Healthcare Reform Blog > November 2011

Fresh U.S. healthcare insights from expert analysts on Healthcare Reform, ACOs, Exchanges, Medicaid, Medicare, regional and national trends…and much more

Chris LewisContributor: Chris Lewis
Topic: MCO provider acquisitions

In the new era of healthcare reform, some providers and insurers are finding it necessary to join forces. But as one acquisition in California illustrates, such unions come at a price.

OptumHealth plans to acquire the management arm of Monarch HealthCare, the largest physician group in Orange County. That throws a monkey wrench into Monarch’s network relationship with Anthem Blue Cross of California.

A stark and ironic casualty is the unwinding of an accountable care organization; under reform, ACOs are supposed to be a key strategy for tackling the underlying costs of healthcare.

Although UnitedHealth Group has set up its Optum subsidiary separately from UnitedHealthcare, it is not surprising that other health plans have reservations about doing business with a physician group ultimately owned by one of their fiercest rivals.

Monarch is one of a handful of provider groups that have been working with Anthem Blue Cross on an ACO—an endeavor that has catapulted Anthem to the forefront of private-sector ACO development. For more than a year, Monarch physicians and the health plan collaborated on a complex plan to bring a new era of care coordination to Anthem’s PPO members.

But now Anthem members who were asked to be part of the ACO are being informed by the insurer that it no longer exists. Although Blue Cross has assured HMO and PPO members that it still has a contract with Monarch that provides in-network access, don’t bet on that contract being renewed.

Meanwhile, the other Blue plan in the state, Blue Shield of California, has announced it will not contract with Monarch once it’s part of Optum, according to a statement released by the insurer.

“…United's acquisition of provider groups creates a conflict of interest that will inevitably put other health plans that contract with those providers at a competitive disadvantage,” said Juan Davila, senior vice president of network management.

OptumHealth recently began buying physician practices and IPAs in key markets across the country. Monarch officials seized the opportunity, saying the physician group needed to be part of a larger organization with more resources to keep up in the changing healthcare environment.

While the acquisition is still in the approval stage, OptumHealth has said that its multi-payer strategy has not changed. But at least two of those payers – Anthem and Blue Shield of California – clearly disagree. As UnitedHealth Group and other MCOs begin to acquire provider groups, look for similar dust-ups across the country.

Posted on: 11/30/2011 2:08:06 PM | with 0 comments

Jane DuBose

Contributor: Jane DuBose
Topic: Exchanges

The healthcare game changer known as the Affordable Care Act will be two years old in just a few months. Like most toddlers, the law has demanded constant attention, and under no circumstances has the country been able to ignore it.

We’re at the half way point between passage (March 2010) and implementation (January 2014) of the key provisions of the law—the federal health benefits exchanges and the expansion of Medicaid—provided they survive legal and political challenges. So it may be time to take stock of how the major stakeholders are faring as 2011 winds to a close.

  • Health plans. A year ago, it was almost possible to feel sorry for them. The recession had wreaked havoc on growth in the commercial markets. Disaster was striking in the form of government mandates on medical spending. Some state governments were breathing down their necks on rate regulation. Today? Many health plans have not only survived, but thrived in the past year. Investors have driven up share prices among the largest, publicly held plans by a range of 19 percent to a whopping 54 percent so far this year (in a down market, no less). The medical loss ratio rules are unlikely to be a game changer. And rate regulation may indeed drive some plans out of markets, but many others are finding new and interesting ways to grow, such as buying physician practices.
  • Providers. That squealing sound you hear may be the sound of spinning tires on the way to the lawyer or the bank. Hospitals, physician practices and the organizations that support them have participated in an unprecedented merger frenzy over the past year. The run up to reform is one reason for the activity, but technology and demographics also play a part. Physician groups with a large base of well-insured patients are key targets, as are those with well-heeled Medicare beneficiaries. The losers among providers may be small shops in rural areas that have neither suitors nor resources to invest in the reform environment of the future. The winners are practices in large and medium-sized markets being targeted by hospital groups and health plans.
  • Pharma. The jury is still sequestered on this one. Pharma has paid for additional branded drug access for seniors in the doughnut hole, but if the exchanges or Medicaid expansion falter, the big reform payoff may not occur. Even if the U.S. Supreme court strikes down the individual mandate, it’s quite likely exchanges could still go forward. But the big bonanza via Medicaid is also up in the air. At the same time, states are doing everything they can to limit branded drug access amid budget difficulties. On the bright side, the aging population and its need for drugs will be a positive, with or without exchanges.
  • Employers. The big ones continue to pull out all stops to control costs and keep employees healthy. Wellness coaches are the big tool in 2011-2012. Small employers, on the other hand, are struggling to fund benefits at all. Many of them will defect to small-business exchanges in 2014. The consolidation trend among payers and providers is not a positive for this group, however, because they need healthy competition to keep prices down.

