With the nomination of of Mike Leavitt to the post of Secretary of Health and Human Services, President Bush has sent a clear signal of his intentions to drastically reform the Medicaid system. Leavitt, a former governor of Utah, was instrumental in helping Utah secure a waiver from HHS that enabled the state to make significant changes in its Medicaid program.

These changes represented significant trade-offs, namely funding expanded coverage (adding populations not previously covered by Medicaid) by implementing cost sharing for beneficiaries and cutting some benefits.

Mr. Bush has made it quite clear that he intends to move the nation towards the "ownership society". In the case of Medicaid, the implication is the states will receive block grants of funds from the federal government, funds that they will have significant discretion in regards to how they spend them. According to the LA Times, "In the past, the administration has proposed capping the federal share of Medicaid, currently about $180 billion a year...Medicare faces pressure to cut payments to hospitals and other providers."

The net result - states will "own" Medicaid, be free to develop and implement their own programs, and do so with minimal interference from the feds.

While this sounds great at first blush, even Republican governors have serious concerns. In essence, their concern is that the President is making Medicaid a "defined contribution" program, thereby limiting the federal government's future expenditures. This is a marked change from the present "defined benefit" form of Medicaid, where the governments (state and federal) are allocate enough funds to cover the benefits provided to qualified individuals' costs. Remember, the feds took over the provision of health care to the poor in large part because some states were not doing what federal legislators deemed an adequate job.

In addition to his experience as Utah governor, Mr. Leavitt was head of the EPA and got his start as an insurance broker in Utah. Leavitt is known for his political prowess and willingness to stick to the task. While he will be tasked with Medicare reform and other issues, Leavitt will likely start with Medicaid.

This nomination is the clearest possible signal that Medicaid is in for the biggest change in its forty-some years of existence.

Posted by at 5:31 PM | Permalink

The Piper Report is a health-care oriented blog focused on Medicare, Medicaid, and some employer-based health programs. The author is well-read and well-informed about governmental programs, and seems to be on top of the latest research, with a heavy emphasis on governmental programs pertaining to drug coverage.

For example, Piper's latest contribution summarizes some of the latest thinking regarding Medicare prescription drug programs.

Other links on Piper's blog include the National Pharmaceutical Council's health care cost:quality equation and a prognostication about possible Congressional action on Medicare.

As you travel through the blogosphere, you'll encounter sites such as Mr. Piper's that provide a depth of insight into a specific topic unobtainable anywhere else. Kudos to Mr. Piper et al for their willingness to share their perspectives.

Posted by at 5:30 PM | Permalink

Fitch Ratings has released its' "final" analysis of the P&C; industry's results for 2003. The report focuses on reserve deficiencies, and while the results look better than those from a year ago, the overall message is troubling.

Here are the highlights and my comments in italics...

--total reserve deficiency at the end of 2003 was between $43 and $61 billion...the industry continues to be unable to predict future costs with any accuracy; this will give investors pause as they consider whether to provide funds to the P&C; industry, leading (over the longer term) to capital constraints and therefore a tighter market
--most of this is due to under-reserving in the accident years 1994-2003, with the bulk between 1997 and 2002. historically poor reserving in this period has been due to a failure to predict the rise in health care costs. Many reserves for claims occuring in the late nineties assumed a health care inflation rate of 7-8%, an assumption that continues to drag down financial results, and has even contributed to the demise of several P&C; carriers, including Atlantic Mutual.
--asbestos is responsible for between $15 and $25 billion of the total, reflecting the industry's continued head-in-the-sand approach.

How do we put this in context?

1. The P&C; market appears to be softening, with rates for short-tail lines (those where claims are usually reported within a few months of the end of the policy term) falling while longer term lines (liability, Workers' Comp) leveling off or declining somewhat. This softening cannot continue if carriers are going to add to reserves - without higher premiums to make up the deficit, the reserve deficiency will continue to hang over the market.

2. Health care costs receive barely a mention in the Fitch report. Health care costs are the primary driver of most claims, and this lack of attention on the part of a premier rating agency and industry expert does not bode well for the industry as a whole - if they do not know what is causing the problem, they will not be able to address it. And the industry has not demonstrated ANY awareness of or commitment to addressing rising medical costs, even as trend rates in P&C; exceed 12%.

3. Asbestos, asbestos, asbestos - the word that brings chills to the executive suite at many an insurer. Some carriers have "bitten the bullet", while others seem to be adopting a "hope and pray" approach to dealing with their reserving problem. That approach, especially when viewed in the context of the softening market, will likely mean additional financial struggles for some P&C; carriers and reinsurers.

