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Avoiding Costly Litigation by Using Alternative Dispute Resolution

August 31, 2010 in /by

By Jason E. Lopata, Esq.

I’m always perplexed by the ease at which certain people shoot off the phrase “I’ll sue,” without thinking of the practical considerations involved in such an endeavor.  Court costs, legal fees, the amount of time, effort and attention devoted to the lawsuit – these almost always seem to have a higher price tag then most would think.  And depending in which jurisdiction you reside, the wheels of justice may not spin at a rate that seems appropriate to your current frustration or anger with another individual or entity.   But as a physician with a legitimate complaint who doesn’t want to sue – where does that leave you?

Mediation, one of the forms of alternative dispute resolution, is gaining popularity now more than ever.  Perhaps it’s because everyone is more cost conscious in these leaner economic times.  This is particularly true for the complex world of medical malpractice litigation, where if a matter proceeds through to trial, the costs can easily reach six figures for all parties involved.

Recently, New York and Connecticut have initiated new programs designed to ease the Courts’ backlog of medical malpractice cases and attempt to reduce costs associated with such litigation.   In New York City, Beth Israel Medical Center, Mount Sinai Medical Center, New York-Presbyterian Hospital, Maimonides Medical Center, and Montefiore Medical Center have agreed to participate in a pilot mediation program.  Each hospital will implement a program whereby it provides early disclosure to a patient and/or patient’s family when a medical error occurs and makes an early offer of compensation, if appropriate.   If out-of-court settlement is not initially successful, the case is sent to a mediation hearing.  If mediation is unsuccessful, only then would the case proceed to litigation.

In Connecticut, there is a new mediation requirement for all medical malpractice cases, which became effective July 1, 2010.  Requiring a “period of mediation” for 120 days before the close of pleadings (i.e. the initial written, court-filed documents required by each party), the court is hoping to reduce the number of smaller or less meritorious claims before litigation makes settlement more difficult.  Cases settled with early stage mediation involve a fraction of the time and cost, rather than taking cases through costly components of litigation such as medical records discovery and expert witness testimony.  The Connecticut Medical Society believes that mediation is one method to reduce medical malpractice insurance premiums throughout the industry.   That is also the goal of the New York hospital project, which is being funded by a $3 million grant provided by the federal government.   New York and Connecticut join states such as Maryland and Wisconsin, which have already been using mandatory alternative dispute resolution, including “early neutral evaluations,” for medical malpractice cases.

For physicians, mediation also has practical uses outside of the early resolution of medical malpractices claims.  It can also be a useful tool to consider for many of the disputes that arise within a practice partnership or employment setting.  Whether it is for the negotiation of a physician employee now joining the practice’s partnership or the reformation of an existing partnership agreement to reflect the current status of the practice, each physician need not hire an individual attorney at the first whiff of disagreement between parties.  Mediation can also be used for disputes with subcontractors, vendors, and independent contractors.  An impartial mediator can help facilitate a quicker resolution that has many more advantages than traditional court-based litigation.   These advantages include more party involvement in shaping the resolution, less likelihood of an all-or-nothing outcome imposed by a judge or jury, more opportunities for creative solutions (rather than just monetary judgments) and the opportunity to conduct hearings in a less formal, more relaxed setting than inside a courtroom.

So the next time you feel that urge to call your attorney and rush into the courthouse, or you’re tempted to shoot off the ever popular phrase “I’ll see you in court” – stop and think of the alternatives first.  Mediation can bring parties to the table in a less confrontational manner and hopefully help to create a resolution that is more palatable for everyone involved, all for a fraction of the time and costs involved in full scale litigation.

Retail Clinics and Your Practice- What Can You Learn?

August 24, 2010 in /by

by Tiffany Lauria

In a world where we can access up-to-the-minute information on our smartphones, purchase a car and drive off the lot that day, and cook a microwaved meal in 5 minutes flat, is it any wonder that patients are carrying over that need for ‘instant gratification’ into their interactions with physicians?

Today’s patients are demanding faster service and faster results, while still expecting quality care and affordable treatments. And that demand has lead to the explosion of retail clinics onto the healthcare scene. While growth in the number of retail clinics has generally slowed, the impact of the continuing development in this field can’t be ignored, with an estimated 1,200 clinics being formed in the US since their inception in 2000[1].

