What to Expect from the Supreme Court Ruling on the Health Care Reform Law

The United States Supreme Court recently heard three days of oral arguments regarding several legal challenges to the two-year-old health care reform bill. The challenges revolved around Medicaid expansion, severability, and the infamous individual mandate. As I write this article, the court has already voted on each of these issues in a private session, and the results of their vote will be released sometime in June of this year.

Having listened to the oral arguments and much of the commentary following the arguments (yes, I am that much of a geek), it seems to me that we can reasonably predict how seven of the nine justices will vote. Justices Ginsburg, Breyer, Sotomayor and Kagan all seem to be clearly in the camp that would rule the law as being constitutional. Justices Scalia, Thomas and Alito all seem to be in the camp that would view the individual mandate as being unconstitutional, and possibly the entire legislation due to the issue of severability. That leaves us with Chief Justice Roberts and Justice Kennedy. Both offered up some very pointed questions to the Solicitor General, which leads many to believe that they will likely rule the individual mandate as unconstitutional. However, both made comments that could be viewed as supporting the constitutionality of the legislation as well.

As we wait for the ruling to be announced, I would like to take the opportunity to explore the various scenarios that could unfold based on the decisions reached by the nine justices.

There are basically four possible outcomes from these hearings; each of which will have a profound impact on health care in this country for many years to come.

Option 1: The Delay – One option before the Supreme Court is to not issue a ruling at all. There is a legal question that in essence says that the justices are not able to rule on a case until after damages have actually been experienced. Since no one has yet been forced to buy insurance through the individual mandate, and since Medicaid expansion has not yet taken place, the court could say that a ruling is premature and delay on ruling until after these things have happened, which would mean some time in 2015. Most court observers think this outcome is unlikely, but nonetheless, it is still possible.

Option 2: The Status Quo – The court could find that all parts of the law are constitutional and allow the reform bill to stand as is. In this scenario, we will proceed down the path set forth under the legislation. This means getting ready for health care exchanges and Medicaid expansion. The impact on physicians, if this does happen, is a mixed bag. On the positive side, more people will have insurance, and insurance companies will be more heavily regulated. On the negative side, Medicaid roles will go up, which will have a negative financial impact on most practices since Medicaid is of course the worst payer for most physicians. In addition, the impact of health care exchanges will put significant price pressure on insurance companies. Their reaction to this price pressure will be to reduce costs as much as possible. Remember, what insurance companies call “costs,” physicians call “revenue.” This will likely mean difficult payer negotiations, reductions in reimbursement rates and increases in utilization management. I recently spoke to an insurance company executive about this issue and he blatantly said, “The bottom line is doctors better get used to making less money in the future.”

Option 3: The Surgical Option – Another outcome is that the court could remove the individual mandate and leave the rest of the legislation in tact. Under this option, they would “surgically” remove the individual mandate and try to let the rest of the law survive. During the oral arguments regarding severability, several justices referred to the individual mandate as “the heart of the legislation.” In my opinion, this is an accurate description. The individual mandate is the key ingredient that holds the entire thing together; without it, the rest of the law essentially falls apart. The reason is simple insurance theory. In order to pay for the people who are going to get health care, you have to have large numbers of people who don’t need health care paying into the insurance pools. You simply cannot increase benefits and reduce underwriting options without adding large numbers of healthy people to the pool. So, if the individual mandate is struck down, we could see some very dramatic changes to the insurance industry. Several industry experts have predicted that if the individual mandate is struck down, leaving the rest of the legislation still in tact, this could result in significant increases in premiums and possibly cause many insurance companies to leave the marketplace altogether. This scenario is probably the worst possible outcome.

Option 4: The Never Mind – The final option before the court is to throw out the legislation as a whole by ruling the individual mandate as unconstitutional, and ruling that it cannot be severed from the law. If this happens, we are back to the drawing board. All of the changes that have taken place over the last two years will go away. While many might feel like this is a good thing, it’s important to focus back on the reasons why this whole discussion began in the first place. If the Supreme Court strikes down PPACA, the factors that led to its passage will need to be addressed in some fashion. We will still have around 40 million people in the United States with no insurance coverage. We will still have insurance costs that are putting a stranglehold on business, and Medicare expenses that are rising faster than we can pay for them.

So what does this all mean? In my opinion, it means we are in for some very rough times and it’s hard to predict what the future holds. Something needs to change, and it will. As of now, it’s just unclear what will change and by how much. All we can do at this point is wait for the verdict from the Supreme Court and prepare ourselves for the possible outcomes. Stay tuned!

Let's Be Honest: Uncovering fundamental flaws in the health care debate

I recently read an article published in The Wall Street Journal on February 9th titled “New Way to Pay Doctors.” It made me realize how fundamentally flawed the debate surrounding our health care system has become. The article describes how several health insurance companies are planning to change the way they pay doctors in order to reduce the cost of care in this country. It suggests that profit-driven doctors are carrying out unnecessary procedures causing inflated health care costs. It mentions United HealthCare, WellPoint and Aetna as companies looking to revise the way they pay physicians to help counter this fundamental flaw in our heath care system. They have come up with new terms that were surely developed by their marketing departments; things like “Value Based Contracting” and “Clinical Integration fees” are being tossed around.

Having worked for nearly 20 years in the managed care industry and for the past 7 as a physician advocate and managed care consultant, representing thousands of physicians across the United States, to say that this article raised my blood pressure would be an understatement. I for one am getting tired of the lack of honesty in these discussions and fed up with the amount of spin doctoring that is taking place with something that may be the single largest issue facing our country today.

If you don’t mind, I’m going to hop on my soapbox for a bit.

I find it more than a bit insulting for insurance companies like United HealthCare and WellPoint to point fingers at physicians as the root cause of health care inflation. To declare that profit-driven physicians performing unnecessary procedures are the cause of health care inflation is not only ridiculous, but also hypocritical. Now don’t get me wrong. As with any industry, I’m sure there are bad doctors out there motivated solely by personal profit. Let’s be honest; there are around 1.5 million doctors in the United States, and to think that a profession of that size doesn’t have its fair share of bad apples is naive. However, taking an example of one bad apple and leaping to the conclusion that it’s widespread is nothing short of irresponsible, dishonest and illogical.