Posted by at 6:44 AM | Permalink

Best's has released their latest report on the profitability of the Property and Casualty insurance industry. The net is 2004 has been a very good year, despite the large number of catastrophic events most notable of which were the four hurricanes that devastated the southeastern US.

The industry appears to have been profitable on an underwriting basis to the tune of over $4 billion for the nine months ended 9/30/04. This is a very strong performance, as the industry typically loses money on an underwriting basis, relying on investment income (from investing premiums in debt and equity instruments) to deliver profits.

If not for the estimated $20.5 billion in covered losses from the hurricanes (most of which was incurred by US insurers), 2004 would have been a stupendously profitable year. But, as one wag put it, that's why they call it insurance.

This silver cloud has a grey lining. Historically, senior management in the P&C; industry has a pathologic aversion to profits, which they demonstrate by cutting premiums and writing lots of bad business whenever they start to make lots of money. Expect this condition to perpetuate itself in the new year. In fact, Best points out that it may already have started...

"(the) industry's operating performance measured by return on revenue improved to a healthy 10.3 percent as of nine-month 2004 results, up from 8 percent in the comparable 2003 period. However, operating results moderated from the 13.8 percent return on revenue reported for the first six months of 2004 due to reduced underwriting income..."

Posted by at 7:15 PM | Permalink

HSA will be conducting the second Annual Survey of Prescription Drug Management in Workers' Comp.

For those unfamiliar with this issue, here are a few factoids.
-- Pharma costs are the fastest growing component of WC medical expense
-- Pharma costs are now 12% of total WC medical dollars, up from less than 4% ten years ago.
-- Last year's survey indicated most payers were searching for answers, and most vendors were not supplying the answers payers wanted.

HSA conducted the first survey on drug costs in workers' comp last year.

Posted by at 6:56 PM | Permalink

The panacea that is drug reimportation is finally getting its due. I've been wondering what the big hoopla is regarding "cheap" drugs from Canada and other foriegn nations. Sure, the Canadians and other countries use their monopolistic buying power to negotiate cheap prices from drug manufacturers, and some American consumers may be able to save significant dollars (barring a more significant decline of the US$) by piggybacking on those nations' smart buying.

But on the whole, buying drugs from Canada is NOT an answer to the US drug cost inflation problem.

A just-published HHS study on the reimportation of drugs demonstrates that this "strategy" provides negligible savings.

Leaving aside the question of how a country that consumes 2% of the world's pharmaceuticals can supply a nation that consumes over 50%, the real implication is clear - reimporting drugs is no solution. While it may be politically expedient, it is merely allowing US consumers to use the leverage of the Canadian government to buy drugs at a marginally lower cost.

Interestingly, the same US politicians that bought into the (at the time politically attractive) Medicare Drug bill also included provisions prohibiting the US government from negotiating with drug manufacturers. Thus, the politicians refused to allow the US government to employ the same "price lowering" tactics used by the Canadians, tactics that were delivering prices so attractive to voters that these politicians were in favor of allowing drug reimportation.

Have your cake, eat it too, and don't get fat. Or in this case, please the big pharmas, protect the little guy, and thus preserve both campaign donations and votes. What a great country.

An excellent summary of the issues surrounding drug reimportation is provided by California HealthLine.

Posted by at 10:14 PM | Permalink

A recent post on the HealthBeat blog concerns a 2002 survey of employees of the US FDA. The survey indicates many FDA scientists are concerned about drug safety after approved drugs were on the market.

The study found that fully 2/3 of FDA scientists "lack confidence in the agency's process for ensuring drug safety...(and) Nearly one in five said they had been pressured to approve or recommend approval for a drug despite safety and quality reservations."

Other findings addressed drug labeling concerns:

"Only 12% of scientists were completely confident that FDA "labeling decisions adequately address key safety concerns" while 30% were not at all or only somewhat confident"

and perhaps most troubling, internal political pressure to approve new medications:

"Nearly one in five scientists (18%) said that they "have been pressured to approve or recommend approval" for a drug "despite reservations about the safety, efficacy or quality of the drug."

The full study, conducted by the Office of the Inspector General of DHHS, reports on potentially dangerous gaps in the approval and marketing of prescription drugs.

As pressure grows on the FDA in the wake of the Cox-2 fiasco (Vioxx and Celebrex to the layperson), it is likely this survey will get increased attention.

Of note, the present head of CMS (Center for Medicare and Medicaid Services, Dr. Mark McClellan, was formerly the Commissioner of the FDA.

McClellan was Commissioner from 11/2002 to 3/2004, so his tenure post-dated the survey.

