Black Hats and CAD Stents

 

Top 10 Catholic Health Care Systems
Top 10 Catholic Health Care Systems (Photo credit: Wikipedia)

When Steve Brill released his recent Time magazine article, Bitter Pill – Why Medical Bills Are Killing Us,, it was an overdue chapter in a critical primer to educate the American public on the perverse incentives plunging our healthcare system and our nation into dysfunction and debt.  The Time piece was the first major media effort in some time to shine a light on the factors beyond the insurance industry that contribute to costs that now eclipse 16% of our GDP. 

Brill’s article clearly touched a clear nerve as the American Hospital Association immediately issued a multiple page press release refuting many of the writer’s observations and complaining that billing practices were an outgrowth of a cat’s cradle of cost shifting and an increasingly Darwinian landscape where only the best equipped, resourced and positioned hospitals will survive. 

Yet, Brill’s facts are hard to refute.  Many not for profit hospitals are paying seven figure executive salaries and posting double digit margins achieved through complex and imbalanced billing practices that rival Egyptian hieroglyphics.  Time’s expose demystifies the complicated calculus of hospital billing and alleges that the system of billing and reimbursement is hopelessly broken leaving the most vulnerable of victims in its wake – those earning too much to qualify for Medicaid but earning far too little to afford coverage.  The stories are gut wrenching and identify a range of misaligned financial and care motives across high margin practices such as oncology, imaging, lab, emergency and pharmacy services. The findings also tie to a June 2009 Harvard study that found that 50% of all US bankruptcies were directly related to medical bills and/or illness.

When I crossed the proverbial River Styx from healthcare consultant to regional CEO of a health plan, I was plunged into a bitter and high stakes battle with large hospital systems demanding and often getting double digit unit cost increases. The result was a zero sum game where in my resolve to try to control double digit trend, I would attempt to extract steeper discounts from smaller providers and community based hospitals – ironically providers who offered lower unit costs and similar quality than bigger systems.  However, consumers demanded big name brands. The daisy chain of cost shifting punished weaker players and slowly drove primary care and small hospitals to the edge of extinction.  Meanwhile, the uninsured paid the most for healthcare – often paying 200%-400% more for care in healthcare’s most expensive setting, the hospital emergency room.

In 2007, I watched two regional hospitals engaged in an arms race for membership through aggressive marketing and sub-specialty expansion. When the hospitals both sought to expand their cardiology programs, the practice of inserting post angioplasty stents increased by 300%.  While the risk of stents outweighed the benefits for certain patients with (CAD) coronary artery disease, cardiac interventionalists routinely placed stents in their patients, not because patients always needed them but rather because they could earn more money. It’s a familiar story: The doctor tells the patient they need a procedure. The patient, fearful and accustomed to the notion that more health care must be better, consents.  To the degree, any payer attempts to disallow a recommended procedure as unnecessary, the payer is accused of bureaucratic meddling or worse, jeopardizing the quality of care for the sake of operating profits.  Years later, we are finally beginning to understand that whoever regulates costs, access and necessity of treatment in the healthcare system – be it a payer or a governmental agency, is automatically fitted with a black hat and labeled the villain.

The Time’s article focusing on certain hospital billing practices are a subset of a nationwide game of cat and mouse as facilities seek to balance highly variable reimbursement from Medicaid, Medicare and commercial insurance.  The fight over the true cost of care is often invisible to those footing the bill – employers.  Many employers have no line of sight into the thorny negotiations between hospitals and their insurer.  To make matters worse, if a large healthcare system threatens to drop out of an insurer’s PPO network, employers often urge their carrier to resolve its contract differences with the hospital to limit disruption for employees.  The insurer, concerned over losing membership if the PPO network loses a flagship provider, quietly caves and the cost of inpatient healthcare trends continue to rise. To make matters worse, employers have consistently resisted implementing narrower PPO networks that might otherwise force billing outliers back toward the mean costs of delivering care. It seems employers want to fly first class but only pay for coach.

The insurance industry has committed its share of financial and public relations misdemeanors during the two decade run up of healthcare costs. Yet, insurers were uniquely singled out during the recent debate leading up to the Affordable Care Act.  Politically, the black hat payers were easier targets than other stakeholders who have abetted the demise of our system: consumers with unrealistic expectations, doctors using malpractice avoidance as air cover to oversubscribe services, drug companies and PBMs engaged in intricate and difficult to understand pricing practices, employers who have remained parochial and disruption averse, the food and agricultural industries for practices that promote products that adversely impact public health, the government for its serial under-reimbursement of providers through Medicaid and Medicare and a range of stakeholders who ineffectively advise and assist the industry in its quest for an optimal balance between quality and affordability.

Steven Brill’s thoughtful rendering is an inch wide and a mile deep as it illuminates the need for hospital payment reform.  However, he stops too soon in his expose, refraining from identifying the other accomplices that drive these billing behaviors — including a Medicare and Medicaid system that enjoys low administrative costs but presides over an estimated annual $100B waste and fraud problem arising out of unmanaged fee for service care.  Medicare is beloved by seniors partially due to the simple fact that it does not manage care.  What Brill also misses is the private sector’s apathy in aggressively punishing high outlier unit costs charges by taking on some of our most sacred players – large teaching hospitals and system oligopolies that now dominate many regional landscapes.  As consultants, we have failed to convince employers of the merits of eliminating open access PPOs, increasing consumer directed health plans, using scheduled reimbursements for elective surgeries and enforcing a bi-lateral social contract around good health by requiring workers to see a primary care doctor and receive age and gender appropriate testing to better manage health status.

As with any stakeholder that feels singled out, the AHA response to the Time’s article was swift and predictable.  I’m sympathetic. Laying our affordability crisis at the feet of any one group misses the entire point of our issues in the US. However, the need for reimbursement reform and billing simplification is irrefutable.  Our system is in crisis. The question remains: will we move towards a delivery model that allows market based reforms and affords consumers a greater role in driving quality and cost effective delivery or will we wake up in a decade to a single payer that rations access and peanut butter spreads reimbursement.  One could argue our entire healthcare system can be best summed up by the average US hospital bill – opaque, misunderstood and bearing little relationship to true cost of the services.