A recently released Rand Health1 report highlighted the most common reasons why patients chose to utilize a retail clinic for their healthcare needs. Since these clinics are not going away anytime soon, it is to your practice’s benefit to learn from the model and minimize the impact that a clinic can have on your practice and your patients. The issues surrounding retail clinics in the healthcare landscape are too numerous to cover here, but focusing on patient preferences is a good way to determine if you are in competition with the clinic down the block.

What are some things the retail clinics offer that draws a patient in?

  • Clinic offering: Convenience- flexible hours, immediate access, and centrally located to other needed services (such as pharmacies and shops to complete errands while patients are waiting).

How to do it: When was the last time you analyzed your schedule? Do you offer extended hours- early mornings and late afternoons and evenings to accommodate working and school age patients? Have you blocked out specific times during the day for walk-in appointments and urgent matters? And most importantly, have you advertised this fact to your patients and the community? Convenience is only convenient if you know about it!

If your office is not located within a reasonable range from a pharmacy, consider working with a vendor and implementing point-of-care dispensing in your office.

  • Clinic offering: Low Cost Care- Most retail clinics accept healthcare insurance, and their cost of care is lower than care provided by a medical office physician, which is an incentive for uninsured patients.

How to do it: Have resources at the ready and provide all of your uninsured patients with low cost state insurance options. The goal- get these patients covered and stop the exodus into retail clinics for acute care or preventive care episodes. Keep them in-house whenever possible.

As it is likely difficult enough to cover practice costs currently, it may be impossible for you to lower service costs any further. Be sure to offer flexible payment plans and provide sensitivity training for your billing staff when dealing with payment issues. Be sure that all staff know to never turn away a patient due to monetary issues, arrangements can generally be made.

On another note, increased care coordination efforts can be very useful in lowering practice costs, and in keeping your patients healthier in the long run.

Taking a look at the above items brings to mind another, more rapidly growing healthcare model- the Patient Centered Medical Home. Physician access, patient satisfaction, cost of care and the like are all components of the PCMH. So while the retail clinic down the block may be siphoning off your profits by drawing patients away, implementing some tweaks in your operations may lead to recognition as a PCMH, and the enhanced reimbursement that comes right along with it. For certain, the opportunities are there, because as the Rand report noted, only 39% of people that visited a retail clinic report having an established relationship with a primary care provider.

Reach out for improvements in your practice, because the additional 61% are still out there.

[1] Weinick, Robin M. et al. Policy Implications of the Use of Retail Clinics. Rand Health, a division of The Rand Corporation. (2010). Retrieved from: http://www.rand.org/pubs/technical_reports/2010/RAND_TR810.pdf.



Protect Your Practice with a Sound Compliance Program

July 30, 2010 in /by

by Jason E. Lopata, Esq.

On an unsuspecting day, you arrive at your practice to discover your nursing manager wants to discuss a matter she overheard discussed in the billing department.  She states that one of the billers is posting out charges for services with modifiers that result in payment, but her colleague found a coding policy that considers that practice ‘unbundling’ of services, and therefore could prompt an audit and potential penalties if found to be the case. The billing employee brushed it off and stated that this is what she was told to do by one of the senior partners in order to make sure the claims got paid. Maybe it was an honest billing mistake, or perhaps something more sinister is occurring – but what do you do now?  Where do you turn for guidance as to how to investigate and properly handle these alleged fraudulent transactions that may be occurring in your practice?   The answer lies in a well-designed compliance program.

The healthcare industry is currently undergoing increased scrutiny of its billing practices, facility-physician relationships, and even treatment protocols, so it is vital that practices arm themselves with a competent compliance program.  Having policies in place shows an organizational commitment to compliance with state and federal regulations, regardless of the specialty or size of the group. A good compliance program should improve the efficiency of claims payments, minimize billing mistakes and improve the documentation of patient medical records.  Another benefit of such a program is a reduction in the chances that an audit will be conducted by CMS, OIG, and commercial Payers, and at the very least, would give your practice the benefit of the doubt should an audit occur.  The increased use of Recovery Audit Contractors (RACs) shows that government agencies are expanding their budgets to actively review all payments made and pursue those practices receiving reimbursements that appear to be outliers on set algorithms, regardless of the reasons for that.

So what is involved in a proper compliance program? Implementing proper, practice-wide procedures is a means to developing a code of conduct and establishing written policies to enforce it.  Key areas that should be addressed include coding and billing, proper documentation of medically necessary services, improper inducements or self-referrals, and record retention.

