health plans from it altogether.” In other words, these Fitch analysts are suggesting that a fair number oy insurers may not even try to compete for the new but unprofitable business in the Exchange.

“This could become most acute under a scenario in which healthy, younger individuals decide to pay the penalty as opposed to purchasing coverage,” the Fitch analysts write, “and older individuals let policies lapse during periods when they do not need medical services, and purchase coverage only when they face a pending medical need, such as a surgery or expensive sets of tests or treatments."

This is why I predict that sometime between now and 2014, Congress will lift the penalties, and change the rules to make it impossible for someone to pay a penalty--and then buy insurance when he or she falls ill. The rest of us cannot afford to carry "free riders." Some have suggested that when a person decides not to buy insurance, he should be required to sign a document saying that he will not try to buy insurance for three years, taking the financial risk that he will be in an accident or become sick during that period of time and wind up broke, with medical debt that he will be paying off for years.

We need young, healthy people in the pool or insurance will become unaffordable for everyone.

Make no mistake, there are many unknowns. We don’t yet know whether premiums will be high enough to guarantee that insurers will recover the dollars they spend on new customers. But industry analysts predict that rate increases will be held in check by the new rules on the percentage of premiums’ that insurers must pay out, and by heightened competition for customers, who will have more choice of plans than they currently do in the individual market. Insurers "will be free to price themselves into oblivion if they choose to do so," Sheryl Skolnick, an industry analyst with CRT Capital Group, told the Washington Post.

When all is said and done, it strikes me that the cuts and regs that go into effect in the next four years could easily lead to an industry shake-out. My guess is that some for-profit insurance companies won’t make it to 2014

On Wall Street, analysts vary in how they assess the net effect of reform legislation on insurers, but no one is jubilant. Keep in mind that most Wall Street analysts would prefer to be optimistic. Most companies are in the business of selling stocks. It is not good for business to be bearish.

But everyone on the Street knows that while insurers will have more customers, profit margins are likely to be even lower than they are now. At best, this could prove to be a wash.

Health Care Reform's Impact on Health Insurers Part I

So how will the recently passed Patient Protection Act effect the health insurance industry. As I mentioned in a previous post, Wall Street reacted positively to the passage of the bill as stock prices of major publicly traded carriers rose right after its passage. Many look at the requirement to purchase coverage as a boon to the industry, creating over 30 million new customers. However while it is s true that, beginning in 2014, virtually all Americans will be required to buy insurance, or pay a fine, many will be refugees from a health care system that treated them poorly. Think of the boat as a life raft. These could be very expensive customers.

Moreover, between now and 2014, insurers will face some serious financial hits. These new regulations will make our health care system fairer and more affordable. But the rules also suggest that going forward, for-profit health insurance may not be a viable business--unless these companies learn how to keep patients healthy, while insisting on value for health care dollars. Insurers that over-pay drug-makers or hospitals will find that they can no longer turn a profit by simply passing the added expense along in the form of higher premiums.

Consider what will happen in the next three years:

1) This year, Washington sliced funding for private insurers who offer Medicare (a.k.a. Medicare Advantage) by 5%. Next year, payments will be frozen. In 2012, the serious cutting begins. Over ten years, Medicare will slash over-payments to Medicare Advantage insurers by $132 billion.

When the Medicare Advantage bill was passed in 2003, Congress agreed to pay Advantage insurers 12 percent more, per beneficiary, than it would cost Medicare to cover those patients itself . Most agree that this is corporate welfare that our health care system cannot afford.

But recent years, insurers have become increasingly dependent on the windfall payments from Medicare Advantage. As unemployment rises, insurers have been losing customers in the employer-based insurance market, and Advantage has come to represent a larger share of their profits. Humana, for example, has been receiving 60% of its operating income from Medicare Advantage.

Meanwhile, insurers selling plans in the private sector have been scrambling to rachet up premiums fast enough to keep up with the spiraling cost of healthcare. For ten years private insurers’ payouts to doctors, hospitals and patients have been climbing by roughly 8% a year. Rising prices plus volume have driven reimbursements skyward. Each year Americans are taking more medications and undergoing more surgeries and tests. And every year, virtually every product and service in our healthcare system costs more.

This is why, according to Morningstar Investment Research, the health insurance industry showed an average profit margin of just 3.4% in 2009. This means that, in terms of profitability, it ranked 87^th out of 215 US industries.

Given the skimpy profits that the industry has seen in recent years, generous subsidies from Medicare Advantage have remained a “bright spot” for companies such as industry leader UnitedHealth Group.

But under the reform legislation these fat Advantage subsidies will disappear, as they must, and Advantage insurers such as UnitedHealth Group will face tighter regulations. By 2014, insurance companies will be expected to pay out 85% of Advantage premiums for medical care, keeping no more than 15% of premiums to cover overhead and profits. Today, UnitedHealth Group keeps 19%. This is not unusual. The majority of Medicare Advantage plans pocket more than 15% of premiums according to a recent report released by the House Committeon Energy and Commerce.

