15 Big Health Care Business Questions for 2009 and beyond by Clive Riddle

by Clive Riddle

The impact of reform, recession, technology and emerging initiatives

Here’s a list of 15 questions to ask as we start to ponder the upcoming new year which will close out this decade:

1. Reform: What final health care reform package will emerge from the new administration and Congress, what will be the timing, and what portions of it will get adopted, given the current recession/financial crisis?


2. Regulation: Will significantly increased regulation ensue, with the compliance environment become even more stringent?


3. Medicare Advantage: Assuming Medicare Advantage health plan compensation is further targeted, will plans accelerate mass market withdrawals as they did prior to the MMA increases?


4. Consumer Driven Plans: Will the Democratic congress and the new administration diminish the viability of account based consumer driven health plans?


5. Patient Collections: How deep will be the impact of provider collection problems with higher consumer cost sharing in the current financial climate, and will there be any new initiatives from the hospital industry or other provider in response?


6. Patient Deferral of Care: In a recession environment, will consumers further defer and adjust their health care utilization and spending, even at long term detriment to their health?


7. Funding Wellness: Will immediate health benefit cost pressures trigger reduced support for initiatives that require longer term ROI, such as wellness incentives?


8. Tighter Managed Care: Will health benefit cost pressures fuel a demand and acceptance for a return to more stringent managed care delivery and care management?


9. Payment Reform: How widespread will provider payment reform initiatives evolve, advance and be adopted?


10. Medical Homes: To what degree will medical homes take hold, and how different vs. standardized will medical home initiatives evolve?


11. Fights over the Shrinking Pie: Will specialty physicians associations organize to more actively combat medical home, p4p and other payment reform initiatives if they are perceived as realigning distribution of physician compensation more towards primary care or further reducing income?


12. Investment Income: How deep will the ultimate impact of reduced investment income be upon health plans and health care institutions, and will it cause fundamental changes in investment portfolios, rate increases or reduced staffing or services?


13. Mergers and Acquisitions: Will the fallout of financial pressures cause an acceleration in Mergers and Acquisitions in the various health care industry components, or will tighter financial markets and conditions combined with increased regulatory scrutiny dampen the M&A environment?


14. EHR spending conundrum: A conundrum exists over the need for massive infrastructure and conversion spending on EHR initiatives and related issues such as ICD-10 coding in order to make the health care system more efficient, versus the immediate need to reduce cost pressures in the current financial climate: So will these initiatives lose or gain momentum?


15. Health Portals: Will one or more consumer health portals/web personal health records, such as Microsoft’s Healthvault or GoogleHealth emerge to achieve the same level of consumer significance as online banking/bill payments or social media such as Myspace/Facebook?

So what questions can you add to the list for 2009?

Medicare Prescription Drug Coverage in a Big Box

By Clive Riddle

Retail health care will continue to emerge and develop in new arenas. Retail health care started with prescription drugs decades ago, and now retail, convenient care clinics have been the rage. But there are certainly more retail avenues to develop, starting with health insurance at the individual level. Marrying individual Medicare distribution with prescription drugs at the retail would seem a natural. At least it has to Aetna and Costco.

This week, Aetna and Costco announced an alliance to offer a Medicare Part D Prescription Drug Plan: the Aetna Medicare Rx - Costco Plus Plan, to be available in 17 states, with Costco providing sales distribution to its members, and preferred Rx benefits provided for prescriptions filled at Costco pharmacies.

The plan will be available in Alaska, Arizona, California, Colorado, Florida, Hawaii, Idaho, Illinois, Michigan, Nevada, New Mexico, New York, Ohio, Oregon, Utah, Virginia and Washington. Monthly premiums will range from $50 to $70, depending upon the state. Under the plan generic copays, typically $10 at other pharmacies, will be $5 at Costco, or in some cases, zero copay.

Costco operates 545 “membership warehouses”, including 400 in the United States, and also operates Costco Online, an electronic commerce Web site at costco.com.

Data from the Consumer Driven Healthcare Summit

By Clive Riddle

The Third National Consumer Driven Healthcare Summit was held earlier this week in Washington DC, addressing a wide range of current key health care consumerism issues, with leading thought leaders and industry experts from around the country. Here's some interesting data shared by speakers from four selected Track Sessions during the conference:

Individual Health Insurance

Samuel Gibbs, Senior Vice President of Sales of eHealth, Inc.(parent of eHealthInsurance) gave a presentation on "The Online Individual Insurance Market - Perspectives, Experiences and Trends." EHealth represents over 180 health insurance carriers nationwide, which are available directly to consumer via their eHealthInsurance web site. Sam shared that eHealth's individual plan profile for 2007 was as follows:

* Average Age: 36
* Percent Male: 54%
* Percent Single: 61%
* Average Annual Premium: $1,896
* Range of Average Monthly Premiums: $83 to $388
* Average Annual Deductible: $1,971

Ann Ritter from the Convenient Care Association participated in a session on "The State of Convenient Care for 2009" and shared just released RAND convenient care data including:

* Patients by age breakdown as follows: under age 2 - 0.2%; age 2-5 - 6.3%; age 6-17 - 20.3%; age 18-44 - 43.0%; age 45-64 - 22.6%; age 65+ 7.5%
* 2.3% of patients were triaged to an emergency department or physician's office
* Among patients age 65+, 73.65% of visits were for immunizations
* Ten basic treatments and services accounted for more than 90% of visits

Paul H. Rubin, PhD, Samuel Candler Dobbs Professor of Economics and Law, Department of Economics, Emory University, in a presentation on "The Cost Effectiveness of Direct to Consumer Advertising for Prescription Drugs" discussed findings from a study and paper he co-wrote with Adam Atherly of Emory University, in which they found during patient visits to their physician:

* 4% of patients schedule physician visits to ask about a drug
* 14% of patients discussed a concern because of DTC advertising
* If patients ask for a drug, 39% receive that prescription, 22% are prescribed a different drug, and 18% receive no drug
* 5.5% of physicians prescribed a requested DTC drug, but thought a different drug was better
* 88% of patients requesting a DTC drug had a relevant condition
* 75% who received the requested drug reported subsequently feeling better

Michael Vittoria, Vice President, Human Resources, Sperian Protection, in his presentation on "Integrating Wellness & Preventative Care into a CDHP" told us that Sperian, with 1,300 U.S. employees, adopted a self funded HRA in 2004, introduced HSAs in 2007 and introduced Wellness Incentives in 2008. Sperian currently has 56% of employees enrolled in PPOs, 14% in HMOs and 30% in the self funded HSA options. 34% of their 2008 HSA participants earn < $30k, 21% earn between $30k to $50k, 17% earn between $50k to $75k, 16% earn between $75k and $100k, and 12% earn more than $100k. Sperian conducted various wellness incentive programs during 2008, with their weight loss program yielding a BMI reduction in participating employees from 30.7 to 29.4. Sperian's overall medical cost trend from each previous year has been:

* 2004 - 11.7% increase
* 2005 - 4.5% increase
* 2006 - 3.6% increase
* 2007 - 2.6% increase
* 2008 - 1.8% increase

Getting to the bottom of Counter-Intuitive Data

By Clive Riddle

The KFF/HRET Annual Survey of Employer Sponsored Benefits and Smaller versus Larger Group Premium Costs

Results were recently released from The Kaiser Family Foundation and Health Research & Educational Trust  Annual Survey of Employer Sponsored Benefits. This year’s 214 page document is a must read if you want a statistical photo album, as opposed to a snapshot, of employer health benefits landscape.