Here’s what really gets me: the hypocrisy of a “for profit” insurance company chiding physician profit making behaviors. First, consider the source: United HealthCare. A few years ago, a former United HealthCare CEO got in trouble for backdating more than $1 billion in stock options, and when forced to leave, he received the largest golden parachute ever given to a U.S. CEO. Part of his going away present from the company was a $6.5 million lump sum and a lifetime salary of $5 million per year. I can see why he would need that because you can’t possibly expect anyone to retire comfortably on the $800 million of backdated stock options that he was allowed to keep after his negotiated settlement with the Securities and Exchange Commission. Now I’m not saying that in a free market economy ruled by capitalism we should limit salaries. What I am saying is that it’s hypocritical to pay a disgraced CEO that amount, and then take high moral ground and scold someone else, physicians for that matter, for possibly being motivated by profits.

I recently negotiated a contract for one of my clients against a representative from United and brought up these facts. The United representative tried to get my client, a physician group, to accept lower reimbursement rates because “they need to adjust to the new reality that physician income needs to go down to help control the cost of health care.” I then pointed out some of the facts mentioned above. The UHC representative said, “I will not apologize for my company’s success or profits.” To which I replied, “And I will not apologize for my client’s income.”

WellPoint is another prime example of corporate hypocrisy. When WellPoint merged with Anthem, there was conflict over the amount of money the top executives from the two companies would receive from the deal. Numbers in the hundreds of millions of dollars were reported. Again, I’m not asking these executives to give back that money or even to defend the fact that they ran a business and got very rich from doing it. What I am asking is for them to stop the duplicity of cashing huge paychecks on Friday, and then on Monday telling the rest of the country that doctors are greedy.

The cause of health care inflation is not that physicians are increasing their incomes by performing unnecessary procedures and testing. If it were, we would expect to see physician income on the rise over the last decade or so, which is not the case. There have been multiple studies over the last 20 years that show physician income in decline when adjusted for inflation. During these same periods, other professions have seen their incomes increase. If doctors are carrying out unnecessary tasks to increase their incomes, they certainly aren’t doing a very good job of it.

So where does this leave us? We still have a major problem with rising health care costs, and really no viable solution. There needs to be an honest discussion and acceptance of the fact that we can’t provide everything for everyone. We need to talk about the impact of lifestyles on health care costs. We need to establish what we can cover, and what will be the individual’s responsibility. Consider how we handle feeding the poor in this country: We provide food stamps to people who otherwise may not be able to feed themselves or their family. This assistance provides for the basic needs of these people, not for dinner at a 5 star restaurant every night.

Why should the health care discussion be any different?

Finally, we need to stop laying all of the blame on physicians. When an insurance company says they are going to change “the way” they pay physicians, what they really mean is that they are going to change “how much” they pay physicians. This is a very dangerous road to travel with potential for a catastrophic conclusion. Where will we be in a few years if we drive down physician income so much that no one wants to become a doctor anymore? Imagine a shortage of physicians and an influx of patients added to our health care system.

Year 2020: Welcome to the self-service clinic. Please type your symptoms into the computer. The computer will print out your prescription. If surgery is necessary we will put you on the waiting list and hope for the best.

To view this article as featured in the March issue of the Physicians News Digest, follow this link:
http://www.physiciansnews.com/2012/03/11/lets-be-honest-uncovering-fundamental-flaws-in-the-health-care-debate/

Fresh Perspective; Real Solutions

It's been nearly two years since the passage of the Patient Protection and Affordable Care Act, and the debate over this controversial piece of legislation is as contentious now as it was when it was being voted upon. Since PPACA was signed into law, we have seen the Republicans gain control of the House and acquire additional seats in the Senate. We have also seen a number of court cases either confirming PPACA as Constitutional, or ruling that it violates the Constitution. All of this has led us toward an inevitable showdown in the 2012 election season.

Repealing "ObamaCare" has become a major campaign platform for each of the Republican presidential candidates. In my opinion, something very important is still missing from the discussion. We haven't heard any substantial details on what each of these candidates would do to replace it. Remember, all of the troubling factors that brought us to this point have not gone away. We still have a health care system that is breaking the bank and desperately needs to be fixed. With this in mind, and with the upcoming elections just around the corner, there's no better time than now to once again examine this problem, and come up with real solutions.

A combination of professional and personal factors places me in a unique position to weigh in on this critical debate. First and foremost, I don't profess to have all the answers; I don't think anyone does. These problems are just too complex to be easily solved by any one person. What I will say is that I believe I have a perspective that differs from others that we've heard. I hold a Master's Degree in Economics and a Bachelor's Degree in Business Administration. I have 18 years of experience working for various managed care companies, and have held senior management-level positions with some of the largest managed care companies in the nation. I have also worked for a vertically integrated delivery system where the insurance company, hospital, and physicians were all under the same ownership. In 2004, I founded a physician advocacy group called Fulcrum Strategies, which has provided me with more than 7 years of experience as a physician consultant. In my role as President of Fulcrum Strategies, I now provide business consulting and managed care negotiating advice to more than 1,000 physicians in various specialties across the country. I am a small business owner who struggles with the cost and challenges of providing health insurance for my employees. On a personal note, I am the father of a son with autism. Since the therapies for autism are excluded from coverage under most insurance plans, I am painfully aware of what happens when a loved one needs care that insurance doesn't cover.

Much of the health care reform debate has focused primarily on how the current system is broken. The discussion typically focuses on two main faults: high cost and inadequate coverage. The supporters of PPACA talk about the rising cost of health care and how our country pays more for health care than any other - and yet we are no healthier for it. They also point out that before PPACA 47 million Americans didn't have health care coverage, either because they couldn't get it or because it was too expensive, with the implication that they didn't have access to health care at all. Finally, they point out that if we don't do something the current cost trends, given the current levels of coverage, will eventually break the federal budget. Each of these statements has a varying degree of truth to it, but they do not tell the full story.

