Population Health Insider, September 2009

Inside:

Tailoring DM interventions could improve patient outcomes, lower utilization

Prevention and health promotion could save Medicare $1.4 trillion over 10 years

BCBSA study shows low health plan administrative costs

BCBSA companies took loss in 2008

Insurers’ rating outlooks tumble

Small businesses could win big in House health reform bill

Eight tips to help get your business associates to comply with HIPAA

BAs, covered entities should comply with HITECH now

BCBSA puts bank up for sale

Could a Massachusetts-style individual mandate work across the nation?

ICD-10 implementation: Critical steps insurers must take

Hospitals would see 32% payment drop with public plan

AHIP decries ‘exorbitant’ out-of-network charges

Health insurers, employers could play key roles in tackling healthcare disparities

Health cooperatives can’t replace public option

Marketing and technology may soon play bigger roles in health insurance

HHS fires up rhetoric against health insurance industry

Health card companies defrauding patients shut down

Tailoring DM interventions could improve patient outcomes, lower utilization

One size does not fit all in almost every aspect of life, so why should healthcare think differently of population health and disease management (DM)?

But that’s typically the case, as DM programs often differ depending on the disease rather than the individual. Not all diabetics are the same, but they are often treated the same way.

One way to better understand the individual is the Patient Activation Measure (PAM) developed by Judith H. Hibbard, DrPH, professor of health policy at the University of Oregon’s department of planning, public policy, and management in Eugene.

By determining the individual’s knowledge, skill, and confidence in managing his or her health and healthcare, coaches can tailor programs that accurately reach patients at their level. The PAM, which is now licensed and marketed by Insignia Health in Portland, OR, consists of a 10- or 13-question survey that asks individuals about their beliefs, knowledge, skills, and confidence in engaging in a wide range of health behaviors. Based on the responses, each person is assigned an activation score and level.

There are four progressively higher activation levels. At the lowest end are people who passively manage their health and may not see a connection between their behaviors and health outcomes. At the other end are people who understand the relationship and self-manage their health.

The Center for Studying Health System Change released a study in 2008 that suggested that more than 20% of U.S. adults are at the low end of the activation scale, which makes caring for them and improving their health difficult.

Hibbard and her University of Oregon colleagues recently conducted a study with members of Irvine, CA–based health improvement company LifeMasters Supporters SelfCare, Inc., that looked at whether a DM program that used the PAM could improve patient outcomes. They compared patients who received standard telephone DM coaching with those who received tailored intervention based on their activation level.

The researchers found that patients with chronic disease who received tailored coaching based on their PAM level improved clinical outcomes, according to the study that was published in the June The American Journal of Managed Care.

In addition, findings suggest that tailoring coaching to patients’ activation levels and using those metrics to track programs can improve patient outcomes and DM program efficiency. Patients who received coaching tailored to their level of activation showed greater improvements in their biometrics and adherence to recommended regimens. Those patients also showed greater reductions in hospitalizations and ER utilization than patients who were coached without use of the PAM.

Coaches who systematically assessed patient knowledge, skill, and confidence for self-management can be more targeted and efficient in allocating their time and effort.

And tailored coaching improved a patient’s PAM score (i.e., activation level) in the intervention group more than the control group. (See Figure 1 below.)

Researchers also found that the coaching call talk times were similar between the two groups (see Figure 2 below), which shows that it’s not the time spent with the patient that is important, but the quality of that time.

Patients in the intervention group improved A1c, blood pressure, and cholesterol levels (see Figure 3 on p. 3), as well as adherence to recommended treatments (see Figure 4 on p. 3) and fewer hospital visits (see Figure 5 on p. 4). In fact, patients who received tailored coaching experienced a 33% decline in hospital admissions compared to the control group, which remained flat, and a 22% decline in ER visits compared with a 20% increase in the control group.

