Ron Williams on Healthcare Reform

Ronald Williams, chief executive of Aetna, talks about the need for healthcare reform in an interview with the Financial Times.  Here’s the video, and here’s a transcript of some highlights.

While Williams says of the Democratic and Republican proposals for healthcare reform, “No one has the perfect right plan,” he likes elements of both.

On the Republican plan, he says, “I think one of the things is really a very strong reliance on market-based solutions, including public-private partnerships as a way to really address…the issue of the uninsured.”

On the Democratic plan, he says, “The Democrats have a very strong emphasis on health information technology, a very important notion that we do need to make certain that we improve access to bring in some of the low-income populations who are particularly the working poor.”

United Looks to Reduce Neonatal ICU Admissions

Interesting research from UnitedHealth Group (press release) on its effort to reduce neonatal intensive care admissions.  The company’s UnitedHealthcare unit had noticed an unusually high number of claims for NICU admissions in its southwest markets.  Upon review, United found that 48% of these admissions were for babies delivered by C-section or induced labor prior to 39 weeks’ gestation; in other words, these were scheduled deliveries.  Babies born before 39 weeks are susceptible to respiratory problems, says Tina Groat, M.D., UnitedHealthcare’s national medical director for women’s health.  It’s not a problem as long as you check that the baby’s lung have matured, she says.  United made this information available to local hospitals and neonatal practices in the southwest.  A year later, Groat says, neonatal admissions dropped 46%.  United is rolling out the initiative to nine markets: Texas (Houston, Dallas and central Texas); Illinois; Arizona; Utah; Kentucky; Indiana; and Columbus, OH.  A typical neonatal admission costs United around $20,000, compared to just a few thousand dollars for an average delivery.  We’ve got some calls out to neonatal providers, and we’ll see if we can get their response to the effort.

Today’s Schedule

I’ll be down at the Nasdaq Market Site today to shoot a video interview with Scott Bittle of Public Agenda, who we spoke to earlier in the week (see post).  So posting will be light today.  But we’ll be sure to include a link to the video interview next week.

Sometimes I Hate Being a Reporter

Drugstore chain Walgreen is suing the city of San Francisco over a law that bans the sale of cigarettes in drugstores but allows cigarette sales in other retail outlets that have pharmacies.  The concern—from a business standpoint—is that people will just go to other stores to buy the cigarettes and Walgreen will lose foot traffic and sales.  “It’s singling out drug stores,” said a Walgreen spokeswoman.

I wanted to really understand the company’s position.  Did they just want the law overturned, or would they also be in favor of banning cigarette sales at every retailer with a pharmacy?  She said the company wants the law to be the “same across the board.”  O.K., but just to be clear, does that mean if every retailer was banned that would be all right, I asked.  She repeated that the company wants the law to be the same across the board.

Personally, I tend to lean Libertarian when it comes to some of these types of things.  If people want to buy cigarettes, let them buy cigarettes.  Sometimes I wish I could buy a straight answer.

When Budgets and Health Reform Collide

Jon Hurst, president of the Retailers Assn. of Massachusetts, said last week that the difference between “and” and “or” may be the straw the breaks the camel’s back when it comes to employer support for the state’s universal healthcare initiative.

The state of Massachusetts is hoping to raise much-needed additional funds for its universal healthcare initiative by requiring employers to kick in more than before. 

Right now, the law states that employers with more than 10 employees are exempt from paying a “fair share” penalty to the program if they meet either of the following two requirements: “(1) at least 25% of full time employees are enrolled in an employer-sponsored group health plan, or (2) the employer offers to contribute at least 33% to the premium cost for its group health plan for its full time employees that work at least 90 days.” 

However, in August the state proposed a change in the rules in which employers would be exempt only if they met both requirement.  In other words, if the proposal passes and takes effect as scheduled on Oct. 1, the “or” turns into “and.”  