While the KFF/HRET is rightfully one of the most often cited, and leading sources for employer health benefit statistics, the results occasionally contain data that seems counter-intuitive.  Digging through this year’s document, the comparison of  smaller versus larger employer group premium costs raises such a red flag.

Intuition would guide us to believe that larger employer groups would experience lower premium costs and lower premium increases. Historically, a wide number of studies from national benefit consulting firms have borne this out.

But the 2008 KFF/HRET survey tells us that premiums are now cheaper for smaller firms (3-199 workers) compared to larger firms (200+ workers), with the average monthly single premium at $382 for smaller versus $397 for larger firms (3.9% higher), and the average monthly family premium at $1,008 for smaller versus $1,081 for larger firms (7.2% higher.) The report notes that in past years, any differential was not so significant.

What gives? It of course is always tempting in such situations to dismiss the information as a result of skewed data and a faulty survey. But who are we to know that this is case? Instead, the answers may still be in front of us. The report doesn’t specifically respond with answers to this vexing question, but it does supply enough detailed data to offer some explanations, if you dig one level deeper.

And in digging, it would appear that the difference could be due to benefit packages, plan funding, and demographics.

When broken down by plan of benefits, smaller firm premiums are actually more expensive for a number of categories (Family HMO, Single PPO, Single and Family HDHP) and the differential is not as pronounced where larger firms are more expense (3.2% higher for Single HMO and 2.4% higher for Family PPO) except for POS premiums, which don’t have that significant of enrollment.

Thus part of the explanation for less expensive smaller firm premiums could simply be in the mix of benefit packages (HMO vs PPO vs HDHP etc) for smaller firms vs larger firms. On top of that, a good portion of the explanation could be in the level of cost sharing, which impacts premium costs. For example, the average Single PPO deductible for smaller firms was $917, compared to $413 for larger firms.

Another component of the explanation may be in that self-funded plan costs are running higher than fully funded plans. The report indicates that family self-funded premiums average 6.2% higher than fully funded premiums. The report also tells as that only 12% of smaller firms have some level of self-funding compared to 77% of larger firms. Furthermore, more large firms are trending towards self funding. 62% of workers with employers having 5,000+ employees self-funded in 1999, increasing to 89% in 2008, and 62% of workers with employers having 1,000 to 4,999 employees self-funded in 1999 compared to 76% in 2008.

Lastly, demographics can provide some of the explanation. Larger groups tend to have a slightly older population, and the report indicates that firms with less than 35% of workers aged 26 or under had 6.7% higher premium costs than firms with more than 35% of workers aged 56 and under. Larger groups tend to have workers with higher wage levels, and the report indicates that firms with less than 35% of workers earning $22,000 or less had 8.3% higher premium costs than firms with more than 35% of workers earning $22,000 or less. Lastly, larger firms tend to be more unionized, and the report indicates that firms with at least some union employees had 4.3% higher premiums than firms with no union employees.

The point of all this digging is to demonstrate, when considering reports as valuable of the KFF/HRET annual survey, not to just browse through the summary and walk away with a headline that smaller groups now have lower premiums than larger groups, as some news organizations have done, or to dismiss the survey as flawed, as some pundits have done. Digging through the data can yield explanations, which would seem to indicate that on an apples-to-apples basis, small groups aren’t really cheaper. Instead, small groups have higher cost sharing, a different mix of benefit plans, less self funding and demographics that make them “apples” compared to large firm “oranges”, and the apples do cost less than oranges in this case.

Presenteeism Quantified

By Clive Riddle

CIGNA last week released Yankelovich survey results quantifying various aspects of "presenteeism", which they define as "the phenomenon of employees being physically present at work, but not performing their duties at full capacity due to illness and various distractions."

Jodi Prohofsky, CIGNA Health Solutions Unit SVP of Operations tells us "The survey demonstrates very clearly what every employee knows – that life impacts work and work impacts life. The challenge for employers is to find ways to reduce that impact by offering workplace programs focused on employee health and well-being, and then encourage their employees to use these programs. It’s important for employers to create a culture of wellness in the workplace so that every employee has the opportunity to achieve his or her full health and productivity.”

Here's selected results from their study:

• On average, people admitted to spending between 2 ½ and five hours per week resolving personal issues while at work, spiking during particularly stressful or eventful weeks.
• 61% of employees reported for duty while they were sick or coping with family and personal matters, with an average number of  6.9 "presenteeism" days per employee for the past six months, compared to 3.0 actual absence days per employee for the past six months.
• Employees average 2.4 hours per week dealing with personal issues in a typical week, and 4.7 hours during a stressful week
• 62% of employees admitted to being  less productive on those days they were sick or had to deal with personal issues, 
• 38% of employees reported to work sick or with a significant person issue out of a sense of duty, and 25 % reported because they needed the income. 
• 66% of employees admitted they don’t get enough sleep, and 45% said that their lack of sleep hurt their work performance. 
• Of those saying that a lack of sleep affected them at work, 50% were less productive, 43% were irritable, 42 % were unable to focus, 40% delayed projects,  28%  admitted to making errors, and 12% fell asleep on the job (multiple answers allowed.)
• Employee strategies to stay alert bode well for Starbucks. the top strategy was to drink caffeinated beverages (57%). 20% said they take a nap to stay refreshed.

The lines continue to blur between human resource issues and benefits issues, and employers, health plans, providers, and solutions companies are all building on a trend to address workplace issue like presenteeism through delivery and management of health care benefit. Expect to see health plans, wellness companies, care management companies, pharmaceutical programs, and various vendors to continue to step up involvement is this area.

The Venus and Mars of Actuaries and Underwriters

By Clive Riddle

For many of us, what goes on behind the closed doors of actuarial and underwriting offices, if not the stuff of Tom Clancy novels, is still a bit mysterious. Many of us in fact confuse the two functions, thinking that they are interchangeable terms to be applied within an organization, when in fact, they are not. In this month's Predictive Modeling News, editor Russell Jackson interviews actuary Joseph N. Romano ASA MAAA, and underwriter James A. Minnich, discussing what Russell refers to as " the Martian and Venusian aspects of each side.”’

Russell cited a recent predictive modeling conference presentation the two, representing Ingenix, had given where they addressed the “stereotypical extremes of actuaries and underwriters. Here are characteristics of the stereotypical actuary: conservative, analytically accurate and precision-seeking, medium- to long-term focus, action-oriented, but with limited urgency, financially results-oriented and biased, program-oriented, a shy, quiet numbers person with some people skills. Here, on the other hand, are characteristics of a stereotypical underwriter: moderate to conservative, analytically accurate but flexible, short- to medium-term focus, responsive and oriented to fast-paced action, balances financials with growth, customer-oriented, an approachable “people person” with good conversation skills. The best actuaries and the best underwriters, the two said, understand those extremes and have a little bit of both in their approach.”   
 
