Tag Archives: healthcare providers

Little-Known Loophole Inflates Health Costs

The rising cost of insurance is putting a squeeze on American families. And this problem could get even worse if lawmakers don’t fix a little-known federal drug program called “340B.”

Created by Congress in 1992, 340B was originally intended to provide low-income people access to needed medications. This program allows hospitals, clinics and other healthcare providers
serving large numbers of poor and uninsured patients to buy drugs at a deep discount. The idea was that these facilities would pass along those savings to their patients.

But 340B is not working as intended. Instead, it’s being manipulated by hospital systems to increase profits. It isn’t helping the poor. And this exploitation is driving up health insurance costs for all Americans.

Price Disparity

The program’s major flaw is it doesn’t actually require healthcare providers to pass along those drug discounts to low-income patients. Participating facilities are free to buy huge volumes of cheap medicines and then sell them at full price to insured patients — and pocket the difference.

That’s exactly what many participants are doing. Duke University Hospital has accumulated $280 million in profits from 340B over the last five years. The drug chain Walgreens is projected to make a quarter of a billion dollars off the program over the next half decade.

Established hospital systems have increased their revenue from 340B by buying up specialty clinics. These smaller practices often use a high volume of expensive drugs. By acquiring these clinics, hospitals can purchase even more discounted medicines through 340B and further boost profits.

In 2012, hospitals enrolled more clinics in 340B than in the previous 20 years combined. A new University of Chicago study shows that most of these clinics are located in relatively affluent areas. In other words, they aren’t even pretending to serve the low-income and uninsured populations 340B was intended to help.

Unfortunately, lawmakers have not responded to these abuses by fixing 340B’s structural flaw. Instead, they’ve blindly expanded the program. Back in the early ’90s, just 90 health care facilities participated in 340B. Today, that figure is more than 2,000.

The acquisition of smaller clinics, precipitated by 340B, will seriously drive up insurance costs for average Americans. Large, established health providers tend to charge more than smaller, independent clinics. And insurance companies respond to these higher treatment expenses by raising premiums.

Indeed, a study from three Duke University researchers published in the October issue of the journal Health Affairs looked into the price disparity between key cancer drugs provided at both corporate hospitals and clinics. Researchers noted that, between 2005 and 2011, the proportion of cancer services administered at independent clinics dropped by 90%. They found that the price gap between the two settings can be as much as 50%.

Pharmaceutical manufacturers are now incurring heavy losses from 340B abuse. In 2010, this program cost the industry $6 billion. By 2016, that’s expected to more than double, to $13 billion. Simple economics forces firms to compensate for losses by raising their prices, leading to higher medical expenses for average patients.

Noble Purpose

340B has a noble purpose. But it’s not fulfilling its mission to provide vulnerable patients with discounted drugs. Instead, 340B is being exploited by rich hospitals to boost their bottom lines. And these abuses are leading to higher insurance costs for everyone else.

More Issues With Healthcare Privacy

Think your healthcare organization or health plan has healthcare privacy covered? Think again.

A series of supplemental guidance issued by the Department of Health and Human Services Office of Civil Rights (OCR) in recent weeks is giving healthcare providers, health plans, healthcare clearinghouses (covered entities) and their business associates even more to do. They must review and update their policies, practices and training for handling protected health information. This is beyond bringing their policies and practices into line with OCR’s restatement and update to the Omnibus Final Rule that OCR published Jan. 25, 2013.

Covered entities generally had to be in compliance by Sept. 23, 2013, but many covered entities and business associates have yet to complete the policy, process and training updates required to comply with the modifications implemented in the Omnibus Final Rule.

Even if a covered entity or business associate completed the updates, however, recent supplemental guidance published by OCR means that most organizations now have even more work to do on HIPAA compliance. This includes the following supplemental guidance concerning its interpretation and enforcement of HIPAA against covered entities and business associates published by OCR since Jan. 1, 2014 alone:

·         HIPAA Privacy Rule and Sharing Information Related to Mental Health

·         Spanish Language Model Notices of Privacy Practices

·         CLIA Program and HIPAA Privacy Rule; Patients' Access to Test Reports

·         Proposed Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule and the National Instant Criminal Background Check System (NICS)

Beyond this 2014 guidance, covered entities and their business associates also should look at enforcement actions and data as well as other guidance OCR issued during 2013 after publishing the Omnibus Final Rule, such as:

·         HIPAA Privacy Rule: Disclosures for Emergency Preparedness – A Decision Tool

·         The HIPAA Privacy Rule and Refill Reminders and Other Communications About a Drug or Biologic Currently Being Prescribed for the Individual

·         Health Information of Deceased Individuals

·         Student Immunizations

·         Model Notices of Privacy Practices (English)

With OCR stepping up both audits and enforcement and penalties for violations, covered entities and business associates should act quickly to review and update their policies, practices and training to implement any adjustments needed to maintain compliance and manage other risks under these ever-evolving HIPAA standards.

