Archive for December 21st, 2010

Evil Health Insurance Companies Put on Notice

Tuesday, December 21st, 2010

21 Dec 2010

Today the Obama Administration said it would require health insurers to disclose and justify any increases of 10 percent or more in the premiums they charge next year.

The administration, said in proposing regulations to enforce the requirement, that state or federal officials will review the increases to determine if they are unreasonable.

Kathleen Sebelius, the secretary of Health and Human Services, said the review of premiums would “help rein in the kind of excessive and unreasonable rate increases that have made insurance unaffordable for so many families.”

The new health care law, signed in March by President Obama, calls for the annual review of “unreasonable increases in premiums for health insurance coverage.” The law did not define unreasonable.

Under the proposed rules, insurers seeking rate increases of 10 percent or more in the individual or small group market next year must publicly disclose the proposed increases and the justification for them.

“Such increases are not presumed unreasonable, but will be analyzed to determine whether they are unreasonable,” the administration said.

Starting in 2012, the federal government will set a separate threshold for each state, reflecting its cost trends, and insurers will have to disclose rate increases above that level.

Under the proposed regulation, the federal government will evaluate each state’s procedures for analyzing insurance rates.

If the federal government finds that a state has an “effective rate review system,” the state would conduct the annual reviews of premium increases.

But, the administration said, “if a state lacks the resources or authority to do thorough actuarial reviews, the Department of Health and Human Services would conduct them.”

The federal government will post information about the outcome of all rate reviews on the department’s Web site, and insurers must post the information prominently on their Web sites.

Under the new law, insurers that show “a pattern or practice of excessive or unjustified premium increases” can be excluded from the centralized insurance market, or exchange, that is to be set up in each state by 2014.

In February, just one month before Congress completed work on the health care bill, President Obama proposed giving federal officials the power to block excessive rate increases by health insurance companies. Congress did not accept the proposal, choosing instead to leave rate review primarily in the hands of state officials.

An official at the Department of Health and Human Services said Tuesday: “The statute does not give us authority to disapprove rates. We do not have that authority. The regulation leaves state laws intact. It does not interfere with state law. In some states, rates cannot be put into effect unless the state affirmatively approves the rate increase.” In other states, insurers must file rates with a state agency before using them, but the state does not approve or disapprove rates.

The federal government has awarded $46 million to states to enhance their review of premium increases — the first installment of $250 million that will be distributed for that purpose from 2010 to 2014.

Under the new regulation, a federal health official said, “we are not setting an absolute numerical standard for whether a rate is unreasonable.”

Instead, the proposed rule lays out factors to be considered. It says that a rate increase will be considered unreasonable if it is excessive, unjustified or “unfairly discriminatory.”

A rate increase is defined as excessive if it “causes the premium charged for the health insurance coverage to be unreasonably high in relation to the benefits provided.”

In addition, under the rules, the assumptions used in calculating a rate increase must be based on “substantial evidence.”

Ms. Sebelius said that since 1999, the cost of health insurance for the average working American had risen 128 percent

Two-Tiered Dentistry? Discount Dentistry Brokers VS Freedom of Choice & Marketplace Competition?

Tuesday, December 21st, 2010

  Capitation dentistry, midlevel providers and sinfully huge tax savings

 On December 7, I posted an opinion piece on The American Way of Dentistry titled “Is the nation really ready for two-tiered dentistry?” (On the 8th, it was picked up by the Medical Executive-Post as “Dental Therapists [Emerging New Providers?].”)

 Yesterday, a reader named Tom opened the door for me to further expound on my opinion of midlevel providers and a future of multi-tiered dentistry. I’ll be sharing this conversation with my state and national lawmakers as well. Do you think I’ll get any responses?

 Tom says: “It already exists. There are insurance based practices and fee for service practices and if you don’t think there’s a difference in quality…..”

 I agree with you, Tom. But I should warn that as dentists, you and I are now skirting the fringes of unwritten rules of “professionalism” should we openly mention that managed care dentistry is dentistry by the lowest bidders with no quality control.