Let's start with an honest look at the current state of health care in this country. Without a doubt, the United States has produced a health care system where quality and access are second to none. The vast majority of the people in this country have access to state of the art care given by highly trained physicians without any of the waiting that many other countries face. For these people, money plays little or no role in the decisions that are made about their health care. If you have cancer and there is a very expensive drug or treatment that will help, you get it. If you need an advanced test like an MRI or PET scan, you get it. If your baby is born premature, you will get advanced and very expensive treatment; everything possible will be done to save the child's life. Simply put, for the vast majority of Americans there is no better place on earth to be if you have any medical need. The American health care system is like the finest five-star restaurant. The atmosphere is fantastic, the service is excellent, the food is out of this world and the wine list is extensive. All-in-all, it is a wonderful experience if you can afford it. Even for those who can't, a place will be made for you in case of dire need. In an emergency, anyone can still get in. We should be proud of the advances in medicine that we have pioneered and for the quality of the care our system can and does provide every day. The problem is that we Americans are victims of our own success. We have pushed the quality and access levels to such an extent that we've increased costs to a level that is not sustainable.

The challenge facing this country is how to keep the quality and access that we have built in our health care delivery system, while extending coverage to as many people as possible, all the while controlling costs at a level that is sustainable. This is a complex challenge that will require a very delicate balance. It is obvious that we can't have all three. It's just not possible to maintain the same level of quality and access that we have now while extending coverage to millions of additional people and reducing costs at the same time. Something simply has to give. It is also very clear to me that the current legislation will not accomplish this goal.

ObamaCare:

The current legislation provides a number of changes to our system of insuring and financing health care in this country. Some of these changes like insurance reform are long overdue. The plan will increase the coverage so that when fully implemented, more Americans will have insurance coverage of some kind than ever before. Where it fails is in the cost control arena. Quite simply, if changes are not made, PPACA will accelerate the cost problems with health care in this country and will cause the inevitable train wreck sooner than later. It doesn't take a nobel prize winning economist to tell you that adding millions of people to the insurance system, increasing benefits and eliminating things like life time maximums will increase costs. Anyone who disagrees with this assertion should go back and take a refresher course in Econ 101.

The Problems with ObamaCare:

There are a number of problems with the legislation that was passed last year. There are also a number of areas where the debate about health care is failing to address the real issues in an intellectually honest way. Two of the major failures of the current legislation are its lack of cost control and its ignorance of the market's likely response. I'll discuss both of these problems and what we could do to help solve them.

Quality and Access:

The supporters of PPACA say that it addresses quality and access by not changing anything in the current delivery system. They hang their hat on the assertion that since they are not changing the delivery system in any meaningful way there should be no impact on quality and access. Simply put, they are counting on the current system to continue to deliver the same high quality and easy access that it currently does. In a vacuum this would be a logical assumption, but as an economist will tell you, nothing happens in a vacuum.

Let's examine PPACA and what it may mean to our future if fully implemented. Then we need to examine some better alternatives.

Coverage:

When fully implemented, PPACA extends coverage to millions of Americans that don't have insurance right now. The plan is likely to extend coverage of some kind to as much as 98% of these people. This was one of the big talking points for the administration and something that the plan is actually likely to accomplish. There are several factors that drive this. The plan creates significant tax penalties for all but the very smallest businesses that don't provide insurance coverage for their employees. It also provides penalties for individuals who do not purchase coverage when it is available. There are also tax breaks for the working poor to help cover the cost of purchasing coverage. These three factors alone, however, would probably not be enough to extend coverage to the 98% level. The final parts are the creation of State Exchanges and the expansion of Medicaid. These last two pieces will bring coverage to most Americans, and will reduce the uninsured in this country to a very small percentage of the population.

The problem of the uninsured:

Before we continue the discussion on coverage of the uninsured, it would be helpful to truly understand the characteristics of the uninsured populations. By now, everyone has heard the number: 47 million uninsured Americans. Right up front, we need to recognize that there are not 47 million uninsured Americans. It's true to say that according to the latest census data, there are 47 million "people" living in this country who are "currently" uninsured. Roughly 10 million of those 47 million people are not American citizens. Now, it's an entirely different debate to address what, if any obligation we do have for providing insurance to people in this country who are not citizens. The point is, if we're to subscribe to the belief that health care is a right of all Americans, and that it is our obligation to provide affordable health insurance for every citizen, then we need to begin with 37 million uninsured Americans. Once we accept our new starting point, we'll need to further dissect that number. Again, according to the most recent census, there are some interesting statistics about this population. First, 60% of the uninsured population reported that they were in "excellent health." How many of these people could afford health insurance but are choosing not to buy it because they won't be using it? 16 million of the uninsured population reported a family income that is over $50,000 per year, which is higher than the mean family income in this country, and half of those 16 million reported making over $75,000 per year. I think it's fair to say that most, if not all, of this population could afford health insurance given their income levels. Another interesting statistic is that 45% of the uninsured population is uninsured for less than 4 months. These are people who are uninsured for a very short period of time while they change jobs or carriers. According to the Kaiser Foundation, the number of people who are uninsured for more than 1 year, do not qualify for Medicare or Medicaid, and make less than $50,000 per year numbers about 8 million. This represents about 3% of the population in this country. Now that we better understand the population that we want to impact, we can develop more efficient plans to address the problems.

Better Options for Coverage:

1. Transitionally Uninsured:

To address the issue of the 45% of Americans who are uninsured for a short period of time (less than 4 months), I propose that we use a format similar to unemployment benefits. It would be fairly easy to set up a benefit for those people who are losing or changing their jobs to provide a short-term coverage option. The government could pay individuals' COBRA premiums for a limited period of time to cover this transition. This would ensure that existing coverage is continuing to bridge the employment gap. In order for this to work, legislation would need to be passed that would make COBRA the same premium cost as the employer plan it is based on. This simple change would eliminate 45% of the uninsured problem.