 

Be Careful What You Wish For – Part II – Repealing Reform

The U.S. Supreme Court in 1925. Taft is seated...
The U.S. Supreme Court in 1925. Taft is seated in the bottom row, middle. (Photo credit: Wikipedia)

 

             As the Supreme Court considers the testimony presented at the recent hearings over the constitutionality of certain provisions of the Patient Protection and Accountable Care Act, the debate continues to escalate over the role that individuals, business and the government should play in the “commerce of health care.”

Most industry experts agree that PPACA is first about insurance reform and the expansion of coverage to some 30m Americans; yet,  detractors have criticized the legislation for failing to incorporate any elements that would serve as a catalyst for reducing costs, improving quality and restructuring a misaligned system that has been paid to treat illness rather than prevent it.

In the last two years, hundreds of millions of private and public dollars have been invested as stakeholders adjust to an uncertain but radically changing delivery system.  States are in various stages of constructing purchasing exchanges.  Physicians and specialists are choosing to consolidate, often with hospitals leading the process to create integrated delivery systems and restore the role of coordinated care through Patient Centered Medical Homes and Accountable Care Organizations.  Employers are waiting and watching — seeking greater regulatory clarity while slowly complying with a chronological time-line of new rules and expanded coverage requirements.

Municipal, state and national budget deficits continue to loom large. As Europe battles over mounting sovereign debt and the suffocating burden of  generous public pension and healthcare entitlements,  flash points are erupting across the USA as municipal, government and collectively bargained workers brace to defend retiree benefits in the face of legislative efforts to more aggressively reduce public spending. The Federal government is at a tipping point. Facing a $38T net present deficit in its funding for Medicare and $15T of public debt, PPACA was scored by the CBO as reducing $140B of public debt by 2020.  To achieve this, the government needed to drive $940B of taxes, assessments and spending cuts and fall within estimates of the number of newly insureds likely to qualify for Federal subsidies offered through public exchanges.  The promise of PPACA was to reduce the deficit, not further contribute to it.

With $3T of annual spending and an estimated $2T in tax revenues, Congress continues to renege on promises to reduce public spending.  It has committed to reducing Medicare reimbursements to hospitals and doctors but so far, seems to lack the will to enact the legislation passed as part of prior balanced budget amendments and PPACA.  Almost immediately following the passage of PPACA, an estimated $20B in annual cuts to Medicare was delayed by Congress.  The pressure to follow through with cuts was overridden by the Congressional fear that providers would begin to turn away from Medicare recipients – as they have for years with Medicaid members– citing that reimbursement is too inadequate to cover the true cost of services.  A prescription for remedying reimbursement inequities  known as “the Doc Fix” has been under consideration for some time but so far, the legislation has been continually kicked down the road and is now due to fall firmly in the lap of the next administration.   

Some economists estimate that the delay in implementing Medicare cuts along with other flaws in cost projections all but ensure that PPACA will increase the public debt, not reduce it – placing further pressure on Congress to either raise taxes or moderate spending to balance the budget. Yet, for all its flaws, PPACA is a necessary albeit wobbly baby step toward addressing the complex and broken public and private systems of healthcare in the US.

Advocates for repeal and replace legislation have grudgingly admitted to the need for health and insurance reform but so far have not offered viable solutions that could address the swelling ranks of the uninsured or solve for the inflationary effects of consumer demand and an aging, chronically ill America.   Universally, most pundits and experts feel PPACA was a single stitch attempt to suture a deeper and wider wound.  Most understood  that rising costs, increasing public debt and the potential dumping of insurance by low margin, low wage employers  would force companion legislation  that would pivot the focus of reform from “regulation and expansion of coverage” to “improving health care quality and affordability”.

With the potential for core elements of the bill (individual mandate, community rating and guarantee issue) to be declared unconstitutional, employers are left wondering if this development is a favorable or ill shift in the legislative winds. Ironically, repeal of reform may cause more problems.  Many feel that deconstruction of the law could create greater chaos across a 50 state insurance market where each legislature would be compelled to retreat from, maintain or advance insurance reforms.  This means trouble for America’s insurers who fought to help craft the elements of PPACA which effectively preserved the role of private payers to help drive reforms in the health care system. Minimum Loss Ratio limits and other regulatory controls were imposed with an understanding from payers that lower profit margins might be offset by a larger influx of newly insured Americans.  Without an insurance mandate, insurers would be less enthusiastic about guaranteeing coverage and engaging in less flexible pricing through community rated pools. 

However, insurers and employers are already wary of a state by state cat’s cradle of regulatory and coverage mandates that increase cost and in some cases, reduce competition through artificial price and profit controls.  In the event of a post reform collapse, employers will need to look even harder at the legislative efforts of states as they seek to mandate and managing health care.  Per capita costs to insure workers up to minimal levels of benefits could vary dramatically as states adopt myriad versions of mandated care and cost sharing.  Employers would most likely seek to avoid higher costs associated with mandates by self insuring and in doing so, deflect costly coverage increases as well as reduce revenues paid to the state by avoiding premium taxes.

The US is in between a rock and a hard place.  To repeal PPACA will mean restarting a legislative process at a time when Congress has failed to demonstrate any ability to collaborate to address complex issues that threaten our economic futures.  Most recognize that we must begin to address our public debt but it calls for austerity and measures that could slow our economic recovery and further enrage a public that is already distrusting of business and government. Managing the obligations and expectations of citizens around health care puts private sector management and elected public officials in unenviable positions. 

Both sides prefer to be seen as part of the solution, yet only one side relies on public opinion to keep their jobs.   The private sector has the capacity to move rapidly to drive market based reforms. Up to this point, employers have been slow to assume their role as a payer controlling over $1T in spend on the behalf of 180m Americans.  In many instances, employers abdicate the responsibility of tougher decisions around medical necessity and consumer engagement to insurers who up to this point, have benefited from rising costs.  While they have suffered public relation hits from the Obama administration as the goverment sought to vilify private payers, they have managed to retain their role as the primary service platform to administer and manage care.  The only real risk to insurers is disintermediation as a result of a single payer or repeal of reform resulting in radical regulatory models arising out of more activist states like New York and California.  Employers must understand who works for whom and demand information on claims, population risk profiles and solutions guranteed to drive single digit medical trends.  Until employers demand these solutions, the private sector will fail to punch its weight in the healthcare market.

