Population Health Insider, July 2009

Inside:

Public insurance is not the only issue for insurers

Medical cost trend fairly stagnant, but consumers shouldering bigger load of healthcare costs

Insurers are paying faster and denying fewer claims

Payers’ administrative practices costing physician offices as much as $31 billion annually

Report: States could save money by expanding Medicaid managed care

Health insurance industry seeks Medicaid drug rebate

Massachusetts healthcare reform’s success comes from ‘shared responsibility’

Bill would test value-based insurance in Medicare

Businesses with comprehensive health management programs enjoy better engagement, health outcomes

PBM sale highlights dilemma for health plans

Public insurance is not the only issue for insurers

Summer months usually mean leisure and vacations, but health plan executives will surely not have a relaxing time this year.

Private health insurance faces a potential new competitor—the federal government—that insurers worry could put many of them out of business. But the issues for health insurers go beyond whether the feds grab a greater share of their market; declining membership and perceptions about insurance costs and profits are also acute concerns.

Public insurance

Private insurers and America’s Health Insurance Plans (AHIP) have been vocal about their opposition of a public insurance plan. In hopes of killing the idea, AHIP has presented a health reform plan that features an individual mandate requiring that all Americans have health insurance, along with a guarantee that health insurers will not reject any prospective member because of a preexisting condition or charge women higher premiums than men for their individual coverage.

Robert Zirkelbach, director of strategic communications at AHIP in Washington, DC, says the insurer group supports a comprehensive healthcare reform package that includes the individual mandate coupled with payment reform rewarding physicians for improving health outcomes rather than paying for volume of service, research to find which treatments work best, and improved health information technology.

“They are all under the broad banner of reform,” says Zirkelbach. “We believe we need health reform and we can address all the core concerns by building on what is working in the current healthcare system.”

Insurers are afraid that a competing public plan with lower administrative costs and lower premiums would coax employer-based insurance members to flee for the public plan and crush private plans in the process.

In response to the public plan, Ian Duncan, president and founder of Solucia Consulting in Farmington, CT, says private insurers should promote the benefits of their offerings. “I would stress the positives that come from the current insurance system. Although nobody likes [the current system], you have the ability to strike individual contracts and strike individual bargains between payers/providers/patients,” says Duncan. “That would go away under a government system. I don’t see anyone standing up and saying what we have is not perfect, but there are some positives to it.”

Sam Nussbaum, MD, executive vice president and chief medical officer at WellPoint, Inc., in Indianapolis, says the healthcare industry and policymakers should develop a “meaningful healthcare reform” through such programs as pay for performance, bundled payments, and value-based insurance design.

“There is not one silver bullet here. There are many, many opportunities to improve health outcomes, to reduce costs, and to advance quality,” says Nussbaum. “There are many strategies that need to take us to better healthcare for all Americans.”

Declining health plan membership

Although the future is cloudy for insurers, the present isn’t so sunny either.

Layoffs and employers cutting employee health benefits have hurt private insurer membership. A major health insurer client is losing 1/2% of its membership every month because of the economy and related job loss, says Duncan. That insurer has lost more than 6% of its members in a year.

“A health plan doesn’t grow in normal times that much in a year,” says Duncan. “The contraction of employment is hurting health plans.”

Although more members are being forced out of employer-based plans, private health insurers and employers are not making massive changes to benefits. In fact, employers continue to push ahead with employee wellness programs, which surprises Duncan. “In a situation of reduced budgets, I would expect [employers] to go for that first.”

With the new Democratic-controlled White House and Congress, health insurers no longer have the support they enjoyed during the Bush administration.

That change in leadership also means that Republican-enacted attempts to control healthcare costs, such as consumer-driven health plans, high-deductible health plans, and health savings accounts (HSA), have fallen out of favor.

Rather than focus on cost containment, Democrats view healthcare access as the larger problem, says Devon Herrick, PhD, senior fellow in healthcare at National Center for Policy Analysis in Dallas.

“The public health advocates that are advising the administration and members of Congress tend to view cost-sharing as a barrier to access,” says Herrick. “The way insurers have been trying to rein in spending and the way the Bush administration and the Republican Congress were trying to empower patients is really not a vision that is shared as much in the current administration and the leadership in Congress.”

Herrick doesn’t expect Democratic leaders to wipe out HSAs, but they may change regulations surrounding the accounts that would make them less attractive to prospective members.

Changing misconceptions about costs

In light of the health reform debate, health insurers have been vocal about the reasons behind increased healthcare costs. Some activists and policymakers have charged that health insurer overhead is the main reason and have subsequently been pushing for limits on an insurers’ medical loss ratio.