First, assign compliance monitoring to a compliance officer in the practice. This could be a senior physician, or your office manager.  As you build out the program, employee training should always been kept in mind, so that practice ethics and the policies and procedures established are followed and understood by your staff.  A good program will help your practice develop effective lines of communication.

Second, and most importantly, establish a protocol for responding to detected offenses and give your practice the ability to take immediate corrective action.  Consider the use of a ‘non-compliance’ report for placement in an employee’s file, conducting additional training to address the non-compliant behavior, and regular reviews of the practice’s procedures to ensure that there is guidance as to how to handle the situation should it arise within the practice again.

The top recommendation for all practices is to make compliance part of every staff meeting, by discussing issues that have come up within the practice or in the news, and make compliance adherence a part of every employee evaluation too. Every employee review should contain a rating on compliance and all training on compliance should be fully documented.  Employees must not only receive training on how to perform their jobs in compliance with the standards of the practice, but each employee must understand that compliance is a condition of continued employment.

While the task may seem daunting to integrate internal monitoring, implement compliance protocols, appropriately train employees, and enforce disciplinary standards – making the effort within your practice is necessary should that suspected misconduct or audit every occur.   And if it doesn’t (and there is no way to guarantee such a thing), your practice should still find efficiencies and sound protocols that will positively affect the bottom line. And in the event of an audit, the totality of all of the documentation evidencing the continual reinforcement of compliance policies and procedures could support your practice’s argument that when a billing or claims mistake was made, it was just an “innocent” mistake, rather than an assumption that some type of fraud was being attempted within your practice.

Practice tip:  Don’t wait for an audit to happen, perform one yourself and make the necessary adjustments now. Select 50 files per physician and see if there is a pattern of high level or modified codes that might raise red flags with Medicare or Medicaid.  With those high complexity codes, is there always supporting documentation in the form of diagnostic results and physician notes or reports to support the submitted claims?  If the answer is no, adjustments need to be made in chart documentation policies and coding training at the provider level.  Think about conducting an “in-process audit,” which uses files for claims that have not yet been submitted for payment.  This provides the added benefit of allowing you to correct any mistakes before they are submitted.

Red Flag What Now?

June 10, 2010 in /by

by Tiffany Lauria

Ask any of the physician practices that were scrambling to meet the June 1st deadline for implementing the ‘Red Flags Rule’ about the decision to delay through December 31st and you are sure to be greeted with a chorus of ‘whew’ and  ‘thank goodness’.

To further ease the pain of their efforts, the AMA just recently posted that FTC Chairman Jon Leibowitz is in agreement that physicians should not be required to comply with the hotly debated rule. There have been no changes to the regulation, so practices still have to be prepared for a January 1, 2011 start; however this recent development bodes well for thinking that practices may be legally exempted at some point in the near future.

Speaking at the AMA annual meeting on June 14th, Mr. Leibowitz declared, “We feel your pain on red flags, and we want to fix it”.[1] From a practice management standpoint, why is this rule, which is intended to help identify, prevent and mitigate identity theft, such a hot button issue in the physician practice world? Simply put, more rules and regulations mean more work and expense on the part of the practice.

The ‘Red Flags Rule’, which stems from the Fair and Accurate Credit Transactions Act of 2003, lists a number of steps that must be undertaken by those entities that apparently meet the criteria for needing to comply with the regulation. Included among these steps are the determination of policies and procedures in the physician practice to identify red flags, or warning signs of identity theft, detect and respond to any of these flags, continually update these polices to keep up with changes or new flags that may be identified over time, get these policies reviewed and approved by practice management and finally, train practice staff on these policies and (here’s the kicker) actually implement and follow through with them.

Certainly, no one is debating the need for increased security of personal and financial information, and rightly so, the regulation is designed to put consumer interests first and foremost; however, physician practices are fighting a daily battle just to survive. Decreased payments, increased regulations, revolving payer policies, new technologies and, in the case of smaller practices, large entities eating up the business all combine to make keeping the doors to the practice open more difficult each day.

Add to this, the federal government declaring that your practice must spend a chunk of time identifying and preparing these policies and the loss of productivity of managers and staff during repeated training sessions and this equals a cumbersome requirement to an already overburdened practice. Further, implementing these policies may require a complete overhaul of practice administrative procedures, and may necessitate new technologies in the practice, a difficult thing to accomplish when there is a contested debate on whether physician practices truly meet the criteria for complying with the rule.