Good-bye “bright spot.”

Only those insurers that can show that they are providing excellent value for Medicare dollars will continue to receive Medicare payments, and their subsidies will be much lower. Most likely, many insurers will simply give up on the once-lucrative Advantage business.

2) Next year, the new rules regarding pay-outs will apply to private sector plans. Insurers selling in the individual and small group market will be required to spend 80 percent of premium dollars on medical services, while plans in the large group market will be expected to spend 85 percent. Insurers that do not meet these pay-out thresholds will have to provide rebates to policyholders.

3) The new pay-out rules will make premium hikes far less profitable for insurers. Even if an company raises its premiums by 10%--for example, lifting a $14,000 annual premium for a family plan to $15,400--the insurer must pay out 85% of the $1,400 increase, or an additional $1,190 to hospitals doctors and patients , keeping only $210 of the $1,400 to cover overhead and profits.

4) Another new cost for insurers: beginning in 6 months, all new group health plans as well as new plans in the individual market will have to provide coverage for preventive services at no charge. Co-pays and deductibles will not apply to recommended services.

(5) Beginning this year, if you become seriously ill, insures won’t be able to drop your coverage on the grounds that you forgot some detail of your medical history when you applied for insurance. They will be able to rescind your policy only if they can prove fraud, or that you intentionally set out to deceive them. This won’t be easy.

(6) In 2011, insurers will no longer be allowed to cap how much they pay out to an individual over the course of his or her life. If a customer suffers from a serious illness that requires multiple hospitalizations and high-tech treatments over many years, the insurer faces an open-ended bill. Starting in 2014, insurers will no longer be able to limit how much they pay out annually.

Make no mistake: patients need this protection. Parents should not have to worry that the insurance covering a child suffering from cancer is going to “run out” if her care costs too much in any one year—or if she survives too long. But while the new rule is welcome, it will make the insurance business riskier: Actuaries will have a hard time guesstimating just how high those bills could mount, especially over 10 or 15 years. This is another reason why reform is far from a sweetheart deal for insurers.

(7) In 2011 it will become more difficult to raise premiums. Given falling Advantage reimbursements, coupled with rising expenses, one might assume that insurers would simply lift premiums to make up the difference. But it won’t be quite that easy. Reform legislation helps states insist that insurance companies submit justification for requested premium increases. Any company with excessive or unjustified premium increases may not be able to participate in the new health insurance exchanges.

Already, some state regulators are getting tougher. In March, the Providence Journal reported that Rhode Island’s state health insurance commissioner slashed proposed premiums increases, keeping rate increases in the single digits, while calling Blue Cross's proposed 14.6-percent hike "just not affordable." And in April the Massachusetts insurance commissioner rejected nearly 9 out of 10 rate increases—ranging from 7% to 34%--that the state’s health insurers had requested for individual and small group plans as I have mentioned in previous posts.

So while there will be many new customers out there for health insurers, the prospect of them being profitable ones is limited.

Future posts will look at other aspects of the bill.

ACOs: It Won't Be Easy

Accountable care organizations are seen by many as a way to reduce health care costs in this country. One pilot ACO operating in the Sacramento area after three months is already projecting an annual savings of over $10M. But as I have said, forming and operating an ACO will take an amazing amount of trust among providers and health insurers. And trust is not the only issue.

Edward G. Murphy, MD, president and CEO of Roanoke-based Carilion Health System, spoke recently at a forum on challenges to the delivery system sponsored by the Washington-based New America Health Policy Program. He offered his views on the five obstacles to forming ACOs.

1) The payment system. "We talk about the sort of the tradition I grew up with—with doctors. Everybody thinks about [television doctor] Marcus Welby—and [that] you're there to care for patients. The reality is: that's not true," Murphy said. "We're driven by the payment system, and the payment system is organized around transactions."

In healthcare, it centers around billing codes. "We get paid for doing stuff to you—and not for taking care of you. There's a lot of things that we'd like to do . . . [but they] don't fit well into billing codes," he said. "And if you can't fit it into a billing code, it's very difficult to justify doing it. We're paid for doing more—whether it's valuable or not."

The "real perverse incentive" is that healthcare providers are penalized for savings. "If we avoid doing something which is unnecessary, that's lost revenue to the system when the expense is still remaining. It's very difficult to get from under that trap," he said.

In addition, the current payment system "is well suited for acute and episodic care, which is the first half of the 20th Century," he added. "The real public health imperative of the 21st Century is complex, chronic diseases, which is longitudinal care management. Episodic transactions do not lend themselves well to effective treatment of medical care of chronic conditions."

2) Organizational structure. "A good bit of advice I received some time ago from someone much more learned than I was that all systems are perfectly aligned to get the results that they get," he said. "Our healthcare delivery system today is perfectly aligned to get the results we get: It's fragmented, it's episodic, and it's designed to maximize the payment system, which is designed around transactions."

