Healthcare stakeholders and others are beginning to offer support for the nomination of Marilyn Tavenner to succeed Donald Berwick, MD, as administrator for the Centers for Medicare & Medicaid Services. Tavenner is currently second in command at CMS. President Obama tapped her for the top spot late last Wednesday after Berwick announced his resignation effective December 2.
The Berwick resignation is bittersweet for the Obama administration. Nominated just a few weeks after Congress passed in March 2010 the Patient Protection and Affordable Care Act, Berwick was lauded in many circles as a healthcare reform wunderkind. But some members of Congress were still stinging from the passage of the ACA and derailed the nomination.
The President then took the controversial step of naming Berwick to the CMS post during a Congressional recess.
During Berwick's 18-month tenure, Tavenner managed to remain out of the spotlight or so it seemed to the world outside of CMS. "She's been low key to the outside world, but not within the agency," former CMS administrator Tom Scully told HealthLeaders Media in a telephone interview.
Scully, who headed the agency from 2001 to 2004, calls himself Marilyn Tavenner's biggest fan. He's known her for 20 years; they met when she was working for HCA in Virginia. He says she brings an effective management style and big picture understanding to the job. "She has actually run healthcare. She ran Virginia's Medicaid program. She knows pharmacy, physicians, outpatient care -- everything about healthcare."
Scully, whose own nomination to head CMS was approved by a unanimous vote of the Senate, said he expects Tavenner will also to win confirmation despite the opposition faced by Berwick. "The time is right. Berwick was nominated right after the healthcare reform vote but things have calmed down now."
Surprisingly silent on either Berwick's departure or Tavenner's nomination is Sen. Max Baucus (D-MT), who chairs the Senate Finance Committee and will play a key role in the hearing process. Efforts to get a comment from the senator were unsuccessful.
On the other side of the aisle, Orrin Hatch (R-UT), the ranking Republican member of the Finance Committee, quickly issued this statement: "I'm glad the White House opted against another end run around the Senate and instead has put forward a CMS nominee that the Senate must thoroughly examine. Any nominee to a federal agency with this much power and authority over the lives of millions of Americans must be carefully scrutinized. Republicans on the Finance Committee look forward to examining her record and gaining an understanding of her views of Medicare, Medicaid and the President's health law."
Hatch opposed the Affordable Care Act and led the opposition to Berwick. Some political pundits have suggested that Republicans will welcome the Tavenner hearing as an opportunity to reopen the debate on healthcare reform.
Here's what some leading healthcare groups have to say about Marilyn Tavenner's nomination for administrator of CMS:
American Medical Association
Peter W. Carmel, MD, president of the AMA, noted in the AMA's statement that with the "changes and challenges facing the Medicare and Medicaid programs, CMS needs stable leadership, and Marilyn Tavenner has the skills and experience to provide it." He said the AMA has worked extensively with her in her role as deputy administrator of CMS, and she has been "fair, knowledgeable and open to dialogue."
American Hospital Association
AHA President and CEO Richard Umbdenstock called Tavenner "a very capable administrator who has been a key player at CMS in her role as principal deputy administrator." In the AHA statement he credits her "varied and rich background as a former nurse, health care executive, and government official at the state level" with providing "a very unique perspective in understanding both the implications of public policy and their implementation. We have no doubt that she will provide strong leadership in these challenging times."
America's Health Insurance Plans
Karen Ignagni, president and CEO of AHIP, released a statement praising Marilyn Tavenner's "proven leadership ability and wealth of experience in both the private and public sectors are invaluable assets to CMS as it seeks to address the many health care challenges facing the nation. We look forward to continuing to work with her to improve the quality, safety, and affordability of health care in America."
Association of American Medical Colleges
Darrell G. Kirch, MD, president and CEO of AAMC, said in a statement that Marilyn Tavenner "has been an important partner to the AAMC during her time at CMS, and we look forward to working with her as teaching hospitals and their physicians continue to lead changes in the healthcare delivery system. He credited her career as a nurse, hospital administrator, and head of Virginia's Department of Health and Human Resources as providing her with the "real-world understanding of the vital role that America's teaching hospitals play in the nation's health care system."
With so much of healthcare reform focused on hospitals and physicians, health plans have more or less been left to their own devices to figure out what role they will play in future of healthcare delivery. They have been very busy this year making acquisitions that will keep them in the center of the healthcare universe for years to come.
Health plan acquisitions in 2011 have focused on three areas, explains Steve Elek, a partner in PwC's Healthcare Transaction Services practice:
Horizontal integration. These acquisitions include other health insurance companies. Elek says growth in the baby boomer population is among the factors driving interest among commercial carriers in Medicare Advantage companies. These acquisitions can create an opportunity for commercial insurers to attract lifetime members who can be easily shifted to a Medicare Advantage plan at age 65. He says Medicaid insurers offer another acquisition opportunity as more states turn to Medicaid managed care to help control the costs of that program.
