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Tea Leaves: Healthcare Reform False Shuffle

Image: eHow. How to False Shuffle

eHow, the Internet site that describes itself as the place for “sharing solutions …. for just about everything” identifies two ways to fake an honest card shuffle:  the False Dovetail and the False Overhand.  Both shuffling techniques use nimble fingers  and audience distraction to keep the card that you want on the top or bottom of the deck.  The shuffle is never for real.  Today’s edition of Verity Reports begins an investigation of where the real action is in US health reform.  As we have promised, we will push aside the distractions of partisan politics, moralizing, and fear to give you the analysis that will help you reposition your career or business to benefit from reform.  After all …. more wins are due to good strategy than good cards.

Uptick in health market consolidation

Health Insurance.

While it has been an ongoing trend for years, consolidation is one of the primary strategies being chosen by health insurers and health service providers  in response to the health care reform movement.  Fortune magazine reports that there have been “close to $90 billion worth of health insurance acquisitions since 1996, with about half of those from 2004 and 2005”. (Cyrus Sanati, “What’s next for health insurers”, Fortune, 1/19/11).

24 of the 43 states the two largest insurers had a combined market share of 70 percent or more

The AMA reported that the trend toward consolidation appears to be accelerating in its annual study of the health insurance market.  In an analysis of enrollments in private health maintenance organizations (HMOs) and preferred provider organizations (PPOs) across 43 states and 313 metropolitan markets, the AMA found that 24 of the 43 states the two largest insurers had a combined market share of 70 percent or more.  In 2009 18 of 42 states had two insurers with a combined market share of 70 percent or more.  (AMA.  Competition in Health Insurance:  A Comprehensive Study of U.S. Markets. 2010)

The AMA report offers these additional details:.

• Ninety-nine percent of metropolitan markets are “highly concentrated” according to federal merger guidelines (up from 94 percent metropolitan markets the year before).
• In 54 percent of metropolitan markets, at least one insurer had a market share of 50 percent or greater (up from 40 percent of metropolitan markets the year before).
• In 92 percent of the metropolitan markets, at least one insurers had a market share of 30 percent or greater (up from 89 percent of metropolitan markets the year before).

America’s Health Insurance Plans (AHIP) has expressed concerns about the AMA study methodology and analysis.  AHIP President Karen Ignagni, stated that the study does not include self-insured employers, a group that she contends can comprise more than half the market.  The AMA counters that the majority of self-insured employers are added in their analysis of PPOs.  Self-insured HMO members, however, are not included.

Health care providers and medical suppliers.

The drive towards greater consolidation, however, is also underway among health care providers and medical suppliers.  The AMA has petitioned the federal government to reexamine anti-trust regulations when they are in regard to the establishment of Accountable Care Organizations (ACO).  (See Verity Reports. Can Physicians Take the Lead?  Accountable Care Organizations.  11/1/10 for more information about ACOs). The government response has been favorable.

we can to help you put together a plan that avoids antitrust pitfalls.”

Jon Leibowitz, the Federal Trade Commission chair tells physicians that “If you join together to improve patient care and lower costs, not only will we leave you alone, we’ll applaud you.  And we’ll do everything we can to help you put together a plan that avoids antitrust pitfalls.”  (AMA News.  Accountable care organizations:  How your practice can profit. 9/20/10)

Every aspect of the health care market is a candidate for consolidation.  Bloomberg.com reports that as of February 2011 private-equity firms have “announced 397 pending or completed acquisitions of U.S. health products and services companies in the past five years, with an average size of $449.4 million and a typical premium of 30 percent”.   (Jeffrey McCracken and Elizabeth Lopatto.  EMS Falls After Sale to Clayton, Dubilier & Rice Fails to Meet Expectation.  Bloomberg.com.  2/14/11)

The largest acquisition yet was the 2006 leveraged buyout of hospital operator HCA Inc. for about $33 billion.  Arthur Henderson a financial analyst with Jefferies & Company expects ” to see a lot more consolidation in health services, nursing homes, and long-term care.  The number of competitors is going to get smaller and the ones that survive are going to get bigger.”