 It’s also politically incorrect to reveal that one can go to the dentist rating site, DR.Oogle (, and quickly research preferred providers’ popularity with patients compared to other practices. Invariably, the managed care practices average in the lower half of the ratings by the only critics who matter.

 Indeed, dental patients across the nation confirm that there have been two tiers of dentistry for decades: First is fee-for-service controlled by freedom of choice and marketplace competition, and then there is a second, preferred-provider tier controlled by discount dentistry brokers like Delta Dental, United Concordia and BCBSTX according to cost. Now a third tier is in the race for the bottom – capitation dentistry, and it’s coming to a state near you.

 Decades ago, the concept of paying dentists on a per-head basis rather than per-filling was soundly rejected by Americans for good reason: It proved to be unethical to encourage even a professional to profit from neglecting patients’ health. It’s much, much better to make someone work for their pay. Nevertheless, capitation is returning to the dentistry marketplace. In Europe, the UK ’s National Health Service (NHS) which provides free dentistry as an entitlement will soon begin a pilot program to carefully investigate the promise that capitation will indeed solve the nation’s access problem before making the benefit plan law.

 On the other hand, the Texas Dept. of Health and Human Services has guts. Naïve leaders in the state organization intend to persuade lawmakers to turn Medicaid dentistry into capitation immediately without bothering to even ask dentists about it. How is that not bureaucratic bonehead?

 The 1980s sales pitch went something like this: “We pay dentists for quality outcomes instead of unnecessary crowns, and pass on the savings to you!”

 The difference of 25 years? This time, capitation decay will be ignored, then delayed and finally treated by non-dentists instead of dentists. The pitch: “It will cost taxpayers even less to provide dental care to the poor (including avoidable, painful complications – which are contractually up to the dentist to resolve). And who will be the unfortunate dental patients? Children in Texas from poor homes who have no choice where to go for dental care and whose complaints matter little if at all.

 There is no latent fairness in “tiered” dentistry. Only different levels of pain.

 D. Kellus Pruitt DDS

Fate of Insurers? Growth of TPA Business?

Tuesday, December 21st, 2010

Health insurance companies and their role in employee benefits and health insurance in general in a couple of years will definitely be VERY different.  PPACA has poison pills for insurers sprinkled throughout the law, designed to punish and/or squeeze them out of any profitable role.

Let me give just four examples:  >MLR squeezes their operations top to bottom and distribution network (commissions).  >Also,  I suspect that insurers will find participation in state exchanges will be money-losing.  >It looks like insurers are going to increasingly be squeezed into one-size-fits-all policy design, with little room for innovation.  >The power of bureaucrats to dictate what they feel is “unreasonable” premium for an insurer to charge is like a fatal cancer, since government officials are notorious for having no idea of the actual claims cost impact of things governments cavalierly mandate.  Any one of these would be enough to drive most companies out of the business.  If insurers become money-losers, then stockholders & management will rebel….and, ironically, the same state officials imposing many of the losing requirements will tell insurance companies that they are not adequately funded to remain in business.

So, it is hard to envision how or why insurers would want to stay in the US health insurance market.  They have an overseas option.  As I have mentioned before, because many entities check with SPBA as a resource on trends in the health & benefits arena, I had learned about two years ago that insurers were exploring other markets in case the US market was closed to them (such as a government single-payer plan).  They identified what look to be profitable markets in parts of Asia & Europe…and with the bonus of usually no government micromanagement.  So, you notice the trickle of announcements of insurers opening or expanding their overseas markets.  So, that will provide new income to replace withdrawing from the US market. Editor: Cigna in China, Humana in GB, etc.

HOW MIGHT INSURERS REMAIN IN THE MARKET?  Some may become the financial part of an ACO.  Some may find niches that work in state exchanges or other programs, especially if states are successful in getting waivers for MLR & state exchanges (but waiver simply means states will impose their own rules). 

