Public Affairs for Physicians

Fresh Perspective; Real Solutions

2012-02-10T13:00:00.002-05:00

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 to come up with some real solutions.

A combination of professional and personal factors puts 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 the 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 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. This combination of these factors puts me in a unique position to weigh in on this critical debate.

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, 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 can't get it or because it's 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. What is obvious is 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 while also reducing costs. Something will simply have 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 over due. 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 heatlh care in this country and will make the inevitable train wreck happen 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:

PPACA, when fully implemented, 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 part is the creation of State Exchanges and the expansion of Medicaid. These last two pieces will bring coverage to most American's 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 of 47 million Americans who are uninsured. 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 at all. 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 would 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 that would be designed to cover primary care, preventative care and catastrophic coverage, 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 know is also 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 dollars per year. Again, this projection is grossly overstated 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 dollar national debt. People, its time to stop praying for a miracle and to start dealing with hard question 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 is really going to 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 frivolus 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? Its time to deal with this issue and to limit non-compensitory 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?

Another adjustment that needs to be made is to raise the age of eligibility for Medicare and to make it 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 are going to 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 jump to judgment, 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. 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 is rationing a limited supply of organs different from rationing a limited supply of money?

So, my proposal for fixing the cost issues around health care and 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 to 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, is the best option chosen from 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 the cure of PPACA may be worse than the illness it was intended to fix.

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

2012-02-07T14:33:00.000-05:00

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?

2012-02-06T11:21:00.000-05:00

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

2011-07-07T11:06:00.000-04:00

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

2011-04-13T12:55:00.001-04:00

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.

Unconsitutional? Interesting....But Irrelevant

2011-01-31T17:43:00.000-05:00

You may have read recently that another judge has ruled the individual mandate that requires all Americans to purchase health insurance unconstitutional: Federal judge rules Obamacare unconstitutional

"The full text of the decision from Federal Judge Roger Vinson is not available yet, but according to reporters who've seen the decision, he's ruled the entire Patient Protection and Affordable Care Act unconstitutional. The ruling favors of the 26 state attorney generals challenging the law. The judge ruled the individual mandate that requires all Americans to purchase health insurance invalid and, according to the decision, "because the individual mandate is unconstitutional and not severable, the entire Act must be declared void."

- The SF Examiner

This is very interesting but also somewhat irrelevant. Here's what you need to know. No matter which way this judge ruled or which way an appeals court is going to rule really doesn’t make any difference. This case is going to the US Supreme Court where it will be decided and all previous rulings will have very little impact. The Supreme Court with its current make up is likely to decide this case by a 5-4 vote.

Roberts, Alito, Scalia and Thomas will all vote that the law is unconstitutional.

Breyer, Ginsburg, Kagan and Sotomayor will all vote that the law is constitutional.

Kennedy is likely to be the deciding vote. That’s right, a 2,000 page piece of legislation that costs over $1 Trillion dollars is all going to come down to the vote of a single person. Don’t you love Democracy?!

On a happier note, we better hope that nothing happens to Roberts, Alito, Scalia or Thomas between now and then because if you replace any one of those four with a democratic appointed justice like Kagan or Sotomayor and its all over but the shouting.

By the way, Kennedy was appointed by a Republican president but has been known to vote on some things in a more liberal way, so it’s not a foregone conclusion how the final vote will turn out.

The Governor called…and your execution has been postponed

2010-12-21T16:10:00.000-05:00

How’s that for a cheery opening? In all seriousness, though, it’s not far from the truth. Just a few days ago, President Obama signed a bill that will delay any Medicare cuts from the SGR until 2012, giving physicians across the country a one year reprieve. I think we could all hear the collective sigh of relief that was released once physicians learned of the delay. So the big question now is what does this mean for physicians and what should they be doing in 2011?

First, you need to understand that no problem was solved by this act. Yes, Medicare is still insolvent and is still an unfunded mandate. The only thing that happened was that we put off the problem for another year. In essence, the government paid a loan with a credit card. The debt and the interest didn’t go away; it is just accumulating somewhere else and will need to be paid eventually. In addition to this, we have states across the country looking at Medicaid budgets and needing to cut expenses in that area. We have hospitals buying up practices to get ready for Medicare ACO’s, which is an idea that no one (including CMS) really knows much about or how it will work. Finally we have that little piece of legislation that got signed this time last year. Remember health care reform? Well, that gem just hit a snag when a judge in Virginia recently ruled one of the major components of the law, the individual mandate, to be unconstitutional. We await a ruling out of a court in Florida, and then will look for the various appeals until finally this legislation finds its way to the U.S. Supreme Court which will be the final step in its legal review. To say that physicians are facing uncertain times is quite the understatement.

Given all of this, my advice to physicians is to use this next year very wisely. We have one year to get our house in order, so to speak. It’s a little bit like what happens here in North Carolina during hurricane season when we start seeing that big storm looming out in the sea. We aren’t sure if we will get hit or how bad it will be, but we prepare anyway. Board up the windows; make sure you have batteries, food and water, and get ready to weather the storm. Physicians should be doing much the same over the next year.

The three biggest things practices should be doing in 2011 include: revenue, efficiency, and planning.

Revenue: Use this year to not only secure whatever revenue you can from your insurance contracts, but also to make sure the insurance companies can’t hit you with any arbitrary reductions. Make sure your contracts are not based on “current year Medicare” but rather a fixed year. Make sure the fee schedules are fixed and not based on a payer defined schedule. Make sure you understand what they can and can’t do to affect your revenue. Can a payer just decide to reduce payment for PA’s or other policy changes? Finally, make sure your billing and collecting department is doing everything to collect what you are owed. Keep a close eye on your bad debt, patient responsibility and denial rates. It’s important to note that in the future, we won’t have the luxury of writing things off because we can’t collect them.

Efficiency: It’s time for physician practices, both large and small, to do what every other business in a difficult economy has to do and that is become as efficient as possible. Efficiency doesn’t necessarily mean cutting staff, but rather, taking a very serious look at your expenses and overhead and making sure there is no waste. Even things like trying to renegotiate your office lease can help lower costs and increase efficiency. This is critical because the future in health care is not going to have the margin of error that is required for inefficient practices to survive.

Planning: I know I have talked about this in the past, but I will say it again. One of the biggest things, in my opinion, that has hurt physician practices is the lack of planning in the two to five year horizon. Most practices I work with don’t have a well-defined plan that outlines what they would do if something like the Medicare SGR cuts happened. Many practices don’t know what their financials or doctors’ salaries would look like if those cuts took place. Now that we have our reprieve for 2011, it’s a good time to start developing the planning models and financial tools to do this. Once you have developed the models and tools, it’s time to sit down and plan for the future. Is a growth strategy right for your practice, or should you get smaller? Should you sell to a hospital or merge with a competitor? What would you do if Medicare or your largest payer decided to cut your reimbursement by 10%, 20%, or even 30%? All of these things should be developed and decided before the end of 2011 so you are ready for 2012 and beyond.

It is my belief that the practices who use the next year wisely and plan for the possibilities that will most likely come in 2012 are the ones who are going to thrive and survive. Those who don’t are going to have a very rough time adapting to the inevitable changes that are coming in health care.

To end on a positive note, I would like to once again say thank you and happy holidays to all of our clients. It has been and remains my distinct pleasure and honor to work with all of you. The best thing about the work that we do here at Fulcrum is that every day we get to help dedicated, quality physicians. In some small way, we hope that we are helping you so that you can help your patients.

From the entire Fulcrum family, we thank you for the privilege of working with your practice.

Midterm elections are over...now what?

2010-11-10T16:00:00.000-05:00

The midterm elections are over and done, and we now know that the next Congress will be split. The Republicans will own an impressive majority in the House of Representatives with the Democrats controlling a slim majority in the Senate and of course, the White House. So what will all of this mean for doctors? Since nobody truly knows that will happen down the pipeline, I will attempt to speculate and at least provide you with my best guess of what the next few months will look like for doctors. I must warn you that it isn’t a much better picture than it was before these elections. So sit down, get comfortable, and prepare for the gastric pain that this article is likely to cause.

Medicare:

The most critical issue doctors are facing right now is the future of Medicare and the SGR cuts that are coming up rather quickly. And this is with good reason. Right now, if Congress takes no further action, on December 1, 2010, the Medicare rates paid to physicians will be reduced by 23.5%. As if that isn’t bad enough, there will be another 4% cut on January 1, 2011. So if Congress can’t come to an agreement on a new approach or override the current law, physicians all over America will be asked to provide services to Medicare recipients at fees that are almost 30% less than they are today. So what does all this mean to the average doctor? Well, at Fulcrum Strategies, we looked at what this would mean for our clients. We currently provide consulting services for approximately 1,000 physicians in multiple specialties in markets across the country. Now, while this is not a statistically valid sample, it does present an interesting illustration. We took the information we have on each our clients and calculated the revenue reduction that would happen if these cuts take place. Then, we divided this by the number of doctors in the practice to come up with the average salary cut by doctor if the full SGR cut is allowed to happen in 2011. The results were nothing short of astounding.

For Fulcrum Strategies’ clients, the average per-doctor salary cut if the SGR cuts are allowed to continue is just over $50,000 per year. On the lower end, we have some clients, like pediatricians, who don’t see any Medicare patients, who would feel almost no impact from these cuts. On the higher end, we have some specialties and groups that are highly dependent on Medicare revenue and would take a huge hit. The largest reduction for any one group is a $120,000 per year salary cut from the SGR reductions. Even this doesn’t tell the whole story. Some groups are comprised of some physicians who are partners and some who are either simply employed or not yet partners. These non-partners may be on a fixed salary so they wouldn’t be impacted by this revenue reduction. In that case, the partners not only have to absorb their own cuts, but also the cuts in revenue from the members of the group who are on a fixed salary. Furthermore, in many groups there is a significant difference in Medicare penetration among the physicians. Some specialty groups have physicians who, by the nature of their sub-specialty or the length of time they have been in practice, have much larger Medicare panels than their partners. These physicians would face much larger cuts than the group average.

The bottom line is that these kinds of Medicare cuts will have a dramatic impact on physician salaries and compensation and would force physicians to take a very serious look at their ability to continue participation with Medicare. It’s just simple economics. Consider the following: Currently, Medicare compensates a physician for a standard return patient office visit (99213) $66.74. On January 1, 2011 that same office visit will be paid at $48.39. Let’s say that your group has negotiated contracts with the insurance companies to pay you 130% of 2010 Medicare. In this case, that office visit for a non-Medicare patient with insurance will bring in $86.76. So the question is, why would you see a Medicare patient for $48 when you can see a non-Medicare patient for $86? At this point, many of my physician clients will point out that Medicare is 40% of their practice and if they dropped Medicare, they wouldn’t be able to fill up all of those appointments. To which I ask them if they know how much of that 40% they would have to replace to make the same amount of money they are making now. Most don’t know the answer. The math is pretty simple. If Medicare is 40% of your practice and the difference between Medicare and your non-Medicare reimbursement is something like the 44% that is illustrated above, you only have to fill about half of those lost patient appointments to break even. So our hypothetical group, could stop taking Medicare completely and cut back their office hours to 4 days a week instead of 5 and the doctors would actually make more money. That is because they would be bringing in the same amount of revenue in 4 days with just non-Medicare patients as they would in 5 days of work that includes Medicare patients while reducing practice expense by only being open 4 days. We are rapidly setting up an environment where doctors can work less and make more money simply by deciding to stop providing care for our senior citizens.

Most people don’t believe that Congress will be stupid enough to let this happen. I tend to agree with them, but at the same time, I get very nervous betting on the collective intelligence of our elected officials. That being said, my projection is that Congress, for political reasons, won’t get around to fixing the SGR problem until sometime around the end of the first quarter of 2011. The reasoning is that I don’t think anyone in the lame duck session will want to deal with this problem. And after the new Congress gets seated, this issue will likely get wrapped up in other political maneuvering and become a victim of the congressional grid lock that we are likely to see with a split Congress. The problem is that fixing the SGR would add somewhere between $200 and $400 billion dollars to the deficit. After this election, I don’t think anyone is going to be associated with a vote that adds more money to the deficit. That is why I don’t think it will be addressed until the new Congress is seated. Once the new Congress is seated, the SGR may be used like a political pawn as the two parties start to establish who is really in charge. I could easily see a scenario where Republicans in the House put forth a bill that significantly waters down the health care reform law and that as part of that bill, they use the $500 billion in projected Medicare savings to shore up the Medicare program and fix the SGR. You can just hear the spin now;

“Today, House Republicans passed a bill through the House. The Medicare Actuarial Salvation and Health Care Fiscal Accountability Act, or MASHFAA bill, that was sent to the Senate will remove the individual mandate and employer penalties contained in the previous health care reform law. It also rolls back the expansion of Medicaid because in this economy we simply cannot afford to put that financial burden on the states or the tax payers. It keeps many of the health insurance reforms that we all know are necessary. The most important thing about this landmark legislation is that it shores up Medicare by taking the projected $500 billion in Medicare savings and reinvests them in that program. It does this by getting rid of the SGR and replacing it with a cost of living type of annual adjustment to Medicare reimbursement s to doctors and hospitals because it doesn’t do you any good to have Medicare coverage if no one is willing to be your doctor. The rest of the savings projected at $300 billion is used to put Medicare back on financial solid ground so that we can fulfill our commitment to our seniors for many years to come.”

This bill gets sent to the Senate with full Republican support. Now the Democrats in the Senate have a problem. They really can’t vote against this bill because 24 of them have to run for re-election in just two short years. So they are left with either filibustering the bill and getting labeled with the “party of no” title, or passing the bill and sending it to a President that they know will have to veto it. This scenario is only one of many that could play out. Unfortunately, most of the likely scenarios in my opinion all result in the same outcome which is several months of back and forth before the issue of SGR finally gets resolved. Will Congress simply kick the can down the road again and remove the cuts, or will they allow some level of reduction to happen? We will have to wait and see.

Health Care Reform:

When it comes to health care reform, the question of “what happens now?” is a simpler one to answer. I don’t see any scenario where health care reform gets repealed or even significantly revised in the next two years. The Democrats and the President in particular put too much political capital into that legislation to give up on it now. In addition, the Republicans have time on their side since most of the provisions don’t get put into place until 2014. Republicans can wait and see if the Supreme Court solves this problem when one or more of the state cases finally get to the high court. I’m not saying that new bills won’t be introduced in the House about health care reform. On the contrary, I would expect the House Republicans to take regular shots at repealing or revising health care reform almost out of sport. They will do this because they know it will put the Democrats on the defensive in the Senate, and it could also put the President into the position of pulling out the Veto pen and once again defending a piece of legislation that has become extremely unpopular.

Long story short, I don’t think things will get much better for doctors as a direct result of the recent midterm elections. In the long run, however, I am still very hopeful that things could begin looking brighter for health care providers. For the time being, we will just have to wait and see because only time will tell.

To sell or not to sell....that is the question

2010-10-21T11:28:00.000-04:00

Over the past several months, there has been a growing trend: physician groups are selling their practices to hospitals. This trend appears to be heating up as hospitals frantically compete to own and control the most practices. Many of my physician clients have asked if they should sell out, and they want to know exactly how these deals are structured. Unfortunately, my response always varies. You see, it depends on the type of practice and the actual deal being struck. Since that’s not a very helpful response, I decided to write a brief piece about the recent phenomena of hospitals purchasing physician practices and the reasons behind this movement.

There are a number of factors causing the recent rash of physician practice acquisitions. The main reason is fear of what lies ahead in the world of health care. Physicians are afraid of what it’s going to look like to be an independent practice, and hospitals are afraid of being marginalized if they don’t own and control physician networks. Let’s take a look at each of these fears and what is driving them.

For independent physician practices, the future is starting to look like a very dark and scary place. Medicare reimbursements could go down significantly, health care reform is still a big unknown, and we are stuck in a terrible economy with more uninsured and under-insured. Additionally, technology advances in the form of EMR’s and practice management systems require significant technical resources, government fraud audits have made coding compliance more complex, and Accountable Care Organizations (which may dramatically change the way health care is reimbursed) are all weighing heavily on the minds of physicians. When you consider just how many factor are changing in the world of health care and the negative impacts these factors could have on physicians, it’s easy to see why so many physicians have decided to just throw in the towel and sell out to a hospital.