Dawn Brock, an analyst with Kaufman Bros, agreed.  “Unless you believe there will be a wholesale repeal of health reform, which I don’t think anybody does, there will be some scenario where there are more covered bodies and more paying customers than you have right now.”   She noted that private-equity firms have raised $50 billion to $80 billion for health industry deals from 2006 to 2010.   They “have very deep pockets right now and will be looking to do more deals in this space”.

Tea Leaves

It’s Not Just Politics

The newly elected members of the upcoming 112th US Congress have vowed to dismantle (or halt) the Patient Protection and Affordable Care Act (PPACA).   Mr. John A. Boehner (R. Ohio), the new House Majority Leader, promises to replace it with “a common-sense approach to health care reform” (Boehner, 10/15/10).  Many news analysts predict that the White House will counter with a generous application of the Presidential veto.

So, once again we are encouraged to take a “wait and see” attitude about health reform.  After all, with or without compromise, big policy change takes time and government always has the advantage of time.   However I remind you that while health care reform is a political issue —  it is not limited to politics.    Ideas are the ultimate durable good and the market is already adopting ideas that are contained in the PPACA.  This week’s lead article on Accountability Care Organizations is an example.   Verity Reports has also previously noted how insurance companies are negotiating cost bundling agreements with providers.

My firmed looked at the US Chamber of Commerce list of health reform priorities to give you a hint of which other components of the PPACA may have traction outside the public policy arena.  The Chamber outlines a three-prong approach to health reform: 1) get costs under control, 2) reform the insurance system, and3) create a vibrant market place.  This approach supports the development of health information technology and comparative effectiveness research.  It emphasizes the importance of health wellness and preventive care.  It supports pay-for-performance, consumer-driven health options and long-term care reform.  The Chamber also supports eliminating the use of pre-existing conditions or health status in insuring individuals, obligating individuals to obtain health insurance coverage, and creating subsidies for individuals who cannot afford coverage.

To be sure the Chamber takes real issue with the refusal  of the Congress to move forward with other issues that are critical to its members such as tort reform.  Neither is the Chamber satisfied with how businesses may be effected by policies such as state insurance risk pools.   But on the surface their agenda has a good deal in common with PPACA.    The devil may be in the details but it appears that you can’t keep a good idea down.

Tea Leaves is an opinion column written by Colette Knuth.  Dr. Knuth is a doctorate-level trained health policy analyst and CEO of The Colette Steward Group.  The Colette Steward Group provides health policy research and organizational development services to the health care sector.  Visit us at: www.thestewardgroup.com.

Can Physicians Take the Lead? Accountable Care Organizations

Along with announcing that it will not be renewing the contract of  Dr. Michael Maves, its chief executive, the American Medical Association (AMA), the Chicago-based organization of physicians, named the practice/payment system model of Accountable Care Organizations (ACOs) as a top advocacy priority.   Medicare patient ACOs are already a part of the public health reform strategy and The Center for Medicare & Medicaid Services (CMS) is set to release guidelines this December to providers who want to take part in this program.  In addition, the National Committee for Quality Assurance (NCQA), the accrediting organization for health care plans, is seeking comments on their draft quality standards criteria for ACOs no later than November 19, 2010.

The Steward Group can help physician groups and hospital systems answer questions about the best strategies to create workable ACOs.

ACOs are designed to restructure the patient care delivery system to coordinate three primary drivers of medical cost:  hospital facilities, patient treatment plans, and physician fees.  Hospitals and physicians would share the savings that are realized by the system.   On the surface the ACOs  look very similar to HMOs.  Like HMOs, services and fees are based on agreements between facilities and hospitals.  And while there are many variants between ACOs, there remains a key difference between the ACO and HMO.  For HMOs, patient use is determined by health care plans.  For ACOs, health care plans will have no role.  Instead, cost and quality accountability will be fully placed in the hands of providers.  Information technology tools such as the electronic medical records will also be put into place so that ACOs won’t suffer the same reporting problems that plagued many HMOs.  The AMA also has other concerns about how ACOs could be implemented — chiefly their concern about antitrust, physician self-referral, and anti-kickbacks laws.