Many insurers already have as much as 2/3 of their business in self-funding as ASO under their own name or via investment in independent-name TPAs.  Since anything with the name (or even erroneously perceived by government as in any way) an “insurance company” will tend to face the harassments in PPACA, even if they are not performing “insurance” functions.  So, I think the corporate decision will be to centralize all their self-funding into the independent-named TPA .  So, I think that the biggest chunk of continuing  insurance company corporate income will be via the independently-named (and…important…independent-acting) TPA.

Editor’s Note: This is an excerpt from Fred Hunt’s email blast of Dec. 20, 2010

Cost Transparency – A Colonoscopy for $400 or $7,000?

Tuesday, December 21st, 2010

November 16th, 2010 by David E. Williams of the Health business blog

This is the transcript of my recent podcast interview with Castlight Health Chief Medical Officer Dr. Dena Bravata.

David E. Williams: This is David Williams, cofounder of MedPharma Partners and author of the Health Business Blog.  I’m speaking today with Dr. Dena Bravata.  She is Chief Medical Officer of Castlight Health.

Dena, thanks for joining me today.

Dr. Dena Bravata:            David, thank you so much.  It’s a pleasure to be here.

Williams:            What is Castlight Health and why is it needed?

Bravata:            Castlight Health is dedicated to making health care cost and quality information publicly available. It’s needed because that kind of information is not readily available today.

One of the things we do that is not publicly available is to personalize cost and quality information.  Rather than showing the average cost of a service, such as seeing a doctor or getting a cholesterol test, we show our users what their personalized cost for that service would be, based on where they are in their plan today.

Williams:            Many people talk about transparency and personalization.  Is there something different that Castlight does that others don’t?

Bravata:            Transparency means different things to different organizations. We’re showing people the full spectrum of where the costs and relevant quality information come from.  For example, your cost for a particular health care service will be a function of what the negotiated rate is, what your employer or insurer pays for that and what your out of pocket cost is. We show all of that to you in a very consumer friendly way. Not everybody is interested in all that information all the time but we enable you to see all of it.

Similarly, many of the quality metrics that we show on our application are publicly available.  These are well validated measures, many of them coming from the federal government. But it’s not transparent unless the data are presented in a way that’s consumer friendly. We show data –for example about hospitals’ clinical outcomes. We show patient satisfaction measures for providers and facilities and we show exactly where those data are coming from. But we have simplified them and show them in a very consumer friendly, easy to understand manner.

We wrap all that up with straightforward educational content so people learn how to use the information.  The ability to see this information  –some of which consumers have never been able to see before, others that they’ve never been able to see in a consumer friendly manner– wrapped in normal language resonates with users and becomes very actionable.

Williams:            Who would be a prototypical user?

Bravata:            Someone on a high deductible plan or who has a high co-pay, because these are people who have to spend their own money on health care; people who have health savings accounts, because they’re really incentivized to shop for health care services.

Those lucky souls who pay five dollar co-pays for everything are not a good fit.

Williams:            Give me a real example of somebody who has been helped by Castlight.

Bravata:            We have “Castlight Guides” who provide full phone support. If you’re in a place where you can’t access your computer you can call in and get the same information you would have if you had a computer in front of you. Our Castlight Guides supply great anecdotes from people calling and getting information that changes their health care behavior.  One notable example was a woman who was 50 years old and was just about to get her first screening colonoscopy.  She had been given the name of a provider and saw that that the colonoscopy was going to cost her in excess of $2,000. She came onto our site, saw that she could get the same exact procedure in her same town for well under $1,000. She called our Castlight Guides just to tell them that we saved her over $1,000 on that one procedure.

It’s particularly poignant when you sit with a user and show them the application for the first time. A woman burst into tears because she said that this was just so unbelievably helpful to her and wondered how she had negotiated the health care system previously without access to this.

Similarly we often get requests to print out the information and take it home to show relatives.  We have now enabled the ability for people to print what they see on the application.

Williams:            Many companies have technologies that look interesting and are able to persuade HR (or whoever the decision maker is) to give it a try. But when it comes right down to it, sure they have a few anecdotes, maybe even like ones you’ve described, but there isn’t a broader uptake and the company doesn’t get the return on investment (ROI) overall.  Any evidence of how that’s working out for Castlight?