Russell asked the two point blank,  what is the difference between what actuaries do and what underwriters do?. Joe Romano the actuary responded "There are a lot of different ways to describe the roles, of course, especially around pricing. That’s where the two disciplines -- actuary and underwriting -- intersect, interact and overlap. Actuary also does reserving and other peripheral activities, but the primary interaction is on pricing. I would argue that an easy definition is that actuary tends to look at macro activity, at issues in the aggregate. Underwriting, on the other hand, while staying aware of that aggregate, works more with the specifics, with a particular group, for example." Jim Minnich the underwriter added "I’d also use that 'micro' and 'macro' distinction. Also, I’d add that actuary is responsible for coming up with the revenue you need on a per-member-per-month basis, on average, for a set of benefits. The underwriter does the analysis on a group-by-group basis, to do a risk assessment to determine if the group is average, healthy or sick. Underwriting starts with the average revenue needed, then the underwriter adjusts it to the particulars of the group. There’s another dynamic at play, too. None of this happens in a vacuum, so the 'best practice' is where they’re linked together -- actuary, underwriting and sales. What if the PMPM rate is consistently too high to be supported by the market? We need to make sure we get enough revenue, but we have to strike a balance between profit and growth. Sales is focused on growth, while underwriting and actuary focus more on the profit piece."

This led Russell to ask them, is there a difference between medical and financial underwriting? Romano replied "There is, indeed. A medical underwriter traditionally is someone who reviews individual health insurance applications, which typically include health questionnaires. So medical underwriting looks at the presence or absence of diabetes, cancer and other chronic conditions to determine the medical health status of the applicant. The financial underwriter, by comparison, works on smaller groups with the other underwriters, but is much more similar in actual function to an actuary, using algebraic calculations to determine the rate needs for a particular group."

Russell Jackson comments that "It doesn’t sound exactly like one is from Mars and the other from Venus, to borrow from the book title, but it sounds like personality types could contribute to a disconnect between actuaries and underwriters." He then asks if  there any way to account for that in staffing, or in setting up communications processes between them?  

Romano tells Russell that "part of what attracts people to the different professions, absolutely, is differences in personality traits. Both disciplines are math-oriented, of course, but while the typical actuary is a math major, an underwriter may be a math major, but we also find folks with a lot broader backgrounds in underwriting because those professionals need a math bent but other skill sets as well. It gets into the different scopes of training the two disciplines undergo; for example, the actuarial profession has a formal examination schedule. The point is, if you have the wrong kinds of interactions between the stereotypes of actuaries and underwriters, you can have problems. But when you get the right kinds, when you get the interactions of people who recognize the stereotypes but who really understand each other’s disciplines, you have the best possible scenario -- the underwriter who understands the actuary’s introversion or the sales agent who understands math. That’s the ideal interaction of the disciplines, and that starts with the interaction of the individual actuaries and underwriters themselves."

Minnich weighed in as well. "I was trained in the early 1980’s at an insurer, and I was surprised that, in that office, we had 50 underwriters, but only five or so of them had math backgrounds. Mine, in fact, is in theology, and I once taught religion to high school students. In other words, you find a wide variety of backgrounds in underwriting, but it’s rare to find an actuary who doesn’t have a math background. Of course, there are stereotypes, too. Are all actuaries very analytical and introverted? Are all underwriters a little less extroverted than sales agents and a little less technically adept than actuaries? Are all sales agents very extroverted with very limited math aptitude?"

Russell also asked how valuable is a formal education program to train each discipline about the other and about respecting the differences between them?  Romano responded that "The Society of Actuaries’ educational processes continually evolve, and we’re trying to get more than math major personalities in terms of thought processes, more of a business orientation; in fact, we talk about the same issues for actuarial and for predictive modeling audiences. There’s great interest in people understanding how they work together. A challenge for better integration of actuary and underwriting, though, is the fact that, while underwriters attend educational forums as well, I don’t know that we have a formal approach to learning each other’s discipline. We have opportunities for that kind of education, but I don’t know that you’ll see it formalized. Rather, that integration is really going to result from the dynamics of people working together and sharing information."

Minnich tells Russell that "My background is in underwriting, so I’m aware of something of an unspoken dynamic; unspoken but worth knowing about. In a traditional insurance company 25 years ago, the actuary held a role that was higher than the underwriter’s. In many cases, the actuary was responsible for coming up with what was needed as far as averages, but also for the formulas the underwriters would be expected to use to go from the average to a community rate for a particular group. It was very clear that, stature-wise, the actuary was much higher. In fact, there are still actuaries working with clients who don’t like to turn the case over to underwriting because everyone knows that “an actuary can underwrite, but an underwriter can’t actuary.” That dynamic is certainly changing, but there’s still some underlying tension out there. What’s changing it? With the advent of HMOs, you see smaller, regional plans that, because of their size, couldn’t afford to hire an actuary. So they’d look to the underwriter on staff to do the traditional actuarial duties and hire an outside firm for consulting actuarial functions. Now, at the huge insurance companies, which have huge actuarial staffs, some of the more stereotypical actuaries still exist. If that person is one of, say 30, actuaries, he or she may not ever have to interact directly with underwriting or sales. But in the smaller plans that have cropped up, if you’re the only actuary, you don’t have that luxury. The good news for all of us is it’s the actuaries who have personalities closer to underwriters and sales agents who will advance. Likewise, it’s the underwriters who are analytical who will succeed."

For More Information:

Predictive Modeling News
www.PredictiveModelingNews.com

Health Care Is Personal: In Memory of Karen

By Clive Riddle

Just a few months into my first administrative position at a hospital in 1981, just a year out of college, I remember feeling pleased with myself as I edited the Radiation Therapy Center feasibility study I had just spent countless hours and days preparing. It was a thick report full of projections, tables, charts, and narrative. Then in the background, I could year the sobbing outside my office.

My office had been converted from an admissions room, and was situated next to a quiet area for families, off the main lobby. I had never really paid attention my surroundings. I was too into my new job. But the sobbing persisted, and at some point I had to leave my office for a meeting. As I rounded the corner I spied the family, grieving for a loved one that had just passed away upstairs.

In the years to come, as I progressed in my career, becoming CEO of a regional provider owned health plan, I was typically far removed from the actual rendering of health care. Instead I was immersed in the business of it: budgets, monthly reports, department head meetings, actuarial projections, marketing campaigns, contract negotiations, board meetings, personnel issues.

Now and then, but never often enough, I tried to remind myself of that day outside my hospital office, so early in my career, when I first learned that health care is personal, and can not so lightly treated as just another business or commodity.

During my more than dozen years running that health plan, I had the great pleasure of working every day with Karen (Hutcheson) Speziale. She was the Chief Operating Officer of the plan, and she made the plan run, and run well. Karen passed away this past week, after a six and a half year battle with cancer. Karen should have been with us for at least a couple of more decades.

I remember sitting in my health plan office with Karen and our Medical Director, making decisions on proposed benefit and coinsurance levels for the coming plan year. We set a higher coinsurance level and benefit limitation for Total Parenteral Nutrition (TPN), which was at the time increasingly being used in the treatment of Crohn’s Disease. Years later, one of my children would be diagnosed with Crohn’s. We also set various new benefit parameters for several different prescription and treatment options for cancer.

