Last week's deal to avert the "fiscal cliff" settled very little.
For those in the health care market, I will suggest the big takeaway is that we should expect very little will be settled in the coming months and we will continue to face a great deal of uncertainty for years to come.
Showing posts with label Medicare Advantage. Show all posts
Showing posts with label Medicare Advantage. Show all posts
Wednesday, January 9, 2013
Monday, August 20, 2012
Romney vs. Obama: The Romney-Ryan Medicare Plan Compared to the Obama Medicare Plan—Who’s Telling the Truth on Medicare?
They both are and they both aren’t.
I’ve never seen a week in health care policy like last week. The media reports have to be in the thousands, all trying to make sense of the furious debate between Obama and Romney over Medicare.
As someone who has studied this issue for more than 20 years, it has also been more than exasperating for me to watch each side trade claims and for the press to try to make sense of it.
This blog post is quite long because the subject matter is complicated. If you want to cut to the chase, see my conclusion and summary at the end of this post.
I’ve never seen a week in health care policy like last week. The media reports have to be in the thousands, all trying to make sense of the furious debate between Obama and Romney over Medicare.
As someone who has studied this issue for more than 20 years, it has also been more than exasperating for me to watch each side trade claims and for the press to try to make sense of it.
This blog post is quite long because the subject matter is complicated. If you want to cut to the chase, see my conclusion and summary at the end of this post.
Sunday, February 26, 2012
"Five Myths About Medicare"
I recommend you read John Rother's recent op-ed in the Washington Post, "Five Myths About Medicare."
John argues that each of these statements is a myth:
John argues that each of these statements is a myth:
- Medicare is inefficient and fails to control costs--the CBO has projected that per capita spending will grow only 1% more than inflation over the next decade.
- The well-off don't pay enough for their Medicare benefits--working age premiums as well as Part B premiums already vary considerably by income.
- Medicare benefits are overly generous--in 2007 Medicare paid an average of only half of the $18,000 the average beneficiary spent.
- Cutting Medicare is the only way to save it--changing incentives to providers offers more promise.
- Medicare needs fundamental restructuring--"Even the most well-run and efficient program cannot nearly double its enrollment without a matching increase in money."
And this conclusion:
"Containing health-care cost growth is critical for Medicare’s survival, but it’s impossible to do that for Medicare alone. Payment restraints and incentives that improve value must be applied to the entire health-care system to be effective."
Monday, February 6, 2012
Medicare Advantage Premiums Drop an Average of 7% and Enrollment up 10%—That Must Make Republicans Just Want to Cry
Medicare Advantage would appear to be a fantastic success—senior premiums are dropping and enrollment is increasing.
Listening to Health and Human Services Secretary Sebelius last week, you would think private Medicare plans were a Democratic idea and this is their success. Many industry observers, including me, have worried that Medicare Advantage benefits would shrink and premiums would rise because the new health care law reduced federal payments to the plans by $136 billion over the next decade.
“The Medicare Advantage program is stronger than ever,” said Secretary Sebelius. “Premiums are down on average, enrollment is up, and thanks to the Affordable Care Act we have unprecedented new tools to ensure that seniors and people with disabilities are getting the best value out of their coverage.”
Of course, privatizing Medicare has always been a Republican idea and most Democrats would like nothing better than to kill it dead out of fear that Medicare Advantage plans will undermine the financial integrity of Medicare—private plans get paid more than Medicare gets for the same enrollees—and that the private plans risk turning the Medicare entitlement into a two-tiered program—one for the rich and one for the poor.
And, Democrats can’t wait to use the Paul Ryan Premium Support plan, which would rely exclusively on private Medicare plans, as an election issue charging that the Republicans want to kill Medicare as we know it.
But instead the Obama administration used last week’s announcement of lower Medicare Advantage premiums and solid enrollment growth as evidence of just how successful they’ve been at running the program and how overdone Republican charges were that the Medicare cuts in the Affordable Care Act would wreck private Medicare.
There is that old saying, “Sometimes it’s better to be lucky than good.”
First, the entire health insurance industry is experiencing an unexpected drop in health care trend rates—costs are escalating far less than expected. When that happens, health insurers generally see their bottom line improve in the form of windfall profits.
What Medicare pays Medicare Advantage plans is a function of the last year’s experience. With the expectation that care costs would be higher than they turned out to be, private plans were inadvertently paid more, as well as charged seniors more, than they needed. That typically goes on for as long as health care cost trend decelerates.
The good results in Medicare Advantage were also helped by the Obama administration, which declared a “Lake Wobegon” moment. They took $6.7 billion intended to be paid as bonuses to the highest quality plans under the new health law and instead declared just about all of them “above average” or better and infused those billions among almost all Medicare Advantage contractors, further improving their bottom lines.
Why did the Democrats who hate Medicare Advantage so much find an extra $6.7 billion for them? Because it’s an election year. Seniors vote and the Democrats very quickly concluded that having seniors lose their private plans, or have to pay more for them because of payment changes due to the new health law, wasn’t going to help their reelection chances in places like Florida.
So, ironically, the Democrats were so scared Medicare Advantage premiums were going to soar that they dumped billions into the program to offset the expected.
But the expected didn’t happen when cost trend came in lower than everyone predicted. The result was even better profit results for the industry, better than expected prices for seniors, and enrollment growth.
Now, Sebelius could have said, “Whoops, we just flooded the health insurance industry with billions they didn’t need.” But why do that when you can take credit for a popular program you really want to kill?
Does this mean Medicare Advantage is out of the woods? No, more like there is a cliff still coming.
First, no more $6.7 billion gifts to the insurance industry from the Obama administration are in the pipeline.
Second, trend can’t keep falling. At best, it will stabilize and erase the windfall profits. At worst, it will start climbing and we’ll have the opposite impact on profitability and pricing.
Third, the $136 billion in cuts to Medicare Advantage the Affordable Care Act makes to the program really doesn't begin for another two years—the new law just froze payments this year at unintentionally generous levels.
Medicare Advantage plans are now benefiting from a perfect storm of good things. In a couple of years, it could be a perfect storm of bad things— no more “Lake Wobegon” payments, rising trend rates resulting in inadequate payments to insurers, and the $136 billion in real cuts finally kicking in.
Until then, we can expect to see President Obama campaigning in front of seniors taking credit for all the good things his new health law has done for Medicare Advantage.
It must make Republicans just want to cry.
Listening to Health and Human Services Secretary Sebelius last week, you would think private Medicare plans were a Democratic idea and this is their success. Many industry observers, including me, have worried that Medicare Advantage benefits would shrink and premiums would rise because the new health care law reduced federal payments to the plans by $136 billion over the next decade.
“The Medicare Advantage program is stronger than ever,” said Secretary Sebelius. “Premiums are down on average, enrollment is up, and thanks to the Affordable Care Act we have unprecedented new tools to ensure that seniors and people with disabilities are getting the best value out of their coverage.”
Of course, privatizing Medicare has always been a Republican idea and most Democrats would like nothing better than to kill it dead out of fear that Medicare Advantage plans will undermine the financial integrity of Medicare—private plans get paid more than Medicare gets for the same enrollees—and that the private plans risk turning the Medicare entitlement into a two-tiered program—one for the rich and one for the poor.
And, Democrats can’t wait to use the Paul Ryan Premium Support plan, which would rely exclusively on private Medicare plans, as an election issue charging that the Republicans want to kill Medicare as we know it.
But instead the Obama administration used last week’s announcement of lower Medicare Advantage premiums and solid enrollment growth as evidence of just how successful they’ve been at running the program and how overdone Republican charges were that the Medicare cuts in the Affordable Care Act would wreck private Medicare.
There is that old saying, “Sometimes it’s better to be lucky than good.”
First, the entire health insurance industry is experiencing an unexpected drop in health care trend rates—costs are escalating far less than expected. When that happens, health insurers generally see their bottom line improve in the form of windfall profits.
What Medicare pays Medicare Advantage plans is a function of the last year’s experience. With the expectation that care costs would be higher than they turned out to be, private plans were inadvertently paid more, as well as charged seniors more, than they needed. That typically goes on for as long as health care cost trend decelerates.
The good results in Medicare Advantage were also helped by the Obama administration, which declared a “Lake Wobegon” moment. They took $6.7 billion intended to be paid as bonuses to the highest quality plans under the new health law and instead declared just about all of them “above average” or better and infused those billions among almost all Medicare Advantage contractors, further improving their bottom lines.
Why did the Democrats who hate Medicare Advantage so much find an extra $6.7 billion for them? Because it’s an election year. Seniors vote and the Democrats very quickly concluded that having seniors lose their private plans, or have to pay more for them because of payment changes due to the new health law, wasn’t going to help their reelection chances in places like Florida.
So, ironically, the Democrats were so scared Medicare Advantage premiums were going to soar that they dumped billions into the program to offset the expected.
But the expected didn’t happen when cost trend came in lower than everyone predicted. The result was even better profit results for the industry, better than expected prices for seniors, and enrollment growth.
Now, Sebelius could have said, “Whoops, we just flooded the health insurance industry with billions they didn’t need.” But why do that when you can take credit for a popular program you really want to kill?
Does this mean Medicare Advantage is out of the woods? No, more like there is a cliff still coming.
First, no more $6.7 billion gifts to the insurance industry from the Obama administration are in the pipeline.
Second, trend can’t keep falling. At best, it will stabilize and erase the windfall profits. At worst, it will start climbing and we’ll have the opposite impact on profitability and pricing.
Third, the $136 billion in cuts to Medicare Advantage the Affordable Care Act makes to the program really doesn't begin for another two years—the new law just froze payments this year at unintentionally generous levels.
Medicare Advantage plans are now benefiting from a perfect storm of good things. In a couple of years, it could be a perfect storm of bad things— no more “Lake Wobegon” payments, rising trend rates resulting in inadequate payments to insurers, and the $136 billion in real cuts finally kicking in.
Until then, we can expect to see President Obama campaigning in front of seniors taking credit for all the good things his new health law has done for Medicare Advantage.
It must make Republicans just want to cry.
Monday, August 1, 2011
The Debt Deal: There Will Be Blood on the Floor on November 23rd
The debt deal is finally done. But it really isn’t an agreement on what cuts will be made, just the process that will be used to make them.
The real work is left to the Congressional appropriators for the first $917 billion and for a super-committee of Congress for the second $1.2 trillion to $1.5 trillion in ten-year cuts.
That second tranche is where health care will make its contribution. The super-committee has to make its decisions by November 23rd and, as a practical matter, the Congress can only accept what the super-committee decides or face the consequences of the automatic $1.2 trillion fallback cuts.
When it comes to health care and the super-committee, all federal health care spending is on the table—–Medicare, Medicaid, the new law, benefits, and provider payments.