Results point to lower healthcare costs

“Based on cost figures derived from the claims data used in this study, a decline of 0.02 average hospital admissions translates into a savings of $145 per person per month (based on an average cost of $7,259 for a hospital admission). Similarly, the average 0.02 ED visit reduction would yield an average savings of $11 per person per month (based on an average ED cost of $545),” the researchers wrote.

“We have learned that deploying targeted interventions rather than using a one-size-fits-all approach is a critical success factor,” says Mary Jane Osmick, MD, vice president and medical director at LifeMasters. “These findings reinforce our understanding that improved activation is an overarching measure of success that leads to significant clinical improvement and financial savings.”

Although pleased with the results, Osmick says it’s important to realize that infusing the PAM into health coaching is not simple. “It requires a great deal of thought and guiding the patient, as well as nurse and coach, in how to use it,” she says.

This education includes teaching coaches motivation interviewing and how to understand patients’ pre- behaviors, which greatly helps in understanding the individual and how to improve his or her health status and activation.

One of the biggest challenges is making accurate suggestions. The worst a coach can do is push a patient too much, which could cause the patient to fail and revert to a worse activation level.

To accomplish this, coaches must occasionally test the patients with the PAM to see whether they have moved on the activation scale.

“When people experience crises in their lives with their health or just in their lives, they often fall back on the activation level,” says Hibbard. “If the coach thinks that’s happened, it’s good to readminister whatever the time frame is and know where the person is so they can deal with the person appropriately.”

The secret sauce, so to speak, is tailoring interventions, working with the individual consistently, knowing the person’s activation level and possible fluctuations, and respecting the fact that not all patients will reach the highest activation level, says Osmick.

“The thing that is exciting about it is you can move activation,” she says.

Through her research of the PAM, Osmick has come to realize that it taps into an underlying construct. For example, something such as self-esteem is an underlying construct that affects various parts of a person’s life. The PAM is similar.

“If you knew about someone’s self-esteem, you would be able to predict how they behave in certain situations. I think the PAM is also an underlying construct,” says Hibbard.

“I thought of it just in the health arena, but it may be broader than that. It might be more of a feeling control of your life. I don’t know, but that seems to be what that suggests,” she added.

Prevention and health promotion could save Medicare $1.4 trillion over 10 years

Government health promotion and prevention programs for pre-Medicare and Medicare populations could save the country as much as $1.4 trillion over 10 years—and add, on average, as many as six years on Medicare beneficiaries’ lives, according to a new Center for Health Research (CHR) at Healthways report.

The report, Potential Medicare Savings Through Prevention & Health Risk Reduction, found that focusing on programs that keep people healthy, reduce health risk factors, and manage chronic conditions—before and during Medicare—can have long-term cost savings. In fact, although these programs could extend beneficiaries’ lives, the researchers found the cost savings associated with keeping people healthier would offset the extra years of life and coverage under Medicare.

“In this report, we clearly showed that you can, in fact, reduce risk and this does increase life expectancy, but you can still achieve savings over the course of a lifetime,” says Elizabeth Rula, PhD, lead researcher at the CHR.

With baby boomers reaching Medicare age, the Medicare population is expected to jump from 45 million to nearly 80 million by 2030. Couple that fact with the healthcare reform debate in Washington, DC, and one can see why healthcare thought leaders and policymakers are searching for programs and cost savings to bend the healthcare cost curve.

In its research, the CHR worked with Ingenix Consulting in Eden Prairie, MN, to develop several scenarios that examined the effect of varying distributions of population risk for people entering Medicare at age 65 and varying rates of risk progression of all beneficiaries.

The model used Medicare Parts A and B data from the 5% Sample Limited Data Set for 2002 through 2006, Medicare Trust Fund enrollment projections, and Vital Statistics age/gender-specific mortality rates to provide estimates of average Medicare costs based on age and stratified health risk. The model found that the government spends an average of $174,000 per beneficiary over the course of his or her time in the program. In other words, the 37.5 million seniors in Medicare fee-for-service in 2005 will cost $6.5 trillion.