2. Long Term Uninsured:

Addressing the issue of how to help the 8 million people who are uninsured for more than a year and are caught in the gap between Medicare, Medicaid and the employer sponsored system is a bit more complex and would require several steps.

a. First, we need to create insurance options for this population. This can be accomplished by making some changes to the current system rather than trying to create an entirely new system we'll call "GovCare." One possibility would be to require all insurance companies to offer and sell both individual and small group plans in every state where they are licensed to operate. Essentially, creating the individual and small business options would become part of doing business in that state. These plans would have very basic benefits that could be established by state or federal mandate. In addition, the plans would have to be community rated and the rates approved by each state's department of insurance, much like they already do for the rates charged by many other types of insurance. Finally, there would be no ability for carriers to deny coverage for any clinical or pre-existing condition. These basic benefit plans would be designed to cover primary care, preventative care and catastrophic coverage, and would help hold costs down. With this simple change, not only do we create options for the population most at risk, but we also create choice and thus free market competition and efficiency.

b. The next big hurdle is how to help this market segment afford insurance once a plan is made available to them. Given a plan like the one described above, and with a population of 8 million instead of the bloated 47 million figure, paying for it actually can be solved through tax credits and subsidies. How much would it cost? In 2009, the average per capita health care expenditure was just over $8,000. That includes the Medicare population, which is significantly more expensive than the non-Medicare population. However, if we use the number of $8,000 per year - which we know is overstated - and provide 100% coverage - which we also know is overstated - and apply it to the 8 million people who fit the category of long term uninsured, we come up with a price tag of $65 billion per year. Again, this projection is grossly overestimated given the assumptions above, but we use it to point out that covering the uninsured population is not that difficult, nor is it terribly expensive.

Cost Control

Where PPACA fails dramatically is in the area of cost control. PPACA is woefully short on details relating to cost controls, and in my opinion, doesn't get at the root causes for health care inflation in any meaningful way. This kind of wishful thinking and praying for the best is what created things like a $14 trillion national debt. People, it's time to stop praying for a miracle and to start dealing with the hard questions and difficult issues. If we wait much longer, we may lose the chance to be the agent of change and rather have change thrust opon us. The market will react and respond to PPACA, and we may not like the outcome.

How Can We Control Costs?

Controlling costs is where the rubber will really meet the road in this discussion. It's not only the most critical aspect of the problem with health care in this country, but it is also the most difficult to solve. The fact of the matter is that there is no way to provide the highest levels of care to everyone that wants it without breaking the bank. Every country rations care in some form or another. Some do it by access, some by quality; in the U.S. we do it by income level. There is simply no way to provide universal coverage without having to cut back somewhere else. Many people talk about making the system more efficient, citing the elimination of redundant tests, or the cost reductions garnered by giving access to preventative care to the currently uninsured as a means to pay for expanded coverage. While there may be some level of savings from each of these, it's nowhere near enough money to address the real financial concerns present in our system. To address the fundamental issues of cost in our current system in a long-term and sustainable way, we need to make some very difficult choices about how we want our health care rationed. Before we get to these difficult questions there are some less controversial changes that we can make that will help.

Tort Reform

One of the first things I believe we should do is pass major tort reform. A negative outcome in health care should not be a lottery ticket nor should attorneys make a career out of looking for such a winning ticket. I was talking to an executive of a large malpractice carrier who told me that his company spends more money on successful defense of malpractice cases than it does in all of its payouts put together. Let me restate that; a malpractice carrier spends more money on successfully defending frivolous law suits than it does in its payouts when a real case of malpractice occurs. Can you imagine how high your auto insurance would be if this were the case in that industry? It's time to deal with this issue and to limit non-compensatory damages to a realistic amount. This would not only reduce malpractice premiums, but will also reduce some level of defensive medicine, which is one of the drivers of unnecessary testing and procedures.

What About The Hard Questions?

Some other adjustments that needs to be made are an increase in the age of eligibility for Medicare and making Medicare an income-dependent benefit. The average life expectancy in this country has been steadily increasing, thanks in large part to our incredible health care system, and we are eventually going to have to reflect this change in the qualification age for Medicare. Moving the age from 65 to even 66 or 67 produces significant cost savings and will help shore up the Medicare fund. In addition, the coverage should be tied to income level, including the amount saved for retirement. This can be done by making those retirees with significant retirement savings pay an additional premium for Medicare coverage. I know that these ideas are not going to be popular and are not without controversy, but again, it's important to keep in mind that we cannot provide everything for everyone. The changes that I suggest are much better than the alternative kinds of rationing we see in the Canadian or British systems.

The final adjustment that I think we need to make will most definitely be the hardest to swallow. We need to develop a way to ration coverage through clinical effectiveness and outcomes, rather than by simply cutting access. Currently, our country spends a staggering amount of money on care that is provided during the final few months of a person's life. We go to heroic measures to extend life even when the hope of saving that life is non-existent. These efforts by dedicated and talented health care professionals, while laudable, are also something that we simply cannot afford to cover if we are to try and provide essential care to everyone. At this point, I can imagine the thoughts that are running through your mind. Am I suggesting that we just let people die rather than provide care? Who decides who lives and who dies? How can anyone suggest such a thing? Before you start to judge, please consider the following details behind this idea.

Every day in this country people die while life saving care is withheld from them for clinical rationing reasons, and no one objects. Let me say that again. We are currently letting people die when life saving care is available and everyone involved understands. I am talking about the current process for organ transplants. We have a limited number of organs available for transplantation and the supply of organs is not great enough to satisfy the number of patients that need them. We have developed a rationing system where candidates are evaluated and then put on a list and prioritized. The system includes factors such as the likelihood of success and the potential for long-term survivability. Many of the organ transplant protocols will eliminate candidates based on age, comorbidities, and even things like harmful personal activities. For example, an active alcoholic will be removed from the list for a liver transplant. This is a form of rationing and it directs the system to logical, non-financial choices of who may live and who may die. It is done to try and maximize the benefit given a limited supply. My question to you is how does rationing a limited supply of organs differs from rationing a limited supply of money?

So, my proposal for fixing the cost issues surrounding health care and for putting Medicare back on track so that it doesn't consume the entire federal budget before I even get a chance to make use of it, is to develop similar clinical protocols to help physicians and hospitals know when heroic efforts to extend life should be undertaken and covered by insurance, and when they shouldn't. I don't think these decisions should be left up to the insurance companies or to the government. I also don't think it's fair to leave them up to individual doctors and families. Rather, I would look to the various clinical specialty societies to develop these coverage guidelines based on the most current data and information. Further, these coverage guidelines would be updated regularly as the science of medicine advances.