Since the budget window for the deal is ten years, it is not likely that any changes will be made to entitlement eligibility—such as delaying the Medicare eligibility age from 65 to 67. It just wouldn’t be fair to tell a 60-year-old their Medicare eligibility age is being raised. But we could see more means testing of Medicare premiums.
It is possible that the super-committee could deal with real systemic health care reform—–particularly in the way we pay providers. But I doubt it. The committee isn’t going to have a lot of time to take up so complex a matter as systemic health care payment reform given that they will have to deal with hundreds of billions more in cuts from lots of federal programs. I don’t see the committee as having the expertise, will, or the time to tackle real health care reform.
The real potential for cuts will be to provider reimbursement.
So, all of those provider organizations that thought they scored big by limiting their contribution during the health care reform debate are likely be on the defensive in ways they could not have imagined 18 months ago.
Physicians, facing a 29.5% Medicare Sustainable Growth Rate (SGR) fee schedule cut on January 1, 2012, need to be really worried. That 29.5% cut is part of the existing budget baseline from which the super-committee needs to cut hundreds of billions more—much less find tens of billions of dollars to put these doc cuts off again. Hospitals who got off with a $150 billion contribution to the Affordable Care Act have to be in the bull’s eye this time. Drug companies are a particularly juicy target for liberals who don’t like them and conservatives who wish the Part D program had never been passed. Medicare Advantage insurers have recently been reporting record profits—not something you want to be doing when the Congress is looking for lots of cash.
While there is a 2% cap on any cuts that could occur to Medicare in the $1.2 trillion default trigger, there are no limits to what the super-committee can cut. As an order of magnitude, it looks to me like the cuts Medicare will have to eventually sustain from the super-committee will have to approach to the cuts the program saw under the new health care law--largely because of the impact the SGR formula has on the baseline the committee will have to use.
Medigap insurers could also be at risk. A proposal to reduce first dollar Medigap coverage continues to hang-on and would likely at least be on the super-committee’s table. Its $50 billion value is just too big to ignore. But that is offset by how unpopular such direct cuts to millions of Medigap policyholders would be.
I would not be surprised to see the super-committee take a hard look at reducing Medicaid spending by giving the states more flexibility and less money.
The debt ceiling formula the Congress and the President just agreed to is a particular problem for the physicians. They are the ones who agreed to support the new health care law (the AMA anyway) without getting a fix to the Sustainable Growth Rate dilemma. Now, the debt deal seals the physician fee baseline at a level that presumes the 29.5% fee cuts are in effect. It is from this point that the super-committee has to start its work.
Given how reluctant Congress has been to cut the docs in past years, just how the heck are they going to accomplish net Medicare cuts and take care of the docs this time?
And just think of the impact big provider cuts could end up having on health care cost trends as providers attempt to shift the impact of these cuts to the entire health care system--just as health care cost trend has finally been slowing down.
If you thought we had a tense few weeks over the debt ceiling, you had better clear your calendar for the weeks leading up to the November 23rd super-committee deadline. The debt deal was only about process, this next big fight is going to be about real and significant cuts and there will be be some significant blood on the floor when it is over!
The real work is left to the Congressional appropriators for the first $917 billion and for a super-committee of Congress for the second $1.2 trillion to $1.5 trillion in ten-year cuts.
That second tranche is where health care will make its contribution. The super-committee has to make its decisions by November 23rd and, as a practical matter, the Congress can only accept what the super-committee decides or face the consequences of the automatic $1.2 trillion fallback cuts.
When it comes to health care and the super-committee, all federal health care spending is on the table—–Medicare, Medicaid, the new law, benefits, and provider payments.
Since the budget window for the deal is ten years, it is not likely that any changes will be made to entitlement eligibility—such as delaying the Medicare eligibility age from 65 to 67. It just wouldn’t be fair to tell a 60-year-old their Medicare eligibility age is being raised. But we could see more means testing of Medicare premiums.
It is possible that the super-committee could deal with real systemic health care reform—–particularly in the way we pay providers. But I doubt it. The committee isn’t going to have a lot of time to take up so complex a matter as systemic health care payment reform given that they will have to deal with hundreds of billions more in cuts from lots of federal programs. I don’t see the committee as having the expertise, will, or the time to tackle real health care reform.
The real potential for cuts will be to provider reimbursement.
So, all of those provider organizations that thought they scored big by limiting their contribution during the health care reform debate are likely be on the defensive in ways they could not have imagined 18 months ago.
Physicians, facing a 29.5% Medicare Sustainable Growth Rate (SGR) fee schedule cut on January 1, 2012, need to be really worried. That 29.5% cut is part of the existing budget baseline from which the super-committee needs to cut hundreds of billions more—much less find tens of billions of dollars to put these doc cuts off again. Hospitals who got off with a $150 billion contribution to the Affordable Care Act have to be in the bull’s eye this time. Drug companies are a particularly juicy target for liberals who don’t like them and conservatives who wish the Part D program had never been passed. Medicare Advantage insurers have recently been reporting record profits—not something you want to be doing when the Congress is looking for lots of cash.
While there is a 2% cap on any cuts that could occur to Medicare in the $1.2 trillion default trigger, there are no limits to what the super-committee can cut. As an order of magnitude, it looks to me like the cuts Medicare will have to eventually sustain from the super-committee will have to approach to the cuts the program saw under the new health care law--largely because of the impact the SGR formula has on the baseline the committee will have to use.
Medigap insurers could also be at risk. A proposal to reduce first dollar Medigap coverage continues to hang-on and would likely at least be on the super-committee’s table. Its $50 billion value is just too big to ignore. But that is offset by how unpopular such direct cuts to millions of Medigap policyholders would be.
I would not be surprised to see the super-committee take a hard look at reducing Medicaid spending by giving the states more flexibility and less money.
The debt ceiling formula the Congress and the President just agreed to is a particular problem for the physicians. They are the ones who agreed to support the new health care law (the AMA anyway) without getting a fix to the Sustainable Growth Rate dilemma. Now, the debt deal seals the physician fee baseline at a level that presumes the 29.5% fee cuts are in effect. It is from this point that the super-committee has to start its work.
Given how reluctant Congress has been to cut the docs in past years, just how the heck are they going to accomplish net Medicare cuts and take care of the docs this time?
And just think of the impact big provider cuts could end up having on health care cost trends as providers attempt to shift the impact of these cuts to the entire health care system--just as health care cost trend has finally been slowing down.
If you thought we had a tense few weeks over the debt ceiling, you had better clear your calendar for the weeks leading up to the November 23rd super-committee deadline. The debt deal was only about process, this next big fight is going to be about real and significant cuts and there will be be some significant blood on the floor when it is over!
Thursday, November 11, 2010
Shame on AARP For Their Response to the Deficit Commission Co-Chairs' Report
The Co-Chairs of the President’s Deficit Reduction Commission are out with their preliminary recommendations.
They’ve done a great job—they’ve offended about everyone!
But we have a nearly impossible but unsustainable challenge in front of us if we are ever going to crawl out of this deep hole.
It is not so much what is on their list as what this list tells us about just how fundamental the changes are going to have to be for anyone who depends in any way on the federal government—which would be everyone in this country born or going to be born for decades to come.
In fact, the preliminary report calls for the Congress to revisit the Public Option if health care costs don’t meet a set of initial five-year targets. Nothing has been left off the table whether it is an unfettered discussion of how bad things are or the wide range of controversial options that now must be considered.
So how does AARP respond to the truth about the problem and an honest attempt to deal with it?
Some separate quotes from their press release yesterday in response to the report:
Of course any report like this is going to be "dead on arrival" on Capitol Hill. But it's real value is that it can be the beginning of an honest discussion on what we will have to do.
AARP has lots of people at its Washington headquarters that understand these problems better than most and very much care about maintaining the integrity of our entitlement programs.
I expected a lot more from them.
AARP should be doing its part getting our people ready for change not pretending that it can somehow be painlessly avoided.
AARP should be taking the lead in explaining to seniors, and those on their way to becoming seniors, just what the problems are and just how fundamental the change is going to have to be if we are in fact going to hand our children and grandchildren a sustainable American Dream.
Shame on AARP! If anyone could be providing critically important leadership here it is them.
Download the Co-Chair's Report
They’ve done a great job—they’ve offended about everyone!
But we have a nearly impossible but unsustainable challenge in front of us if we are ever going to crawl out of this deep hole.
It is not so much what is on their list as what this list tells us about just how fundamental the changes are going to have to be for anyone who depends in any way on the federal government—which would be everyone in this country born or going to be born for decades to come.
In fact, the preliminary report calls for the Congress to revisit the Public Option if health care costs don’t meet a set of initial five-year targets. Nothing has been left off the table whether it is an unfettered discussion of how bad things are or the wide range of controversial options that now must be considered.
So how does AARP respond to the truth about the problem and an honest attempt to deal with it?
Some separate quotes from their press release yesterday in response to the report:
“With the release of the Co-Chairs’ proposal from the President’s Fiscal Commission today, AARP has responded with concern about how these recommendations would hurt the health and financial security of middle class Americans in particular, and believes that the proposal is contrary to the best interests of American families.”I liked Senate Budget Chair Kent Conrad’s response a whole lot more, "People can say we want to keep what is. What is is not affordable.”
“During these tough economic times, the last thing we should be considering is targeting the guaranteed, inflation-protected Social Security benefits that millions of Americans count on every day,’ said Nancy LeaMond, AARP Executive Vice President.”
“We're also deeply concerned that the Co-Chairs' Proposals would aim to reduce the deficit by shifting health care costs onto seniors in Medicare. Raising costs on the sick and the most economically vulnerable is both wrong and counter-productive policy. Instead, we should be focused on efforts to lower costs throughout the health care system.”
Of course any report like this is going to be "dead on arrival" on Capitol Hill. But it's real value is that it can be the beginning of an honest discussion on what we will have to do.
AARP has lots of people at its Washington headquarters that understand these problems better than most and very much care about maintaining the integrity of our entitlement programs.
I expected a lot more from them.
AARP should be doing its part getting our people ready for change not pretending that it can somehow be painlessly avoided.
AARP should be taking the lead in explaining to seniors, and those on their way to becoming seniors, just what the problems are and just how fundamental the change is going to have to be if we are in fact going to hand our children and grandchildren a sustainable American Dream.
Shame on AARP! If anyone could be providing critically important leadership here it is them.
Download the Co-Chair's Report
Wednesday, May 27, 2009
UnitedHealth Knows How to Save $500 billion In the Medicare Program--So Why Do They Need the Extra Private Medicare Payments?
This from Erica Werner's AP story today:
Aside from the fact that all of this is voluntary and has no consequences in it for failing to deliver it---and therefore not "scoreable" under Congressional budget rules--I have a question.