In approving the state’s 2009 budget in July, Massachusetts Governor Deval Patrick called attention to the success of the universal healthcare program, pointing to “nearly 340,000 adults and children newly enrolled in health coverage since this historic initiative began.”  He added, however, that “rising enrollment and expenses for state-subsidized health insurance programs are straining the state budget, with the projected costs of providing coverage for low-income families…in fiscal year 2009 exceeding resources currently available in the budget.”

And so the stage was set for the current showdown, which involves many stakeholders beyond just local retailers and state regulators.

Yet, in a strange way, it’s a good thing this debate is taking place—especially since many policy experts are looking to the Massachusetts effort as a possible national solution to the uninsured.  It points to the type of budgetary issues that will have to be resolved, the need for open debate, and most importantly the types of compromises that will be required in order to solve the nation’s healthcare problems.

I remember attending a healthcare conference back in 2006, when then-Massachusetts Governor Mitt Romney spoke about the compromise that resulted in the state’s universal healthcare initiative.  Romney, a Republican, joked about how it was the first time he and U.S. Senator Ted Kennedy (D-MA) ever agreed on anything.  And I remember thinking at the time that whatever the merits or shortcomings of the Massachusetts plan, the willingness to compromise on some tough decisions is the only prescription for fixing healthcare going forward.

BioScrip Hammered

This is a trend that’s hit many specialty benefits providers (read: managed vision, dental, behavioral, pharmacy benefit management and specialty pharmacy plans).  The specialty providers’ health plan client decides to take the job in-house.  That’s what happened to yet another company, BioScrip (Elmsford, NY), which announced today it was losing its specialty pharmacy contract with UnitedHealth to manage HIV/AIDS and organ transplant drugs.  United has decided to take the business in-house.  The hit to BioScrip is $100 million in revenues and $2 million in operating income in 2009.  BioScrip previously lost the Aetna specialty pharmacy account for the same reason, the move in-house.  Shares of BioScrip (Nasdaq: BIOS) were down 15% as of midday.  Worse, there’s no easy answer for specialty plans facing this type of loss.

Snow on Healthcare Reform

I like David Snow.  He’s a decent guy, and he’s done a good job as chief executive of Medco Health Solutions.

Now he’s released a “Prescription for National Healthcare Reform,” which he says can reduce healthcare costs in America by $1 trillion and address the troubling fact that we spend twice as much on healthcare per capita than other industrialized nations without a commensurate level of better care.  His five reforms are as follows:

“Wiring Healthcare: Under conservative estimates, we could save $162 billion a year by wiring healthcare—which improves efficiency and accuracy and enables us for the first time to begin measuring everything from the quality of hospitals to the individual performance of care-givers.

“Medicare: Fix Financial Fundamentals: Few realize that 30 percent of Medicare spending today, roughly $130 billion, relates to healthcare costs incurred by patients in their last year of life—often where there is no hope for recovery or improvement in quality of life. Government needs to set policy and establish rational rules for the level of care based on medical science—it’s not the private sector’s role to pass judgment on hope.

“Eliminating Medical Liability/Defensive Medicine: Tort reform eliminates ridiculous litigation, averts the waste related to physicians performing unnecessary tests as they practice “defensive” medicine, and could reduce healthcare costs by another $200 billion a year.

“Increasing Compliance and Reducing Errors: It has been independently documented that we could save another $177 billion related to improving compliance and reducing errors. The fact of the matter is that doctors are well paid to offer their advice, but all too often, patients simply don’t follow the instructions.

“Promoting Healthy Lifestyles: Finally, we could reduce our healthcare spending by more than $300 billion a year if we embraced the simple concept of wellness. More than 10 percent of our overall medical spending—$275 billion—is related to the self-inflicted conditions linked to obesity and smoking, with another $38 billion associated with drug and alcohol abuse.”

