With Medicare facing an uncertain financial future and seniors clamoring for steps to be taken to bolster the program's economic stability, Congress has held hearings to review how components of the program meet their statutory requirements and to hear suggestions on how the programs could be more effective.
On Wednesday morning the House Energy and Commerce Committee's subcommittee on oversight and investigation heard testimony on the Medicare Secondary Payer System. Testimony was heard from representative of the Centers for Medicare & Medicaid Services, the Government Accountability Office, businesses, law firms, consumer advocates and insurance plans.
In his opening remarks, committee chair Fred Upton (R-MI) explained that the MSPS is designed to protect Medicare funds from being spent when another payer has primary responsibility for any medical bills. He noted that because of "complex repayment and reporting requirements" the beneficiary and primary payer were often unsure who was responsible for repayment to the Medicare fund.
Upton said "there is no requirement for CMS to provide the parties with the amount due, or the amount they should set aside to cover future payments…so they can appropriately allocate and resolve these Medicare obligations…CMS is unsure when it will receive repayment. The primary payer is unsure about its bottom line, and the beneficiary, who Medicare is meant to protect, is unsure if they will receive the coverage they were promised."
Rep. Cliff Stearns (R-FL), the subcommittee chair, said the situation raised several questions, including "why can't CMS more quickly and accurately track medical costs for covered individuals?"
Deborah Taylor, CFO and the director of financial management centers for CMS, said the MSPS law is an "important mechanism for protecting the fiscal integrity of the Medicare program and the Medicare Trust Fund. Over the last decade, total MSPS savings have exceeded $50 billion."
She noted that all insurance providers, public and private, utilize a system similar to the MSPS program to resolve conflicting coverage issues with other carriers.
Taylor laid much of the responsibility for any problems at the feet of non-group health plans (NGHP), which include liability and no-fault insurance, and workers' comp plans. She noted that new reporting requirements were adopted in 2007 for employer-sponsored group health plans and NGHPs but that the "NGHP industry's unfamiliarity with MSPS rules" had led to confusion related to reporting requirements.
In his testimony James C. Cosgrove, director of healthcare for the GAO, stated that although Congress added mandatory reporting requirements in 2007 for group health plans and NGHPs the requirements were relaxed at the request of the industry and would not be in full effect until 2012.
Cosgrove said "the Congressional Budget Office estimated that these provisions for group health plans and NGHPs would save Medicare $1.1 billion over 10 years in improper payments that could be recovered or avoided by Medicare."
Marc Salam, vice president of risk management for Publix Super Markets, spoke as a member of the Medicare Advocacy Recovery Coalition or MARC Coalition, which advocates for changes in the MSPS. Among his concerns is that the current system prohibits CMS from revealing how much it has spent on medical coverage when a liability case is involved.
Salam explained that in a liability case such as a slip and fall Medicare pays for the healthcare related to the injury until a settlement is reached. "But neither the beneficiary nor the settling party knows how much money Medicare will expect in reimbursement while negotiating the settlement."
The beneficiary is responsible for reimbursing Medicare but that responsibility falls to the settling party if the beneficiary reneges and doesn't repay the trust fund. Salam suggested that CMS be permitted to provide a conditional payment amount that could be used to negotiate the liability settlement so that the trust fund "will recover more money faster."
Jason Matzus, a Pittsburgh-based attorney who represents Medicare beneficiaries in claims against third parties, supported Salam's statements and added that "it is not uncommon for it to take six months to one year to resolve the MSPS portion of a claim. In the meantime settlement funds sit in an attorney escrow account instead of being placed in the Medicare Trust Fund."
In her testimony Ilene Stein, federal policy director at the Medicare Rights Center, said because there is no timeframe for when Medicare must provide its costs in a liability case there is "uncertainty in the settlement process." She noted that there is also no time limit for Medicare to recoup its costs and there have been cases where Medicare "reaches out to a beneficiary years after a case is settled."
Additional subcommittee hearings are planned on the Medicare Secondary Payer System but have not been scheduled.