If United Health knows how to save $500 billion in Medicare costs why has it been lobbying for years to maintain the hundreds of billions of dollars in extra payments private Medicare plans--of which United is the biggest player--get from the government?
It would seem to me that if they know how to save all of this money in Medicare they wouldn't need the extra 14% the government pays United and all the other private Medicare plans above what it pays itself under the traditional Medicare plan.
The Obama administration says these extra payments to private Medicare HMOs are worth $175 billion over ten years and the private plans have about 40% of the Medicare market. Forty percent of the $500 billion these savings United says are there would therefore be in the private market--or $200 billion. So all of these great ideas United put on the table today should more than make-up for the industry giving up the extra $175 billion payments.
Am I missing something here?
Gee, next thing you know AHP will be going to the White House volunteering the $175 billion for President Obama's health care plan.
They're just coming up with extra cash all over the place!
A major health insurer [United Health Group] says the government can save more than $500 billion in Medicare spending by sending patients to less expensive, more efficient doctors, reducing hospital visits by the elderly and cutting down on unnecessary care.So UnitedHealth knows how to save $500 billion in Medicare spending.
Aside from the fact that all of this is voluntary and has no consequences in it for failing to deliver it---and therefore not "scoreable" under Congressional budget rules--I have a question.
If United Health knows how to save $500 billion in Medicare costs why has it been lobbying for years to maintain the hundreds of billions of dollars in extra payments private Medicare plans--of which United is the biggest player--get from the government?
It would seem to me that if they know how to save all of this money in Medicare they wouldn't need the extra 14% the government pays United and all the other private Medicare plans above what it pays itself under the traditional Medicare plan.
The Obama administration says these extra payments to private Medicare HMOs are worth $175 billion over ten years and the private plans have about 40% of the Medicare market. Forty percent of the $500 billion these savings United says are there would therefore be in the private market--or $200 billion. So all of these great ideas United put on the table today should more than make-up for the industry giving up the extra $175 billion payments.
Am I missing something here?
Gee, next thing you know AHP will be going to the White House volunteering the $175 billion for President Obama's health care plan.
They're just coming up with extra cash all over the place!
Friday, February 27, 2009
Medicare Advantage HMO Stocks Down Big This Week
Matthew Holt, publisher of the Health Care Blog, and I have been in a state of incredulity over Wall Street’s head in the sand view of the Medicare Advantage business for more than a year. See his post today, "I Don't Really Understand Wall Street, Part 98."
Why was it that in the wake of a Democratic take-over of Congress in 2006 and Obama’s victory last November that HMO stocks heavily invested in the Medicare Advantage business had not paid a bigger price for betting the Republicans would still be in power in 2009?
This week, HMOs disproportionately invested in Medicare Advantage, like Humana and Universal American, were down 30% on top of their already huge plunges from their 52-week highs. Two things drove the loss of confidence this week. First, CMS said that the Obama administration would begin the cutting in 2010 by announcing a much lower 0.5% increase in the National Per Capita Medicare Advantage Growth Percentage. The market was expecting the Obama administration to be as generous as the Bush folks and announce a 3% to 5% increase.
Then the first Obama budget was announced and, guess what, the administration put $177 billion in Medicare Advantage cuts into it. Not like the new President hadn’t told us he would do this, maybe two or three hundred times, during the campaign.
In January 2008, in a post, Medicare Advantage Cuts? I said, “From the looks of Medicare Advantage-heavy HMOs' share prices, there's apparently lots of sand on Wall Street and a great many people have their heads buried in it.”
On the very first day this blog went online in a December 2006 post called, The Democrats Will Change MedicareAdvantage I said, “What many of these financial analysts on Wall Street don’t understand (Humana is trading at the highest price/earnings multiple in the HMO industry) is that, to the Democrats, this is not just about a fair funding level for private Medicare plans and whether they want to risk messing with them. It is about deep-seated ideological objections.”
I also said in that 2006 post, “In fact, Goldman Sachs analyst Mat Borsch came out with a positive report on Humana, a company that has been particularly aggressive in the Medicare market. Borsch said that while it is possible Democrats would change the Part D program, 'the odds of substantial change to the Medicare Advantage plan program (which is what really matters to Humana) are remote.”
But here is what Barron’s is reporting the analysts are saying this week,
It is not.
But since Wall Street hasn't listened to me for two years, I am not going to tell them why!
Here's a hint: Medicare Advantage Payments to Insurers--Baucus Zeroing In!
Why was it that in the wake of a Democratic take-over of Congress in 2006 and Obama’s victory last November that HMO stocks heavily invested in the Medicare Advantage business had not paid a bigger price for betting the Republicans would still be in power in 2009?
This week, HMOs disproportionately invested in Medicare Advantage, like Humana and Universal American, were down 30% on top of their already huge plunges from their 52-week highs. Two things drove the loss of confidence this week. First, CMS said that the Obama administration would begin the cutting in 2010 by announcing a much lower 0.5% increase in the National Per Capita Medicare Advantage Growth Percentage. The market was expecting the Obama administration to be as generous as the Bush folks and announce a 3% to 5% increase.
Then the first Obama budget was announced and, guess what, the administration put $177 billion in Medicare Advantage cuts into it. Not like the new President hadn’t told us he would do this, maybe two or three hundred times, during the campaign.
In January 2008, in a post, Medicare Advantage Cuts? I said, “From the looks of Medicare Advantage-heavy HMOs' share prices, there's apparently lots of sand on Wall Street and a great many people have their heads buried in it.”
On the very first day this blog went online in a December 2006 post called, The Democrats Will Change MedicareAdvantage I said, “What many of these financial analysts on Wall Street don’t understand (Humana is trading at the highest price/earnings multiple in the HMO industry) is that, to the Democrats, this is not just about a fair funding level for private Medicare plans and whether they want to risk messing with them. It is about deep-seated ideological objections.”
I also said in that 2006 post, “In fact, Goldman Sachs analyst Mat Borsch came out with a positive report on Humana, a company that has been particularly aggressive in the Medicare market. Borsch said that while it is possible Democrats would change the Part D program, 'the odds of substantial change to the Medicare Advantage plan program (which is what really matters to Humana) are remote.”
But here is what Barron’s is reporting the analysts are saying this week,
In a note today [February 23, 2009] downgrading both HealthSpring and Humana, along with $575 million Universal American Corp. (UAM) to “Underperform” from “Market Perform,” BMO Capital analyst Dave Shove writes today that Medicare’s profitability growth “will all but disappear” as a result.Wall Street now seems to think the Obama health plan budget is a threat to the Medicare Advantage business.
Medicare programs will see “significant” reductions in enrollment in 2010 and a 1.5 percentage-point drop in profit margins, writes Shove, and the movement of many of the insured to public programs away from private Medicare coverage. The last time HHS “dealt a crushing blow to Medicare Advantage capitation rates,” in 2000, writes Shove, “the program lost roughly 10% of enrollees in the first year, and bottomed out with 22% participation loss over a three year span.” (Bear in mind, the capitation rates statement is preliminary: final rates will be decided on April 6 and could potentially be higher, meaning, more profitable.)
All three companies have the greatest exposure to Medicare among managed care as a percentage of earnings. “We believe that budgetary strain and sentiment shift on Capitol Hill will cause 2010 [Medicare Advantage] plan changes to drain the profitability from the program,” writes Shove.
It is not.
But since Wall Street hasn't listened to me for two years, I am not going to tell them why!
Here's a hint: Medicare Advantage Payments to Insurers--Baucus Zeroing In!
Monday, November 17, 2008
Medicare Advantage Payments to Insurers--Baucus Zeroing In!
Senate Finance Chair Max Baucus (D-MT) released his health plan white paper last week.
Buried in it was this regarding how private Medicare payments to HMOs should be changed:
MedPAC estimates these extra Medicare Advantage payments are worth $62 billion over five years and $169 billion over ten years. That makes them about the only "free money" in an otherwise bleak deficit picture.
Most calls to eliminate these extra payments simply call for "equalization" between insurer payments and traditional Medicare costs for the same senior risk.
But Max Baucus is telling us here that he knows something that isn't commonly discussed in the private Medicare world--that even if you just equalize payments there is, and was before 2003, plenty of opportunity to game the county-by-county private Medicare payment system--"One is to set MA payments on par with traditional Medicare in every county in the country. However, Medicare costs can be low in some areas of the country and extraordinarily high in others."
Where the 98-page Baucus plan goes from here is debatable. That Senator Baucus is the most influential member of the Senate on the issue of Medicare Advantage payment reform is not.
I expect there are plenty of Medicare Advantage players, knowing that payment "equalization" is on the way, who are getting ready to just play the old county-by-county cherry pick game all over again and preserve a substantial block of profitable private Medicare business doing it.
Think again. Baucus literally has your number!
Buried in it was this regarding how private Medicare payments to HMOs should be changed:
“Congress must act to level the playing field between traditional Medicare and Medicare Advantage payments and the Baucus plan would do so. Enacted in July 2008, MIPPA [the July physician fee fix that will end PFFS] took modest steps to reduce overpayments to private plans beginning in 2010. There are a number of ways to complete this. One is to set MA payments on par with traditional Medicare in every county in the country. However, Medicare costs can be low in some areas of the country and extraordinarily high in others. Simply setting MA payments equal to traditional Medicare could maintain overpayments in some areas and create severe underpayments in other areas relative to insurers’ costs.I have lost count of the number of different Democratic proposals there are out there to use these extra payments made to private Medicare Advantage plans above the levels paid for the same senior risk in traditional Medicare for new spending.
“The Baucus plan would seek to better understand how insurers’ costs differ by region of the country in designing new policies to eliminate the remaining excess spending in the Medicare Advantage program."
MedPAC estimates these extra Medicare Advantage payments are worth $62 billion over five years and $169 billion over ten years. That makes them about the only "free money" in an otherwise bleak deficit picture.
Most calls to eliminate these extra payments simply call for "equalization" between insurer payments and traditional Medicare costs for the same senior risk.
But Max Baucus is telling us here that he knows something that isn't commonly discussed in the private Medicare world--that even if you just equalize payments there is, and was before 2003, plenty of opportunity to game the county-by-county private Medicare payment system--"One is to set MA payments on par with traditional Medicare in every county in the country. However, Medicare costs can be low in some areas of the country and extraordinarily high in others."
Where the 98-page Baucus plan goes from here is debatable. That Senator Baucus is the most influential member of the Senate on the issue of Medicare Advantage payment reform is not.
I expect there are plenty of Medicare Advantage players, knowing that payment "equalization" is on the way, who are getting ready to just play the old county-by-county cherry pick game all over again and preserve a substantial block of profitable private Medicare business doing it.
Think again. Baucus literally has your number!
Thursday, September 4, 2008
The Long-Term Viability of Medicare Advantage--Why Aren't the Analysts Asking for the Numbers to Add-Up?