Hospitals on the other side of the fence are worried about a health care future that includes Accountable Care Organizations or other health care delivery structures. These structures (that revolve around physicians) don’t necessarily require hospitals. At the end of the day, a hospital without physicians to admit patients is not much more than a very expensive hotel with bad food.

These fears and the significant change that is being felt in health care right now are driving physicians and hospitals to combine at a break neck pace.

So what do these deals usually look like? Well, there are a variety of terms and conditions that are negotiated into these arrangements and it’s likely that no two deals will look 100% alike. That being said, there are some basic structures that are present in most of these deals. The most significant is that hospitals this time around are not actually “buying” the practice, rather they are “assuming” the practice. What I mean by that is: unlike physician acquisitions in the past, the hospitals are not giving the doctors a check for the purchase of the practice or any good will built up by the group. Rather, the hospitals are taking over the practice. This is typically done with the hospital assuming all practice leases and employing most or all of the practice’s employees. The practice starts billing under the hospital, or some other entities’ tax id number and then falls under those payor contracts. Equipment owned by the practice is either leased by the hospital or purchased outright. At this point you are probably wondering why a practice would just give their business to a hospital. In other words, what’s in it for the doctor? Well, in most of these deals, the hospital will show the practice that its contracts with the payors are much better and that by selling to the hospital, the practice will be more profitable immediately. In addition, the hospital may give the physicians an income guarantee for a fixed number of years. Finally, the hospital can shows the practice all of the administrative services that it can provide such as IT, HR, legal etc.

So what’s in it for the hospital? Well, the hospital gains control of physicians in the community, which puts it in a good position to become an Accountable Care Organization in the future Medicare world. They also typically get an “administrative fee” from the practice. In most of these deals, the practice pays a percentage of the gross collections to the hospital to cover the administrative services provided by the hospital.

What’s the down side? Well, for doctors there can be several down sides. First and foremost is the fact that doctors will go from being independent to being an employee of a larger system. This may or may not create problems. Personally as a patient, I like the fact that my doctor works for me and not some larger organization. I like the peace of mind that comes with knowing that my doctor is doing what is right for me not what is right for some hospital or other organization. Another down side may come at the end of the income guarantee. What happens three or five years down the road when the income guarantee is expired? Could doctors suddenly find themselves taking a huge pay cut at the end of that time? Also, some of these deals have non-compete clauses that make it very difficult for physicians to leave the employment contact if they wanted to. What if the future isn’t what we think it’s going to be and hospitals decide in the next three to five years that they don’t want to own physicians anymore?

I’m not saying this movement is either good or bad. It really depends on the situation. I am sure that some of these hospital/physician organizations are going to work out very well and at the same time I am equally sure that some or many of them will be horrible failures. It’s not that the strategy is either good or bad, but rather it’s going to come down to execution.

My only advice to physicians who are contemplating this type of move is to make sure you have accurately and completely evaluated it from all sides. This is a major decision! Get good advice, have someone help you evaluate and negotiate the deal and by all means don’t get caught up the frenzy if it’s not the right thing for you to do. If you make a mistake on something like this, the morning after hangover could really be a killer.

What about the choice and competition?

2010-10-07T12:03:00.000-04:00

As the nation begins to understand what the massive health care reform legislation means for Americans, we are starting to see how businesses and insurance companies are reacting to these changes. Unfortunately, these reactions don’t bode well for the future of employer-sponsored health insurance and the mantra of “choice and competition” that was used so often in the debate leading up to the historic vote on health care reform.

A story was first reported in The Wall Street Journal about McDonald’s concern about its ability to continue to offer some form of insurance to its employees. At issue is the very limited insurance plan (mini-med plans) that McDonald’s currently offers to its employees. These low-cost plans offer McDonald's employees very limited coverage in order to keep prices down. However, this type of low option plan violates the new legislation’s insurance reform position of no life time maximums on insurance policies. In this case, federal health officials granted a waiver to the insurance company that provides these policies for McDonald’s employees. This move raises the question: why should one employer be exempted from some of the mandated benefits under the new health reform law? If insurance reform was so important in the first place, then why start off by providing waivers for exemptions?

In my opinion, the reason for these waivers is very simple. The administration knows that if it doesn’t provide the waivers, then companies like McDonald’s will have no choice but to stop providing any health insurance to its employees because the cost to comply with the mandated benefits in the new legislation is simply too great for a company with McDonald’s business model to absorb. Since there is no way that the administration wants 385,000 McDonald’s employees to lose their health insurance coverage right before the midterm elections, the waivers are necessary to temporarily cover up this major flaw. The bigger question now is: what happens when the elections are over? Eventually these waivers are going to go away, and when this happens, what are companies like McDonald’s going to do then? This is only the beginning of a major problem looming ahead.

The next related story comes from The Boston Globe. On September 28^th, The Boston Globe reported that Harvard Pilgrim Health Care had notified its customers that it will be dropping its Medicare Advantage program at the end of this year. The move means that 22,000 senior citizens covered by the Harvard Pilgrim plan will have to find new supplemental coverage. When asked about the reasoning for the move, Lynn Bowman, Vice President of Customer Service at Harvard Pilgrim, said this: “We became concerned by the long-term viability of Medicare Advantage programs in general.”

Two days later, The New York Times reported that The Principal Financial Group announced that it planned to stop selling health insurance. The company currently provides coverage for about 840,000 people. The company’s decision is directly related to the new health care reform legislation as executives at The Principle Financial Group surveyed the future landscape and determined that the best course of action was to leave the health insurance business all together. That’s right – leave the health insurance industry altogether.

So are these isolated instances or are we likely to see this trend continue with other companies and in other markets? My guess is that this is only the tip of the proverbial iceberg. More employers are going to be forced to decide between offering the new, more expensive mandated benefit plans called for under health care reform or dropping insurance all together. In addition, more insurance companies are going to be facing the question of which products they will continue to offer and in what markets. In the most extreme cases, like The Principle Financial Group, insurance companies are going to be forced to decide if they even want to remain in the health insurance business at all. Remember all the talk about health care reform increasing choice and competition? Yeah, not so much.

Articles to reference:

1. Wall Street Journal: McDonald's May Drop Health Plan

2. New York Times: Insurer Cuts Health Plans as New Law Takes Hold

3. Boston Globe: Harvard Pilgrim cancels Medicare Advantage Plan

4. New York Times: White House allows big firms to dodge health reforms

Health care reform, midterm elections, and the $155.8 million dollar arm twist

2010-09-24T10:02:00.000-04:00

Earlier this week, Brad Wilson, CEO of Blue Cross and Blue Shield of North Carolina, held a press conference with North Carolina Insurance Commissioner, Wayne Goodwin, to make a major announcement. During the conference, Mr. Wilson happily announced that Blue Cross would be refunding $155.8 million dollars to some of its customers who had purchased individual insurance through Blue Cross. The refund is tied to the federal health care overhaul which spurred Blue Cross to return some of its reserves to its individual members. Wilson also announced that the rate increase of 6.97% that Blue Cross had requested earlier this year would be lowered to only a 5.37% increase and that the reduction in this rate increase would actually save Blue Advantage customers approximately $14.5 million dollars next year. Hallelujah, health care reform must actually be working! Our problems are solved!

Wait a minute -- Is this the first sign that health care reform legislation is actually reducing costs? Are we finally emerging from the hyperinflation of health insurance costs and bending the cost curve as the president promised? Is this the first sign of economic recovery and are we going to see our streets paved with gold next year?!?! Not so fast. Unfortunately, the answer to all of these questions is no. This announcement by Blue Cross and Blue Shield of North Carolina has nothing to do with health care reform legislation actually working. This announcement is nothing more than a clever game of political spin aimed at trying to build support for Democratic candidates leading up to an important midterm election in November. And anyone who thinks this is actually a good thing is wrong.

Consider two separate stories about Blue Cross that were published in the months leading up to this particular press conference. On July 14th, 2010, a story ran in the local papers that Blue Cross, “the insurance giant in North Carolina,” was going to cut its costs by 20%. In this story, Brad Wilson made some very interesting and very accurate observations about the future of health care and health care costs. Wilson stated, “Over time, Blue Cross will be a smaller company. It’s all about change. We are focused on how we need to change to meet the needs of North Carolina.” Later in the story, Mr. Wilson explained why Blue Cross had lobbied against the health care reform legislation and why he would like to see further changes in the legislation that passed. He lamented, “Unless the industry is revamped and medical inflation is tamed it brings you to a doomsday scenario down the road.” Now does that really sound like a man who truly believes that health care reform has fixed the cost problems with health insurance in this country? Not hardly.

Another example: One month later, on August 19th, a similar story was published. In this article, Blue Cross asked the Department of Insurance to approve rate increases for two of its health insurance plans including its Blue Advantage plan that provides insurance for individuals purchasing their own policy. This product currently covers more than 300,000 people in North Carolina. Blue Cross requested a rate increase of nearly 7 %. Officials said provisions of the Federal Patient Protection and Affordable Care Act (health care reform law) were impacting rates charged under this plan. A company statement was said, “Given what we know today about the health care reform law, premiums will be generally higher for individual policies after 2014. Rates generally will be lower for less healthy consumers and higher for healthier consumers than they would have been without reform.”

Now, just one month after those statements were made, Brad Wilson suddenly puts on a happy face and comes out with a major refund and a reduction in its requested rate increase. So what happened? Why the change of heart? Did Blue Cross suddenly realize that it had been wrong all along and that health care reform is really going to be the magic bullet the reduces the cost of care? Did they suddenly decide to play nice and start giving away money? No, I don’t think any of those things happened. What I believe happened (and what I think you’ll agree is a much more likely scenario) is that Blue Cross got caught in the middle of a game of serious political arm twisting.

All across the country we are seeing examples of employers and insurance companies sending signals that they think health care reform law is not going to help control costs but rather is going to increase costs. It started when several large companies including AT & T, Caterpillar, and many others came forward (as required by law), taking a charge to their books and reporting this charge to the SEC. Then there was the fight in Massachusetts when the Department of Insurance declined all rate increases and the payers have since taken that fight to court. Many states have seen similar rate increase requests from insurance companies, and it seems that everywhere we turn today there is negative press disparaging health care reform similar to what we have seen in North Carolina.

At almost every turn, the Obama Administration or members of the Democratic Party have tried to counter these naysayers. Just last week, the Department of Health and Human Services sent a very intimidating letter to the insurance industry that accused them of partaking in “misinformation and misleading marketing.” The letter went on to warn that “there will be zero tolerance. We will…. keep track of insurers who make unjustified rate increases.” Now here’s where the arm twisting comes in: This letter specifically says that the Department of Health and Human Services may exclude those insurers from a large slice of the market in 2014 by excluding them from participating in the exchanges that will be developed by then. The Administration is telling an entire industry to put a positive spin on health care reform…or face what would be the destruction of their entire business in a couple of years. Now doesn’t this sound like that old scenario where the three large men in bad suits come into your place of business and say, “You’ve got a nice place here. It would be a shame if it burned down. Lucky for you, we can provide you with protection for a small, weekly fee.”

Alright, so how does this all relate to the Blue Cross refund announcement? With midterm elections coming up and not a single Democrat wanting to campaign on the fact that they voted yes for health care reform, I think it’s extremely likely that someone put pressure on Blue Cross and Blue Shield to give a refund now… or face more dire consequences in the future. Think about what just happened —more than 300,000 potential voters in North Carolina (a state with a Democratic governor) just got the happy news about refunds and lower premiums (and gumdrops and rainbows). Now, the Democratic candidates can try to tie that directly to health care reform less than two months before a major midterm election. Look, I’m not saying that someone is trying to buy votes…..but…..well, yes; I guess that is what I am saying. When it comes to politics, there is always a bigger picture than what first meets the eye.

Now this is what I find most concerning: What do you think Blue Cross is likely to do in response to this situation? Keep in mind that they just took hit of over $155.8 million dollars. Any business that faces a loss of more than $150 million dollars is going to look at how it can reduce expenses to help cover the loss. In the case of Blue Cross and Blue Shield, 87% of their expenses are made up of payments to physicians, hospitals and other providers of care or products. So, if they need to reduce expenses to cover this loss, they are most likely to do so by taking it out of the pockets of a doctor or hospital. By that reasoning, one could make the argument that these votes are not being purchased by Blue Cross and Blue Shield, but rather, physicians will end up paying for them in the long run.

It will be interesting to see how many times this scenario plays out in other states as their governors and insurance commissioners start their own versions of arm twisting leading up to the midterm elections. It will also be interesting to see if these scenarios only play out in states with a Democratic governor like North Carolina.

Out of the frying pan and into the fire

2010-08-04T10:25:00.001-04:00

There are two industries that rely on statistics for their business models more than any other: the insurance industry and the casino industry. Both of these industries use statistics to predict the costs of their products so they can ensure that their revenue is going to be higher than their costs, and thus, be profitable. But what happens when an industry can no longer guarantee profits?

In Las Vegas, the roulette wheel pays out $35 dollars for every one dollar that is successfully bet on an individual number. Why $35 to 1 odds? Because there are 36 numbers on the roulette wheel and statistics tells us the odds of winning are 36 to 1, which means that the Vegas payout will produce profits in the long run. Insurance companies are very similar. Insurance companies use actuarial tables to predict the cost of their product and then set their rates to make sure that they will make profit.

What do you think would happen to roulette in Las Vegas if the state of Nevada passed a law that required all roulette wheels pay out $37 to 1 rather than $35 to 1? You wouldn't be able to find a roulette wheel if your life depended on it. The casinos would convert those tables to other games or find alternate sources of profit. No one (in their right mind) in Las Vegas would continue a business model that was guaranteed to produces losses. The same goes for the health insurance industry. The health insurance industry is now facing a very real threat. The health care reform legislation that was signed into law this year includes provisions that may very well guarantee that the health insurance will be unprofitable. And now, we are starting to see the signs of how the insurance companies are going to react. Let me point out a few recent examples in the news.

Blue Cross Blue Shield of North Carolina recently announced plans to cut their administrative costs by 20%. What is most disturbing about this article is that the insurance giant's CEO commented that they are "reviewing opportunities to expand into life insurance, workers compensation coverage and payroll services" and that the goal was to have up to 25% of the Blue Cross operating income from non-health related businesses by 2014. (i.e. moving away from the soon-to-be unprofitable business of health care insurance.)

United Health Care recently announced a similar approach to Blue Cross Blue Shield of North Carolina. They are so serious about this effort that they moved the CEO of their Medicaid business to head up a newly formed "Emerging Businesses Group." So United Health Care is reassigning the head of their Medicaid business unit right before health care reform expands the size of the Medicaid population by over 16 million possible new customers for United. Again, this sounds like an insurer that has realized the post health insurance world won't be very hospitable for insurance companies.

A recent AP story reports that in several states, insurance companies will stop issuing new policies that cover children as individuals. The reason is reported as an "unintended consequence of President Barak Obama's health care overhaul law." Randy Kramer, a VP for Blue Cross and Blue Shield of Florida who issues about 9,000 to 10,000 of these policies a year, was quoted as saying, "We believe that the majority of people who would buy this policy were going to use it immediately, probably for high cost claims."

The Boston Globe recently reported a showdown between the state's insurance companies and state regulators after Insurance Commissioner Joseph Murphy decided to reject requests by insurance companies for rate increases. This action by the Commissioner was the first time in the state's history that the Department of Insurance had rejected a rate increase request. An attorney who represents the insurance companies was recently quoted as saying, "As a result of the commissioner's action, the insurance companies will experience substantial and, in some cases, staggering losses. We estimate the collective loss among all of the insurers will run into the hundreds of millions of dollars just for 2010. There are some numbers that will face near-term solvency problems."