The researchers found a range of potential savings through a combination of health promotion, prevention, and chronic care management initiatives before and after age 65. The gross savings estimates ranged between $652 billion and $1.4 trillion over 10 years (in 2008 dollars) and include:

• A modest scenario that reduces risk prior to and during the years of Medicare by increasing the promotion of low-risk individuals at age 65 from 54% to 65% and preventing 10% of upward risk transitions
• Larger savings that were found by increasing the low-risk population at age 65 from 54% to 75% and preventing 50% of upward risk transitions that otherwise occur during the Medicare years

Although the projected savings are gross and not net, Wilkins says costs of such wellness and prevention programs should not eclipse more than 30% of the savings.

The researchers did not recommend any specific prevention and disease management programs, but they did suggest smoking cessation, cardiac disease management, and health club memberships for older adults with diabetes. Anne Wilkins, executive vice president and chief strategy officer at Healthways, says the programs could be separated into three categories: keeping healthy people healthy; helping people with modifiable lifestyle risks, such as being overweight and lacking physical activity, change their behaviors; and assisting people who already have health conditions, such as diabetes, better manage their conditions.

“This paper opens up the discussion on prevention and wellness for the pre-65 population,” says Wilkins.

The researchers said the government has tried supply-side solutions, such as adjustments to payment and coverage, as a way to try to control costs, but it has been largely unsuccessful.

One barrier for prevention programs is that the Congressional Budget Office has cited that there is not sufficient evidence in the areas of preventive programs. The researchers said this is because there isn’t a “clearly delineated model of what the impact of a successful program would be.”

The researchers concluded that the scenarios presented in their study showed that a larger percentage of healthy or low-risk individuals entering Medicare would lead to lower health costs. “Although the levels of risk reduction tested in these seniors could not be achieved immediately after implementation of health and wellness programs, they represented a spectrum of possible outcomes that could be achieved over time and make a case for implementing such programs in the near term so that savings can be realized as soon as possible,” the researchers said. “If it can be demonstrated that the magnitude of these potential savings is significantly greater than the cost of the interventions needed, there would be significant net savings to the taxpayer.”

BCBSA study shows low health plan administrative costs

Private health plans’ administrative costs averaged 9% of premiums across all policies sold and are well below “vastly overstated” estimates offered by proponents of a government-run public plan, according to a new study paid for by the Blue Cross Blue Shield Association (BCBSA). The report, written by the Sherlock Company in Gwynedd, PA, states that previous studies showing that private health plans’ administrative costs are two to three times higher than actual costs are based on old estimates that don’t reflect changes in industry practices, including advances in electronic processing.

“Prior reports rely on outdated, decades-old estimates from when claims were paper-based and today’s electronic processes were in their infancy,” says Douglas B. Sherlock, president of the Sherlock Company. “This report demonstrates that health plan administrative costs have been vastly overstated.” The study reviewed 36 health plans—mostly Blues—participating in benchmarking studies in 2008.

Advocates for a public plan maintain that the higher administrative expenses for private plans are one reason a public plan is needed. Health insurance industry officials say the Sherlock study undermines that claim.

“Some elements of healthcare reform can help reduce administrative costs, if done right.For example, state-based health insurance exchanges can make it easier for people to purchase health insurance and simplify administrative functions,” says Scott P. Serota, president/CEO of the BCBSA.

The Sherlock report also claims private plans perform administrative functions for $12.51 per member per month, compared to $13.19 per month for Medicare, and that private plans perform more administrative functions than traditional Medicare, including care coordination and wellness programs.

However, Cathy Schoen, senior vice president at The Commonwealth Fund in New York City, says the Sherlock study is narrowly drawn. “It focused more on the Blues than the whole industry, and it is focusing just on what it narrowly calls the administrative costs, not profit margins,” Schoen says. “When you talk about the share of the premium that is not being paid out in benefits, it’s both administrative and profits.”