A lot of what Snow is saying makes sense.  Some of it—like reducing errors and promoting healthy lifestyles—falls under the category of “no-brainer.”  Whether the savings figures are achievable or even realistic isn’t clear.  But even if we achieved only a fraction of the savings he outlines, we’d be ahead of the game.  These savings, Snow argues, could be used to extend coverage to the uninsured. 

But there are other big cost-drivers in healthcare that also need to be addressed, including high administrative costs, pricey specialized procedures, the profit motives of publicly traded healthcare companies, the marketing power of big pharma, and yes, the piece of the pie taken by various middlemen—pharmacy benefit managers like Medco among them. 

Furthermore, the problem of the uninsured simply can’t wait until we see savings from wiring healthcare and an America public that’s in better shape.  So we’ll take Snow’s proposal at face value.  There may be nothing new here, and it may constitute only a part of the solution, but it clearly should be part of the debate.

When Losing Business is a Good Thing

Humana Inc. (NYSE: HUM) announced today it will lose about 308,000 Medicare Part D prescription drug lives among auto-assigned dual-eligible recipients of Medicare and Medicaid in 2009 because its bid was higher than the government’s benchmark rate.  No big deal, says equity analyst Carl McDonald of Oppenheimer, who writes that “the members weren’t that profitable to begin with.”  Investors agreed, pushing Humana’s shares up after the announcement.  Humana shoots for an overall Part D and Medicare Advantage operating margin of about 5%. 

McDonald’s research note on the Humana loss also gives an eye into some key considerations facing managed care plans when they bid on Part D business.

“The potential negative from this news is that it’s likely that pricing on HUM’s retail PDP product will also be up in 2009. This puts Humana at-risk of losing retail lives, which do earn a decent margin, and it also reduces the pool of seniors that can be converted to a full Medicare product.
 
“The loss of the dual eligible lives will make Humana’s [medical loss ratio] less seasonal than it has been, as duals tend to have a much worse MLR in the first quarter, and a better than average PDP MLR in the back half. As a result, HUM’s sequential earnings progression will be less back-end loaded.”

Choice Words for Health Mandates

Peter Gosselin, in his book “High Wire: The Precarious Financial Lives of American Families,” has some choice words on the concept of individual health insurance mandates aimed at the uninsured.

“Calling for an individual mandate as a means of attracting a broad coalition to health reform may be politically wise.  But unless that call is accompanied by stiff regulations that ensure people are not entirely on their own in obtaining and keeping coverage, the result will be a cruel hoax.  Having insurance to cope with a health crisis is one of those protections that no one except those in that all-too-brief period of healthy young adulthood—or those who are very, very rich—can afford to do without.  Our risk of being struck by serious illness or injury must be pooled with those of others, and the costs must be spread across a large group of both sick and healthy.  Insurers cannot be counted on to assemble those groups on their own; the financial incentives to take the healthy and avoid the sick or likely-to-be-sick are simply too great.  If employers are no longer to play the role they have traditionally played of assembling these groups, there is only one alternative—government.  Unwelcome as many American may find the idea of government playing a bigger role in health care—and as much as we may object on philosophical or other grounds—we must not fool ourselves into believing there is some simple alternative.”

The Federal Budget Mess and Healthcare Reform

So here’s the question: How are we supposed to pay for healthcare reform when the national debt is at $9.6 trillion, the budget deficit is expected to top $400 billion both this year and next, and we’ve just promised up to $200 billion to bailout Freddie Mac and Fannie Mae? 

That’s what I’d like to know.  So I asked Scott Bittle of Public Agenda, who is co-author along with Jean Johnson of “Where Does the Money Go?  Your Guided Tour to the Federal Budget Crisis“  (HarperCollins, 2008).  His answer: “With great difficulty.” 

Bittle describes the current budget situation as a classic double-bind.  “You can’t control the long-term budget problem without fixing the healthcare system,” Bittle says.  Yet, fixing the healthcare system will require difficult and costly choices.  

