Health plans and their PBMs failed in their mission to control drug costs in the 1990s. One option that has proved somewhat successful is to get members to use OTC versions of previously popular prescription drugs.  Wellpoint in particular waged a successful campaign to get Claritin (and other non-sedating anti-allergy drugs) reclassified as OTC by the FDA. They then gave away (initially) free coupons to Claritin users to persuade them to try the OTC variety and at the same time made it very expensive for members to get the prescription anti-allergy drugs, Zyrtec and Allegra, by essentially kicking them off the formulary. Now other plans including Aetna are doing something similar by promoting free use of Prilosec now it’s OTC.  Of course this means that Aetna members will probably have to pay much, much more if they want Prilosec’s replacement, Nexium, instead of OTC Prilosec.

While this is good business for the plans and obviously not so for the pharmas, it’s just one more indicator that costs are being pushed directly onto consumers.

Yesterday the shareholders of the Wisconsin Blue Cross plan, Cobalt, OKed the WellPoint Merger originally announced back in June.  So Wellpoint keeps growing.  It now has Blue Cross of California, Missouri, Wisconsin and several other national products.  Anthem–originally Blue Cross of Indiana–now has Indiana, Ohio, Kentucky, much of the North-east including New Hampshire, Maine & Connecticut, Virginia (Trigon) and Colorado (which includes Nevada).  Meanwhile Regence in the northwest now has Utah, Oregon, Idaho, and one of the Washington Blues.  (Washington state is the Bosnia of the Blues with lots of little plans). 

Many of the rest of the big Blues have gone or are going for-profit, leaving them more open to takeovers such as Trigon’s by Anthem. For instance, Empire Blue Cross (in New York City) is now owned by Wellchoice, which operates plans in neighboring states like New Jersey. The process of these for-profit conversions (Wellpoint) or demutualizations (Anthem, Trigon), have not been without their problems. Carefirst (the nearly former Blues of Maryland & Washington DC) has experienced massive problems since the failure of its attempt to go for-profit and sell out to Wellpoint. Surprise, surprise the problems were associated with a too low price offered to the State/Foundation and sky high incentive payments to the Carefirst board. However, several smaller plans like Premera in Washington state, are still going for-profit.

The acquisition strategies of Anthem and Wellpoint demonstrate that health insurance is a local product. Instead of growing organically or trying to bring in new products, they’ve mostly been buying lookalike organizations that have big market share. Big market share equates to more power in negotiations with providers, although that’s less effective than it was a few years back (see this post).

Certainly Wellpoint’s historical stock performance shows a fourfold increase in market cap over 10 years–so financially it’s been a success even though much of that is due to health insurers being at the top of the underwriting cycle and will get worse in the next few years. Plus there are several very rich Foundations (such as California Endowment) which are doing good works with the money they made from the non-profit conversions.

I know this will produce squeals from the traditionalists, but I’ve always felt that  the non-profit Blues plans act just like for-profit plans. In fact at one meeting presenting to a senior management team at a very big non-profit Blue, I went around the table asking for people’s issues and interests. The CEO replied "Money".  So as the Foundations are spending far more money on good works than are the non-profit Blues, I don’t see a real reason why these accidents of history shouldn’t just become like other insurance companies.   However, given the complications of transition and the bad name of for-profit in health care (Anyone for Tenet?), the few remaining non-profit big guys (BS of California, Highmark in Pennsylvania, Illinois & Texas, and the biggest of all BC of Michigan) are probably staying that way.

According to consulting firm Cap Gemini E & Y, health plans really are spending twice what they spent in 1999 on information technology. This report claims that plans are spending much more on IT in the areas of sales and marketing support, customer service, medical management underwriting and traditional back office stuff such as claims and enrollment. 

I’m not sure what to make of this.  Health plans are now at the top of the underwriting cycle (and hence are making beaucoup bucks, as this Interstudy report confirms) and so should have more money to spend on IT.  Plus they have historically under-invested in IT.  Meanwhile the rest of corporate America has stopped spending on IT after its binge of the 1996-2001 period, so it’s impressive that health plans are increasing their spending. Whether this "catch up spending" is enough to make up for their generally poor use of IT systems remains to be seen. And it further remains to be seen if they can handle the systems complexity involved in the move towards "consumer-directed health plan" products that several have announced, including the Oregon Blues.