Bravata:            It is a little early for us to be able to say our ROI is X or Y.  Our first commercial customer is Safeway. We have three other customers in the pipeline that will launch early next year. Therefore we’re only now beginning to get a sense of user adoption.

Adoption is exceeding some of our expectations. I think much of our ROI is going to come from the fact that the services we support are common outpatient procedures that people can shop for.  We support all kinds of doctor visits and imaging tests of all kinds. We cover conditions –for example urinary tract infections (UTIs)– that can be cared for in a doctor’s office, an urgent care clinic or the emergency room. For many of the services –with that UTI example primary among them– there is gigantic variance in the price for care for that same condition. Our ROI is about showing that variance to our users and helping direct them to high quality but lower cost providers for that same service.

You may be familiar with a recent New York Times article that highlighted, even within the Bay area, that the cost for colonoscopy ranges from $400 to $7,200 for exactly the same service. That high cost location is not gold plated, you don’t get better anesthesia.  There’s nothing better about it.  It’s exactly the same procedure, it’s just that there’s this gigantic price variance.

That’s not to say that everyone should get the lowest cost one, but even if we can help some people to the median, we immediately can show an ROI for the employers who are paying for our service for their employees who are on higher deductible health plans.

Williams:            How does Castlight make money?

Bravata:            We provide our service to employees of large companies who are self insured. Because the employer is self insured, they stand to benefit from reductions in health care costs for their employees and from improvements in health in the long term.

Williams:            Self-insured employers are the main customers, but how do you work with health plans?  Are they customers or partners?

Bravata:            They are partners. We are in increasingly interesting conversations with health plans to develop closer partnerships. We receive health claim information from employers but receive other important information from the health plans.  To date the plans serve as partners.  None of them are direct customers.

Williams:            It sounds like we’re still at the relatively early stage of Castlight’s existence and the movement toward personalized transparency.  How do you foresee the evolution of this service?

Bravata:            We are in the early stage.  We are almost two years into this now and we’re growing in a number of different areas. Our first efforts were to get the prices right for common outpatient services. We’ve done a nice job with that.  Our current effort is to expand the quality information that we show, making that very robust and consumer friendly.  Soon we’ll be enabling our users to provide reviews for both providers and facilities.

Moving forward we’ll tackle increasingly costly, complicated procedures like elective surgeries. These are things many employers have unique benefits around.  Many employers we work with have centers of excellence for particular surgical procedures or medical tourism programs.  Those are things we have plans to support in the upcoming months.  We don’t yet have a mobile application but that’s clearly something that’s on the horizon.

We have a product that’s very useful today and I’m delighted by what we have on the road map for the next six to twelve months.

Williams:            Is there any interaction between the Castlight service and implementation of the Affordable Care Act?

Bravata:            There isn’t direct interaction.  Health care reform only stands to help us. There will be more people on higher deductible plans and other plans where they are at greater financial risk, so those people are our natural users.

It will be interesting to see what might change in health care reform with the recent election, but thus far it really stands to play to Castlight’s advantage.

Williams:            This is an era where the venture capital industry is shrinking and more technology start up’s are raising smaller rounds. Yet Castlight raised a lot of VC money.  What were you thinking?

Bravata:            We have, as you well know, a very charming, dynamic and impressive leader in our CEO Giovanni Colella. Gio has done a great job raising venture capital. The main reason we have raised the impressive amount of money that we have is to have the ability to hire the best and the brightest.  More than half of our 60 employees are engineers who are dedicated to making this product and ensuring that we are the leader in this new space that we’re creating.

It’s a whole new industry, a whole new category we’re trying to develop.  The main reason to raise all that money is to have an office full of computer science PhD’s who are making that happen for us.

Williams:            Tell me a little bit about your personal story.  Why did you decide to join the company?

Bravata:            Before coming to Castlight I was at Stanford for just under 16 years, first as a resident and then I stayed and did a fellowship and a masters degree in health services research. Then I stayed on as a staff researcher in the health policy/health economics group.  At the same time I was a practicing general internist, first at Stanford and then I had a private practice for just under a decade here in San Francisco.