But AHIP and the WellPoint Institute of Health Care Knowledge have come out with information that states otherwise.

In May, WellPoint Institute of Health Care Knowledge reported that only 3 cents of the health dollar goes to insurer profit. Meanwhile, 87 cents of every premium dollar goes to providing medical services, such as physician services, hospital costs, drugs, and other medical services. The other 10% goes to compliance, claims processing, and other administrative costs, according to the May report, What’s Really Driving the Increase in Health Care Premiums.

Those findings go against public perceptions. In a survey of WellPoint members between 2005 and 2008, the insurer found that 60% of consumers surveyed thought insurers’ profit margins exceeded 20%.

If health costs aren’t rising because of health insurers, where is it coming from? WellPoint Institute of Health Care Knowledge suggests five reasons:

• Higher priced technologies and overuse of them.
• Price inflation for medical services.
• Patient lifestyles leading to obesity and chronic disease. (See Figure 1.)
• Regulation costs.
• Cost shifts from Medicaid, Medicare, and the uninsured to private payers, which WellPoint said increases premiums 15%–20%. (See Figures 2 and 3.)

The industry should also analyze the 20%–30% of healthcare services that don’t improve health outcomes, Nussbaum says. That is an area where healthcare could save money and, in turn, cover more people and provide preventive services. Finding that kind of information will lead to healthcare reform, he says.

“For meaningful health care reform to occur, policymakers will need a clear and accurate understanding of the real [vs. perceived] factors that are actually driving the cost increases,” wrote WellPoint Institute of Health Care Knowledge.

Medical cost trend fairly stagnant, but consumers shouldering bigger load of healthcare costs

The total 2009 medical cost for a typical American family of four in an employer-sponsored PPO will increase more than 7% this year. These same families are paying an additional $500 more for healthcare than they did in 2005, according to the fifth annual Milliman Medical Index (MMI).

Although employees are spending more in 2009, the increase is actually the lowest trend rate since the MMI started following trends five years ago and is the third consecutive rate decrease. (See Figures 4 and 5.)

Despite that bit of good news, employees will still pay nearly another 15% in employee payroll deductions for healthcare compared to 2008. Meanwhile, employee out-of-pocket cost sharing will increase by 5.4%. Employers will see the same increase, which is the lowest medical cost increase over the past five years.

Employers are increasingly transferring healthcare costs to employees through higher premiums and out-of-pocket costs.

As businesses have struggled in the current economy, they have transferred more health costs onto employees. With another 7% added to employee health costs, have we reached a tipping point? Ron Cornwell, principal and consulting actuary at Milliman in Omaha, NE, says no.

“Is there still room where employers are saying we can go farther? Yes. Is there a case where the majority of employees can say we can absorb more? Yes. But at the same time, for some employers it has reached a tipping point,” says Cornwell. “For some employees, it has reached a crisis stage. There are stories out there, but in the aggregate we still see there is still some room in the system to take on some of the burden of these costs right now.”

Employers still pay the majority of healthcare costs, contributing 59%, compared to 24% for employee contributions and 17% from employee out-of-pocket costs, according to Milliman. That said, this is the first year Milliman has seen employee costs outpace employer contributions by such a large margin. (See Figure 6 on p. 4 and Figure 7 below.)

“This statistic reiterates the struggle that employers are experiencing right now with this tight economy and rising healthcare costs,” says Cornwell.

Although employers are shifting benefit plans toward greater employee responsibility, businesses are also laying off employees and cutting salaries as a way to achieve immediate cost savings. Milliman wrote:

Because benefit plans are typically changed only annually, and because employees can choose to change plans only once each year, cost sharing is slower and more variable in its impact than other cost-saving strategies. In light of this, we find many employers are choosing to implement salary reductions or layoffs now in order to ensure their viability and will consider additional, perhaps more dramatic, changes to their benefit plans in future annual benefit cycles. In other words, we expect benefit plan changes to continue even after the recession subsides.

Macroeconomic effects on healthcare costs

The combination of sagging private business revenues, rising unemployment rates, decreasing government tax revenue, and lower healthcare provider gross revenues are affecting total healthcare expenditures.

Milliman found that every category (i.e., outpatient, inpatient, physician, pharmacy, and other) had lower cost trends than inpatient and outpatient costs. (See Figure 8 at right.)

Over the past five years, outpatient and pharmacy have increased the most of the five areas. During that same time span, physician cost trends were one of the lowest components, although they still comprise the highest component of spending, according to the MMI.