Today, healthcare economists argue that "all we have to do is change the financial incentives and then magically, it will be like pixie dust and magically everybody will start doing stuff the next day," he said. "There's no evidence for that."

"As a matter of fact, there's evidence to the contrary. I would argue that the problem of the experiment of the movement to managed care of the 1990s was all about changing the financial system and the financial incentives—without changing the delivery system to take advantage of the new incentives or deliver" what was desired, he said.

3) The culture of medicine. While it's "enveloped" in the previous two items, it still comes down to two things: autonomy and independence, Murphy said.

"Effective management of patients with chronic diseases is all about teamwork and consensus. Avoiding that which is unnecessary is all about teamwork and consensus," he said. "We hate that."

Engineers will tell you that in engineering, fragmentation and variation are the enemies of quality and efficiency. It's as every bit as true in medicine as it is in engineering but we reject it because we're all about our independence—and we guard it jealously."

It lends itself well to a sports metaphor, Murphy said. "We're all about tennis, and well-practice medicine is baseball. And not only are we all about tennis . . . too many doctors in the profession are John McEnroe."

4) No burning platform. "We're a profession that is highly resistant to change," Murphy said. "The problem is it's still credible for us today...to maintain the status quo. And as long as we think that—it doesn't matter whether we are right or wrong—as long as we believe it, we'll act on that belief."

An example is implementation of the sustainable growth rate formula in Medicare that would lead to in effect a reduction in physician payments for services this year. This is not likely to happen because they "keep fixing it and rolling it over," he said. "Right now, we're looking down the barrel of a 21% reduction for physician fee services. Nobody believes it's going to happen, including me. They're going to fix it."

If they didn't fix it, there'd be imperative for people to think about doing something different. "Fixing it enables the status quo, and they'll fix it as sure as I'm standing here," he said.

"It's difficult to get people to drive changes in how they deliver care day in and day out—because the history they've lived with," he said. "Every time they got up to the precipice of needing to make a change, the government always fixes it and made it OK to stay the way it was."

5) Healthcare insurance company resistance. Murphy, who works with many insurance companies, says "they are all over the map." Some are "highly compatible, sympathetic, and consistent in the direction we are trying to move in." Others are "highly resistant."

"But the reason I need health insurers to work with me—to figure out how to practice medicine differently—is that I need their data," he said. "Even if you've got a very effective, very high quality electronic medical record, which we do, we can only have data on stuff that occurs within our confines."

When patients go elsewhere for healthcare, the insurance companies will know about it because there is a bill attached to it—"but we don't know about it," he said. "And, you can't manage what you don't know. The data have to be real time."

I have spoken to numerous physicians about bundled payments which would be an essential element of any ACO. While many of them have expressed interest, few have said they believe it could work because of coordination issues just for starters. It will be interesting to follow the progress of the CALPERS ACO pilot to how they resolved the obstacles cited by Murphy.

MA Health Insurers Face Fines

Previous posts have discussed the situation between health insurers in Massachusetts and state regulators. The DOI had denied health insurers their requested premium increases and was taken to court by the carriers. A judge ruled against the health insurers and here is the latest on the situation from the Boston Globe:

State regulators yesterday demanded that health insurers submit revised April 1 premium rates for tens of thousands of individuals and small businesses by 3 p.m. tomorrow or face stiff fines.

The fines could run to as much as $5,000 a day per carrier, plus $1,000 for each consumer who is unable to buy coverage, according to a letter sent by Insurance Commissioner Joseph G. Murphy yesterday afternoon to Massachusetts insurers.

“Refusing to offer or issue policies to eligible individuals and eligible small businesses is disruptive to the small group market and a violation of applicable laws and regulations,’’ Murphy wrote.

The letter went out to six companies — Blue Cross and Blue Shield of Massachusetts, Harvard Pilgrim Health Care, Tufts Health Plan, Fallon Community Health Plan, Neighborhood Health Plan, and Health New England — the day after Suffolk Superior Court Judge Stephen E. Neel denied their request for an injunction that would let them implement double-digit rate hikes rejected earlier by insurance regulators.

Neel ruled that insurers should exhaust their administrative appeals within the insurance division before moving forward with court action against the state. Four insurers had filed administrative appeals with the division as of yesterday: Harvard Pilgrim, Blue Cross-Blue Shield, Tufts, and Fallon. The deadline for filing an appeal is tomorrow.

Yesterday’s letter followed mounting frustration by state officials over the insurers’ delay in following an order to update their quotes on the state’s Health Connector website and through other intermediaries that sell the companies’ insurance, using base rates from last year. The insurers had posted new rates, with average base rate increases of 8 to 32 percent, on the Connector site, but were told by regulators to remove them when the rates were denied.

Representatives of the health insurers yesterday said they were working to comply with the state directive, but some stopped short of committing to having revised rates ready by tomorrow.

“The state has asked us to comply, and we expect that we will be in compliance,’’ said Jay McQuaide, vice president for Blue Cross-Blue Shield, the state’s largest health insurer.