Vertical integration. These acquisitions include hospitals, physician groups, and urgent care and outpatient surgery centers. The goal is for health insurers to control the patient care cost centers. Elek says to look for more of this type of acquisition as health insurers become more proactive in the delivery of care to their members in order to bend the cost curve.
International opportunities. These acquisitions include healthcare systems and insurers in other parts of the world. Elek says these acquisitions offer an opportunity for U.S. health insurers to diversify their revenue base.
Here's a look at five health plan acquisitions from 2011 that illustrate how health plans are using horizontal and vertical integration and even international acquisitions to meet strategic goals.
1. Cigna and HealthSpring
When Cigna plunked down in October some $3.8 billion to acquire HealthSpring, a Medicare Advantage plan, it gained instant credibility in the very desirable senior insurance market. Cigna has long been a major player in employer-sponsored business and in recent years has focused much of its attention on the growing international market. The insurer has fewer than 50,000 Medicaid Advantage members, almost all in Arizona.
Although the healthcare services company never tipped its hand that it was interested in the Medicare Advantage market the acquisition, which is expected to close in July 2012, makes perfect sense. The languishing national economy has slowed employee hiring and limited growth opportunities in the employers-sponsored insurance market while enrollment in government sponsored insurance is forecast to explode. Instead of taking three to five years to develop the infrastructure to ramp up its own Medicare Advantage enrollment Cigna set its sights on the Nashville-based HealthSpring.
The health plan brings more than 340,000 Medicare Advantage and 800,000 Medicare Prescription Drug Plan members in 11 states and the District of Columbia to the Cigna fold. "It's a turnkey acquisition," explains Nathan Goldstein, executive vice president and partner in Gorham Health Group. "HealthSpring is well established and successful in the Medicare Advantage market. It has a strong relationship with its physicians and is well-known by beneficiaries and regulators. Cigna can tap into all of that right away."
During a conference call held after the acquisition was announced, Cigna officials noted the combined customer footprint of the two companies provides scale and diversification to grow in existing markets and expand into new geographies.
Cigna's commercial group retirees and individual membership will provide a feeder pool for HealthSpring's Medicare Advantage products and Cigna's portfolio of specialty programs can be leveraged to benefit of the HealthSpring customer base. Look for Cigna to develop commercial products that incorporate HealthSpring's physician incentive and alignment model. Expect the two companies to take a cautious approach to the Medicaid market by entering selected markets
This may just be the beginning of Cigna's acquisitions. Company officials have expressed interest in acquiring some smaller Medicare Advantage health plans.
2. Highmark Inc. and West Penn Allegheny Health System
In June, in the midst of a public and acrimonious contract dispute with the University of Pittsburgh Medical Center, Highmark announced its intentions to acquire West Penn Allegheny Health System. The acquisition of the financially troubled health system seemed motivated as much by spite as business sense.
Sure, a successful Highmark-WPAHS combination could challenge the dominance of UPMC in the Pittsburgh-area market but WPAHS was teetering on closure when Highmark saved the day. The health system could be a money pit for the successful Blues plan, which will invest at least $475 million in the five-hospital system. But it could still be a sweet deal given that UPMC wanted an additional $400 million in annual reimbursements.
If you set aside all of the Highmark-UPMC finger pointing and the he-said-she-said drama, the Highmark-WPAHS deal represents another step in the realignment of the healthcare business. Owning a health system makes Highmark the ultimate insider in assessing the cost drivers of the healthcare delivery system. It puts the insurer in the driver's seat in terms of implementing quality and cost control programs across a large, vertically integrated system.
PWC's Elek sees possibilities for similar acquisitions in other regions of the country. This acquisition could serve as a model for other regional insurers to play a bigger role in the delivery of care to their members to make sure they receive the highest quality of care in the most appropriate setting.
It's still much too early to determine how this acquisition will play out. Highmark is moving forward with its commitment to West Penn to upgrade several facilities, including upgrading some trauma centers to allow for the treatment of more complex cases. Meanwhile, UPMC and Highmark remain at loggerheads and Gov. Tom Corbett is threatening state intervention to resolve the contract dispute.
3. WellPoint and CareMore Health Group
During a February conference call with investors, WellPoint CEO Angela Braly acknowledged that the giant insurer was struggling in the Medicare Advantage market. With around 500,000 MA members Braly said the company would probably make an acquisition to grow that market segment. "We haven't captured the market share that we could there."