When conducting these efforts, covered entities and business associates should not only carefully watch for and react promptly to new OCR guidance and enforcement actions but should document their commitment and continuing compliance and risk-management activities, while taking well-documented, reasonable steps to encourage business associates to do the same. This documentation could help demonstrate that an organization maintains the necessary “culture of compliance” commitment needed to mitigate risks in the event of a breach or other HIPAA violation.   

When carrying out these activities, most covered entities and business associates also will want to take steps to monitor potential responsibilities and exposures under other federal and state laws, such as: the privacy and data security requirements that often apply to personal financial information; trade secrets or other sensitive data; and judicial precedent.

Insurance Is Not a Government Function

The Commonwealth Court of Pennsylvania, in Hospital & Healthsystem Association of Pennsylvania v. Ins. Commissioner, 939 C.D. 2011 (Pa.Commw. 08/09/2013) was called upon to decide whether a governmental entity – acting like an excess insurer – overcharged health care providers and appropriated funds belonging to the providers. The health care providers and trade associations petitioned for review of an adjudication of the Insurance Commissioner that denied their challenge to the assessments imposed upon them by the Medical Care Availability and Reduction of Error (MCARE) Fund for the years 2009, 2010 and 2011. These assessments provide the monies used by the MCARE Fund to pay medical malpractice claims in excess of what the health care provider’s primary insurer pays. Petitioners assert that their assessments were excessive because they resulted in a collection of more monies than were needed by the MCARE Fund to pay claims for one year and provide a 10% reserve.


Since 1975, the Commonwealth of Pennsylvania has been directly involved in providing medical malpractice insurance to health care providers. The General Assembly addressed the medical malpractice crisis by establishing a mandatory medical malpractice insurance system. A health care provider’s refusal to purchase malpractice insurance coverage in 1975 was, and continues to be, sanctioned by the provider’s loss of his professional license.

In 2002, the General Assembly enacted the Medical Care Availability and Reduction of Error (MCARE) Act. The MCARE Act addressed a newly perceived crisis, i.e., the cost of medical malpractice insurance. There was concern that the cost of medical malpractice insurance in Pennsylvania had increased to the point that physicians educated and trained in Pennsylvania were leaving to set up practice in other states where the costs of this insurance were lower.

Relevant to this case, the MCARE Act established the MCARE Fund. The MCARE Fund was set up to provide insurance coverage in excess of the mandatory levels of primary medical malpractice coverage. The MCARE Fund is scheduled for termination. To that end, the MCARE Act has established a schedule for continued increases in the amount of primary coverage that must be purchased by health care providers and continued decreases in the amount of excess coverage that will be available from the MCARE Fund.

The MCARE Fund is a “pay-as-you-go” program of what the general assembly called “insurance.” Unlike a private insurance company, it does not establish reserves to cover injuries that occur in the assessment year but do not become adjudicated awards for several years thereafter. Instead, the MCARE Fund is set up to raise only those funds necessary to “cover claims and expenses for the assessment year.”  The MCARE Fund projects its annual expected claim payments on the basis of the prior year’s payments. This means that the amount collected from health care providers in a given year may be more, or less, than what is actually needed to pay the MCARE Fund’s claims and expenses for that year.

In making its calculation for 2009, the MCARE Fund ignored its 2008 accrued unspent balance of approximately $104 million. Instead, in 2009, $100 million was transferred out of the MCARE Fund into the Commonwealth’s General Fund for the purpose of funding the operations of state government. The Court held that this transfer of funds was illegal. Petitioners appealed their 2009, 2010 and 2011 assessments on the theory that the MCARE Fund’s year-end balance should have been included in the aggregate assessment calculation for 2009 and the following years. Simply, the aggregate assessment must be “sufficient” to produce a balance sheet that replaces what was spent in the prior year and provides a reserve of 10%.