So what should a practice be doing right now to help protect patients from the potential for identity theft? A good place to start is by reviewing your current administrative and information storage procedures with an eye on how well your practice does on keeping patient information confidential.

– Are your billing staff dealing with patients at the front desk area or is there a private area where they can discuss patient items such as credit card numbers and balances?
– If your receptionists need to ask patients for a social security number or date of birth, do they provide them with a pen and paper to write the information down or is it relayed to them verbally while other patients wait in the area to be checked in?
– Are shredders or a document shredding service utilized and do staff know which documents and information must be destroyed?

Also, review your staff usernames and passwords policies, making sure that staff understand the consequences of sharing usernames and passwords, use usernames and passwords that are more complex than just first and last names, and if possible, restrict access to certain program areas to staff members that truly have a need for access (e.g. if your medical assistants never do billing functions, restrict their access to patient credit card numbers on file).

There are a number of ways in which practices can minimize the potential for identity theft and exceed HIPAA expectations for privacy and protection, regardless of whether it is determined that physician practices must comply with the ‘Red Flags Rule’ starting in 2011.

Take a look now at what your practice is doing to educate staff and protect patients, and consider having an outside expert do a quick assist in identifying areas for improvement or implementing policies that may increase efficiencies without increasing cost. While practices may be overburdened in many areas, doing things right the first time will always be faster and cheaper in the long run.

[1] Stagg Elliot, Victoria and amednews staff. (2010, posted June 28). AMA meeting: Physicians should not fall under “red flags” rule, FTC chair says. American Medical News. Retrieved from http://www.ama-assn.org/amednews/2010/06/28/prl20628.htm

For more information on FTC Chairman Jon Liebowitz’s comments at the AMA Annual Meeting, visit:  http://www.ama-assn.org/amednews/2010/06/28/prl20628.htm

Living in a Facebook World – How is Your Practice Going to Use Social Media?

May 1, 2010 in /by

by Jason E. Lopata, Esq.

Facebook and other social networking websites are posing new ethical issues for physicians.  Virtually every industry feels the impact of social media platforms like Facebook and Twitter, and healthcare is no exception.  As physicians and providers discover the benefits of online marketing and learn to guard against the risks, practices must establish clear guidelines and procedures in how to use these new media.  With questions such as “should I ‘friend’ my doctor on Facebook?” or “is it proper for a doctor to include information obtained online in a patient’s medical record?” there is much ambiguity as these new forms of communication and interaction become more widely used.

While many physicians may be using the technology like the rest of us, for keeping in touch with friends and family, the recent trend has shown that doctors are starting to use social media to reach out to consumers.  Practices can introduce staff, highlight press coverage of the practice, offer general health advice, and share interesting links from around the web, all in an effort to interact with current patients and attract new ones.  However, some doctors are also using the new media, such as Twitter, to bring patients’ families and the general public into the physician’s offices, sometimes providing operating room statuses and sharing step-by-step medical procedures.  They may “tweet” real-time updates and videos as a way to reduce the fear factor of surgeries and educate people about the realities of certain procedures.

Yet, this raises major privacy concerns for the patient.  Even with physicians making efforts not to release personal health information (PHI) through these social media (by not including full names of patients, only initials), questions arise as to the appropriateness of certain public broadcast of medical information.  And with more patients having technology such as cell phone cameras and webcams, protecting privacy can be more challenging than ever before.  The posting of unauthorized pictures or detailing embarrassing treatment stories are possible consequences of allowing Facebook “friends” to post on your practice’s “wall.”  Therefore, practices must develop and implement safeguards across the entire practice – and this extends to the use of social media.  A social media policy should be instituted by your practice so both physicians and staff understand what is acceptable use and communication.

So what does a practice need to be aware of before jumping into the social media deep end?  In short, HIPAA, and its stated purpose of limiting the use of PHI to just treatment, payment, and relevant healthcare operations.   Merely removing names and addresses from patient data will not suffice if such PHI is otherwise broadcast online.  Instead, de-identified data (HIPAA specifies 18 “identifiers” that must be removed before PHI can be considered non-personal data) and limited data sets would better ensure confidentiality and the integrity of patient’s PHI.  In light of the further restrictions to PHI found in the HITECH Act of 2009, practices face stiffer penalties, up to $50,000 for each violation, and must safeguard against unauthorized PHI disclosures in its use of social media.