Schoen says corporate reports from larger companies such as Aetna and UnitedHealthcare show pre-tax profits in the 6% range in 2008 and administrative costs as a share of operating revenue running in the 15%–16% range. “UnitedHealth, out of all the revenue it took in, the amount it paid out was only 82%. So 18% was not paid out in medical benefits. In 2007, it was 19%,” she says.

The Blues also don’t count the average 5% commission that businesses usually pay the agents who write the insurance contract as administrative costs, Schoen says. “That is on top of the Blues’ marketing costs. From the employer’s perspective, that agent fee is part of it,” she says. “But the Blues’ don’t count it because they don’t pay the agent. The customer pays it though.”

Public and private health plans in the United States average about $600 per person per year for insurance administrative costs, compared with an average of about $200 for many countries in Europe, Schoen says. “Nine percent would be considered high in every country outside the United States. Fifteen percent would be considered unbelievable,” she says.

A recent Commonwealth Fund study states that the cost of administering the U.S. healthcare system totaled nearly $156 billion in 2007, and that figure is expected to double—reaching $315 billion—by 2018. In addition, the study claims costs incurred by physicians in their transactions with health plans are estimated to be as high as $31 billion per year.

About 12.4%, or $96 billion, of the $775 billion in privately insured healthcare spending went for administrative costs in 2007. That $96 billion—representing what insurance companies received in premiums, minus what was paid in medical claims—included claims processing, advertising, sales commissions, underwriting, and other administrative functions; net additions to reserves; rate credits and dividends; premium taxes; and profits, the Commonwealth study states.

By contrast, about 6.1%, or $60 billion, of the $974 billion in public program healthcare spending went for administrative costs in 2007, the Commonwealth report claims. That includes federal, state, and local governments’ administrative costs for public health programs such as Medicare, Medicaid, and the State Children’s Health Insurance Program. Medicare prescription drug coverage, provided by private plans, has high administrative costs, but is included in public program administration figures. In addition, the Commonwealth study states that private Medicare Part D plans averaged 11.3% in administrative costs as a share of total drug spending.

BCBSA companies took loss in 2008

Blue Cross Blue Shield Association (BCBSA) companies posted an aggregate 40.9% year-over-year decline in income in 2008 because of realized losses and declines in underwriting and investment income, a new analysis by the credit rating firm A.M. Best Co. shows.

Best’s analysis of BCBSA plans found that:

• A 6.6% increase in net premiums written (NPW) was reported. The 2008 NPW growth rate was slightly higher than that of 2007 (5.9%) but lower than 2006’s 9.1% rise.
• Underwriting earnings declined for the third year in a row, although the 5.5% decrease in 2008 was much less than the 24.6% and 8.5% declines in 2007 and 2006, respectively.
• A 10.3% decline in capital and surplus—to $41.6 billion—was reported, bringing that key measure back down to a level not seen since 2005.
• There was a 30 basis points decline in the sales, general, and administrative expense ratio in 2008, after remaining flat in 2007.
• The healthcare expense ratio improved 20 basis points to 85.9%.
• Given the 2008 financial market turmoil combined with the low interest rate environment, investment income declined by 19%.
• An unrealized loss of $3.1 billion was reported for 2008, compared with gains of $285.5 million in 2007 and $1.9 billion in 2006.

Insurers’ rating outlooks tumble

Health insurers are concerned that healthcare reform could damage their companies, but the mere talk of healthcare reform is also negatively affecting them.

In light of potential healthcare reform proposals, Fitch Ratings recently revised the rating outlook of six health insurers from stable to negative while maintaining six other insurers as negative.

Combining those two decisions, Fitch Ratings, which looks at fixed income and subsidiary insurer financial strength ratings, has 12 health insurers listed as negative.