Last week's conference for America's Health Insurance Plans featured three days of workshops, networking breakfasts, appearances by Tom Daschle, Nicholas Christakis, Mary Matalin and James Carville, and more than 30 sessions devoted to making some sense of the business of healthcare.
By the end of the conference on Friday I was almost in information overload so it took a few days to sort out what I learned and what I think are the take away points. Here is my analysis of the big ideas presented at AHIP.
1. It's all about the individual. In 2014 the health insurance floodgates will open and everyone will be required to have insurance. Health plans are a nervous about this because they don't really like to provide individual coverage. They'll tell you it's a money-losing proposition. But now they are going to have to get very familiar with the likes and dislikes of a market segment that they have been giving the back of their hand to for years.
For a change there's going to be plenty of competition trying to woo and win the individual policyholder and the market may resemble a free for all as individuals look for the best coverage at the best price. Even group policies may feel the pinch as individual employees, tempted by lower costs, jump ship to health insurance exchanges. Be prepared to invest some serious time and money into unlocking the key to the individual market. "It will take years for the healthcare industry to figure out how to influence consumers," said Sarah Rittman, a senior industry consultant for SAS, a Cary, N.C.-based business analytics firm.
2. Actionable intelligence is the way to go.
Actionable intelligence is the new buzz phrase. It's the information you need to have available to help make a decision. A doctor's AI might be a patient's test results. For health plans and providers, AI would be insights into a specific business problem that help make strategic or tactical business decisions. AI usually involves metrics, benchmarks, and complex predictive modeling techniques. The point is that there's a lot of information available out there, but it needs to be analyzed, and even then not all of it will get your company where it needs to be.
3. The payer-physician relationship is in transition...again.
The era of the ACO is upon us and it brings a new call for payers and physicians to work together. This time around a lot is at stake. Payers have an opportunity to step up and provide their physician partners with the tools they need – like robust data ? to develop successful outcomes for their patients. Health plans have deeper pockets than physicians and are more accustomed to working with the technologies and infrastructure required in this age of post healthcare reform.
4. Look for the influencers.
Donald Berwick, the CMS administrator, likes to talk about the "three-part aim" – better care for people, better health for populations and lower cost through improvement. To implement that type of systemic change requires the buy-in of disparate groups, which can be a bit like herding cats. That's where influencers – folks who can convince other folks to buy a certain car or prescribe a certain medication ? come in. How do you find an influencer? Ask Dr. Nicholas Christakis. The Harvard professor uses social network mapping to identify the three degrees of influence where most social influence takes place. The information can be used in a healthcare setting to identify physicians and others who may help reduce the use of healthcare resources as well as help cut costs.
5. It's game time. Interactive health is an industry segment that employs gaming systems to make being healthy more fun. It's estimated that almost 70% of households include someone who plays games. Microsoft had Kinect for Xbox 360 set up at its AHIP booth and there always seemed to be a line of conference participants anxious to get in a little Kinect time.
For now the system is sports and exercise based but the big idea is to encourage consumers to achieve long-term health and wellness goals by incorporating the science of social gaming ? personal engagement, rewards and multimedia presentations. As Microsoft's Dennis Schmuland explains, "fun always takes precedence."
Aetna is set to launch later this year a social game to promote wellness that will be accessible through mobile phones, email and social media channels. There's even a group, Health Games Research, that's looking at how digital games can be used to help motivate treatment adherence and manage chronic health conditions.
Nicholas Christakis, M.D., is employing some of his popular social network research to map networks of physicians to analyze how they might work together in accountable care organizations.
Christakis, co-author of Connected: The Surprising power of Our Social Networks and How They Shape Our Lives, talked about his research into physician networks during a speech Friday at the at the annual conference for America's Health Insurance Plans.
With his team at Harvard University, Christakis is looking at how formal and informal physician networks take shape, how those networks might influence referral relationships, and how they might affect the delivery or quality of healthcare.