What I bring to Castlight is a background in health policy and analysis with deep experience in general outpatient primary care medicine.

I got involved with Castlight initially as a consultant. Over time the compelling nature of what we do led me to believe that I had a unique opportunity to work for a company that is positioned to radically change the way health care is delivered. I felt I had an opportunity to affect far more lives by trying to be a leader in this amazing new endeavor than I ever could as an academic or practicing clinician.

Williams:            I’ve been speaking today with Dr. Dena Bravata.  She is chief medical officer at Castlight health.  Dena, that’s so much for your time.

Bravata:            Thank you so much David.  It was a pleasure.


Alternative Pharmacy Network Whitepaper – A Rebuttle

Tuesday, December 21st, 2010


Alternative Pharmacy Network Whitepaper December 16, 2010

Posted by George Van Antwerp in Healthcare.

Milliman recently put out a whitepaper commissioned by ReStat on “Alternative Pharmacy Network” savings. My general opinion is that they use a lot of data and analysis mixed with some sensationalist statements to make the very obvious point that creating a limited or closed pharmacy network will save you money. (I hope they didn’t charge much for this.)

Their conclusions were:

  • Potential Savings – The analysis shown in this report suggests that APN programs can offer a significant savings to employers relative to traditional networks. For an assumed range of consumer use of participating pharmacies, an employer with 10,000 lives could save $200,000 to $620,000 per year, depending on benefit design, without changing cost-sharing structures (see Table 3). Benefit design changes could increase or decrease the savings. A closed APN network (no coverage for non-APN pharmacies) would increase savings for a given benefit design.
  • Sources of Savings – In our analysis, the APN model can achieve lower cost because the PBM and retail pharmacy retain less revenue.
  • The Value of Limited Networks for Pharmacies -For medical benefits, health plans use network providers as part of overall quality and efficiency programs and are promoting network programs such as medical homes and pay-for-performance. Sponsors and PBMs can extend the advantages of networks to the pharmacy benefit. However, the ability to obtain value in a locale depends on the willingness of some pharmacies to participate as network members.
  • Plan Design Changes – Plan sponsors may need to change their plan designs to encourage use of the limited network. For example, the copays for limited network pharmacies may need to be decreased (from current levels) and/or the copays for non-network pharmacies may need to be increased to create a benefit differential between the network and non-network pharmacies. These plan design changes could reduce or increase the projected savings of a limited network, depending on the specific change.

My comments about their analysis:

  • They assumed that retail pharmacies would reduce their spread on generics by 44% (and brands by 78%) to be part of a limited network. That might be true for a large client with geographic concentration and for a retailer with low market share, but I think that’s a leap. (see chart below on brand pricing assumptions)


  • They say that spread for retail claims for PBMs can be 10-15% of AWP. I’ve seen plenty of deals that were negative (at least on brand drugs). In many cases, spread pricing doesn’t even exist.
  • They claim that PBM’s make money “(as part of a typically Drug Utilization Review program) actively encourages patients to switch to different medications as a core part of its business.” Really. That went out with the AG settlements back around 2004. Chemical substitution to generic equivalents certainly happens, but using DUR to push therapeutic conversion. I don’t think so.
  • They claim that PBM’s will buy drugs and repackage them to get a higher reimbursement rate at mail. I’ve never seen it (but that doesn’t mean it’s not done).
  • MAC pricing at mail. Yes. PBMs do make most of their money on generics at mail, and I’ve talked about the need to align your MAC lists at retail and mail before.
  • They also say “While mail order presents the opportunity to save sponsors money, attempts to encourage mail order by reducing copays could increase sponsor cost if the benefit plan is poorly designed (e.g., copays are reduced too much), utilization increases, or generic dispensing decreases.” I’ve talked about why clients lose money at mail before, but I’m pretty sure that there have been plenty of studies that show adherence improves (not unnecessary utilization). Studies have also shown that if you adjust for acute medications at retail then the generic dispensing rates are very comparable at retail and mail (or explained thru population differences).
  • They claim that the PBM’s make 10-15% on specialty drugs that they dispense (which seems high to me) and then use $5,000 per month as a number when the average 30-day supply of a specialty drug is more like $1,500.
  • They claim “Different manufacturers offer different rebates, which may factor into a PBMs decision making.” I think if you read the P&T process documents you would see that decisions about in or out are made based on clinical decisions and then a formulary can be broad or narrow based on the net price to the plan sponsor which does (and should) evaluate rebate impact.
  • They quote a source saying that 35% of rebates are kept by PBMs. Again, that seems really high. In my experience, there was an administrative fee equal to several percent of the AWP of the drug that was kept but the rebate dollars were passed to the plan sponsor.