By June WellPoint had scooped up CareMore. The deal added about 54,000 new MA members but WellPoint's real focus was the 26 healthcare clinics CareMore owns in Arizona, California and Nevada. The clinics, which are staffed with physicians and other healthcare professionals, specialize in delivering care coordination and intensive treatment to the chronically ill—at a profit.
WellPoint plans to add 12 CareMore clinics in 2012 at an estimated cost of $36 million and expects the new clinics to take 18 months to break even. Running the clinics means WellPoint will be more able to manage the cost of this specialized care on the front-end.
During WellPoint's third-quarter earnings call Braly said part of the strategic value of CareMore is being able to rollout the clinic model of managing the chronically ill across other business lines. "We'll take a measured approach because this is a really targeted model."
4. UnitedHealthGroup and Monarch HealthCare
OptumHealth, UnitedHealth's health services division, announced in September its plans to purchase the operations of Irvine, Calif.-based Monarch HealthCare, a 2,300 physician specialty group. Financial details were not disclosed. The move is part of United's strategy to increase its involvement in the clinical side of the healthcare delivery process in an effort to reduce costs. CIGNA, Humana and WellPoint have taken similar steps in an effort to drive the coordination of care.
Healthcare reform triggered much of this interest in acquiring physicians groups. New medical loss ratio requirements have increased the pressure on insurers to hold costs down or face huge penalties. Also, physicians will play a critical role in the creation and success of commercial accountable care organizations as well as health insurance exchanges.
5. Aetna International and Indian Health Organization
Growing middle class populations in Asia, China and India are creating important international markets for a number of U.S. health insurers, including Aetna and CIGNA. At one time the international health insurance business focused on expatriates and the executives of global companies.
Now U.S. carriers are providing health benefits coverage to the local population. Aetna International, a unit of Hartford, CT-based Aetna, announced in July that it would enter the India market by acquiring IHO and its 80,000 members. In a press statement, Derek Goldberg, Aetna's managing director for Southeast Asia, noted that more than $30 billion is spent each year in India on out-of-pocket medical expenditures. Aetna hopes to leverage the IHO acquisition to build a broader physician network and expand IHOs geographic reach.
As part of its continuing efforts to shore up its operations to Centers for Medicare & Medicaid Services standards, Parkland Health & Hospital System in Dallas signed on Wednesday a multi-million dollar contract with a New York-based management consulting firm that specializes in performance improvement.
The contract with Alvarez & Marsal is among the requirements of the systems improvement plan signed in September by Parkland and officials from the Dallas office of the Centers for Medicare & Medicaid Services.
The safety net hospital is out of compliance for an estimated $417 million in annual Medicare and Medicaid contracts. CMS ordered a review in July of the entire hospital facility after identifying dozens of deficiencies deemed so serious as to create "an immediate and serious threat to patient health and safety," according to the 600-page CMS survey report.
The two-year contract, which is goes into effect on Dec. 1, will cost Parkland between $5 million and $6.5 million. John Dragovits, Parkland's executive vice president and CFO, signed the contract, which was approved by the hospital's board of managers at its October meeting.
According to the contract, Alvarez & Martin will commit a team of 19 medical experts to the Parkland job. Under the terms of the 30-page agreement, A&M will:
Analyze Parkland's operations compared to industry accepted standards and by Feb. 1 provide to CMS a report that outlines the areas of improvement required for Parkland to come into compliance with all Medicare conditions of participation as well as the federal Emergency Medical Treatment and Labor Act or EMTALA.
Write a detailed plan outlining the specific actions Parkland must take to return to full compliance.
Review Parkland's existing quality assessment and performance improvement program and develop by March 1 a plan that details any needed modifications and improvements to the program.
Provide a full-time, independent, on-site compliance officer for oversight and coordination of Parkland's efforts to return to compliance.
All plans developed by Alvarez & Martin are subject to CMS approval. Within one year of plan approval CMS will conduct a follow up survey to confirm that Parkland is in compliance for the Medicare program.
Grady Memorial Hospital did not receive a clean bill of health following a full inspection survey of the facility, but it is no longer on life support. The Atlanta hospital has resolved serious deficiencies in patient rights and nursing services identified during an earlier survey by the Centers for Medicare & Medicaid Services, and now faces no medical care issues. However, deficiencies remain in the broad category of physical environment.
John Haupert, the new Grady CEO, was notified of the continuing deficiencies in a November 14 letter from the CMS regional office in Atlanta. According to the letter, the latest findings mean the hospital still does not meet the CMS conditions of participation and, unless the deficiencies are resolved, faces termination of its federal Medicare contract effective January 25, 2012.