The research looks at what Christakis calls "the three degrees of influence" to identify influential physicians as well as the physicians they influence. "It's not enough to know the doctors who influence to be effective. We also need to know who can be influenced."
The idea is to use the information gleaned from the formation of these social networks by physicians to enhance the creation of ACOs "that can function as a unit" and succeed in meeting the goals of the ACO.
Christakis says the study can be used to help identify physicians who can influence their colleagues in terms of prescribing drugs, coordinating care, and following evidence-based guidelines. He believes social network mapping could help identify practice patterns in terms of the utilization and cost of healthcare resources. Influencers may help reduce the use of healthcare resources as well as help cut costs.
"What spreads is an idea," says Christakis.
In one of his best known studies he took data from the famous Framingham Heart Study to demonstrate how weight gain in one person might ripple through a social network. In looking at the relationships of 12,000 people Christakis and his team of researchers found that a person's chances of becoming obese increase by 57% when a friend becomes obese; by 40% if a sibling becomes obese; and by 37% if a spouse becomes obese.
"When people around you gain weight, your attitude about what constitutes an acceptable body size changes, and you might gain weight too," Christakis explains.
He sees online social networks like Twitter and Facebook as powerful for disseminating information on a large scale, but questions whether their ability to influence matches that of an off-line social network. "To be effective an online network must be real or at least feel real and something must be at stake," he said.
It looks like health plans and physicians are still having trouble communicating about medical claims. Commercial health insurers bungled an average 19% of claims in 2011 – meaning they were improperly denied or paid the wrong amount. That's an increase of two percent – or about 3.6 million additional claims errors ? compared to 2010, according to the 2011 National Health Insurer Report Card from the American Medical Association.
The AMA says that the 19% error rate translates to an estimated $17 billion in annual waste.
The report card, which was released during the AMA's annual meeting in Chicago, looks at the timeliness and accuracy of claims processing at Medicare and seven of the largest health insurers: Aetna, Anthem Blue Cross and Blue Shield, CIGNA, Humana, The Regency Group (Blue Cross Blue Shield-affiliated health care plans in Oregon, Washington, Utah and Idaho), UnitedHealth Group, and Health Care Service Corp. (parent of Blues plans in Illinois, New Mexico, Oklahoma and Texas).
The study analyzed a random sample of 2.4 million electronic claims for about 4 million medical services submitted in February and March of 2011. The claims were collected from 400 physician practices covering 16,000 physicians in 80 medical specialties in 42 states.
In terms of accuracy, UnitedHealth scored the best rating -- 90% -- up from 86% the previous year. It was also the only health plan to improve its score from 2010. With the exception of Anthem, the remaining plans plus Medicare either remained the same or posted negligible declines in their accuracy rates. Anthem's accuracy rate dropped to 61% from 74% in 2010.
Among the other findings:
Physicians received no payment at all on about 23% of the claims they submitted. In 2011 the most common reason insurers didn't issue a payment was due to deductible requirements that shift payment responsibility to patients until a dollar limit is exceeded.
There have been significant reductions in denial rates, which ranged from .68% (CIGNA) to 3.6% (Anthem). UnitedHealthcare cut its denial rate by half to 1.05%. Lack of patient eligibility for medical services continued to be the most frequent reason for a payment denial.
The report card is part of the AMA's "Heal the Claims Process" campaign, which was launched in June 2008 with the goal of reducing the cost of submitting claims for the physician practice from as much as 14% of physician practice revenue to just 1%.
Health plan executives say their three major challenges are figuring out how to deal with healthcare reform, the health insurance industry's systemic shift from wholesale to retail business and bending the cost curve.
Resolving the challenges will require health plans to shift their focus from group to individual sales, identify and test new behavior predictors and shorten the timeline of product development.
The findings were part of a session about predicting and managing change presented at the annual conference for America's Health Insurance Plans. The session was based on a study developed from interviews with 40 senior healthcare executives by SAS, a Cary, N.C.-based business analytics firm, and Chicago-based Stonegate Advisors, a healthcare research and analytics company.