The six health insurer groups that dropped from stable to negative are:

• Aetna, Inc.
• Blue Cross Blue Shield of Florida
• Blue Cross Blue Shield of Idaho Health Service, Inc.
• Cigna Corporation
• Coventry Health Care, Inc.
• Health Care Service Corporation

The six insurers who remained at negative are:

• Health Insurance Plan of Greater New York
• Health Net, Inc.
• Healthmarkets, Inc.
• Humana, Inc.
• UnitedHealth Group, Inc.
• Wellpoint, Inc.

Fitch Ratings stated that the negative outlook “reflects the strong potential for healthcare reform and its possible adverse implications on each company’s financial strength and creditworthiness.

Although no bill has been finalized yet, and multiple policy schemes are possible, most of the alternatives being debated could weaken health insurers’ financial profiles in Fitch’s view. The negative outlook also reflects the high levels of uncertainty that currently exist with respect to the ability of individual insurers to adapt to a likely changing competitive and pricing environment resulting from reform.”

Fitch plans to address the ratings again after a healthcare reform package becomes finalized.

“Depending on the specifics of any final legislation, the net impact of healthcare reform could vary widely, falling anywhere from neutral to severely unfavorable for the ratings,” according to Fitch.

The most detrimental scenario for health insurers would be a public plan option, especially one that mirrors Medicare reimbursement rates. This would lead to severely hurting the “outlook for health insurers’ profit margins,” wrote Fitch.

“Depending on the ultimate structure, the public plan could also lead to substantial enrollment loss for private insurers,” Fitch added.

The company stated that there are three aspects of healthcare reform that could adversely affect insurers:

• Adverse selection
• Reduction of private insurance’s ability to adequately price products relative to medical costs
• Shrinking the private sector’s role in the health arena

“A combination of any or all of these developments could incrementally weaken the sector’s earnings and cash flow generation capabilities,” wrote Fitch.

Joseph Paduda, principal at Health Strategy Associates, LLC, in Madison, CT, says Fitch’s analysis verifies the belief that a public plan option that forces providers to accept Medicare rates or its equivalent would “murder the private insurers,” but he doesn’t think that scenario is going to happen.

“There is zero chance of any reform measure passing that includes a public plan reimbursing at Medicare,” Paduda says.

Paduda also questions Fitch’s suggestion that there are risks associated with potential adverse selection and insurance price-fixing.

There is no chance of the government mandating premium levels and adverse selection, which could actually help private insurers, who may want to drop sick members into a public plan “if the legislation isn’t carefully written,” he adds.

Paduda acknowledges that the health insurance industry is at risk, but also thinks there are opportunities for private insurers.

Smart health insurers will use health reform as a chance to gain millions of new members and slash administration expenses by eliminating underwriting, refining marketing, and investing in population health.

“I’d note that Fitch now has all plans in negative status; I believe that is misguided, as there are clearly several that are better positioned to take advantage of reform if that happens,” says Paduda. “Their approach is too broad, too negative, and does not reflect the very real differences in approach among the plans.”

Small businesses could win big in House health reform bill

Small businesses—particularly those with 10 employees or fewer—stand to be the big winners if a public health insurance option such as the one now before the House of Representatives becomes a reality, according to a new issue brief by the Economic Policy Institute (EPI) in Washington, DC.

The study, “Health Care Reform, Big Benefits for Small Businesses” estimates that small businesses with 10 or fewer employees could save about $3,500 per worker annually under a public plan similar to the House Tri-Committee’s proposal.

Elise Gould, director of health policy research at EPI and one of three authors of the issue brief, says the findings shouldn’t be surprising. “Small businesses bear a heavy burden in the current failing healthcare system,” Gould says. “Small businesses and their employees pay higher prices for less coverage. They are often priced out of the private market completely and, when that happens, it puts them at a great disadvantage when it comes to hiring and retaining employees.”

