Tag Archives: Toomey

New, Troubling Healthcare Model

As physicians and hospitals compete for the “under 65” patient — whose payments are generally 150%-plus higher than for a Medicare patient — they have to determine their pricing model. The traditional choice is to offer a low price per service based on a higher volume, or a high price per service based on a lower volume. But some are charging a higher price with the goal of generating higher volume, and their number may increase.

Healthcare spending is already 17.5% of U.S. GDP and is expected to hit 20% by 2025. This high-price/high-volume approach could exacerbate the problem.

See also: Healthcare: Time for Independence  

Part of the reason for concern is a recent landmark decision, in which Cigna was ordered to pay an out-of-network provider more than $13 million to cover certain alleged underpaid claims and ERISA penalties. ERISA is the federal law governing large employers that self-insure their medical plans (generally those with more than 250 employees).

In the lawsuit, Cigna alleged that the supplier was failing to collect the patients’ deductibles and coinsurance. The carriers’ intent is for the supplier to collect the deductible and coinsurance to make patients aware of the supplier’s charges and of their shared responsibility for the bill. Cigna took the position that, if the healthcare supplier does not collect any payment from the patient, the provider is accepting as “payment in full” the amount processed by Cigna on behalf of the employer. Cigna argued that, if the patient’s portion under the Summary Plan Documents (the carrier’s contract with the employer and the employee) is waived, then the plan’s portion is waived, as well.

When suppliers “forgive the patient liability,” these healthcare providers often have a revenue model of very high prices with the goal of higher volumes. They’ll entice the patient to use their more expensive services because the patient does not have to pay anything — and the higher payment to the healthcare provider under the plan will more than cover the liability that the provider forgave for the patient, even though the average employee deductible is high, at $1,300.

Most patients have not grasped that healthcare suppliers are running a business and that prices vary by as much as 300% within a network. As a result, while employees (the patients) may save money when the provider waives their financial responsibility, they lose in the end. That’s because their employers’ costs increase, resulting in higher health insurance costs, with larger deductibles and payroll contributions for all employees.

The court’s decision to reject Cigna’s claims creates further risk to the affordability of healthcare for employers, as employees will be financially motivated to access care from suppliers with higher prices because the patient’s liability is forgiven. Can we expect other healthcare suppliers to implement a revenue model tied to high prices with no patient liability?

See also: AI: The Next Stage in Healthcare  

Conversations with a number of healthcare suppliers shows that many do not realize that most large employers self-insure their medical plans; the suppliers perceive that the insurance carriers covers the costs. The purchasers (the employers) have the opportunity to engage the healthcare suppliers (hospitals/physicians) in a discussion around supply chain management, quality and patient safety, so the providers fully comprehend that the one ultimately paying the bill is monitoring their performance.

We’ll look forward to sharing the results of this type of collaboration, now underway in a major market. It’s time for employer-driven healthcare.

Is Transparency the Answer in Healthcare?

During the ‘90s, a new medical plan, called consumer-directed healthcare, was introduced. It was based on the premise that through a high deductible coupled with a funded account, employees would have incentives to become better consumers of healthcare. To maximize the account dollars, employees received access to a transparency portal, either through their carrier or a private vendor, that helped them make more informed healthcare decisions. The belief was that physicians and hospitals would compete on price and quality to win patients, and the consumerism movement would finally reduce healthcare costs.

But let’s do some math.

A recent article from Health Care Cost Institute (HCCI) reported that only 43% of healthcare expenses are for services that may have been shopped for by a motivated employee.

For the 8% of the population consuming 80% of plan dollars, how motivated are they to shop for healthcare services if they are receiving 100% coverage once their deductible is satisfied? They aren’t. So the consumerism approach doesn’t apply to that 80% of healthcare spending.

See also: 3 Tips for Improving Healthcare Literacy

For the other 20% of the spending, having 43% relate to “shoppable” healthcare services means 8.6% of total spending can be influenced by consumerism. That’s not much, and many shoppable healthcare services don’t cost much, anyway, so any decline in costs would be a minimal percentage of total spending.

The vast majority of a covered population accesses healthcare on an occasional basis; do we really expect them to remember the various portals and 800-numbers available to them, so that they can consider the cost and quality of the recommended provider for the prescribed service? How does infrequent healthcare use correlate to the effectiveness of the transparency portals?

One of the private transparency portals recently released its fourth quarter results, and there was a decrease in the number of clients.

See also: A Hospital That Leads World on Transparency

So how do we solve the healthcare spending challenge?

As in most industries, the purchaser (the employer) has the opportunity to work closely with the supplier (the healthcare providers) to remove waste and cost inefficiencies. The silver bullet to solving the healthcare challenges isn’t employees – it’s the employers!