I completely understand that talking about withholding coverage feels very much like withholding care. In the abstract it is easier to consider, but it becomes very difficult when it's your loved one. I also understand how uncomfortable and morbid it can be to have any discussion on this topic. We want to provide everything for everyone, but I think we have proven that this approach leads to financial ruin and is no longer sustainable. If the system collapses, tens of millions of Americans would be left to their own devices to pay for the health care they need, making the current number of uninsured – no matter what number you start with – look miniscule. This idea isn't a great option; it's not even a good option, but rather, it is the best option among a number of unattractive ones. It really is the lesser of several evils.

So, as we watch the Supreme Court deal with the question of the individual mandate, and as we approach the 2012 elections, I think it's time we take a serious look at PPACA, what it will do, what it won't, and ask ourselves: can't we do better than that? I don't know about you, but my fear is that the cure of PPACA may be worse than the illness it was intended to treat.

A Chill is in the Air; It Must be SGR Time Again

I love this time of year.  The busy holiday season has passed and soon the winter air will give way to warm spring afternoons.  The only bad part about this time of year is the annual discussion about the Medicare SGR cuts.  Each year for the past several years it seems like the same old story.  The Sustainable Growth Rate projects massive cuts in Medicare payments to physicians.  Physicians rally around the cry: "Fix the SGR!"  Politicians do what they do best, which is grab some air time and make wonderful speeches blaming everyone else for this problem while doing nothing to actually solve it.  The parties to be in Washington play Russian roulette with the January deadline and then, in the end, they kick the SGR can further down the road for another 6-12 months and things go back to normal again. 


Now don't get me wrong; every year I hope against hope that someone in Washington will actually solve this silly problem once and for all.  However, like any good realist, I am not betting any of my money that a solution will actually happen.  I expect the same drama to play out once again this year.


What's really silly, in my opinion, is that most everyone knows the SGR is no longer a viable formula.  It's the modern health care equivalent of saying the world is flat.  Consider the following two pieces of information. 


1) At Fulcrum Strategies, we looked at each of our clients to determine what the average impact of a 27% reduction in Medicare rates would have on physicians' salaries.  Our clients range from primary care to medical and surgical specialties.  Some are very large groups and others are small to medium sized groups.  Grouping all of their data together produces a good cross section of the physician population in this country.  Based on this data, the average physician would see a salary reduction of over $70,000 per year if the 27.4% SGR cut took effect in January of 2012.  Can you imagine the backlash that would happen if the government picked any other profession and said they were going to increase their taxes by $70,000 per year per person?  How much traction do you think the American Attorney Surtax Bill would get if it raised taxes on attorneys by $70,000 per year? What's the difference between taxing a profession and just reducing their revenue?


2) Another example of how silly the SGR has become is the rate of payment for an office visit.  Under the new Medicare schedule, a new patient office visit would be paid at about $110.  If we assume that a doctor can see about 1 new patient per hour, when you add in the time for charting etc., and if we assume that the average overhead is 50% for most practices, that means that Medicare thinks doctors should work for about $50 per hour.  Right now the pharmacist at your local chain drug store makes more than $50 per hour and doesn't have the stress or risk of being a business owner.  Is this what we really want?  Do we really want the pharmacist who is filling the prescription to make more than the doctor who is actually writing the prescription?


So we all agree that the SGR will not be allowed to be implemented.  We also agree that given the problems with the budget, it's not so easy to just remove the SGR and replace it with an annual cost of living adjustment.  So what is Washington likely to do?  Well, one hint may be the recent discussions at the Medical Payment Advisory Committee (MedPAC).  In September, MedPAC considered a plan to replace the SGR with a 10 year fix.  The fix would freeze payments to primary care physicians at 2011 levels for the next 10 years.  Specialists would take a 5.9% cut for each of the next three years and then a freeze for the next 7 years.  While this sounds much better than a 27% cut right now, it still spells the demise of Medicare in my opinion.  Let's project this plan out 10 years and compare it to a very reasonable and conservative estimate of inflation.  If we assume only a 2% inflation rate in physician costs for the next 10 years, then a 99213 office visit which is paid at $68.97 in 2011 should be reimbursed at $84.07 in the year 2021.  Under the MedPAC suggested plan, this office visit code would still be paid at $68.97 for primary care physicians and $57.47 for specialists.  This means that primary care physicians would have lost ground to inflation to the tune of 22% over 10 years, and specialists would have lost 46% to inflation.  No business can survive when it falls that far behind to inflationary pressures.  So ask yourself, how many physicians can and will continue to see Medicare members under those circumstances?  One of our specialty clients asked what the impact would be if the 6% cut for the next three years that is recommended by MedPAC was implemented.  Well, for that particular client, it would mean a physician compensation reduction of $15,000 per year for the next three years on Medicare alone.  That is before practice cost inflation eats up even more of their revenue.  


So what do we do with this wonderful picture of the future?  Well, you could just shut off your computer and gaze out your window at the nice winter weather.  If that doesn't help, then I would suggest building a plan to focus on what you can do to make up for this very real potential of a Medicare reimbursement reduction.  Make your plan simple and focused.  Make it something that you can use to achieve real results.  I recommend starting with three major objectives: 


1- REDUCE YOUR COSTS: Begin identifying where you can reduce costs.  For example, can you renegotiate your lease for your office space and reduce your rent in exchange for adding a year or two to the lease?  Can you refinance your debt and reduce your interest expense?  Can you operate some part of your practice more efficiently?  Identifying ways to reduce costs can help to prepare for the future.  


2 - RENEGOTIATE YOUR CONTRACTS: Don't let a year go by without pushing for a raise from your commercial payers.  Your employees demand a raise every year and so should you.  If you need help with your contracts, please contact us (please visit our website, www.fsdoc.com, for our contact information).  Our negotiators have more than 80 years of combined experience on the payer side.  We are happy to review your group's data to determine if we can help.  


3 - FIND NEW SOURCES OF REVENUE: Are there things you are outsourcing that could be done internally?  Is there a profitable service you could offer to your patients?  This type of diversification strategy can help offset reductions in other areas.  Finding new and related sources of revenue can tremendously improve your practice's bottom line.  


