Cobra Subsidy Would Help People, Insurers

January 30, 2009

With the economy contracting and unemployment rising, Americans who receive health insurance through their job will potentially find themselves without coverage.  Luckily there’s Cobra (Consolidated Omnibus Budget Reconciliation Act), which let’s you stay enrolled in your employer’s health plan if you pay the entire premium plus a 2% administrative fee.

Unfortunately, you can only stay on Cobra for 18 months, and according The Commonwealth Fund (release here), only 9% of unemployed workers actually took advantage of Cobra in 2006.  Most people simply can’t afford to pay the entire healthcare premium without a paycheck. 

The Obama economic stimulus package (passed by the House and ready for debate in the Senate ) would help.  The package would subsidize 65% of Cobra premiums for up to a year, meaning the unemployed would have to kick in just 35%.  The plan would also allow those over age 55 (or with more than 10 years on the job) to stay on Cobra until they qualify for Medicare at age 65.  Finally, it would make Medicaid available to the unemployed on temporary basis.

This plan is good for people.  It’s also good for the health insurance industry, which faces potential membership falloffs as unemployment rates rise.  America’s Health Insurance Plans is behind the effort (see statement here).  So are we.


Coventry Turns the Page, Backward

January 30, 2009

I suppose anytime the stock of a particular company falls 75% in a year, the CEO’s job is on the line.  So it’s not a big surprise that Coventry Health Care (Bethesda, MD) announced the resignation of president and chief executive Dale Wolf this week.  Returning to the CEO slot is Allen Wise, who ran the company from 1996 to 2004 and was well respected for engineering a major financial turnaround.

Even under Wolf, Coventry has always been considered a company with a very strong management team, so the shakeup is ironic.  Most of the pain was the result of higher-than-expected costs and lower-than-expected revenues, in other words a premium pricing miss that won’t be corrected in full until 2010.

For me, though, the questions really started in 2005 when the company completed its $1.7 billion acquisition of First Health.  The deal marked a major departure from Conventry’s long-standing strategy of acquiring relatively small money-losing plans and turning them around.  Coventry was now attempting to build an organization with nationwide reach by combining its local health plans with First Health’s national PPO.  These types of strategic shifts always make me nervous, and as it turned out First Health ended up being a drag on earnings.

Wolf’s credibility was hurt further because the company didn’t notice it’s pricing was lagging costs until October 2008, well after other plans had already announced corrective actions.  So for Coventry, 2009 is a throwaway year.

All of which was too much for Wolf to keep his job.  Re-enter Wise.  Can he save the day again?

On Medical Errors

January 28, 2009

The toll on human life by preventable medical errors in the U.S. (and elsewhere) is unbearable and unacceptable. We are told that some 100,000 patients die annually from hospital errors alone, and an untold number of patients suffer complications and morbidity, adding to the already high burden of health-care costs. 

Some errors in written communications (e.g. spelling errors, wrong doses) or drug interactions have received a lot of attention, mostly because they could be fixed by technological solutions.  Another factor mentioned often is human fatigue, usually the result of long hours of in-hospital on-calls by more junior staff.

The 800 pound gorilla in this story is more insidious and related to the knowledge and attitude of practicing physicians.  One of the major differences between physicians today and those 30 years ago (when I first practiced medicine) is today’s excessive reliance on technology and too little reliance on information supplied by the patient or her family. 

This is a tough problem to solve, because technology is here to stay, and the system is unlikely to reward physicians for spending more time with patients (and thus forcing them to see smaller number of patients). 

There are some ways to indeed use low-tech for improving outcomes: What if every interaction between health giver and patient (or patient’s family) is recorded?  This will, at the very least, avoid debates and misunderstandings as to who said what and when. But this may not suffice.  Our lives, and those of our families, are too important to be left totally to the control of tired and overworked medical staff.

 A new type of healthcare provider (or intermediary) must enter the picture: an advocate for the family who will make sure the physician’s orders are properly executed, the IV is running properly, correct medicine is given at the right time, and the risk of a potential in-hospital “error” is drastically reduced. 

Finally, the family of a patient who is a victim of medical errors (assuming they find out about it) should not have to pay any bills.  Of course, many issues need to be resolved before these can be implemented, but it is important to explore any new idea that might just work. Even a single avoidable death of a patient due to medical error should not be tolerated.

2008—A Year to Forget

January 27, 2009

Some thoughts on a very bad year from the Outlook for Managed Care 2009:

“The core issue for managed care in 2008 was an insurance underwriting downcycle. The rate of increase in premiums had been declining for years. The average commercial rate hike dropped from 7% in 2007 to 6% in 2008. Rate hikes are expected to remain at around 6% in 2009.