It comes down to skill and will.  As a society, we seem to be lacking the will to deal with a generation of citizens whose desire for immediate access and rapid resolution are at odds with the fundamental changes required to fix the problem.  It is no longer a question of should employers seize the reins and drive market based reforms, but a question of do they have the will to take the lead.  The government has limited ability to impose all the elements of health care management required to drive affordability and guaranteed access for all.  To generate the necessary savings required to finance an expansion of coverage and guarantee basic essential benefits, we will need to pull every lever — consumer engagement, population health improvement,  the restoration of primary care based models, precertification, transparency to reward quality and marginalize outlier stakeholders and personal responsibility for health.  It will mean disruption.  However, as companies seek to grow earnings in a time of difficult organic growth, one has to consider what is more disruptive: firing employees or restructuring health plans to drive lower cost and a healthier workforce.

If reform is repealed or radically altered in June, it will not be business as usual.  The question will be whether business will revert to the usual behaviors or whether it will assert itself to reduce costs and in doing so, potentially save the best parts of our healthcare system.

A Case for Self Insuring Small Business

Health care systems
Image via Wikipedia

During the course of 2009, two distinct trend lines crossed. For the first time ever, more employers under 50 employees were not offering medical insurance to employees than those who continued to provide employer sponsored healthcare. It was an inflection point where the majority of smaller employers – those who make up close to 96% of the number of commercial businesses in the US –  could no longer afford to offer healthcare.

Unfortunately, achieving affordability is often a zero sum game and the current system often fails the weakest and most disenfranchised of its stakeholders.  While the burden of spiraling healthcare costs has effected virtually every employer, the weight of cost increases has been borne disproportionately by individuals and smaller employers (1-250 employees).  The opaque science of risk pooling, cost shifting and risk selection has as much to do with unacceptable increases as  poor consumerism, over treatment and inefficiency. As we march toward insurance exchanges and pooled purchasing for employers in 2014, we will continue to witness a game of pass the parcel leaving smaller employers holding the bag.

Healthcare cost shifting begins at the highest levels with federal and state governments routinely cost shifting to the private sector by serially under-reimbursing specialists and hospitals for the cost of their services. Doctors and hospitals, in turn, shift cost to the private sector charging higher fees for services to make up for underfunded Medicare and Medicaid rates. Health systems have consolidated along with multi-specialty medical groups gaining critical bargaining power that results in higher contracted rate increases negotiated with insurers.  Insurers, attempting to keep rising medical trends down, must exact concessions from less well leveraged providers such as community based hospitals and primary care doctors. The result is an Darwinian landscape where only the large survive.

As core medical trends hover between 7%-8%, private insurance book of business increases have climbed into and remain in double digits. Larger employers remain more immune from peanut butter spread book of business trends due to their own unique claim credibility and in many instances, due to the simple act of self insurance.  Lack of size and actuarial credibility leaves smaller employers and individuals to be underwritten within pools of risk — pools that continue to pass on the rising costs of care at an alarming rate.  To add insult to injury, as states and the Federal government become increasingly larger medical payers (already representing over 50% of all medical spend in the US), cost shifting will only accelerate in the private sector resulting in higher medical trends impacting smaller employer pools.

Larger Employers Don’t Bear As Much Burden for Medical Cost Shifting – Larger self-insured employers are less affected by hidden risk charges, expense loads and administrative cost shifting that often occurs in pooled underwriting arrangements. Larger firms enjoy a greater spread of risk across their employees. Self insurance brings greater transparency to employers around administration and claims costs. Given that self insured employers are bearing much of their own risk, a self-funding generates less risk transfer and as a result, much lower gross profit for an insurer than a fully insured customer. Unfortunately, when risk is transferred, the elements of pricing become more opaque. It is not uncommon for insurers to build margin and other conservative factors into the rates tendered to smaller insured clients.  Individuals and smaller clients do not merit the actuarial credibility to be rated on their own claims experience. Cost shifting across each risk within a pool is an accepted practice in pricing risk. It reduces dramatic swings in pricing and is fundamental to profitable risk pooling.

Smaller employers, by definition, do not have enough medical claims predictability to be rated entirely on their own merits. In order to spread risk across a statistically valid sampling of employers, insurers pool employers across a large “block” of risk. Better performing risks subsidize worse performing risks – moderating overall increases for the entire pool. Problems arise when there is little visibility for an employer into how his/her renewal was developed and into the significant variance that can sometimes occur between the insurer’s initial renewal request and the final negotiated rate. Some argue that much of the difference is due to the rigor of the broker or client’s negotiation and the competitive pressure from the marketplace. However, the frustrating reality is the actual rate that is necessary to properly underwrite the risk, the rate the client ends up paying and the individual profitability by account varies dramatically.  Over the last decade, smaller employers have absorbed a disproportionate percentage of rising healthcare cost increases. As medical trends haven risen, fully insured risk pools have been quick to allocate these cost increases across their block of members – similar to the way a utility might pass along the rising cost of oil to its consumers.

The Affordable Care Act May Create Greater Inequities Around Small Employer Risk Sharing – Under health reform, insurers choosing to participate in regulated exchanges will be required to adhere to stringent community rating underwriting practices that will limit their ability to distinguish and price between employers representing better risks and those representing poorer population health risk. An employer who commits to driving healthier lifestyles among employees and generates lower claims experience will be subjected to the same narrow underwriting criteria as an employer with a less healthy workforce. This inability for insurers to properly reward employers for driving consumer engagement and health management among employees will drive many smaller employers to weigh the limited benefit of engaging their employees in wellness versus the disruption and distraction of attempting to promote health improvement.

Some argue these regulatory changes will homogenize pricing and create a better spread of risk for groups under 50 lives. With the individual and under 50 market having historically been the most profitable commercial segment  for many employers, some pundits contend that the ACA will limit profit taking and maximize small employer purchasing power.  Detractors believe that the diametric opposite will happen when exchanges initially are populated by previously uninsured and higher risk, small employer groups.  In either scenario, insurer profits will be squeezed in the under 50 life market segments. Insurers will have to look ” up market” to maximize profitability within their 50+ block of insured, manually rated clients.

For groups over 50 lives, insurers will be afforded more flexibility to manage pooled risks but they will be confined to a maximum of 15% of profit and administration charges. The level of precision and attention insurers must pay to underwriting their 50+ life block of insured business will determine much of their success or failure.  Price this business too conservatively and you risk losing members or having to refund rebates to customers.  Price to aggressively and you risk creating a political hot potato when asking a regulator to approve a politically undesirable double-digit increase. The optics of pricing will become very important to insurers and will become less flexible for employers to negotiate.