The examples above indicate a disturbing reality; the insurance companies are sizing up their futures and have now realized that, because the government has changed the odds, their business model may no longer be profitable. So what will be the end result of all of this? No one really knows at this point. Some people are cheerful and overjoyed that the evil insurance industry is finally getting what it deserves. Regardless of your opinion of insurance companies, however, what happens if all of the insurance companies pack up their toys and leave the sand box? What will we be left with? The only option that will remain will be a government run, single payer system.

When you consider a single payer system, consider the following:
The only example we have of government-financed health care is Medicare. I wouldn't exactly hold this up as a shining example of efficiency. Medicare is currently predicted to go bankrupt within the next decade. A recent report from the Chief Actuary at CMS had this to say about the impact of health care reform on Medicare and the cuts that are planned in the law: "Providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and might end their participation in the program." The report went on to say that the Medicare cost savings projected in the new legislation are "unrealistic."

The only example we have of government-run delivery of health care is the VA system and I don't know anyone who would hold that system up as the beacon of quality health care.

The US Postal Service, another government-run program, had to borrow almost $4 billion dollars from the US government last year to cover its losses. UPS, which is a private company that pays corporate taxes, made $3.8 billion in operating income and in my opinion, does the same service as the USPS but better, cheaper and faster.

Amtrak as a mode of mass transportation is subsidized by the Federal government to the tune of about $1.5 billion dollars per year for the past several years. That being said, it's difficult to understand why a round trip ticket from Raleigh to New York on Amtrak (which takes over 10 hours of transit time each way) is more expensive than a round trip non-stop airline ticket from any one of several airlines to any one of the New York airports (which only takes 1.5 hours of transit time).

The bottom line is this: the insurance companies know that health care reform has changed the odds in such a way that they may not be able to afford to participate in that business any more. While I understand that this news will probably produce cheers from physicians and consumers alike, I would simply say be careful what you wish for because you just might get it! With the potential for a single-payer system looming ahead, this could give a whole new meaning to the phrase out of the frying pan and into the fire.

A Sign of What's to Come

2010-07-14T21:23:00.000-04:00

In today's edition of The News & Observer, the front page story featured Blue Cross Blue Shield of North Carolina’s new plan to reduce its administrative expenses by 20%, which would cut $200 million dollars from its annual expenses. In today’s economy, we have become so accustomed to hearing these kinds of corporate “cutting spending” announcements because we hear them practically every day. But if you read between the lines of this particular article, you will see that this is about something much bigger than just cutting costs. This article is actually very revealing of the unintended consequences of health care reform legislation and the scary reality of what’s to come further down the road.

First, if you haven’t done so already, please read the article here -- "Blue Cross to cut costs 20%"

Blue Cross Blue Shield of North Carolina is the largest insurance company in the state. In 2009, the insurance giant took in $5.2 billion dollars in revenue (that’s billion with a “b”) and had net income of $107.3 million dollars. Not only this, but Blue Cross Blue Shield has more than $1 billion dollars in cash reserves. By its own estimates, Blue Cross Blue Shield should expect to attract the lion’s share of almost 2 million people in North Carolina who will have health insurance after some of the major provisions of the new health care reform legislation take effect in 2014.

So why would a large insurance company like Blue Cross Blue Shield (a company that has large cash reserves, is profitable, and is projected to grow significantly) want to reduce its expenses and become a smaller company? Because it must begin preparing for the worst case scenario--a collapse of the entire insurance industry once health care reform legislation officially takes effect in 2014.

It’s clear that Blue Cross Blue Shield is not thrilled about health care reform. In fact, like all of the other insurance companies, they are scared to death. And rightfully so! As a result, Blue Cross Blue Shield execs have begun making adjustments to their business model to prepare for what they believe will be a tremendously difficult year financially in 2014. In the article, Blue Cross Blue Shield points to health care reform and a poor economy for its need to reduce costs. The company also reveals that medical expenses will need to be reduced as well and that this will include some “tough negotiations.” In case you were wondering, yes, the term “tough negotiations” is referring to negotiating reductions in reimbursements with physicians and hospitals.

The most telling parts of the article were the comments regarding diversification and the potential destructive effects health care reform could have. Blue Cross Blue Shield CEO J. Bradley Wilson states that his company is reviewing opportunities to expand into life insurance, worker’s compensation coverage, and payroll services. He goes on to say that his goal is to have up to 25% of Blue Cross’ operating income coming from non-health related businesses by 2014. Yes, you heard right; Blue Cross Blue Shield wants to start getting into businesses like payroll processing and other non-health related businesses (aka: moving away from the business of health insurance).

Wilson goes on to say that the 2 million additional people in North Carolina who will have insurance as a result of health care reform is a positive outcome for the state, but that this will put more strain on an already shaky system. The article closes with Wilson revealing that “unless the industry is revamped and medical inflation tamed, it brings you to a doomsday scenario down the road."

Sounds pretty optimistic, doesn’t it!? Pardon the sarcasm, but what exactly does all this mean?

Blue Cross Blue Shield has strong reasons to believe that, in a couple of years, and as a direct result of health care reform, being a health insurance company will no longer be a profitable venture. This is also a solid indication that the insurance companies do not think that the health care reform legislation is going to fix the current problems with the health care system. In light of these revelations, Blue Cross Blue Shield has chosen to prepare for the worst by shrinking and diversify into non-health related business. And that's the bottom line.

Now this brings up a very interesting question. When Blue Cross Blue Shield leaves the health insurance business for good, who will be left to cover the millions of Americans who are going to be simultaneously added to an already shaky health insurance system?

The Hard Winter Ahead

2010-07-08T13:41:00.000-04:00

Physicians all across the country are breathing huge sighs of relief. Congress has once again kicked the SGR can further down the road, and Medicare is once again processing claims. This time, Congress has even added a 2.2% increase to the schedule, which will surely be welcomed by physicians who have not seen an increase in Medicare reimbursement for many years. The new SGR delay will last until the end of November, which gives us five whole months of Medicare payment predictability. This all sounds great, right? Not so fast.

Ironically, the latest move by Congress may turn out to be the worst thing they could have ever done to doctors. I have talked to many physicians about this, and most are shocked when I tell them that this is actually a very bad thing. They look at me with puzzled expressions and ask how a 2.2% increase in Medicare reimbursement could possibly be a bad thing? Allow me to explain.

Let's travel forward in time. Imagine it is November 10th and the mid-term elections are over. If most predictions are correct, it wasn’t a great night for the Democrats. In a recent projection piece I read, the author predicts that the Democrats will lose 7 Senate seats and 25 house seats. This would mean that the Senate would have 50 Democrats, 48 Republicans, and 2 Independents. The House would be 231 Democrat and 204 Republican. For argument sake, let’s pretend this is exactly what happens. The Democrats will still have control of both the House and the Senate, but they will have nowhere near enough of a majority to push things through like they did with Health Care Reform legislation. The Republicans, feeling more powerful, will look to 2014 to take over both Congress and the White House. We will have a lame duck Congress until the new one gets sworn in, and in just a couple short weeks, the SGR is going to kick in again and reduce physician payments by over 23%. And if nothing gets done, the SGR will reduce physician payments by another 5% in January of 2011.

At this point Congress must (again) consider what to do about the SGR. The choices are simple: 1) do nothing or 2) get rid of the SGR and put into place a replacement that is tied to a cost of living adjustment. After the mid-term elections, the Democrats will be very concerned about adding any more money to the deficit, since that will likely be used against them in 2014. Those who have just lost their elections may not be motivated to do anything at all. The Republicans, who smell blood in the water, will likely take the same approach and won’t vote for anything that adds to the deficit. I imagine they will point to the Democrats (who still have a majority) to fix this problem. But where in the world are they are going to come up with the $230 billion dollars needed?

This scenario puts the Democrats in a no-win situation. If they get rid of the SGR, then they will be accused of running up the deficit. If they get rid of the SGR and increase taxes in order to pay for it, then they will be accused of killing the system through increasing taxes. If they let the SGR happen, then they will be accused of ruining the entire Medicare system when the doctors drop Medicare faster than they sold their BP stocks. The Democrats will be stuck in a catch-22.

So why don’t they just deal with it before the November elections? That is even less likely because the last thing any politician wants to do in a close election race is to get caught in a controversial vote that his or her opponent could use against them. Taking a look at the current poles, it seems that nearly every politician is in a tight election race right now. And let’s not forget that a Republican now sits in Ted Kennedy’s seat and that Arlen Specter didn’t even win his own primary.

So what is likely to happen? Well, if you ask me, I think it’s quite likely that Congress won’t take any action on the SGR until sometime in 2011. I don’t think they will be able to get something done in November or December, and they will push it off on the new Congress to deal with. When the new Congress finally gets seated, it will take at least a few weeks until they can even address the issue. So a very real possibility could be an SGR reduction of 23% for December and then another 5% in January with Congress not truly “fixing” the issue until sometime in February or March of 2011. Now here’s the really scary question: What if they don’t ever truly fix it?

What will your practice look like if Medicare revenue is down by 28% for 2011? Let’s say you are a small primary care group. Your five physicians make $150,000 each per year. Your overhead is 50% of your revenue. Medicare is 40% of your practice revenue and your expenses go up by only 3% per year. In this example, if the Medicare rates went down by 28% on January 1, 2011, your practice would experience a decrease in total revenue of 11% and an increase in expenses of 3%. Since the doctors are the owners of the practice and they get paid whatever is left over after overhead, these physicians who made $150,000 in 2010 would take a 25% cut in pay and would only make $112,500 each in 2011. If that isn’t bad enough, consider this: If that group was 50% Medicare and their expenses went up by only 6% it would drop the physician salaries to less than $100,000 per year.

So what should you do to prepare for what may be a very long, hard winter if this actually happens? First of all, make sure your feelings are known, and be sure to keep the pressure on in Washington. Remember -- they didn’t actually fix anything! They just put off the inevitable hard choices and decisions that eventually must be made. Make sure Congress knows that you aren’t fooled, and demand that they deal with this issue once and for all. Since we all know that even with your best efforts, our elected representatives are still likely not to handle this hot potato before November, the other thing physicians need to do is take a long hard look at the financials of their practices. You need to know exactly how hard a cut in Medicare is going to hit you. Start thinking about what steps you are going to take to address this kind of cut. You should build a five-year financial projection for your practice that is flexible enough to start to evaluate some of these “what if” scenarios. What if Medicare fixes the SGR by letting half the cut happen? Can you survive a 10% cut? What about a 15% cut? To be prepared, you need to know the answer to all of these questions. Once you know how much it will impact your practice, then you need to start to develop your plans.

Another thing to keep in mind is that Medicare cuts not only impact groups differently, but they also impact different physicians within a group based on their own compensation models. For example, if you are a specialty group, the pediatric specialists in your group may not be impacted at all by a Medicare cut while some of the other physicians who sub-specialize may take a huge hit. How are you going to deal with that? Are you going to make a change to your compensation model? These are things that need to be analyzed and figured out as quickly as possible. It will be fall before we know it, and the winter that follows could be one of the most difficult in recent history on physicians who are not well prepared.

As always, Fulcrum Strategies is dedicated to helping our physician clients in any way that we can. If there is anything we can do to help you to prepare for what is likely to come, please do not hesitate to ask. In the meantime, let’s hope that I am wrong and that Congress will do what is right…and not just what is a good move politically.

Accountable Care Organizations -- Doctors Beware!

2010-06-17T10:25:00.001-04:00

In 1965, politicians made a promise to America’s elderly that they would not have to worry about or pay for health care during the final years of their life, and Medicare coverage for senior citizens was officially established in this country.

In my opinion, one of the biggest problems with our nation’s health care system is that the government has made big promises that it simply cannot afford or sustain. Now don’t get me wrong here; I am not saying that Medicare wasn’t a good or worthwhile idea. I’m saying that our government has a long history over-promising and under-delivering, and it has not been willing to address these two realities – 1) you can’t promise the world and 2) there is no such thing as a free lunch.

In 1990, the total Medicare expenditures were $111 billion dollars. In that same year, the U.S. Gross Domestic Product was $5,800 billion dollars, which means that Medicare consumed 2% of the GDP. This year, the Medicare expenditures are projected to be over $570 billion dollars, which is more than five times what it was just 20 years ago. In 2010, the GDP is projected to be $14,400 billion dollars. This means that in 1990, Medicare consumed 2% of GDP and only 20 years later it now consumes 4% of the GDP. It doesn’t take an economist with a PhD to notice a glaring problem with this trend.

Why is Medicare eating up the GDP like Godzilla on a rampage tearing through a Japanese city? There are several factors involved. First, we have an aging population that is continually increasing the number of people covered by Medicare. Second, the average life expectancy is higher now than it was in 1965 when the program was started, which means that people are living longer than ever before. Third, technology advances in medicine have dramatically increased costs. Finally, defensive medicine has taken its toll on Medicare budgets, driving up costs even further. Each of these factors has contributed to the problems with Medicare chewing up more and more of the GDP. To make matter worse, the government has done absolutely nothing to address these issues. There have been no discussions of increasing the age of eligibility, making Medicare a means-tested program, or even reducing benefits. On the contrary, the last major government change to Medicare was an increase in benefits by including a pharmacy benefit. That’s right, promise the world and don’t worry about how you are going to pay for it.

This approach has brought us to our current circumstances, and Medicare is projected to go broke in less than ten short years. Add to this the fact that in the recent health care reform legislation, the government is counting on $500 billion dollars in reductions in Medicare expenditures to pay for the expansion of coverage for non-Medicare individuals. That’s right--we are financing another expansion in coverage by borrowing from an existing program that is broke.

So how is this ever going to get resolved? Well, to understand that you need to understand the options. Health care expenditures are really a very simple formula. Costs = price x volume. To control costs you either need to reduce the price-per-service that you pay or reduce the number of services that are provided. Now think about Medicare. To reduce the number of services that are provided you either need to reduce the number of people on Medicare (i.e. increase the age of eligibility) or control utilization (i.e. rationing and death panels). Can you imagine a politician running on a platform of reducing Medicare costs by reducing utilization? Me either. So, if utilization is out of the question, then the only option left is to reduce the price-per-service. The problem with this option is that the Medicare community is already wise to that game. They understand that reducing the SGR means that doctors all over this country will revolt and stop seeing Medicare patients altogether. So, our government has cleverly figured out a way to reduce costs without the doctors figuring it out. Enter the Accountable Care Organization or the ACO idea.

CMS is now hard at work building a new payment model, and thus, new rules to the game. The new game will be called ACOs. To put it simply, ACOs are Medicare’s way of making a lump-sum payment to a group of providers and letting the providers fight over how to distribute the funds. This can be done one of two ways: through an episode of care model or through a full capitation model.

The episode of care model works like this: let’s say for example that Medicare knows it currently pays an average of $20,000 for cardiac bypass surgery. This amount includes the payments to the hospital, the cardiologist, the cardiac surgeon, the anesthesiologist, and so forth. Simply put, it’s the total outlay for that episode of care. Knowing this information, Medicare builds a new payment methodology and offers a lump sum payment of $18,000 for cardiac bypass surgery. They offer this payment to ACOs (which could be vertically integrated systems like an academic medical center or a virtual organization like a community hospital that organizes its area physician groups into an ACO). Medicare will pay the $18,000 to the ACO and leave it up to the ACO to divvy that money to its various parts.

Now apply that example to a larger scale. Why couldn’t Medicare just add up all the costs for Medicare participants and give the whole budget to the ACO? Let’s say that Medicare realizes they currently spend $500 per Medicare member per month for health care. What is to keep them from giving an ACO $400 per member per month and transferring the risk and responsibility for revenue distribution down to the provider entity? Ladies and gentlemen, this is called capitation, and it is coming around again.

Now let’s fast forward to a future date. You are an independent community practice who is “invited” by your local hospital to become part of this wonderful new world of Accountable Care Organizations. You are plied with fancy talk of the future of health care reimbursement, the death the evil fee-for-service models, the elimination of claims processing, and expensive prior-authorization processes. You are told that the future lies in ACOs controlling their own destiny through episode of care practices, inter-specialty cooperation, and coordination of care. You are told that finally doctors can be doctors and the evil SGR will be a thing of the past. Don’t believe it! If it sounds too much like a snake oil sales pitch, that’s because it probably is.