The MCARE Fund has the statute to mean that 110% of the prior year’s expenditures must be collected each year from health care providers, regardless of the starting balance. This exercise means that unspent balances will accumulate even as claims decline, consistent with the MCARE Fund’s scheduled termination, or as earnings on the 10% reserve increase.


Construing statutes, courts must be mindful of what the legislature did not say as well as what it did say. Most importantly, the MCARE Act says nothing about the accumulation of unspent balances in excess of the 10% reserve. It does not authorize them. The MCARE Act provides no guidance on the income generated by an accumulation of unspent balances, which can be considerable given the present unspent balance of $104 million. The MCARE Act’s silence on these matters makes perfect sense only if the legislature never intended that such an accumulation would develop.

The legislature has addressed the possibility of an unspent balance in only one place in the statute. The MCARE Act provides that upon termination of the MCARE Fund, “[a]ny balance remaining in the fund” shall be returned to the healthcare providers who paid “assessments in the preceding calendar year.”  This presumes a small, if “any,” balance and suggests that there should not be an unspent balance in any other year.

The MCARE Act states that the MCARE Fund’s reserve “shall be” 10% of the prior year’s claims and expenses. Instead, after the 2009 assessment, the MCARE Fund had a reserve of 64%. Such a reserve cannot fit any reasonable interpretation of the stated purposes of the MCARE Act or the precise wording of the statute.

The aggregate assessment must raise funds “sufficient” to meet the specified purposes in the statute. This means that the MCARE Fund must begin its annual aggregate assessment calculation with its unspent balance and add to it the amounts “sufficient” to cover the prior year’s claims and expenses and to “provide a 10% reserve” not a 64% reserve.

The fact that the General Assembly chose to limit distribution of any balance in the MCARE Fund at termination to those that participated in the Fund in the preceding calendar year indicates that the legislature intended a direct correlation between the actual MCARE Fund balance at termination and the population of providers assessed in the prior year.

Requiring health care providers to fund a new 10% reserve every assessment year, without regard to the monies already held by the MCARE Fund, defeats the stated goal of the statute to provide affordable excess insurance. Such an approach repeatedly and needlessly charges participating providers an assessment in excess of what is necessary to fund the statutorily-required 10% reserve. Because the population of providers changes over time, the providers who enter such a system in the earlier years will end up subsidizing the participating providers in the later years. This is unfairly discriminatory.

For all of the foregoing reasons, the court reversed the order of the Insurance Commissioner and remanded this matter to the Commissioner to recalculate the MCARE assessments for 2009, 2010 and 2011.


The MCARE law was designed to die over time. It, and its predecessor, is an example of why a governmental entity should never get involved in insurance because they do not understand what insurance is or how it works in the real world.

Medical Malpractice Insurance is a risk-sharing device where many health care providers pay into a fund so that there is sufficient money available to indemnify those who are sued for malpractice. The “crisis” laws like the MCARE law arose because doctors who erred were sued regularly and successfully until insurers found a need to raise premiums to a level necessary to cover the payments and make a profit. To solve the “crisis,” the government decided to provide a form of insurance rather than resolve the problem caused by its tort system.

Governments should not make profits and do not know what to do with a profit if it was made by accident or by a poorly-designed system that has no relationship to the long-term thinking of an insurer. The law here was made specifically to protect those who paid into the fund and to return excess, unspent monies to the providers who paid into the fund. It is not a premium but a tax where health care providers are compelled to buy both primary insurance in the market and excess from MCARE.

This case is instructive as government continues to place itself into the business of insurance where whatever the government calls insurance is, in fact, a method of government largess. For example, the National Flood Insurance Program, FAIR Plans, and the Affordable Care Act have nothing to do with insurance since they are not risk-sharing devises but are rather devices that take tax money from the country or state as a whole to provide insurance-like benefits to a special category of people like those who live near a river that regularly floods, people who live in high fire risk areas, or people who are ill but decided not to buy insurance. The Commonwealth of Pennsylvania, until slapped down by this court, took money intended to protect medical providers for its own use without legal authority.