Health care is personal.

After I left that health plan to start MCOL, Karen went on to take a position with Kaiser Permanente, developing and then managing their expansion in our market. Kaiser is now the dominant health plan in our area. Later, Karen moved away to San Diego, and really flourished there.

Karen volunteered significant time in elementary school classrooms. She became the advisor for the local chapter of her Sorority at the university. She spent countless hours on other civic activities. Several of her former department heads from our old health plan remained the closest of friends with her, taking really cool vacations together, and staying in constant touch. She also kept very close ties with her family. When Karen’s illness required that she fully retire from her job, she continued all her contributions to the community.

I very recently took a quick trip to visit with Karen. She had just returned from a visit to the Kindergarten class where she helped the kids learn to read. They had put on a program just for her. On the wall in her office was a plaque recently given to her by her Sorority as the national “Alumna of the Year.” The perpetual annual award will now bear her name.

Karen’s investment in community time should serve as a wake up  call to all of us working on the business side of health care, to put and keep some balance in our lives, as Karen did.

Karen shared with me how recently at the hospital she had an hour long conversation with a nurse on what was wrong with health care. Karen laughed about it, but its hard to argue that there is something significant that needs to be done with health care. We can start by remembering how personal it is.

Anyone reading this who knew Karen Speziale might be interested to know that donations in her memory can be made to San Diego Hospice at www.sdhospice.org

International Health Care Data and Comparisons

By Clive Riddle

With this election year, health care is a central topic of discussion for Presidential and Congressional candidates. Inevitably, references are made inferring either superior or inferior performance of the U.S. health care system compared to various other countries.
So just what kind of current data is out there reflecting various attributes of international health care? Below is collection of selected international health care factoids, compiled by Global Health Resources this year:

Health Spending And Insurance Systems in Seven Countries, 2007

Australia Canada Germany Netherlands New Zealand United Kingdom United States National health spending Per capita (U.S. $PPP)* $3,128 $3,326 $3,287 $3,094 $2,343 $2,724 $6,697 Percent of GDP* 9.5% 9.8% 10.7% 9.2% 9.0% 8.3% 16.0% Percent of primary care practices with: Any financial incentive for quality 72% 41% 43% 58% 79% 95% 30% Electronic medical records 79% 23% 42% 98% 92% 89% 28% Percent uninsured 0% 0% <1% <2% 0% 0% 16% *PPP is purchasing power parity. GDP is gross domestic product Source: Toward Higher-Performance Health Systems: Adults’ Health Care Experiences In Seven Countries, 2007 Health Affairs, October 2007 http://content.healthaffairs.org/cgi/content/full/26/6/w717

Cost of Medical Procedures: United States and Abroad (in US dollars)

Procedure United States Costa Rica Mexico Korea Heart bypass $130,000 $24,000 $22,000 $34,150 Heart-valve replacement $160,000 $15,000 $18,000 $29,500 Angioplasty $57,000 $9,000 $13,800 $19,600 Hip replacement $43,000 $12,000 $14,000 $11,400 Hysterectomy $20,000 $4,000 $6,000 $12,700 Knee replacement $40,000 $11,000 $12,000 $24,100 Spinal fusion $62,000 $25,000 N/A $3,311 Source: Medical Tourism Association, 2007 Survey

Procedure United States Costa Rica Mexico Korea Heart bypass $130,000 $24,000 $22,000 $34,150 Heart-valve replacement $160,000 $15,000 $18,000 $29,500 Angioplasty $57,000 $9,000 $13,800 $19,600 Hip replacement $43,000 $12,000 $14,000 $11,400 Hysterectomy $20,000 $4,000 $6,000 $12,700 Knee replacement $40,000 $11,000 $12,000 $24,100 Spinal fusion $62,000 $25,000 N/A $3,311 Source: Medical Tourism Association, 2007 Survey

The Cost of Medical Procedures in Selected Countries (in US dollars)

Procedure US Retail Price* US Insurers' Cost* India** Thailand** Singapore** Angioplasty $98,618 $44,268 $11,000 $13,000 $13,000 Heart bypass $210,842 $94,277 $10,000 $12,000 $20,000 Heart-valve replacement (single) $274,395 $122,969 $9,500 $10,500 $13,000 Hip replacement $75,399 $31,485 $9,000 $12,000 $12,000 Knee replacement $69,991 $30,358 $8,500 $10,000 $13,000 Gastric bypass $82,646 $47,735 $11,000 $15,000 $15,000 Spinal fusion $108,127 $43,576 $5,500 $7,000 $9,000 Mastectomy $40,832 $16,833 $7,500 $9,000 $12,400 * Retail price and insurers' costs represent the mid-point between low and high ranges ** US rates include at least one day of hospitalization; international rates include airfare, hospital and hotel Source: Medical Tourism: Global Competition in Health Care, National Center for Policy Analysis, November 2007 http://www.ncpa.org/pub/st/st304/st304.pdf

Wait Time to get an Appointment in Seven Countries

Percent of adults who waited 6+ days for an appointment to see regular medical doctor Canada 30% United States 20% Germany 20% United Kingdom 12% Australia 10% Netherlands 5% New Zealand 4% Source: Fixing the Foundation: An Update on Primary Health Care and Home Care Renewal in Canada, January 2008 http://www.healthcouncilcanada.ca/docs/rpts/2008/phc/HCC_PHC_Main_web_E.pdf

Percent of adults who waited 6+ days for an appointment to see regular medical doctor Canada 30% United States 20% Germany 20% United Kingdom 12% Australia 10% Netherlands 5% New Zealand 4% Source: Fixing the Foundation: An Update on Primary Health Care and Home Care Renewal in Canada, January 2008 http://www.healthcouncilcanada.ca/docs/rpts/2008/phc/HCC_PHC_Main_web_E.pdf

Access to “Medical home”* Among Adults in Seven Countries, 2007

Australia Canada Germany Netherlands New Zealand United Kingdom US 59% 48% 45% 47% 61% 47% 50% *Medical Home: Has a regular doctor or place that is very/somewhat easy to contact by phone, always/often knows medical history, and always/often helps coordinate care Source: Toward Higher-Performance Health Systems: Adults’ Health Care Experiences In Seven Countries, 2007 Health Affairs, October 2007 http://content.healthaffairs.org/cgi/content/full/26/6/w717

Out-of-Pocket Expenses for Medical Bills in the Past Year in Seven Countries

(in U.S. $ equivalent) Australia Canada Germany Netherlands New Zealand United Kingdom United States None 13% 21% 9% 38% 12% 52% 10% $1-$100 11% 17% 17% 15% 17% 12% 9% More than $1,000 19% 12% 10% 5% 10% 4% 30% Source: Toward Higher-Performance Health Systems: Adults’ Health Care Experiences In Seven Countries, 2007 Health Affairs, October 2007 http://content.healthaffairs.org/cgi/content/full/26/6/w717