The last group is consumers, or in this industry, patients. They may have never been at the center of healthcare. Financial health has primarily trumped personal health. We are slowly inching toward putting consumers at the core of the system – Cigna even rebranded its company based on that premise – but there’s a huge disconnect on this one. Reform may help many consumers, but with its many levels of complexity, it will likely make it messier before it makes it better.

Posted on: 11/30/2011 9:07:14 AM | with 0 comments

Lyda PhillipsContributor: Lyda Phillips
Topic: Healthcare Reform

Massachusetts’ Attorney General Martha Coakley has launched her third salvo against high-priced healthcare providers, coming out more strongly than ever in favor of aggressive regulation to minimize price disparities.

After issuing reports in 2010 and 2011 laying the blame for healthcare cost escalation on elite providers with hefty market clout, Coakley’s Nov. 18 speech laid out “three pillars” of action to curb costs.

The first is greater transparency regarding costs combined with efforts to increase “healthcare literacy” by requiring providers to give patients cost estimates for procedures, as car mechanics or roofers do.

The second pillar is ensuring competition by monitoring the current surge in consolidation and taking antitrust action when systems become too large. Coakley suggests a market impact review when a provider reaches a certain level of market clout, but acknowledges that there is no reporting mechanism currently in place to effectively monitor provider market size or clout.. “
Finally, the third pillar: “Starting in 2015, if the market has not corrected unwarranted price variation, the administration should be able to reject health plan contracts with excessive or inadequate provider price variations,” Coakley said.

She suggests banning cost variance greater than 20 percent above or below the system’s average costs in the preceding year.

“In order to truly rein in rising costs that are hurting our consumers and businesses, we must address the flawed foundation caused by this dysfunctional market,” Coakley said. “There are many ideas to fix this problem and these are just a few. But the one thing we can’t accept is to do nothing.”

These recommendations largely dovetail with those of the Governor’s Special Commission on Provider Price Reform, which includes a recommendation that calls on the state to regulate provider prices. Of course, this is hardly the earth-shattering proposal it might be in other states. Massachusetts is one of the most regulation-friendly states in the nation and the birthplace of healthcare reform’s individual mandate.

Providers support price transparency and voluntary steps to curb price inflation, but fault state and federal government for failing to reimburse adequately for Medicare and Medicaid, creating cost-shifting.

“Taking the extreme and administratively burdensome step … of regulating payment in the complex private system is assuming power that government cannot exercise effectively or fairly,” Lynn Nicholas, Massachusetts Hospital Association president and CEO said in a response to the commission’s recommendations.

Since Coakley’s first report on healthcare price inflation, Massachusetts providers have stepped up consolidation both with mergers and acquisitions and by leaping straight into the health plan arena.

The new for-profit player in the Boston market, Steward Health Care System, is now working with Tufts Health Plans to create its own narrow network health plan to drive patients to its community hospitals. Market titan Partners HealthCare System has also entered the insurance market with its acquisition of Neighborhood Health Plan, which gives it a firm toehold in the Medicaid market.

So if Coakley wants to curb market consolidation, she’s already getting left in the dust.

Posted on: 11/23/2011 10:01:50 AM | with 0 comments

Sheri SellmeyerContributor: Sheri Sellmeyer
Topic: Wellness programs

As business owners gnash their teeth over yet another year of rising healthcare costs, there are a few encouraging signs: some payoffs from wellness programs, a growing use of health assessments, and evidence that some cost-control strategies are working.