Pooled small group underwriting already creates inequities. As underwriters price their overall block of insured business to achieve a targeted yield (increases necessary to cover rising healthcare costs), there is typically more latitude afforded to larger insured employers whose claims experience is statistically credible. Most underwriters would argue that only cases with at least 1000 participants merits 100% claims credibility. The reality is there is discretion in small case underwriting.  Underwriters have the latitude to lend more or less credibility to certain cases if it allows them to renew a desired piece of business.

While ACA Caps Insurer Margins, It Reduces the Incentives to Control Costs – The minimum loss ratios mandated by Congress will cap potential profit taking on individual and small group coverage but it will also reward those whose clients have richer, inlfationary plan designs and higher per employee per month (pepm) costs. The maximum administration and risk percentage an insurer may realize for its larger case book of business is 15%. Thus, the greater the insured’s premium cost for a given level of benefits, the larger the actual profit dollars of operating income for the insurer. Insurers have already begun to fight over the benefit plans of certain white-collar and collectively bargained industries who have proven more willing to pay for rich plan designs – – investment banks, hedge funds, high-tech, professional services and bloated municipality and bargained plans.

Ironically, lower insured pepm plans may actually experience less underwriting flexibility as insurers seek to balance their book of 85% loss ratio employers to the highest premium plans. The only incentive to insurers confined to limited profits under ACA’s 85% MLR legislation is the specter of a public option being introduced to compete with private plans that cannot rein in costs. While most pundits seem to agree that a public option would not solve our affordability crisis, it could use taxpayer dollars and rationed provider reimbursement to offer lower cost alternatives – further eroding the private marketplace and leading to a tipping point towards single payer coverage.

As of 2011, small group increases are averaging 11 – 13% medical trends and average overall increases in excess of 20%. Insured employers under 250 employees are essentially trapped in these risk pools and it may only get worse in 2014 as community rating and the uninsured are mixed into the stew of risk.

It’s Time To Self Insure Small Business –  It is rare that an employer under 100 employees can access its paid claims experience. Insurers provide little to no actionable data for smaller employers and defend  the lack of disclosure arguing that small group claims can be easily deconstructed to identify actual employees which can be a violation of privacy rights. When claims data is released to smaller employers, it is often released as “incurred” claims which include conservative assumptions on reserves – – the future costs of claims incurred but not yet reported.

In other cases when pressured for claims data, insurers counter requests with concerns that if they release data and a competitor does not, the competing insurer can cherry-pick better risks. With the exception of Texas, where House Bill 2015 requires the release of claims experience to employers down to as firms as small as two employees, small employers have little line of sight into claims and therefore little motivation to view insurance as anything other than a commodity to be shopped every year.

Insured group pricing is often calculated months in advance. It is an imprecise alchemy where uncertainty around a myriad of factors — future medical costs due to utilization trends, hospital and provider contract renewals, H1N1, Medicare reimbursement changes and pending or recently passed regulations – – can all prompt an underwriter to build margin into rates. Insured premium pools tend to be loaded with risk charges and margin to reduce the potential that the insurer will price premiums below their cost.

In situations where insurers need to expand margins or increase profits, the path of least resistance has historically been to build margin into insured pricing. In risking increasing rates above what the competitive market might bear, carriers rely on agent loyalty campaigns, customer apathy, the hassle of changing carriers and/or their own superior cost position above competitors to allow for margin expansion. If an insurer loses members to more competitive pricing, the remaining clients may more than cover the lost margin with their higher premiums. While it is a tricky endeavor, an insurer has to weigh the risk/reward of asking for more premium than the risk may actually require. If the insurer is too conservative in pricing, competitors will seek to steal market share. If the insurer gains market share by pricing to a lower margin point, profit percentages are diluted and Wall Street punishes the carrier for being ” undisciplined ” around pricing.

Larger employers understand that medical claims drive costs. Employers with over 100 employees are increasingly entertaining alternative financing arrangements such as minimum premium and self insurance to cut the risk premiums they pay to insurers. Generally, a self-funded program generates one-third the profit dollars of an insured health program. In doing so, an employer assumes more risk. However, that risk can be capped based on the client’s risk tolerance. As a self insured employer begins to make a connection between their own population’s health, wellness and healthcare claims, they begin to focus on higher value activities — holding vendors more accountable for managing costs.

Administration costs are generally higher in fully insured health plans – as much as 20+%. These administration costs include risk and pooling charges, administration, broker commissions, clinical programs, taxes and other administration. Insured claims costs include the cost of state mandated benefits which can add 8%-10% to premiums. As premiums rise, insured health plan administration charges often rise proportionately. Self insurance avoids state premium taxes, allows you to exclude state mandated benefits and reduces risk and profit charges. Self funding has been generally ignored by brokers and agents who do not understand alternative funding and who do not like the increased transparency of per employee per month administrative fees versus embedded commissions.

With the exception of CIGNA that uses the Great West chassis as a platform for small employer self funding, most insurers have not been eager to offer self funded products that essentially cannibalize their more profitable insured pools. If this is ever going to change, smaller employers must come to understand that they are paying a very high price for transfer of risk and given the fact that costs continue to increase, there is justifiable concern about whether employers are getting value for their insured arrangements.

This frustrating cycle of pooled increases and a limited sense of control over one’s destiny is driving smaller employers – – some as low as 50 employees to give serious consideration to self insurance. With average composite costs per employee now eclipsing $11,10o, a 110 employee company is paying over $1mm a year for healthcare.  For firms operating on slender margins, a 10% compounded annual increase in pooled insurance costs will consume operating profits in just a few years.  Liberating oneself from the rigidly predictable cycle of double-digit pooled increases is only the first step toward regaining control over healthcare costs.

What Next?  – Self insurance is not a panacea for rising healthcare costs.  Simply by changing the mechanism to finance your risk will not allay underlying issues around chronic illness and problems endemic in a workforce.  However, it is the first step toward focusing on the real problem – – the cost of healthcare delivery. Once self funded, the insurer can be seen more as a partner in managing your loss costs and can more credibly position themself on the client’s side of the table. With the barriers to entry being so high in healthcare, the only player large enough to compete with insurers is the Federal government. Most recognize that a Federal government that presides over Medicare with its serial under reimbursement of doctors, excessive fraud, abuse and deficits is today hardly qualified to supplant commercial plans. The key is changing the nature of commercial insurer cost-plus, pooled pricing. When it comes to small group insurance, one could argue that the managed care industry is failing to manage care.