The first reality will be that the starting point for these payment mechanisms will be a reduction in costs when compared to the current Medicare payment schedules. Remember, the current Medicare payment schedules aren’t great to begin with! The second reality is that the entity which controls the ACO (typically a hospital) will make sure that they drink from the money well first so they don’t go thirsty. The physicians who get involved with ACOs are going to have a rude awakening, only to find themselves doing the same or more work for alot less money.

So what is a practice to do? First and foremost, keep your eyes and ears open. Pay very close attention to all of this, and don’t get caught unaware. There is an old saying; “If you don’t like change you are going to hate being irrelevant.” Second, make sure you are “at the table” so to speak. If your hospital is moving down the path towards ACOs, make sure your group is represented as much as possible in the discussions. Get on the inside! Finally, make sure you are properly represented. If your eyes glaze over when people start talking about PmPm, utilization rates per 1,000 members per year, episode of care modeling and trend, make sure your group has someone who can represent them and who truly understands all of this. In many respects, your negotiations in the future may shift from sitting across the table from a payer and negotiating rates to sitting in a room with your hospital ACO and negotiating rates or compensation formulas as part of a capitation contract or episode of care agreement. For years, physicians have focused so much of their attention on the care they deliver to their patients and less attention on the business that they own and run every day.

Now is the time for physicians to finally get ahead of the curve and make sure that the next evolution in health care is not as damaging as the Medicare system was for physicians.

Health Care Reform & Medicare -- "The fall is going to kill us!"

2010-05-10T10:23:00.001-04:00

Over the past few weeks, I have been speaking a great deal about health care reform and what the next few years are going to look like for doctors. Because I worked in managed care for 18 years, I have been inundated with questions from people who want to know how the payers are likely to react to health care reform. Every time I speak on this topic I am reminded of my favorite scene from the movie, Butch Cassidy and the Sundance Kid. In this scene, Robert Redford and Paul Newman are trapped on a cliff. A large group of men are shooting at them, and there appears to be no way out other than to jump off the cliff into the river far below. Newman’s character wants to jump, but Redford’s character argues that they should stay and shoot it out. After some discussion, Redford admits that he doesn’t want to jump because he can’t swim. Newman looks at Redford and says, “You can’t swim? You can’t swim? The fall is going to kill us!” So how does this memorable scene relate to health care reform? Well, whenever someone asks me about an aspect of health care reform, I always feel as if they are placing their focus completely on the wrong problem. Don’t get me wrong, health care reform is still a big issue, and it most certainly will have a significant impact on physicians over the next few years, but in my opinion, health care reform isn’t the problem we should be most worried about. It’s Medicare.

In my opinion, the “fall” so to speak is Medicare and the simple fact that we haven’t done anything substantial to dramatically fix the cost problem. When it comes to Medicare, we have what the politicians call “an unfunded mandate.” By most accounts, Medicare is predicted to go bankrupt sometime between the years 2015 and 2017. In his last testimony before Congress, Alan Greenspan warned that Medicare and Social Security presented the largest danger to the U.S. economy and urged Congress to address these two programs quickly -- before it is too late. So why hasn’t anything been done? Because let’s face it; unfortunately, it’s difficult to get elected or re-elected if you are in favor of doing anything that looks like you are cutting Medicare or Social Security benefits.

The recent health care reform legislation finances the expansion of coverage through a reported $500 billion in savings from Medicare. Part of that is directly from the reduction in payments for Medicare Advantage plans and the rest comes from various programs that supposed to reduce Medicare expenses but are not well defined.

There are only two possible scenarios for the future of Medicare under health care reform. The best case scenario is that the government assessments are correct and health care reform will find $500 billion in savings on the Medicare program. This would extend the life of the Medicare program and at the very least, delay the program’s demise. But while this may seem like a pretty good scenario, we must keep in mind that an expense or cost control by Medicare means a revenue reduction for someone in the provider community. So, if Medicare truly does reduce its expenses or cost structure, this must equate to a reduction in revenue to hospitals and physicians. What makes matters worse is that Medicare is likely to increase administrative expenses in the process. Just think about how much money hospitals and physicians are spending right now on coding and other programs to get ready for an RAC audit. Now add to that the increased costs you will face when Medicare adopts new cost savings programs like Pre-Certification for MRI’s and CT’s.

The second scenario, which in my opinion is more likely, is that Medicare will not reduce its costs as it was projected to. In this scenario, we get closer and closer to the financial breakdown of Medicare in 2015 or 2016 until something has to be done. The politicians will be faced with the decision of cutting Medicare benefits, increasing the age for qualification from 65 to 66 or 67 or reducing the fee schedules that are paid to doctors and hospitals. Which one do you think they will choose? They may even get tricky and try to disguise the payment reduction by coming up with some new payment mechanism. For example, they could decide to “bundle” the payments for an episode of care. If the payments for open heart surgery for the hospital, surgeon, cardiologist, and anesthesiologist all combined are $20,000, they could develop some new bundled payment methodology and reduce the payment to $15,000. Wait, that sounds familiar, doesn’t it? Yes, it sounds exactly like something I have heard of before. Oh yeah, it sounds just like the current discussions at Medicare regarding patient centered medical home and bundled payments.

The bottom line is this: nothing in the health care reform fixes the cost problem or the Medicare funding issues. Sooner or later, we are eventually going to have to make some very tough choices and decisions regarding Medicare, and our politicians in Washington don’t have a really good track record of being able to do that.

In the meantime, there are some important things you should be doing to ensure that your practice is able to survive the future of health care reform and Medicare. The advice I give to my clients is to run your practice more efficiently than you have ever done before. Make sure your revenue cycle is managed extremely well. Look for any way to drive out expenses and to increase revenues. Evaluate your managed care contracts and strategies, and develop a strategic plan that has contingencies for the possibilities that lie ahead. Doing all of this now and doing it well may make the difference between surviving the next few years...or not.

Effective Practice Marketing

2010-04-01T15:38:00.000-04:00

Since President Obama’s health care reform has officially become law, we have been getting lots of questions from our physician clients wanting to know, “So what now?" and "What can we do improve our group's financial picture during these uncertain times?” In light of all the recent changes with health care, this post is meant to serve as a special guide for physicians to understand how to effectively market their practices.

Let's start with the history of practice marketing. Years ago, marketing a practice might have involved something along the lines of purchasing an ad in the Yellow Pages or simply interacting with doctors at hospitals to acquire more referrals. While these strategies may have worked well 20 years ago, the times have changed, and physicians are now faced with a completely different marketing landscape. But many physicians today are still marketing their practices by using these outdated techniques! Let me ask you a question: how many people do you know who are still using the Yellow Pages? I can count the people I know on one hand. Now let me ask you this: what are the chances that someone will happen across your Yellow Page ad and decide right then and there that they need to make an appointment at your practice? Slim to none. Look, here’s what you need to know: today’s physicians do not get their referrals from an ad they placed in a newspaper or magazine...they get their referrals by effectively marketing to the referring physician community!

Plain and simple, the old ways of marketing are no longer effective. Specialty physicians need to think about more effective ways of marketing their practices to gain referrals. How, you ask? Let me explain. Fulcrum Strategies has developed a revolutionary new program so that specialty physicians can build and maintain their referral base. At Fulcrum Strategies, we believe that all specialty physicians must have a well-executed Physician Outreach Program to remain competitive in the ever-changing world of medicine. Fulcrum Strategies’ Physician Outreach Program is a proactive public relations initiative to establish solid, lasting relationships with current and potentially referring physicians in your market. This program can include research and information about your specific market, up-to-date brochures and effective marketing collateral, a dedicated marketing representative to make in-person contact with referring and potentially referring practices, and complete reports on all issues and findings.

Our Physician Outreach Program is an effective way for specialty physicians to secure relationships with currently referring practices, to build new relationships with potentially referring practices, and to provide valuable feedback in the form of issue reports and executive summaries to help your practice maintain and increase its referral base. Here is a basic description of our revolutionary program:

Physician Outreach Program

A Fulcrum Strategies representative, armed with your practice's marketing collateral, will make face-to-face contact with office managers, referral coordinators and physicians who could potentially refer patients to your practice.

The Physician Outreach Program is essentially an effort to build and maintain your referral base. All issues discovered will be reported to you immediately, and a final analysis and executive summary will be provided upon completion of the program.

Included services in the program are:
• Market research
• Dedicated marketing representative
• Face-to-face representation
• Issue tracking
• Periodic reporting
• Executive summary

This is a revolutionary program that was developed by Fulcrum Strategies specifically for specialty practices that are concerned about their referral community. We’d like to take this time to encourage you to contact us today to find out more about our Physician Outreach Program. For more information, please contact our Director of Sales & Marketing, Amy Hutton at a.hutton@fsdoc.com.

At Fulcrum Strategies, we are Superior Provider Advocates. We are dedicated to helping our clients, physicians and their practices to finally succeed.

Health care reform becomes law...now what?!?

2010-03-24T09:55:00.001-04:00

Sunday night I was having dinner with friends while the House was preparing to vote on the health care reform bill. At one point during the evening, someone asked me, “So what does it mean if it passes?” I realized that she wasn’t interested in knowing all of the procedural things like the reconciliation bill that had to go to the Senate, etc, etc. etc. Rather, she wanted to know how life was going to change. I also realized that this was not a question that I could be answered quickly. The short answer I gave was that not much will change right away except for some insurance reform. The real changes won’t kick in until 2014 or after. My quick response sparked the loaded question, “So what will things look like in 2014?”

To answer that question, I want to explore some of the possible scenarios that could arise further down the road. I want to state up-front that no one can be entirely sure if any or all of these things will happen. I’m not trying to cry that the sky is falling, but I do want to explore some of the possible scenarios that could occur as a result of health care reform legislation now becoming law.

With this in mind, let’s take a peak into the future. Let’s fast-forward to the year 2015 since this is the year that much of the health care reform bill will likely be implemented. There will be a great deal of change, as both the insurance and health care market places will still be adjusting to the new realities of universal health care. Let’s explore how I imagine our lives will be different.

Coverage: With the expansion of Medicaid and the incentives and penalties in the reform act, it is true that many more people will be covered. The uninsured number will drop from 40 million people to about 10 million people. However, the number of people covered by Medicaid will increase significantly, which will be the cause of much anxiety for state budgets that are already strapped.

Insurance Reform: In the year 2015, things like pre-existing condition exclusions will be considered a thing of the past. That’s great news, right?! Well, sort of. President Obama made it very clear in 2010 that we needed insurance reform. Stories of people being denied coverage for pre-existing condition exclusions, coverage being dropped because someone got sick and other despicable “insurance tricks” were broadcast all over the news. Insurance reform seemed like the one thing that everyone could agree on. But here’s the catch -- what wasn’t widely publicized throughout the health care reform debate is the fact that less than 50% of the people covered by health insurance through their employer would actually benefit from this insurance reform. Here’s why: since most large employers are “self-insured,” these particular plans are not technically “insurance,” and therefore they are not governed by this new sweeping insurance reform legislation. In order to compete in a difficult economy, the large, self-funded employers will likely still engage in many of the same controversial practices that health care reform was supposed to get rid of. That means that the very things that the public railed against and thought would be eliminated…really won't be.

What about premiums? Unfortunately, premiums for health insurance will increase dramatically. This is due to a combination of reform measures that will increase the cost of insurance. This will trigger a mass exodus of medium-sized employers who will switch from offering their employees fully insured plans to offering only self insured plans. This will leave only small employers in the pool of insured business. By 2015, the health insurance companies will be paying an annual fee of $11.3 billion dollars to the government to help finance the expansion of coverage contained in the legislation. So how is this annual fee going to be paid? The insurance companies will simply pass the fee onto their customers in the form of premium increases. With increasing premiums, more and more employers will begin to drop their coverage and choose to simply pay the fine, which will cost significantly less than the cost of the premium. As a result, many individuals will be forced into the insurance market. Many of these people will be forced to weigh the same choice: to buy the coverage or to pay the fine for not having coverage. Of course, we already know that the fine will cost the individual much less than the actually purchase of coverage.

Insurance Companies’ Reactions: With the passing of insurance reforms and the provisions of the bill that allow the federal government to regulate profits of the insurance companies as well as the new “fees” that are placed on health insurance companies, many large insurance companies will begin dropping their commercial licenses. Why, you ask? Imagine this scenario: United Healthcare starts the trend with an announcement that they will begin giving up all commercial insurance licenses and will focus exclusively on the self-insured business. The United Healthcare CEO explains that under the new reform regulations, profitability for fully-insured plans is not likely. He also explains that while this will mean a loss of about 30% of their membership, it will actually increase their profits. Wall Street will react favorably to the United Healthcare announcement and their stock will go up 10%. Upon seeing this, CIGNA, Aetna and Humana will quickly follow the same example. This will leave most states with only the local BCBS plan as an option for small employers and individuals. Now, this is only a make-believe scenario, but can you imagine if it were true?!

Medicare Advantage Plans: With the reduction in profits for Medicare Advantage Plans, most insurance companies will begin leaving this market as well. With such a significant reduction in profits, there isn’t much left to incentivize them to stay in the market. Can you really blame them for leaving? Medicare Advantage plans have become a little like playing Black Jack in Vegas with no payout if you win. If there is no way to win, why play? By 2015, the concept of a Medicare Advantage Plan may be as much a thing of the past as pre-existing condition exclusions.

Health Care Exchanges: We have been told that with the exchanges up and running, things will fall into place, and we will have the ideal market place that was designed to give everyone the same kind of purchasing power and choices that federal employees have. Right? Unfortunately, it doesn’t quite work out this way. Here’s what will likely happen: the large national plans will give up their commercial HMO licenses as there will no longer be anyone left to compete in the exchanges. These exchanges will include the local BCBS plan and in some cases a small local HMO. The lack of competition will mean that the cost savings projected from the exchanges won’t materialize, and premiums will continue to inflate faster than CPI. It’s certainly a far cry from all of the talk about creating more choice and competition, right?

Medicare: Over the next few years, t will become obvious that health care reform is simply not able to control Medicare spending. Medicare costs will continue to increase at a rate that simply isn’t sustainable. To counter this, the new Medicare Czar and the new Commission will begin implementing cost control measures that will not be very popular. The first step will likely be small decreases in the fee schedules that Medicare pays to hospitals and doctors. Next, I imagine that more utilization management and fraud and abuse programs will also begin to sprout up. Finally, when it becomes obvious that these actions are still not going to be enough, the Commission will begin implementing a series of “benefit limitations” that will quickly become recognized for what they are -- rationing. Yes, I said rationing.

Physician Reactions: Doctors across the country will be faced with significant decreases in their income, so they will begin making adjustments to their practices. First, there will probably be a significant limiting of Medicaid. Most doctors will either accept a very small amount of Medicaid or none at all. So at a time where the Medicaid rolls are growing, there will be fewer and fewer doctors who can afford to treat these patients. Not long after this will be the move to limit or eliminate Medicare from many practices. Doctors will begin looking for ways to limit the amount of Medicare they see and many practices will start eliminating Medicare from their practice all together. This will all be the result of a Medicare program with decreasing fee schedules and increasing administrative costs and hassles. Finally, doctors will start developing a second track of concierge-type health care which means that if you have money, you get to see the doctor faster, and you will have access to more testing and procedures.

If the above scenario rings true, it is likely that we will face a severe shortage of American health care providers as a result of this reform. Many doctors will choose to retire early. The number of students enrolling in medical school will begin to decline, as the salary clearly does not match the job description. The reduction in the supply of physicians combined with the increase in demand now that 30 million people have been added to the insured population will put a significant strain on the health care delivery system. And of course, appointment wait times will increase significantly. This will result in an increase in the utilization of emergency rooms across the country which negates much of the expected cost savings projected by the CBO back in 2010.