The two Presidential candidates have important philosophical differences in their plans for healthcare reform.  But according to the Tax Policy Center, the cost of the proposals are in the same ballpark.  Obama’s plan would cost $1.6 trillion over 10 years; the McCain plan $1.3 trillion. 

That’s a big nut by any standard, and it ought to spur serious debate.  And that debate needs to happen sooner rather than later, Bittle warns, because “after a certain point, the budget makes the decision.”

Pharma’s Public Image Falters

Research from Geneva-based Covalence (press release) suggests that the pharmaceutical industry’s public image is suffering, dropping from first to third place in the company’s all-time ranking of 10 industries.  Looking at just the 12 months ending July 2008, pharma ranked eighth.  Among the reasons for the falloff, Covalence says, are lawsuits and fines associated with unsafe products.  “This situation raises questions regarding the future of the industry’s public reputation and its global license to operate,” Covalence says.

A Home Remedy that Works

Normally, I don’t comment on the clinical side of healthcare.  But I’m making an exception to extol the virtues of chewing gum as a remedy for heartburn.  As a heartburn sufferer, I thought it was silly when I first read about how gum chewing might prevent gastroesophageal reflux disease.  (Here’s a WebMD article on the topic).  But I can tell you from experience that it works—for me, better than any over-the-counter medication I’ve tried.  Now if we can get health plans to cover gum we’re all set.

Managed Care Risk Business Falls

We’ve just completed our second quarter 2008 membership tally of 20 leading for-profit and not-for-profit managed care organization.  The result: total membership among the 20 health plans rose 6% to 125.6 million lives as of June 30, 2008, compared to a year earler.  However; risk business accounted for 47.5% of the total, down from 49.8% a year ago.  The implication, as we’ve noted before, is that risk business has a higher aggregate profit than administrative business.  But margins are actually higher for ASO.  So what would you rather have?  A lot more profit at a lower margin, or a lot less profit at a higher margin.  In this case, the answer is a lot more profit at a lower margin.

Palin’s Push for Market-Driven Healthcare

Interesting piece in today’s Washington Post on efforts by Alaska Governor Sarah Palin to free up clinics to compete against hospitals by eliminating regulations requiring “certificates of need” before offering certain healthcare services.

Writes the Post: “Palin responded with an aggressive, uncompromising and, to date, unsuccessful push to promote competition—an effort consistent with her free-market ideals, but also welcomed by the medical groups that helped finance her 2006 campaign and an industry lobbyist who served as a top political adviser….”

However, Palin hit a wall, the Post writes:  “The legislature had watered down her proposal so it would apply only to certain types of medical facilities. Despite Palin’s push, the legislation died.  Palin’s political opponents say the battle was evidence of a simplistic approach to a complex issue. ‘It didn’t matter what you asked her about health care,’ said Tony Knowles, the Democratic governor who lost to Palin in 2006. ‘Getting rid of certificates of need was her only answer.'”

You can view the whole piece at the Post, but you need to register for free access.  Here’s a linkto the article on AHIP Hi-Wire.

Suze Orman on HSAs

Personal finance writer Suze Orman says in a recent column on Yahoo! Finance that health savings accounts may be a good way to put away money to pay out-of-pocket healthcare costs during retirement.  

“If you’re in good health,” Orman writes, signing up for an HSA-compatible high-deductible health plan “can be a cost-effective way to protect yourself and save money.”  While minimum annual deductibles are $1150 single, $2300 family, Orman notes, “In return for taking on the financial responsibility of those high deductibles, your annual premium will be lower.” 

And that equals savings…if you’re in good health.  And if you’re not in good health?  “If you or a family member ends up in need of care, your savings will be offset (or exceeded) by the higher out-of-pocket deductible cost. And the HDHP also will typically have a higher annual maximum out-of-pocket cost than a traditional plan. For 2009, the maximums are $5,800 for an individual and $11,600 for a family….That’s a lot of money to be on the hook for, but the HSA part of the equation will help,” she writes.