My best piece of advice for any physician group, large or small, is to focus on these three key objectives and try to get something done in each area.  When you accomplish a task choose your next target and keep moving forward.  Setting goals in each of these areas and focusing on achieving those goals will help your practice prepare for what is likely to happen.  As always, if you need help in any of these areas, Fulcrum Strategies is here to help.  Let us know how we can assist your practice in preparing for 2012 and beyond. 

Will the last physician out of the exam room please turn out the light?

Imagine you are a college freshman with excellent grades and a bright future ahead of you.  You have the ability to choose the career path of your choice.  You find yourself in the office of the college guidance counselor, having a conversation about one of the possible career choices you could pick.  The conversation goes something like this:

Counselor:  “I really want you to consider a career in medicine.  I think with your intelligence and skills, you would make a great physician.  This career would be an excellent choice.”

Student:  “That sounds great.  Do I need a graduate degree?  I mean that’s a total of 7 years in college.”

Counselor: “Well, actually it’s a bit more than that.  You will need your bachelor’s degree plus a graduate degree plus several more years of training.  All in all, you will be spending 12 to 14 years getting your education.”

Student:  “12 to 14 years.  Wow, that is a lot of time!  I will be in my mid 30s before I get out and start my career.”

Counselor:  “You actually get started long before then.  You will be doing some on the job training for the last half of the 14 years.”

Student:  “That’s good.  So at least I will be making a good living while I am learning.”

Counselor:  “Well, not really.  You are going to be working...and actually working crazy long hours but you won’t really get paid much for all of it since you are a student.  To be honest, when you are done with all of this you will probably owe more than $200,000 in student loans.”

Student:  “So when I get done with all of that at least I will be making great money and not killing myself working 60 hours a week any more, right?”

Counselor:  “Well..not really.  The money is ok but you will still be working long hours.  Depending on what you do and how you specialize, you may have to work many nights and be on call a fair amount.”

Student:  “This doesn’t sound very good.  Can you tell me more about what life will be like in this career?”

Counselor:  “Sure.  Well, other than the long hours and being on call, you also get to look forward to a future of declining compensation, government red tape and bureaucracy, government audits and the possibility of having your whole industry taken over by the government sometime in the future.”

Student:  “Are you kidding me?  Why on earth would anyone devote 14 years to education, start working in your mid 30s, begin a career horribly in debt, only to face the kind of uncertain future that you just described?”

Counselor:  “I don’t know.  You are the fourth student today who has asked me that today.”

Student:  “How about talking to me about a career on Wall Street or in politics....”

Now, I know that this description is done a bit tongue in cheek.  I also know that many of the very best physicians go into medicine as a calling and a passion and not because it’s a great life or financial decision.  That being said, please consider what will happen if we don’t address some of these issues.  What are we going to do if we continue down this road and we can no longer attract our best and brightest students into the very demanding and important profession of medicine?  What we could end up with is a scary thought;  universal coverage for every American…and a shortage of physicians to provide care. Ask yourself: what does the future of health care look like if our best and brightest students decide to forego a career in medicine?

Five Things Every Practice Should Be Doing to Prepare for Health Care Reform

Living in North Carolina, like many other places that deal with the threat of hurricanes, we have gotten used to what others may consider an odd occurrence. Every year, when a hurricane is bearing down on one of our beaches, we are flooded with scenes of homeowners boarding up their windows and getting ready for the storm. Inevitably, these pictures show a calm ocean and bright blue skies. The point is that people who own beach houses know that when a storm is coming, the time for boarding up the windows and getting ready is before the storm, while the weather is still calm. Once the storm arrives, it’s too late to protect your house. We can apply that same analogy to health care reform. We are currently in that “calm before the storm,” and now is the time to shore up your practice and do the things that need to be done so that you will survive the future of health care.

Like a hurricane, no one can predict just how bad things will get for health care in the coming years or even when all of this will take place. What we can do is look at the factors and the likely glide path for some indications of what we will be facing. All the signs of a very large storm are present; you just have to put the pieces together. Consider this: we have a struggling economy with high unemployment and little to no growth. This places a significant burden on businesses that currently finance a huge amount of health care. We have a health care reform law that will significantly change the marketplace in 2014, when most of its provisions kick in. Through coverage expansion and Medicaid expansion, this law will add a projected 20 to 30 million people to the roles of the insured. These newly insured individuals will put stress on the delivery system, which in many areas does not have the capacity to absorb this new demand. We also have state budgets in trouble, placing pressure on Medicaid funding and programs; and we have Medicare expenses rising at a rate that is not sustainable, putting significant pressure on the federal budgets.

Consider this: in this current fiscal year the federal government will take in $2.4 trillion in tax revenue. Medicare and Social Security will consume $1.5 trillion in expenses. This means that more than 50% of the revenue we take in is used to pay for healthcare and retirement benefits. After you pay for Defense and the interest payment on the debt that we have already incurred, there is only $26 billion left in the coffers. That means we can pay for something like the Department of Agriculture whose budget is $26 billion, but all other government functions, such as foreign aid, the Department of Education, the Department of Homeland Security, unemployment, etc., have to be paid for through borrowing and accumulating more debt. The point of this illustration is to explain the obvious—that we will not get our federal deficit under control until we control the largest line item, health care.

Taking all of this into account, it appears that we have the makings for a very big storm. The demand for health care will go up, as it always has, while the ability to pay for it will be under serious pressure. At this point in the discussion, many of my physician clients start considering their retirement date if they are close enough to do that, and, if not, they start considering self-medication with anti-depressants. Once they get over this urge, we can move forward with a strategy for how to get ready for the brewing storm, and we start “boarding up the windows,” so to speak.

I believe there are five things that every practice should be doing to get ready. These five things, if done now, will help to ensure that you are prepared when health care gets rough in the future.

