Contributor: Jane DuBose
Topic: Bundled payments/provider reimbursement

It seems since the Affordable Care Act passed in March 2010, we’ve had a different flavor of the month that illustrates where the industry’s mindset is. Last year, we all seemed fixated on medical loss ratios. Then, the buzz shifted to accountable care organizations.

Now, bundling is set to capture the spotlight, thanks to an announcement Aug. 23 by the Centers for Medicare & Medicaid Services that it wants providers to test any one of four different models of payment bundles – an initiative that was part of the ACA.

Payment bundles are the antithesis of fee for service, which many people (correctly) blame for the surge in medical costs over the past decade or two. Rather than paying for each medical service as a patient moves through a treatment, the payer makes a single, global payment to a provider, who then distributes it to others such as labs, imaging centers, and pharmacies.

CMS tried payment bundling for heart attack care through a pilot program and currently is the midst of another one for 28 cardiac-related and nine orthopedic procedures. With the announcement this week, it’s a signal that CMS is ready to jumpstart the movement.

Proponents believe it will wring costs out of the system. If a provider can treat a patient for less than the agreed-upon bundle, he or she can keep the extra. If he doesn’t, he won’t. But opponents say it could cause providers to skimp on care in the interest of meeting the benchmark.

Both arguments may seem valid, but I’d err on the side of the bundling proponents, simply because we have to do something to control medical costs, which are blamed for everything from overheated federal spending to increases in the cost of consumer goods.

It will take a long time to blow up the fee-for-service world in healthcare. Payment bundling is one small step, but it’s showing promise as a way to get the bomb assembled. Let the fireworks begin.

 

Contributor: Paula Wade
Topic: Hospital contracting

From the outside, it might appear that the contract standoff between western Pennsylvania’s hospital giant UPMC and insurance titan Highmark is just payor-provider brinksmanship on steroids. You know the scenario: months before a big hospital provider contract ends, one side publicly accuses the other of being intransigent, unrealistic and unreasonable in their contract negotiations. Contract talks halt. Both sides speak darkly that there will be disruption and people will lose access to their doctors and hospitals. Perhaps it even goes as far as newspaper ads hurling insults at the opposing party.

And then they reach agreement and everyone’s happy partners in healthcare once again.

The longer it goes on, the more obvious it is that the UPMC–Highmark dispute is not just a regional kerfuffle over a contract. Given the growing concentration of healthcare providers and health insurers nationwide, the UPMC-Highmark battle may be a glimpse into a dystopian future for several highly consolidated markets across the country.

Highmark is the dominant insurer in Western Pennsylvania, insuring 51 percent of covered lives in the region, and more than 3 million lives in Pennsylvania. It also controls the Blue plans in West Virginia and Delaware. The University of Pittsburgh Medical Center is the dominant medical provider in western Pennsylvania, with 20 hospitals, 400 outpatient sites, 2,900 physicians employed. The main contract between the two expires in July 2012, and the bitter contract talks have given way to blistering ad campaigns, lawsuits and market-shifting blows.

UPMC has signed and trumpeted new contracts with Highmark competitors Aetna, UnitedHealthcare and CIGNA (contracting with Aetna for the first time in 10 years). Highmark then made a $475 million deal with UPMC’s chief hospital competitor, the financially-troubled West Penn Allegheny Health System. Now, UPMC says there will be no deal with Highmark, period, and that Highmark customers will have to pay out-of-network charges for their care after July 2013…unless they switch plans of course.

In the cartoons, this would be the point at which a battered Daffy Duck looks at the camera menacingly and spits “THIS means WAR!”

There are a number of markets in the United States with the degree of provider concentration Pittsburgh has—Las Vegas, and Minneapolis are examples –and the trend toward highly concentrated markets is very real. It seems inevitable that there will be more cities in which major hospitals and dominant insurers will face off, and dare each other to walk away from the contract table.