I have been struck by the optimism regarding private Medicare presented by health plan executives during the recent earnings season and the analysts failure to press them on just how their numbers will add-up to sustain the long-term viability of a private Medicare strategy.
The typical private Medicare health plan operates on a medical cost ratio in the mid-80s. Let's assume 86% for medical costs and the remaining 14% for overhead, profit, and taxes.
Government-run Medicare operates on about 3% overhead. One can argue that many federal Medicare costs are paid for elsewhere but that is the number the private plans have to compete against.
So private Medicare plans spend 14% on overhead and Medicare charges itself 3%--that's an 11% disadvantage for the private market right out of the box.
Private plans have to offer better benefits in order for seniors to want to buy the private plans. Let's use 6% as the amount health plans spend for the extra benefits needed to attract seniors to their plans.
So, in this example, the disadvantage for private Medicare is not only the 11% overhead shortfall but another 6% for the benefits needed to keep selling the plans to seniors--or a total burden of about 17%.
Today, the government pays private Medicare plans an average of 13% more than it does the government-run plan--17% more for the private fee-for-service (PFFS) version that will sunset in 2011.
These extra payments are what make private Medicare so attractive to seniors and HMOs today.
Let's say our HMO has half of its private Medicare growth in PFFS. Their average payment above what standard Medicare gets would be about 15%. So this hypothetical HMO gets 115% of what Medicare pays itself for the same senior population. Take the 11% overhead disadvantage from that as well as the extra 6% they spend on attracting seniors with better benefits and the HMO would have a medical care cost of 98% of what Medicare spends (115%-11%-6%=98%) in order to balance the books today.
So, today my hypothetical HMO is managing its medical costs at about 98% of what Medicare spends for the same senior population.
But what happens if the extra Medicare payments to private Medicare go away? It is almost certain that is going to happen--presuming the Democrats increase their majorities in the fall.
Private Medicare will always need to offer seniors something extra to get and keep their business--that extra 6% our hypothetical HMO spends today. Why would seniors buy it if there wasn't an incentive to do so?
The whole private Medicare experiment is about the notion that the market can manage Medicare costs better than government-run Medicare. If the private market cannot get a better long-term cost outcome the whole strategy simply is not viable.
The day private Medicare gets the same payments as public Medicare the private sector is going to have to make up for that higher overhead level (11%) and better benefits (6%) by managing to a lower medical cost outcome than government-run Medicare.
Instead of private Medicare operating at 98% of the medical cost level of public Medicare, as our hypothetical HMO does today, my HMO will need to have medical costs at 83% of public Medicare in order to sustain a medical cost ratio 11 points higher than Medicare and 6% in better benefits (100%-11%-6%=83%).
For any private Medicare strategy to be viable post-excess payments to the private plans, the private plans have to beat Medicare's costs. In my example, which I will suggest is a pretty fair approximation of the market reality, no health plan can sustain its private Medicare business plan unless it can ultimately get its medical costs to about 83% of the government-run Medicare plan. And, that would just be a tie with the public program's costs. To prove the private market is better than government-run Medicare the result would have to be even better than that.
Most private plans are in the 95% to 100% range today. And, some of the markets they are in have much better payments than the average extra government payment of 13% and 17%.
During this past earnings season about every health plan manager has boasted that Medicare is in their future and they can achieve their earnings objectives while competing head-to-head with the public program.
But for that to happen, the typical HMO needs to reduce its Medicare benefits ratio from 95% - 100% today to about 83% to just match the performance of the government-run plan.
Not a single investment analyst challenged HMO managers on any conference call I heard on just how they are going to get from here to there before the Democrats zap the extra payments private Medicare plans now get.
It would seem to me that would be at the crux of whether their private Medicare strategy had any long-term viability.
The End of Medicare Private Fee-For-Service--the Questions to Ask the Health Plans During Earnings Season
The typical private Medicare health plan operates on a medical cost ratio in the mid-80s. Let's assume 86% for medical costs and the remaining 14% for overhead, profit, and taxes.
Government-run Medicare operates on about 3% overhead. One can argue that many federal Medicare costs are paid for elsewhere but that is the number the private plans have to compete against.
So private Medicare plans spend 14% on overhead and Medicare charges itself 3%--that's an 11% disadvantage for the private market right out of the box.
Private plans have to offer better benefits in order for seniors to want to buy the private plans. Let's use 6% as the amount health plans spend for the extra benefits needed to attract seniors to their plans.
So, in this example, the disadvantage for private Medicare is not only the 11% overhead shortfall but another 6% for the benefits needed to keep selling the plans to seniors--or a total burden of about 17%.
Today, the government pays private Medicare plans an average of 13% more than it does the government-run plan--17% more for the private fee-for-service (PFFS) version that will sunset in 2011.
These extra payments are what make private Medicare so attractive to seniors and HMOs today.
Let's say our HMO has half of its private Medicare growth in PFFS. Their average payment above what standard Medicare gets would be about 15%. So this hypothetical HMO gets 115% of what Medicare pays itself for the same senior population. Take the 11% overhead disadvantage from that as well as the extra 6% they spend on attracting seniors with better benefits and the HMO would have a medical care cost of 98% of what Medicare spends (115%-11%-6%=98%) in order to balance the books today.
So, today my hypothetical HMO is managing its medical costs at about 98% of what Medicare spends for the same senior population.
But what happens if the extra Medicare payments to private Medicare go away? It is almost certain that is going to happen--presuming the Democrats increase their majorities in the fall.
Private Medicare will always need to offer seniors something extra to get and keep their business--that extra 6% our hypothetical HMO spends today. Why would seniors buy it if there wasn't an incentive to do so?
The whole private Medicare experiment is about the notion that the market can manage Medicare costs better than government-run Medicare. If the private market cannot get a better long-term cost outcome the whole strategy simply is not viable.
The day private Medicare gets the same payments as public Medicare the private sector is going to have to make up for that higher overhead level (11%) and better benefits (6%) by managing to a lower medical cost outcome than government-run Medicare.
Instead of private Medicare operating at 98% of the medical cost level of public Medicare, as our hypothetical HMO does today, my HMO will need to have medical costs at 83% of public Medicare in order to sustain a medical cost ratio 11 points higher than Medicare and 6% in better benefits (100%-11%-6%=83%).
For any private Medicare strategy to be viable post-excess payments to the private plans, the private plans have to beat Medicare's costs. In my example, which I will suggest is a pretty fair approximation of the market reality, no health plan can sustain its private Medicare business plan unless it can ultimately get its medical costs to about 83% of the government-run Medicare plan. And, that would just be a tie with the public program's costs. To prove the private market is better than government-run Medicare the result would have to be even better than that.
Most private plans are in the 95% to 100% range today. And, some of the markets they are in have much better payments than the average extra government payment of 13% and 17%.
During this past earnings season about every health plan manager has boasted that Medicare is in their future and they can achieve their earnings objectives while competing head-to-head with the public program.
But for that to happen, the typical HMO needs to reduce its Medicare benefits ratio from 95% - 100% today to about 83% to just match the performance of the government-run plan.
Not a single investment analyst challenged HMO managers on any conference call I heard on just how they are going to get from here to there before the Democrats zap the extra payments private Medicare plans now get.
It would seem to me that would be at the crux of whether their private Medicare strategy had any long-term viability.
The End of Medicare Private Fee-For-Service--the Questions to Ask the Health Plans During Earnings Season
Tuesday, July 22, 2008
The End of Medicare Private Fee-For-Service--the Questions to Ask the Health Plans During Earnings Season
Now that we know private fee-for-service (PFFS) is dead on January 1, 2011 in all but the most rural markets, how will the health plans who have significant PFFS business respond?
UnitedHealth is the first health plan to report earnings this quarter and I thought they had the right answer. From their earnings call transcript (Ovations CEO commenting):
Analysts worried about the impact of the new Medicare law on PFFS players need to be asking for specific information:
In 30 months about all of the PFFS income stream goes away without some pretty significant capital and labor intensive efforts.
As the UnitedHealth management said, 1.7 million members are on the block.
The days of people arbitraging the Medicare payment system are now clearly numbered.
Analysts need to ask some tough questions about the strategy going forward.
UnitedHealth is the first health plan to report earnings this quarter and I thought they had the right answer. From their earnings call transcript (Ovations CEO commenting):
We have had a strategy of deliberately positioning ourselves in favor of network based Medicare Advantage rather than private fee-for-service over the years, because we think we can unleash more value from Medicare that way and because of what we perceive to be a slow burn risk, if not a risk that is now crystallized, in the new law.It is also notable that UnitedHealth sees the entire Medicare Advantage program as a "slow burn risk." Presumably, they mean that it is clear to them that the days of higher Medicare Advantage payments are limited and the only defense is being able to manage the program more efficiently than government-run Medicare.So the direct impact on us is minimal, because only around 7% of our Medicare Advantage membership is in private fee-for-service and all those 100,000 or so members 3/4 live in areas either unaffected by the law or where we already have network based alternatives. [The growth opportunities are great for us] because obviously the end of deeming will mean that perhaps 80% of the private fee-for-service market will now over the next two years have to migrate to a network -based product and that’s something that we’ve been critically positioning ourselves for.
Potentially 1.7 million private fee-for-service members are going to be triggered into shopping and as the largest operator of network based Medicare Advantage...we hope to be able to capitalize on that opportunity.
Analysts worried about the impact of the new Medicare law on PFFS players need to be asking for specific information:
- How much of your PFFS business is in rural markets that was not eliminated by the new law?
- Of your PFFS business, how much of it is in market concentrations that enable you to develop a Medicare network--likely at least 10,000 members in an SMSA--or where you already have a Medicare network?
- What do you intend to do with your PFFS business where you cannot build a network?
- How do these changes impact your pro forma going forward?
- When Congress finishes the job of equalizing public and private Medicare payments how can you be sure your business model will be viable?
- How much lower are your Medicare costs today, including overhead, than the public Medicare program?
In 30 months about all of the PFFS income stream goes away without some pretty significant capital and labor intensive efforts.
As the UnitedHealth management said, 1.7 million members are on the block.
The days of people arbitraging the Medicare payment system are now clearly numbered.
Analysts need to ask some tough questions about the strategy going forward.
Wednesday, July 16, 2008
Health Insurance Industry Stupidity—It’s a Rout From Here On Out
Why the health insurance industry allowed itself to be put in the place they were put by the Democrats yesterday is beyond me.
With the Senate voting 70-26, and the House 383-41, to override President Bush’s veto of the bill to erase the 10.6% Medicare physician fee cut and pay for it with changes that will end the Medicare private fee-for-service program in 2011, the health insurance industry’s political stock has never been so low.
Democrats are no longer afraid of the health insurance industry and they know that most Republicans, having to choose between provider payments and HMOs, aren’t going to support the HMOs. Look for Republicans to use that strategy over and over.