All of this will lead President Obama, in the last half of his second term, to push for universal coverage in the truest sense of the word. He will argue that the current system has failed us again and that the only answer will be to cover every American with Medicare. In one move, the entire insurance industry could be eliminated altogether. Speaker Pelosi of course will agree with the President, and they will demand that legislation be drafted immediately. Welcome to socialized medicine, folks.

Of course, the aforementioned scenario is all fictitious. Or is it? When you tell yourself that none of this could possibly happen, I would remind you to look back five years. In 2005, the federal deficit was $318 billion dollars and the unemployment rate was only 5%. This was post 9/11, and both figures were considered to be disappointing. Today, five years later, the projected federal deficit is $1.5 trillion dollars, or five times that of 2005, and unemployment rate is projected to be double that of 2005, or 10%. Back in 2005, if someone had told you that the deficit would be five times higher in just five short years and that the unemployment rate would double, you probably would have thought that scenario to be fictitious too!

My last thought to leave you with is this: while I have said all along that something needs to be done about health care, I wonder if this cure will actually end up being worse than the disease?

The political feud rages on in Washington – and it’s going to get ugly

2010-03-04T15:19:00.001-05:00

Have you ever had a fight with someone that lasted so incredibly long that you couldn’t even remember what you were fighting about in the first place? Did the fight go from being solely about a conflicting issue to being more about simply winning the fight? If you can relate to this scenario, then you can probably understand what is happening in Washington these days. Allow me to give you a few examples of what I’m talking about.

“The doc fix.” In the halls of Washington, the issue of getting rid of the 21% cut in Medicare reimbursement because of the SGR is being called “the doc fix.” At the beginning of the year, the doc fix was pushed back from January 1st to March 1st. Then, when we came to the end of February, the bill that would have fixed this problem was attached to the jobs bill. If you’re anything like me, you are probably wondering what Medicare has to do with a jobs bill. I still don’t have an answer for that. Nevertheless, the doc fix was attached to the jobs bill, and for a while it looked like the thing would pass in time for the March 1st deadline. Then, along came Senator Jim Bunning, the Republican Senator from Kentucky. Senator Bunning waged a one-man filibuster of the bill that stopped it dead in its tracks for more than a week. As a result, we missed the March 1st deadline, and CMS had to stop paying claims for 10 days to give Washington time to get its act together. What was Senator Bunning’s issue with the bill? On the surface, it appeared that Senator Bunning’s concern was about how this bill was going to be paid for and whether or not it would add to the deficit. While the deficit is certainly an important issue of concern for many people, the fact of the matter is that this round of political fighting was probably more about winning the argument than about reducing the deficit.

Recently, President Obama indicated that he would like to include some of the Republicans’ ideas from the health care summit into his version of the bill. He pointed out four of the Republicans’ ideas that he would consider adding to his bill. These things include: allowing investigators to go undercover and pretend to be patients in an effort to find more Medicare fraud and abuse, increasing the pilot programs on tort reform, increasing Medicaid payments to providers, and expanding the use of health care savings accounts. To say that these four items represent a compromise is a little bit like when my wife told me she wanted to get a cat. I don’t like cats and didn’t want to get one. So, we compromised and got a cat. My point here is that both sides are so involved in winning this fight that they have lost sight of their goal which is to make whatever changes are necessary to the American health care system to make it more affordable and cover more Americans without damaging quality and access. You can’t tell me that these four items are the only good ideas that the Republicans have offered.

Now don’t get me wrong. This article is not meant to be a one-sided attack on the Democrats. I think the Republicans are just as guilty of playing politics as anyone. Even if the President would have come out and adopted every single one of the Republicans’ ideas, my guess is that the Republicans would still do everything in their power to stop the bill. That’s exactly what this entire health care reform debate has turned into: the scenario I described in the opening paragraph. It’s like that fight you had years ago and nobody can remember how it even started. The health care reform battle is shaping up to be very similar. It’s morphed into a contest based on winning a political battle, and it’s no longer focused on finding what is right for the American people in terms of health care. Both sides have clearly lost sight of why they are even fighting for.

So what is the next step in all of this? Well, if you have been paying attention to what the media has been reporting lately, it looks like we may be in for the political version of the shoot out at the O.K. Corral. The Democrats are marshaling the troops and are going to try to pass their bill any way that they can. Their approach will likely include using reconciliation to get it through the Senate. The Republicans are loading their guns and are going to do everything in their power to stop any bill from passing. Their approach will likely include using filibusters and any other parliamentary process they can to hang things up.

The problem with all of this is obvious. We still haven't solved any of the major problems with our health care system, and all of the political upheaval surrounding the debate has taken the focus away from the real reasons this debate began in the first place--to actually solve these problems!

So the political battle continues. But what happens to the innocent bystanders--a.k.a the American people? Well, when you have a shootout like the one at the O.K. Corral, stray bullets are likely to hit those innocent bystanders. Similarly, when our politicians forget what they were elected to do and they focus solely on keeping score, someone is going to get hurt. In the contest between donkey and elephant, it's the American people, the innocent bystanders, who are going to get hurt the worst.

Grab your shootin' irons boys; there's gonna be a gun fight!

President Obama's Final Push towards Health Care Reform

2010-03-01T12:01:00.000-05:00

Last week, I spent one of my evenings reading through President Obama’s newest proposal for health care reform. This next statement may shock those who know me well: There are actually a lot of things that I like about this proposal! That’s right, I actually agree with the President on some key issues of health care reform.

Before you start asking what kind of government bailout I may have received or if I have taken a blow to the head recently, I would urge you to read through this entire article. Yes, there are many things that I like about the proposal, but I still have some big concerns. Please hear me out. Let me begin by walking through some of the highlights of the proposal and providing you with my professional opinion on them. I will break these down into the following categories: Expansion of Coverage, Financing, and Cost Control.

I. Expansion of Coverage

The president’s proposal makes the claim that it will make insurance more affordable and it will help over 31 million Americans to afford health care. This expansion in coverage is to be accomplished through a series of tax credits, insurance reforms, government oversight in premium increases, penalties for those individuals who don’t carry insurance, and penalties for those businesses that do not provide health insurance.

The first part of the President’s proposal is to offer tax credits for families making less than $88,000 per year to help them afford the cost of health insurance. This is a very similar approach to the ones included in both the House and Senate bills. While I am sure that many will argue about the level at which these tax credits will kick in, I think that it’s reasonable to provide tax relief for those families at the lower end of the income scale to help them afford health insurance. Score one for the government.

The President’s proposal also includes tax credits for small business to help them pay for insurance coverage for their employees. Another good idea in my opinion.

The next part of the President’s plan is to include a series of insurance reforms. These reforms are designed to protect consumers by either eliminating or reducing an insurance company’s ability to deny coverage through pre-existing condition exclusions and other so called “unfair practices of insurance plans.” Again, this seems like a reasonable approach. My problem with the government’s approach to insurance reform is not the idea of getting rid of the rating and underwriting games that insurance companies play, but rather, I have a problem with the possible unintended consequences of this type of legislation. We’ll address this point later.

II. Financing

You may be wondering, “How is all of this expanded coverage going to be paid for?” The President’s plan includes a variety of tax increases and projected cost savings to pay for this coverage expansion. There are penalties for individuals making over the poverty threshold who do not carry health insurance. There are also employer-based penalties for any employer that has more than 50 employees and does not provide health insurance. Both of these approaches seem to make sense to me.

The President’s proposal also includes an increased tax on high income tax payers. Under his proposal, there would be a 5.4% surcharge (because tax is such a dirty word) on high income tax payers just like in the Senate bill. In addition, the President’s proposal adds another 2.9% assessment (because tax is a dirty word and we have already used surcharge) on high income tax payers’ income from other sources like interest, dividends, annuities, royalties, rent, etc. Now this is an approach that concerns me. Let me begin by saying that I am not in the tax bracket that the President calls “high income,” but I do hope to be there some day. So, my comments here are not self-serving since neither of these tax increases would affect me right now.

My concern with this “tax the rich” approach is two-fold. First, when is it going to stop? Currently, if your Adjusted Gross Income is over $250,000, which is the rough threshold for the President’s new surcharge and assessment, then you are in the top 2% of the income earners in this country. Good for you, you have achieved the American dream! But that also means that you belong to the very small group of people who pay almost 50% of all income taxes in this country. That’s right; the top 2% in this country pay almost 50% of all the taxes. So how much can we tax the rich before they either stop being rich or even stop being Americans? It’s kind of like killing the goose that is laying the golden eggs, isn’t it? My second concern is whether or not it’s wise to put new taxes, oops; I mean assessments, on investment incomes during a struggling economy. Investments by their very nature carry risk. We make them because we expect the return to be greater than the risk itself. If we start taxing the returns on investments, this may have a negative effect on the amount of investment that takes place.

Another idea for financing this proposal comes from the so-called “tax on Cadillac health plans.” This approach was developed in the Senate and would put a significant tax on high cost insurance plans. The President’s proposal would delay the implementation of these taxes until 2018. My problem with this proposal has less to do with the idea of taxing high cost health plans and more to do with the notion of whether or not it will actually result in any tax revenue. For example, a business facing a massive tax on its health insurance benefits has two very easy ways to avoid paying this tax. First, they can reduce the benefits by adding things like deductibles and co-insurance levels to lower the cost of the policy so that it falls below the threshold. Or they can simply convert the coverage to being self-funded. Either of these simple actions will avoid the massive tax they would face otherwise. Given this, do you think we will actually see any of the projected $67 billion dollars in tax revenue?

III. Cost Control

The final area up for discussion is cost control. If I remember correctly, this is where this whole debate started in the first place. We have a significant problem with Medicare costs, especially since the Medicare program is projected to go bankrupt by the year 2017. Since the increasing burden of health insurance costs has been a significant problem for American businesses as they try to compete in a global economy, how is the President’s proposal going to solve this problem? I’m not sure it will.

When it comes to Medicare, the proposed bill would crack down on fraud and abuse and reduce or eliminate the profit that insurance companies make on Medicare Advantage plans. Again, I think both of these approaches are reasonable. My concern is that this may not be enough. What I mean by that is, “Can the government effectively drive out fraud and abuse without creating so much bureaucracy and red tape that is offsets the gains?” We have seen several examples of government programs spending a dollar only to recover fifty cents. Is this approach going to turn out the same way? The bottom line regarding the Medicare problem is that I think it’s much bigger than just fraud and abuse alone. The President’s approach seems a little bit like treating cancer with an antibiotic. It’s not simply sitting around and doing nothing, but it sure isn’t going to keep the patient alive either.

The final area of cost control (and in my opinion what is likely to be the most misunderstood) is the President’s new proposal for rate regulation on insurance premiums. Under the President’s proposal, “Health Insurance Rate Authority would be created to provide needed oversight at the Federal level and to help States determine how rate review will be enforced and monitor insurance market behavior.” Simply put, we would create a new Federal government body that would have rate regulation authority over insurance companies and would decide if their rate increases were unreasonable and unjustified. If this new Federal government body determined that an insurance company’s rate increases were unreasonable, they would force that insurance company to lower their premiums, provide rebates, or take other actions to make premiums more affordable. This is called price control, and it’s a bad idea on so many levels. Now, before you spin out of control and wonder why I am defending the insurance companies, please read on.

I am not defending the insurance companies’ profits or even saying that they don’t charge excessive rates when they know they can get away with it. I know for a fact that they do. My problem with the President’s approach is that price controls simply don’t work. They have never worked and should only be pursued in the case of a necessary monopoly like the power companies. We have seen time and time again that the best form of price control is competition. The reason why American Airlines or any other airline doesn’t increase the price of its flights by 50% is Delta, Southwest and its other competitors, not because of the government.

The other problem I have with this approach to controlling cost is that it will inevitably result in less choice and less competition in the insurance market, and this impact will be felt in the small business and individual market where the choice and competition are needed the most. What am I talking about? Well, consider this. Let’s take a large national insurance company. They offer two main products: insured products which are typically purchased by small employers, and self-funded health plans which are only offered and purchased by large employers. This company has 30% of its covered lives in the small employer “insured” market and the other 70% in the self-funded market. Let’s say the President’s proposal passes and now this company realizes that there are a whole host of new regulations and restrictions on the small employer “insured market.” They also realize that even if they are successful in dealing with these restrictions and they produce profits for their shareholders, the Federal government could decide these profits are unreasonable and force them to issue refunds. What do you think that company is going to do? I can tell you what they will do. They will drop their insured lines of business, give up their state insurance or HMO licenses and only offer insurance to the large group self-funded market. Why would they do this? Because the self-funded market is not “insurance,” and it is not regulated by the states. It’s regulated by the Federal ERISA legislation. Since it’s not really “insurance,” there are no “premiums” to dispute or regulate. This means that there is no possibility for the Cadillac health plan tax, no rate regulation and no restrictions on things like pre-existing condition exclusions, etc. You see, if we make health insurance an unattractive business with huge risk and little profit, the insurance companies will simply exit the market. The result will be a reduction in choice and competition in a market segment that needs choice and competition the most.

So, where does this leave us? What we have before us is a proposal that the President believes will give him the best chance of getting something, anything passed into law. It expands coverage, taxes the rich, beats up the evil insurance companies, gets rid of fraud and abuse in the Medicare arena, and provides tax credits for individuals and small businesses. These are all things that will sound great on the evening news, and the proposal is strategically designed to corner the Republicans and force them to support this new version of health care reform.

The problem is that this proposal won’t really solve anything because it won’t control health care costs. It won’t fix the huge unfunded liability that is known as Medicare, and in my opinion, it will have some very serious negative side effects which include driving insurance companies out of the insurance market. It will eliminate choice and competition. I believe the President knows this, but unfortunately, it has become more important to win a really big political battle than to actually solve a really big problem.

Health Care Reform--Now What???

2010-01-25T15:58:00.000-05:00

How quickly things change. Just six months ago, our nation was poised to pass sweeping legislation that would overhaul both the insurance and the health care industries. President Obama appeared to have the necessary votes to pass this legislation by late August, and the country was just starting to get its arms around new concepts like “public option” and “health care exchanges.” Just one month ago, a bill passed the Senate, and the country prepared for the administration to combine the House and Senate bills into one bill. It seemed inevitable that the President would be signing his John Hancock prior to the State of the Union Address. Then, one week ago, the unthinkable happened: A Republican won the Senate seat in Massachusetts, and suddenly the whole political landscape changed. This week, the President is set to give his State of the Union Address. Not only has he been unsuccessful in signing a new health care bill into law before the Address, but with such tremendous loss in momentum, it's starting to look unlikely that he will be successful in getting any health care legislation to pass at all. How quickly things change.

So what happens now? Well, there are several directions this could go. The Obama administration could try to pass sweeping health care reform by either sending the bill that already passed the Senate to the House for a vote, or they could go through reconciliation to try and get a combined bill passed. Neither of those options seems very likely at this time. Speaker Pelosi has made it very clear to the White House that she doesn’t have the votes to pass the Senate bill in the House. One Democrat Representative reportedly said that they wouldn’t be able to get more than 100 votes in the House for the Senate bill to pass…and it takes 253 for passage!

Here is the more likely scenario: The White House will probably go back to the drawing board and come up with an incredibly slimmed-down version of health care reform. They will probably keep much of the insurance reform, as that aspect seems to be popular with both parties. Additionally, they will probably provide some tax incentives for small business and individuals to help them purchase health care and reduce the number of uninsured. This approach will be a mere shadow of the 2,000 page mega-bills that we have been exposed to over the last six months. But even this will be difficult to pass, as the Republicans now smell the blood in the water and would like nothing more than to have the President strike out on something that he has put so much of his time and energy into.

Does this mean we are out of the woods and that its time to pass out the champagne? Not quite. You see, several things still must be addressed. First, we have not resolved the problem of the Medicare SGR and the fact that Medicare is projected to go bankrupt in less than seven short years. Second, we still have the problems of the uninsured and the escalating costs of health care. And finally, we now have a scared insurance industry that may start acting like a person who just survived a heart attack scare.