It is time to consider new risk bearing models that moderate profit taking and reduce cost shifting between customer segments and deliver total transparency around all administrative costs and claims experience. In addition to encouraging market based small employer self insurance solutions, we should:

1) Allow for creation of multiple employer welfare association risk pools that offer smaller employers insured and self insured purchasing leverage coupled with a defined, highly focused plan designs that drive health improvement, wellness, chronic illness screening and coaching. Instead of granting rebates, create reserve mechanisms to invest any dividends resulting from a better than target 85% loss ratio into a premium stabilization fund to offset future increases for pool participants. Require a two-year participation in the pool to prevent adverse selection.

2) Require transparency for all claim and non-claim related expenses. This includes claims administration, clinical programs, brokers commissions, taxes, fees and any other non-medical claim related costs. Insurers should be allowed to include in the claim expense calculation those programs proven to drive savings. Insurers should also disclose any costs charged to the claims loss ratio that originate from an entity owned by that insurer. As insurers migrate into health services, employers must understand if insurer costs are being included as an administrative cost and as a claim cost. Regulators must approve any administrative program included as a claims expense to make sure it is a competitively priced, proven cost mitigation program.

3) Mandate the release of claims experience for all employers down to 50 employees. Do not hide behind HIPAA as a means of preventing the release of claim data. This is a red herring.

4) Create a small group self-insured solution with a maximum liability limit of 105% of expected claims. Retention expenses might run higher than traditional self insurance but it would offer greater flexibility and a line of sight on claims cost. Consider state-run self insurance stop-loss pools offering smaller employers dividend eligible non-profit pooling.

We should not wait for Congress.  States and the private sector have the means to improve imperfect reform to achieve smaller employer affordability goals. If we cannot successfully rein in these expenses, smaller employers will accelerate dumping coverage and in doing so, shift the burden of healthcare subsidization to the Federal government, exchanges, the states that manage them, and ultimately taxpayers.

The private sector has the skill to drive many of the changes necessary to fix gaps in care, improve consumer engagement, realign incentives and drive affordable options.  The question remains whether employers have the will to take the lead in driving reform.  Should smaller employers choose to self insure, they will quickly shift from commodity buyers to value buyers and in doing so, join the ranks of those who fundamentally believe that the only real means of preserving quality and achieving affordability is market based reform.

Be Careful What You Wish For America – The Debate Over Minimum Essential Benefits

President Barack Obama's signature on the heal...
President Barack Obama's signature on the health insurance reform bill at the White House, March 23, 2010. The President signed the bill with 22 different pens. (Photo credit: Wikipedia)

The Affordable Care Act is officially under construction.  The framework for the minimum mandatory levels of benefits offered through state exchanges is now being researched and will soon be ready for prime time debate.

The Institute of Medicine, a non-partisan research group, has been retained by Health and Human Services to conduct public and private planning sessions to help shape final recommendations on what standard levels of benefits should be required as a “floor” for all health plans.

The queue of industry and special interest groups increases daily as stakeholders wade in to offer personal perspectives on why certain levels of benefits should be considered as “essential”. The stories will be heart wrenching as individuals plead for broader coverage terms and looser definitions of medical necessity to cover a range of therapies treating orphaned or difficult conditions that do not neatly fit into today’s definitions of coverage.  The unfortunate fact also remains that the average consumer expects “essential coverage” to be synonymous with open access, comprehensive coverage, minimal out-of-pocket cost sharing and an affordable price tag.  In effect, everyone wants a Cadillac when the nation can barely afford a Corolla.

As the IOM solicits perspectives from a range of medical, academic, public and private stakeholders, it is gaining valuable insights into the opportunities and land mines associated with attempting to define a basic level of benefits that can guarantee affordable, sustainable and high quality healthcare.  Those states that have already walked the path of attempting to define mandatory benefits are perhaps the best leading indicators of the intended and unintended consequences of setting benefits levels too high or at more minimal levels.  States such as Maryland, Massachusetts and Utah have struggled and led efforts to set up universal and affordable benefits anchored by standard benefits and medical necessity protocols.  In determining what should be covered by commercial insurance and Medicaid, these and other states can offer valuable lessons to legislators seeking to establish the boundaries of the coverage requirements under ACA.

As the IOM and subsequently HHS consider the flood of opinions from stakeholders, a few unenviable considerations loom large:

Essential benefits will dramatically impact the future level of benefits many employers choose to offer.  Essential benefit levels will determine whether employers continue to offer healthcare and/or what benefits are no longer subsidized. Many believe that if HHS establishes a “national” level of essential benefits, it will become the floor as well as the “mean” to which many employers will gravitate their current medical coverage levels.

A national essential benefit design that establishes lean levels of benefits will prompt some states to consider mandating levels of benefits above and beyond those required in a national essential benefits design. A national design that is too rich could accelerate the budget crisis in states as more employers drop coverage sending employees into exchanges and expanded Medicaid pools increasing the financial burdens already crushing state coffers.

States will naturally argue for the flexibility to administer their own versions of essential benefits, largely because of fear over escalating obligations under Medicaid, legacy coverage and provider issues, the recognition that healthcare is local and that there is no such thing as a “one size fits all” plan.  Legacy budget deficits, the unique nature of each state’s demographics and healthcare delivery systems (single hospital towns vs. large healthcare systems, urban vs. rural care ) and the political mood of its constituents will figure heavily in determining the appetite of each state to advocate a richer or leaner level of mandated essential benefits

While fiscal hawks fear an essential benefit plan that is too comprehensive and therefore too expensive, there is the potential that more pragmatic designs could prevail leading to an essential benefits plan that is less expensive and better designed than many current plans in the market.  Plans anchored by primary care based gatekeepers, value based plan designs, effective cost sharing to promote personal responsibility and consumerism, and network tiering to ensure plans only reimburse at the highest level those providers that practice efficient, high quality care – are likely to run at significantly lower medical trends and in doing so, be able to support lower premiums over a longer period of time.