And in news just in….health care premiums will be going up by 13% in 2004, according to a Corporate Research Group survey.  The "good news" is that the increase will be slightly lower than the last two years.  The real news is that as premiums go up, business will force more costs onto employees, or simply drop coverage, and no new model is in sight to deal with this. Even the big purchasing "thugs" of the mid-1990’s seem unable to halt these increases. And some are losing their clout, like CalPERS. Of course the worse this continues to get, the greater the political and market reaction will be down the road. When it will happen I don’t know, but personally I’m looking forward to a replay of 1991-5.  But not everyone reading this might share that opinion.

Cigna has now joined Aetna in settling with the physicians who have sued it for downcoding. Essentially the suit promises that no longer will Cigna automatically downcode claims from providers, and will go as far as to allow "questions of medical necessity for services…be decided by doctors" and  "to jointly decide (with the doctors) how to handle experimental and investigational treatments". Cigna’s "system for processing doctors’ claims will become more transparent by allowing doctors to e-mail Cigna, using the Internet to spread news about policy changes, limiting changes in reimbursement rates to once a year instead of monthly and creating a method for independent claims appeals". In many ways this is the corollary of Tenet, Columbia/HCA and others upcoding on their Medicare billing, and then settling with the government.

When I learned about managed care at the feet of Alain Enthoven, he correctly explained that all this gaming back and forth was an inevitable result of having payers and providers in conflict in a fee-for-service system.  His solution was to give them shared incentives to deliver population-based cost-effective medicine, such as he saw in the Kaiser system, within a framework of "managed competition".  Of course for the rest of the world outside Kaiser, "managed care" was never about that.  Instead US Healthcare (later Aetna) and others used managed care as a battering ram to a) risk select against unhealthy individuals and groups, b) exclude high-cost providers, and c) operate as what Ian Morrison calls "virtual single payers" to cram down on providers’ fees.

But America’s doctors and hospitals were only going to take that for so long. The hospitals merged like crazy to increase their market power.  Physicians couldn’t successfully do that, so they started a campaign in every examining room in America–my doctor used to call Prucare "Zoocare"–that reached its height in the scene in the movie As Good As It Gets when Helen Hunt slagged off HMOs for stopping her son going to the emergency room. As HMOs don’t actually have much say about what goes on in ERs, this was a great case of Hollywood getting the mood of the nation right while getting the facts of the matter wrong.  The backlash against managed care as measured by Harris grew steadily until about 2000, when even Al Gore noticed and tried to incorporate it in his campaign. Humphrey Taylor’s quip was that "it doesn’t manage and it doesn’t care". The net result was that health plans threw out any attempt to do real care management along with the removal of any serious attempt at cost control.  Double digit premium increases have been the result. 

Now Cigna and Aetna have settled these provider law suits, and made their subsequent mea culpas, it puts pressure on the rest of the managed care pack to follow along. The  others still being sued are Anthem, Coventry, Foundation, Humana, PacifiCare, Prudential, United and Wellpoint. 

Enthoven would correctly argue that we haven’t tried managed care or managed competition in the way that he meant it. He also used to argue, although he backed off this position in the mid-1990s, that you couldn’t have managed competition without universal insurance. Bob Evans and Maurice Barer (with a little help from me) have forever argued that you can only cut costs effectively if you have a unified budget (which tends to mean a single national insurance system, although not necessarily as it doesn’t in Germany or Japan)  and that, by necessity, means covering everyone with some type of community rating. But in the US we are not going–there barring Dennis Kucinich winning the Presidency and pigs flying.

So if the suit settlement is the last act of a play that we’ve been watching for a long while, the question becomes, what comes next after 1990’s style managed care? The overriding issue is that while costs go up, things haven’t been as bad for employers or the government while the economy was good, and their revenues have gone up as fast as their health costs.  Now things are not so good.  We have a growing Federal deficit, states cutting their health spending desperately and employers moving costs onto employees.  And still health care cost growth is only matching pace with the overall economy. The challenge of delivering cost-effective health care looks to be well beyond any of the constructs being put forward by the private sector. So do we just end up paying more? And how long before the payers squeal again as they did in the early 1990’s, which created "managed care" as we knew it?