Your best bet – DON’T use social media to tell about patients or their stories.  Instead, keep posts limited to new information about your practice (such as new staff personnel, office hours, or changes to insurance requirements), articles and reading materials that your patients might find useful, and general information about specific ailments and their treatment.

GINA Regulations – How to Handle Genetic Information Privacy

March 15, 2010 in /by

by Jason E. Lopata, Esq.

Effective in November 2009, new regulations are in place under the Genetic Information Non-Discrimination Act (GINA) that effect all businesses with 15 or more employees.  Originally enacted to prohibit the use of genetic information for the purpose of making employment-related decisions, the recently effective legislation now extends to restricting employers from acquiring or disclosing genetic information and more broadly defines what continues genetic information.  Most relevantly, GINA prohibits health plans and employers from offering financial incentives or rewards for participating in health risk assessments (HRA) that request information about family medical histories.

While such HRAs have been used in trying to incentivize employer-led wellness or disease- management programs (and in turn, better rates or premiums from insurers), such rewards must immediately cease.  However, sponsors or administrators may still obtain and use results of genetic tests to aid in payment determinations as long as they request the minimum amount of information necessary to make that determination (as set forth in the HIPAA Privacy Rule).  In such an instance, such medical information about an individual employee MUST be kept separate from the employee’s personnel file, as such information is protected under the medical confidentiality provisions of the ADA.  This is due to the fact that the laws prohibit the use of any type of genetic information for the purposes of making employment decisions.  Failure to abide by the new regulations can lead to fines upwards of $500,000 for the violation, which includes even an inadvertent disclosure or use of such genetic medical information.  So even an “innocent” mistake can be quite costly to your practice!!

So how might these new regulations affect your practice?  If you are using any type of HRA for your own employees, or are asked to complete such an assessment for a third-party, review those assessments and eliminate any mandatory acquisition of the newly protected information.  Such revised HRAs should only contain questions about the individual’s own medical history, and nothing about the individual’s family medical history.   Practices will want to review and make the necessary changes to not only HRAs and the programs using theses assessments, but also to enrollment procedures and group health plan documents.  Taking just a few moments to review these documents and procedures can save your practice from an expensive misstep.

What You Need To Know About Meaningful Use

February 15, 2010 in /by

by Jason E. Lopata, Esq.

You’ve heard the term “meaningful use” being used – but what does it mean? The Centers for Medicare & Medicaid Services (CMS) have issued new regulations that are designed to lay the groundwork for physicians and hospitals to further implementation and use of electronic health records (EHR).  Specifically, the CMS has issued a proposed rule detailing what constitutes “meaningful use” of the new technologies available for the maintenance and protection of EHR.   These rules were posted on January 13, 2010 and will be open for public comment for 60 days before being finalized.  The first stage of the incentives program is scheduled to start in 2011.

As part of the American Recovery and Reinvestment Act of 2009, Medicare wanted to reward “meaningful users,” defined as any eligible professional who “demonstrates use of certified EHR technology in a meaningful manner.”  The regulations are designed to improve the quality of health care by promoting care coordination and the use of certified EHR technology.  Part of its intent is also to bring about standard formats for clinical summaries and prescriptions, as well as standard terms being used to describe clinical issues nationwide.  Lastly, it seeks to increase the security measures used to transmit personal health information over the Internet.

So why is this important now, if the incentives program doesn’t begin until 2011?  In a word…money!  Don’t wait until next year to have a plan in place.  The incentives currently are set at reimbursements (over a period of up to 6 years) totaling $44,000 under Medicare and up to $63,750 under the Medicaid programs (however, qualified professionals would not be able to receive monies under both programs).   Even if you’re not interested in working toward those incentive dollars (and frankly, why wouldn’t you?), eligible medical professionals will start being penalized, in 2015, for failure to meet the standards of “meaningful use.”  So as you can see, failure to “get with the program” will have a negative financial impact on your practice.

While the CMS is still defining what will constitute “meaningful use,” it currently has outlined 25 objectives for physicians (23 for hospitals) which will be measured starting in 2011.  These include the use of computerized provider order entries, having the ability for a 48 hour turnaround on patient medical record requests, and maintaining a certain percentage of clinical lab tests in electronic format.  Other criteria will include checking public and private insurance eligibility electronically, submitting claims electronically, and maintaining active medications lists.