Posted by at 7:31 PM | Permalink

The HealthLawProf blog has an interesting post about the need for the FDA to set up an independent testing arm. The post opines positively about this idea and makes a solid case.

The blog cites a NYT article, and provides a good synopsis (brief and to the point).

Posted by at 11:10 PM | Permalink

Coventry's pending acquisition of First Health passed a key milestone with the Feds' approval of the merger. This is now a "done deal", not that there was much doubt it was going to happen.

News from sources familiar with First Health indicate that Pat Dills, Lee Dickerson, and Ed Wristen (FH senior leadership) will be departing the organization in the (very) near future. Art Lynch, present head of sales for FH, will remain on board, and will likely assume additional responsibilities.

One interesting tidbit related to this is the pending issues resulting from Coventry's ability to access HealthNet contracts. Huh? Read on...

FH acquired the WC assets of HealthNet earlier this year. As part of the deal, FH received access to HealthNet's WC contracts with their providers - this was perhaps the most attractive piece of the deal to FH, which had long been under pressure to improve California network results. Well, sources indicate that the FH-HealthNet contract does NOT include any change in control language, leaving HealthNet contracts (at least in theory) accessible by Coventry.

If these sources are correct, one has to wonder what HealthNet was thinking...rumors had abounded earlier this year about FH's shaky future.

Posted by at 10:10 PM | Permalink

Tom Lynch's WorkComp Insider has a great synopsis of the weekend's WC blogging activity.

Posted by at 7:53 AM | Permalink

The Agency for Healthcare Reseach and Quality (AHRQ), recently published a study examining hospital admission patterns. The study indicates that a significant percentage of admits could have been eliminated if the patient had received appropriate care earlier.

It will be no surprise to faithful readers that there is significant variation across geography, with rates highest in the west. AHRQ theorizes that this is due at least in part to the greater distances people in rural areas have to travel to seek care; thus preventing them from receiving care earlier in the disease process.

Poverty, rural locations, and diagnosis are also key variables influencing the "avoidable admit" rate. There was much more variation for chronic than for acute conditions:
"Among the 10 chronic conditions, differences in admission rates between the lowest and highest income communities range from 76 to 278 percent."

The report notes significant cost implications -

"Potentially preventable hospitalizations are a significant issue with regard to both quality and cost. During the year 2000, nearly 5 million admissions to U.S. hospitals involved treatment for 1 or more of these conditions; the resulting cost was more than $26.5 billion.1 While some hospitalizations were likely inevitable, many might have been prevented if individuals had received high quality primary and preventive care. Identifying and reducing such avoidable hospitalizations could help alleviate the economic burden placed on the U.S. health care system. Assuming an average cost of $5,300 per admission, even a 5 percent decrease in the rate of potentially avoidable hospitalizations could result in a cost savings of more than $1.3 billion."

Posted by at 6:32 AM | Permalink

Robert Vonada, a judge in the Pennsylvania WC Office of Adjudication, publishes a blog on all things PA WC related. The topics tend to focus on legal and statute interpretation matters, as one would expect from a judge dealing with these issues on a daily basis.

Judge Vonada also notes developments in areas as diverse as back pain, WCRI reports on PA. If your job includes any responsibility for PA WC, put this blog on your favorites list.

Posted by at 11:20 AM | Permalink

As goes California, so goes the nation. Particularly bad news if the trend one is watching is health care. California's health care premiums have just passed the $10,000 per family threshold, a level some experts think will finally lead to calls for significant change.

Don't bet on it.

The frightening thing about this increase is it reflects a lower than expected trend rate of 11.4%...2003 costs were up a whopping 15.8%. When 11.4% is good news, you know we're in trouble.

The study, sponsored by the California HealthCare Foundation and Kaiser Family Foundation, also covers national health care premium trends. And those numbers aren't a beam of sunshine either.

The national health care trend rate is 11.2%. Since 2000, health care premiums are up 61%.

Sixty-one percent.

For those who are interested, a summary of the report presents the highlights, including employer contribution rates and trends, specific plan trend rates, and future cost projections. Make sure you are sitting down when you read this.

Posted by at 10:03 AM | Permalink

Risk and Insurance magazine, an industry publication focussed primarily on the property and casualty industry, has an interesting interview with Marsh CEO Michael Cherkasky. Cherkasky, a relative newcomer to Marsh who joined the organization when they acquired Kroll (investigations and security firm), was perhaps the best stroke of luck Marsh could have had.

Cherkasky worked with NY Attorney General Spitzer at the state level, and they know each other well. His appointment to CEO will go far to deflect Spitzer's attacks, as their relationship appears to be positive.