The Texas Medical Association (TMA) describes the fundamental goal of ACOs is to “shift the U.S. health care system from volume-based payments to value-based payments”.   This TMA goal statement coupled with AMA’s decision to prioritize ACOs immediately after the mid-term Congressional elections effectively repositions ACOs as a private market solution.   The Colette Steward Group, however, questions whether ACOs can shift the market to a value-based payment system without government subsidization.   In many states, the HMO model did not just fail because of a poor information;  HMOs revenues dropped because of inadequate capitation rates.

The health care plan industry believes that they can bring value to the ACO model.  The argue that they have the expertise that physician-led organizations do not have when it come to managing risk.  (Managed Care News, 9/09) They offer the comments made by Jeff Goldsmith, founder of Health Futures, a health advisory firm.  He argues that it is a mistake to  “to dismiss the fact that health plans are fundamentally in the risk-managing business and to ignore 35 years worth of institutional learning”.

Recent events indicate that providers may agree with Dr. Goldsmith.  Maybe there is a role for health care plans in the ACO model.  Norton Healthcare, a Louisville system, and Humana are currently developing plans to form an ACO.  This system will offer care to Norton and Humana employees.

Shifting Accountability: The Current State of Bundling Medical Costs

The Center for Medicare and Medicaid (CMS) announced that medical cost bundling may be a valuable tool for reducing medical costs.  The announcement was based on first-year findings from the Medicare Acute Care Episode (ACE) demonstration study.

CMS defines the objective of the study as to test the use of a “global payment for an episode of care as an alternative approach to payment for service delivery”.   (CMS Fact Sheet).  Payment will cover Medicare Part A and B services, including physician services, for inpatient stays associated with certain cardiovascular and orthopedic procedures.

The following hospital systems were selected to participate in the study (click the links to learn more about how each site is implementing the program):   Baptist Health Hospital LLC (Oklahoma City, OK),  Exampla Saint Joseph Hospital (Denver, CO),  Hillcrest Medical Center (Tulsa, OK), Oklahoma Heart Hospital, LLC (Oklahoma City, OK), and Lovelace Health System (Albuquerque, NM).    Medicare reimbursement rates were based on participating hospital competitive bids for each DRG listed for the cardiovascular and orthopedic procedures under study.   The applicable discount was expressed as a discount off the entity’s base DRG payment amount.

CMS established two incentive programs for study participants.   Patients are motivated to think economically when choosing hospital care providers as they can  share up to 50 percent of any Medicare savings realized.   These payments are designed to offset patient cost-sharing.  Hospitals may also offer rewards to clinicians and other hospital study who meet certain measures of clinical quality and service efficiency.   For example, physicians at Tulsa’s Hillcrest Hospital are guaranteed their regular surgical fees and receive  a 25% bonus from Medicare to keep costs down and reduce infection and readmission rates. (USA Today)

While a recent Annuals of Internal Medicine study indicates that surgeons express reservations about bundled payments (Internal Medicine News), the system is already being implemented in the private insurance sector.  Aetna, Cigna, Blue Shield of California and Health Net have signed contracts with a number of hospital systems, including Cedars-Sinai Medical Center and UCLA.   Payors will be charged global fees for the services associated with hip and knee replacements.  Payments will cover  hospital care, physician services, tests, and most other aspects of medical care from admission through 90 days after discharge.   Any savings realized in these contracts will be shared by the hospital facility and clinicians.

Geisinger Health System may have the most extensive experience with a bundled payment system.   Their experience has been cited by the Obama administration.  By managing patient compliance and rewarding staff high quality, Geisigner is being recognized as a possible model.   Geisinger has reduced hospital readmissions by 25%.