Mortality Amenable to Health Care in Selected Countries*

Deaths per 100,000 population Country 1997-98 2002-03 France 76 65 Japan 81 71 Spain 84 74 Australia 88 71 Sweden 88 82 Italy 89 74 Canada 89 77 Netherlands 97 82 Greece 97 84 Norway 99 80 Germany 106 90 Austria 109 84 Denmark 113 101 New Zealand 115 96 United States 115 110 Finland 116 93 Portugal 128 104 United Kingdom 130 103 Ireland 134 103 *Deaths from certain causes before age 75 that are potentially preventable with timely and effective health care. Source: Measuring the Health of Nations: Updating an Earlier Analysis, The Commonwealth Fund, January 2008 http://www.commonwealthfund.org/usr_doc/1090_Nolte_measuring_hlt_of_nations_ HA_01-2008_ITL(web).pdf?section=4039

Cost-Related Access Problems in Seven Countries, 2007

Australia Canada Germany Netherlands New Zealand United Kingdom United States Percent in past year due to cost: Did not fill prescription or skipped doses 13% 8% 11% 2% 10% 5% 23% Had a medical problem but did not visit doctor 13 4 12 1 19 2 25 Skipped test, treatment or follow-up 17 5 8 2 13 3 23 Percent who said yes to at least one of the above 26 12 21 5 25 8 37 Source: Health Care: Solutions Without Borders, The Commonwealth Fund http://www.commonwealthfund.org/aboutus/aboutus_show.htm?doc_id=597055

For More Information:

Global Health Resource
www.globalhealthresources.com

What's the current state of things in the Convenient Care Industry?

By Clive Riddle

After attending two sessions on retail medicine at the World Health Care Congress today, here's what we found out:

John Agwunobi, MD, EVP Professional Services for Wal-Mart shared the following statistics for Convenient Care visits at Wal-Mart locations, through their various contracted providers:

• adults comprise 79% of visits, 21% of visits are for children
• 55% of patients have no insurance coverage
• Patient surveys indicate, had the Wal Mart convenient care location not been available, 40-50% of patients would have seen a primary care physician; 20-35% of patients would have used an urgent care facility; 10-15% would have gone to an ER; 5-10% would have foregone treatment
• 90+% of patients indicate overall satisfaction
• 25-40% of visits are for immunizations & screenings; and 60-75% of visits are to treat common illnesses

Doctor Agwunobi also discussed the Wal-Mart $4 Generic Prescription program, which is offered to all Wal-Mart customers and is proactively promoted through the Convenient Care locations. The program involves 361 generic prescriptions covering up to 95 percent of prescriptions written in the majority of therapeutic categories. Nearly 30 percent of $4 prescriptions are filled without insurance. The $4 prescriptions now represent approximately 40 percent of all filled prescriptions at Wal-Mart.

Web Golinkin, President and CEO, of RediClinic discussed RediClinic customer experiences, noting that RediClinic is a partner of Wal-Marts. Mr. Golinkin is also President of the Convenient Care Association and shared the following insights regarding the Association and industry as a whole:

• There were 150 clinics when the Convenient Care Association founded less than two years ago to more than 950 today nationwide, with 1,500 projected by the end of 2008.
• Overall, the clinics have treated more than 2.5 million patients in 36 states
• Surveys indicate 16% of consumers have tried a clinic and between 34 to 41% say they intend to

Golinkin stated the potential obstacles or events that could slow industry growth would be if:

• The industry suffered future systemic clinical quality issues
• A shortage and/or increased cost of Nurse Practitioners (NPs) and Physician Assistants (PAs) occurred
• If various states continue with additional regulatory impediments (clinic licensure requirements, restrictions on NP/PA scope of practice and prescriptive authority, physician oversight requirements, corporate practice of medicine prohibitions, etc.)
• If increased Operator/business model failures occur. He noted that there have been some failures, commented that this should be expected with any industry having relatively lower barriers to entry but higher ongoing working capital requirements. He felt there will be a shakeout with consolidation.

Michael Howe, CEO of MinuteClinic, states their organization's strengths include:

• They are "Right Size” engineered for efficiency and high quality
• Proprietary Electronic medical record system embedded with standardized “best practice” protocols
• Facilitates measurement of results and continuous quality improvement
• Interoperability drives continuity of care back to the Medical Home
• Consumer friendly - with convenient locations in consumer pathway, and “Lifestyle conscious” hours and “walk in” scheduling
• “High touch” capability of practitioners drives compliance
• Patient Referral system facilitates the creation of “Medical Homes”when lacking

He cited an independent external research study conducted by Market Strategies in April 2007 indicating a patient satisfaction rate, as well as the percent likely to recommend, of 97%. He noted that MinuteClinic adheres to national standards of practice guidelines, (which have been adopted by their Association) but also is the first retail health care provider to be Joint Commission accredited.

Howe also cited a peer reviewed study from September 2005 through September 2006 of 57,000+ MinuteClinic evaluations of acute pharyngitis, looking for outcome measures to include adherence to best practice treatment guideline in presence of negative or positive RST, use of back up confirmatory strep culture testing in presence of negative RST, and documented rationale when antibiotic was prescribed in presence of negative RST. The study indicated an overall adherence rate of 99.15%.

e-Visit Data

By Clive Riddle

Patient online e-visits, introduced at the start of this decade, continue to gain momentum as technologies improve, consumer demand increases, experience from prior pilot studies becomes more widespread and major health plans advance and adopt e-visit initiatives. Here's a collection of some recent data on e-visits, compiled in MCOL's March @How-TO newsletter:

• Trinity Clinic in Whitehouse, Texas, reports e-visits average five minutes, compared with 15 to 20 minutes for comparable office encounters, and averages one to two billable e-visits per month per doctor (1)
• Medfusion, an e-visit vendor, has process half a million e-visits for about 2,500 physicians during the last three years (1)
• McKesson's Relay Health, an e-visit vendor, charges physicians $25 per month per doctor for use of the web visit tools (2). RelayHealth, has 15,000 subscribing physicians (3)
• Manhattan Research survey results found 31% of physicians reported using some type of online communication with their patients in the first quarter of 2007, up from 24% in 2005, and 19% in 2003 (3)
• "National surveys suggest that the majority of online consumers now desire e-mail access to their physician and are willing to pay about $25 for an online consultation. A recent Wall Street Journal Online/Harris Interactive Poll found that 62 percent of patients said the ability to talk to a physician electronically would affect their choice of doctors and a Harris Interactive poll conducted in 2006 found that 74 percent of patients would like to use e-mail to communicate directly with their physicians." (3)
• "A recent Kaiser Permanente study of patients who used the medical group’s secure e-mail system between 2002 and 2005 to access their physicians found that they phoned their physicians nearly 14 percent less than did patients not using the system, while each doctor averaged about two e-mail messages per day." (3)
• "A two-year study of a pediatric rheumatologist’s e-mail and telephone interactions with 121 patient families, published in last October’s Pediatrics, found that the physician received an average of 1.2 e-mails per day, while answering patient questions by e-mail was 57 percent faster than using the telephone." (3)
• "75% of patients polled in the 2007 WSJ/Harris poll reported that their doctor does not currently offer e-Visits or other e-services" (4)
• "Blue Shield of California has estimated that the use of online patient-provider communications tools by its members will save the organization $4 million a year in office visit claims." (4) 

(1) Demand for e-visits grows but uptake still sluggish
Managed Healthcare Executive, November 1, 2007
http://managedhealthcareexecutive.modernmedicine.com/

(2) Physicians diagnose their patients via mouse calls
Akron Beacon Journal, March 10, 2008
http://www.statesman.com/life/content/life/stories/health/03/10/0310housecalls.html

(3) Online physician communication 
Physicians News Digest, March 2008
http://www.physiciansnews.com/cover/308.html 

(4) e-Visits:The Tipping Point - Are We There Yet?
Rhondda Francis, TransforMed, 2008
http://www.transformed.com/e-Visits/e-Visits_Are_We_There_Yet.cfm 

Online Consumer PHRs in MicrosoftLand and GoogleLand: Winning Hearts and Minds

By Clive Riddle

Quest Diagnostics Inc. and Health Grades Inc. announced this week that they will partner with Google to provide patients online access to their diagnostic laboratory records and rating information regarding hospitals and physicians. Google also provided further information this week on its Google Health PHR initiative.