This first whack at the private Medicare program is just the beginning of a rout that will take place after the elections when there will be an even bigger Democratic Congressional majority and a president that isn’t going to fall on his sword to protect the health insurance industry—McCain or Obama.
The only real political leverage the health insurance industry had going for it this year was the threat of a Bush veto of any changes to private Medicare.
The smart play would have been to cut the best comprehensive long-term deal they could this year for private Medicare while they had the Bush leverage. Instead the industry chose an all or nothing bet that pitted them against all the provider groups and AARP that, when they lost, only exposed just how little their support really is. It also did them little good not to have much of a policy defense—just why was it that private plans should permanently be paid more than traditional Medicare?
The insurance industry’s blood is in the water.
What in the hell were they thinking?
With the Senate voting 70-26, and the House 383-41, to override President Bush’s veto of the bill to erase the 10.6% Medicare physician fee cut and pay for it with changes that will end the Medicare private fee-for-service program in 2011, the health insurance industry’s political stock has never been so low.
Democrats are no longer afraid of the health insurance industry and they know that most Republicans, having to choose between provider payments and HMOs, aren’t going to support the HMOs. Look for Republicans to use that strategy over and over.
This first whack at the private Medicare program is just the beginning of a rout that will take place after the elections when there will be an even bigger Democratic Congressional majority and a president that isn’t going to fall on his sword to protect the health insurance industry—McCain or Obama.
The only real political leverage the health insurance industry had going for it this year was the threat of a Bush veto of any changes to private Medicare.
The smart play would have been to cut the best comprehensive long-term deal they could this year for private Medicare while they had the Bush leverage. Instead the industry chose an all or nothing bet that pitted them against all the provider groups and AARP that, when they lost, only exposed just how little their support really is. It also did them little good not to have much of a policy defense—just why was it that private plans should permanently be paid more than traditional Medicare?
The insurance industry’s blood is in the water.
What in the hell were they thinking?
Wednesday, July 9, 2008
Senate Votes 69-30 To Rescind Medicare Physician Fee Cuts and Cut Medicare Advantage to Pay For It
Ted Kennedy came to the Senate floor and led Senate Democrats to an amazing victory in their first real attempt to rein-in private Medicare spending and rescind the 10.6% physician fee cuts.
The veto-proof margin puts President Bush's threat to veto the Senate bill, that was approved by the House on another veto-proof 354-59 vote just before the holiday, in doubt. Why bother?
I was not surprised to see Senator Kennedy on the floor.
This vote was not about the doc cuts. It was about Medicare and its future. The doc cut was just the leverage Democrats were using to get at the private Medicare program.
Medicare is part of not only the Democratic legacy--it is at the core of the Kennedy legacy.
Private Medicare is seen by Democrats as an attack on the universality of the program. Many believe the privatization of Medicare will lead to a two-tiered system. If that were to happen, the reasoning goes, the program would be undermined as wealthier people abandoned it. Without everyone, including the powerful, in the system, there would not be the broad-based support to continue it.
Republicans, on the other hand, believe that the big entitlement costs can't be reined in without the market.
It was this clash--market versus government and the future direction of Medicare--that was the real issue on the Senate floor today.
The Democrats have won their first big battle over Medicare since the Republicans won control of the Congress in 1994.
Oh, by the way, the one Senator who did not come to the floor and vote? John McCain. Maybe Senator Kennedy should have offered him a ride.
A comprehensive background on today's battle: Run For the Hills, the Doctors Are Coming, the Doctors Are Coming!!!!
From December 19th, 2006: The Democrats Will Change MedicareAdvantage
The veto-proof margin puts President Bush's threat to veto the Senate bill, that was approved by the House on another veto-proof 354-59 vote just before the holiday, in doubt. Why bother?
I was not surprised to see Senator Kennedy on the floor.
This vote was not about the doc cuts. It was about Medicare and its future. The doc cut was just the leverage Democrats were using to get at the private Medicare program.
Medicare is part of not only the Democratic legacy--it is at the core of the Kennedy legacy.
Private Medicare is seen by Democrats as an attack on the universality of the program. Many believe the privatization of Medicare will lead to a two-tiered system. If that were to happen, the reasoning goes, the program would be undermined as wealthier people abandoned it. Without everyone, including the powerful, in the system, there would not be the broad-based support to continue it.
Republicans, on the other hand, believe that the big entitlement costs can't be reined in without the market.
It was this clash--market versus government and the future direction of Medicare--that was the real issue on the Senate floor today.
The Democrats have won their first big battle over Medicare since the Republicans won control of the Congress in 1994.
Oh, by the way, the one Senator who did not come to the floor and vote? John McCain. Maybe Senator Kennedy should have offered him a ride.
A comprehensive background on today's battle: Run For the Hills, the Doctors Are Coming, the Doctors Are Coming!!!!
From December 19th, 2006: The Democrats Will Change MedicareAdvantage
Saturday, June 28, 2008
Run For the Hills, the Doctors Are Coming, the Doctors Are Coming!!!!
What is the one thing no human being should want to be next week?
A Republican Senator at a Fourth of July Picnic.
In the most amazing turn of events I have seen in 20 years of following health care policy in Washington, DC, the Democrats have the Republicans backed into an awful corner over the issue of the July 1st automatic 10.6% Medicare physician fee cut and corresponding private Medicare cuts to pay for nixing it. Also at stake is another 5% physician fee cut set for January 1, 2009.
On Tuesday, when the House voted 355-59 in favor of the Senate Democratic bill to stop the physician fee cut, suspend the durable medical equipment competitive bidding system, and pay for the doc cut by ending the private fee-for-service version of Medicare Advantage in 2011, no one was more surprised then the Senate Democrats themselves.
On seeing that vote, Senate Democrats scrapped the bipartisan compromise that Baucus and Grassley worked out to avoid the cuts, freeze 2009 physician payments, and bypass the Medicare Advantage changes to pay for it. Everyone was ready to be happy with that--Democrats and Republicans--and go home for the week-long holiday recess.
But then Senate Democrats saw a huge election-year opportunity--stick the Republicans out on a limb and start sawing it off.
Senate Majority Leader Reid and the Senate Democrats decided to shelve the Baucus/Grassley compromise and bring the just passed House bill back for another Senate vote (the first attempt to get the 60 votes necessary for cloture failed garnering only 54 Senators).
Late Thursday night they did just that and missed getting the necessary 60 votes by just one Senator. It is notable that Senator Kennedy was not present and could have been the 60th vote. It was a very undignified scene on the Senate floor as Republicans felt betrayed thinking they had an amicable deal to get past the cuts and go home.
It is also important to remember that Senate Democratic Leader Reid came in for lots of criticism by House Democrats late last year when he chose not to take on the Republicans and a threatened Bush veto and settled on a modest SCHIP compromise. Many in the House thought Senate Democrats should have been tougher. This may be Reid's chance to show the House how tough he can be--especially since the House handed him such a lopsided veto-proof margin on this vote.
So, the Senate recessed on Friday with the docs facing a 10.6% fee cut in just four days.
The Democratic plan is, with the docs looking down the barrel of a 10.6% fee cut on Tuesday, to let the Senate Republicans stew in a provider lobbying onslaught of unprecedented proportions during the week-long recess.
How effective is the doctor lobby? 355-59, that's how effective. About every other health care provider is onside with the docs as well--durable medical equipment because of their bailout in the House bill, and every other provider because they'd like to see the precedent established that it is the HMO industry that has the money to give back to Medicare--not them. AARP is also backing the docs giving members political cover with seniors to vote against the private Medicare plans.
I am continually asked, Would Congress really cut private Medicare with almost 10 million seniors in it? 355-59--any other questions?
Bush also reaffirmed his veto threat for any bill that cuts private Medicare. HHS, trying to get some heat off Republicans and save CMS from a real payment mess, deferred the physician cuts for ten days.
What's going to happen when the Congress returns on July 7th?
There will quickly be another Senate vote on the House bill.
If it passes it goes to Bush who, as long as the vote isn't enormously lopsided, will veto it. In that case the docs will need to have scared enough Republicans to get a veto-proof 67 votes or the docs are out 10.6%.
For two years I have been telling you that the Dems were going to get private Medicare. In November 2006, I thought the big showdown would come during the 2007 budget deliberations. More recently, I figured the Democrats would just bide their time until they had a stronger hand--after the coming elections.
Turns out I was six months off the first time.
Will the doctors suffer the 10.6% cut if the next Senate vote fails to move the bill? Could well be. Sure, the Baucus/Grassley compromise is laying there but I can't see the Democrats backing down now. The train has left the station on the Democratic argument that it is the Republicans who are blocking a physician fee fix and I think they will continue down that track.
If you are a doctor, I would go find your Republican Senator at the nearest Fourth of July picnic and get at it.
If 7 or 8 Republican Senators don't come back to Washington on July 7th with a changed mind, you are out 10.6% on July 1st and another 5% on January 1, 2009.
We will have extraordinary political theater the week of July 7.
A Republican Senator at a Fourth of July Picnic.
In the most amazing turn of events I have seen in 20 years of following health care policy in Washington, DC, the Democrats have the Republicans backed into an awful corner over the issue of the July 1st automatic 10.6% Medicare physician fee cut and corresponding private Medicare cuts to pay for nixing it. Also at stake is another 5% physician fee cut set for January 1, 2009.
On Tuesday, when the House voted 355-59 in favor of the Senate Democratic bill to stop the physician fee cut, suspend the durable medical equipment competitive bidding system, and pay for the doc cut by ending the private fee-for-service version of Medicare Advantage in 2011, no one was more surprised then the Senate Democrats themselves.
On seeing that vote, Senate Democrats scrapped the bipartisan compromise that Baucus and Grassley worked out to avoid the cuts, freeze 2009 physician payments, and bypass the Medicare Advantage changes to pay for it. Everyone was ready to be happy with that--Democrats and Republicans--and go home for the week-long holiday recess.
But then Senate Democrats saw a huge election-year opportunity--stick the Republicans out on a limb and start sawing it off.
Senate Majority Leader Reid and the Senate Democrats decided to shelve the Baucus/Grassley compromise and bring the just passed House bill back for another Senate vote (the first attempt to get the 60 votes necessary for cloture failed garnering only 54 Senators).
Late Thursday night they did just that and missed getting the necessary 60 votes by just one Senator. It is notable that Senator Kennedy was not present and could have been the 60th vote. It was a very undignified scene on the Senate floor as Republicans felt betrayed thinking they had an amicable deal to get past the cuts and go home.
It is also important to remember that Senate Democratic Leader Reid came in for lots of criticism by House Democrats late last year when he chose not to take on the Republicans and a threatened Bush veto and settled on a modest SCHIP compromise. Many in the House thought Senate Democrats should have been tougher. This may be Reid's chance to show the House how tough he can be--especially since the House handed him such a lopsided veto-proof margin on this vote.