“Fully funded HMO enrollment has been vitually flat or down for the past decade. Enrollment declined 0.9% in 2008 following a 1% drop in 2007. Another 1.5% decline is projected for 2009. Pricing pressure and stagnant fully funded enrollment has squeezed profit margins, which slipped to an estimated 3.3% in 2008 from 5% in 2007.”


2 Companies with ‘Innovator’s Block’ Combine—Pfizer to Acquire Wyeth

January 27, 2009

After spending $115 billion on Warner-Lambert in 2001 and $60 billion on Pharmacia in 2003, Pfizer is reported to be offering $68 billion for Wyeth.  It’s no secret that times have become difficult (some would say desperate) for both companies, and despite attempts by each company to build a pipeline of innovative programs, it doesn’t seem that they were too successful. 

Innovation is at the heart of new drug development, and it’s not easy to do under the best of circumstances. To innovate through committees, which is how big pharma companies like to operate, has at best a checkered track record.  For reasons inherent in their structure and culture, large companies don’t foster a sense of individualism and “out-of-the box” thinking—these are difficult to control by management—so team players are the ones getting rewarded and promoted.

In a climate where me-too compounds—the bread and butter of the industry for a long time—are less lucrative (and less obvious to make), the companies cut  big deals (like this one) that make sense mostly as financial vehicles to reduce expenses by eliminating redundancies. 

The Wyeth pipeline had a few setbacks in recent months, and its major attractions are Alzheimer’s compounds, but I’d hate to think that Pfizer included these as a major factor in the decision. A bonus, maybe, something to potentially offset the liabilities Wyeth still has from litigation surrounding Phen-Fen and its hormone replacement franchise. 

So it is left for smaller companies and start-ups to innovate—serendipity is more likely to operate in less structured environments.  In fact, Wyeth had made several interesting deals in the last few years with small companies such as Plexxikon, Trubion, Pharmacopeia, Medivas, Elbion, Catalyst, Exelixis (among others), and was about to acquire Crucell NV (a deal cancelled by the Pfizer-Wyeth deal), but early projects don’t excite share holders, and often, rightly so. 

So the trend will continue—discovery will be done by small companies, drug development by mid size companies (and CRO’s), and the large companies will be left with the mega-development projects and marketing.  And deal making will continue this year, some say at record pace (despite the economical troubles, or maybe because of them), as valuations of many biotech and pharma companies are extremely low.

Lowering Cholesterol and Health-Care Costs

January 26, 2009

Let’s play a little game:  If I told you that you have a 10% chance of dying in the next 10 years from heart disease (say you are older than 50), would you start worrying or sigh with relief? Some will feel that it’s high (especially if you consider yourself healthy), but for many, a 90% chance of being around in 10 years is quite a useful reassurance.  Now, if a drug that you have to take every day will reduce your risk by 30% (a typical result in clinical trials with the most popular class of drugs, statins), that is, from 10% to 7% (or increase your chances of being alive at 10 years from 90% to 93%) – would you be very impressed by these prospects, especially when you can’t be sure that some unexpected adverse effect of the drug might reduce or nullify the benefit.                   

Now, let’s say that your chance of dying in 10 years is 40% – well, now this changes everything, right?  This is sufficiently high to warrant some action, and at this point you would worry less about side-effects (as long as they are not life-threatening) or cost (as long you have the insurance or means to pay for the treatment).  Clearly, different people look at statistical predictions differently. 

This all ties into health-care costs, of course.  Heart disease is a major cause of mortality and morbidity in the US and other industrialized countries. While it is widely assumed that prevention is an important component of a good health care system, it’s not obvious that a robust and comprehensive prevention program (centered on drugs and medical tests) will lead to major savings. (More on this in future blogs).

So our own perception of what medical risk justifies what treatment could determine one aspect of the health-care debate. Namely, when is it justified to spend billions of dollars on certain drugs (the total sales of statins was higher than 16 $billions in 2007), and how many patients end up getting treated when they either won’t benefit from the drug (because they suffer a major cardiac event anyway, as some 65-70% of statin-takers do) or they were never destined to get one in the first place, (and were placed in the high-risk list because of certain population-based risk-factor analyses).  This debate will become even more relevant as claims for the utility of statins extend to treating patients with ever-declining levels of the major risk-factor, “bad” cholesterol levels.

Encouraging Words from United’s Hemsley

January 23, 2009

Perhaps the most encouraging words to come out of UnitedHealth Group’s fourth-quarter earnings call with Wall Street analysts were spoken by chief executive Stephen Hemsley: “Our adjusted fourth quarter operating margin of 7.9% was in line with our expectation, with some out-performance on the consolidated medical care ratio of 80.8%.” In other words, costs were in line with premiums—actually better than the company expected. If the rest of the managed care industry can match these results, maybe 2009 won’t be so bad after all. (Click here for complete conference call transcript).

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