Change Behavior or Ration Access – Nationalized, single payer health plans offer rich preventive and catastrophic care but suffer the reputation of rationed access issues when delivering elective or non-emergency care. In a political environment where there is often no will to change the underlying behaviors of those utilizing the healthcare system, the only way to control the costs that arise out of unlimited demand and finite resources is to ration access and reimbursement.

CMS may soon be dealing with similar issues if delayed Medicare cuts are ratified by the 112th Congress. Medicare and Medicaid recipients may find themselves with rich benefits but fewer providers willing to accept reduced levels of reimbursement as payment for services. If the provider does accept coverage, the coverage will undoubtedly carry longer waiting times. Providers will either limit the number of recipients they treat or continue down the path of the “triage” encounter as they attempt to make up in volume what they are losing in unit cost.

It is important to note that access does not equal quality.  Yet, many Americans currently believe access is synonymous to quality. In a two tiered public/private system, access is as much a privilege as it is a right. The single payer country determines the pace of one’s access based on medical necessity. The ability to pay for the right to opt into private alternative delivery is the only way of bypassing a payer’s medical necessity and access protocols. While many argue that today’s current for profit system already functions in this capacity, the majority of medical necessity issues arise out of insured individual and small business coverage issues where there is no purchasing leverage and scarce clinical data to support broader coverage.  Individuals working at larger, self insured organizations generally do not have these issues as employers act as plan fiduciaries and have the ability to make the final decisions on medical necessity and reimbursement.

Larger Employers Still Offer The Best Coverage and Most Balanced Cost Sharing – In the last ten years, employee out-of-pocket health cost sharing has risen 149% while wages have only risen 37%. According to a recent Towers Watson survey, the composite cost of healthcare per worker was $ 10,212 in 2010. The average cost sharing contribution per employee was $2,292. The average American worker makes $ 40,000 a year.  The total composite cost of health care per worker as a percentage of salary is 25%.  Employees currently share approximately 22% of coverage cost but only 5.5% of the total cost of this coverage as a percentage of their own gross earnings.

These numbers do not tell a complete story.  Cost sharing is greater among individuals working for smaller organizations as most small employers tend to subsidize less coverage and have less flexibility to affordably purchase more generous plans.  In addition, the average median wage for individuals working for employers of fewer than 50 employees lags those working for larger employers.  The crisis of affordability has been most acute among those who can least afford it.

At the same time as small employers are dropping coverage or fatiguing under its costs, as many as 75% of employees in a recent PWC survey, said that they would prefer to be paid salary in lieu of benefits – opting to purchase healthcare as individuals through newly established exchanges.  It is interesting to note in this PWC study that many of these same employees grossly overestimated what they believed their coverage was worth in additional salary. The question remains for many employers and for those watching healthcare reform develop – can affordable and sustainable essential benefits be established that can incent smaller employers to maintain and even potentially, rejoin those offering coverage?

As many as 70% of Americans earn less than 400% of the Federal Poverty level – the current cut off for ACA offering pro rata subsidies to purchase healthcare through exchanges. If essential benefits begin to eclipse those benefits currently offered by employers and subsidies net a savings to consumers, we may witness a larger migration of employees and their employers out of employer sponsored plans. It then falls to the Congressional Budget Office to recalculate whether the larger base of exchange participants and subsidy recipients has turned a modeled $ 140B reduction in public spending into a massive drag on the national deficit.

A more basic level of affordable essential benefits could induce employers back into the market as well as usher in a return to defined contribution style cafeteria plans – An essential benefits plan anchored by 100% coverage for primary care, shared responsibility through a health savings account, tiered networks, centers of excellence for chronic care, primary care delivered through medical homes and/or gatekeepers and compliance incentives could achieve cost savings while offering coverage  greater than bare-boned mini-med coverage.

A lower level of mandated essential benefits could also prompt employers to reduce richer coverage to a new, more affordable common denominator.   In aligning their benefit plans to a national norm, employers could adopt a defined contribution benefits approach – choosing to fund up to the level of benefits required by law and then grossing up individuals’ salaries one time to afford them the opportunity to spend dollars as they see fit e.g. greater take home pay, purchasing of voluntary benefits, upgrading to more generous medical designs etc.

Better Coverage Does Not Translate To Better Health – Coverage and consumer advocates will be pushing for expansion of coverage definitions to include diseases and medical conditions that have historically been excluded from private insurance.  The definition of medical necessity will be debated as advocates argue that comprehensive coverage will translate into improved public health. One has only to look at financially distressed municipal and collectively bargained plans that offer rich, first dollar coverage combined with broad open access networks to see that better coverage does not translate to better health.

To define and mandate essential coverage is to walk a mine field of ethical, moral and social issues. Some therapies may not necessarily improve the status of one’s health condition but may prevent it from becoming worse.  The unenviable task of establishing a process for determining medical necessity is the first step toward the difficult process adopted by other countries who have wrestled with the cost/benefit of determining what gets covered and what does not.

The UK’s National Institute of Clinical Excellence which determines medical necessity and establishes the basis for reimbursement of certain therapies is often maligned for the difficult choices it makes regarding palliative care and determinations surrounding when and how it may pay for experimental therapies. This is the unenviable role of any payer. Whether it is government making the call or a for profit insurer, any thing that falls to the unreimbursed side of the ledger will be viewed as a diminishing coverage and ultimately public health.

Now is a time for austerity – The dangers of creating unsustainably rich benefits plans are real. Not unlike Medicare, a rich essential benefit plan that drives higher medical trends will contribute to rather than reduce the public debt. If employers choose to drop coverage and more consumers receive federally subsidized coverage, the market will reach a tipping point where federal expenditures for healthcare outstrip the government’s ability to pay.

Aside from raising taxes and increasing assessments for failure to cover employees, the government will want to pressure the provider side of the market to reduce the costs of its services.  If the private insurer market can not reign in the costs of a rich essential benefit design (and they will not), there is a strong possibility that there will be a renewed call for a public option.  Once enough individuals join a cheaper, taxpayer subsidized public option, the public option payer will begin to ration reimbursement to providers as CMS has done with Medicare.  While single payer advocates argue that doctors and hospitals would have no choice but to accept reduced single payer reimbursement, most industry professionals argue that price controls as a means of controlling costs will lead to diminished quality and reduced investment in innovation. This is happening today under Medicare and Medicaid.

