A Doctor’s View on Healthcare Reform

April 30, 2009

Time magazine’s Scott Haig, M.D., says in a recent article that to fix healthcare we need to streamline regulation and billing, “computerize everything,” and find a better way of sanctioning bad practices without the threat of malpractice litigation.

On managed care, he writes: “It costs the typical doctor about 10%, right off the top, to collect our fees from the HMOs and other insurance companies we have to deal with.  This is due to the ultra-complex set of rules and regulations those companies have established to ‘control costs’ (read: to pay us less while their executives take home more) and the billing staffs we have to hire to deal with them. This money does nothing for patients….It could easily be eliminated with simple, intelligent, centralized payment rules.”

I always wondered what was up with all those workers shuffling papers in my doctor’s office.


Aetna 1Q09 Financials: So Much for the Good News

April 29, 2009

The generally favorable first-quarter results posted by WellPoint and UnitedHealth earlier this month (see prior post) had us thinking the managed care industry had turned the corner.  All right, we still think that’s true in general.  But Aetna’s first quarter results sure didn’t help the cause. 

The big problem was higher-than-expected medical costs in the company’s commercial line.  Whenever costs at a health plan come in higher-than-expected, Wall Street freaks out.  Not surprisingly, shares in Aetna are down 9% this morning.

We’ll do our usual detailed take on Aetna’s results in the next issue of Managed Healthcare Market Report.  Right now, I’d just like to note some of the reasons Aetna gave for the unexpected spike in medical costs.

1. People who are afraid of losing their jobs (and health insurance) are rushing to get treatments and medical services.

2. People who have already lost their jobs, but have a severance package with benefits, are rushing to get treatments and medical services before the severance package ends.

3. People informed their company will be reducing benefits (e.g., Aetna is seeing benefit buydowns in the 150 to 200 basis point range) are rushing to get treatments and medical services.

4. People who sign up for Cobra after losing their jobs typically have higher medical costs than non-Cobra members.

When asked if the company should have seen all this coming, Aetna chief executive Ron Williams responded on a conference call with Wall Street analysts that 2009 is unlike any other year the company has experienced.  “Some things we obviously didn’t anticipate,” he said.

Aetna had originally expected 2009 medical costs to rise 7.5% to 8.5%.  The company is now saying there’s “upward pressure” on that range.  Meanwhile, the company is maintaining its profit forecasts for the year, with officials noting that it has already adjusted pricing to reflect cost pressures. 

Wall Street will be watching…and worrying.

The Annals of Unintended Consequences, Part 2: Medicare Advantage Cuts

April 28, 2009

Oppenheimer analyst Carl McDonald writes: “Even though the Medicare Advantage program enrolls a disproportionate number of low income and minority beneficiaries (two key Democratic constituencies), the new Administration is essentially telling these seniors that although they are some of the most vulnerable members of society, they have been receiving too much welfare over the past few years, and that it is going to be taken away, in the form of higher premiums and reduced benefits. It is one thing to take something away from a wealthy individual that can afford to give it up, but quite another to take it from an elderly grandmother just scraping by.
“We’re not suggesting that all Medicare Advantage beneficiaries are low income or minority, or even that most are, but it feels to us like the Democrats in Congress that are up for re-election in 2010 still don’t seem to appreciate the pushback they are going to get later this year when 11 million seniors realize their out of pocket cost sharing is going way up. Because of how quickly the benefit changes are happening relative to the Democrats taking power, it is going to be very easy for the media to blame the new Administration as the cause for the change.”

The Annals of Unintended Consequences: Bicycle Helmet Laws

April 28, 2009

The Social Science Research Network has published a paper titled “Evaluating the Health Benefit of Bicycle Helmet Laws,” by Piet De Jong, suggesting that bicycle helmet laws “are counterproductive in terms of net health.”  (Hat tip Infectious Greed)

From the abstract: “A model is developed which permits the quantitative evaluation of the benefit of bicycle helmet laws. The efficacy of the law is evaluated in terms of the percentage drop in bicycling, the percentage increase in the cost of an accident when not wearing a helmet, and a quantity here called the ‘bicycling beta.’  The approach balances the health benefits of increased safety against the health costs due to decreased cycling. Using estimates suggested in the literature of the health benefits of cycling, accident rates and reductions in cycling, suggest helmets laws are counterproductive in terms of net health.”