So, the Senate recessed on Friday with the docs facing a 10.6% fee cut in just four days.
The Democratic plan is, with the docs looking down the barrel of a 10.6% fee cut on Tuesday, to let the Senate Republicans stew in a provider lobbying onslaught of unprecedented proportions during the week-long recess.
How effective is the doctor lobby? 355-59, that's how effective. About every other health care provider is onside with the docs as well--durable medical equipment because of their bailout in the House bill, and every other provider because they'd like to see the precedent established that it is the HMO industry that has the money to give back to Medicare--not them. AARP is also backing the docs giving members political cover with seniors to vote against the private Medicare plans.
I am continually asked, Would Congress really cut private Medicare with almost 10 million seniors in it? 355-59--any other questions?
Bush also reaffirmed his veto threat for any bill that cuts private Medicare. HHS, trying to get some heat off Republicans and save CMS from a real payment mess, deferred the physician cuts for ten days.
What's going to happen when the Congress returns on July 7th?
There will quickly be another Senate vote on the House bill.
If it passes it goes to Bush who, as long as the vote isn't enormously lopsided, will veto it. In that case the docs will need to have scared enough Republicans to get a veto-proof 67 votes or the docs are out 10.6%.
For two years I have been telling you that the Dems were going to get private Medicare. In November 2006, I thought the big showdown would come during the 2007 budget deliberations. More recently, I figured the Democrats would just bide their time until they had a stronger hand--after the coming elections.
Turns out I was six months off the first time.
Will the doctors suffer the 10.6% cut if the next Senate vote fails to move the bill? Could well be. Sure, the Baucus/Grassley compromise is laying there but I can't see the Democrats backing down now. The train has left the station on the Democratic argument that it is the Republicans who are blocking a physician fee fix and I think they will continue down that track.
If you are a doctor, I would go find your Republican Senator at the nearest Fourth of July picnic and get at it.
If 7 or 8 Republican Senators don't come back to Washington on July 7th with a changed mind, you are out 10.6% on July 1st and another 5% on January 1, 2009.
We will have extraordinary political theater the week of July 7.
Wednesday, June 25, 2008
A Flawed Defense of Medicare Advantage
If private Medicare is to be continued proponents had better make better arguments than Scott Gottlieb made on Tuesday's Wall Street Journal op-ed page.
Gottlieb is a former Bush Administration CMS official and is currently at the American Enterprise Institute.
The context of his arguments is that this week Congress is debating making cuts to the private Medicare Advantage program in order to pay for deferring a 10.6% physician fee cut that is set to begin on July 1.
A number of sources have estimated that Medicare Advantage plans are paid 13% more than traditional Medicare pays for similar seniors--the private fee-for-service (PFFS) product gets 17% more.
Since you can't access the op-ed unless you have an electronic subscription to the WSJ, here are his key points:
The real question is just what do we get for the money spent--What's the return on investment in better cost and quality for the money our government spends on either private Medicare or the traditional plan?
If the HMOs really want to effectively defend Medicare Advantage they need to demonstrate value. Where is the industry data showing that after five years in this recent version of Medicare Advantage, and 20 years all told in the program, the private sector delivers a better cost/quality result?
Gottlieb's second contention, really a warning to members of Congress getting ready to vote, is that they risk upseting seniors in the private programs now getting lots of extra benefits because of the big private plan payments: "What terrifies members is facing constituents over the July 4 break who will be upset about rising co-pays and uncertainty about their coverage."
So he is arguing that Medicare Advantage plans should be paid more so the seniors in them can get better benefits? If seniors getting better benefits is a good idea why must that be confined to just the private plans?
The extra private Medicare payments (13% generally and 17% for PFFS) were intended to be a "prime the pump" strategy to get insurers and seniors interested in these plans in order that a sufficient market scale could be created to give the private strategy a chance to work.
Gottlieb now seems to be arguing in favor of a permanent private health plan entitlement. This isn't any different than the HMO trade association rolling out the NAACP last year in favor of continuing the extra payments indefinitely arguing extra payments for HMOs are a good way to provide better benefits for poor people.
What troubles me even more about Gottlieb's arguments is that he never makes a distinction between the mainstream Medicare Advantage products and the private fee-for-service (PFFS) version.
The PFFS products are too often a simple arbitrage of the Medicare payments system as a few health plans simply take advantage of the most generous payments never intending to build real networks. These "inch deep and thousand mile wide" players are just playing games with Medicare rather than really investing to create a better cost and quality outcome.
It is from these PFFS plans that the Democrats want to get most of the money Gottlieb is protesting. Just how does he rationalize these PFFS plans and the Democrats proposals with his contention that, "private plans spend roughly four times more than Medicare on consumer services, provider support, and marketing?"
I actually thought that Senate Finance Chairman, Max Baucus (D-MT), made the health plan industry a great offer this month that they should have taken. First, he did not propose making any significant cuts to the program. Most of his savings would have come from a requirement that the PFFS players would have to convert their programs to networks over a two year period--which is what the "prime the pump" strategy was supposed to be anyway!
Instead the health plan industry rejected that deal likely throwing the whole debate over to 2009 when the next President and Congress are likely to make even bigger changes--likely impacting more than just the PFFS players. If they had taken the Baucus deal, Congress might well have left the private Medicare program alone for a number of years more. Maybe not--but just what did the mainstream plans have to lose? Clearly, they would have resolved the most controversial part of the program.
One has to wonder just how long the mainstream health plan industry is going to protect the "inch deep and thousand mile wide" PFFS guys and in doing so putting at serious risk the standard Medicare Advantage program.
If the health plan industry is relying on Gottlieb to speak for them on why private Medicare needs to be saved, I'm not optimistic.
By the way, even House Republicans didn't buy Gotlieb's arguments--the House voted 355-59 yesterday to do the Baucus deal.
An updated Baucus/Grassley deal is pending in the Senate and I firmly believe there will be lots of health plan execs that will be wishing later in 2009 they would have taken the first Baucus deal and thrown the "inch deep and thousand mile wide" PFFS players under the bus in order to insulate mainstream Medicare Advantage when they had the chance.
Gottlieb is a former Bush Administration CMS official and is currently at the American Enterprise Institute.
The context of his arguments is that this week Congress is debating making cuts to the private Medicare Advantage program in order to pay for deferring a 10.6% physician fee cut that is set to begin on July 1.
A number of sources have estimated that Medicare Advantage plans are paid 13% more than traditional Medicare pays for similar seniors--the private fee-for-service (PFFS) product gets 17% more.
Since you can't access the op-ed unless you have an electronic subscription to the WSJ, here are his key points:
Gottlieb's points can be summarized as:
- "The crucial question is where the controls [on our health care system] should be – with patients working through private plans or with government agencies. While private health insurance is imperfect, there's a misguided faith in Medicare's superiority that rests on flawed assumptions."
- "First, there's a mistaken belief that Medicare is better staffed than private plans, and can therefore make better decisions about patients' clinical circumstances and the access to new therapies they should have. Yet at any time, Medicare has about 20 doctors and 40 total clinicians (including nurses) inside the coverage office, and fewer than a dozen in the office that sets the rates that doctors are reimbursed for the care they provide. Private insurers employ thousands of doctors, nurses and pharmacists, many experts in new technologies."
- "Recent data from Price Waterhouse Coopers found that private plans spend roughly four times more than Medicare on "consumer services, provider support, and marketing," which includes money spent answering the telephone to adjudicate individual issues. Smaller health plans use one clinician for every 10,000 beneficiaries. Medicare would need 4,500 clinicians to keep pace."
- "If Democrats have their way these plans could be in for big cuts. If Congress does nothing before July 1, doctors in Medicare will take a 10.6% cut in their pay. To stop that from happening Congress will likely raid Medicare Advantage and use the money saved by cutting that program to cushion the blow to doctors. What terrifies members is facing constituents over the July 4 break who will be upset about rising co-pays and uncertainty about their coverage. The question is how big of a bite the House and Senate will take out of Medicare Advantage. But cut they will, because Medicare Advantage plans enable competition that serves as a model for shaping Medicare into a privately run system."
- Private Medicare spends more on its health insurance product than Medicare does and that makes it better.
- If Congress cuts Medicare Advantage seniors will be mad.
The real question is just what do we get for the money spent--What's the return on investment in better cost and quality for the money our government spends on either private Medicare or the traditional plan?
If the HMOs really want to effectively defend Medicare Advantage they need to demonstrate value. Where is the industry data showing that after five years in this recent version of Medicare Advantage, and 20 years all told in the program, the private sector delivers a better cost/quality result?
Gottlieb's second contention, really a warning to members of Congress getting ready to vote, is that they risk upseting seniors in the private programs now getting lots of extra benefits because of the big private plan payments: "What terrifies members is facing constituents over the July 4 break who will be upset about rising co-pays and uncertainty about their coverage."
So he is arguing that Medicare Advantage plans should be paid more so the seniors in them can get better benefits? If seniors getting better benefits is a good idea why must that be confined to just the private plans?
The extra private Medicare payments (13% generally and 17% for PFFS) were intended to be a "prime the pump" strategy to get insurers and seniors interested in these plans in order that a sufficient market scale could be created to give the private strategy a chance to work.
Gottlieb now seems to be arguing in favor of a permanent private health plan entitlement. This isn't any different than the HMO trade association rolling out the NAACP last year in favor of continuing the extra payments indefinitely arguing extra payments for HMOs are a good way to provide better benefits for poor people.
What troubles me even more about Gottlieb's arguments is that he never makes a distinction between the mainstream Medicare Advantage products and the private fee-for-service (PFFS) version.
The PFFS products are too often a simple arbitrage of the Medicare payments system as a few health plans simply take advantage of the most generous payments never intending to build real networks. These "inch deep and thousand mile wide" players are just playing games with Medicare rather than really investing to create a better cost and quality outcome.
It is from these PFFS plans that the Democrats want to get most of the money Gottlieb is protesting. Just how does he rationalize these PFFS plans and the Democrats proposals with his contention that, "private plans spend roughly four times more than Medicare on consumer services, provider support, and marketing?"
I actually thought that Senate Finance Chairman, Max Baucus (D-MT), made the health plan industry a great offer this month that they should have taken. First, he did not propose making any significant cuts to the program. Most of his savings would have come from a requirement that the PFFS players would have to convert their programs to networks over a two year period--which is what the "prime the pump" strategy was supposed to be anyway!
Instead the health plan industry rejected that deal likely throwing the whole debate over to 2009 when the next President and Congress are likely to make even bigger changes--likely impacting more than just the PFFS players. If they had taken the Baucus deal, Congress might well have left the private Medicare program alone for a number of years more. Maybe not--but just what did the mainstream plans have to lose? Clearly, they would have resolved the most controversial part of the program.