The interview details Marsh's plans for the future, and is required reading for any risk manager, broker, or regulator wondering what the impact of the contingency commission-sham bidding scandal will be on brokers.

One excerpt is particularly telling...

(Risk and Insurance editor Jack Roberts) "Do you think that if other competitors don't accept that model-that all sides of the transaction ought to be transparent-that that will give Marsh a competitive edge?

(Cherkasky) - "We absolutely do. The attitude of caveat emptor-let the buyer beware-that's not going to be our attitude. We think that will be a competitive edge and that we will be very tough to compete with if you don't do it that way. But that's up to the marketplace. We're going to adopt that because that's what we believe is going to be effective in the 21st century under this regulatory environment and we're confident it's going to make a fair return for our shareholders."

That competitive return will likely be considerably less than it was pre-Spitzer, but better lower returns than none at all.

Posted by at 10:31 AM | Permalink

Medpundit, a blog published by a practicing MD has an excellent and brief summary of the recent Celebrex news. The net is celebrex increases the risk of cardiovascular events significantly; and the higher the dose, the greater the risk increase.

While we can blame the FDA, the big pharmas, consumers, physicians, and the big bad wolf, our time will be much better spent learning from this fiasco.

Early lesson - stick with the proven meds, which in this case are Tylenol et al, and ibuprofen et al. They have the benefit of much lower cost, very similar outcomes, and a much longer track record.

Posted by at 7:14 PM | Permalink

The FDA announced today that Pfizer's Celebrex significantly increases the risk of cardiovascular problems. What does this have to do with Workers' Comp?

A lot.

Celebrex, approved by the FDA for treatment of arthritis, has been one of the most popular drugs for treatment of musculo-skeletal injuries common in workers' comp. Now, those patients who have been treated with Celebrex for a workers comp condition may find themselves with a heart condition, and that heart condition may be due in part to Celebrex.

While attorneys, researchers, and others argue over the causality issues, adjusters, insurers, and reinsurers will find themselves faced with claims for heart problems from patients with bad knees. Unfortunately, there does seem to be a strong linkage between Celebrex and cardiovascular problems, and these problems may not be limited to Celebrex and Vioxx...

""We do have great concern about this product and the class of products," said acting FDA Commissioner Lester Crawford. " Commissioner Crawford's concerns arise from the FDA's analysis of the study, which indicates:
"800 milligrams of Celebrex had 3.4 times greater risk of cardiovascular problems compared to a placebo. For patients in the trial taking 400 milligrams the risk was 2.5 times greater."

The good news is the marginally better outcomes delivered by these medications was far outweighed by their additional cost. Now, physicians can return to prescribing naproxyn, Tylenol, and ibuprofen for these conditions. Leaving aside the point that the docs should have been doing this all along, perhaps the tragedy (financial and personal) that has been and will be caused by these two over-hyped and under-researched drugs will lead doctors to practice more conservative prescribing behavior.

After all, the docs who wrote the scripts may have some liability as well...

Posted by at 7:00 PM | Permalink

The recent disclosures related to Vioxx' impact on cardiovascular disease should be raising some big concerns amongst financial folk at WC payers. Here's why.

Vioxx was commonly used to treat musculoskeletal injuries - sprains, strains, and the like. These happen to be very common WC injuries, and thus lots of WC claimants received scripts for Vioxx.

The law in most states holds that WC is liable for treatments for conditions arising from occupational illness or injury. This has been consistently intrepreted to include liability for conditions arising from the treatment itself - whether that be pain meds after surgery, PT after surgery, Viagra to combat the ill effects of other meds, etc.

The implications of Vioxx for WC are thus obvious. WC payers are potentially liable for cardiovascular conditions for WC claimants who have incurred cardiovascular conditions, and especially those claimants who had CVD prior to receiving Vioxx.

While WC payers have the right to subrogate those claims back against Merck (manufacturer of Vioxx), this will be a long, messy, and expensive process.

Posted by at 2:30 PM | Permalink

A very good discussion of the contentious relationship between (and among) hospitals, employers, and insurers can be found on healthsignals new york.

The article refers to recent developments in the Denver market that are worth reflecting upon.

Posted by at 6:59 PM | Permalink

Weiss Ratings has recently released their report on insurance industry profitability, and the news is both good and bad. Good if you compare it to past year's reports, bad if you are expecting robust returns.

The report notes: "Of the 544 insurers studied by Weiss for the year ending 2003, 69 percent experienced either negative margins or profit margins of less than five percent."

Makes the grocery business look like a great investment.

Breaking down the numbers further by category, here are the individual industry sector results:

HMO - 3.8%
Life Insurance - 8.2 percent
Health Insurance - 5.5 percent

and the overall winner for most profitable insurance sector is...