"Health plans are facing a fundamental change in how they do business," explained Sarah Rittman, a senior industry consultant for SAS. "Accurately predicting market shifts will be imperative for developing go-to-market strategies."
The study, Tackling U.S. Health Plan Challenges with Advanced Analytics, presents these strategies for health plans:
1. Predict market changes in new and creative ways
Today's healthcare market depends on traditional actuarial and underwriting principles to predict risk. But the post-reform market will require health plans to combine third party data – like credit information, social media and purchase data ? with claims data to help understand potential market shifts.
2. Get to know your customers as unique individuals
Reform is expected to bring a flood of individuals into the health insurance market. Member-centric product and service strategies haven't been a focus but now "health plans will need to understand what individuals like and what they want," says Rittman. That includes learning their price and product sensitivity and how they like to communicate and how often. "It will take years for the healthcare industry to figure out how to influence consumers.
3. Do retail like pros
Healthcare needs to learn from other industries – like banking, telecommunications and airlines – that have been through a similar process. "These industries re-invented themselves," explains Marc Pierce, president and founder of Stonegate Advisors. He said that to succeed health plans will need to shorten their product development cycle, add service and loyalty programs, and develop sophisticated pricing strategies.
4. Manage the cost of care
In post healthcare reform managing expenses at a plan member level will be critical to keeping premiums affordable and maintaining the required MLR of 80% to 85%. Plans will need to develop analytics to monitor services, treatment patterns and cost trends to identify medical expense concerns. "Health plans will need to know what customers they can impact and how. They'll need a way to identify those members who are on the edge in terms of willingness to change a behavior and then develop a program that will influence them," says Pierce.
5. Collaborate more effectively with providers
Controlling healthcare will require that health plans work with their providers to develop payer/provider models to see what works based on financial viability and sustainability, including pay for performance, patient centered medical home, an integrated care system and an accountable care organization. Collaboration should include the ability to share clinical, claims and pharmaceutical data to track and analyze outcomes. "This is very valuable information for both the payer and the provider," says Rittman.
Former Sen. Tom Daschle (D-SD) says that one way or the other "we will have a coverage mandate" as part of health insurance reform in America. "Either every individual will be required to take responsibility for their healthcare or the rest of us – who do take care of ourselves – will continue to be required to pay for those who don't."
He made the remark Thursday during a session about building a sustainable healthcare system at the annual conference for America's Health Insurance Plans in San Francisco. Daschle shared the stage with former Sen. Judd Gregg (R-NH).
The two made separate presentations and then settled in for a Q&A from the audience of insurance professionals.
ROUNDS: The Real Value of ACOs When: August 16, 12:00–3:00 pm ET Where: hosted by Norton Healthcare
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Daschle focused on the upside of healthcare reform noting the "transformational opportunities" presented for innovation and collaboration especially in the areas of payment reform and transparency. "We have 21st century operating rooms and 19th century administration" in the healthcare industry, he said. Daschle credited government reforms with helping kickstart administrative changes that will speed the adoption of technology to enable providers and payers to collect information that can be used to improve care and engage the patient at meaningful levels.
Judd Gregg delivered a more somber message. "Debt is the issue and healthcare is the problem. The patient is in serious fiscal trouble." He said healthcare reform will become just another unfunded liability. "Our unfunded liability for Medicare, Medicaid, and Social Security is already at $81 trillion and healthcare reform will just add to that."
Gregg, who served on the bipartisan National Commission on Fiscal Responsibility and Reform, said he is disappointed that Congress has ignored the commission's recommendation for a Medicare premium support program. The commission was appointed by President Obama to recommend policies to improve the U.S. fiscal situation over the long run. "If we can't address Social Security or Medicare in a serious fashion then we really have no hope of improving America's fiscal well-being."
ROUNDS: The Real Value of ACOs When: August 16, 12:00–3:00 pm ET Where: hosted by Norton Healthcare
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Daschle countered that there are other systemic changes that can make a difference. "We need to move away from fee-for-service, volume-based medicine to quality-driven medical care. We need to deal with unnecessary care and we need to create an infrastructure that integrates care."