One has to wonder just how long the mainstream health plan industry is going to protect the "inch deep and thousand mile wide" PFFS guys and in doing so putting at serious risk the standard Medicare Advantage program.
If the health plan industry is relying on Gottlieb to speak for them on why private Medicare needs to be saved, I'm not optimistic.
By the way, even House Republicans didn't buy Gotlieb's arguments--the House voted 355-59 yesterday to do the Baucus deal.
An updated Baucus/Grassley deal is pending in the Senate and I firmly believe there will be lots of health plan execs that will be wishing later in 2009 they would have taken the first Baucus deal and thrown the "inch deep and thousand mile wide" PFFS players under the bus in order to insulate mainstream Medicare Advantage when they had the chance.
Wednesday, June 18, 2008
Coventry Health Care--What the Heck Is Going On?
When WellPoint, Humana, United, and others had earnings warnings this spring I pointed out their issues were largely unrelated and amounted to more rounding errors as the helpful five year deceleration in health care trend came to an end and the business just wasn't as easy.
But today, Coventry hit us with a 300 - 340 basis point adjustment in their expected Medicare Advantage medical loss ratio for the second quarter. They pointed to a problem with private fee-for-service (PFFS) claims coming in from prior periods. Because PFFS does not rely on provider networks the claim patterns look a lot more like old time fee-for-service--and this block is acting like it.
The hit to PFFS has to be a lot bigger than 300 bps because that is the impact on their whole MedicareAdvantage block--of which their PFFS is only one part.
They also said their commercial MLR popped in the second quarter. They are estimating a second quarter MLR about 200 bps higher than its overall first half MLR.
This puts a lot of doubt into the sector and one has to expect health plan stocks are going to get hammered tomorrow morning on Wall Street.
The other health plans are going to have to reaffirm their prior earnings guidance real soon or they will pay a big price in the stock market--especially those who have made a big play in PFFS Medicare.
Either Coventry has lost control of their financials or the sector is seeing something big--neither being a good development.
Generally, I have not seen anything in the health plan market recently that would lead me to believe something major is going on that would affect everyone in the sector. However, PFFS by its very nature is a business you drive by looking out the rear view mirror. I think it is important for the other big PFFS players to clarify their outlook.
Hate to see what Coventry's numbers would look like if the Dems do cut private fee-for-service. If Coventry can't make money at 117% of what Medicare gets for the same seniors how will they make money?
This is scary.
Prior post: What Good Has Private Medicare Done for Shareholders?
Joe Paduda's great post phone conference take on Thursday morning.
But today, Coventry hit us with a 300 - 340 basis point adjustment in their expected Medicare Advantage medical loss ratio for the second quarter. They pointed to a problem with private fee-for-service (PFFS) claims coming in from prior periods. Because PFFS does not rely on provider networks the claim patterns look a lot more like old time fee-for-service--and this block is acting like it.
The hit to PFFS has to be a lot bigger than 300 bps because that is the impact on their whole MedicareAdvantage block--of which their PFFS is only one part.
They also said their commercial MLR popped in the second quarter. They are estimating a second quarter MLR about 200 bps higher than its overall first half MLR.
This puts a lot of doubt into the sector and one has to expect health plan stocks are going to get hammered tomorrow morning on Wall Street.
The other health plans are going to have to reaffirm their prior earnings guidance real soon or they will pay a big price in the stock market--especially those who have made a big play in PFFS Medicare.
Either Coventry has lost control of their financials or the sector is seeing something big--neither being a good development.
Generally, I have not seen anything in the health plan market recently that would lead me to believe something major is going on that would affect everyone in the sector. However, PFFS by its very nature is a business you drive by looking out the rear view mirror. I think it is important for the other big PFFS players to clarify their outlook.
Hate to see what Coventry's numbers would look like if the Dems do cut private fee-for-service. If Coventry can't make money at 117% of what Medicare gets for the same seniors how will they make money?
This is scary.
Prior post: What Good Has Private Medicare Done for Shareholders?
Joe Paduda's great post phone conference take on Thursday morning.
Friday, June 13, 2008
Wall Street Relieved Democrats Unable to Cut Private Medicare Advantage Payments This Week--Why?
Congressional Democrats tried to take a big bite out of private Medicare this past week in an attempt to pay for an 18 month fix to the upcoming July 1st 10.6% reduction in Medicare physician payments.
The effort, led by Senate Finance Chair Max Baucus (D-MT) got only 54 of the 60 votes he needed to end debate and move the issue to a floor vote. While getting that floor vote would almost have certainly meant passage of the bill in the full Congress, President Bush would have vetoed any attempt to cut the payments to private Medicare plans and the Dems would not have had the votes in either chamber to override.
Now, Baucus and Senate Finance Ranking member Chuck Grassley (R-IA) will have to find a more modest way of fixing the doc problem––likely for just six months. The docs are not going to suffer a Medicare payment cut this summer.
All of this was expected and is what I have been saying for months would happen.
A temporary fix to the Medicare physician payment problem--the docs will be facing a 15% cut on January 1, 2009--will just shunt the problem off to next January. After January 20th, George Bush will be gone. Barack Obama will have no problem signing a bill with big Medicare Advantage cuts in it. John McCain was one of only a handful of Republican Senators who voted against the Medicare Modernization Act, that created this version of private Medicare, in the first place.
This time, Baucus only tried to nail the private-fee-for-service (PFFS) version by making the relatively reasonable proposal that PFFS plans develop provider networks by 2011 in all but the most rural markets. Since PFFS was only supposed to be a transitional product to real network plans when it was first created in 2003, that's hardly an unreasonable idea. But Bush would have vetoed even that.
Next time around, with a more willing President sitting down the street, the Democrats aren't going to be so generous. The health insurance industry would have been smart to take this deal. But even so incremental a deal as this would have badly hurt the PFFS guys who have been gaming the system with their inch deep and a thousand miles wide strategies for penetrating the private Medicare market.
Sooner or later the mainstream Medicare Advantage insurers are going to cut the PFFS guys loose, who have been gaming this system, in order to save what the program was supposed to be in the first place.
It's not clear to me what Wall Street is so relieved about.
The effort, led by Senate Finance Chair Max Baucus (D-MT) got only 54 of the 60 votes he needed to end debate and move the issue to a floor vote. While getting that floor vote would almost have certainly meant passage of the bill in the full Congress, President Bush would have vetoed any attempt to cut the payments to private Medicare plans and the Dems would not have had the votes in either chamber to override.
Now, Baucus and Senate Finance Ranking member Chuck Grassley (R-IA) will have to find a more modest way of fixing the doc problem––likely for just six months. The docs are not going to suffer a Medicare payment cut this summer.
All of this was expected and is what I have been saying for months would happen.
A temporary fix to the Medicare physician payment problem--the docs will be facing a 15% cut on January 1, 2009--will just shunt the problem off to next January. After January 20th, George Bush will be gone. Barack Obama will have no problem signing a bill with big Medicare Advantage cuts in it. John McCain was one of only a handful of Republican Senators who voted against the Medicare Modernization Act, that created this version of private Medicare, in the first place.
This time, Baucus only tried to nail the private-fee-for-service (PFFS) version by making the relatively reasonable proposal that PFFS plans develop provider networks by 2011 in all but the most rural markets. Since PFFS was only supposed to be a transitional product to real network plans when it was first created in 2003, that's hardly an unreasonable idea. But Bush would have vetoed even that.
Next time around, with a more willing President sitting down the street, the Democrats aren't going to be so generous. The health insurance industry would have been smart to take this deal. But even so incremental a deal as this would have badly hurt the PFFS guys who have been gaming the system with their inch deep and a thousand miles wide strategies for penetrating the private Medicare market.
Sooner or later the mainstream Medicare Advantage insurers are going to cut the PFFS guys loose, who have been gaming this system, in order to save what the program was supposed to be in the first place.
It's not clear to me what Wall Street is so relieved about.
Thursday, May 1, 2008
There Won't Be Any Health Care Reform Without Physician Payment Reform and There Won't Be Any Physician Payment Reform Unless the Docs Lead The Way
Physicians are facing a 10% Medicare fee cut on July 1st, a total of 15% in cuts on January 1, 2009, a cumulative total of 20% on January 1, 2010, and more each year thereafter.
This spring the Senate Finance Committee is trying to solve the problem. In the short term, the idea is to reach out to future years, when they are betting the Congress would finally fundamentally reform the Medicare physician payment system, and pull those savings back to today in order to stave off the near term cuts. That idea has been referred to as "balloon financing."
In the wake of the subprime fiasco, how any U.S. Senators can come up with so thoroughly dumb an idea is beyond me. At the heart of my disbelief is their notion that the Congress is going to reform the Medicare physician fee schedule a year or two down the line. This problem has been accumulating for years and they have avoided facing it year after year--but don't worry they'll do it next year and be able to make this "balloon payment." And the Congress has refered to the "moral hazard" in subprime lending!
I am coming to the conclusion that it will have to be the docs that break the logjam in health care reform. Please don't misunderstand me, I do not mean to say it is the docs whose fault it is we can't agree on a way to fix the U.S health care system. But fixing physician fees problem may be necessary before any other reform can move forward.
The Medicare physician fee schedule problem has been festering for years. And, what Medicare pays is the basis for what physicians are paid in the private sector--what health plans pay physicians is commonly tied to a percentage of the Medicare fee schedule.
When the Congress created the Medicare Sustainable Growth Rate Formula it was their intention that physician Medicare costs would be controlled. The idea was simple: If doctor costs rise faster than an affordable level, we'll just cut their fees next year to compensate. The hope was that would create an incentive for docs to contain their costs and we wouldn't reward unaffordable Medicare cost trends. Any chance that idea would work, which wasn't much, went by the way when the Congress, year after year, said "never mind" and gave the powerful doctor lobby an increase anyway.
The problem now is that we're out of money. With the Democrats now requiring offsets to any new spending and Medicare about to welcome millions of baby boomers, something has to give in order to keep the docs happy.
About everyone agrees that the Medicare physician payment system is long overdue for an overhaul. So, Senate Finance Committee Chair Max Baucus (D-MT) is now saying we need to just fix the mess and stop dodging the issue--a couple of years from now.
One of the biggest problems in physician payment--first in Medicare and therefore de facto in the rest of the market-- is that the balance between primary and family care on the one end, and specialty care on the other, is out of balance. The primary care guys are hurting and we are on our way to a serious shortage there while the specialties are doing much better and all the new docs are heading for the better money.
The Congress is not going to impose a "solution" to the Medicare physician fee problem without the various medical specialties buying into it. The only thing all the docs can agree on right now is that none of them should get any kind of cut. Congress is afraid of the docs. The doctors have a great lobby--better than hospitals and insurers--and have a knack for manipulating the patient/voter lobby to their benefit.