Where do you begin to become a “meaningful user”?  If you already have an EHR system in place, an assessment should be done to see if it means the requirement of “meaningful use,” using as many of the criteria that the CMS has published.  If you do not yet have any form of EHR system in your practice, physicians should immediately start their due diligence on competent vendors able to bring EHR systems to their practices (and that also comply with all HIPAA rules and regulations).  In working with any EHR vendors, practices may consider having language placed in vendor contracts to include a “meaningful use” standard to help insure compliance with the relevant standards.

Either way, it is prudent to stay informed of the final regulations that come out later this year.  There is no turning back the clock on the use of EHR – so you must either get with the program NOW, or risk getting further behind in the coming years.  Even if your practices’ record keeping has “always been done that way,” it’s time to move toward a reliable, certified EHR system while the government helps offset the capital investment needed to do so.

Improve Your Bottom Line

January 20, 2010 in /by

by Susanne Madden [published in Physician’s Practice PEARLS newsletter]

Whenever possible, you should negotiate with your payers for better contract terms and payment rates. However, in this economic climate negotiations are becoming tougher and many payers are refusing negotiation requests outright.

So what can you do? Consider adjusting your payer mix to create optimum value. That means evaluating your payers to determine your participation costs, as well as your reimbursement rates. Once you figure out which payers are good and which are bad, you can put a plan in place to allow you to reduce the percentage of visits for the high-cost, lower-paying plans, and grow your business in low-cost, higher-paying plans instead.

The simplest way to evaluate cost and payment is by doing a quick “litmus test” to look at your effort vs. reward ratio. This requires only six simple steps:

1. Pick a time frame to measure, preferably one at least three months in the past to allow for most claims in that period to have been paid.

2. Total all of the revenues received from all your payers during that period, breaking out the revenue received from each payer.

3. Total the number of procedures (or visits, if you prefer) performed in that period and then break down that number by payer.

4. Divide each payer’s revenue by the total revenue to determine the percentage received for services rendered to that plan’s members in that time period.

5. Divide the number of procedures for each payer by the total number of procedures to calculate the percentage of “effort” rendered to each payer’s members.

6. Compare the percentage of revenues for each payer to its corresponding percentage of effort. The higher the percentage of revenue compared to the percentage of effort, the better. Equal ratios, for example, 14 percent of effort and 14 percent of revenue, mean you are getting out only what you put in, with little margin. Where the revenue ratio is less than the effort ratio, it indicates very poor performance indeed.

Looking at your numbers this way helps to identify problem payers quickly. It is a good way to measure both payment and cost together — that is, slow payers and payers who routinely don’t pay procedures or have a high denial rate will be the ones that stand out in this brief analysis. However, it is only a quick and easy method to begin quantifying your payers and should only be used as such.

To really understand a plan’s performance drivers, you should compare specific rates for specific codes across your payers, as well as analyze participation costs for each individual payer; for example, the amount of time spent following up on claims, the denial rate, the resubmission rate, and so forth.

The next step is to put a plan together that will allow you to minimize the bad and optimize the good. Participating with only those plans that offer reasonable rates and have reasonable costs will ensure that your payer mix is blended for optimal value.

Humana gets political

October 3, 2009 in /by

Federal lawmakers recently urged CMS to investigate a letter sent by Humana Inc. to its Medicare Advantage members. Humana’s undated letter states: “Leading health reform proposals being considered in Washington, D.C., this summer include billions in Medicare Advantage funding cuts, as well as spending reductions to original Medicare and Medicaid. While these programs need to be made more efficient, if the proposed funding cut levels become law, millions of seniors and disabled individuals could lose many of the important benefits and services that make Medicare Advantage health plans so valuable.” The one-page letter is signed by Humana Medicare’s chief medical officer, Philip Painter, M.D.

Scare tactics? I’ll say!

CMS has demanded the company “immediately” stop member mailings warning that reform legislation could hurt them, and to remove any related materials from its Web site.