Gregg said he favors giving states more freedom to develop Medicaid programs and moving from the federal government's one size fits all mindset. "I think we'll see some effective creativity in creating the healthcare delivery system because each state will be looking at how to meet the needs of its population."
"Right now states have to choose between funding Medicaid or funding their schools and universities because they have to do what the feds tell them to do rather than what they should be doing," he added.
ROUNDS: The Real Value of ACOs When: August 16, 12:00–3:00 pm ET Where: hosted by Norton Healthcare
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Both former senators agreed that Congress needs to move away from the healthcare business. Daschle noted that "Congress can't make tough decisions" about healthcare while Gregg said "partisanship means real healthcare change will never have a chance in Congress."
Health insurance exchanges will transform the way customers think about health insurance and the way they compare products. To respond to this challenge Health plans need to become more engaged with their existing and potential customers. That was the message delivered Wednesday during a session at the America's Health Insurance Plans conference in San Francisco.
"This book of business will act differently," explained Patrick Howard, a principal at Deloitte Consulting LLP. "We don't know if the HIX will have the same familiar ratios. Will 20% of the customers still consume 80% of the healthcare resources?
"Where will health plans find their customers for an exchange? They may need to develop new navigators to identify potential markets," said Howard. "Maybe the YMCA or fitness clubs will become a community partner and a source of customers."
The Affordable Care Act requires states to create health insurance exchanges by 2014. The HIX will be designed to allow individuals and small businesses with fewer than 100 employees to buy coverage at competitive rates from policies offered through the exchange, which may be run by either the state or a private company.
Howard, Dhan Shapurji, and Gregory Scott, a director and a principal, respectively, at Deloitte Consulting spoke during an AHIP session that addressed the key operational challenges and potential solutions posed by the HIX.
Gregory Scott said the HIX offers health plans the opportunity to really think at the individual level. "That's very different from how health plans work today."
He added that the HIX will also allow health plans to develop data for individuals that can be leveraged for other products. "Tracking, reporting, and capturing data for this market will be expensive, so health plans will need to look at how the data can be used elsewhere."
Scott told the gathered insurance professionals at the AHIP conference that health plans should expect HIX customers to be more engaged in the coverage and health plan they select. "Quality ratings haven't been very important for health plans because it's really the physician network and pharmacy benefits that drive health plan selection." But he cautioned that with the advent of health insurance exchanges "health plans need to consider that quality ratings could become market movers.
Shapurji recommended that health plans work with the states to make sure they have access to any information that the exchange collects on potential customers. "You'll want to know what customers looked at you plan and if they didn't select your plan then you'll want to know which of your competitors got the business."
Scott noted that for a number of reasons states aren't picking up as much of the cost of the HIX as health plans had hoped. "States having financial problems and setting on a health insurance exchange isn't among their core competencies."
At more than 130 medical schools across the country 16,000 medical students this spring have received their diplomas, taken the Hippocratic Oath, and heard inspirational words from a commencement speaker.
No one tracks who speaks at medical school graduations so we made a few calls, sent some e-mails and rounded up excerpts from the best ones we found. Some are poignant and some are funny, but there is no denying the overarching message: healthcare and the practice of medicine are at a crossroads.
Harvard Medical School
Atul Gawande, M.D., HMS professor and author of The Checklist Manifesto: How to Get Things Right
"We are at a cusp point in medical generations. The doctors of former generations lament what medicine has become. If they could start over, the surveys tell us, they wouldn't choose the profession today. They recall a simpler past without insurance-company hassles, government regulations, malpractice litigation, not to mention nurses and doctors bearing tattoos and talking of wanting balance in their lives. These are not the cause of their unease, however. They are symptoms of a deeper condition—which is the reality that medicine's complexity has exceeded our individual capabilities as doctors.