The reason for medical cost increases are higher prices for services and not utilization of inpatient and outpatient hospital services. In fact, the utilization trend will be flat this year, according to Milliman. This is because insured people are delaying care due to higher out-of-pocket costs and economic instability, along with there being more uninsured Americans because of layoffs and employers cutting benefits.

Patients delaying care could lead to long-term health problems, which could cost the healthcare system more in the long run. This could also force providers to increase costs in the short term, says Lorraine Mayne, principal and consulting actuary at Milliman in Salt Lake City.

“These utilization changes may temporarily keep the trend lower, but ultimately may put an upward pressure on the cost for service because healthcare providers will need to continue covering their costs and maintaining their incomes,” says Mayne.

Although costs are on the rise, the Milliman researchers found positive initiatives in regard to improving quality and efficiency. Some healthcare players are reversing cost trends through inpatient efficiency and quality, commercial payers are focusing on inpatient utilization review, and Medicare is focusing on reducing readmissions and not paying for never events.

“On the employer front, we’re continuing to see a focus on prevention, wellness, and disease management services, but the purchasers are becoming more savvy,” says Kate Fitch, principal and healthcare consultant at Milliman in New York City, adding that employers are now demanding better reporting and vendors risk their fees by achieving specific outcomes.

Healthcare professionals are also promoting the medical home concept as a way to improve care and lower costs. The medical home has been touted as an alternative to disease management and an enhancement of the programs, although questions remain about the concept.

“The verdict is still out whether the medical home delivery of care will reduce medical cost trend,” says Fitch.

Miami tops costs

Of the 14 major metropolitan areas Milliman reviewed for MMI, Miami topped the list for 2009 with an MMI of $20,282, which is 120.9% of the national percentage. New York City finished a close second with $19,684 MMI or 117.4% of the national percentage. Phoenix and Seattle, meanwhile, were the lowest MMI, with $14,857 (88.6% national percentage) and $15,564 (92.8% national percentage) respectively. (See Figure 9 below.)

The costs of services varied by area, Fitch says. For example, although Seattle enjoys the lowest inpatient costs, it ranks worse for outpatient costs. Phoenix, which has the lowest outpatient and physician costs, is in the middle range for inpatient costs.

The costs are related to many factors, Fitch says. Most important are the variations in provider practice patterns and consumer purchasing patterns. To a lesser extent, regional variation in costs dealing with doing business in those areas, differing labor costs, and local regulations are a factor.

The cost differences between the highest and lowest MMI could have been greater if Milliman had included rural areas.

Insurers are paying faster and denying fewer claims

Health insurers are paying physicians 5% faster and denying 9% fewer medical claims than last year, but there is still room for improvement for some payers, most notably state Medicaid programs, according to athenahealth’s fourth annual PayerView Rankings.

The Internet-based provider of business services to physician practices evaluated 172 national, regional, and government payers in 40 states, which was the largest data set to date. The company used performance data from more than 18,000 medical providers, representing more than 41 million medical charge lines and $7 billion in charges billed in 2008.

Athenahealth found that payers are collaborating more with physicians to automate claims and billing work as they reduce administrative costs and streamlining claims processing. That allows providers to focus more on delivery of care.

The findings underscore results from a study by The Commonwealth Fund and Robert Wood Johnson Foundation’s Changes in Health Care Financing and Organization that found physician practices spend as much as $31 billion annually on administration and business transactions with health insurers. (See “Payers’ administrative practices ... ” on p. 13.)

Jeremy Delinsky, vice president of athenaNet Intelligence at athenahealth in Watertown, MA, says the rankings are not about winners and losers, but improving and streamlining administrative processes so physicians can focus on patient care. Health insurers should focus on reducing administrative waste from the healthcare system, Delinsky says, adding that it’s up to stakeholders to remove inefficiencies, or someone else—such as the federal government and the public insurance option—will.

The problem is health insurers’ varied policies and procedures for claims submissions and payment. Although some have streamlined the process and implemented real-time claim adjudication programs, others have created programs that add extra work for practices. Most health insurers see administration costs as a problem and want to make changes, Delinsky says.

Athenahealth divided the insurers into six groups: national payers, major nationals, regional payers, Blues, Medicare, and Medicaid. Some companies, such as Aetna, Humana, Cigna, and UnitedHealth Group, were in the national payers and major nationals categories.

The researchers found that major nationals achieved high marks in the areas of lowest days in accounts receivable (DAR), highest first-pass resolve (FPR), and lowest denial rate. (See Figures 10–12). Delinsky says that’s because most of the major national insurers understand the importance of lower administrative costs and provider relations.