There has been much attention given to Google's announcement last week regarding their PHR  pilot initiative with the Cleveland Clinic. Google Health is being designed to "assist providers to create a new kind of healthcare experience that puts patients in charge of their own health information." The Clevland Clinic pilot involves an invitation-only opportunity for a targeted patient group of between 1,500 and 10,000 that are among Cleveland Clinic's more than 100,000 patients currently using their PHR system called eCleveland Clinic MyChart. The pilot "will test secure exchange of patient medical record data such as prescriptions, conditions and allergies between their Cleveland Clinic PHR to a secure Google profile in a live clinical delivery setting. The ultimate goal of this patient-centered and controlled model is to give patients the ability to interact with multiple physicians, healthcare service providers and pharmacies. The pilot will eventually extend Cleveland Clinic’s online patient services to a broader audience while enabling the portability of patient data so patients can take their data with them wherever they go — even outside the Cleveland Clinic Health System."

The Associated Press reports that the profiles will be protected by the same password required to use other Google services such as email. The previously available beta Google Health login screen stated: "With Google Health, you can: * Build online health profiles that belong to you; * Download medical records from doctors and pharmacies; * Get personalized health guidance and relevant news; * Find qualified doctors and connect to time-saving services; * Share selected information with family or caregivers"

Meanwhile, what' s going on with Microsoft's HealthVault initiative? Sean Nolan, the Chief Architect for HealthVault, opened a blog on that topic last month: http://www.familyhealthguy.com . He uses an interesting term: "we spend a bunch of time thinking about how to increase what we call "data liquidity" (a term only an engineer could love) -- how do we create pipes that let people easily and securely move data back and forth between their Vault and primary care doctors, specialists, hospitals, pharmacies, and so on, all under their consent and control." Sean states that "Microsoft will make the complete HealthVault XML interface protocol specification public. With this information, developers will be able to reimplement the HealthVault service and run their own versions of the system." Microsoft also just received publicity for its announcement to fund $3 million to outside parties to research and develop online tools to improve health. There has also been considerable discussion, in the wake of these announcements, regarding privacy concerns as consumer use these tools.

Microsoft, received less publicity, but may be making more of an impact, for its just announced accelerated push towards interoperability with its HealthVault PHR platform. Further down the page in Microsoft’s just issued press release, they stated that “the company will release HealthVault XML interfaces under the Microsoft Open Specification Promise (OSP). The OSP is a simple and clear way to help developers and solution providers working with commercial or open source software to implement specifications through a simplified method of sharing of technical assets, while also recognizing the legitimacy of intellectual property. Further reinforcing the company’s commitment to open interoperability, Microsoft is hosting a HealthVault community open source project — an implementation of the HealthVault API wrapper for the Java development environment — on Microsoft CodePlex, Microsoft’s open source project hosting Web site. This will be the first of many projects designed to make it easier for developers and solution providers to use the language and framework of their choice to deliver HealthVault-compatible applications.” What does all that technical jargon mean? That Microsoft has shifted, at least somewhat, from its historic total proprietary system stance, to a more open system that encourages interoperability. This should bode well for HealthVault, and PHRs in general.

Of course that PHR stakes are most definitely limited to Google and Microsoft. Steve Case's Revolution Health Group, Aetna, WellPoint and almost 200 other vendors are involved in this space. But, the Microsoft, Google's and other large vendor announcements have been greeted by privacy concerns in some corners. Gannett cites "Greg Sterling, an analyst at Sterling Market Intelligence in San Francisco, calls Google's initiative a 'good idea.' But, he adds, 'The problem and the challenge arise in the context of consumer privacy and data security.' " Also this week, the World Privacy Forum issued a report "Personal Health Records: Why Many PHRs Threaten Privacy". The report concludes that a number of PHR vendors, are not truly "covered by HIPAA", but rather tout that they are "compliant with HIPAA", which the report notes, could be subject to change. The report notes concerns that PHRs not covered by HIPAA include: Health records could lose their privileged status; records could more easily subpoenaed by a third party; and Information in some cases may be sold, rented, or otherwise shared.

What may be more significant in the long run, is the ultimate interoperability of these initiatives. If we want to simplify health care, technology must be a partner. But technology can become an obstacle if it consists of endless disparate tools and proprietary systems that can’t relate with other. Unfortunately, the latest survey and report on this topic indicates we're no where near close where we need to be. The California Health Care Foundation (CHCF) recently released three reports on Health Information Technology (HIT) adoption, regarding: HIT adoption and use in California; national HIT perspectives; and open source systems. Detailed information and downloads are available at http://www.chcf.org/press/view.cfm?itemID=133554

Jonah Frohlich, CHCF senior program officer, tells us "HIT can play a significant role in preventing medical errors, giving patients the appropriate level of care, and making health care more efficient. HIT is not a cure-all for what ails our health care system, but where it is used, it has helped support better care." CHCF points out that California has the highest rate in the nation for MD use of electronic health records (EHRs): 37% compared to 28% nationally. Still, that means the leading state, the home of Silicon Valley, barely has one in three doctors properly wired. According to their study, 'The State of Health Information Technology in California', "the larger the medical practice, the more likely it uses EHRs. Some 79% of Kaiser Permanente physicians reported using EHRs, followed by 57% of patients in large practices of ten or more physicians. But EHR usage dropped considerably among small/medium practices (25%) and solo practitioners (13%)."

In another CHCF report, 'Gauging the Progress of the National Health Information Technology Initiative: Perspectives from the Field' author Bruce Merlin Fried states "despite President Bush's 2004 plan to ensure that most Americans have interoperable electronic health records by 2014, the vast majority of practicing physicians, those who practice alone or in small groups, are no closer to using HIT now than they were three years ago."

Blogger Dana Blankenhorn gets it right in the ZDNet Healthcare blog: “In the context of the medical market, however, Microsoft’s process seems more reasonable. This is less about gaining the trust of consumers than it is about winning over doctors, hospitals, and payment processors.” In other words, this is about winning the hearts and minds of doctors, hospitals and payment processors, which requires interoperability.

Top Eight Issues for 2008 (according to PwC)

By Clive Riddle

The other day I received my copy of the "Top Eight Health Industry Issues in 2008", billed as "The third annual summary of current health industry issues by PricewaterhouseCoopers' Health Research Institute."