The 680-bed safety net hospital has until November 24 to develop a corrective action plan (CAP) to address the remaining deficiencies.
Haupert has some experience in contending with CMS surveys. He was formerly COO of the Dallas-based Parkland Memorial Hospital. Parkland and Dallas CMS officials recently signed an agreement to permit that hospital to remain open while it works to correct deficiencies.
According to the 12-page survey report released late Tuesday by CMS, the remaining problems are mostly violations of fire codes, including blocked exits, aging sprinklers, the use of unauthorized space heaters, smoke barriers that don't meet fire resistance standards, and open electrical boxes.
In a telephone interview, Haupert told HealthLeaders Media that Grady has already resolved all issues related to the physical environment deficiency and will include that information in the CAP the hospital must file before Thanksgiving. CMS is required to perform a third survey to confirm that the problems have been fixed.
Haupert, who had been on the job less than a week when the first survey was conducted, estimates that the hospital has spent about $2 million on staffing and the building improvements necessary to correct the deficiencies identified in the first and second surveys.
The Grady Memorial inspections are related to the September death of a female patient who jumped from her 11th-floor hospital room window. The patient was not supposed to be left alone, but on the night of her death her unit was understaffed and no paid sitters were available.
Following the first survey, CMS officials said the deficiencies discovered at Grady Memorial in patient rights, nursing services, and the physical environment were so serious as to limit the hospital's "ability to render adequate care." The survey report noted that staffing issues and a lack of safety protocols contributed to the deficiencies.
Haupert says Grady has added about a dozen new patient sitters and put into place protocols to insure that the sitters follow physician orders. It has also developed documents that each sitter completes at the end of a shift before handing off a patient to another sitter or other hospital personnel. Additional personnel have also been hired for Grady's medical-surgical units.
This has been an interesting week for the much maligned federal Patient Protection and Affordable Care Act (ACA). Early Monday morning the U.S. Supreme Court announced that it will convene more than five hours of hearings on the individual mandate portion of the act. Monday afternoon it was business as usual at the Department of Health and Human Services and the Centers for Medicare & Medicaid Services, as a trio of heavy hitters announced a competition to award millions of dollars in grants, courtesy of the ACA, to innovators who help improve healthcare and lower costs.
Then Tuesday morning the Optum Institute opened its doors with the mission to help kick-start what it calls sustainable health communities. Think of the ACA's accountable care organizations but without all the rules. The communities even have their own version of Don Berwick's infamous triple aim: increase the quality of care, improve patient experience, and lower overall healthcare costs. (Disclosure: OptumInsight, a sister company within UnitedHealth Group, advertises with HealthLeaders Media.)
Carol Simon, PhD, who has been tapped to lead the Optum Institute, says that similar to CMS, it aims to provide thought leadership to providers, payers, employers, governments, and even consumers as healthcare undergoes the changes introduced in the ACA. She hopes that the institute will become something of a clearinghouse for innovation so that ideas can be shared and implemented among stakeholders. The question the Optum Institute hopes to help stakeholders answer is: How do you change?
The opening of the Optum Institute seems to provide further evidence that despite the political and judicial naysayers, the healthcare industry, while not exactly greeting reform with open arms, sees the value in redesigning our healthcare delivery system to include ACA fundamentals such as integrated and coordinated care. Private industry just wants to set its own course to achieve the triple aim.
Case in point: The development of commercial ACOs. In an earlier column, I wrote about how health plans are creating alliances and partnerships and setting their own rules for meeting quality standards, cutting costs, and earning bonus payments. The commercial ACOs aren't limited to hospital and physician teams either. They include all types of configurations?health plans and physicians, health plans and hospitals, physicians and physicians, and hospital systems and hospital systems.
In a similar vein, the Optum Institute's sustainable health communities, will be more free-form and probably more wonky than the CMS-issued ACO. Simon says the sustainable health community (SHC) model is a goal, rather than a single model, that will be met in several different ways. The community can include policy types, providers, and almost anyone with an idea about how to improve healthcare.
How SHCs improve healthcare quality, bend the cost curve, and increase satisfaction among employers, providers, patients, and payers will be up to each community?with the caveat that they produce the necessary results. "The communities will bring their own resources, culture, and patient preferences to the table," Simon told HealthLeaders Media. She explains that the key to success will be "if we have patients and providers engaged in a way that will improve population health."
SHCs will also address the common complaint that the ACO rule sets no requirements for patient accountability. "We'll want to see patients engaged in terms of their ability to make choices and manage their own health," Simons says.
Part think-tank and part community organizer, the Optum Institute plans to provide a wide range of support for the creation of SHCs, including research and analysis, community-based forums, executive education programs, public policy debates, and industry partnerships.
