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HEALTH PLANS/POLICY: Consumer directed health plans

I saw a talk yesterday by Mike Parkinson, Chief Medical Officer of Lumenos–one of the leaders in the emerging CDHP movement. Lumenos has around 54 clients with around 100,000 covered lives in its products sold to self-insured employers. Another commenter at the same conference predicted up to 40m Americans (or nearly 25% of the commercial market) would end up in CDHPs.

Parkinson’s opinion is that consumers are connecting the flat line in their salaries with the increases in their health costs, and so are ready to take control of what they’re paying.

How does it work? The average employee health cost for their groups is around $6500 per capita. If an employee signs up for the Lumenos CDHP option they first carve out and cover preventative services. The employer puts somewhere from $2-6,000 per family goes into an HRA (or now an HSA) tax-free for spending on every day health needs (e.g. doc visits and drugs). Then there’s a bridge (or a donut hole) of out-of-pocket costs that the employee must pay before the catastrophic policy cuts in. The bridge tends to be roughly half of what goes into the HSA/HRA.

Lumenos has a fairly sophisticated web interface that gives comparative prices for drugs office visits and procedures. Their results, which apparently include a standard share of sick people based on risk profiles gathered from Health Risk Assessments. So far they are seeing:–12.5% cost reduction compared to prior years–14% increase in preventative visits–18% of reduction overall visits–15% reduction in spending on pharmacy costs–90-95% generic substitution

Even more remarkably, Parkinson said it also caused a big reduction in hospital admissions and hospital days, although he backed away from the 25% reduction in admissions number that he showed. Parkinson stressed over and over that the chronically ill are the ones who need these plans most. In fact they incent people to take health risk assessments, and the consumer can possibly cover their whole "break" by accepting working with a health coach, who’s job is to push the consumer into behaving better, eating better, taking all their meds, etc, etc.

So assuming this is true, what does this mean to a self-insured employer. I did a few back of the envelope calculations. Lets assume that a 1,000-employee company spends $6,000 per employee on health care. 80% of that $6,000,000 goes on 20% of the people. So that’s $24,000 each on those people and $1,500 each on the rest. If the company gives $1,500 each to the employees’ HSA it should more or less balance out. If they give $2,000, then potentially the employer is risking putting $400,000 at risk of "leaving" their pool and being rolled over by the individuals into next years HSA. But, and this appears to be the kicker, if the CDHP can reduce spending inflation by a big amount–i.e. it would have been 14% up but was only 4% instead, then $600,000 is "saved" which effectively pays this back.

Does this mean that the math behind CDHP only works if it really cuts health care costs. It appears so to me. But maybe it will work.

If it doesn’t contain costs, then there are some obvious next steps

1) Employers will reduce the amount put into the HSAs, potentially down to close to zero and put the onus on employees to put their rather than "their company’s" money into it2) Increasing the "bridge" amount that has to be paid after the HSA amount expires before the catastrophic coverage kicks in.

So if the CDHP really takes off, it had better work, or else it will REALLY turbo-charge cost shifting and maybe even get employers out of the business of insurance totally.

Or maybe I still just don’t understand it!

TECHNOLOGY: JSK’s HIMSS review

Jane Sarasohn Kahn has some interesting things to say about the HIMSS exhibit hall in her iHealthBeat column. She believes that real progress is being made, and declares that less hype than usual is apparent this year!

HOSPITALS: Tenet….and now the good news!

As the readers of THCB know, Tenet hasn’t had a whole lot of good news lately. But the rot maybe stopping. Blue Cross of California has been after Tenet for unnecessary surgery in Modesto, assuming that there was the same over-use of surgery as was going on in the Tenet hospital in Redding. However, a new independent study shows that the controversial surgeries were necessary.

Full disclosure: I’m still long Tenet stock waiting for the bounce that hasn’t really come yet! Meanwhile stock analysts are having trouble valuing Tenet stock particularly as Medicare has not yet handed down the fines for the Redding fraud.

PHARMA: Drugs cost too much but they work

One fundamental challenge of the next period in our healthcare system concerns drugs. We know that they are very useful in combating disease and reducing costs. We also know that, as the AP reports, drugs cost too much. The political ramifications of this will continue. For instance, Time reports on the high costs of drugs and increased Canadian smuggling. We know that those who take drugs, but are worried about the costs, are less compliant.

However, Pharmetrics is a company that has a huge database of matched Rx and medical claims, and so can tell about the impact of drugs on treatment. Their latest report concerns their study of a huge database of diabetics, and it shows that type 2 diabetics with high degrees of persistence have total healthcare costs 20% lower than others. So if you can get people to take their drugs it will save money. But if they can’t afford it, and they don’t take their drugs, then these patients will cost more in the long run.

That is the national problem with pharmaceuticals in a nutshell.