You have to admire anyone who produces a list of top items that doesn't use the number ten. Here without further The PwC Health Research Institute list is based upon survey research, as opposed to pure thought leadership. Without further adieu, here's a summary of what they found is store for us, in terms of what we must address and that will impact us in 2008:

1) Significant changes in the way hospitals bill Medicare will create some winners and some losers.

2) Renewed focus is on the FDA’s drug safety initiatives.

3) A surge in the number of retail clinics will force states, payers, and policy makers to think about the right model for the delivery of primary care.

4) The market for individual health insurance could take off.

5) Retirees are playing a greater role in funding their healthcare coverage—whether they like it or not.

6) Big pharmaceutical companies will keep buying and collaborating with life sciences companies to stock their pipelines

7) This year, hospitals publicly report their corporate responsibility.

8) Asia is poised to be the largest pharmaceutical consumer and pharmaceutical producer in the world.

Click here to download a copy of their eight page report. 

So what's on your top whatever list?

Benefits Cycle

Benefits Cycle

Mercer, the national human resources and benefits consulting firm, in their annual employer health plan sponsor survey findings, recently projected that the average total cost to renew health plans for 2008 with no changes would yield a 9% increase, but actual increases for 2008 are projected at 6.7% dues to changing plans, adding lower-cost options or by altering benefit design. (see “After a three-year lull, health benefit cost growth picks up a little speed in 2008”, Mercer Press Release, September 5 2007,
http://www.mercer.com/pressrelease/details.jhtml/dynamic/idContent/1279545

Thus what health plan premium rate an employer winds up with from year to year is a result of negotiations and changes in the plan design.

Earlier this month, The Wall Street Journal ran an article by M.P. McQueen, “New Health Plans Tout Predictable Premiums” (see Wall Street Jouranl, October 9, 2007; Page D3; http://online.wsj.com/article/SB119188282779652669.html - subscription required)

The article cites an example of Guardian Life offering muti-year premium rate contracts and guarantees, that build-in the ability for Guardian to alter cost-sharing provisions if actual costs for the group exceed specified thresholds. The article also cites multi-year rates from Humana, based upon other requirements.

Multi-year rate guarantees are a sign that premium rate competition may be heightening, which is of course is addressed in the concept of the Underwriting, or Premium Rate pricing cycle.

The pricing cycle phenomena has existed for more than four decades. Under the cycle, during profitable periods for health plans, the plans desire to expand or protect market share and intensify price competition. Competing plans keep pace, triggering mini price-wars and multi-year contracts. Depressed pricing in turn triggers unprofitability, which ultimately escalates to the point where market leaders accelerate their price increases. Other plans follow suit, and soon escalating industry wide increases bring the sector back to profitability and the cycle begings anew.

They cycle has softened during this decade, as plans have grown less competitive due to product and market consolidation, and changes in plan behavior. This softening of competitive behavior, combined with the advent of consumerism and cost sharing, brings us to the concept of a benefits cycle.

Under a benefits cycle, benefit coverage and cost sharing can fluctuate based on plan competition for consumer enrollment during profitable and unprofitable points in the cycle. Guardian Life’s strategy would seem a step in that direction.

The State of Convenient Care

Earlier this week, the Convenient Care Mini-Summit was held during the National Consumer Driven Healthcare Summit in Washington, DC. The Mini-Summit was sponsored by the Convenient Care Association. Speakers included: Tine Hansen-Turton, Executive Director, Convenient Care Association; Mary Kate Scott, President, Scott and Company; Chris Kersey, MD, Chief Business Development Officer and Chief Medical Officer, RediClinic; Ann Ritter, Policy Director, Convenient Care Association; Sarah Ratner, Senior Legal Counsel, MinuteClinic; and Brian Jones, Chairman and Chief Executive Officer, MedBasics.

Here's some key tidbits on what's going on in the Convenient Care sector that the faculty shared during the Mini-Summit:

• The first Convenient Care clinic opened in 2000, today there are 500 clinics operated by over 20 companies, and there may be as much as 700 clinics by the end of the year
• New facilities getting smaller - many around 220 square feet in size
• Health Plan formulary compliance has not a significant issue due to limited scope of services
• 30-35% of clinic patients represent a new Rx to the sponsoring Rx retailers
• Minute clinic has experienced 1 million cumulative visits with no malpractice cases. The lack of malpractice claims is at least partially due to the limited scope of services provided in a Convenient Care setting
• The target demographic, based on studies: the most typical Convenient Care consumer is female, the healthcare decision maker in their household, and a mom.
• BCBS Minnesota for example in their claims for Convenient Care found that 63% of patients were female and 48% under age 21
• The two big challenges facing Convenient Care are state regulations and proving the financial model. Regulation of the industry is fragmented on a state-by-state basis, with some states proactively welcoming the industry, while a few have hostile regulations that often don't apply to other types of providers. Problem regulation states cited included NY, CA, PA, and KY.
• A clinic system might have 85% fixed costs, with 100+ clinics needed for breakeven in a standard retail model
• A Hospital sponsored financial model is very different than the standard retail model

For any stakeholder interesting in Convenient Care Delivery, if they aren't already a member, they should consider joining the Convenient Care Association. More information about the Association can be obtained at their web site: www.convenientcareassociation.org , or by calling 215-731-7140

The Underinsured: 45 vs. 17 million

The Underinsured: 45 vs. 17 million
In addition to the uninsured, there is a significant population of underinsured Americans that don’t have adequate coverage to come close to addressing their medical needs. These underinsureds face significant financial burdens and barriers to receiving necessary care, and are a significant problem for health care providers as well.

But a basic problem in examining this population is defining the scope. While identifying the uninsured is pretty straight-forward, "under-insured" is a relative term that can mean different things to different groups of stakeholders. How many underinsured Americans are there? That depends upon how you define underinsured.

If we use a definition advanced by Consumer Reports, the number could be 45.2 million. If we use a definition advanced by AHRQ, the number could be 17.1 million. That’s quite a spread.

Consumer Reports recently released results from a health insurance survey conducted by the Consumer Reports National Research Center in May 2007, which sampled 2,905 Americans between ages 18 and 64 and among other things tackled the issue of the underinsured.

Consumer Reports defines the underinsured as persons with health plan coverage that have two or more of the following complaints about their health plans: "It does not adequately cover costs of prescription drugs; doctor visits; medical tests; surgery or other medical procedures; catastrophic medical conditions; or the deductible is too high."

Applying this definition to their survey respondents, Consumer Reports estimates 24% of the U.S. adult population under age 65, which based on current U.S. census figures of 188.4 million adults in this age group, works out to an estimated 45.2 million people. Consumer Reports indicated the "median household income of respondents who were "underinsured" was $58,950, well above the U.S. median. Twenty-two percent live in households making more than $100,000."