While I like the simplicity of the flat fee payment model (i.e., I pay my PBM $3.00 per claim), it certainly creates no incentive for them to do better year over year in improving their negotiating with pharma and retailers or to worry much about trend management.

They talk briefly and seem to encourage ReStat’s Align product which seems like a very logical approach (used by other PBMs also).

Restat configures custom retail networks and benefit designs that create incentives to encourage member use of alternative in-network pharmacies and allows consumers the ability to shop based on price as well as service. Non-network pharmacies are also available but at a higher copay or costs

Editor’s Note: HEB announced earlier this year that they are now a PBM working directly with self-funded health plans in Texas. One option they market is an HEB only Rx network with purported savings. This “rebuttle” may cause a re-examination by some in moving towards a limited Rx network without further exploration of true costs.

Important Information on W2 Reporting

Tuesday, December 21st, 2010

Health care reform requires employers to calculate and report the aggregate cost of applicable employer-sponsored health insurance coverage on employees’ Form W-2s. Although the new rule applies for employees’ tax years beginning after Dec. 31, 2010, payroll systems need to be updated for this change by January 2011. This deadline is imposed because employees are entitled to request their Form W-2s early if they terminate employment during the year.

Note: Grandfathered plans are not exempt from this reporting requirement.

[Update:  The IRS announced that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011. See Draft Form Issued for Reporting Health Care Costs on W-2s; Requirement Made Optional for 2011.]  I attached this article below.

Plans for which coverage costs must be reported under the new requirement include:

Medical plans.

Prescription drug plans.

Executive physicals.

On-site clinics if they provide more than de minimus care.

Medicare supplemental policies.

Employee assistance programs.

Coverage under dental and vision plans is included unless they are “stand-alone” plans. However, the cost of coverage under health flexible spending accounts, health savings accounts and specific disease or hospital/fixed indemnity plans is excluded from the reporting requirement.

How to Value Plans

The aggregate cost of coverage under the plans (including the employee and employer portions of cost) is determined under rules similar to COBRA—minus the 2 percent administrative charge permitted under COBRA. Government regulations regarding how to value plans for COBRA purposes were, as of this writing, expected shortly. Presumably, any regulations issued would apply to COBRA and to the new Form W-2 reporting requirements. One challenge for employers might be that some of the plans covered by the new reporting requirement, such as on-site medical clinics, are not plans that they have previously valued for COBRA purposes. Now, employers will need to come up with reportable values for coverage provided under these programs.

Monthly Coverage

The new reporting requirement appears to require a monthly calculation of coverage. However, some employees might have less than a month’s coverage if their coverage starts or stops during the month. Future regulations might clarify how to report coverage of less than a full month.

Reporting is required for employees but also seems to apply to former employees who are provided with health coverage, including early retirees, retirees, terminated employees on COBRA and surviving spouses. Many of these individuals would not typically receive a Form W-2 from the employer, at least not for taxable years following their termination of employment. Accordingly, if this interpretation is correct, an employer’s overall W-2 reporting requirements may increase dramatically. Employers should begin working with their payroll departments immediately to ensure compliance with these new requirements.

Maureen M. Maly is a partner with Faegre & Benson in the law firm’s Minneapolis office. Her practice focuses on employee benefits with a particular expertise in welfare benefits issues.