A survey released by Mercer this week indicated that growth in the average total health benefit cost per employee, which had reached 6.9 percent last year, slowed in 2011 to 6.1 percent, with an increase of 5.7 expected for 2012 – still well above inflation, but at least headed in the right direction. Employers have just two years (assuming healthcare reform is not overturned) before they must offer healthcare coverage to all employees working at least 30 hours a week, or face a penalty.

The efforts of large insurers such as UnitedHealthcare and WellPoint to work with employers on wellness and prevention have been widely reported, but smaller, regional carriers are also in the mix. Network Health Plan in eastern Wisconsin is reporting success with its wellness offerings for large employers, according to HealthLeaders-InterStudy analyst Ric Gross. In exchange for 60 percent participation in health risk assessments and 30 percent member achievement of healthy rewards, employers get a rate cap in the second year of a three-year contract.

Network Health Plan assigns employers a corporate wellness specialist and the option of a health coach to act as health advocates for employees. As employees reach specific health goals, they can earn up to $250 worth of rewards. The result has been lower utilization and lower claims costs than predicted. Network Health Plan says each member enrolled in the program realized between $400 and $500 in annual savings, based on comparing actual results with predicted levels derived from diagnosis and claims history. But the emphasis is not on prescription drug control, partly because the health plan expects some uptick in prescribing patterns as workers are diagnosed and put on drug therapies.

Network Health’s wellness offerings track with Mercer’s findings: 87 percent of large employers surveyed said they will add or strengthen programs to encourage more health-conscious behavior, making it the top long-term strategy for controlling healthcare costs. (A total of 2,844 employers completed the survey in 2011.) Most large employers (70 percent) are using health assessments, and about a third of small employers are using them, up from just 29 percent in 2009.

Policymakers and healthcare experts have been preaching long and hard on the power of preventive medicine. Clearly, employers have been listening.

Posted on: 11/18/2011 3:24:14 PM | with 0 comments

Paula WadeContributor: Paula Wade
Topic: Pharmacy Cost Control

It’s no coincidence that the only carriers who have won Medicare’s coveted five-star quality ranking for their Medicare Advantage plans are vertically integrated health plans – chief among them Kaiser Permanente, which has four out of the nine plans nationwide earning five stars.

The five-star designation means maximum (5 percent of premiums) bonuses from HHS on about 865,000 MA members in Kaiser’s five-star plans—millions of dollars which by law must be spent on enhancing benefits or lowering customer cost. The result creates additional competitive advantage for Kaiser in terms of pricing, benefits, or both.

It also means higher reimbursement rates for those plans, money that can flow straight to the bottom line. This helps soften the blow of MA plan reimbursement cuts mandated by the Accountable Care Act. In addition, the five-star plans get to market themselves to consumers all year long, rather than only during the open enrollment period. From a competitive standpoint, that’s a trifecta for Kaiser that almost makes me feel sorry for the other guys trying to sell MA plans in California, Colorado, Hawaii, Oregon and Washington.

Of course, Kaiser’s exclusive network limits its appeal to seniors: those who aren’t in a Kaiser plan and seeing Kaiser docs are unlikely to jettison their physician relationships to move to a Kaiser plan for their senior years. But if Kaiser is able to invest in its products substantially, it may be able to raise benefits and lower cost enough to get seniors over that initial Sure-They’re-Cheaper-But-Do-I-Really-Want-To-Go-With-Kaiser? hurdle.

The fact is that Kaiser and its fellow integrated health plans have a substantial leg up on meeting HHS’ quality measures for patient care because their structure allows them to track and follow up on members’ medical needs more easily than the separate (by varying degrees) collaborative systems of providers and payers.

It’s a lot easier to make sure each patient has a BMI measurement, picks up his COPD script, or has post-surgery care when the health plan and the physician and the hospital (and in Kaiser’s case, even the pharmacy) are part of the same entity. It’s worth noting that Kaiser’s plans in Ohio, the Mid-Atlantic and Georgia, states where Kaiser has no hospitals and an incomplete physician network, didn’t win five-star status (they came in at 4.5). As Medicare’s drive toward rewarding quality continues, the gap between these top-quality, high-bonus plans and their competitors will continue to increase.

Posted on: 11/16/2011 1:19:48 PM | with 1 comments

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