The fix has to be bottom up--not top down. This physician fee problem is not going to be fixed until the docs--that is the various specialty groups--get together and figure it out. There isn't a lot of chance that will happen anytime soon either.
But until that happens, there will be no Congressional fix. The docs also know this. That is why it will be the docs that block the "balloon" idea. They know that is a slippery slide to an even bigger payment hole.
That is also why there will be big Medicare Advantage payment cuts in 2009. The docs truly need the money, they have the best lobby, the Congress is not going to fix the physician fee problem anytime soon and the "balloon" idea is full of hot air.
And, just as no Medicare physician fee fix is possible without physician payment reform, no big health reform plan can take place either. It isn't that it's the docs fault health care reform can't take place as much as it is they have to be the first of the tough hurdles we have to cross before it can happen. How can any budget scoring of a health reform plan take place without a sustainable physician fee structure?
So far the work between the medical specialties that has to occur hasn't even begun. The AMA itself is hamstrung by what amounts to a low intensity civil war within the ranks between the physician specialties over how to divide the loot.
It will take some key players from the various powerful physician specialties to see an imperative to settle this, and do it, before any real progress can be made.
The sooner the better.
This spring the Senate Finance Committee is trying to solve the problem. In the short term, the idea is to reach out to future years, when they are betting the Congress would finally fundamentally reform the Medicare physician payment system, and pull those savings back to today in order to stave off the near term cuts. That idea has been referred to as "balloon financing."
In the wake of the subprime fiasco, how any U.S. Senators can come up with so thoroughly dumb an idea is beyond me. At the heart of my disbelief is their notion that the Congress is going to reform the Medicare physician fee schedule a year or two down the line. This problem has been accumulating for years and they have avoided facing it year after year--but don't worry they'll do it next year and be able to make this "balloon payment." And the Congress has refered to the "moral hazard" in subprime lending!
I am coming to the conclusion that it will have to be the docs that break the logjam in health care reform. Please don't misunderstand me, I do not mean to say it is the docs whose fault it is we can't agree on a way to fix the U.S health care system. But fixing physician fees problem may be necessary before any other reform can move forward.
The Medicare physician fee schedule problem has been festering for years. And, what Medicare pays is the basis for what physicians are paid in the private sector--what health plans pay physicians is commonly tied to a percentage of the Medicare fee schedule.
When the Congress created the Medicare Sustainable Growth Rate Formula it was their intention that physician Medicare costs would be controlled. The idea was simple: If doctor costs rise faster than an affordable level, we'll just cut their fees next year to compensate. The hope was that would create an incentive for docs to contain their costs and we wouldn't reward unaffordable Medicare cost trends. Any chance that idea would work, which wasn't much, went by the way when the Congress, year after year, said "never mind" and gave the powerful doctor lobby an increase anyway.
The problem now is that we're out of money. With the Democrats now requiring offsets to any new spending and Medicare about to welcome millions of baby boomers, something has to give in order to keep the docs happy.
About everyone agrees that the Medicare physician payment system is long overdue for an overhaul. So, Senate Finance Committee Chair Max Baucus (D-MT) is now saying we need to just fix the mess and stop dodging the issue--a couple of years from now.
One of the biggest problems in physician payment--first in Medicare and therefore de facto in the rest of the market-- is that the balance between primary and family care on the one end, and specialty care on the other, is out of balance. The primary care guys are hurting and we are on our way to a serious shortage there while the specialties are doing much better and all the new docs are heading for the better money.
The Congress is not going to impose a "solution" to the Medicare physician fee problem without the various medical specialties buying into it. The only thing all the docs can agree on right now is that none of them should get any kind of cut. Congress is afraid of the docs. The doctors have a great lobby--better than hospitals and insurers--and have a knack for manipulating the patient/voter lobby to their benefit.
The fix has to be bottom up--not top down. This physician fee problem is not going to be fixed until the docs--that is the various specialty groups--get together and figure it out. There isn't a lot of chance that will happen anytime soon either.
But until that happens, there will be no Congressional fix. The docs also know this. That is why it will be the docs that block the "balloon" idea. They know that is a slippery slide to an even bigger payment hole.
That is also why there will be big Medicare Advantage payment cuts in 2009. The docs truly need the money, they have the best lobby, the Congress is not going to fix the physician fee problem anytime soon and the "balloon" idea is full of hot air.
And, just as no Medicare physician fee fix is possible without physician payment reform, no big health reform plan can take place either. It isn't that it's the docs fault health care reform can't take place as much as it is they have to be the first of the tough hurdles we have to cross before it can happen. How can any budget scoring of a health reform plan take place without a sustainable physician fee structure?
So far the work between the medical specialties that has to occur hasn't even begun. The AMA itself is hamstrung by what amounts to a low intensity civil war within the ranks between the physician specialties over how to divide the loot.
It will take some key players from the various powerful physician specialties to see an imperative to settle this, and do it, before any real progress can be made.
The sooner the better.
Friday, April 25, 2008
What Good Has Private Medicare Done for Shareholders?
Wall Street seems to have lost faith in publicly traded HMOs.
When the Medicare Modernization Act was passed in late 2003, it was seen as a major boon to the health plan business. Without a doubt the revenue and profits that have accrued from the privatization of Medicare have been more than substantial.
But what good has Medicare privatization done for shareholders?
The first week of January 2005, just as Medicare Advantage enrollment first went into high gear, United Health, the biggest player in private Medicare, saw its stock price close at $43.62. The first week of January 2006, as the first seniors were signed up for the new Part D drug program, United's stock price was at $62.90. Yesterday, United's stock price closed at $33.59.
Wellpoint was at $57.90 in January 2005, $78.93 in January 2006, and closed at $49.00 yesterday.
Universal American, a senior specialist who has made a disproportionate play in this space, was at $14.80 in January 2005, $15.39 in January 2006, and closed at $10.01 yesterday.
Humana, arguably the company most leveraged in private Medicare, was at $29.42 in January 2005, $57.08 in January 2006, and closed at $43.06 yesterday. Humana and Universal have been particularly hard hit by Part D pricing problems involving anti-selection issues but have pointed out their Part D blocks are overall operating as planned.
Aetna was at $30.99 in January 2005, $46.90 in January 2006, and closed at $42.26 yesterday.
Historically, these managed care companies are at all time high profit levels--it's not like their results have suddenly bombed and the business is coming off its rails.
The problems these companies have had, such as they are, are not limited to the senior business. There are also concerns about growth and profitability in the commercial market every bit as big. But the Wall Street analysts all said the private Medicare business was supposed to be a growth and profit diversification to the normally cyclical employer health insurance market.
Listening to the research reports the privatization of Medicare was the second coming.
The bottom line is the bottom line.
Where are the great valuations the private Medicare business was supposed to create?
Recent related posts:
Wall Street Continues to Be Disappointed in Managed Care--Just Where Did They Think It Was Headed in the First Place?
Health Plan Stock Prices Hard Hit Recently--Then There is John McCain
Today's HMO Carnage on Wall Street
When the Medicare Modernization Act was passed in late 2003, it was seen as a major boon to the health plan business. Without a doubt the revenue and profits that have accrued from the privatization of Medicare have been more than substantial.
But what good has Medicare privatization done for shareholders?
The first week of January 2005, just as Medicare Advantage enrollment first went into high gear, United Health, the biggest player in private Medicare, saw its stock price close at $43.62. The first week of January 2006, as the first seniors were signed up for the new Part D drug program, United's stock price was at $62.90. Yesterday, United's stock price closed at $33.59.
Wellpoint was at $57.90 in January 2005, $78.93 in January 2006, and closed at $49.00 yesterday.
Universal American, a senior specialist who has made a disproportionate play in this space, was at $14.80 in January 2005, $15.39 in January 2006, and closed at $10.01 yesterday.
Humana, arguably the company most leveraged in private Medicare, was at $29.42 in January 2005, $57.08 in January 2006, and closed at $43.06 yesterday. Humana and Universal have been particularly hard hit by Part D pricing problems involving anti-selection issues but have pointed out their Part D blocks are overall operating as planned.
Aetna was at $30.99 in January 2005, $46.90 in January 2006, and closed at $42.26 yesterday.
Historically, these managed care companies are at all time high profit levels--it's not like their results have suddenly bombed and the business is coming off its rails.
The problems these companies have had, such as they are, are not limited to the senior business. There are also concerns about growth and profitability in the commercial market every bit as big. But the Wall Street analysts all said the private Medicare business was supposed to be a growth and profit diversification to the normally cyclical employer health insurance market.
Listening to the research reports the privatization of Medicare was the second coming.
The bottom line is the bottom line.
Where are the great valuations the private Medicare business was supposed to create?
Recent related posts:
Wall Street Continues to Be Disappointed in Managed Care--Just Where Did They Think It Was Headed in the First Place?
Health Plan Stock Prices Hard Hit Recently--Then There is John McCain
Today's HMO Carnage on Wall Street
Thursday, April 17, 2008
Provider Payment "Food Fight"
For some time I have been saying that we are about to have a "food fight" between health care providers over who will sustain Medicare payment cuts--HMOs, docs, hospitals, nursing homes, durable medical equipment, and others.
But even I was surprised by a recent email from the AMA that included this connection between provider payments and food:
Coming up soon will be a big fight over whether Medicare Advantage payments should be cut to pay for a physician fee fix. Maybe even bigger will be the fight over just how the Medicare physician fee schedule will need to be permanently fixed. That fight will happen between the physician specialties--particularly over how primary care payments will get fixed and what role the better paid physician specialties play in that solution.
More on Medicare provider cuts:
Bush Budget Dead On Arrival But It Underscores the Trouble With Entitlements and The Choices That Must Be Made
But even I was surprised by a recent email from the AMA that included this connection between provider payments and food:
“While it’s unusual to think of farmers and hospitals together, the farm bill conference report has thrown them together at the expense of America’s patients. Opponents of physician-owned specialty hospitals are trying to slip a provision to ban specialty hospitals into the farm bill conference report, well after the bill has been passed by both the House and Senate."Get ready for more intramural fights between those who benefit from Medicare and Medicaid. State Medicaid budgets are under pressure as state revenue projections come up short while the Congress needs to find money in the Medicare budget to fix short term problems like the upcoming physician fee cut and longer-term Medicare solvency problems.
Coming up soon will be a big fight over whether Medicare Advantage payments should be cut to pay for a physician fee fix. Maybe even bigger will be the fight over just how the Medicare physician fee schedule will need to be permanently fixed. That fight will happen between the physician specialties--particularly over how primary care payments will get fixed and what role the better paid physician specialties play in that solution.
More on Medicare provider cuts:
Bush Budget Dead On Arrival But It Underscores the Trouble With Entitlements and The Choices That Must Be Made
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