"….No one person can work up a patient's back pain, run the immunoassay, do the physical therapy, protocol the MRI, and direct the treatment of the unexpected cancer found growing in the spine. I don't even know what it means to "protocol" the MRI.
"The public's experience is that we have amazing clinicians and technologies but little consistent sense that they come together to provide an actual system of care, from start to finish, for people. We train, hire, and pay doctors to be cowboys. But it's pit crews people need."
John Hopkins University School of Medicine
Henry Brem, M.D., Director of the Department of Neurosurgery at The Johns Hopkins Hospital
"…never neglect or deny your own family. You can focus on different aspects of your career but your family is a constant and will always need you and be with you. In your work choose activities that will have the highest impact. But realize that as important as your work is, your impact on your own family is irreplaceable and immeasurably important. No one can substitute for you, as a son or daughter, sister or brother, spouse, friend, or most critically as a parent.
"My best advice is to learn to be passionate about each of the roles that you are embarking on. My privilege in life has been to find that I am always pulling myself away from one passionate and exciting activity to another that needs to be done and that I love doing. The balance between these forces is dynamic; and it constantly needs to be reassessed and changed at different stages of your career."
Washington University School of Medicine
Matthew C. Spitzer, M.D., president of the board of directors for Médecins Sans Frontières/Doctors Without Borders USA
"Refuse what is unacceptable to our humanity; refuse what contradicts the physician's oath you will take today. Sooner rather than later, you will be asked if you will see a patient who doesn't have insurance and can't pay. Will you give the same time and dedicated care? Will you accept or will you push and break through the limits of where you are and what you do? See what is around you; choose to act and raise your voice. Refuse to accept that in this country the poor get worse care, many vets don't get adequate care for physical and mental trauma, and that the homeless are not brought inside the walls of the office. Determine what you do by what needs you see, what you are moved by, bring all of what you know to bear, and when you see that isn't enough, question what you know and demand something more."
Michigan State University College of Human Medicine
Ann C. Bonham, Ph.D., chief scientific officer for the Association of American Medical Colleges
"I come from a world of science – my passion is to improve health through discovery. My plea to you is to recognize your role and your social contract with patients by integrating research into your clinical care. Some of you may actively engage in designing medical research, others may participate – either in multi-site clinical research networks or in other ways – but all of you can advance medical care by embracing research as good for your patients and your practice."
University of Florida College of Medicine
Peter Small, M.D., an expert on tuberculosis and a senior program officer for the Bill & Melinda Gates Foundation
".. medicine is not only humbling because of the mass of information you are expected to know, medicine is humbling because of the way it will confront you with the really big questions you will never answer. As an intern in the San Francisco General Hospital Emergency Room, it was my responsibility during shock trauma codes to perform open chest cardiac massage - to put my gloved hand inside the chest of a patient and manually squeeze their heart in a desperate last ditch attempt to keep blood flowing to their brain. I'll never forget the day I did this for a man who happened to be about my age who had the simple bad luck to be struck by a bus. To hold the heart and feel the last beat of life of a man who, but for the grace of god, could have been me, has posed questions that humble me to this day.
Penn State College of Medicine Elizabeth G. Nabel, M.D., president, Brigham and Women's/Faulkner Hospitals in Boston
"Therapies mean nothing unless a 60-year-old patient can play with his grandchildren or a six-year-old leukemia patient gets to play on her jungle gym. Keep people first. One size does not fit all when it comes to patient care."
University of Connecticut School of Medicine
Henry Lee, M.D., forensic scientist and endowed professor at the University of New Haven
"You might expect me to talk to you about who killed Jon Bennet Ramsey. Did Vincent Foster commit suicide? Was Lee Harvey Oswald the lone assassin of JFK or was it conspiracy? Or how did the jury reach the verdict in the OJ Simpson case? No, I am not; I am here to share with you some my life experiences and to give you some simple advice on how to be successful in life.
"Once you have your success, you should share you success with others, share your knowledge, your strength, and your passion with others. Just think about how many people in the future will come to you for comfort, healing, and hope. Just think about all those medical and scientific breakthroughs that will be uncovered by you. Because of you this world will be a much better place to live.