“We’re doing everything we need to do to get the rates in place as quickly as we can,’’ said Fallon spokeswoman Christine Cassidy.

“Harvard Pilgrim will respond to today’s letter from Division of Insurance by Thursday’s deadline,’’ said spokeswoman Sharon Torgerson. “We plan to begin issuing quotes as soon as possible.’’

As of 5 p.m. yesterday, the Connector had reposted only individual and family rates from one carrier, Health New England, for insurance products covering the small group market. The segment includes about 800,000 people. Connector spokesman Dick Powers said it could take a day or two to post rates after they’re submitted. Health New England serves Western Massachusetts.

Murphy, in his letter, said insurers were required to return a form to his division by tomorrow afternoon outlining how they would offer their new rates. If rates are not submitted by 3 p.m., daily $5,000 fines would begin under one state statute. Under a separate statute, regulators would hold hearings to determine if consumers could buy insurance from their carriers and their broker networks, and fine the insurers $1,000 for every would-be customer turned away.

Regulators yesterday said insurers should have begun updating their rates April 1, when the higher rates were turned down. “We’re reasonable people,’’ Murphy said. “They were put on notice April 1. By Thursday, it will be 15 days. It’s imperative that consumers have accurate information when they make purchasing decisions.’’

Barbara Anthony, undersecretary of the state Office of Consumer Affairs and Business Regulations, said insurers are obligated by law to quote rates to consumers before tomorrow’s deadline — even if they can only offer estimates. “They have to sell insurance,’’ she said.

Study Shows Cardio Docs Practice Defensive Medicine

From the journal Circulation:

Nearly 600 doctors were surveyed for the study to determine how aggressively they treat their patients and whether non-medical issues have influenced their decisions to order invasive heart tests.

Most said they weren't swayed by such things as financial gain or a patient's expectations. But about 24 percent of the doctors said they had recommended the test in the previous year because they were worried about malpractice lawsuits. About 27 percent said they did it because they thought their colleagues would do the test.

Doctors who treated their patients aggressively were more likely to be influenced by malpractice worries or peer pressure than those who weren't as aggressive, the study determined.

The research was done to see whether doctors' attitudes and practices might be contributing to the wide differences in health care use and spending across the country.

"We have known for a long time that where you live has an influence on what kind of health care you get and how much health care you get," said Lee Lucas, lead author of the study and associate director of the Center for Outcomes Research and Evaluation at Maine Medical Center in Portland.

Some of the reasons are known: differences in disease rates, patient preferences and the availability of medical services or hospital beds. And more care isn't necessarily better care, Lucas noted.

For the study, the doctors were asked to recommend tests and treatment for three hypothetical heart patients. Their answers were used to score them on how aggressively they tend to treat patients.

Using Medicare records, the researchers found that doctors with higher scores were more likely to be in the areas with higher spending overall or higher rates for a heart test, although the differences were small.

The doctors were also asked whether other issues had led them to recommend the heart test — called a cardiac catheterization — during which a thin tube is threaded to the heart to check how well it is working and to look for disease.

The researchers suggest that targeting malpractice concerns could help reduce the regional differences.

"We need a way for docs to be less afraid of not ordering a test," said Lucas.

Medical malpractice was part of the health care reform debate, but didn't make it into the recently approved legislation. The new law does include pilot programs for states to explore alternatives to lawsuits.

The results support moving toward more integrated health care, and away from fee-for-service payments, and working on malpractice reforms, said Kenneth Thorpe, a professor of health policy at Emory University in Atlanta.

Lucas said patients can help by not pressuring their doctors to do tests.

"If he says you don't need it, let it go," she said.

Uodate on MA Heakth Insurer vs. DOI Court Standoff

As I mentioned in a previous post health insurers took state regulators to court over the denial in their requested premium rate increases. Yesterday the judge ruled:

A Suffolk Superior Court judge yesterday denied a request that would have let six Massachusetts health insurers go forward with double-digit rate hikes for tens of thousands of small businesses and individuals, setting up a protracted battle that could become a test of government’s role in controlling health care costs.

Judge Stephen E. Neel’s decision against granting the preliminary injunction sought by insurance companies means the state’s rejection of 235 proposed rate increases stands for now. The higher rates would have taken effect April 1.

The judge rejected the companies’ contention that the insurance market would be thrust into chaos if they could not quickly institute the higher rates. But the ruling is not the final chapter in the battle. Insurers are pursuing appeals within the Division of Insurance. If their appeals are turned down, the court would take up the case later this spring.

During the appeals process, last year’s base rates for what is known as the small-group market will remain in effect. Neel also denied the insurers’ request for an expedited trial.

The case has focused a national spotlight on the tug of war between regulators and a health care system over mounting costs for consumers and businesses.

Governor Deval Patrick, who imposed emergency regulations that set the stage for regulators to reject premium increases, hailed Neel’s decision as a victory for small businesses and families that have been burdened by years of rising health care expenses.

Blue Cross-Blue Shield CEO says it is time for change.

