IN THIS ISSUE:
? CDHCC Conference
? UnitedHealth Buys Definity
? DEA Renegs on Pain Management
? End of PPOs by 2010
? Tiered Hospital Networks Clumsy and Bureaucratic
? AMA to Back Specialty Hospitals
? Making the Case for Specialty Hospitals
I was able to catch only part of the CDHCC conference in Washington this week. Judging from the exhibitors, HSAs are the talk of the town. The biggest change from prior meetings was the presence of banks and other financial institutions. The financial services folks never saw much potential in HRAs, but HSAs are a whole other story. There was also growing emphasis on patient education and information systems. Still, there was too much B-School jargon whipping around for my taste and most of the employers are still pushing corporate wellness programs and disease management. They just can’t let go of the idea that they have to tell their employees what to do and when to do it. I asked one panel of employers if any of them allow workers to cash-out the value of their benefits if they can show they are covered elsewhere (like under a spouse’s policy). None of them do. Until the companies start letting workers control their own resources, all of the interest in “consumerism” is just so much happy talk.
UnitedHealth Buys Definity
It’s been an odd week in the world of CD health. We can start with UnitedHealth Group’s purchase of Definity for $300 million. I suppose this is good for the movement. It certainly underscores United’s commitment to CD health, especially after it converted to high-deductible plans for all of its own employees. Definity will give United an instant presence in the self-insured HRA market, which should fit very well with its earlier acquisition of Golden Rule and the fully-insured HSA business. Recent conversations I’ve had with United executives indicate they have moved well beyond their prior reliance on wresting discounts from provider networks, to an understanding that the future lies with first rate customer service and support.
Still, I hate to see one big company gobbling up innovators and competitors. Competition is always good for any industry and innovation comes hard for giant corporations. Also, I was looking forward to Definity going public. They had the potential to be a blockbuster IPO that would have gotten the attention of Wall Street, which would have been good for the whole movement.
Another curiosity here is that Definity fetched only $300 million when it was covering some 500,000 lives, while Golden Rule was reportedly sold for $800 million while covering 600,000 or so people. One newsletter publisher told me that shows the advantage of being a soup-to-nuts insurance company with tangible assets.
DEA Renegs on Pain Management
Another setback to consumerism in health care came from an entirely different quarter. The Drug Enforcement Administration (DEA) has reneged on an understanding with pain management physicians that would have clarified the legal use of prescription narcotics. An article by “Washington Post” writer Marc Kaufman says the new DEA attitude will leave “many pain doctors and patients more fearful than before that they could be arrested for practicing what they consider good medicine.” A DEA statement said, “[I]t is a longstanding legal principle that the Government ‘can investigate merely on a suspicion that the law is being violated, or even just because it wants assurances that it is not.'” Yikes! This is a new “legal principle” to me. Since when can the government conduct criminal investigations just to get assurance that a law is not being violated? Who of us is not subject to a criminal investigation under such a standard? Meanwhile, many thousands of Americans will be condemned to suffer agonizing pain under the new approach.
End of PPOs by 2010
William Boyles, publisher of the “Consumer Driven Market Report,” has published a monograph on the dismal future of PPOs. “PPO fee schedules are the worst payment structure imaginable for the coming century,” he argues. “PPOs protect physicians from price competition by giving them a guaranteed revenue stream as long as they play the game. Thousands of physicians in an area are guaranteed the same price … with virtually no control over volume. PPO discounts are complete and total mirage … The basis of CDH is price transparency and individual patient control over their own medical claims … In the immediate future a member will be able to see their actual claim payments in an online array next to the average physician charge in their zip code, along with the names of other physicians within a half mile who charge less and a map and directions.” He doubts that tiered networks will work as a survival strategy for PPOs either, because bureaucratic decision making about which doctor fits into what tier cannot compete with real-time pricing. He concludes that PPOs will not survive the decade.
Tiered Hospital Networks Clumsy and Bureaucratic
The case Mr. Boyles makes about physician networks is even stronger for hospital PPOs. I gave a talk last week at a conference dedicated to tiered-provider networks, and had to tell them I didn’t think their future was very bright. I caught a couple of the other presentations and was even more persuaded that it is a clumsy and inefficient way of arranging payments. One presentation was all about a particular health plan’s efforts to tier “secondary services at tertiary hospitals.” Good grief, imagine trying to explain that to a consumer! But beyond tiering, the prices hospitals give to PPOs are simply unsustainable. There is no economic justification for the 60% to 80% “discounts” that prevail today. Volume certainly doesn’t justify it since patients still show up at times of their choosing. Market leverage (“steering”) might justify some discount, but not of this magnitude. Besides, health plans will find it ever harder to control (steer) their enrollees under consumer driven plans and are already getting resistance from members when they try to decertify a particular facility.
AMA to Back Specialty Hospitals
Meanwhile, the challenge to traditional hospitals from specialty facilities is growing. The American Hospital Association (AHA) and Federation of American Hospitals (FAH) succeeded in getting an 18-month moratorium on new physician-owned hospitals inserted into the Medicare reform law last year. That moratorium expires in June of 2005 and the primary advocate, Sen. John Breaux (D-LA), is no longer in Congress. There will be hearings in Congress this winter to determine whether the moratorium should expire or continue. It will expire if Congress does nothing. Michael Romano authored an article in “Modern Healthcare” reporting that the AMA’s House of Delegates will take a position on the issue this month at its meeting in Atlanta. The physician group is expected to endorse an internal report that backs specialty hospitals “because it ‘supports competition between and among healthcare facilities’ as a way to promote ‘high-quality, cost-effective healthcare,'” according to the article. Studies of the issue are also being conducted by CMS and MedPAC and should be delivered to Congress in March.
Making the Case for Specialty Hospitals
The same issue of “Modern Healthcare” also included an opinion piece by the CEO of MedCath Corp., John Casey, who makes “the case for specialty hospitals.” Part of his argument is that “competition improves quality of care across all providers.” He also maintains that all of the MedCath hospitals have emergency departments and they treated 60,000 patients last year. He cites a recent FTC/DOJ report that “stated that a major infusion of competition would help ensure the survival of the nation’s healthcare system.”
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