John A. Burns School of Medicine at the University of Hawaii
Darrell G. Kirch, M.D., president and CEO of the Association of American Medical Colleges
"Cling tenaciously to the bedrock professional values of compassion, integrity, and service that lie at the heart of the Hippocratic tradition. And please, find the courage to join your generation with mine in addressing this fundamental imbalance in our ethics by taking on the lack of fairness in our healthcare system. Despite all our knowledge and all our skills, we should make each other a promise today that we will never lose the sense of doing good and creating a better society that brought each of us to our careers in the first place."
Perelman School of Medicine at the University of Pennsylvania
Arthur H. Rubinstein, M.D., retiring dean of the Penn medical school and retiring executive vice president of the University of Pennsylvania Health System
"All of us in medicine, young and old, are facing rapid and enormous changes that can be difficult to handle. However, the major challenge, in my opinion, is mainly a generational issue. What is difficult and stressful for older generations may be much less so to the young degree recipients of today. For one thing, you may value autonomy less than those of us who went into solo or small-group practice in the 20th century.
"In our Perelman School of Medicine our recent classes have been organized into teams, which we believe will position our students to work in the changing, new healthcare system now under development. At the same time, our recent graduates place a higher value on a balanced lifestyle, with more time for their families. They are able to deal with the profusion of new knowledge because they are adept at evaluating it with the help of new information technologies. They are certainly more proficient at using newer electronic devices. To think that playing video games could help prepare a doctor to perform delicate robotic surgery!"
University of Southern California Keck School of Medicine
Drew Pinsky, M.D., host of the nationally syndicated radio show "Loveline" and assistant clinical professor of psychiatry at the Keck School
"This ceremony is one of the few degrees that once conferred changes who you are and what you can do and your relationship to the world forever. So, my esteemed colleagues to be, I welcome you to this profession."
Call me an optimist, but I like to think that Blue Shield of California was simply doing the right thing when it announced last week its intentions to limit its income to 2% of revenue and to hand back about $180 million to policyholders, physicians, hospitals and the Blue Shield Foundation.
Blue Shield isn't exactly a media darling, but even California news outlets seemed content to spread the upbeat news that a major insurer was capping its income and—get this—was taking this bold step voluntarily. Throw in the refund to policyholders and Blue Shield garners some high fives.
Usually when an insurer makes this type of gesture there's a regulator standing behind the curtain pushing the health plan spokesperson into the media spotlight.
That was pretty much the case in September 2010 when Blue Cross Blue Shield of North Carolina announced that it would make $156 million in refunds to its individual policyholders. In that case state regulators discovered that the Blues plan was collecting reserves to pay for future claims that could extend beyond 2014.
In Colorado, Anthem Blue Cross and Blue Shield agreed in September 2010 to provide a premium credit totaling $20 million to about 90,000 individuals. The refund was linked to a Colorado Department of Insurance review of consumer complaints following rate increases by the insurer.
But in the case of Blue Shield of California, no one had to push company CEO Bob Bodaken out into the public eye. He embraced it. There was a press conference where two-heavy hitters, Bodaken and Paul Markovich, Blue Shield's COO, fielded a wide range of questions. And then there was Bodaken's speech at the Commonwealth Club in San Francisco.
The message was consistent: Blue Shield is taking this step to help make healthcare affordable.
But as optimistic as I want to be, almost a week later a couple of things still bother me about this announcement – what's magical about 2%? And what does any of this have to do with lowering healthcare costs?
In an e-mail statement, Jonny Wong, a Blue Shield spokesperson, said the 2% reflects what the company needs to "make sure we remain strong and viable well into the future, we determined that 2% was the appropriate amount based on several factors. We need to preserve our ability to pay claims, garner an A rating from rating agencies, finance capital improvements like IT and other infrastructure investments, and maintain a prudent reserve for the unexpected, such as earthquakes, pandemics, or public policy changes."