“I think they take seriously that what’s good for their cost structure is good for the providers,” he says.

Athenahealth also found that some regional payers performed well. For example, Blue Cross Blue Shield of Rhode Island (BCBS-RI) had the lowest DAR at 15.4 days, making 2009 the third year in a row that BCBS-RI ranked the best in the category.

Athenahealth pointed to three reasons for the insurer’s success: it operates in a small state, it’s a dominant player in the market, and it has created a transparent system that lets providers know what is required to get claims accurately processed and paid. These three factors help providers understand what’s expected of them.

Medicaid is a problem

The group that consistently performed poorly in these three areas was state Medicaid programs. Medicaid had a twice longer DAR than other groups and denied more than one in every five claims.

According to athenahealth, there were several reasons for Medicaid’s results:

• Insufficient resources for providers, which include inadequate call center staff member training to research and/or follow claims, which leads to misinformation and requires additional phone calls to resolve the issues; outdated and difficult-to-find provider manuals and other documentation; and unavailable information obtained from eligibility checks that don’t provide enough information to inform the provider’s actions
• Greater response from providers in the area of fraud control, including custom claim form and original signature requirements
• An ever-changing landscape featuring programs that are continuously introduced or phased out based on fund availability, which prevents a provider from understanding the program enough to properly manage his or her Medicaid patient population

“These issues manifest themselves in a higher than average denial rate, a higher than average DAR—due to claims remaining outstanding for a longer period of time, and finally a lower FPR, due to claims having to be submitted multiple times to address unclear billing requirements,” according to athenahealth.

The New York Medicaid program ranked worst for DAR and FPR, which athenahealth suggested was because of complex authorization requirements, use of proprietary claim forms for paper submission, lack of acknowledgment from Medicaid for claims submitted, use of identical remittance codes to indicate denied and pended claim scenarios, and onerous enrollment processes. (See Figure 13 on Page 10.)

These results are quite different from Medicare, which received much higher marks in the rankings. Diving deeper into the findings, athenahealth found that Medicaid managed care programs, which are operated by private insurers, performed much better than state Medicaid programs.

One problem is that states faced with limited budgets often make cuts to Medicaid programs and/or stop paying claims, Delinsky says.

“That is essentially like taking an interest-free loan on the backs of medical providers. There has to be a better way to fund the system than to have providers essentially treat patients for free upward of 90 days. That just doesn’t feel like the states have responsibly managed their budgets if that’s happening. You can understand why the provider wouldn’t want to participate in the program,” says Delinsky.

Humana is tops

On the flip side of Medicaid is Humana, which topped the rankings for the second time in four years. (See Figure 14.) Humana topped the national payers in the areas of lowest DAR.

Mark Smithson, vice president of provider process and network operations at Humana in Louisville, KY, points to two reasons for the high marks: real-time claim adjudication and electronic remittance devices. Smithson says many health insurers say they have real-time claim adjudication, but still require physician offices to log onto the payers’ sites and reenter the information. This merely adds work to physicians’ offices. The key is to integrate the physician practice into the physician offices’ practice management system, he says.

By going through real-time claim adjudication, the office avoids batching the claims, mailing them, and having a third-party vendor intervene.

“We don’t change dramatically how they put their charges in,” he says. “Not only does it help at the patient collection window, it also speeds up the entire process.”

Not that the changes are seamless. Smithson says the health plan and office must work to have the process complement the work flow, but realize the changes will affect work flow. “What this does do is streamline all that so the person is no longer in the back office, but in the front office at the patient window, so it does somewhat disrupt their work flow,” he says.

For example, one practice has color-coded Humana patient charts so the office employees know it has a different work flow. It is important to educate the physicians’ offices from the start so they know what changes are needed. “The better the communications up front, the more smooth the whole transition is going to run,” Smithson says.

It’s Humana’s strategy to be the easiest payer for providers to do business with, and athenahealth’s results show that the strategy is working. Humana’s mind-set is that it would rather pay pennies to process the claims through streamlined processes and avoid back-end phone calls, Smithson says, adding that each phone call avoided saves the company $7.

William F. Jessee, MD, FACMPE, president and CEO of the Medical Group Management Association (MGMA), which represents 22,500 members, says fast, accurate payments are critical to manage business operations of physician practices. Although Humana tops the rankings, “there remains considerable room for improvement across the industry,” Jessee says. “Humana has shown a willingness to reach out directly to MGMA and carefully listen to the needs of our members. Its ability to embrace new technologies and adapt to meet the needs of its group practice customers is clearly beginning to pay off.”

