Last Tuesday at midnight, CVS officially changed its name to CVS Health and simultaneously cleared its 7,700 retail stores of tobacco products a month earlier than previously reported. Its stores will be called CVS Pharmacy with plans to expand its 900 primary care clinics to 1,500 by 2017, and its $90 billion pharmacy benefits management unit, CVS Caremark, continuing to play a key role in serving its 65 million customers(1).
And the following day, the CMS Office of the Actuary released its forecast of health spending, predicting that health spending will likely return to 6% annual increases for the next decade(2).
No doubt, the timing of the two is coincidental. But taken together, they paint a future state in healthcare that’s distinctly different from its recent past.
Continue reading “Behind the CVS Health Decision”
Filed Under: THCB, The Business of Health Care
Tagged: ACA, CMS Office of the Actuary, CVS Health, CVS Pharmacy
Sep 8, 2014
While fierce debate continues to envelop much of the Affordable Care Act, financial data for many of the nation’s health systems reveal one clear fact: the optional Medicaid expansion has resulted in hospital haves and have nots.
An analysis by PwC’s Health Research Institute (HRI) of newly released earnings and patient volume data shows a clear financial split between healthcare providers operating in states that expanded Medicaid and those that have not. The law as written would have provided Medicaid coverage to every American earning less than 138% of the federal poverty level ($16,105 for an individual). But a June 2012 Supreme Court ruling made the expansion optional for states, creating a patchwork of coverage.
Health systems and physician groups delivering care in the 26 states and the District of Columbia that have embraced the federally-funded expansion have reported a significant rise in patient volumes and paying consumers and a measureable reduction in uncompensated care levels.
This year alone LifePoint Hospitals has seen a 30.3% reduction in its uninsured and charity care patients, according to filings with the Securities and Exchange Commission. Tenet Healthcare, which operates in five Medicaid expansion states, saw uninsured and charity care admissions decline by 46% in the expansion states, coupled with a 20.5% increase in Medicaid inpatient admissions in those same states, according to an HRI analysis which will be released next week.
In all, HRI analyzed financial data from the nation’s five largest for-profit health systems—HCA Holdings, LifePoint, Tenet, Community Health Systems and Universal Health Services, representing 538 hospitals in 35 states. Our team also reviewed data from several mid-sized hospitals, government reportsand industry surveys.
Continue reading “Medicaid 2.0″
Filed Under: THCB, The Business of Health Care
Tagged: ACA, Community Health Systems, HCA Holdings, LifePoint, Medicaid, Medicaid Expansion, Tenet, Universal Health Services
Sep 2, 2014
The Affordable Care Act is premised, at least in part, on the notion that competition can be harnessed to reduce healthcare costs and improve quality. This explains why insurance in the individual market has not been nationalized. Instead, consumers go to an online exchange where they customers can easily (at least in theory) compare plans offered by different firms. Unleashing competitive forces should result in lower premiums for these plans. And why not? Over the past two decades, competition has been one of the few success stories in the U.S. health economy. For example, when competition intensified in the 1990s, healthcare costs moderated. When competition weakened in the wake of provider mergers and the backlash to the narrow networks that were essential to cost containment, healthcare costs rose.
When most people think about the benefits of competition, they tend to think about prices. Monopolies charge high prices; competitors charge low prices. There is nothing wrong with this perspective, but it misses a more fundamental point. In the long run, the greatest benefit of competition is that it has the potential to fuel innovation. This is as true, in theory, for health insurers as it is for telecommunications and consumer electronics. It hasn’t always been true in practice; for several decades after the IRS made employer-sponsored health insurance tax deductible, insurers tended to offer the same costly indemnity products. But consumers eventually demanded lower premiums, and insurers responded with managed care. After the backlash, insurers developed high deductible health plans and value based insurance design. Insurers are now moving towards reference pricing. These plans offer consumers reimbursement up to a pre-specified level for treatments that can be easily broken into a treatment episode such as hip replacements or MRIs. Patients have the choice of any provider, but they bear the cost of choosing a more expensive facility.