The results of the institute's first research study demonstrate the enormity of the task. The Optum Institute teamed with Harris Interactive on a national opinion survey to explore attitudes among physicians, hospital executives, and patients about quality of care, accountable care, and what it will take to move to high-performing local healthcare communities.
Among the findings:
Patients believe they receive needed preventive care only 33% of the time, while physicians say it's around 50% of the time. Providing preventive care services is key to reducing the incidence of more serious illnesses as well as reducing the cost of medical care.
Almost two-thirds of physicians and hospital executives say that there are "significant differences in the quality of care provided by doctors" in their local area. Patients reported that they were unaware of quality differences. Reducing variations in the quality of care requires greater transparency and reporting so patients have the information they need to make informed healthcare decisions.
Patients responded that healthcare costs in their community could be cut by 25% to 29% without having a negative impact on quality of care. Physicians and hospital executives thought cuts of about 15% were more feasible.
Only 16% of patients, 16% of hospital executives, and 9% of physicians think the healthcare delivered in their community is well coordinated.
Looking to the future, 26% of physicians, 38% of patients, and 50% of hospitals believe that their local health community is on course to becoming more sustainable.
Simon says the survey results point to gaps in important healthcare components such as patient engagement. "We have to ask ourselves what groups have successfully put into place programs that bridge these gaps and are they scalable to other areas. Part of the work of the institute will be to identify and assess those programs."
The Optum Institute is looking at CMS and HHS programs to see where it can add value, she says. "There are a lot of experiments out there. I think we can add value as a neutral party that looks at these different programs, sees what works, and then provides opportunities for the programs to be adopted elsewhere."
The Optum Institute is one of several privately funded programs tackling the pressing problems of healthcare reform. We all know government can't do everything. It's good to see the private sector step up to help the goal of better health, better care, and lower cost become a reality.
The healthcare industry got a $1 billion shot in the arm Monday when the Department of Health and Human Services announced a competition to spark "innovative healthcare delivery models." Preference will be given "to projects that rapidly hire, train and deploy healthcare workers."
Most of the department heavyweights were on hand for the afternoon press conference: Secretary Kathleen Sebelius, Don Berwick, MD, administrator of the Centers for Medicare & Medicaid Services, and Richard Gilfillan, MD, acting director of the Center for Medicare & Medicaid Innovation.
Sebelius said preference will be given to projects that provide for "rapid workforce deployment" and help "spark the economy" although HHS has not targeted the number of jobs it hopes to see created. She needled Congress for its failure to pass a comprehensive jobs bill, saying "This program will help us create the healthcare jobs we will need in the future to promote care coordination and improve health."
Healthcare remains a leading source of job creation in the overall economy. According to the Bureau of Labor Statistics, new healthcare jobs represent 22% of the more than 1.2 million non-farm jobs created in 2011.
The billion-dollar Health Care Innovation Challenge is a response to the many successful local healthcare projects that are helping to improve care and reduce healthcare costs, Sebelius said. "Public and private community organizations, including hospital, physicians, churches, and other groups, are developing innovative solutions to help improve our healthcare system. This competition will help them build on their success."
The program will focus on beneficiaries enrolled in Medicare, Medicaid, and CHIP, particularly those with the most urgent healthcare needs. The announcement comes on the heels of a critical report released last week by the National Association of Medicaid Directors that points to a lack of attention the Medicaid program has received in the area of innovation and implementation of healthcare reform.
The innovation challenge is open to providers, payers, local government, community-based organizations, and public-private partnerships. Awards will range from $1 million to $30 million. Potential applicants must submit a letter of intent by Dec. 19. Final applications are due Jan. 27 and grant recipients will be announced March 30. Projects must be up and running within six months. Berwick added that the projects must be sustainable and "capable of being rapidly delegated to other areas of the country."
Projects, which will be funded over three years, will be evaluated and monitored to make sure they produce measurable improvements in care quality and cost savings.
The CMS Center for Innovation will oversee the program. In his comments, Berwick praised the Center's work citing its bundled payments program, primary care initiative and the Pioneer ACO program as helping achieve the triple aim: better care, better health and lower costs. The comments came as some members of Congress called on the Government Accountability Office to look into Innovation Center's activities. The center is funded with $10 billion as part of the Affordable Care Act.
The Health Care Innovation Challenge announcement came just hours after the U.S. Supreme Court announced that it will hear a challenge to the individual mandate section of the ACA. When asked for her reaction, Sebelius said the administration has confidence that the legislation will prevail and welcomes the opportunity "to put to bed once and for all the possibility that healthcare reform will disappear."
State Medicaid directors say the federal government’s focus on bureaucratic process measures has quashed innovation efforts in the Medicaid program and resulted in inefficiencies and duplications.