Athenahealth’s rankings look at administrative ease and efficiency, but the company would like to expand its program to include other areas, which Delinsky says will be more meaningful for providers. “I think you can probably make some correlation about administration efficiency if you had more data publicly about these companies, but it doesn’t get into comparative payments yet. That is something we’re likely to do in coming years,” he says.

Payers’ administrative practices costing physician offices as much as $31 billion annually

Physicians spend three hours per week—43 minutes on average per workday—haggling over claims, credentialing, authorizations, formularies, and other issues with health insurance plans, according to a study released in Health Affairs.

The Costs to Physician Practices of Interactions with Health Insurance Plans found that total staff interaction time systemwide converted to dollars equals $21–$31 billion annually—an average of more than $68,000 per physician per year.

“These data are yet another indicator of the dire need to streamline healthcare administration for physician practices,” says William F. Jessee, MD, FACMPE, president and CEO of the Medical Group Management Association (MGMA), which sponsored the study.

The study found that primary care physicians spend more time dealing with health plans than specialists. Nursing staff members spend nearly four hours per physician per day interacting with plans, and clerical staff members average 7.2 hours per day. Solo practitioners and their staffs spend up to 50% more time interacting with health plans than physicians in larger practices. Nonphysicians’ staff time did not vary significantly by specialty.

Douglas Henley, MD, executive vice president and CEO of the American Academy of Family Physicians, says he’s not surprised that primary care physicians and their staffs spend the most time haggling with insurers. “It’s because of the diversity of their practices compared with subspecialty colleagues,” Henley says. “It’s a huge burden for the whole system, but particularly for primary care.”

Some physician interactions with insurers save money elsewhere in the system with issues such as precertification, “but a large chunk of those dollars are for an unnecessary administrative burden that could clearly be streamlined,” he says.

Most primary care physicians contract with several health insurance companies, and each company may offer five or six different coverage plans, Henley says. “What is the copay? What is the deductible? How much of that has been paid? What drugs are or aren’t on their formulary? What are the levels or different tiers of the formulary? It’s all different,” Henley says. ”We are talking about standardizing health information technology, and we ought to be able to standardize this type of administrative complexity and get beyond it.”

Robert Zirkelbach, director of strategic communications at America’s Health Insurance Plans (AHIP), says he can’t dispute cost claims in the MGMA study “until I see what they calculated or how.” However, Zirkelbach says, AHIP is sympathetic to providers’ concerns about the complicated, time-consuming, and expensive administrative processes that also waste money and time for health plans.

“This is not by any means a one-sided issue,” says Zirkelbach. “Everybody agrees that we have to do more in the areas of health information technology to improve efficiencies and make the system work better for everyone involved.”

In response to this issue, MGMA wants a three-step reform plan that could save about $40 billion annually, Jessee says. The MGMA recommendations include:

• Promulgation of a national health plan identifier regulation by the U.S. Department of Health and Human Services, which would simplify and improve healthcare transaction routing and save an estimated $8.8 billion annually
• Promulgation of the national electronic claim attachment regulation, which would eliminate lost paper claims, accelerate the adjudication process, and eliminate the costs associated with filing and mailing paper documents, saving $9.4 billion annually
• Standardization of machine-readable patient identification cards, reducing claims errors and administrative costs and eliminate many costs associated with paper records for a savings of $22.2 billion annually

The study classified interactions with health plans as authorization, formulary, claims/billing, credentialing, contracting, and quality data. Of those interactions, practices spend the most time dealing with formularies: Physicians spend 1.3 hours per week, and nursing staffs spend 3.6 hours per physician per week. Primary care physicians spend the most time—1.7 hours weekly—on formulary issues. Physicians and their staffs spend the least amount of time on submitting or reviewing quality data.

The problem could get worse if Medicare adopts reforms that will install the same administrative requirements as the private plans, such as for precertification, Henley says. “If they subdivide that in a certain way, that could create an additional and unnecessary administrative burden,” he says.

The health insurance industry is pushing for standardization and uniformity in information exchange and administrative procedures to “help physicians to interact with all of the health plans they contract with. This is an area that we have prioritized,” Zirkelbach says.

The survey includes responses from 1,310 primary care physicians, 580 specialists, and administrators from 629 group practices. The study does not distinguish between the interactive time spent with public and private health plans.

Report: States could save money by expanding Medicaid managed care

Medicaid managed care is providing a safety net of care coordination to millions of at-risk Americans and is improving patient outcomes and quality of care as it reduces states’ healthcare costs, according t