The problems with Medicare and the uninsured won’t just go away. At some point, whether now or later, these issues are going to have to be dealt with. The election in Massachusetts may have set back the time frame for dealing with these issues, but it didn’t do anything to solve them. My bigger concern is for physicians because we don’t know how the insurance industry is going to act. Remember the reason this whole thing started in the first place? It was because we were supposed to be controlling costs, and we were told, time and time again, that the insurance companies’ were incapable of controlling costs on their own. When it looked like the public option was going to pass, the insurance companies panicked as they thought that their business was going to disappear. We even had a Senator introduce a bill that would have eliminated health insurance companies all together and expand the Medicare system to cover every American. Can you imagine the huge sigh of relief that the insurance companies are breathing today? They probably feel like they just survived the industry equivalent of a massive heart attack! Like many heart attack survivors who suddenly change their eating habits and begin exercising, the insurance industry will most likely react this same way by taking steps to prevent another scare.

So what exactly are these steps? These steps will likely be focused on lowering the cost of health care. Since 85% of every premium dollar is paid to a provider of health care, insurance companies are going to start getting aggressive on cost control. They will do this in various ways including utilization management or the “mother may I order this test?” approach, by being more selective on what they cover, and by making significant reductions in fee schedules or contracted rates. If you think I’m over reacting, consider this: One Blue Cross Blue Shield plan recently changed its policy on covering IMRT. IMRT will no longer be covered for abdomen, pelvis, breast, or lung cancer because they now consider this to be merely “investigational.” This service was previously covered by the Blue Cross Blue Shield plan, but the new policy was just announced on 12/21/09 and it will become effective on 3/1/2010. And that’s just one example. Should the entire insurance industry decide to begin drastically lowering costs, it is likely that the biggest hit will be taken on the backs of health care providers.

While the pressure of sweeping health care reform may have been lifted temporarily, these underlying problems won’t just go away; at some point these issues are going to have to be dealt with. So until we figure out effective ways to address each of these issues, and until we can get a clear gauge on how the insurance industry is going to react, don’t pop that cork just yet. Our health care problems are still far from over.

Senator Reid's "Compromise" Gets Hairy

2009-12-14T11:22:00.000-05:00

The latest headlines read: “Senator Harry Reid may have finally found a compromise solution that will attract the required 60 votes to move forward with a Senate health care bill!” But the details of this "compromise" tell a different story. The final issue in getting health care reform passed seems to be--yet again--the idea of a public option. And Senator Reid’s mission to fully secure 60 votes may not be over just yet…

If you've been paying attention to the news, you know that Senator Reid has been caught in a pickle. While there doesn’t appear to be enough votes in favor of a public option, dropping the public option altogether could mean the loss of the more liberal democrats such that Senator Reid would again be short of the required votes. It seems like a lose/lose situation, doesn't it? Recently, however, we have received word that a compromise has finally been reached—a compromise that may be able to clear the 60 vote hurdle! So what exactly is this compromise all about, and how exactly will it work? If we examine the actual provisions in the compromise, you will see that the so-called “compromise” may not indicate such a happy medium after all.

The compromise contains several new ideas or provisions to the Senate bill:

1) The public option is dropped. Well, sort of. The new language will drop the idea of a government-run insurance company (the public option) in favor of creating a national plan administered by the Office of Personnel Management (OPM) much like the program offered to federal employees. The plan would allow private insurance companies to be offered to a larger pool individuals and employer groups who either have difficulty finding or affording coverage otherwise. This is an important catch, however, because the public option could still be triggered either state-by-state or nationally if the insurance companies decide not to participate in this national plan.

2) There is a new mandate which would require most people to purchase coverage. This is a big change from the previous discussions that only provided a financial penalty for failing to purchase coverage.

3) The new compromise also creates provisions that would allow people to "purchase" Medicare coverage starting at age 55.

4) Finally, the new language requires that all insurance companies spend at least 90% of premium dollars on medical expenses rather than on administrative costs and profits.

*This last piece could turn out to be one of the most critical sections in the bill, but surprisingly, it has been largely overlooked by the media.

This appears to be a reasonable compromise, right? No public option, expanded coverage, and a limit to the profits that the evil insurance companies can make. What’s not to love? Actually, there is plenty not to love. On the surface, it seems like a great deal. But here’s the problem: In order to fully understand what is wrong with this compromise, you must have an understanding of how the health care and insurance industries work. You see, it’s not the actions of the bill that scare me—it’s the reactions to the bill. Newton has taught us that every action has an equal and opposite reaction. Let’s examine the possible reactions to this bill.

What would be the result of a bill with these provisions passing and becoming law? First, the providers of care in many states could see a reduction in their revenue as more and more people who are between the ages of 55 and 65 buy into the Medicare plans. Why? Because in most states, the private insurance industry compensates physicians and hospitals at rates much higher than Medicare. So for every patient who switches from CIGNA, United or BCBS to Medicare, it means that essentially, their doctors will be treating them for significantly less money. How bad this will become depends largely on how many people make the switch to Medicare and how much it would cost them to make that switch. But this isn’t even the biggest problem.

The real problem is what this bill would do to the insurance companies and how they would react. Right about now you are probably scratching your head and asking yourself, “How can a former managed care executive who now works to help physicians negotiate against insurance companies really be concerned about what happens to his former employers? Has he crossed back over to the dark side?” Well…yes and no. Please hear me out.

First, I have a big problem with any law that requires an insurance company to pay out a defined percentage of revenue to cover the cost of claims. As an economist, my concern with this proposal is governmental intrusion in a free market system. Governmental intrusion ultimately limits the amount of profit that any business or individual can make. It’s no different than the government saying that you can only make a 10% return on your 401K or that you can’t sell a house for more than 10% profit over what you paid for it. Limiting insurance companies to a very small profit margin at the same time you are still asking them to take the big risk that they may lose money just seems un-American to me. After all, how much fun would Vegas be if you still had to gamble with your own money, but you knew upfront that you could never win big?

My second concern is the reaction that insurance companies will have to this provision. In 2007, it was reported that private insurance companies spent 12.4% of premium revenue on administration and profit. That 12.4% was made up of 9.1% for administration and 3.3% for profit. Now, let’s project forward. With the passage of a bill like the one being discussed in the Senate, insurance companies would have to pay out at least 90% of the premiums for medical care, leaving a maximum of 10% for both administration and profit. I say “maximum” because if they don’t project expenses correctly, they could easily lose money by paying out more than 90% of premium on medical care. For the sake of argument, let’s say they hit it just right and are left with 10% to cover administration costs. Since administration currently runs 9.1%, that leaves only 0.9% for profit.

What would you say if someone asked you to invest in a start-up business? They told you that the business carries significant risk and that you could lose money. They also told you that the business was highly regulated. Finally, they let you know that if everything goes well, you could make a maximum return on your investment of a whopping 0.9%! At the end of a sales pitch like that, you would probably be wondering what kind of illegal substance this person was abusing. Who in their right mind would go into a business with such significant risk, major regulation, and no potential for profit? No one! And that includes the current insurance companies who are in that business.

The other thing you need to understand is that this provision would only apply to plans that are fully-insured and it would not apply to employers and plans that are self-insured. In 2009, 57% of all of the people covered by employer-based health insurance were under a self-insured plan. When you look at the size of the employer, the numbers are even more dramatic. Over 80% of all people working for firms with more than 1,000 employees are covered under a self-insured policy, and only 15% of people working for small business with less than 200 employees are covered by a self-insured plan.

So if health care reform takes the profit out of insurance, the most likely reaction is for the insurance companies to stop offering that product. This would mean that companies like CIGNA, Aetna, and United would give up their insurance licenses in each state, and they would eventually stop offering fully-insured products. Instead, they would focus on the self-insured market where they can still make their profit and where they don’t carry any of the risk. This would also mean that small employer groups who are not large enough to be self-funded would see a significant reduction in the number of companies that are willing to sell them insurance.

But that’s not all! The new federal plan that is being proposed would be fully-insured. You see? Since none of the large insurance companies would be selling fully-insured products any longer, the trigger for a public option would automatically kick in. Voila! It’s the backdoor way of enacting the public option and the first step toward the final goal of single payer. Amazing how one provision could trigger such a reaction isn’t it?

No matter how you look at it, the bottom line is this: If this version of health care reform passes, it could mean less choice and less competition for small businesses who need it most, and it could be the first step down a very slippery slope that eventually leads to the government takeover of the American health care system.

Health Care Reform Bill Passes First Hurdle…Now What?

2009-11-09T15:02:00.001-05:00

The House of Representatives has cleared the first major hurdle facing a sweeping health care reform bill by voting to pass the bill. The vote was extremely close, with 220 votes for passage of the bill and 215 votes against. A grand total of 39 Democrats voted against the bill and only one lone Republican voted in favor of it.

The bill was passed after weeks of deal-making, adjustments, and fine-tuning, all of which was headed by Speaker of the House, Nancy Pelosi. In the end, several concessions had to be made in order to secure the necessary votes for passage. First, Pelosi gave up on the federal funding for abortions in order to appease the right to life proponents and several important religious groups. Second, she had to increase the income level that would trigger the new tax-surcharge that will help pay for the bill. Finally, she was forced to “water down” the public option by allowing doctors to negotiate with the public option just like they do with the payers. When the final bill came to a vote Saturday, it was almost 2,000 pages long and had a price tag of $1.2 trillion dollars.

The next hurdle for health care reform lies in the Senate. The Senate must now find the 60 votes necessary to begin a floor debate and then be able to overcome an expected Republican filibuster. This could prove to be a much more difficult task than Pelosi faced in the House. As soon as the House bill was passed, Senator Lindsey Graham was quoted as saying "The House bill is dead on arrival in the Senate." Senator Joe Lieberman, an Independent who caucuses with the Democrats, said that if a public option was present; “As a matter of conscience, I will not allow this bill to come to a final vote."

So what gives? Here are the two main issues facing the Democrats in the Senate: The tremendously high cost of the bill and the ever-troublesome public option. Senate Majority Leader Harry Reid has to figure out a way to keep the public option (which the more liberal Democrats want and the House needs) but also to “water it down” or change it so that the moderate Democrats, Independents, and at least one Republican will vote for it to pass. Truly, it’s the political equivalent of the worlds most difficult tightrope walk.

One option is to allow states to opt out of the public option. Another option would be to have the public option triggered if costs continue to increase. But each of these options appeal to only some and not to others in the Senate. While its still too early to tell what version will ultimately make it to the floor of the Senate, it is clear that it will be more about what version can get the 60 votes and less about what is really necessary to reform the health care system and to control costs. What is worrisome about this entire process is that the most important thing now is passing “a” bill and not necessarily passing the “right” bill.

Assuming the Senate does find the 60 votes necessary to avoid reconciliation (which, by the way, could be disastrous), the next step would be for the Senate and House leadership to merge the two bills into one piece of legislation. Then, that bill would go back to both Houses of Congress for a final vote. There is still a great deal that needs to be done before anything can officially arrive at President Obama’s desk for signature. There are many more deals to be cut and many more compromises to be made before we even get a glimpse of the final health care bill that could eventually become law.

So what does all of this mean for physicians? There are two main things that should be of concern to physicians. First, how the managed care companies are reacting to all of this and second, how this will affect both Medicare and the SGR.

Managed care companies are viewing this legislation as a huge threat to their business models. This is why they have spent obscene amounts of money lobbying against the Democrats’ push for reform, and more specifically, against the public option. Many physicians whom I have spoken with are taking pleasure in the fact that this is causing the insurance companies extreme fear and dismay. While I can truly understand all of this excitement, I have to caution physicians about getting too excited. You see, when insurance companies are threatened, they generally take out their frustrations on physicians. In fact, I am already seeing this happen. Across the country, I am seeing insurance companies getting more aggressive in negotiating their contracts with physicians. Believe it or not, I have actually had a managed care executive explain a significant reduction to one physician group by saying, “We have to take these actions to get ready for the public option.” I have also experienced a great number of payers say that they are “putting a freeze on all physician negotiations” until they see what comes out of Washington. Now, that’s certainly nothing to be excited about.

All of this is happening before we even know if any bill will pass and if it will even contain a public option. Keep in mind that the current bills don’t have the public option actually becoming effective for at least three years. So, my point is that if the payers are already taking these kinds of measures in preparation for the health care reform bill, what do you think they will do once the legislation is actually passed?

A final factor in the middle of this whole mess is the current Medicare SGR that is calling for a 21% reduction in the Medicare conversion factor effective January 1, 2010. A few weeks ago, there was an attempt to eliminate the SGR, but disappointingly enough, that legislation died before it even got off the ground. Now, it seems likely that with all of the attention on the health care reform bills, no legislation regarding the Medicare cuts bill happen before the end of the year and Congress will take up that issue after the new year. The issue at hand is the cost of getting rid of the SGR. Eliminating the 21% reimbursement cut will increase the deficit by over $200 billion dollars. Imagine a scenario in which some form of health care reform gets passed. Let’s assume that its something like the House bill and it has a price tag of over $1.2 Trillion dollars. Now, let’s imagine that the Democrats eliminate the SGR reduction for 2010 and pass a band-aid bill that will add another $200 billion to the deficit for 2010. The Republican’s mantra in the election year of 2010 will be that the Democrats are taking over health care and spending our children’s money. You won’t be able to turn on a TV without seeing a Republican ad, replaying the President’s state of the union address where he pledged not to sign any bill that would add one dime to the deficit.

The bottom line is that the politicians in Washington are playing some very high-stakes poker and a good portion of our physicians’ hard-earned money is sitting in the pot. The best advice we can provide to physicians is to stay informed and stay active. There is still time to impact this debate and make sure that the people in Washington don’t reform health care and control costs by creating a system that will be detrimental to physicians. You didn’t cause this problem, and the solution shouldn’t be crafted on your backs! Let your elected officials know your position on the matter. Make sure they understand that the most critical position in the entire health care system is the physician and that any solution that drives doctors out of practice or forces them to provide sub-standard care is no solution at all.

While it’s still too early to know exactly what the outlook will be for doctors, it’s safe to say that unless doctors make their voices heard, it’s not likely to be very pretty.

The Reality of a Public Option: What Physicians Need to Know

2009-10-27T15:45:00.001-04:00

Over the past few months, we have watched the health care reform debate very closely. We have seen a number of health care reform proposals change drastically before our very eyes, and we have been bombarded with new terms about health care, including Co-ops, health care exchanges, and the newest game in Washington: the public option. As of recently, there are yet even more health care concepts to be learned, including the public option trigger, the public option opt-in, and the public option opt-out. It’s easy to become disillusioned by the abundance of health care terms being tossed around. Let’s break down the latest jargon in the ever-changing world of health care reform.

The concept of the public option trigger is a public option that would not be put into place until something “triggers” it. In this case, the public option would most likely be triggered by one of two things--rising health care costs or a lack of insurance competition. Think of it as a public option sprinkler system. If the flames of health care costs get too high, then it will automatically trigger the public option to kick-in.

The public option opt-in is a concept where the federal government would create a public option health plan, but individual states would have to vote at the State Senate and House of Representatives level to “opt-in” to the public option. If the states chose not to pursue the public option, or can’t get enough votes in either its Senate or House, then that state will not be included in the public option. In other words, each individual state would have the opportunity to choose whether to utilize a public option.

On the other hand, the public option opt-out is the opposite. Every state would be included in the public option unless the individual state was to vote itself out of the federal public option. The opt-out proposal would set up a national insurance plan and would be run by a private, not-for-profit board. But, states would have to prove that they can provide comparable coverage in order to exit out of the federal plan.

So why is there so much discussion about public option and variations on that theme? Well, it is driven by two things. First, the public option appears to be the biggest hurdle in getting health care reform passed. For months now, Nancy Pelosi has been saying that she cannot get a bill through the House without a public option. At the same time, Harry Reid, the Senate Democratic Leader, has been saying that he cannot get a bill passed through the Senate if it does have a public option. All of this has been going on while President Obama is making it very clear that the only option off-the-table is having no bill pass both the House and Senate. Simply put, both Pelosi and Reid have been told that they need to figure out a way to get something that will pass both bodies of Congress so that President has a new law to sign before the 2010 elections. Enter to compromise or the public option opt-out!