I decided to pose the 2% question to a healthcare analyst who understands the nuts and bolts of health plan finances a lot better than I do. Uwe E. Reinhardt, a Princeton professor and an authority on healthcare economics, fit the bill. He suggested in an e-mail exchange that the 2% is probably close to what Blue Shield estimates will be its average margin over the long run anyway.
A 2% to 3% margin is actually common among nonprofits. Blue Shield's margin in 2010 was 3.1% and so its board decided to make its first round of refunds based on that margin.
Reinhardt said the 2% isn't much as a percent of the premiums paid, but it's a lot as a percent of Blue Shield's value added. He explained that "usually, an insurer pays 80% to 85% of the premium for health benefits. Those are just pass-through costs. There is no reason why an insurer should earn any profits on those costs at all."
But the remaining 15% to 20% of the premium represents the insurer's own production – its value added – for things like marketing, claims processing, managing care, negotiating prices, etc. According to Reinhardt, even with a margin of 2% Blue Shield can still get a 10% to 15% return on the value added. "That's a very handsome return."
Okay, so maybe Blue Shield isn't taking a huge gamble with this step, but I still don't understand how holding profits to a 2% margin and refunding $80 to $340 once a year to some health plan members helps hold down costs.
It doesn't, Reinhardt says . "It does virtually nothing to control costs, which are driven by what hospitals do and what they charge for it, and ditto for MDs and drug companies. It's a good PR move."
Blue Shield could use some good PR right now. There's certainly no love lost between the California Department of Insurance and Blue Shield; the two have been fighting about rate increases for years. Dave Jones, head of the DOI, even termed Blue Shield's announcements as "essentially an admission by the insurer that it is…making excessive profits."
Jones is behind AB-52, which is winding its way through the California legislation. The bill will give extend the DOI's authority concerning insurance rates from just reviewing to approving or denying.
Blue Shield and a host of other health insurers in the state oppose that move. Some see the 2% announcement as an effort to convince lawmakers that the industry can self-regulate.
So if this is just for PR purposes, Reinhardt concedes it's a good gimmick and suggests that other health plans take the same step. "If they are smart, they will. It's a good PR gimmick, certainly for the non-profits."
Young adults aged 18 to 26, so-called "young invincibles" in healthcare insurance parlance, are surprisingly proactive when it comes to taking care of their health, a nationwide poll released Tuesday by the American Academy of Family Physicians shows.
Researchers found that 66% of young adults have a regular place of care and 90% of those respondents had visited their healthcare provider at least once in the past year. The majority of those visits (59%) were for regular exams or preventive services; 9% were for the management of a chronic condition.
"Our survey shows that young adults are getting preventive care," said Roland Goertz, MD, MBA, president of the AAFP in a press statement. "This kind of diligence can help them maintain their overall health, and preclude future problems. Conventional wisdom says this age group doesn't have health concerns, but one in six young adults has a chronic condition such as diabetes, hypertension, or asthma."
The physician's office was the location of choice for medical services with 76% responding that they went to a doctor's office for their routine health care. Some 62% identified their source of routine care as a family physician.
None of the young adults surveyed listed a retail health clinic or the emergency room as their routine source of medical care.
"Young adults want to establish an ongoing relationship with a primary care physician. By setting this foundation of care, they are building toward a healthy future." said Goertz.
Survey respondents indicated that conveniences such as making appointments online, corresponding via e-mail with their physician and having same-day appointments would increase the likelihood that they'd see a primary care physician more often.
About 74% of the respondents were covered by healthcare with 51% reporting that they are covered by their parents' or guardian's insurance while only 23% were covered through an employer.
Unexpected healthcare expenses created some level of financial hardship for 79% of the young adults. The common causes for the unexpected expenses were diagnostic procedures/tests (29%) and the treatment of newly diagnosed illness (23%).
The poll, conducted online by Harris Interactive on behalf of the AAFP, obtained responses from 1,273 Americans between the ages of 18 and 26. The poll was conducted March 31 to April 11, 2011.