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Medical society unable to rank top local health insurers, saying ‘they all came in last’

Harris County Medical Society released its first “Payor Survey,” in which 487 local health professionals rated the six largest insurance companies in the region on care, payment and customer service. Except, they couldn’t actually rank them because they all came in at “the cellar level”.  The insurance companies rated are Aetna, Blue Cross Blue Shield of Texas, Cigna, Humana, UniCare and United Healthcare.

About 500 members of the Harris County Medical Society responded to a survey on the top six health insurers in the Houston area. Some results:

70 percent said insurance companies had denied claims for medically necessary procedures.

66 percent said they had trouble getting insurance company preauthorization for scans and other imaging.

83 percent said the red tape and delayed payments involving insurance companies require them to have at least one employee per doctor to deal with filing and billing issues.

Read the full story here.

I applaud Harris County for its efforts, and for helping to force a dialogue where there previously has been none. In response to their efforts, most Payors have responded one way or another. Cigna cites its improvement in the denial category as evidenced in AthenaHealth’s Payor View rankings (see Physicians Practice article here) and points to its use of physician focus groups as a way of showing engagement with the issues.

United could take a leaf out of Cigna’s book. The WSJ reported Wednesday that ‘Bad Service Cost UnitedHealth 315,000 Customers’. The CEO, Mr. Hemsley, admits that UHC is the ‘industry’s worst’ at resolving billing issues with providers.  While it is refreshing to hear admissions of this nature, where is the game plan for remediation?

Perhaps as more provider-perspective rankings are made available, these issues may finally be adequately confronted. The quarterly Verden report – available late January 2008 – ranks insurers on data generated from the Verden Alert subscription service, which tracks policy and procedure changes issued by 160 companies nationally.

You’ll hear about it here first!

Another side of Consumer-Directed Health Plans (CDHP)

Advocates believe CDHPs promote better decision making regarding patients’ use of health care services. According to a McKinsey study, CDHC patients were twice as likely as patients in traditional plans to ask about cost and three times as likely to choose a less expensive treatment option, and chronic patients were 20 percent more likely to follow treament regimes carefully. Well that works great for insurers – premiums coming in without reimbursements going out.

Critics believe that CDHPs cause consumers, particularly those who are poorer and less educated, to avoid needed and appropriate health care because of the cost burden and lack of available information needed to make informed, appropriate choices. I suppose cost-sharing the price of the premium with an employer is taxing enough, doesn’t leave much left over to contribute to deductible expenses.

But these are just two sides of an octagon, in my opinion. The latest profit-maker for insurers, CDHPs are big business. Not only does this model allow for more profit from premium dollars that only need to be spent in the event of catastrophic illness, it has also opened the door to banking for many of the larger companies.

Let’s think about this.

First, if your CDHP comes with a high deductible, and you are relatively healthy, then the premiums you pay will never be used. Many plans come with deductibles of $3,000 and up. A tyical family of four plan may have a deductible of $5,000 and roughly $12,000 in premiums per year. If everyone is healthy, and the majority of insurance consumers are, then you have the privilege of paying for any health care costs throughout the year out of your own pocket while handing over thousands for insurance benefits you won’t use.  Rather than shopping around to save money, I’d be more likely to want to reach the deductible limit in order for my benefits to kick in. You want something to show for those dollars, right?

Second, it costs you to have a health savings acocunt (HSA/HRA). I had the pleasure of being covered by a UnitedHealthcare CDHP plan, who owns a bank specifically created to manage consumer and employer contributions deposited toward deductible expenses. When I received my account information, I made sure to read the fine print. It was full of charges – a monthly fee for the privilege of owning the account, a per-transaction fee any time I used the funds for health care related expenses, and even a fee for recieving statements. And I got the impression that reading the fine print had resulted in charges too. . .

So can someone please explain where the value proposition is in this for the consumer? High premiums (though lower than ‘traditional’ plans), large out-of-pocket expenses, nickled and dimed for the privilege of having an HSA/HRA, and none of the premiums being returned in the form of covered health care services – I just don’t see the value in it.

But the insurance companies sure do. Caa-ching!

Profit Maximizers Are Not Cost Minimizers

I don’t know about you, but I’m tired of hearing managed care companies talk about health care ‘affordability’. They seem to think that by offering bare-bones health plans at prices that are lower than more comprehensive policies, they are fulfilling the needs of society and ensuring that health insurance is within reach for more consumers.

But is that really the case? Many of these new plans come with lifetime caps not significant enough to cover any real catastrophic event. Several are targeted toward the young and healthy, ensuring healthy profits from an under-tapped maket. At least plans are being offered to consumers that previously had no other options, so that can be seen as progress, but is it progress in the right direction?

I think not. Insurance companies are profit maximizers, not cost minimizers. Until the focus shifts from taking as much profit as possible from the system to truly minimizing the cost of running such a system, we are simply seeing costs being shifted around. The winners? Managed care companies of course.

Who is setting the price of health care?