“Unless insurers can give us a good reason why, when everything else is flat, they deserve 20 percent, 30 percent, and in some cases 40 percent increases, they’re going to be denied,’’ Patrick said in an interview. He also called for restraint by hospitals and doctors as state officials work on plans to overhaul how health care payments are made.

Jay McQuaide, vice president at Blue Cross and Blue Shield of Massachusetts, the state’s largest health insurer, said the judge’s decision was limited to the issue of whether insurers could boost rates immediately and does not mean regulators will ultimately prevail.

“We’re confident in the final outcome of the case,’’ McQuaide said. “We’ll be playing the process out. We look forward to having an opportunity to demonstrate that the costs we filed are appropriate and reflect the expected medical costs of insuring these customers.’’

In his much anticipated ruling, Neel accepted the argument of Assistant Attorney General David A. Guberman, who contended that administrative appeals should be the first recourse for insurers as they seek approval for higher rates, rather than the lawsuit they filed against state Insurance Commissioner Joseph G. Murphy last week.

But the insurers are expected to press forward with their court action even as they navigate the appeals process within the insurance division.

The Massachusetts Association of Health Plans, a trade group representing five health insurance companies that joined Blue Cross in suing the state, issued a statement saying it was disappointed in the court ruling. It noted that four state insurers posted operating losses in 2009 due to escalating medical expenses.

“Making health care affordable needs to start with addressing the market clout of certain hospitals and physician groups,’’ the association’s statement said. The group’s members include Harvard Pilgrim Health Care, Tufts Health Plan, Fallon Community Health Plan, Neighborhood Health Plan, and Health New England.

Insurers proposed boosting premiums by an average of 8 to 32 percent for about 50,000 policies that were up for renewal. Those policies covered 200,000 members, a pooled group of both individuals and small business owners.

In saying no to the increases, the state insurance commissioner called them “unreasonable in relation to the benefits provided and excessive.’’

In their lawsuit, the insurers alleged the insurance division exceeded its authority in rejecting the rate hikes. They claimed the move will cause them to collectively lose more than $100 million this year.

During a court hearing last week, the insurers’ lawyer, Dean Richlin, suggested some insurers might “go out of business’’ or go into state receivership if they can’t cover their costs.

Insurers had posted their proposed rate increases on the state’s Health Connector website last month in anticipation of winning approval for them. After they were rejected, regulators ordered the companies to remove the higher quotes and post new ones using base rates from April 2009. Some insurers last week said they were, as ordered, recalculating their rates; others said they were waiting for the court’s ruling on their request for injunction.

That has meant that for the past week individuals and small businesses have been unable to shop for insurance, or switch coverage to a new plan, through the Connector, an online exchange set up by the state’s landmark 2006 health care law.

“We’re pleased that the decision ends the uncertainty that has blocked individuals’ ability to buy health insurance coverage,’’ said Brian Rosman, research director for Health Care for All, a consumer group in Boston. “And the decision moves all of us who care about health care to focus on the underlying issues of our high cost medical system.’’

But Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a nonprofit policy research firm, said the judge’s decision is only likely to prolong a process that will inevitably return to the court. He said the insurance division will probably uphold the Patrick administration’s approach.

“This just extends the period of uncertainty and turmoil, which is unfortunate but predictable,’’ Widmer said.

In his ruling, Neel took issue with the contention that he needed to step in to prevent confusion in the marketplace.

On the contrary, he wrote, the “disruption predicted by plaintiffs would be exacerbated, not relieved, were the court to grant the injunction they seek.’’ By granting a preliminary injunction, he said, “the court would in effect be stepping into the commissioner’s shoes and approving those [higher] rates — but only for the life of the preliminary injunction.’’

Why is the Cost of Medical Care Increasing So Fast?

As a follow-up to Friday's post about the stand-off between health insurers and regulators over premium increases in Massachusetts, I thought it would be appropriate to discuss why medical costs in that state are increasing so quickly.

In March of this year the State Division of Health Care Policy held a hearing on the reasons behind increasing medical costs in the Commonwealth. One of the people testifying was Paul Ginsberg who is Director of the Center for Studying Health System Change located in Washington. D.C. Dr. Ginsberg said the major factor behind provider price increases was the absence of demand side restraints which he detailed.

• Extensive third-party payment

• Purchaser demands for broad choice of providers

• Limited interest in narrower networks where offered

• “Must-have” providers face little risk of network exclusion

• Benefit structures provide few patient incentives to choose low-priced providers

• Little use of tiering for hospitals/physicians

He also cited increasing consolidation of providers which as increase their leverage in contract negotiations. Studies in Massachusetts have shown that certain providers because of their prestige and market position negotiated reimbursement rates of up to 300% more for the same procedures as other hospitals.

What can done to combat these developments? Ginsberg advocated for insurance benefit structures that give members an incentive to use lower cost/high quality providers. He also cited the need for price transparency, bundled pricing and regulation of provider prices. As I mentioned in a previous post, Maryland has regulated hospital pricing successfully for over 30 years and perhaps such a program could work in other states.