Or you can do what a lot of people do: sign up for an HDHP but don’t bother funding an HSA.  Then if you get sick, you can get the worst of both worlds.

HSA Plans Without HSAs

Twenty-one leading banks had a total of 2.15 million HSAs with combined deposits topping $3 billion as of June 30, 2007, according to our latest survey.  Meanwhile, 18 top managed care organizations had about 4.2 million HSA plan members.  Though far from scientific, the figures suggest that only about half the members of HSA-compatible high-deductible health plans have actually opened an HSA.  Said another way, they have skin in the game but no skin in the bank.

Video Interview with Steven Greenhouse

Don’t miss our video interview with Steven Greenhouse, New York Times labor reporter and author of “The Big Squeeze: Tough Times for the American Worker,” who discusses the prospects for healthcare reform.

Newsflash: No Healthcare Reform This Year

The self-evident news story of the day comes from the Associated Press, which writes: “As Congress returns from summer recess, lawmakers are expected to continue needling pharmaceutical makers and health insurers with investigations, while holding off on major health care reform until next year.”  You mean as opposed to attempting to jam through a major healthcare reform package in the waning days of a lame-duck administration?

The real food for thought comes at the end of the article, which quotes consultant Dan Mendelson, who is among the those wondering if reform is even possible next year.  Instead, Mendelson expects some expansion of Medicaid, health information technology investments, and other incremental changes.  “The fiscal reality is so crushing; it’s virtually impossible to do major reform in the next year,” Mendelson is quoted as saying.

Hospital Admissions to Grow 1.5% in 2008

The equity research department of Oppenheimer surveyed 50 hospitals and found that “same store inpatient admissions will grow 1.5% in 2008, down about 50 basis points from the admissions growth reported last year. This is slightly different that the volumes reported by the publicly traded hospitals, which reported volume growth of just 0.2% in 2007, and 0.6% in the first half of 2008.

“On average, inpatient hospital contracts are re-negotiated six months in advance of the start date on the new arrangement. As a result, hospital rates shouldn’t have much impact on the financial performance of [managed care] plans, since changes in unit cost should already be reflected in the premium rates set by plans.”

McCain Says Obama Healthcare Plan Will Cut Jobs

In his speech last night accepting the Republican party’s nomination for President, John McCain took a shot—one of only a few overall in his speech—at the healthcare plan of his Democratic opponent Barack Obama.

“My health care plan will make it easier for more Americans to find and keep good health care insurance. His plan will force small businesses to cut jobs, reduce wages, and force families into a government run health care system where a bureaucrat stands between you and your doctor.”

Here’s the full text of the speech, and below is a video clip in which he mentions healthcare (it’s at the 7:25 mark).  Meanwhile, here’s an interesting analysis from the Economic Policy Institute comparing the Obama and McCain plans.

Note to Mom: Don’t Worry, Be Happy

A study published in the journal Pediatrics suggests that children age three to 10 who live with stressed-out moms below the poverty line tend to be obese, assuming they live in “food-secure” homes (i.e., household where there’s a sufficient amount of food for the family).  I have an easy solution.  Reduce mom’s stress by helping her get out of poverty and make sure her family has access to adequate health insurance and wellness programs.  Done.

Blog Black Hole (Say That 5 Times Fast)

Allow me to blog about a SeekingAlpha blog which comments on a Wall Street Journal article that I blogged about yesterday.  The topic in question: WellPoint raising premiums to boost profitability and in turn its sagging stock price.  The SeekingAlpha post, titled “Time to Rethink Our View of Private Health Insurers?” argues:

“WellPoint and UnitedHealth are steadily shifting from ‘at risk’ business to becoming plan administrators for the self-insured corporations and feeding off the government Medicare and Medicaid trough. When companies become especially heavy feeders from the government trough, they take on an implied social responsibility. Shareholders who refuse to acknowledge this are naive….Shareholders need to start viewing private health insurance companies as utilities; safe, low margin, slow growing businesses. Private insurers need to refocus themselves into public servants. This will become the new reality.”