But CMS did not stop at Humana. It has issued the warning to cover the entire MA industry effective Sept. 21. The agency issued new guidance to MA and Part D plans to “suspend potentially misleading mailings to beneficiaries about health care and insurance reform.” AHIP has responded that seniors “have a right to know how the current reform proposals will affect the coverage they currently like and rely on.” It’s just a pity Humana decided to frame the communication to scare seniors rather than enlighten them.

But the real kicker is that Humana’s letter urged its enrollees to contact their members of Congress to protest healthcare reform. Isn’t it bad enough insurers are spending roughly $1.4 million a day on lobbying efforts in Washington to kill reform without also lobbying its members directly using shoddy ‘facts’? Where do we draw the line and say enough is enough? The numbers don’t lie. Let’s stick with the facts. Insurers are making huge profits at a time when many Americans cannot afford the product they sell. In not other industry would such mis-economics continue to survive, let alone thrive.

Luckily, CMS marketing rules require that member communications to meet certain requirements and the use and disclosure of protected health information to contact members to get them to lobby for or against certain reform legislation appears to be something that HIPAA rules do not allow. At the least, Humana will be facing fines and perhaps suspension from MA activities for a while.

However, that does not compensate for the misinformation. Unless Humana is required to send a notification to those same members informing them of its wrong-doing, it has accomplished its goal and moved real reform further out of reach.  How big a blow has a simple letter like this dealt to progression? As of the end of the second quarter, Humana had 1.5 million MA enrollees, all of whom may have recieved this letter. . .

The Cost of Healthcare, Quantified (Maybe)

November 5, 2008 in /by

The other day I read a RWJF report entitled “High and rising health care costs: Demystifying U.S. health care spending” over at http://www.healthpopuli.com/ after a fellow listserve member directed our attention to it. The report basically points out that rising malpractice rates aren’t one of the primary reasons for the increase in healthcare costs in the US, a seemingly popular belief. Instead it’s “…prices, inefficiency, and insurance administration.”  Finally we are getting somewhere close to pinpoining the real drivers, I thought. Then I read the report.

There is very good analysis in here, but it is disappointing to note that while they were identified, administrative costs were not more intensively examined. The authors do state that much of the differences we see between the US and OECD countries comes down to the lack of a universal delivery system, creating a costly fragmented system here. But the level of detail in the analysis seems to stop there.

For example, when comparing physician compensation, the findings state that in the US it is 6.6 times per capita GDP for specialists and 4.2 times for primary care, compared to 4 and 3.2, respectively. However, the authors don’t take that next step to note that in countries where there is universal care, physicians are (for the most part) salaried employees in some form or another. By contrast, the majority of physicians in the US own their own medical businesses, meaning that they are bearing the overhead and expense incurred in doing so. An analysis that factors that in would be more helpful than simply pointing at hard numbers. Without backing out those costs, we cannot know if physician compensation (I am defining compensation as the amount that physicians get to keep) is actually much higher than in OECD countries. Perhaps the authors are looking only at take-home pay, but that isn’t indicated [that said, I just looked up the McKinsey report upon which this is based, and McKinsey IS looking at TOTAL compensation, NOT take home pay – so I rest my case on that point]

The paper goes on to note that ‘MGI (McKinsey) estimated that the United States spends six times more for administration than OECD countries, not including the costs borne by providers in interacting with payers’. Why aren’t those costs included? If they were , the numbers would be much higher and help reveal that the cost of supporting the current private payer system is exorbitant. The authors get close to this idea in Table 1, Drivers of Cost Trend, where ‘changes in third party payment’ and ‘administrative costs’ are identified – when combined these two items account for 23%-26%, and that is without taking in to consideration ‘the costs borne by providers in interacting with payers’. What would the number be if those costs were included? In a study released by Ingenix recently, they state that ‘claims processing inefficiencies impose significant administrative costs on payers and providers, with estimates ranging from $210 billion to $250 billion annually’. Let’s say that again – $210-$250 BILLION, ANNUALLY! They further estimate that 14% of physician revenue is spent on claims activity; 12-24% of health plan revenue is spent on same. So why are the authors NOT including ‘the costs borne by providers in interacting with payers’ in either physician compensation or administrative spending?