Massachusetts is now advocating more bundled payments with the Blues Plan there leading the way but this solution will take years to have an impact. Developing high performance networks is easier said than done as providers all believe they should be included. I know from my experience at working at a provider owned health plan every time I mentioned high performance networks to our Director of Provider Contracting she told me it could not be done because of the politics. But it can be done as Priority Health in Michigan has shown.

So I suppose the solution to increasing provider costs will not occur anytime soon and will be a struggle.

MA Update on Proposed HI Rate Hikes

Yesterday I mentioned the dispute between MA health insurers and the DOI over proposed rate increases. The DOI rejected proposed rate increases and in response health insurers pulled their product offerings from the state's Connector or exchange. The issue was taken to court and here is an update from the Boston Globe:

Lawyers for health insurers and the state sparred in court yesterday over regulators’ rejection of 235 proposed rate increases, and a judge said he would decide by Monday whether the companies will be allowed to charge the higher prices.

Suffolk Superior Court Judge Stephen E. Neel’s promise of a quick decision followed a two-hour hearing on the case, which has focused public debate on the impact of rising health care expenses and the role of government in controlling costs. The rates affect individuals and small businesses.

The attorney for the insurers called the state’s rejection of rate increases last week “arbitrary and capricious.’’

Insurance Commissioner Joseph G. Murphy exceeded the state’s authority when he denied 235 of 274 proposed premium increases, argued Dean Richlin, a partner at Boston law firm Foley Hoag who is representing six Massachusetts insurers.

Insurers are now faced with having to agree to unfair rates or “go out of business,’’ Richlin told the judge and a standing-room-only crowd of about 70 insurance industry representatives, government officials, and others. Onlookers spilled out the door of the courtroom, as the insurers’ lawyer argued for a preliminary injunction that would clear the way for the companies to begin charging higher rates.

David A. Guberman, a state assistant attorney general, countered that the insurance commissioner was within his authority to approve or deny rate increases. He said the court had no jurisdiction in the case because insurers have not exhausted the appeals process within the state Division of Insurance.

“The complaint is based on a profound misunderstanding of what the commissioner has done,’’ said Guberman, who contended insurers had no right to presume their rate proposals would automatically be approved. They should have been prepared to continue pricing policies using existing base rates until the state acted on the requested increases, he said, adding: “Whatever is the most recent rate is what’s legally in effect today.’’

The rejected rates were to have taken effect April 1. Proposed base rate increases averaged 8 to 32 percent for individuals and businesses with 50 or fewer employees in the small-group market. The category includes more than 800,000 residents served by hundreds of insurance plans. About 50,000 policies covering 200,000 members — roughly a quarter of the small-group market — were up for renewal April 1.

In the past, health insurers usually notified regulators of rate increases on the day they took effect. But in February, Governor Deval Patrick put in place emergency regulations requiring insurers to submit proposed rates 30 days in advance. Patrick said the state wanted to link the increases to the medical consumer price index — a spending measure rising at an estimated annual rate of 4.8 percent — to cushion the impact on small businesses and families struggling in the weak economy.

Insurers have said they would lose money if forced to sell policies with prices based on the index. In court yesterday, Richlin called it “a meaningless standard’’ that had no actuarial value in predicting the future cost of medical care.

Late last month, Kevin Beagan, the assistant insurance commissioner, phoned each Massachusetts health insurer to warn them that the Insurance Division would not accept increases exceeding 7.7 percent. The insurers concluded they could not profitably offer policies at that rate, though some out-of-state insurance carriers did submit 7.7 percent increase proposals that were approved.

The state-based insurers contesting the rate rejections are Blue Cross and Blue Shield of Massachusetts, Harvard Pilgrim Health Care, Tufts Health Plan, Fallon Community Health Plan, Health New England, and Neighborhood Health Plan.

Their lawyer, Richlin, challenged both the rate-increase denial and a directive from Beagan on Tuesday that required insurers to recalculate their offerings using last year’s base rates and market them on the state’s Health Connector website, as well as through the companies’ networks of independent brokers.

The insurers posted their anticipated rate increases last month. After the rate increases were rejected, Murphy ordered the companies to remove the higher rates from Connector site, www.mahealthconnector.org.

If insurers have to sell policies at 2009 base rates, the industry could lose more than $100 million over the next eight months, Richlin said, even if insurers tack on allowable increases for factors such as the size and age of a company’s workforce. Losses could be even steeper, he said, if businesses that renewed their policies at higher rates earlier this year scrap them to buy new policies at state-ordered lower rates. That could potentially push one or two insurers into state receivership, he said.

“There’s no question that the 2009 rates are completely inadequate and completely arbitrary,’’ Richlin said.

Guberman, however, said the proper first avenue for appeal is to go through administrative hearings at the Insurance Division. He said regulators are committed to an “expedited hearing process,’’ with hearing officers ready to issue their findings by early June.