The table is being set for another food fight around health reform.  As healthcare impacts every American, we can expect 300 mm opinions on what “essential benefits” should cover.  It is a critical argument at a historic time for our country.  Without introducing fiscal restraint and evidence based medicine into this debate over essential benefits, we may end up with a rich and totally unsustainable level of healthcare.  As a nation we are already suffering from the palpitations of fiscal heart disease and the obesity of public debt. Offering too generous essential benefits could very well induce a budget coronary from which it will be hard to recover.

Be careful what you wish for, America. You may get it.

Michael Turpin is Executive Vice President and National Practice Leader of Healthcare and Employee Benefits for USI Insurance Services. USI provides a range of business and risk brokerage, consulting and administration services to mid-sized and emerging growth companies across the US. USI is privately held and is a portflio company of Goldman Sachs Capital Partners.  Turpin can be reached at Michael.Turpin@usi.biz

The Day After Tomorrow – Human Resources and Surviving Health Reform

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As the first snowflakes of change fall on the eve of health reform, HR professionals may soon wake up to an entirely transformed healthcare delivery landscape.  The Patient Protection and Affordable Care Act (PPACA) clearly will impact every stakeholder that currently delivers or supplies healthcare in the United States.

While the structural, financial, behavioral and market-based consequences of this sweeping storm of legislation will occur unevenly and are not fully predictable, this first round of healthcare legislation is designed to aggressively regulate and rein in insurance market practices that have been depicted as a major factor in our “crisis of affordability” and to expand coverage to an estimated 30 million uninsured.  However, fewer than 30 percent of employers polled in a recent National Business Group on Health survey believe reform will reduce administrative or claims costs.

Yet, it is unlikely that reform will be repealed.  For all its imperfections, PPACA is the first in a series of storm systems that will move across the vast steppe of healthcare  over the next decade resulting in a radically different system.  Whether reform concludes with a single payer system or emerges as a more efficient public-private partnership characterized by clinical quality and accountability remains obscured by the low clouds and shifting winds of political will.  One thing is certain during these first phases – inaction and lack of planning will cost employers dearly.

As the U.S. government struggles to rein in an estimated $38 trillion in unfunded Medicare obligations, the private sector and commercial insurance will feel the weight of the government’s efforts to reduce costs and impact our $12T of public debt.  HR professionals will have to act thoughtfully to insulate their plans from the inflationary effects of regulatory mandates and cost-shifting.

So while many HR professionals are getting hit from all angles – finding it difficult to  continue to transfer rising costs to employees, unwilling to absorb double-digit trends, under-staffed to intervene in the health of their populations and uninspired to assume the role of market catalyst to eliminate the perverse incentives that reward treatment of chronic illness rather than its prevention – they must forge ahead to address the intended and unintended impacts on the estimated 180 million Americans covered under their employer-sponsored healthcare plans.

To prevail over the elements, one must have a map and a flexible plan.  It also helps to have a qualified guide.  Consider the following as you brace for the “new normal.”

  • Think Twice When Someone Suggests Dumping Health Coverage – Many smaller and razor-thin margin employers will be tempted to drop medical coverage and pay the $2,000 per full-time employee penalty – essentially releasing employees to buy guarantee-issue coverage through health exchanges, which will be available in 2014.  Aside from impacting employers’ ability to attract and retain employees (consider how many of your employees will fall into the class of individuals eligible for federal subsidies), the assumption that the $2,000 will remain the baseline assessment per employee for those choosing to not offer coverage is a dangerous variable.  While it is clear that PPACA as it is currently constructed creates obvious incentives for employers to drop coverage and allow those eligible for federal subsidies to purchase through exchanges, it is unclear how the government can continue to subsidize proportionate contributions on behalf of those buying through exchanges when costs start to inevitably rise.  The General Accounting Office ( GAO) has already forecasted an increase of almost $500B in cost due to rising costs of subsidies as medical costs trend upwards. The forecasted CBO savings of $140B versus the GAO’s estimates of a $500B increase in costs have yet to be reconciled. Whether the $2,000 penalty was intentionally set low to entice employers to drop sponsored coverage and move America one step closer to a national system, or whether someone from the CBO missed a decimal, we expect the employer penalty for dropping coverage to increase as costs rise.  Employers should be certain to model their own costs to subsidize minimum levels of coverage today against an uncertain future of variable taxes that will only increase to fund coverage subsidies.
  • Pay attention to Section 105(h) now. – Many employers may be unaware that self-funded plans that discriminate in favor of highly compensated employees must comply with Code Section 105(h) non-discrimination rules.  As of the first plan year following September 23, 2010, these rules now will apply to non-grandfathered, fully insured plans.  Insurers may choose to exercise their right to either load rates for potential adverse selection or decline to quote because employers have failed to meet minimum participation percentages.  Section 105(h) testing is critical for industries, such retail, hospitality and energy that historically have excluded various classes of rank-and-file employees or provided better contributions and/or benefits to their top-paid groups. Penalties for not complying with the new regulations are $100 per day per employee.
  • Understand the sources of cost shifting pressure – As Congress and state governments wrestle with Medicare and Medicaid reimbursements and begin to focus on fraud, over-treatment and accountability for clinical outcomes, providers will feel the increasing pinch of reimbursement reform and will pivot in the direction of trying to shift costs to commercial insurance.  Physician hospital organizations (PHOs) and other integrated healthcare delivery systems – where health systems operate primary care, specialty and inpatient care – are accelerating – giving more clout to providers in contract negotiations and increasing commercial insurance unit costs, potentially exacerbating already conservative insurer claim trend assumptions.  HR professionals will need to better track employee utilization patterns for in-patient facilities especially in  high-use urban and rural commercial hospitals that also derive a large percentage of their revenues from Medicare. If a hospital derives 60% of its revenues from government reimbursement and 40% from commercial insurance, proposed fee cuts will impact facility revenues and create pressure to cost shift to private insurance.  An understanding of hospital utilization and consideration of tiered networks can help insulate your plans and drive lower costs.
  • Don’t be intimidated by self-insurance – Many employers underestimate the advantages of self-insurance and overestimate its complexity and risk.  But, in a post reform world, firms with more than 200 employees should give serious consideration to partial or total self-funding.  Aside from the total transparency of commissions, fees, administrative expenses and pooling charges, employers own their own data. The sooner employers get comfortable with self-insurance as a risk financing strategy, the sooner HR professionals can construct loss control programs that can mitigate claims costs. By self-funding, employers may better manage their population’s health risk; may avoid a myriad of state-based mandates legislated to fund potential shortfalls should local exchanges prove inadequate to contain costs; and may increase flexibility with respect to plan design. Be certain to understand the economics of your self insured arrangement.  A cheap third party administrator with weaker provider discounts and limited medical management capabilities ultimately costs you much more than services provided by a national insurer with better discounts.  In other cases, insurers may have more than one PPO network and assign the less aggressive discounts to their self funded TPA based clients.  Make sure you press for the best possible discounts.
  • Forget Wellness – Think Risk Management. – Wellness has become a broad-brush term to describe any sponsored effort at health improvement. Forget wellness. Population risk management (PRM) is the operative term to describe a process of understanding embedded health risks and structuring plan designs to remove barriers to care and keep people healthy. PRM requires access to clinical data, cultural engagement and designs that have consequences for employees who do not engage. If employers do not understand the risk within their workforces, it is impossible to improve results or be confident that plan changes will drive a desired result.  For example, more than 50 percent of claims arise out of modifiable risk factors and as few as five percent of employees drive 50 percent of claims.  The great news is PPACA actually increases employers’ ability to charge up to 30 percent more in premium for individuals who do not actively get and stay healthy.  Also, employers that establish comprehensive workplace wellness programs and (1) employ less than 100 employees who work 25 hours or more per week and (2) do not provide a workplace wellness program as of March 23, 2010 can take advantage of available government grants.
  • You are the “market forces” everyone keeps talking about and you need to use this power to influence on-going reform. – Employers purchase healthcare for more than 180 million Americans – about 60% percent of all individuals who have healthcare coverage, but ironically feel less empowered, informed or in control of their spending or their employees’ behavior as they access the system.  HR professionals must become activists for public health improvement and change – promoting healthy behaviors, transparency and accountability while putting an end to public-to-private cost shifting, overtreatment, fraud, abuse and clinical variability. Congress will only listen to employers because the other stakeholders have a perceived conflict of interest in how health reform is ultimately resolved.  Employers must build up the courage and resolve to begin to reshape the local, regional and national delivery models that result in overtreatment and lack of accountability for poor outcomes.