There are employers taking this logical next step to address their challenges. Are you ready for meaningful solutions?

Obamacare: Where Do We Stand Today?

The healthcare industry is changing – same old headline. Since we’ve been in the industry, the “unsustainable” cost increases have been the talk every year, yet somehow we have not reached a tipping point. So what’s different now? How has ACA affected the healthcare industry, and more specifically the insurance companies?

The drafters of ACA set up a perfect adverse-selection scenario: Come one, come all, with no questions asked. First objective met: 20 million individuals now have coverage.

Next objective: Provide accurate pricing for these newly insured.

Insurance companies have teams of individuals who assess risk, so they can establish an appropriate price for the insurance protection. We experience this underwriting process with every type of insurance – home, life, auto. In fact, we see this process with every financial institution, like banks, mortgage companies and credit card companies. If a financial institution is to serve (and an insurance company is a financial entity), it has to manage risks, e.g., lend money to people who can repay the loan. Without the ability to assess the risk of the 20 million individuals, should we be surprised that one national insurance carrier lost $475 million in 2015, while another lost $657 million on ACA-compliant plans?

If you’re running a business and a specific line has losses, your choices are pretty clear – either clean it up or get out.

See Also: Healthcare Quality and How to Define It

Risk selection is complex. When you add this complexity to the dynamics of network contracting tied to membership scale, there is a reason why numerous companies have decided to get out of health insurance. In 1975, there were more than 2,000 companies selling true health insurance plans, and now there are far fewer selling true health insurance to the commercial population. Among the ones that got out were some big names – MetLife, Prudential, Travelers, NYLife, Equitable, Mutual of Omaha, etc. And now we’re about to be down to a few national carriers, which is consistent with other industries – airline, telecommunications, banking, etc.

Let’s play this one out for the 20 million newly covered individuals. The insurance companies have significant losses on ACA-compliant plans. Their next step – assess the enrolled risk and determine if they can cover the expected costs. For those carriers that decide to continue offering ACA-compliant plans, they will adjust the premiums accordingly. While the first-year enrollees are lulled into the relief of coverage, they then get hit with either a large increase or a notice to find another carrier. In some markets, the newly insured may be down to only one carrier option. The reason most individuals do not opt for medical coverage is that they can’t afford it. If premiums increase 15% or more, how many of the 20 million have to drop coverage because premiums are too expensive? Do we start the uninsured cycle all over again?

Net net, ACA has enabled more people to have health insurance, but at prices that are even less sustainable than before. ACA offers a web of subsidies to low-income people, which simply means each of us, including businesses, will be paying for part or all of their premium through taxes. As companies compete globally, this additional tax burden will affect the cost of services being sold. As our individual taxes increases, we reduce our spending. While ACA has the right intention of expanded coverage, the unintended consequences of the additional cost burden on businesses and individuals will have an impact on job growth.

While it’s hard for anyone to dispute the benefits of insurance for everyone, we first need to address the drivers behind the high cost of healthcare, so we can get the health insurance prices more affordable. Unfortunately, ACA steered us further in the wrong direction. Self-insured employers are the key to lead the way in true reform of the cost and quality of healthcare.

healthcare quality

Healthcare Quality: How to Define It

In a previous article, we mentioned the Centers for Medicare and Medicaid Services’ (CMS’s) new provider reimbursement model, Medicare Access and CHIP Reauthorization (MACRA), which replaces the current reimbursement formula. MACRA will include an incentive component that will replace those in plans today; performance criteria will roll out in 2019. From the providers’ lens, they are faced with the need to hire more administrative resources to keep up with the tracking of their performance, and the big question is: Are consumers making different choices based on the performance results of a physician or hospital? When there are more than 150 different measures in place today, how is an occasional consumer of healthcare services able to assess the most important criteria in finding the right physician?

During a recent employers’ conference on the East Coast, the forum featured two panels consisting of the health plans and the providers. The panels were set in a Q&A format to enlist the leaderships’ views on various topics facing the employers, and it was a fascinating dialogue we have attempted to capture below.

In the first panel with the execs of five major carriers, the opening question asked for a one-minute overview of their health plan’s area of focus in addressing the employers’ challenges. The responses were consistent among the leaders — the focus is on the individual consumer and value-based contracting. When the discussion evolved into quality criteria and outcomes to identify high-performing physicians, the leaders acknowledged that defining quality and outcomes is a challenging endeavor, and each health plan has its own formula to assess the providers’ performance. One commented that a physician practicing in the morning could be viewed as a top performer by a carrier, while that afternoon, she could be ranked as a poor performer by another, even though the physician was delivering the same process of care for all her patients. The leaders agreed that employers really needed to weigh in on what was important to them so that there was greater consistency in the scoring logic with the physician community.