He noted that one insurer, Harvard Pilgrim, already has filed an administrative appeal. Harvard Pilgrim spokeswoman Sharon Torgerson confirmed that the company filed its appeal last Friday.

“Plaintiffs haven’t even begun to show that the administrative process would be futile,’’ Guberman said.

It certainly was a pure political stunt for Gov. Patrick to limit the increases to the medical inflation rate of 4.8%. The MI rate has little to do with what the premium increases need to be for the insurers not to lose money on these blocks of business.

The bigger question of course is this a foreshadowing of what will happen nationally once exchanges are set up nationally in every state? While Massachusetts is to be commended for lowering its rate of uninsured residents to the lowest in the country, the increasing costs of coverage that are subsidized for income eligible residents has put a larger than expected hole in the state's budget. The state has only begun to address the increasing cost issue by asking insurers and providers to work together to develop bundled rates of payment. This effort has not gone very smoothly as I have noted in a previous post and will take several years at best to lower costs.

HC Reform in Minnesota: A Good Start

The Commonwealth Fund in conjunction with the National Academy for State Health Policy just published a report (http://www.commonwealthfund.org/Content/Publications/Fund-Reports/2010/Mar/Reforming-Health-Care-Delivery-Through-Payment-Change-and-Transparency-Minnesotas-Innovations.aspx) on the status of health care reform efforts in Minnesota. Minnesota has long been known as a leader in health care so it is of particular interest to see where things stand there.

The report focuses on the status of the implementation of legislation passed in 2008 which contained a number of specific elements with significant potential to achieve overall health care cost savings. In addition to establishing and funding a statewide health improvement program, enhancements related to coverage for low-income uninsured people, and steps to increase consumer engagement in all aspects of the system, the law included various provisions to collect and report data to achieve price and quality transparency, and as well as provisions to support care redesign and payment reform; these two sets of initiatives are the focus of the report.

Key legislative provisions to support the collection and reporting of data are:

• Development of a standardized statewide set of quality-of-care measures;
• Collection and use of all-payer encounter data and contracted prices, building on administrative simplification requirements passed in 2007 that call for all health care payers and providers to conduct eligibility, claims, and remittance transactions electronically, with the condition that all plans submit the detailed claims data to a common data aggregator; and
• Transparent ranking of providers based on a combination of risk-adjusted cost and quality (the "provider peer grouping" system, which was modified by legislation passed in 2009).

Key legislative provisions to support care redesign and payment reform are:

• Uniform definitions for at least seven “baskets of care” and standard quality measurements for those baskets;
• A single, statewide system of quality-based incentive payments to providers to be used by public and private payers; and
• Standards of certification for “health care homes” to coordinate care for people with complex or chronic conditions and additional care coordination payments to those homes meeting the standards, with re-certification standards based on process, outcomes, and quality measures as well as evaluation of cost impact.

So how is it going so far?

• Standardized set of quality measures for health care providers across the state have been developed and registration of medical groups in data portal and identification of populations are under way. On January 1, 2010, providers started submitting data on the measures; these will be publicly reported in July 2010.
  
• Uniform definitions for seven “baskets of care” were established by July 2009, with an eighth basket added later that year. Standard quality measures were established by December 2009. In January 2010, providers offering these baskets were able to establish their own prices for them, and quality information will be publicly available beginning July 2010.
• Incentive payment design was completed in July 2009, and by July of the following year, the payment system must be implemented for participants in the state employee health plan and enrollees in state public insurance programs.
• Standards and procedures for certification and re-certification for health care homes were adopted January 11, 2010.
• On July 1, 2009, collection of encounter data from health plans and third-party administrators began. Data will be disseminated to providers in June 2010. By January 2011, the state employee health plan, state public insurance programs, local units of government, and private health plans must use these tools to strengthen incentives for consumers to choose high-quality, low-cost providers.
  
• Incentive payment design was completed in July 2009, and by July of the following year, the payment system must be implemented for participants in the state employee health plan and enrollees in state public insurance programs.
  

I am particularly impressed that standardized definitions for quality were developed and that eight basket of care definitions were approved. The report notes that participation in these developments are voluntary for key players. But while there is still much work to be done, I think the efforts in Minnesota could serve as an example to other states and certainly deserve to be monitored.

How Will Exchanges Work?

Of great interest to health insurers will be the role of exchanges in selling insurance to small groups and individuals. However the legislation just passed envisions the exchanges not just as markets for insurance, but as data-rich markets for insurance with regulators providing a skeptical barrier to entry and misbehavior. That, Democrats hope, is how you'll get real competition among insurers.

To help this along, the bill's first direction to the exchanges is that they must "implement procedures for the certification, re-certification, and de-certification." As that implies, the hope is that insurers who raise prices unnecessarily, or behave poorly, will be kicked out and only let back in when they forswear the offending behavior. There's no public option, but there is public oversight. A state with an ambitious exchange administrator could really do a lot with this provision.