Healthcare Exchanges: Round 2

Most of the dust has now settled around the State Exchanges. Last week the New York rates were finalized and with most of the other states, rates came in lower than anticipated. The Department of Health and Human Services (HHS) released an analysis1 suggesting that rates were 18% lower than anticipated. The national press has been in a frenzy as the public is trying to determine what all of this means. This article will discuss several of the issues and try to put them in perspective.

So What Are The Facts?
Are the rates actually lower? The HHS article demonstrates that yes, rates are coming in lower than previously projected rates even by the Congressional Budget Office (CBO). However, the situation is not quite the same as alluded to. For example, the study compared the “lowest rate” with the projected or forecasted rate. In the recently released rates for the State of New York, rates for the silver plan in New York City ranged from a low of about $350 to a high of nearly $700, a wide range. The HHS article compared the lowest rate in a plan type and compared that to the CBO projection. If the low in New York was $350 and the high $700, one might assume an average rate of $525 (i.e., (350 + 750)/2 = $525). Comparing $350 to the projection gets a different answer than comparing $525 to the projection. For example, if $350 is 18% lower than the projection, $525 is 123% of the projection, a much different story than presented.

Why Do The Rates Vary So Much?
Rates are based upon a large number of specific and sometimes hard to define actuarial assumptions. Some of the health plans used different assumptions than others resulting in different rate levels. Some of the key assumptions are:

  • Health care provider discounts and also average cost of those providers in the network
  • Care management approach and effectiveness
  • Required expense and margin loads
  • Assumed health status of population to be covered
  • Assumed health care inflation and/or trend assumption
  • Specific plan design
  • Prior experience with individuals and small groups

There are other assumptions that are included, but the above list describes most of the important ones. If a particular health plan has better than average discounts with providers it is likely that their premium would be lower than a plan with lesser discounts. If the providers included in the network have a lower average cost than a competitor's network, the premium would likely be lower than the competitor. If a health plan had more effective care management practices than their competitor their rates might be lower. The list goes on. In addition to actual measured performance, some of these differences might be based upon perceived value and/or differences.

Although actuarial science is an objective science, different actuaries might have different opinions on the same issue and could apply different judgment when the data is incomplete or questionable. As a result, rate differences might occur as a result of different actuarial opinion.

The nature of a specific health plan can also lead to differences. One example of this is the rate development in one of the states our company was working on. One of the major players in the market attempted to negotiate more favorable contracts with its provider network. The best attempt at negotiating with a highly desirable health system resulted in a contract that paid that provider about 115% of Medicare payment rates, an improvement from their current contract. A competitive health plan in that same marketplace contracting with that same provider was able to negotiate a contract at close to Medicaid rates, considerably less than what the other carrier had achieved. A very surprising result that we had to investigate further to understand.

The first carrier was a major commercial health plan. The second was a health plan that served Medicaid beneficiaries. Their current contract paid close to Medicaid rates, and since the Exchange was going to attract Medicaid-like enrollees they were able to negotiate a rate close to their current rates, but a little higher. The large commercial carrier at the same time was not able to negotiate anywhere near that rate discount but was pleased to be able to get an improvement. This reimbursement difference alone would contribute to at least a 35% – 50% rate differential. Examples such as this have occurred through many of the exchanges and have led to many rate differences.

In addition, some plans have proposed “narrow networks” where providers agreeing to significant discounts and which have demonstrated performance advantage are included in the network. This has resulted in favorable rates in many situations. Some plans have used “broad networks” where almost any provider is included in the network. The exchange has no requirement about breadth of network. Individuals signing up for coverage in the exchange are going to have to carefully assess what providers are included in the networks. The lower premium rates might be the results of narrower networks with limited access.

In summary, the news has been more encouraging than expected, at least by many; however, there are many idiosyncrasies that need to be considered before making a final judgment regarding the Affordable Care Act and the exchanges. Rates will be available October 1, assuming no further delays, and then we will be able to make final assessments.

1 ASPE Issue Brief: Market Competition Works: Proposed Silver Premiums in the 2014 Individual and Small Group Markets Are Nearly 20% Lower than Expected.

It's Not Cost, Stupid – It's Care Transparency!

In my article last month — Care Transparency: What Employers Are Missing! — I wrote about how employers are missing an understanding of how employees are making health care decisions, and how that crucial factor impacts health care costs.

Employers need to meet employees where they are — online. Employers need to provide them with tools that can help their research and decision-making process with robust, accurate, unbiased and evidence-based information. Employers can significantly improve the quality of care consumed by their employees and reduce health care costs by focusing on creating care transparency.