1. Operational efficiency: There is no doubt about it; the future of health care will put significant pressure on provider revenue. Practices will no longer be able to cover up inefficient business models with fee schedule increases. Medical groups and other health care providers are going to have to learn how to make do with less, and that means becoming more efficient in their business functions. Practices need to take a serious look at their overhead and look for ways to reduce the percentage of revenue that is required to run their practice. This doesn’t necessarily mean reducing staffing, although it may; in some cases it can mean learning how to add volume without adding expense. It can also mean looking at things like purchasing contracts, lease arrangements, or even consolidating debt to reduce expenses. It could mean taking full advantage of an EMR environment to reduce overhead and inefficiency. Whatever this looks like for an individual practice, it almost always boils down to one thing: professional management. The groups that are going to survive and thrive in the future are the ones that have solid professional management. I’m not talking about a practice administrator that has been with the group for 20 years, and started as the receptionist or billing clerk. While some of those individuals do grow into solid professional managers, most don’t. I’m talking about experienced professional executives with solid educations and backgrounds, who understand business efficiencies, strategic planning and how to run an efficient business in difficult times. In the same way that quality physicians produce the best health care outcomes; professional business managers produce the best business outcomes.

2. Battlefield intelligence: Ask any military commander what they need most in a difficult battle, and they will say intelligence. Knowing what the enemy is doing and what their strengths are can be the difference in winning or losing a battle. Health care is no different. Groups need to keep their ear to the ground and constantly seek new information. Try to keep an eye on what your competitors are doing, what the payers are doing, and what other groups or your hospital partners are doing. The last thing you want is to wake up and find out that your two largest competitors have merged, leaving you in the dust, or that your hospital has just hired four doctors in your specialty and now you are not needed for the ACO they are forming. Keeping up with the ever-changing marketplace will help you with your strategic planning more than almost anything else.

3. Gain market position: The other night I was watching a movie on HBO called “Too Big to Fail.” There is some real power in a title like that! In many cases, especially in difficult times, it’s often the larger businesses that will survive; in our case, it’s the larger physician groups. There are significant advantages to size, if well-managed. That is why my third recommendation for how to get ready for the coming storm is to gain market position. This can be accomplished through organic growth (adding new doctors right out of school), merging with other groups, expanding your geographic coverage, or cornering the market for a specific service or subspecialty. This market clout can be the difference between surviving the future, and not. Let me give you an example: I work with a client who has, over the years, gained significant market position. They are the dominate player in their specialty and have some sub-specialization that can’t be found anywhere else in the local market. Recently a payer approached them and forcibly told them they would need to take a 40% cut in reimbursement for one of the ancillary services they provide. My client calmly and confidently told the payer that yes, they did need to renegotiate the rates for this service because it had been several years since they had done so, but rather than take a 40% cut, they needed a 5% increase. My client then explained that without this increase, they would have to consider leaving the network completely. We ended the meeting by reminding the payer that without my client, there would be a huge hole in their network that could not be filled. A couple of weeks later, the payer made a new proposal of only a 20% decrease, we countered with our 5% increase. A couple of weeks after that, they proposed only a 10% decrease, again we countered with a 5% increase. Just last week we settled on a 3% increase. While experiences like this are not guaranteed, it is safe to say that had this client not established its market position, the outcome would have been dramatically different.

4. Marketing and customer service: A major part of the future of health care may revolve around attracting the kind of patients that you want, not just attracting patients. With the expansion of Medicaid, it is going to be crucial to avoid getting overloaded with low paying patients, and to attract your fair share of commercial insurance patients. These commercial insurance patients will be able to vote with their feet, and in many situations will do so. Given this, it’s important to have a well thought out marketing plan that includes a clear message and a logical delivery strategy. Simply putting an ad in the yellow pages isn’t going to cut it in the future. Marketing by itself isn’t going to be enough either. You have to back it up with solid customer service, so that word of mouth referrals are your friend and not your enemy. Giving careful consideration to how you treat patients as customers, as well as to the services and clinical care you provide, is a necessity in tomorrow’s health care environment.

5. Fill the silo with grain for the upcoming winter: I grew up in a farming community. Every farmer knows that you work all year to harvest enough crops to sustain the winter. Medical practices need to consider doing the same. If this has been a good year for you, consider what you can do to store some of that good fortune for the future. Pay off any debts that you have. Make sure you are not using the line of credit. Do whatever you can to prepare your group for what could be a “hard winter” in a couple of years. This is easier said than done because it means forgoing current salary and compensation for your doctors, but it will prove to be beneficial in the future.

While doing each of these five things won’t guarantee your success in an uncertain health care future, it does stand to reason that not doing them will increase your chances of having a very difficult time surviving when the storm arrives. Remember, boarding up the windows when the storm is already here is much harder than doing it while it’s still calm and sunny out.

The Negative Side Effects of Health Care Reform

Every physician understands the concept of side effects. They deal with them every day. In some cases, the side effect of a medication may be mild or only slightly inconvenient. In other cases, the side effect or possible complication could be very serious. That’s why doctors explain the risks and potential side effects of various treatment options to their patients. So what does this have to do with health care reform? Well, I was thinking the other day that there hasn’t been much discussion about the very real side effects of health care reform. I don’t think that the general public (and physicians for that matter) truly understand how the new world of health care reform is going to affect them in some very negative ways. Now I’m not talking about the political spin of death panels or anything like that. I am talking about a significant market place shift and how the insurance companies are likely to respond to this new environment.

In order to explain this in a way that everyone can relate to, I want you to imagine that your rich grandfather has recently passed away. In his will, your grandfather leaves you controlling interest in a local HMO. So you wake up and find yourself the new CEO of Premier HealthCare, a local HMO that covers 100,000 people in your area. In 2 years, the major parts of health care reform will take effect. You meet with your management team and begin planning for how you will operate in this new world, specifically, with the new State Health Care Exchanges. What follows is the input and advice that you receive from your management team.

Financial Review: Your CFO explains to you that the company is doing well for a small, local HMO. Your administrative costs are under control at 12% of revenue. Your Medical Expense is coming in at 85% of revenue, which is producing a profit margin of 3%. High fives all around for doing great and making a whopping 3% margin.

Sales and Marketing: Your VP of Sales tells you that growth is good even in a bad economy. Your membership is up by 5% this year. Again, pats on the back and high fives all around.

Medical Management: Your Medical Director says that things are going well. Your medical trend is under control for the time being.