“The current policies and procedures bog states down in endless, repetitive reporting and change requests and do not prepare states with the tools Medicaid needs to succeed,” says a report from the National Association of Medicaid Directors.
While the triple aim of better care, better health, and lower costs is often touted by officials at the Centers for Medicare & Medicaid Services as critical to an improved healthcare system, the NAMD report says the current Medicaid program is not structured to meet those goals. “Rather than coordination, health outcomes, program integrity, and efficiency—federal rules have a heavy hand in every aspect of Medicaid programs and remain fixed on process measures.”
Andrea Maresca, director of federal policy and strategy for NAMD, says that instead of a “smooth pathway for states to implement managed care programs or create incentive payment programs,” Medicaid is stuck in a regulatory system that requires time-consuming waivers to effect even the smallest of changes.
Federal dependence on the waiver system means successful programs implemented in one state are not easily adopted by another, explains Maresca. She points to Florida, which wants to expand its Medicaid managed care pilot from a handful of counties to the entire state. “There are states that have very robust managed care programs. Florida wants to do something similar but the culture of the Medicaid program is to throw up hurdles in every direction. It fails to translate the experience of states that are doing something well to other states that want to move in the same direction.”
The NAMD report identifies three areas where it says change is needed in the administration of the Medicaid program in order to foster and support innovation:
Focus on improved healthcare outcomes rather than bureaucratic process measures. Maresca says CMS needs to reassess its time-consuming data collection requirements, examining why it wants the data, how it will be used, and how having the data will help achieve goals for better health outcomes for Medicaid beneficiaries.
Streamline business practices to ensure state flexibility. Maresca says duplication of requirements is huge problem for states in running their Medicaid programs. The issue is especially critical as state budget cuts force staff reductions. She points to the overlap of state requirements for the accreditation of managed care plans and the federal requirement for external quality review of the plans as an unnecessary impediment.
Support a system for rapid dissemination of best practices. The waiver system is a sore point for states. Maresca notes that the CMS Innovation Center’s focus for Medicare is on identifying best practices and expanding their use so they become a permanent part of healthcare. “That culture just doesn’t exist in Medicaid,” she says. Instead, states still have to get waivers to expand programs that they have been tweaking and improving for years. The report suggests that Medicaid follow the approach being implemented for “dual-eligibles” by the federal Medicare- Medicaid Coordination Office, which is working with states to test and then disseminate successful integrated care models for the dual-eligible population.
State Medicaid directors are racing the calendar in their efforts to make program changes. They are already looking at a projected 29% increase in state spending for the Medicaid program in fiscal year 2012. The report notes that the program’s problems will be “further compounded by the expansion of the program in 2014.” That’s when residents who earn less than 133% of the federal poverty level ($14,000 for individuals and $29,000 for a family of four) will be eligible to enroll in Medicaid.
Efforts to reach CMS officials to respond to the NAMD report were unsuccessful.
Federal officials are in the final stages of reviewing applications from Indiana, Florida, Louisiana and Michigan to determine if their medical loss ratio waiver requests will be approved.
At issue is a requirement of the Affordable Care Act that health insurers spend no more than 15% to 20% of their premium dollars on administrative expenses. The idea is to limit administrative spending so health plan members get more healthcare bang for their premium buck.
Health insurers that don't meet the MLR requirement will have to pay a rebate to their members. The Department of Health and Human Services estimates that 9 million members could be eligible to share rebates worth as much as $1.4 billion. That's money insurers aren't anxious to part with, so they have appealed to their state departments of insurance to request state waivers to delay implementation of the MLR requirement.
So far 17 states have filed waiver requests. The applications for seven states have been approved, including Georgia and Iowa. Applications from Delaware and North Dakota were denied. Five states? Kansas, North Carolina, Oklahoma, Texas and Wisconsin—are waiting to hear if their applications are complete so the review process can begin.
HHS officials have said they expect to receive a total of around 20 MLR waiver applications, but time is running out. The rebate requirement goes into effect on Jan. 1, 2012 for any state that hasn't already been granted a waiver.
The MLR waiver applications from Indiana, Florida, Louisiana and Michigan echo a familiar argument that has often resonated with HHS officials: Meeting the MLR standard will destabilize the individual market and result in fewer insurance choices for consumers.
Here's a look at the waiver requests from each the four states awaiting a decision from HHS:
Indiana
The state department of insurance has asked HHS to exempt high-deductible health plans sold to individuals and small groups from the MLR requirement. It also wants major medical health carriers to receive a waiver through 2014 but if that isn't acceptable to HHS then it wants carriers to only be required to meet a 65% MLR standard for 2011 and to be given four years to incrementally meet the 80% standard. Indiana officials estimate the potential rebate at $29.9 million.