Let’s put this in context.  Projections from Oppenheimer’s equity research department suggest that United will still get about 58% of its operating earnings from commercial risk business, 20% from Medicare Advantage and 4% from ASO lines in 2009.  Similar projections suggest WellPoint will get about 59% of 2009 cash flow from commercial risk, 6% from Medicare Advantage and 16% from ASO.

So the dominant driver of profits is still commercial risk.  Turn the pricing cycle there, and the stocks of these entities will get a bounce.  But SeekingAlpha is correct that business is migrating toward ASO, which actually is a higher margin business than risk; however, in aggregate it delivers lower total profits. 

And, yes, there is plenty of risk in the real or implied social role that health plans play, meaning the government can step in any time and change the rules of the game.  That’s true whether health plans are feeding from the government trough or simply falling short in the broader national goal of providing affordable coverage to all Americans.

So there’s a lot to the argument that health plans are the new utilities.  Slow-growth?  Yes.  Low-margin?  Yes.  Safe?  To be continued…

Forbes Names WellPoint’s Braly World’s 4th Most Powerful Woman

“In March she found an actuarial error that shaved $270 million off her profit forecast and $9.5 billion in market cap,” wrote David Whelan in Forbes, which has named WellPoint chief executive Angela Braly the world’s fourth most powerful woman.  Number one on the list: Angela Merkel, Chancellor of Germany.  Secretary of State Condoleezza Rice was number seven, and U.S. Senator Hillary Rodham Clinton (D-NY) was number 28. 

The web version of Forbes had a longer blurb by Emily Schmall on the selection of Braly: “Named CEO in June 2007, Braly crashed through health insurance’s glass ceiling but still earned $26 million less last year than her male predecessor. The St. Louis attorney helped Missouri’s Blue Cross convert from a nonprofit into an investor-owned company in 1994. Made the leap to WellPoint when the company acquired Blue Cross in 2001. The 35-million-member insurer revised its forecasts in March after reporting more claims than expected. Now facing wrath from employees who lost an estimated $100 million from their 401(k)s when company shares swooned 39% in March.”

Our take on Braly?  She got caught along with the rest of the industry in an underwriting down cycle, and also like the rest of the industry, she is trying hard to figure a way to climb out.

Humana’s McCallister on CNBC

Straight shooter Michael McCallister, chief executive of Humana, discusses wellness, rising healthcare costs, Medicare, and the differences between the McCain and Obama healthcare proposals on CNBC’s Closing Bell.  See the video here.

Another Call for Medicare for All

Steven Greenhouse, New York Times labor reporter and author of The Big Squeeze: Tough Times for the American Worker (Knopf, 2008), writes in his book that one way to cure to nation’s healthcare crisis “would be to extend Medicare to all Americans, emulating Canada’s system in which the government pays nearly all medical bills.  The government would finance coverage for everyone, with Americans able to choose their doctors exactly as elderly Americans now do under Medicare (Americans who want treatment above what Medicare covers would be free to pay for it out of their own pocket or through supplemental insurance).  Some economists estimate that moving to such a program would save $200 billion a year, more than enough to provide coverage to the nation’s 47 million uninsured.  That $200 billion would be saved mainly because administrative costs represent just 3 percent of Medicare’s overall costs, while in today’s system, administrative costs for insurers, HMOs, doctors, and employers account for nearly 25 percent of costs.”

Note to readers: We’ll be interviewing Greenhouse later this week at the Nasdaq Market Site in New York, and we’ll be sure to post a link to the video interview here.

Clarification: Greenhouse notes in his book that Medicare for everyone is one way to achieve universal healthcare coverage; others would include the Massachusetts universal healthcare initiative and the Obama plan.  He doesn’t expressly call for Medicare for all.