High deductibles and reference pricing are fine, but do not always work in practice. Chronically ill patients quickly exhaust their deductibles, and reference pricing does not work well for chronic diseases. In order to complement these tactics, some insurers are once again offering narrow network plans. We commented in earlier blog posts that the ACA would catalyze the return of these narrow networks and also warned that this might fuel another backlash. Unfortunately, a recent New York Times article shows, the backlash is well underway.
Continue reading “Narrow Networking”
Filed Under: THCB, The Business of Health Care
Tagged: ACA, cost containment, Market, narrow networks, Provider Choice, reference pricing, Value-based design
Jul 29, 2014
There have been lots of news reports, including some from me, about insurers raising premiums 10 percent or more on the Obamacare exchanges next year.
But for most people who bought health coverage in the Obamacare exchanges, that’s not really a concern.
That’s because the vast majority of Obamacare buyers so far have received tax credits to reduce the cost of that coverage.
Those subsidies, rather than being flat dollar amounts, fluctuate so customers never pay more than a certain percentage of their incomes on insurance.
In other words, if premiums rise next year like WellPoint Inc. has predicted, subsidies also will rise to keep the net cost to consumers at the same percentage of their income.
So rising premiums aren’t a problem for consumers, unless their income rises so much that it reduces the size of their subsidy.
“If all insurers increase their rates by 10 percent, that might not have a dramatic shift in the market,” said Paul Houchens, a consulting actuary at the Indianapolis health practice of Milliman Inc. “Most of that premium increase is going to be absorbed by the federal government.”
(Rising federal spending could also be a problem for Obamacare–not to mention taxpayers–but that’s not my focus today. Also, Houchens noted, Obamacare’s premiums are not scheduled to rise in line with premiums forever, but will be indexed to income growth and inflation.)
But for 2015, what could cause the biggest problem for Obamacare consumers, Houchens pointed out to me last week, is if an insurer reduces its premiums. Or if a new compeitor enters the market in 2015 with lower premiums than insurers were offering in 2014.
If that idea makes your head spin, welcome to Obamacare, where up is down and down is up—at least compared to how health insurance used to work. It’s what I’ve taken to calling the weightlessness of Obamacare.
Continue reading “Make Sense? Competition, Not Higher Premiums, May Turn Out to Be the Biggest Threat to Obamacare Buyers”
Filed Under: THCB
Tagged: ACA, MDwise, Premiums, Silver plans, UnitedHealthcare, Wellpoint
Apr 22, 2014
In 1980, while working at the University of Chicago Pritzker School of Medicine, I wrote an article for the Harvard Business Review entitled “The Health Care Market: Can Hospitals Survive?”. This article, and the book which followed, argued that hospitals faced a tripartite existential threat:
1) ambulatory technologies that would enable physicians to compete successfully with hospitals at lower cost in their offices or freestanding settings, 2) post-acute technologies that would enable presently hospitalized patients to be managed at home and 3) rapidly growing managed care plans that would “ration” inpatient care and bargain aggressively to pay less for the care actually provided.
I predicted a significant decline in inpatient care in the future, and urged hospitals to diversify aggressively into ambulatory and post acute services. Many did so. A smaller number, led by organizations like Henry Ford Health System of Detroit and Utah’s Intermountain Health Care, also sponsored health insurance plans and became what are called today “Integrated Delivery Networks” (IDN’s).
In the ensuing thirty years, US hospital inpatient census fell more than 30%, despite ninety million more Americans. However, hospitals’ ambulatory services volume more than tripled, more than offsetting the inpatient losses; the hospital industry’s total revenues grew almost ten fold.
Ironically, this ambulatory care explosion is now the main reason why healthcare in the US costs so much more than in other countries. We use far fewer days of inpatient care than any other country in the world. But as the McKinsey Global Institute showed in 2008 ambulatory spending accounts for two thirds of the difference between what the US spends on healthcare and what other countries spend, far outstripping the contribution of higher drug prices or our multi-payer health financing system.
Continue reading “Can Hospitals Survive? Part II”
Filed Under: Economics, THCB, The Business of Health Care, The Vault
Tagged: ACA, ACOs, health reform, Hospital Revenues, Hospitals, Lean Care, Readmissions, Virginia Mason
Mar 14, 2014