Florida
The state office of insurance regulation wants to delay any increase in the MLR until 2014. Until then it wants to maintain the state MLR standards of 65% for health insurers and 70% for HMOs. State officials said four insurers, with less than 1,200 total members, will exit the state market unless the waiver is granted. Florida officials estimate the potential rebate at $76 million.
Louisiana
The state department of insurance has filed a waiver request to set the MLR standard at 70% for 2011 and 75% in 2012. The DOI noted that in 2010 the average MLR was 79%, but if the largest issuer (Blue Cross Blue Shield of Louisiana) was factored out of the data, the MLR for the remaining insurers was 67%. Louisiana officials estimate the potential rebate at $8.8 million.
Michigan
The state department of licensing and regulatory affairs has asked to set the standard MLR at 65% in 2011, 70% in 2012, 75% in 2013, and 80% in 2014. The request notes that the dominant insurer, Blue Cross Blue Shield of Michigan, already operates at an MLR exceeding the federally mandated 80%. "However other commercial carriers have been operating with business models assuming lower minimum MLR requirements and need time to adjust to higher federal standard or be faced with significant rebates that could undermine profitability," said state officials in the waiver request application. Michigan officials estimate the potential rebate at $30.6 million.
HHS officials declined to comment on any of the pending applications, but the department's recent action on Georgia's MLR waiver request provides some insight how the decision to grant or deny a waiver request is made.
The state DOI requested 65% standard for 2011, 70% for 2012 and 75% for 2013. HHS noted that according to the application 66% of the largest insurers posted 2010 MLRs above 65%. It agreed with state officials that three insurers representing 16% of the individual market would be negatively affected by the 80% MLR standard and were in danger of exiting the state.
"Because Georgia has no guaranteed issue requirement, limits on health status rating, an issuer of last resort, nor does the State operate a high risk pool, any potential withdrawal by these issuers could make it difficult for their policyholders, particularly those with pre-existing conditions, to obtain replacement coverage immediately," said HHS in its decision letter.
HHS decided that some adjustment was necessary. It agreed to a 70% adjustment for 2011 and 75% for 2012. The 80% standard must be met beginning in 2013.
By 2020, the retail health insurance market will include more than 100 million health shoppers wielding a whopping $500 billion in purchasing power, according to a new study from the management consulting firm Oliver Wyman. These shoppers will include millions of uninsured consumers as well as millions of employees whose employers have opted out of conventional insurance and shifted to vouchers or defined-contribution programs.
The search for health insurance coverage will take most of these millions of buyers straight to health insurance exchanges, where health plans will compete to sign them on the dotted line. But here’s the rub: The competing health plans will be similar in price because they will each cover a predetermined package of essential benefits. Thus health plans must identify other ways to differentiate their products to individual consumers.
In the new healthcare market, the consumer will be king and health plans will need to transform themselves into “true customer-facing retail organizations,” according to the report, “Winning in the World of Retail 2.0.” Underwriting and risk management—the traditional competencies of health plans—won’t be nearly as important as consumer-oriented product design, segmentation, and branding. Today, though, “health plans have little expertise in those areas,” says Howard Lapsley, a partner at Oliver Wyman and co-author of the report.
Lapsley told HealthLeaders Media that making the shift from a B2B business model to a consumer-oriented retail model will require that health plans rethink much of what they do today, from how they market their products to who they partner with. The good news is that health plans don’t need to reinvent the wheel; they just need to begin to adopt the practices of successful retailers.
Lapsley says a health plan’s successful transition to the retail world should involve these steps:
Adopt the consumer’s point of view. Demographics of your existing customers and target groups are certainly important, but the goal here is understand customers’ healthcare needs and attitudes, what they really want from their healthcare products, and what they value. Lapsley says analytics are key to identifying market segments and buying groups.
Exceed consumer expectations. Healthcare consumers have to be a resilient lot to deal with what the report refers to as the “extraordinary degree of inefficiency and inconvenience in accessing healthcare.” Lapsley believes these problems could be converted to an opportunity for a health plan to integrate its healthcare products with additional services. For example, in another Oliver Wyman survey, potential retail healthcare customers said they would be willing to pay extra for increased access to their providers.
Think long-term. Retailers look at the lifetime value of a customer. Health insurers should adopt that long view because “it will enable health plans to cross-sell and upsell products around a broader notion of health and wellness,” Lapsley says
Look for partners. Healthcare reform will attract new players, which may provide opportunities for health plans to partner on products or services with successful retail brands in consumer goods, over-the-counter health products, and pharmaceuticals. Humana and Walmart have already partnered on Medicare Part D drugs. Health plans also might want to look beyond the traditional partnerships and think about partnering with a company like Nike to bundle healthcare with a wellness and fitness program.
