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.