P&C; at 8.3 percent

Not surprisingly for those who have been reading our blog, the culprit appears to be the industry's inability to contain rising health care costs.

Melissa Gannon, Weiss VP, notes: ""Although the industry has enjoyed an increase in revenues by raising premiums, insurers have also had to deal with the rising cost of medical care as a result of more open networks, an aging population, expensive medical advances, and an inefficient healthcare system."

While some in the media believe we are all wintering in St Bart's except for those brief holidays in the Alps, the truth is we continue to work very hard to combat health care costs, and do not appear to be making much progress.

Note - For those unfamiliar with Weiss, they are perhaps one of the more critical rating agencies, but their tough standards have been validated time and again as the more recognized entities have missed such debacles as Kemper Insurance's sudden demise.

Posted by at 5:56 PM | Permalink | Comments (2)

The Global Medical Forum held their 2004 US Summit in Washington DC last week, focusing on the different systems' approaches to health technology. Building on the 2003 Summit's focus on Pharmaceuticals, the presentations provided compelling insights into the ways technology is reviewed, adopted, and reimbursed in the EU.

Some of the more intriguing points included:

---the evaluation process tends to be much longer in the EU than in the US, and involves stakeholders from the patient, provider, hospital, and governmental communities
---in Germany, this process includes consideration of appropriate reimbursement amounts (contrast this w the US "we approve, you pay" methodology)
---cost-effectiveness is absolutely a consideration when reviewing new technology for possible reimbursement
---in Germany, only 20% of new health care technology applications are accepted..

I left with several other impressions and "take-aways". First, the EU relies, to a surprising degree, on US health care data when evaluating their own situation or projecting into the future. Second, the evaluation of the cost-effectiveness of a specific technology makes a lot of sense, and is done rather well by the Germans. Third, in Great Britain's much-maligned National Health System, there is surprising (at least to me) willingness to consider new technology, and to pay for expensive evaluations of same.

We can learn quite a bit from our colleagues in the EU. Health care systems in the EU tend to deliver excellent care for a lot less money than we do here in the US.

Paradoxically, I heard from several European experts that they see real value in some of the components and attributes of our system. For example, we are much better at collecting, analyzing, and using data.

Posted by at 6:46 PM | Permalink

Health care cost increases, which appeared to be moderating last year, appear to be stepping on the accelerator again. The Center for Studying Health System Change's recent analysis indicates that health care costs continue to grow much faster than either overall inflation rates, or, more importantly, worker incomes.

CSHC's analysis indicates that hospital price increases are one of the key factors driving health cost inflation, with prescription drug costs continuing to accelerate as well.

CSHC's analysis and review of the numbers forecasts the impact of continued inflation, noting :

"Health care costs likely will continue to grow faster than workers' income for the foreseeable future, leading to greater numbers of uninsured Americans and raising the stakes for policy makers to initiate effective cost-containment policies or accept the current trend of rapidly growing health care costs and gradually shrinking health coverage."

With the number of uninsured exceeding 45 million by most counts, 18% of the non-Medicare population is now uninsured. This compares to an uninsured rate of 0.1% in Germany, a country with health care costs as a percentage of GDP some 50% less than ours.

Posted by at 6:33 PM | Permalink | Comments (1)

The ongoing investigations into broker and insurer malfeasance continue to send shockwaves throughout the insurance industry. And, these investigations are causing those doing business outside the "broker-insurer-underwriter" world to revisit what have been long-established "ways of doing business."

While Mr. Spitzer and colleagues have started their investigations at the sales end of things, they may well find themselves uncovering many other instances of inappropriate or unethical payments.

For example, managed care vendors often pay TPAs an "administrative fee" that is a percentage of the revenues they receive from the TPA's clients. Typically these fees amount to 10-15% of total revenues, but fees in the 25% range are not unheard of. There is speculation in the WC industry that one large managed care firm pays one large TPA upwards of $10 million in "fees" annually.

These fees are rarely fully disclosed to the TPA's clients, and when there is disclosure, it is obscured by legalese, buried in the depths of a lengthy contract, and often mistaken for innocuous boilerplate.

One very large WC TPA claims it has provided full disclosure by including language similar to the following.

"The TPA does not receive any payment from the managed care vendor, except it reserves the right to charge the vendor for administrative expenses related to implementing managed care programs."

Clearly it is incumbent upon risk managers, TPAs, underwriters, and brokers to fully and completely disclose these arrangements. It is just as clear that until and unless the light of day is shone on a few of these deals, they will continue unabated.

Posted by at 7:47 AM | Permalink | Comments (1)