See Also: Are Your Health Cost Savings an Illusion?

The next panel was with the chief medical officers (CMOs) from the major systems and a primary care practice, and a number of relevant things were learned. There was unanimity in the frustration with the variation in the quality metrics being used by commercial carriers and CMS. One physician said he had never been asked for input on the quality metrics, and he was ready to engage in that discussion. The physician leaders asked for the employers to outline what was important to them so there could be a common set of standards for the commercial market — a consistent request from the leaders of both healthcare stakeholders.

Two of the CMOs were primary care physicians, and they both acknowledged that we have not given enough attention to the resource that has the greatest opportunity to lower employers’ costs — the family doctor. The primary care physicians can build trusting relationships with employees; they can help avoid the unnecessary services being provided; and they can help educate and channel the patients into the appropriate specialist, when they are equipped with quality and cost information.

The CMO from the largest health system acknowledged that there was 30% variation (aka waste) in the way care was being delivered within the community and that there was opportunity to improve the results. If we know there is variation in care even with performance-based contracts in place, what is the catalyst to get serious on consistency? Are there any other services that you purchase with a 30% variance? Would you continue spending money for that service knowing there is wasted spending?

After the event, there was a conversation with an employer, and we discussed the employers’ opportunity to help shape and define the quality metrics. This employer stated that he did not have experience or knowledge on how to establish criteria, and he was surprised to hear health plans were looking for his guidance, because he thought it was their role. When the discussion moved to the employer’s overall business, he acknowledged its internal business units established the quality criteria in assessing the vendors’ performance.

So, how do we move beyond the billboards and the marketing campaigns to understand the healthcare suppliers’ performance? Who has the greatest opportunity to drive change in a free-market system? We believe the one paying the bill has the ability to drive a more consistent outcome for high-quality, cost-effective healthcare. Let’s recognize and reward the physicians who are delivering a Six Sigma approach to healthcare so the other suppliers will be motivated to change. It’s time for employer-driven healthcare.

Are Your Health Cost Savings an Illusion?

The New England Journal of Medicine carried an excellent article by David Casarette, MD, on the topic of healthcare illusions and medical appropriateness. Click here to read the full article.

Casarette observes that humans have a tendency to see success in what they do, even if there is none. Casarette writes, “Psychologists call this phenomenon, which is based on our tendency to infer causality where none exists, the ‘illusion of control.’” This illusion applies in all walks of life, especially in politics and parenting, and it includes medical care.

In medical care, the phenomenon has been referred to as “therapeutic illusion,“ and it affects both doctors and patients. Undoubtedly, therapeutic illusion is why placebos can be so effective.

In one clinical study, faux surgery worked as well or better than an actual surgery for the treatment of specific conditions. If patients perceive they need surgery, e.g. for knee pain, even though it may not be medically appropriate some will search for a surgeon who can validate the need and perform the surgery.

Casarette writes, “Physicians also overestimate the benefits of everything from interventions for back pain to cancer chemotherapy.”

Casarette’s article is most interesting to us. Why? We’ve often felt that doctors who perform unnecessary surgeries have ethical problems. The reality may be a little more complicated. The surgery decisions may have a subconscious influence.

Toomey had an interesting conversation with the chief medical officer (CMO) of a major health system. The CMO relayed that his wife was having pain in her hand, so they scheduled an appointment with one of their system’s highly recommended specialists. The specialist looked at the wife’s hand and, after a few minutes, stated that she needed surgery. The specialist did not know he was taking to a physician, and the CMO questioned how the specialist could arrive at a diagnosis from just looking at a hand. The response was, “years of experience.” The CMO and his wife got a second opinion and opted for the recommended therapy rather than surgery, and the therapy solved her issue.

The attention today is on value-based contracting and data analysis. A group of 20 national employers have come together to share data, so they can assess the healthcare supply chain. But, as noted in our last blog post, analyzing the data is complex, especially because claims data are just a collection of medical bills. How are employers assessing medical appropriateness? What reports can be generated to assess a need for care?

In 2014, one state’s Medicare costs were $6,631 per capita while another’s were $10,610. A big driver was the variation in the volume of procedures, and cognitive biases among doctors can help drive those volumes.

Healthcare involves people – patients, physicians, and other providers — and the human element makes it even more complex. So how do those involved in healthcare address the variation in medical care that is driving up costs?

We are biased – we believe the employers are the catalyst to drive change for increased consistency by working collaboratively with suppliers (think Six Sigma).

In any case, it’s time for change.