Once insurers are actually in the exchange, there needs to be "a standardized format for presenting health benefits plan options in the Exchange." And that doesn't just mean the insurer's brochure. "The Secretary shall develop a rating system that would rate qualified health plans offered through an Exchange in each benefits level on the basis of the relative quality and price. The Exchange shall include the quality rating in the information provided to individuals and employers through the Internet portal." In other words, you should be able to tell the difference between insurance plans and see some numbers on how well they perform.

And the secretary isn't the only one gathering quality data: The bill also develops "an enrollee satisfaction survey system that would evaluate the level of enrollee satisfaction with qualified health plans offered through an Exchange" and post that information on the exchange Web site "in a manner that allows individuals to easily compare enrollee satisfaction levels between comparable plans." As I've put it before, the idea is to make the Amazon.com for health-care plans.

Finally, the exchanges will be the site for all the other elements of the system: That's where the insurance regulations are. That's where the risk adjustment is (an insurer who ends up with sicker applicants gets more money and an insurer who gets a healthier pool is paid less, thus ending the incentive to compete to avoid sick people). That's where the national, nonprofit plans are. And finally, that's where the subsidies are.

But it's not necessarily where all the insurers are. Insurers can still sell health-care insurance outside the exchanges. That raises the possibility of risk selection between the two markets: You could have insurers trying to snap up healthy people outside the exchanges, which leaves the unhealthy in the exchanges. The hope is that the lure of subsidies will give the exchanges a massive customer base from the start, and the promise of rules and competition and clear choices will make it a favored market from then on. As larger and larger employers enter the market, the exchanges will stop being an add-on to the system and become, in effect, the system.

The danger, however, is that they are instead fractured magnets for bad risks and poorer Americans and remain isolated outposts. The state-by-state nature of the administration even makes it possible that the exchanges will become powerful and competitive in some states (or consortium of states) while becoming backwaters in other states.

What is happening in Massachusetts right now should be of particular interest to insurers. Many companies there offering coverage through the "Connector", the name for the state health insurance exchange, recently had proposed premium increases denied by the DOI. Given this, the companies pulled their products from the Connector leaving only one option for individuals and small employers. The State has said the companies must offer the coverage despite the premium increase denials. The insurers disagree and the matter is now in court. Stay tuned.

Health Plan Benefit Design of the Future?

As I have noted in previous posts, true health care reform means tackling the issues of rising cost and unnecessary care. Health plans need to develop benefit designs and payment methods that provide incentives to both employees and providers to seek and/or provide the most cost effective care necessary. What kind of benefits designs could help bring about these changes?
One would be a three tiered system that takes into account value, prevention, chronic illness care, and overutilization of services that don't provide the most value.

The three tiers would include:

• Tier 1: No copay or low copay for ambulatory care for those with chronic conditions, as well as for preventive services to help people from moving to chronic illness.
• Tier 2: This would resemble the current healthcare system and would ask consumers to chip in 20% coinsurance for normal healthcare.
• Tier 3: This tier would require consumers to pay more out of pocket for services that do not provide a high clinical value.

Most people, including employers, health insurers, and consumers, are fine with the top two tiers, but the third one raises alarm. Research, most notably from the Dartmouth Atlas, shows that limited-value care is driven by the number of providers in a given community and/or the preference of the provider—not necessarily driven by rich medical evidence.

The implementation of such a three tier system will require a great deal of education by the health plan and the employer on what is considered necessary care and why. If the negative reaction over research that showed that women over 40 should no longer should have annual mammograms unless family history warrants is any indication how people will react to being informed certain care is not warranted, there is no doubt that this education will not be easy. Health care of course is very personal and being told by a health plan or employer that a treatment is not "essential" will be a very difficult discussion. But it a discussion that will have to be held if we want to lower the cost of health care in this country.

Cost Savings Potential of Electronic Medical Records

Good news on the cost savings performance of Vista which is the VA's electronic medical record system:

A new study in the journal Health Affairs finds that while the system, "collectively called Vista, for Veterans Health Information Systems and Technology Architecture" was expensive, it has paid off, The Wall Street Journal reports. "'We conservatively estimate that the VA's investments in the four health IT systems studied yielded $3.09 billion in cumulative benefits net of investment costs by 2007,' say the authors, a team from Center for IT Leadership at Partners Healthcare in Charlestown, Mass. The results looks at measures such as reduced workloads, freed workspace and savings from items such as unneeded medical tests and avoided hospital admissions. The biggest VA outlay -- and its biggest savings generator -- was the Vista's Computerized Patient Record System, the home-grown system for electronic health records that was found by the study to cost $3.6 billion."

The study also found that the VA "had spent proportionally more on IT than the private sector but could claim better performance in such areas as cancer screening and better glucose measures for diabetics" (White, 4/6).

Vista is available for free off the VA website. It is also open sourced which means that users can update and improve it when needed. So why has such a proven, inexpensive system not been utilized by the private health care system? It is a very good question particularly since the use of numerous expensive private software solutions most likely will inhibit the ability of health care systems to share records when necessary.