The EPI brief compares the House bill to a similar plan called Health Care for America, which was drafted under EPI’s Agenda for Shared Prosperity program. The House bill and the EPI plan create a new public insurance option and a requirement that employers offer affordable coverage to their workers or pay to defray the costs of enrolling in a national insurance marketplace.

“The gains to small business are likely to be even greater under the House version of the healthcare reform bill, as it is even more generous to small business,” says Josh Bivens, EPI economist and coauthor of the brief.

Employer-sponsored insurance is the primary source of health insurance for nonelderly Americans, covering nearly 63% of U.S. adults. EPI premiums of $532 billion in 2008 accounted for nearly one-quarter of all non-Medicare healthcare spending in the United States.

However, rising healthcare costs have been particularly tough for small businesses. Small employers hold little bargaining leverage with health insurance companies and have suffered relentless cost hikes that threaten to make health insurance too expensive. The brief notes that the ongoing decline in small business coverage for employees is responsible for much of the erosion in EPI coverage since 2000.

Nearly half of the uninsured worker population is employed by small businesses. In 2008, an employer survey by the Menlo Park, CA–based Kaiser Family Foundation found that 35% of small businesses offer health insurance to their workers, compared to 99% of large firms with 200 or more workers, and 63% of all firms.

Small firms that offer health insurance pass on a higher share of the cost of plans to workers; average contributions by workers in small firms are 30%–45% higher than in larger firms. Small businesses are paying, on average, 18% more than larger firms for identical health insurance policies, owing to higher and more variable health risks, a lack of competition among small-group market insurers, greater administrative expenses, and lower wages, according to the issue brief.

Eight tips to help get your business associates to comply with HIPAA

Your business associates (BA) must comply with the HIPAA security rule beginning February 18, 2010.

That mandate is part of the Health Information Technology for Economic and Clinical Health (HITECH) Act, signed into law by President Obama February 17.

If complying with the HIPAA security rule sounds like a large task for a small billing and coding company, that’s because it is. Encryption. Destruction. Firewall protection. There’s a lot to it. And your BA’s problem is your problem. After all, it’s your patients’ information at stake.

If your BA is bad, well … just picture the front page of your local newspaper with your facility’s name next to the word “breach” in a headline. So where do your BAs begin? Hopefully, they’ve already started.

The following are eight tips you can share with your BAs to get them ahead of the HIPAA compliance deadline:

1. Perform a risk assessment. Determine your primary vulnerabilities. “Find what your biggest threats to the security of your PHI are,” says Rebecca Herold, CISSP, CIPP, CISM, CISA, FLMI, privacy, security, and compliance consultant at Rebecca Herold & Associates, LLC, in Des Moines, IA. “You need to know where you are before you begin to form your policies and procedures. Check on the last time you had a security assessment, if ever, and start from there.”

2. Make your own way. As a BA, you must understand that you are responsible for your compliance program, regardless of contract terms with a covered entity, says John R. Christiansen, lawyer at Seattle’s Christiansen IT Law and chair of the newly formed HITECH Business Associates Task Force of the American Bar Association’s Health Law Section and the HITRUST Business Associates Working Group of the Health Information Trust Alliance.

“You need to be responsible for your own security program with HIPAA,” says Christiansen. Do not simply accept what is thrown your way, he says.

“Your program should be built based upon your organization’s own unique risks,” says Herold. “That’s what your risk assessment will reveal.”

3. Run a gap analysis on covered entity contracts. HITECH is new, and existing contracts will probably leave gaps. “We haven’t been in this world before,” Christiansen says. “Find your gaps and what you will do about them.”

You may want to wait for further regulations before you finalize your contracts. However, you can start by consulting your legal team. You may need to provide a contract in the future, but the onus now is only on the covered entity, according to current law.

4. Don’t rewrite the entire contract. “The changes to the BA contracts should be minimal,” says Chris Apgar, CISSP, president of Apgar & Associates, L