The transition to retail comes down to “creating stickiness” with the consumer, Lapsley says. The bottom line is that in the new world of healthcare, health plans need to think about all the ways they can engage their customers to expand the relationship beyond the simple transaction of buying health insurance.
If Blue Shield of California has its way, the grocery lists of many of its San Francisco members will now include a health insurance check-up as well as eggs, orange juice, and milk.
On Monday the Blues company opened an insurance store inside a Lucky Supermarket. This is the first bricks-and-mortar facility for the health insurer, which usually connects with its members via the Internet and the telephone.
Blue Shield joins a handful of health insurers across the country that have opened retail stores in recent years, including Blue Cross Blue Shield of Florida, Highmark Blue Cross Blue Shield in Pittsburgh, Blue Cross Blue Shield of South Carolina, and Humana.
The retail move is in response to several market forces: high unemployment, the decline in employer-sponsored insurance benefits, and healthcare reform. Many of the more than 14 million unemployed are uninsured, which has created a market for individual policies.
And fewer employers are offering health insurance. Sixty percent of employers offered health benefits in 2011, down from 69% in 2010, according to the Kaiser Family Foundation. Meanwhile, healthcare reform will require millions of the uninsured to have health insurance beginning in 2014.
Doug Biehn, vice president for corporate marketing at Blue Shield, explains that the post-healthcare reform environment will require health insurers to differentiate themselves in new ways. "We think healthcare products will be fairly synonymous across competitors and that health insurers will need to think about ways to differentiate themselves beyond price and medical benefit design. We think the opportunities this store will offer for face-to-face interaction will help differentiate us from competitors and make us more attractive to customers."
Within the rather staid and traditional health insurance industry there is a lot of discussion about the paradigm shift that must be made from a wholesale model based on large and small groups to a retail model focused more on individual policyholders.
One industry observer sees the advent of the retail health insurance store as a master stroke in terms of reaching out to customers on a one-one-one basis."Your customers are sitting right there in front of you. It's a great opportunity get feedback on what tweaks you might need to make on existing products, programs and services to prepare for the tremendous influx of new members expected in next few years," said Rittman, senior healthcare industry consultant for SAS, a Cary, N.C.-based business analytics firm.
Health insurers are pursuing a variety of models in developing their retail stores. Highmark has located its eight Highmark Direct facilities in storefronts in shopping centers. The Florida Blues prefers the free-standing model for its seven stores. UnitedHealthcare has used storefronts for its four consumer support centers. Most are located in high-traffic areas that offer increased visibility.
The insurers are interested in locations that put them close to existing members but also offer them exposure to the members they want to attract—an important distinction as guaranteed issue means health plans will no longer be able to rely solely on risk underwriting for member selection.
The stores typically offer a wide mix of services, including wellness classes, insurance applications, bill payment, and claims checks. The Blue Shield store will include a nursing staff to provide basic primary care services and a dietician.
Biehn said the 500-sq-ft. Lucky Supermarket location was selected because according to recent studies the grocery store is the number one place where people think about their health. He said the grocery store attracts about 13,000 unique customers each day and the average customers visits the store 1.5 times per week. "The reach and frequency factor will be good for us. We'll get greater word of mouth and we don't have to market to them."
He declined to disclose the financial details of the arrangement. Rittman said health plans are at the beginning stages of deciding how their return on investment can be calculated for this type of investment. Much of the discussion involves the medical loss ratio. "If they can acquire, service, manage, and retain customers for a decrease in projected MLR of 1% to 2% then they can invest a significant amount of money into refining their patient engagement strategies."
Biehn explained that Blue Shield will be looking at a number of factors in determining if the one-year pilot can be scaled and expanded. "Of course we'll be looking at utilization. We'll also look at the level of customer engagement meaning are they buying our products. And we'll see if the store helps us develop efficiencies in resolving issues and answering questions. Other metrics will include the level of increased advocacy for the company and increased customer satisfaction with our services."
Rittman says the retail centers will help health insurers compete against a host of new competitors in the health insurance marketplace. Already insurers are facing a new form of healthcare service distribution from Target and Walgreens, which offer an a la carte menu of medical services such as flu shots or basic primary care through in-store health clinics.
She notes that the health insurance industry today faces many of the same challenges as the banking industry did 10 or 15 years ago when its business model shifted. "Banks began to really understand their customer's behavior so everything they did with their business model was designed to appeal to those behaviors and drive the best results. For health insurers that will translate not just into financial viability, but also into improvement in the health of their members."
