Holiday Break

December 23, 2008

Note: We’ll be taking a brief holiday break and returning in the New Year.


Signs of the Times

December 23, 2008

I suppose when even Forbes publishes an article titled “The Worst Places To Be Sick And Poor,” it’s a sign that we’re in tough times.  Mississippi tops the list.  The Forbes piece is based on a report published by Public Citizen in April 2007, which in turn is based on data from the Kaiser Foundation.  Better late than never.  Click here for the full PDF of the Public Citizen report.

A Look Back at 2008

December 22, 2008

Now is as good a time as any for CRG to bite the bullet and look back at our predictions for the managed care industry in 2008. 

We started the year by predicting another solid year of earnings growth and stable margins in 2008, positioning managed care once again as a contrarian play.  Wrong, wrong and wrong.  (Hey, at least we admit it).  The year was instead marked by earnings misses and plummeting stock prices.  Assuming plans firm up pricing in 2009 (and we think they will), earnings should stabilize.

We said membership growth would continue stagnate and risk membership share would deteriorate.  Correct and correct.  Any gains came largely through acquisitions; membership growth in managed care remains essentially a zero-sum game.

We said Medicare Advantage would remain stable at least through 2009.  Well, we were correct for 2008 and we’ll stand by our 2009 projection.  Change is coming to Medicare Advantage in the form of lower reimbursements, but nothing will happen until 2010 or beyond.

We said HSA and HRA plan membership growth would slow.  Half wrong, half right.  Yes, it did slow.  But the increases, at least on a percentage basis, were still higher than we figured.  We’re predicting a further slowdown in growth in 2009.

We said health plans would continue to roll out new products (and expand into new geographies) to build share, strengthen their product portfolios, and address market demands for lower costs and increased flexibility.  Correct.  Expect more of the same in 2009.

Meanwhile, we’re wrapping up our annual Outlook for Managed Care 2009, which means we’ll give you our full projections for next year shortly.

CDHP Membership Still Growing, But…

December 18, 2008

Our latest tally of the consumer-directed health plan market shows membership growing at a 35% clip, which would suggest that by January 2009 about 16 million people will be enrolled in a plan tied to a health savings account (HSA) or health reimbursement account (HRA).  That amounts to about 6% of the insured population in the U.S. 

It’s a faster rate of growth than we expected earlier in the year.  But it doesn’t look like CDHPs will reach the lofty goals predicted by some analysts, who had suggested they could account for 20% to 25% of the market by 2010 or upwards of 65 million members.  (That’s about the size of the current HMO market). 

Back in October 2005, we had said that CDHPs could be 15% of the market or 39 million lives by 2010.  (Man, do we hate looking back at our old projections).  Even at the current rate of growth, it would take until January 2012 to hit 15% and that’s not likely. 

Proponents of CDHPs (and HSAs in particular) often cited the explosive growth of the 401(k) market as an analogy.  The thinking goes like this: if personal ownership of stocks could revolutionized how we save for retirement, why can’t personal health savings transform how we fund medical expenses.  With most 401(k) portfolios in the dumps, now is not a good time to make that argument. 

As you may have guessed, I’m resorting to the old “change in national psyche” argument to suggest a dramatic slowdown in CDHP growth in the near future.  The “ownership society” is out.  Shared responsibility is in.  I’m guessing that consumer choices and government policies will reflect the new thinking.

McKinsey on Healthcare Costs, Reform

December 17, 2008

There are several good points in two thoughtful McKinsey white papers on healthcare costs and reform: “Three Imperatives for Improving US Health Care” and “Why Americans Pay More for Health Care.”  The reports also compare the U.S. health system to those of members of the Organisation for Economic Co-operation and Development.  Here are a few interesting bullets. 

*Outpatient costs: “The US system delivers 65 percent of all care in outpatient contexts, up from 43 percent in 1980, and well above the OECD average of 52 percent. In theory, this shift should help to save money, since fixed costs in outpatient settings tend to be lower than the cost of overnight hospital stays. In reality, however, the shift to outpatient care has added to—not taken away from—total system costs because of the higher utilization of outpatient care in the United States.”

*Drug costs: “Prescription drugs…cost 50 percent more than equivalent products in other OECD countries.   The United States also uses a more expensive mix of drugs; the price of a statistically average pill is 118 percent higher than that of its OECD equivalents….If global pharma R&D spending—$40 billion to $50 billion in 2006—were financed entirely through higher branded-drug prices, the US price premium over similar countries would be 23 to 28 percent.”

*Administrative costs (including malpractice insurance): “In this category, the United States spent $486 per capita in 2006—twice the outlay of the next-highest spender, France, with $248, and nearly five times the average of $103 across peer OECD countries….These higher costs largely reflect the diversity and number of payers as well as the multistate regulation of the US health care system. Its structure creates additional costs and inefficiencies: redundant marketing, underwriting, claims processing, and management overhead.”

Any Port in a Storm: Aetna, Cigna Affirm Profit Outlook

December 16, 2008

Admittedly, we’re grasping at anything that resembles good news in the managed care sector these days.   Yesterday, Aetna affirmed its earnings projections for 2008 and 2009.  Last week, Cigna did the same.

Granted, Cigna was reaffirming an already lowered 2008 forecast, while Aetna was reaffirming a dissapointing 2009 forecast.  But at least it wasn’t more bad news. 

Shares in Aetna jumped 11% after the announcement.  Cigna was unchanged.  But then, Cigna seems to be battling more challenges than Aetna right now, including continued membership losses. 

If you’re the type who likes to wallow, consider that shares in Aetna were still down about 59% from their 12-month high as of yesterday.  Shares in Cigna were down 74%.  On average, 12 health plan stocks tracked by CRG are down 60% from their 12-month high.

Good News, Bad News for Healthcare IT

December 15, 2008

Corporate Research Group just completed its report on emerging information technology in healthcare, and the results were hardly surprising. 

The good news is that the technology really does seem to work.  Whether it’s e-prescribing, electronic medical records or real-time claims adjudication, providers and payers can point to solid examples of how technology is reducing administrative costs and improving quality. 

Increased use of generic drugs, fewer adverse drug reactions, and improved adherence to disease management programs are just a few examples. 

The bad news?  Rollout of these technologies remains painfully slow and scattered.  In many cases, providers are reluctant to pay for and install new systems unless they receive subsidies from health plans, government or others.

E-prescribing script volume still represents just 2% of the total number of scripts written annually in the U.S.   EMR adoption is growing, but the healthcare community has just barely scratched the surface when it comes to the potential benefits.  As for real-time claims, they make up less than 1% of the total claims adjudicated in the U.S.; although real-time eligibility checks have been growing rapidly.

Our concern is that in these tough economic times, cash-strapped healthcare organizations will find it even harder to invest in information technology.  That would be bad for eveyone.

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