All over the country, physician groups and physician managers are being purchased by hospitals, and even health plans. Private investor groups are buying up physician groups and practice managers as well. Health plans are tightening their networks, creating “preferred networks,” to steer members to favored providers, or away from the most expensive ones. Network-building is becoming a seller’s market. And while some of the concentration has been accelerated by healthcare reform, the trend started long before PPACA’s passage.

Employers in the region are understandably nervous about being the real casualties in this clash of titans, and major employer groups and public officials have called on both sides to negotiate calmly. “We’ve got members who are transplant patients at UPMC, and if this happens, we feel we have to give them another option,” one large group representative told me recently. “This is just a bad situation for the whole community.”

Contributor: Jane DuBose
Topic: Affordable Care Act

In this season of discontent, anyone rooting for the Affordable Care Act should be crying in his or her beer by now.

Just over the past week, an appeals court in Atlanta ruled against the constitutionality of the individual mandate – one of the crucial underpinnings of the ACA. Debt-ceiling negotiations in Washington, meanwhile, put future funding for the ACA in jeopardy. If the New Austerity holds, will federal and state governments have the money to subsidize healthcare for millions of Americans?

Meanwhile, at least two governors are returning federal grants to help jump-start health benefits exchanges. Kansas announced Aug. 9 that it will return $31.5 million in federal money because it doesn’t believe the federal government will be able to fully fund the exchanges. “Every state should be preparing for fewer federal resources, not more,” Republican Gov. Sam Brownback said. Oklahoma also returned its exchange grant.

The next step for the legal challenges is likely to be the U.S. Supreme Court, but until then, state governments, insurers, pharma companies – anyone with a stake in the law’s implementation – are forced to continue planning for the exchanges and the upcoming expansion of Medicaid as if it will occur.

Granted, the latest court ruling doesn’t strike down the entire law, just the part that requires most individuals in the United States to purchase health insurance. Many believe that without healthy people buying into the marketplace, though, insurers will refuse to participate in the exchanges, fearing they’d have only the sickest and poorest Americans to insure.

That’s definitely a risk, but there’s also this logic: maybe most of the uninsured who can buy into exchanges want to do so regardless of whether they’re forced. After all, the penalty in the ACA for not complying with the individual mandate is so weak that anyone inclined to take the penalty over the health insurance would do so.

If the ACA collapses, it’s most likely to be for budget reasons. If Congress is really serious about cutting the budget, and taxes (or revenue – whatever you’re going to call it) aren’t increasing, the ACA is far too large a target to evade the crosshairs of budget cutters.

It’s enough to make one thirst for the good old days, when the only threat to the ACA seemed to come from political wrangling.

 

Contributor: Sheri Sellmeyer
Topic: Blue Cross Blue Shield plans and Medicaid

Medicaid is the new frontier for Blue Cross Blue Shield plans, and the recent announcement that two Blue plans are buying a sizeable Medicaid plan signals the changes to come.

The Affordable Care Act calls for an expansion of the state/federal program by 16 million people from 2014 to 2019. In addition, the health benefits exchanges that are also part of the ACA could cover an additional 24 million. It’s likely that companies with Medicaid managed care operations will lead the charge into the exchanges. Having prior Medicaid experience could be a huge advantage as states begin assembling players for the exchanges.

Independence Blue Cross, which already had a 50 percent interest in AmeriHealth Mercy, announced this week that it is partnering with Blue Cross Blue Shield of Michigan to buy out the share owned by Mercy Health System. The group is seeking other Blue Cross Blue Shield investors.