In this article, we have explained the types of tools that will be effective in supporting employee decisions and that employees will really use in making care and treatment decisions. WiserTogether's research of patient decisions across the top 200 health conditions shows that of the 22 unique factors that patients typically use in evaluating treatments, quality of care tops the list. Cost does not even make the top five. In other words, cost is not the primary decision driver for patients, and consumers do not seek out cost tools when they begin making decisions. This explains the low utilization that organizations see when they offer cost transparency tools as a stand-alone service.

Health Affairs1 recently published an article that found that patients object both to discussing health care costs with clinicians and to considering costs in deciding among comparable clinical options. It is also well-known that despite the payer's best efforts, patients do not factor in payer and employer cost burdens when making health and care decisions, despite the fact that payers cover a majority of the costs. Economists have a term for this phenomenon that patients exhibit, called the “Tragedy of the Commons.” This concept means individual decision making is driven by personal benefit and ignores the implications of those decisions on third parties and the common good.2

Studies show that patients faced with a treatment decision can only process a limited number of factors. In its 2012 research that showed quality of care is the most important factor patients consider when making health care decisions, WiserTogether found that only seven of the 22 factors carry enough weight to qualify as first-tier factors for patients. Those seven factors are explained below.

Importantly, patients also indicated differences in how open they were to information about a factor coming as an expert opinion versus information coming in the form of experiences of other patients.

WiserTogether found that for the following four factors, patients want accurate information about the experiences of other patients. For each treatment, patients wanted to know the following:

  • Treatment Effectiveness — How effective did other patients say the treatment was for them?
  • Treatment Popularity — What percentage of patients in a situation like mine use the treatment?
  • Treatment Speed — How fast did other patients start to see a difference, and how long was the recovery?
  • Treatment Side Effects — What side effects have other patients experienced, and how severe were they?

For the remaining three factors, patients wanted expert opinion:

  • Scientific Evidence — Which treatments are best supported by medical evidence?
  • Consequences of Delay — What might happen if I wait to have the treatment or decide not to have it?
  • Treatment Duration — How long will the treatment last?

The results seen were independent of whether the information was available. Patients ranked out-of-pocket costs as a second-tier factor they are willing to consider when making a health care decision. Patients also report that finding information about any of the seven top-tier factors is extremely hard, and the current tools/support systems provided are inadequate.

Research has shown that patients seek out such information prior to making a health care decision, and the information gathered influences their commitment to follow through on a treatment.

Employees repeatedly state that they are overwhelmed with health information and need help finding content that is relevant to their situation. Tools that help them understand their options, evaluate those options based on personal preferences and constraints, and succinctly communicate their questions and concerns to their providers can supply the missing link. Treatment selection and shared decision support tools — whether used by the patients directly or in consultation with a provider — help support patient decisions and effective interactions with providers.

Effective and engaging tools need to offer the following:

  • Personalized treatment selection based on the patient's demographics, co-morbidities, personal preferences, and financial constraints.
  • Need to provide (at least) the seven top-tier decision-making factors to assist employees' evaluation of options along with cost and plan coverage.
  • Be easily accessible online anywhere, including at point of care set-ups.

Employees are adopting these tools at very high rates, as these tools are aligned with the natural behavioral process people follow in making health care decisions. Such tools are helping employees become informed health care consumers who understand choices and are able to make wiser choices based on their values. These tools also are helping to reduce the knowledge gap between the providers and patients and to create more confident health care consumers who can start engaging with providers in making shared and effective health care decisions.

Having said that, WiserTogether's Patient-Centered Care Index (PCCI) shows that the provider community is a long way from treating patients as an equal partner. In my next article, I will write about specific areas where providers are underperforming in delivering patient-centered care and how they often treat themselves differently than they treat their patients.

This article is co-authored with Gregg Rosenberg, Ph.D., Chief Product Officer at WiserTogether, Inc. and author of A Place for Consciousness (Oxford University Press).

1 “Focus Groups Highlight That Many Patients Object To Clinicians' Focusing On Costs,” Sommers, Goold, McGlynn et al.; Health Affairs, 32, no.2 (2013): Pgs 338-346.

2 “The Tragedy of the Commons Revisited,” Rafid Fadul; New England Journal of Medicine, no. 10 (2009): Pg 361.