At this point, you’re feeling pretty good about taking over this business. Then comes the bad news. The team now turns their attention to the future and what health care reform will mean for the business. Your CFO and Director of Underwriting give you a quick lesson in insurance theory, risk and adverse selection. You are told that 5% of your members (or just 5,000 people) consume 50% of all of the medical expenses you pay out. These are primarily chronically ill people. Then they walk you through some numbers that reveal some terrifying news: If you add just 500 more chronically ill members, your entire profit margin will be eliminated. While this information is sinking in, they explain that part of the way you mitigate this risk is through things like pre-existing condition exclusions and lifetime benefit maximums. Unfortunately, these things have been eliminated under health care reform, so your company will be forced to carry even more risk.

Your VP of Sales tells you that the company has been reasonable with physicians and hospitals in its contracting efforts which has allowed you to have a very large network, but is also producing higher costs and premiums in the market place. She is concerned about being priced higher in the Health Care Exchange environment. Meanwhile, Medical Management is worried about their ability to control costs in the new environment and is warning you that utilization could spike in the future.

Finally, your CFO reminds you that under the new health care law, you are required to spend at least 85% of revenue on health care claims which means this last year of a 3% margin is the very best you can ever achieve unless you can figure out a way to reduce administrative expenses (i.e. cutting jobs). After this discussion, there are no high fives or back pats. You begin to wonder if they serve alcohol at these meetings. Now the meeting shifts to plans for the future. How are you going to survive in this new environment, and what strategies must you put into place to make sure the company your grandfather left you is still around in five years?

Before you begin your strategic planning, your Government Affairs Director describes the new Health Care Exchange environment that will be put into place in just 2 short years. He tells you that Health Care Exchanges are like big buying clubs with government regulation. The benefit plans will be defined by the Exchange and will be the same for everyone. So your company will not be able to differentiate itself by having better benefits nor will it be able to control costs by having less rich benefits. Large numbers of members will be in the exchange and this will include both individuals as well as employer groups. They will be able to select any carrier in the exchange and the other thing that will be different is the price and the carrier’s network since benefits are the same. At this point you begin to understand. In order to get more members you need to have a bigger network of providers and a lower cost than your competitors. You think you have this figured out. But wait, your CFO now starts to talk to you about the concept of adverse selection.

The CFO reminds you that it’s the very sick people who consume all of the health care dollars, so the trick is to get all the young healthy people to pick your plan and have all the sick people pick your competitors. The problem is that if you get too many sick people, that’s called adverse selection and it will kill your company. So how do you just get the healthy people to join your HMO? Well to answer that you need to understand how people pick an insurance company as well as the concept of price elasticity. There are two basic types of consumers in the health care insurance market; the price shoppers and the network shoppers. The price shoppers are typically younger healthy individuals who don’t think they will ever use their insurance but are purchasing because they are afraid of catastrophic issues or because of the individual mandate. These are the people you want in your health plan. They don’t care how big your network is or if you have the premier cardiology group in your network because they don’t go to the doctor.

The other type of member is the network shopper. They know they are going to use their insurance because of their current health condition or age. They probably already have a relationship with not only their primary care physician but also one or more specialists.

These members are typically high utilizers of health care, and they want to know that their doctors or hospitals are in the network. These are exactly the type of members that you don’t want to attract to your HMO. With this information in hand, the meeting now moves to setting a strategy for your new business. All eyes are on you, and you need to decide how you are going to move forward under the new rules of health care reform. You realize that they key to success is to only attract healthy price shopper members who don’t care about network while at the same time controlling and reducing your administrative expense so that you can hit the 85% requirement. As you think about all of this, the direction and strategy for your success becomes clear. You need to reduce your administrative expense, which means reducing your staff. Since you don’t want to reduce staff in sales or member services you propose cutting staff in areas like provider relations. You also need to reduce your medical expense so that you can be price competitive and attract the young and healthy price shoppers. This can be done by reducing what you pay to your physicians and hospitals and by eliminating the high cost providers. Eliminating high cost specialists and hospitals also has a side benefit of helping you with adverse selection. Let’s say there is a patient with advanced Rheumatoid Arthritis. If you don’t contract with his Rheumatologist, he isn’t going to select your plan. Another patient with MS who is receiving over $40,000 of Tysabri infusions every year won’t choose your plan if their Neurologists isn’t in your network. The young price shopping members could care less about your Rheumatology or Neurology network because they don’t need either of those specialties and probably don’t even know what a Rheumatologist is.

That’s it! The strategy for success is clear to you. You propose a strategy that involves fee schedule reductions, hard negotiations, termination of high cost (read high quality) specialists and hospitals, followed by the termination of many of your employees in areas like provider relations to reduce your administrative costs. The result will be a lower cost network that will appeal to the price shopping younger, healthy population that you want to attract. The negative side of this strategy is a smaller network so less choice for your members, the loss of some of the highest quality providers, and a reduction in the service you offer to your providers and members because of the staffing cuts. However, these are all acceptable side effects to make sure that your organization can survive the changes that are coming from health care reform. With the announcement of this new strategy, you are congratulated by your management team, and once again there is much back slapping and high fives all around.

Okay, now back to reality. Think this is simply an interesting story? Don’t think this could or would ever happen? I hope you are right, but I wouldn’t bet on it. I am already seeing signs from various payers that they are either getting ready to implement strategies just like this one or they already have begun implementing these strategies. I am seeing payers draw very hard lines in the sand when negotiating, including actual network terminations. Right now in North Carolina, Aetna HealthCare is out of network with Rex Hospital in Raleigh and the University of North Carolina Medical Center in Chapel Hill. I have had one managed care executive tell me point blank that in the future, they expect to have a smaller network of lower cost providers and that the days of choice ruling are over. I am seeing several payers approach negotiations with a “take it or leave it” approach. I am seeing smaller payers (3rd or 4th in market share) demanding most favored nations’ language to guarantee that they have the same rates as the largest payer in the market. I am also seeing payers upgrade their ability to profile physicians based on costs performance. Finally, I am seeing very large payers who are profitable and growing talk about layoffs and shrinking their companies.

Now, is it just me, or do these strategies seem to support the very scenario that I outlined above? This brings us back to the original question. Are there negative side effects of health care reform? Yes, I believe there are. While we all try to figure out what the health care reform law will do and what it won’t do, I believe we also need to be very aware of the negative side effects. As all physicians know, sometimes the side effects are worse than the actual problem. My fear is that this could be one of those times.