Blue plans’ interest in Medicaid has been spotty. They are the dominant commercial players in most states, with a strong influence on legislative and regulatory affairs and a historic role as “the insurer of last resort,” providing policies for individuals (although not always affordable ones). But they have often been leery of the reimbursement offered by state Medicaid programs. Anthem Blue Cross and Blue Shield dropped out of Ohio’s Medicaid program in 2008 when the state decreased reimbursement rates; the Rhode Island Blue plan pulled out of that state’s Medicaid program in 2010. Regence Blue Cross and Blue Shield exited the Oregon Medicaid market in the late 1990s. But recently Oregon’s Medicaid director speculated that Regence could become interested in Medicaid again; elsewhere, Blue Cross Blue Shield of Florida is participating in Florida’s dramatic managed Medicaid expansion.

The reform law calls for newly eligible adult Medicaid members to have a benefit package available as a “benchmark” plan within the state’s insurance exchange, so that those who transition into or out of Medicaid eligibility will have less disruption in their healthcare coverage. That makes participation in Medicaid a critical path to the individual market, a strong suit for Blue plans. Investing in AmeriHealth could be the easiest way for Blue Cross Blue Shield insurers to acquire Medicaid expertise and systems.

Blue Cross Blue Shield plans are the Starbucks of health insurance: they have the most complete networks, they offer numerous plan designs, they have terrific brand recognition, and they are as ubiquitous as the Seattle-based coffee emporium. Starbucks is getting a run for its money from McDonald’s, which now offers premium coffee and specialty drinks; Blue Cross Blue Shield plans can’t afford to let their competitors do the same in the race for 32 million new members.

Contributor: Roy Moore
Topic: PBMs

As we’ve learned watching Shark Week this week on Discovery, apex predators respond quickly to weakness – the proverbial blood in the water. A single drop of blood from an injured animal can draw hungry sharks from miles around seeking to feast on the wounded victim.

Last week’s announcements that UnitedHealth Group was dumping Medco as its pharmacy benefit manager and Medco was fleeing to the arms of Express Scripts Inc. were the healthcare industry equivalent of blood in the water. Medco’s recent losses, which include the CalPERS contract, spread to an open gash with UnitedHealth’s decision to carve in its pharmacy benefit to OptumRx.

With its largest customer bolting, Medco sought safety in an alliance. However, like sharks in the ocean, a wounded animal is a prime target for attack. Prime Therapeutics – the PBM equivalent of a tiger shark (not quite as big as a great white but pretty deadly nonetheless) – may be taking another chunk out of Medco before its sale to ESI is completed. News outlets report that Blue Cross and Blue Shield of North Carolina may drop Medco in favor of joining Prime Therapeutics as a partial owner. That’s a significant change that takes a further chunk out of Medco’s backside.

Prime Therapeutics –owned by the Blue Cross Blue Shield plans in Illinois, Florida, Texas and other states – is the fifth biggest PBM in the nation, according to HealthLeaders-InterStudy data; the organization has been projected as an active mover in post-merger era (link to PBM Industry Rocks And Reels From Mega-Merger Talk). The North Carolina Blue plan’ s move could simply be the start of a feeding frenzy that leads Prime Therapeutics to tear away other Blue Cross Medco customers in Michigan, Pennsylvania and Washington.

While all eyes are on Prime Therapeutics, similar moves will be around smaller bull sharks MedImpact, CatalystRx (which has been incredibly active in the past year) and Argus. Perhaps more interesting will be moves by one of the great whites in this industry, CVS Caremark. As the No. 3 PBM behind both Medco and ESI, CVS Caremark stands to feast on what’s discharged from the combined Medco-ESI company (either through poaching clients pre-merger as they did with the CalPERS contract or absorbing those clients that are spun off as part of DOJ-approved merger agreement).

Importantly, we’ve learned from Shark Week that great whites can sneak up on their prey by shooting straight up underneath them, managing to lift themselves out of the water. Maybe CVS Caremark is satisfied with taking chunks out of Medco, or maybe CVS Caremark could be planning a Polaris breech on the smaller sharks of the ocean – Future Scripts, SXC Solutions or MedImpact. Either way, the feeding frenzy is just starting; there’s blood in the water and the sharks are hungry.