POLICY: Abramovitz on Why Consumer-Directed Health Care Won’t Fly

This is a little late but the folks over at Managed Care magazine had a nice start of year forecasting piece in their January edition which has several forecasts of the next five years.  Particularly interesting is Ken Abramowitz’s piece on why Consumer-Directed Health Care Won’t Fly. Abramovitz is no screaming lefty, in fact he works for the Carlyle Group, the defense group that’s also a home for George Bush, John Major and other right-wing refugees from the cold war. So why does he think Consumer-directed health plans will be a fad? He thinks that consumers won’t be able to figure out pricing and employers are the only groups who have a hope of negotiating properly with health plans.  I don’t share much of Abramowitz’s faith in employers but I do share his skepticism that the consumer market for health care services will be any more than a total zoo.

JD Klienke has some fun stuff to say about the consumer world and the continual crisis.  I like his last line:

    Everyone will complain about the system’s myriad inefficiencies, and blame everybody else for its imminent collapse, and life will go on

.

QUALITY QUICKIE: Interview with Robert Wacther

The San Francisco chronicle had a couple of interesting pieces that I read on the plane east this morning.  The first was an interview with Robert Wachter about his new book Internal Bleeding. He has a lot of sensible opinions that are mainstream in the Quality movement, but are yet to really make it into public consciousness.

The reason he’s getting good press is because the book tell stories.  A "fun" one is this about a physician’s poor hand writing causing a little problem. The prescription is reprinted in the book

    We asked 159 physicians to look at the handwritten prescription. Half thought it was for Plendil, a calcium channel-blocker; a third said Isordil, a longer-lasting version of nitroglycerine taken for angina; and others thought it was Zestril, a blood pressure medication. We reproduced the prescription in our book. … Take a look. What do you see?

    Plendil.

    Wachter: You would have killed the patient. The prescription was for Isordil, but the pharmacist thought it said Plendil. The daily dosage for Isordil is 80 milligrams; for Plendil, 10 milligrams. The pharmacist read Plendil, the patient took 80 milligrams. He had an eightfold overdose.

    (The patient, Ramon Vasquez, suffered a severe drop in blood pressure, and 24 hours after starting the regimen had a massive heart attack. He died several days later. A jury awarded his widow $450,000.)

Maybe if word gets around we might find some progress on the eRx issue, but recall that this case was in 1991 (or at least that’s what it said in the dead tree edition–edited for space in the electronic version).

TECHNOLOGY: El Camino vies to be Hospital of the future once more

The other article in the SF Chronicle was about El Camino hospital, a community hospital in Mountain View, CA right in the heart of Silicon Valley.  El Camino had one of the first computerized hospital information systems, made for them by local defense player Lockheed.  That ended up I think in TDS, which later became part of HBO (or am I getting my lines crossed). Anyway, as the Chron now reports having gone wireless, El Camino is vowing to go paperless. There’s nothing particularly new in the article, but it is a good introduction to healthcare IT, and for this type of article including information about spending levels on health care IT to end up in a general newspaper, that’s progress.

HOSPITALS/POLICY: Hospitals and the uninsured–a discount’s OK

Hospitals that have been complaining that Medicare won’t let them discount to the uninsured have been told that by the Bush Administration they are wrong and that they can. Last year I wrote about how providers have been charging cash payers more than the insured’s wholesale price and that they come after you for the money.

In a related story, those hospitals who were chasing down patients and putting them in jail for non-payment are finding out that collecting on the "body attachments" will be very expensive. The WSJ reports:

    In an unusual move that is sending shock waves across the hospital industry, Illinois authorities have revoked the tax-exempt status of a prominent Catholic hospital. Their decision follows a determination by local tax authorities that the hospital wasn’t a charitable institution, in part because of the way it treated needy patients.

    As a result, Provena Covenant Medical Center, a hospital in Urbana with 270 licensed beds, will have to pay $1 million in property taxes, though the hospital says it plans to appeal. More worrisome to hospital-industry officials is the possibility that not-for-profit hospitals nationwide could find their tax-free status as charitable institutions challenged on similar grounds.

Last year at Bard Parker’s request I wrote some comments in his medical and Georgia Bulldog football blog A Chance to Cut to respond to his post about it. I basically said that the bad publicity would outweigh the benefits for these hospitals (scroll down to the very bottom of this page for my comments published over there). I’m obviously getting prophetic in my old age!

TECHNOLOGY: CHW goes with Cerner

Having been rebuffed in the UK, Cerner is making up for lost time and getting religion–snapping up its second big deal with a big Catholic chain in as many months. It already has a deal with the big mid-western Catholic chain Ascension.  Now it’s announced a $137m deal with Catholic Healthcare West.  The stock has more or less tripled in the last 8 months following a mauling after missing numbers last May, although it’s some way below its 2000 highs.

I assume their party at HIMSS this week will be serving the expensive brand of champagne.

PHARMA: Prescription drug sales over $216 billion in 2003

Just in case you were overly concerned about all the problems that pharma companies were having, (yes, I thought you were!), you might need reminding what a strong overall business this is.  IMS reports that US prescription drug sales were over $216 billion in 2003.  That’s up over 11% from the previous year and continues a run of strong double-digit growth since the mid-1990s. The biggest single class, the statins reached $13 billion. Imports from Canada were only around $1 billion.

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