This week, Senator Reid endorsed the idea of a bill that includes the public option with the ability for states to opt-out. This is the first time the Senator has endorsed any form of the public option. In addition, Senator Reid was quoted as saying, “We clearly will have the support of my caucus to move to this bill and start legislating.”

While there were comments both supporting and opposing this idea, it is starting to look like this is the ball that the administration thinks can cross the goal line.

So what does this ultimately mean for physicians?

Let’s assume that some form of the public option passes. Once the bill is signed into law, the process for setting up this new government insurance company begins. Pelosi has said on numerous occasions that the new insurance company would pay doctors and hospitals 105% of the Medicare rate for the services they provide. Sounds great, doesn’t it? New York Democrat Senator, Charles Schumer, has also come out in support of a public option that pays providers at 105% of the current Medicare fee schedule. This is not surprising, considering that California and New York, where Pelosi and Schumer are from respectively, have two things in common: First, they enjoy major metropolitan areas where Medicare rate is significantly higher than most of the rest of the country because of the geographic adjustments. To illustrate this point, consider this: In New York City, a simple return patient office visit for a Medicare patient pays the doctor $71.51. In San Francisco, that same office visit pays a physician $74.57. Compare that to my hometown of Raleigh, North Carolina, where the exact same office visit only pays a doctor $58.89. That’s right, doctors in New York and California where Pelosi and Schumer are from get paid between 20% and 25% more for the same office visit as there counterparts in much of the rest of the country do. Another important thing that California and New York have in common is that in those states’ insurance companies have actually negotiated fees with doctors that are below the Medicare rate. It is very common, in New York and California, for commercial insurance contracts to pay doctors at rates that are 15% lower than the current Medicare rate.

Now, given this information, let’s examine what would happen in two different states if a public option passes. For illustration purposes, let’s pick California and North Carolina.

In California, we now have a new government insurance company that is paying doctors 5% better than Medicare and 20% better than other insurance companies. Since this new insurance option is federal in nature, it doesn’t have to rate its product at the individual state-level like the other insurance carriers. So, even though its cost structure in California will be higher, it will still be able to competitively price its product and attract business. The physicians in California will love this plan because it pays much better than anything they have now. This will put pressure on the other insurance companies to match these new fee schedules or doctors will simply leave the CIGNA’s and Aetna’s of world and try to fill their practices with public option patients. The net effect of all of this will be an increase in revenue for physicians and hospitals in California. But won’t that drive up health care costs? Of course it will!

So, what about North Carolina? In North Carolina, where most insurance contracts pay doctors well above Medicare rates, there will be tremendous pressure on the insurance companies to lower their costs in order to compete with the public option. They will begin aggressively driving down fee schedules to levels at or below Medicare as a result of this new competition. The result in North Carolina will be a significant reduction in physician revenue as the new competitive field settles itself.

At this point, you’re probably asking yourself, “Well, if all the public option does is transfer money out of the pockets of doctors in states like North Carolina and into the pockets of doctors in states like California, why are people like Pelosi and Schumer pushing it so hard? One reason could be that both Pelosi and Schumer have to run for re-election in California and New York, and as such, they really don’t care about states like North Carolina. Think I’m being too cynical? Consider this: The Democrat Senators who have been most outspoken against the public option are people like Mary Landrieu (D-Louisiana), Ben Nelson (D-Nebraska) and Kent Conrad (D-North Dakota). What do all of these states have in common? Each of these states pay doctors for office visits even less than the $58.89 that doctors in North Carolina get paid. Secondly, each of these states voted for John McCain in the last presidential election. Right now, the Obama administration is telling Senators like Nelson and Conrad that they don’t really need to worry about the public option because under this new plan, their state can choose to opt out of it. And if that doesn’t work? Well, I’m sure there will be some stimulus money lying around for some new public works project in Nebraska or North Dakota. Anyone for the new Ben Nelson International Airport in Lincoln?

Like they say, there are two things you never want to see made--sausage and legislation!

Effects of a Public Option on Physician Incomes

2009-09-28T14:20:00.000-04:00

In a recent Wall Street Journal article titled, “Pelosi Pressed for a Public Option,” a new possibility for controlling health care costs under a public option plan was revealed. The article stated, “Congressional aides said including a government-run plan for people under 65 in the health overhaul could save as much as $100 billion, if such a plan were to pay health care providers the low rates used by Medicare, the federal health program for the elderly. The resulting savings would allow Democrats to keep robust subsidies and other provisions intended to help lower-income people buy health insurance.” This comment was supported by a quote from Speaker of the House, Nancy Pelosi, who was quoted as saying, "It saves the most money...If we don't take the full benefit of the savings, then what are our opportunity costs? Where else would we go...to pay for the legislation?" In all of the information that I have read regarding the health care debate thus far (and believe me, I’ve read a lot of information), this comment from Nancy Pelosi is perhaps the most honest and simultaneously, the most scary thing I have ever read.

For the first time in all of the discussions about health care, someone who is pushing for health care reform has come up with a concrete idea for how to reduce costs enough to finance the expansion of coverage. That’s the honest part. So what’s the scary part? The scary part comes from an understanding of what will happen to the health care delivery system if Pelosi’s vision for financing this plan actually becomes reality.

To examine the real impact of a public option, which will compensate health care providers at Medicare rates, you have to understand what makes up the cost of health care and how the current system forces the private insurance industry to subsidize the reimbursement deficiencies of Medicare and Medicaid. The cost discussion is an easy one; all health care cost controls can be broken down into a price or volume discussion. This is because cost is a function of the price that is paid for each service times the number of services that are provided. If you want to reduce the cost of health care, then obviously you have to reduce the price that you pay for each service, reduce the number of services that are provided, or both. Pelosi’s comment in the Wall Street Journal was the first time that I have seen something that directly addresses the cost issue. It is true that if a public option were passed, then paying providers at Medicare rates would actually reduce costs. The reason for this is because the commercial insurance companies who do not have the “take-it-or-leave-it leverage” of the Federal Government are forced to pay physicians and hospitals rates that are significantly higher than the Medicare reimbursement levels. In fact, many studies have shown that Medicare reimbursement levels are actually below the actual cost of providing care in most hospitals and that these hospitals are only able to survive by collecting higher-than-Medicare-rates from their commercial insurance contracts.

While it is true that this approach would reduce costs, that is only half of the story! To understand the crucial other half the story, you have to understand another simple business principle. In the world of health care costs, a reduction in cost is a reduction in revenue to someone. The $100 billion dollars in cost savings mentioned in the article represent $100 billion dollars of revenue that is currently being received today by a health care provider; i.e. hardworking doctors. What would be the impact of pulling $100 billion dollars out of the health care delivery system? Let’s see how this would impact a typical primary care physician office. Consider a hypothetical practice we’ll call “5 Internists.” Each of the five doctors in our hypothetical practice makes $150,000 per year right now. The patients at their practice comprise 40% Medicare and Medicaid and 60% private insurance. These doctors get paid 30% more for their commercial patients than they do for their Medicare patients. The practice has overhead that is 50% of its revenue. Now, let’s assume that a public option is formed, and it pays Medicare rates for their insured. Let’s also assume that 30% of all of the people that are not covered by Medicare or Medicaid are covered by the public option. In this scenario, the practice sees the same number of patients and their costs are the same. However, since part of their patients who used to be covered by private insurance are now covered by the lower paying public option, this means the practice’s revenue goes down. Now, the net effect is that the doctors who used to make $150,000 per year each take a 12% cut in pay and now they only make $132,000 per year.

As if that were not bad enough, think about how the rest of this scenario might play out. So now we have a public option that is competing with the private insurance companies. This public option has the potential to be so successful because it has a lower cost structure due to the fact that is pays Medicare rates to physicians and hospitals. So in order to compete, the private insurance companies must lower their fee schedules to the same Medicare-based reimbursement that the public option uses. When this happens, all of the patients who go to our hypothetical medical group will have services paid at Medicare levels. In that case, the physicians in our hypothetical medical group go from making $150,000 per year to making only $96,000 per year. While there are many people who would be happy making $96,000 in this bad economy I would hazard a guess that not too many of them spent the kind of time and money it takes to become a doctor. Specialists like surgeons spend between 11 and 17 years in training where they typically accumulate significant debt from student loans. While that seems bad enough, consider that in a recent survey over 33% of all physicians reported working more than 60 hours per week.

This sobering scenario quickly makes me wonder how many doctors would continue working those kinds of hours for less than $100,000 per year. How many doctors will actually put up with spending much less time with each patient to try and make up for the loss in revenue? How on earth are we going to attract our best and brightest students into becoming physicians when the income does not compensate fairly for the long hours and the highly-skilled work involved? And how many physicians are going to retire early or drop Medicare, Medicaid and the public option altogether and make “cash only” practices for those that can afford it?

Isaac Newton stated that every action has an equal and opposite reaction. The bottom line is that by reducing the number of practicing physicians at the same time that we are adding 40 million new patients to the health care system, this kind of approach to health care reform will result in a tremendous catastrophe. You see, we cannot eliminate costs without having an impact on someone. In this case, the doctors are the ones who will be hardest hit. I don’t know about you, but I want my children and grandchildren to have the same exceptional, quality healthcare that I have today. After all, how good is health insurance if there are no doctors available to provide the care?

One Plus One Equals Three?

2009-09-24T14:35:00.000-04:00

As the health care reform spotlight moves to the Senate, where Senator Max Baucus released his version of a health care reform bill, I find myself once again having difficulty with the new math that is being used in the making of new laws. No matter how I look at the equation, I keep asking myself the same question: “How does one plus one equal three?”

Let’s take a look at the basics of what we have been told about health care reform:

1-The bill must improve access to insurance so that we either eliminate or significantly reduce the number of uninsured.

2-The bill must reduce the cost of health care so that we address the problem of the drain that health care has on US economy.

3-The bill must not add to the federal deficit.

Okay, so these three basics are easy enough to understand. The next thing we need to understand is the current state of affairs with Medicare. This is important because, as the largest single segment of health care, it is funded through the government and since Medicare makes up the largest payer segment for most physicians, it’s fair to say that if Medicare fails, so does the financial stability of most physicians and their practices. The cost of Medicare currently exceeds $500 billion per year. Many projections have shown that the Medicare trust fund will become insolvent somewhere between the years 2017 and 2019. Simply put, in less than a decade Medicare is projected to go completely broke.

With this information in mind, let’s look at some of the numbers being thrown around in the health care reform discussion. Then ask yourself if these add up. Let’s begin by taking a look at the current Baucus bill. The bill would increase coverage for most of the uninsured Americans in this country. It would provide increased competition through nonprofit co-ops, and it would reform insurance regulations by ridding things like pre-existing condition exclusions. It would also increase the level whereby people could qualify for Medicaid, and would provide subsidies and/or tax incentives for lower income level individuals to purchase insurance. Finally, it would implement penalties for those who choose not to purchase insurance. All in all, the Baucus bill contains some very good things. But what is the cost of this bill? The current projected price tag is just over $800 billion for the next 10 years. So basically, we are going to be starting out $800 billion in the hole. The question is “how can we afford to pay for this without adding more money to the deficit?”

There are two ways that Baucus plans on financing the expense of expanded coverage. The first way is by implementing $500 billion in cuts for government health care programs (read Medicare). A small portion of that comes from commitments from pharmaceutical companies and hospitals. The lion’s share comes from savings through “efficiencies” that will be gained in the Medicare system. This strikes me as odd. Think about this: when was the last time that you looked at a government program and the word “efficient” came to mind? We are used to talking about government waste, pork barrel projects and government inefficiency, so when did we suddenly learn how to produce efficiencies through government actions?

To illustrate this point, consider the following: Amtrak is a government subsidized transportation option. It receives over $1 billion in government aid every year. So are they efficient? I recently priced a trip from RaleighNew York and back on Amtrak. The cost of the ticket was $217 and the trip would take me over 10 hours each way. To make the same trip on any one of several airlines not subsidized by the government was $189 and the trip takes less than two hours. Don’t get me started on other government programs like the Post Office or the IRS which are also glaring examples of inefficiency. to

But wait, we are still short by about $300 billion dollars! So where does the rest of the money come from? It will likely come from various taxes and fees, the largest of which is a 35% tax on high-cost health plans or so-called “Cadillac Plans.” So basically, we are counting on over $200 billion dollars in tax revenue to come in from a 35% tax on high-cost health plans. Let’s consider a hypothetical employer, “Acme Products.” This employer has 500 employees and as a benefit, they offer a wonderful health plan. The employer pays 100% of the single subscriber rate with the employees picking up the cost of family coverage. Let’s say that Acme Product’s benefit plan qualifies for the 35% tax hit because the single employee premium, which is paid by Acme, is $9,000 per year. Under the Baucus bill, here is the choice faced by Acme: (you will need to understand that the employer penalty for not providing coverage is $400 per employee per year) Currently, Acme’s health care cost is $9,000 x 500 employees or $4.5 million per year. Under the Baucus plan, their insurance carrier would be hit with a 35% tax which they would pass along to Acme. This tax would add $3,150 to the premium cost of each employee or $1,575,000 million dollars of cost to Acme Products every year, which brings their health care costs up to $6.075 million. So what will Acme do? Well, they could do a couple of things.

They could reduce the benefits they offer to their employees by increasing the deductible or co-insurance amount to make sure that they are under the "threshold" for the tax. Net result: Acme saves money, the employees get less benefits, the government doesn't get the tax revenue, and Acme blames Washington for the loss of benefits.

They could choose to drop the health plan altogether. Net result: Acme saves $4.5 million per year, the employees are forced to purchase their own insurance in the co-op program, the government doesn't get any tax revenue, Acme pays a penalty of $200,000, and Acme may or may not give the employees a raise to help offset the loss of this crucial benefit.

Finally, they could decide, despite a bad economy, to keep the health plan as it is and pay the 35% tax. Net result: Acme just reduced it's profits by $1.575 million per year, the employees get to keep their benefits, and the government gets its tax revenue.

Now, what do you think is the likelihood of Acme Products actually keeping its benefit plan intact with this kind of massive premium tax imposed?

I look at the Baucus bill, and I keep wondering how one plus one are going to equal three. I can see the expenses of expanding coverage, but I am having an extremely hard time believing that the $500 billion in efficiency savings or the $200 billion in taxes from high-cost health plans are going to pay for this thing. If I’m right and those financing sources don’t materialize, what are we going to do? Remember that this whole thing started with a discussion on how to control costs and keep Medicare from going broke. So where do we get the money? Well, one scary thought and the one that concerns me the most is that the money will have to come from reductions in the cost of Medicare through either a reduction in Medicare benefits or through a reduction in the Medicare fee schedule. Since every politician knows that the easiest way to become an ex-politician is to touch Medicare or Social Security, I fully expect them to hit the Medicare fee schedule first. Medicare expenditures currently account for almost $500 billion per year, which means for every 10% cut in reimbursement rates the government saves $50 billion dollars.

So if you are a physician, ask yourself, “What is the world going to look like if we have expanded coverage under Medicaid which is priced off the Medicare fee schedule, and this health reform doesn’t pay for itself such that the government decides to finance this expanded coverage through Medicare reimbursement cuts?” I don’t know about you, but seeing more patients for less money doesn’t strike me as a recipe for success.

Where's the Beef?

2009-09-18T13:31:00.001-04:00

I’ve been following the debate in Washington regarding health care reform very closely. You see, I am a former managed care executive. I currently work as a professional consultant for physicians and physician groups all over the country. I am also an economist, which makes me very interested in the impact that these possible changes will have on the market place and on the U.S. economy. As you might guess, I am also very curious about the outcome of what could be a revolutionary shift in how this country provides and finances its health care.