Things get really fuzzy when the authors adopt the position of only looking at cost drivers from the perspective of analyzing what actually drives changes in the spending trend. In doing so, they arrive at conclusions such as ’standard assumptions about how a change in health insurance affects an individual’s spending on health care lead to a conclusion that health insurance is not a dominant driver of spending trends’. However counter-intuitive this might seem then, utilization is not a key cost driver; as this study examines, it is the cost per unit of utilization that best represents overall costs, and that per unit cost is composed of the key drivers identified in this study. But once the authors have made that claim, it shifts their commentary from being about end costs of delivery (the numbers initially referenced in the study) to shifting to utilization when it comes to discussing insurance. Therefore they fail to examine the end cost of securing that insurance, which ultimately is THE cost that needs to be examined because that cost includes the profit margins made by insurers, and the associated administrative costs to secure those profits in the process.

It would appear that by missing this point, the conclusions arrived at based on the numbers used are therefore somewhat skewed. That is, the authors are looking at such universal numbers as physician compensation as a percentage of GDP but without applying the cost associated in being a physician in the US system (a very different cost structure than in OECD countries); they are not looking at the cost of premiums as compared to what percentage of those premiums are actually SPENT on care delivery; and they are not examining the cost associated the fragmentation involved in the different middlemen associated with payment delivery. Notably, the section on managed care begins by stating ‘because of data limitations, most of the literature defined managed care as health maintenance organizations (HMOs), entities that play a much smaller role in health care financing today’ – so there is the realization that even the quantification of these entities is difficult,
and due to the identification and research on only perhaps one type of insurer it raises methodological concerns about the research itself. Perhaps because of the lack of comprehensive data on private insurance, the authors choose to make the following closing argument for improving efficiency – ‘payment mechanisms potentially more consistent with efficiency include a single per episode payment that goes to all providers involved in a major acute procedure and capitation payments to a medical practice for the management of patients’ chronic diseases’ – with no consideration about HOW such a single payment would be administered across multiple providers of care. To me, this simply sounds like another level of payment administration being added to the fragmented mix, and a costly one for providers at that.

Finally, at the end of the paper the authors address administrative costs. And yet, they do not scratch the surface here other than to simply note ‘a multipayer system can be made more efficient’ and suggest that more ‘administrative controls’ such as prior authorizations are being ‘re-introduced’ as a way to help with restraining spending. This leads me to believe that the authors have limited experience in the processes involved in administration and revenue cycle management. The opportunity to improve efficiencies in payer-provider interactions there is considerable; adding prior authorizations to procedures drives up physician costs, rather than simply limiting utilization is a way that is significant enough to minimize utilization. The argument cannot continue to be that insurers administrative burdens are a necessary cost in order to keep utilization down. Certainly these administrative burden HAVE resulted in less SPENDING by the insurers, but how much is based on decreasing utilization and how much is due to lack of payment by insurers for services rendered in the event that the rules are not adhered to is open to debate. Therefore, this does not translate to supporting administrative burden as a necessary cost.

To conclude, the authors state under ‘the need for additional information’ that their ‘understanding of high and rising costs is fairly solid. . . yet go on to say ‘paying multiple providers for acute episodes of care requires advances in patient classification and risk adjustment. Paying for medical homes similarly needs better risk-adjustment models and the gathering of data on resources that go into care coordination. To put it differently, existing research has given us a satisfactory understanding of the problem. Now the energies of researchers should be directed toward developing and implementing solutions’. I’m all for directing energies toward implementing solutions. However, I challenge that while the authors may have a reasonable understanding regarding spending, they have not adequately understood the single biggest COST driver of all: health care insurance companies. Until researchers adequately explore just how much cost is involved in allowing these organizations (that have an inherent conflict-of-interest) to set policies on payment, utilization, and provider cost burdens, we cannot move toward meaningful reform in that area. I back up this comment by pointing out that most insurers do not pay for nutritional counseling at the primary care level, do not pay for smoking cessation counseling, do not pay for pediatric counseling and developmental screenings – all of the things that may help to reduce illness in society (and therefore reduce costs). So how can the other lofty goals of improving health and wellness, focusing in on best practices, development of better guidelines, etc and so on, be implemented in a system where insurers have effectively killed primary care and preventive medicine?

I therefore call on the authors to re-examine their ‘fairly solid’ ‘understanding’ of high and rising costs. They, and other researchers, must take a much closer look at how insurers’ policy decisions have impacted the ability of providers of care to actually provide the lowest-cost, best-outcome focused care. With that level of scrutiny, comprehension about the impact of those policies can finally be assessed and the impact of private insurers on COST can accurately be quantified and thus called upon to improve.