Today I spoke with a journalist about medical cost ratios. At one point in the conversation he asked me if I thought managed care had the potential to contain costs, even though they seem to be adding to their bottom lines currently instead. And then it struck me – managed care companies are the ones setting the price for health care. 

Let’s look at it this way – MCOs  set the price of premiums, then determine how much of those premium dollars they are going to pay out on rendered services. Contrary to what the industry would have us believe, it’s not the other way ’round (services rendered drive premiums).  Of course they cannot directly control utilization of servces, but they can control access to them, create ways to not pay for them, lower payments for them, and deny claims associated with them. So, if I’m an insurer, I simply need to be creative enough to figure out how to hold on to premium dollars, and then charge more to society for that privilege in the next underwriting cycle.

How else can we explain why medical cost ratios are going down and premiums are going up? At what point do insurers begin to cap their charges? Well, they won’t, because we continue to pay, pay, pay.

Medical Cost Ratios (or, Big Profits for Insurers)

Medical Cost Ratios Q1-Q3 2007

Insuers’ profit margin comes not only from increasing premiums, but by lowering the amount spent on healthcare.  As insurers spend less, their Medical Cost Ratios (MCR) decline. The definition of MCR is simply the amount of money brought in by premiums minus the amount of money spent on reimbursing health care providers.

Insurers reduce what they spend by controlling costs in a number of ways. In its finest form, cost-cutting comes about through efficient operations, negotiating better contracts with such high volume service management companies as labs and diagnostics, and actively promoting well care programs to achieve healthier members.  Some of this happens, of course, but there is a growing trend across the board to simply cut reimbursement rates to providers and erode reimbursement through policy and procedure changes. I believe that this is having the biggest impact on the ever-growing profits of publicly traded MCOs this year.

Note – Each incremental percentage point decrease in MCR is worth millions of dollars in savings to these insurers.

Using the figures in the chart, let’s look at UnitedHealthcare to see what those savings might add up to be. Aggregated over three quarters, UnitedHealthcare’s MCR in the chart above adds up to a decline of 3.2%. Based on SEC filings UnitedHealth Group reported premiums totaling $16,984,000,000 for those same three quarters. If we simply calculate what saving 3.2% of those premiums represent, we get a net of $543,488,000. That is, a 3.2% decline in MCR over 9 months translates to more than a half billion dollars in savings to UnitedHealthcare’s bottom line.

Sadly, these ‘savings’ are not being passed along to employers and individuals in the form of lower premiums.  Instead, premuims are projected to rise by 7.5% in 2008.

Ranking Systems Shift Gears

Empire Blue Cross Blue Shield, today agreed to adopt a doctor ranking program that takes into account factors other than cost. Empire is the third insurer to agree to new physician ranking guidelines established by state Attorney General Andrew Cuomo. It’s parent WellPoint Inc. said it will apply the new guidelines to its existing ranking programs in other parts of the country.

As part of these agreements, insurers need to hire an oversight monitor, known as a ratings examiner, to evaluate compliance with the system, and who will meet with Mr. Cuomo every six months to review compiled information.

In October, Cigna HealthCare of New York said it would adapt its ranking system to the new guidelines and yesterday, Aetna, the state’s third-largest insurer, said it would also change its rankings to fit within the new regulations.

This is good news and a large step in the right direction for reasonable and meaningful ranking programs in the future.

Update 11/20/2007

NEW YORK, Nov 20 (Reuters) – The New York attorney general said on Tuesday that UnitedHealth Group Inc has become the latest health insurer to adopt his model for a physician ranking program.

Burdensome confidentiality agreements

I came across this snippet the other day:  WellPoint, Inc. unit Blue Cross of California will stop using “burdensome confidentiality agreements” in provider contract negotiations, according to an agreement with the California Department of Managed Health Care (DMHC). The department found that the practice was “illegal because it limits and conditions the selection and use of a provider’s legal counsel in negotiations of new contracts.” The department said it would have ordered California Blue Cross to stop requiring the confidentiality agreement if the plan had not voluntarily complied. DMHC made its decision after learning that the insurer threatened not to contract with providers for two years if they refused to sign its agreement.

 ‘Burdensome’? The two-year threat aside, these agreements are so much more than that, and it’s not just WellPoint that is using them. In many instances, the terms of such agreements preclude physicians from even acknowledging that they have a negotiated deal with an insurer. What that means is that many physicians have been kept in the dark not knowing it was even possible to negotiate rates and contract terms. Now that word has been getting out, the insurance companies are engaging in ever-more serious threats and punishments. For more on this type of thing, see Fight Club (UHC and the Land of Make Believe) and You Can Negotiate 


Joining the ranks of bloggists is necessary if for no other reason than to simply record the threads that make up this messy managed care system.

There is fascinating discourse about healthcare going on in many arenas today, but much of it is occuring within individual specialties, or regions, or in specific vertical structures. It is my hope that by bringing together pieces of information from different sectors and forums, we may be able to discern a broader, more horizontal view that helps create innovative ways to think about solutions.

I look forward to a long and interactive dialogue on managing the business of managed care.