As I watch the debate rage back and forth and the various proposals get developed, formulated, discussed, and then revised again and again, a nagging thought continues to strike me: “Where’s the beef?” Remember the old Wendy’s commercial from so many years ago that had the little old lady asking where the beef was on a sandwich that was supposed to be all about the beef but wasn’t? In the same way, I keep wondering, “Where are the cost savings?” Ever since the idea for health care reform was pitched, it has been explained as though it is something we have to do; the alternative was just not an option. It was sold to us as something that was absolutely necessary in order to keep Medicare from going broke by 2017 and to keep our economy from being ruined by runaway costs. We were told that reform must happen now because controlling costs simply cannot wait. These are all statements that I agreed with because health care costs consume a higher percentage of our economy every year.

But as the proposals started to take shape, something alarmed me; I wasn’t seeing the cost savings! I could see the mandated benefits, I could see the expansion of coverage to almost all Americans, and I could see a lot of great things in the proposals, but what I couldn’t see were the cost savings. As the discussions progressed, we started to get cost estimates on the various health care proposals. The early house bill was estimated to cost $900 billion dollars over 10 years. Later versions and the current Senate proposal were estimated to cost around $800 billion dollars over the next decade. Wait a minute, how did an initiative that was supposed to be about cost savings turn into an $800 billion dollar expense? Then the President told us not to worry because he wouldn’t sign a bill that added any money to the deficit. Hold on! I thought this was about reducing costs? How did we go from needing to reduce costs to being content with something that doesn’t increase the deficit? Is anyone else concerned that these financial projections are coming from a government entity that has a worse track record of predicting the future than a long-range weather forecast? Where’s the beef?

I started digging deeper into the proposals and the numbers. The most current Senate proposal has a price tag of more than $800 billion dollars. But the proposal is being presented as “budget neutral” because this expanded coverage will be paid for through a number of taxes and commitments from hospitals and drug companies. One of the largest sources of funding in the most current proposal is a tax on the so-called “Cadillac Health Plans.” Basically, this means that the Senate proposal would tax the insurance companies at a rate of over 30% for all plans that are so rich in benefits that the total annual premium for a single person is over $8,000 dollars and for a family is over $21,000 dollars. This tax on the insurance companies is projected to account for over $200 billion dollars of the $800 billion needed in funding. It sounds good, doesn’t it! Lets just tax the evil insurance companies and that will pay for most of the bill! But there’s a problem here. You see, this kind of thinking completely ignores the fact that nothing happens in a vacuum.

Newton taught us that every action has an equal and opposite reaction. If we impose a tax on the insurance companies for these “Cadillac Health Plans,” the insurance companies and the employers who purchase these plans will no doubt react. If this kind of tax is enforced, the most likely response will be for insurance companies to simply pass premium taxes onto the employers. This will then force employers to avoid paying the tax by reducing benefits so that they only provide their employees with health care plans below the Cadillac threshold. This will mean that the expected $200 billion dollars in tax revenue won’t actually be paid by insurance companies after all. Does anyone really think that an industry as large and sophisticated as the insurance industry is going to get hit by a $200 billion dollar tax without developing plans to avoid it? I have worked in the insurance industry for 18 years, and you can bet that they aren’t going down without a fight. But that’s not even the worst part of this whole problem. The worst part is that we are creating funding mechanisms that aren’t really there to pay for coverage expansion for the uninsured, and we have completely lost sight of the whole point of this endeavor which was to reduce costs, not to increase them. Again, where’s the beef?

The problem with health care costs is very similar to that of an illness or a disease. The earlier you diagnose and treat the disease, the easier and less painful it is to treat it. On the other hand, the longer you wait the harder and more painful the treatment becomes. Catching something like breast cancer in its earliest stages significantly increases your chance for survival and makes you less likely to have to deal with things like mastectomies and radiation therapy. The problem with health care reform is no different. We have been avoiding the problem of health care costs for too long, and we have found ourselves in a position where we need to take action before it spirals even further out of control.

I think the federal government is missing the boat right now. The result will be a delay in the necessary treatment of the problem, which will mean that when we finally do get around to dealing with the cost problem, the treatment will be much more invasive and painful. What is likely to happen if we pass some legislation now that doesn’t do anything to control costs? Well, it will likely be several years before the lack of impact on health care costs become apparent. By that time, we will be in even worse shape, just like the cancer patient who doesn’t get an early diagnosis and early treatment. We will be faced with limited treatment options which will be significantly more painful to enact.

The bottom line is this: the only way to control the cost of health care is to either reduce the volume (the number of services provided) or to reduce the cost for each service. It’s as simple as that. It should also be understood that reducing the “price” of something means that you are also reducing the revenue that is received for that service, which of course ultimately impacts the physicians, hospitals or providers of the care that was rendered.

What happens if we find ourselves 3 or 4 years closer to the collapse of Medicare without having done anything to reduce the cost of health care? Faced with the option of reducing volume, which will quickly become a discussion on rationing, or reducing the price of services, it seems clear to me that our elected officials will choose to go after the price reduction side of the equation. It doesn’t take a Nobel Prize winning economist to understand that reductions in revenue for the services that are provided by physicians and other health care providers translate into significant reductions in physician incomes.

With that scenario in mind, I leave you with one pretty scary thought. Why on earth would anyone go into the practice of medicine, through the long and difficult training process, only to begin their career later in life and significantly in debt, working long hours with the intense pressure that comes with being a doctor, if you know that your income will just continue to decline year after year through your entire career? How good will our health care be if we cannot attract the best and brightest students to become physicians? And how good is universal health care if we don’t have enough doctors? Now that’s a scary thought.

As I closely watch this debate, I’m becoming more and more concerned. The last time I had this type of sinking feeling was a couple of years after the United States invaded Iraq and I found myself asking, “Where are the weapons of mass destruction? I thought this was supposed to be about weapons of mass destruction?”

Obama Speech Implications for Physicians

2009-09-10T16:42:00.000-04:00

Here’s an overview of some of the implications President Obama’s speech last night may have for physicians:

Overall chances for some kind of bill passing
It’s simply too early to say if healthcare reform will pass during this Congress. President Obama seemed to improve his prospects with moderate Democrats, which could be key in maintaining support for a bill. But he definitely did not pick up any new Republican support last night. As David Axelrod, one of the President’s advisors, joked about the GOP House member who shouted “You lie!” during the speech, “I've reluctantly come to the conclusion that maybe Congressman Wilson is not going to be with us on this one.”[i]

A few new details
The White House strategy going into the debate at the start of the year was to stay above the fray and provide guidance through some general principles. Legislatively, last night’s speech was mostly a recap of broad ideas the President put forward already. However, he did add some new proposals, including support for [ii] some limited tort reform measures, described below; an individual mandate for health insurance coverage (a reversal of his position during the presidential primary campaign); “high risk” insurance pools for people who could not otherwise get coverage due to preexisting conditions; and a tax on some rich health insurance plans.

Tort reform
Fulcrum Strategies president Ron Howrigan calls tort reform the “Magic Doctor Card.” His argument is that physicians will be willing to overlook significant reform bill defects in exchange for meaningful tort reform provisions. By mentioning this in the speech last night, President Obama signaled that wants physicians and AMA support badly enough to anger reliably Democratic trial lawyers.

From The Wall Street Journal:
And in an effort aimed at key Republican negotiators in the Senate, the White House outlined a new pilot program to move medical-malpractice cases out of the court system and put them before expert panels and arbitrators. White House officials say the program, first floated by President George W. Bush, would be instituted by executive order and wouldn't be included in the health-care legislation….

It was one of the few areas of the plan that Republicans praised, and it won strong endorsement from doctors… "We think this is just an excellent first step," said Rebecca Patchin, board chairman for the American Medical Association…[iii]

What’s next?
This afternoon the President is meeting with key Senators, and Senate Finance Committee Chairman Max Baucus (D-MT) has said he will move legislation within the next two weeks.[iv]

Congress is (in)famous for being unpredictable, but it’s still useful for physicians to think about what could happen if a bill does pass.

[i] http://blogs.abcnews.com/thenote/2009/09/the-note-joe-wilsons-war-team-obama-finds-a-new-enemy-and-perhaps-new-momentum.html

[ii] http://blogs.abcnews.com/george/2009/09/my-take-on-obamas-speech.html

[iii] http://online.wsj.com/article/SB125251148557696003.html

[iv] http://www.cbsnews.com/blogs/2009/09/09/politics/politicalhotsheet/entry5299004.shtml

What You Need to Know About Obama's Speech

2009-09-10T13:48:00.000-04:00

Last night, the President addressed a joint session of Congress to discuss health care reform. As expected, the speech was very good. No matter what your views are, we cannot deny that the President is a wonderful public speaker, a gifted politician, and a very smart man.

The President outlined some broad and well-accepted provisions that he has dedicated himself to seeing through in a health care reform bill. The first things he discussed were the key principles of insurance reform. These ideas resonated well with the general public and with both parties. The President called for a bill that would eliminate coverage denial for people with pre-existing conditions. He called for an end to lifetime maximums that are currently present in most insurance plans. He also called for a cap on out-of-pocket maximums contained in most insurance plans. Finally, he made reference to making it illegal for plans to “drop your coverage when you get sick or water it down when you need it most.” These are all very positive changes that most of the country supports. The problem is there was no discussion on the side effects that these changes will have. Changes and reforms like the one being discussed can be compared to a prescription that your doctor may write to help you with your illness. Often times these prescriptions come with serious side effects. While the side effects may not be bad enough to make you stop taking the medication, they should at least be understood before starting any type of therapy.

So what are the side effects of insurance reform? Simply put, they will drive up the cost of insurance. This is not a “might” or “may” but rather a “will”. If we eliminate pre-existing condition exclusions, eliminate lifetime maximums, reduce the out-of-pocket maximums, and limit insurance companies’ ability to mitigate their risk, it will have a direct effect on premiums. This will happen for two reasons. First, the more money an insurance company has to pay out in claims, the more it has to charge in premiums. This is no secret, and a fairly obvious fact. Secondly, and perhaps less obvious, is the fact that some of the tools that insurance companies use are designed not only to reduce their expenditures, but to also reduce unnecessary utilization. Let’s not forget the early days of managed care and HMO’s when all doctor visits were small co-pays and most prescriptions could be purchased for $10. These benefit plans can lead to unnecessary over utilization, which is why the industry moved to more cost-sharing for the patient in the first place. Now, don’t get me wrong; I’m not defending insurance companies. I spent eighteen years working inside that industry, and I will be the first to say that reform is needed and needed badly. What I am saying is that while I support these kinds of reforms, we need to go into them with a full understanding of the potential the side effects.

Think about this: what will happen in a weak economy if insurance reforms get passed in such a way that premiums go up and the other provisions of reform don’t come into play for four more years? Will we see a dramatic increase in the uninsured as businesses large and small reduce or drop their insurance? Will we see businesses cut more jobs in the face of increasing premiums? We could very well improve insurance coverage for the average American, but in doing, we could also cause them to loose their jobs. If you think I’m wrong about this, do your own simple test. Call your auto insurance agent and ask him or her how much your premium would go up if you changed you’re deductible from $500 to $250 or if you increased your coverage. They will probably be able to quote you the increase over the phone. You see, all insurance companies have a very good handle on actuarial tables, and they completely understand the relationship between coverage and premiums. While I don’t know how exactly how much more you would have to pay to increase your auto insurance coverage, I do know that you will pay more. The same holds true for health care.

The other point that these reforms don’t appear to address is the issue of experience rating. If the government mitigates the insurance companies’ ability to limit their risk, they will respond by placing more emphasis on experience rating. Let me give you an example. Let’s say you have a medium sized employer with an employee who has a child with a very expensive illness like Hemophilia. This child is required to use very expensive products to control their bleeds. The child over his or her lifetime is likely to cost well over the current lifetime maximum of $1 million. With the lifetime maximum removed through legislation, the insurance company now knows that their risk exposure is very high with this employer group. So what will the insurance company do? Since they are not in business to loose money, they will begin passing significant rate increases to the employer to cover that cost. This is called experience rating. The insurance company will increase the rates until they are either collecting enough money to cover the cost of that child or until they drive that employer to find a different insurance company. Now, let’s say the broker for this company understands what is going on and tells the company that their rates will go down if they can “get rid of the employee with the sick kid”. If you think that this kind of discussion doesn’t happen, I have some wonderful investments in mortgage derivatives that I would like to sell you.

Let’s also consider what happens to the self-funded employer when things like lifetime maximums go away. We now have employers who can significantly improve their bottom line if they find a way to get rid of high-cost employees. Again, I am not saying that we shouldn’t proceed with insurance reform, but rather, I am simply pointing out that it will come with some pretty bad side effects.

The President then began addressing universal coverage. Again, this is an issue where we are likely to find general agreement. I don’t know anyone who doesn’t think that we should make coverage available for all Americans. The issue isn’t whether we would like to see this happen, but rather, how do we make it happen and even more importantly, how do we pay for it?

When the President focused on cost savings, he pointed out several initiatives. He touted the cost savings that have already been pledged by the drug companies and hospitals. He talked about eliminating some of the Medicare expenditures that are being paid to private insurance companies. These are all areas that can and should be attacked, but even the President doesn’t believe they will be enough to solve the problem. His main focus is on eliminating the waste that is already in the system. The President commented that “we will also create an independent commission of doctors and medical experts charged with identifying more waste in the years ahead.” I agree that if we could eliminate all of the unnecessary waste in the system, it would make a huge impact on the total cost of health care. However, the real issue is how do we do that? The American health care system consists of dedicated, highly educated people who provide care to patients every day. While I know that every profession has its bad apples, I firmly believe that the vast majority of physicians practice in a way that they feel is truly best for their patients and they are not intentionally doing things that don’t add value. Yes, there is waste in the system, but it’s going to be extremely difficult to get rid of that waste. What concerns me most is the notion that a government sponsored “commission” is somehow going to be able to instantly figure out how to eliminate this waste and then implement these ideas universally. It’s simply unfeasible and unrealistic to believe that a government-sponsored commission is going to be able to solve the problem of waste.

The bottom line is that the President gave an outstanding speech with included some very good ideas. The speech was short on details, which is to be expected given the amount of time he had and the complexity of the problem. The real work lies ahead because, like all things, the devil is in the details. If Congress and the administration can draft legislation that will not only accomplish insurance reform and universal coverage, but also find a way to address the cost issues with health care, then they will have accomplished an incredible feat. If however, they are wrong, and the side effects of their prescription are worse than the original problem, we could be in very dire straights. Consider this: the President’s plan wouldn’t become fully implemented until some time in 2013. Several estimates have revealed that Medicare will be bankrupt by 2017. If health care reform, as the President wants it, gets passed and implemented in 2013, it will take at least a year to figure out if it is working or not. That means we won’t know if we have fixed the problem until 2014 or 2015. If this “solution” does not work, how on earth are we supposed to fix the problem before the train wreck that will occur by 2017?

How Will Health Care Reform Impact Physicians?

2009-08-31T09:52:00.000-04:00

Welcome to Fulcrum Strategies' Public Affairs for Physicians blog. What is Fulcrum Strategies? Fulcrum is a provider advocacy group which is made up of former insurance professionals who could no longer sleep at night with the way managed care companies were treating the American health care provider. Fulcrum Strategies is dedicated to ensuring that health care providers get compensated fairly for their hard work and that they are able to succeed.

So how will this blog be of importance to you? For starters, Fulcrum Strategies is comprised of some of the best former managed care negotiators in the industry. Our expert consultants understand both sides of the negotiation table, and they are dedicated to helping physicians understand what the health care reform could potentially mean for their practices. Our consultants comb through legislation and the most recent events happening in the health care reform on a daily basis. Each blog posting will reveal three very important pieces of information for providers: the most relevant happenings in health care reform that physicians need to know, what that legislation actually means, and how these changes will ultimately impact physicians and their practices.

You see, we understand that there is an incredible amount of information floating around regarding the health care reform. And we understand that physicians don't have excessive amounts of time to read and to fully understand everything. That's why Fulcrum Strategies is dedicated to assisting you, the hard-working American physician, in understanding all things health care and how it will impact your practice.

Check back often, as we will continually provide you with updates and information you need to know in order to be prepared for the future of American health care.

Thank you,
Fulcrum Strategies