4 Signs Obama’s Public Health Plan Proposal Is in Trouble

April 27, 2009

Here are four signs that President Obama’s proposal for a government-run health plan for the uninsured and small business is in trouble. 

1. Baucus says the public plan is “a bit on the side of the table.”  Senate Finance Committee Chairman Max Baucus (D-MT) made the comment in a meeting on Friday with reporters.  Writes Congressional Quarterly: “Instead, he said, he would focus on preserving the insurance system for self-insured companies while expanding private insurance and public programs such as Medicaid….He later backed off that statement slightly, saying he might return to the government-run idea later on.”

2. DeParle talks compromise.  In a press conference earlier this month (see our prior post), White House healthcare czar Nancy-Ann DeParle reiterated that Obama’s support for the public plan is aimed at keeping costs low, keeping insurers honest, and offering consumers choice.  “But as he said, if there are other ways of doing that, he’d be open to talking about them,” she noted. 

3. Hacker comes out swinging to defend the public plan.  The public plan has been the signature concept of Jacob Hacker, co-director of the Center for Health, Economic and Family Security at U.C. Berkeley.  Hacker slammed The Lewin Group earlier this month for projecting that 118 million people might switch from private plans to the proposed public plan (In fairness, Lewin offered a range of projections starting as low as 10 million, based on different public plan scenarios).  Then he shot down a compromise proposal by Len Nichols and John Bertko, in which the public plan would have limited bargaining power.   I’m not saying Hacker is wrong (in fact, I like his plan and have endorsed the public plan concept in general).  I just give Lewin’s recent projections a little more credit than Hacker does—granted, nowhere near the 118 million level, but not nothing either.   All of which makes me wonder if Hacker is feeling a tad jittery about the fate of his pet proposal.   

4. Idle conversation.  In an informal conversation earlier this month with a Washington policy wonk who is also a vocal supporter of the public plan, I said, “It looks like the public plan is going to happen.”  She arched her eyebrows and said, “Really?”

Leavitt Slams Obama’s Public Health Plan Proposal

April 27, 2009

Writing on the conservative blog AmericaSpeakOn.org, former Secretary of Health and Human Services Michael Leavitt slammed President Obama’s proposal for a government-run health plan.  Writes Leavitt:

“President Obama supports the idea of a ‘public option’ for health insurance.  The language of competition and choice cleverly conceals the objective.  But the President’s ‘public option’ is a gateway leading to 118 million Americans losing the option of private choice.  It is a strategy for government-run health care.  It is a Trojan horse….

“There is another answer.  The government needs to promote value—to empower consumers to pursue the highest-quality care at the lowest-possible prices.  Strong government action is needed to organize an efficient market where consumers can choose insurance plans and medical practitioners who offer the best value.  What is not needed is to replace the private market with a government-run system in which only the truly rich have a choice.”

Is ‘Outcomes Guarantee’ Here to Stay?

April 27, 2009

It seems that “outcomes guarantees” with drugs are beginning to take hold in medical practice. Merck, in a deal with Cigna, agreed to charge for its diabetes drugs depending on how well patients fare.  Procter & Gamble will apparently pay Health Alliance for treating bone fractures in patients who took Actonel for osteoporosis, and the drug failed to prevent the fracture.

These sorts of agreements have been used in some European countries, but pharmaceutical companies are likely to make such deals with only certain types of drugs.  In the Merck example, the drugs chosen (Januvia and Janumet) are fairly effective, so most patients are likely to experience improved control, assuming they take their medicines regularly, something that the insurers will try diligently to enforce.

In the case of Actonel, the rate of fractures is low enough—and the competition is fierce and includes more effective drugs than Actonel (including generics)—that this deal looks like an excellent marketing move.  We don’t know the details of the agreements (e.g., what kind of discount is Merck giving or what proportion of fracture cost is P&G going to cover), but this trend is likely to continue for selective drugs in highly competitive markets—the real effective ones and the less effective ones with low sales.  Ineffective drugs that sell well will probably lose in the market place, which is exactly the way it should be.  All in all, I view these as a win/win situation for the companies. Time will tell if they also turn out to be a good deal for the patients.

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