According to the survey, 43% o of the underinsured reported that they postponed going to the doctor because they couldn't afford it, 28% of the underinsured put off filling prescriptions, 27% said they were still in debt to doctors and hospitals, and 3% of the underinsured said medical bills had forced them to declare bankruptcy. Consumer Reports broke out responses to the following circumstances by "Well Insured" vs. Underinsured categories:

Circumstance	Well Insured	Underinsured
Prepared to handle unexpected major medical costs in next 12 months	65%	37%
Postponed needed medical care in past 12 months due to costs	22%	56%
Dug deep into savings to pay medical bills	9%	33%
Made important job-related decisions based mainly on health-care needs	11%	21%
Health plan does not adequately cover prescription-drug costs	7%	63%
Decisions about retirement affected by medical expenses (adults 50+)	12%	34%

Of course, the Consumer Reports definition is entirely subjective. Researchers from the Agency for Healthcare Research and Quality (AHRQ) last year tackled this definition with a more objective measure, and published their findings in JAMA. The AHRQ definition of underinsured?  "insured persons with health care service burdens in excess of 10% of tax-adjusted family income." 

On this basis AHRQ found that in "2003, there were 48.8 million individuals (19.2%) living in families spending more than 10% of family income on health care, an increase of 11.7 million persons since 1996. Of these individuals, about 18.7 million (7.3%) were spending more than 20% of family income. In 2003, individuals with higher-than-average risk of incurring high total burdens included poor and low-income persons and those with nongroup coverage, aged 55 to 64 years, living in a non-metropolitan statistical area, in fair or poor health, having any type of limitation, or having a chronic medical condition. Applying our definition of underinsured to the insured population, an estimated 17.1 million persons younger than 65 years were underinsured in 2003, including 9.3 million persons with private employment-related insurance, 1.3 million persons with private nongroup policies, and 6.6 million persons with public coverage."

Thus the number of underinsured under age 65 Americans might be 45.2 million, according to the Consumer Reports definition, or  17.1 million according to AHRQ. Quite a difference in numbers.

The Relationship Between Premium Increases and Reform

The Relationship Between Premium Increases and Reform

Never mind that PriceWaterhouseCoopers recently issued a study indicating the medical costs increases that health plans bear will further decelerate for 2008. Hewitt Associates just issued projections that initial premium increases quoted by the plans to employers will spike upwards for 2008. If indeed premiums increases reverse the trend of the past four years and accelerate again, such movement will in turn accelerate reform initiatives and market changes.

Lets take a step back and look at the premium pricing and underwriting cycle. Under this historical model, plans are driven by cyclical market share and premium price competitive behavior. There are periods where premium increases are significant, then decline, and then rapidly increase again. Here’s how the cycle works:

• During profitable periods: a) plans want to expand market share; b) they start to lower price to do so; c) other plans match lower prices to keep pace and not lose share; d) price wars similar to airline fare wars erupt and multi year contracts develop.
• Then a downswing develops: a) due to insulation of provider contract capitation and discounts and the time lag on fee for service claims, considerable time elapses before financial pressures are fully visible from the lowered premiums; b) due to multi-year contracts and price pressures nothing much can be done about the problem as it becomes apparent.
• A period of significant losses then occurs: finally enough of the market is losing money so that several major players break rank and begin increasing rates and everyone else follows suite.
• Finally there is a return to profits: the premium increases continue until profits are being generated, and the cycle begins anew.

However, with the new century, health plan economic behavior appears to have changed to some degree:

• Plans are now somewhat less driven by long-term market share
• Plans are now somewhat more driven by short-term bottom line profitability
• Plans are more willing to exit unprofitable markets and product lines
• Plan consolidation has occurred due to closures of failing plans, market exits and acquisition of plans.
• Premium competition has somewhat diminished because of all the above.

This doesn’t mean that the premium pricing cycle has disappeared. It does mean the down part of the cycle will be less pronounced due to reduced premium competition. Here’s how the cycle looks graphically:

Source: MCOL Managed Care Fact Sheets

Now let's correspond a little history of some major reform and market movements in the past twenty years to this premium increase graph. You will notice each of these major market movements correspond with shifts in the premium trends:

1. PPO marketshare diminished, and HMOs became the mainstream employer health plan option in the late 1980s as the vehicle to address double digit rate increases nearing 20%
2. HMO tight utilization controls, provider capitation arrangements and deeper discounted contracts rapidly increased in scope as HMOs gained marketshare clout in the first half of the 1990s, and health plans required cost savings to counter significant premium price competition. Pressure for health care reform erodes after 1993 as premium increases rapidly delerate.
3. Significant Managed care backlash emerged from providers, media and consumers in the late 1990s, causing a relaxation of utilization controls, a very large reduction of capitation programs and reduction of provider discounts. PPO enrollment again accelerated due to the backlash, and premium increased as resulting costs increased.
4. Consumer driven health plans and greater consumer cost sharing emerged with the new decade as cost increases reached double digit levels. the number of uninsured reach peak levels and pressures for reform increase.

So now plot the next points on the graphs fro 2008 - 2010. Will they continue downward or climb back upward. If they continue to decelerate, we would predict diminished enthusiasm for significant health care reform, and for movement to consumer driven plans. If they start accelerating, a fire should be lit under greater pressures for reform, as well as consumer driven programs. Of course, the reform movement and consumer driven movement will most likely be at odds in the direction they intend to take us, but momentum they may both well have in that scenario.

So the question is, what happens next? Will health plans keep decelerating their premium increases, as the PwC medical cost study would cause us to believe, or will premium increases accelerate, as the Hewitt analysis indicates?

The PwC study: "Behind the numbers Healthcare cost trends for 2008" from the PricewaterhouseCoopers' Health Research Institute, released this June 2007 is available at http://pwchealth.com/cgi-local/hregister.cgi?link=reg/numbers2008.pdf. The following is the PwC expected Medical Cost Trends for 2007 and 2008:

	2007	2008
PPOs	11.9%	9.9%
HMO/POS/EPO	11.8%	9.9%
Consumer Driven	10.7%	7.4%

The Hewitt Associates analysis can be reviewed in their June 28, 2007 press release "HMOs Propose Highest Rate Increases in Four Years, According to Hewitt Analysis" at http://www.hewittassociates.com/Intl/NA/en-US/AboutHewitt/Newsroom/PressReleaseDetail.aspx?cid=4159 . Overall, Hewitt projects these initial 2008 rates increases to average 14.1%, compared with 11.7% in 2007 and 12.4 % for 2006. How different are the final plan rates? Hewitt notes that after plan changes, negotiations and terminations, 2007 average HMO rates increased by 8.2%. If that same differential held for 2008, final 2008 rate increases would be around 9.9%, which if you round it, does bring us back to double digits even for the final numbers.

So, let's spin the premium rate wheel of fortune and see if we're headed into pressures for change or status quo as we inch along towards the election year.

Clive Riddle's Welcome

Greetings from BlogLand:

MCOL has launched the MCOLBlog, and I'm excited to be a part of it. Actually, we've been blogging to our MCOL paid members for years, but this inaugurates our public blog for all those in the universe wishing to take part in our discussion.

I will be commenting and reporting on a wide variety of topics regarding the business of health care. By way of background, I've been running MCOL, the B2B publisher of managed care and health care business information and resources for the past twelve years. Before that, I ran a regional health plan for over a decade.

In particular, I'll be addressing issues including consumer driven care, transparency, health care reform, strategies addressing plan design and costs, convenient care, international health care issues, Medicare and Medicaid managed care, and much more.

I look forward to your comments.