As we look out the window, the full force of reform is still swirling somewhere off in the distance.  As business hunkers down and adopts PPACA legislation, the question for many in HR is simply – will reform happen for me or to me?

Michael Turpin is Executive Vice President and National Practice Leader of Healthcare and Employee Benefits for USI Insurance Services. USI provides a range of business and risk brokerage, consulting and administration services to mid-sized and emerging growth companies across the US. USI is privately held and is a portflio company of Goldman Sachs Capital Partners.  Turpin can be reached at Michael.Turpin@usi.biz

Survivor 2015 – PPACA Island

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Survivor 2015

“In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed”  Charles Darwin

As the legislative reform volcano rumbles and angrily spews magma into the Washington night, nervous industry stakeholders competing for survival on this unstable island of American healthcare are still betting that the seismic activity is merely a false eruption.

Survivor contestants are using every possible means to ensure they are not voted off the island.  The stakeholders are a veritable who’s who of personalities – the powerful, the wealthy, the prima donnas, the tough love advocates, the national health zealots, the well-intended academics, the bellicose politicians, the under-employed, the overweight, and the disenfranchised. It remains to be seen whether Congress, market forces or the American people will be the ultimate judge of who stays and who goes.

If the contestants cannot change in the next five years, 2015 will find them staring at a terrifying wall of regulation and governmental intervention that will be more destructive than the changes from the 2010 proposed legislation.

The island has finite resources struggling to accommodate infinite demand.  Do these players have the emotional intelligence to change or are they too addicted to their way of life to yield to the need for transformation. Time is running out. As we handicap the winners and losers in the 2015, here’s what each group needs to do to remain on the island:

Insurers – In the brave new world, insurers will have to cede higher profit margins realized in the individual and small group business resulting from a formation of purchasing pools and guarantee issue coverage. Insurers must transform from B2B businesses to B2C business solving for the compromises that have frustrated consumers for years. Insurers need to aggregate clinical data on quality and efficiency of doctors in partnership with government to create a credible, non-partisan consumer reports to help patients make more informed choices of providers. High performance networks must become the norm to ensure optimal value over an entire episode of care.   Primary care reimbursement must increase over 30% for family practice providers as medical home and population health rewards based programs reimburse providers to keep patients well or stable when chronically ill. Insurers must become community stewards helping finance primary care into urban and rural ” hot zones “serving “at risk” populations in underserved communities.

Brokers/Consultants/Agents – Total transparency must mark the year 2015 as broker, agents and consultants remuneration is shared with all employers. Brokers and consultants must justify their role as an intermediary – less by marketing insurance and more by harnessing clinical, underwriting, administrative, compliance and population health management programs to advise small, medium and large employers on how to best manage and finance healthcare risk.

Hospitals – our most expensive delivery systems must yield to a new reality where chronic disease prevention spending exceeds spending on the inpatient treatment of chronic illness. Hospitals must accept value-based healthcare and accept risk through global case rates, helping actively manage the assembly line of care to patients being treated inpatient.  Intensity of services must decline over the next four years as well as inpatient days. Survivor hospitals sober to the reality that big is not necessarily better. There is focus on better managing the delivery of services to Medicare and Medicaid patients and total transparency of costs of services and clinical outcomes.

Specialists – specialists must yield to a brave new world of reduced reimbursement, consolidation and the first decline in practice growth as medical graduates begin to select family practice. Remuneration must be more closely managed as medical home plans reassert control of care, pre-empting self-referrals and overtreatment more characteristic of the early 2000s.

Government – Federal and state agencies must demonstrate they can manage cost through clinical and medical management services, not just through serial underpayment.  With improved oversight Medicare and Medicaid can claw back up to $100B a year in fraud.  The additional funds coupled with higher payroll taxes for higher wage earners, global case rates for hospitals, disease management and fee cuts aimed at overtreatment for of life evidence based medicine will help finance subsidies for the expansion of Medicaid and broader coverage for the most vulnerable of the estimated 45M uninsured. Government must enforce Certificates of need are reinstituted and moderate the hospital arms race of medical device purchases and redundant care delivery.

Congress must consider a controversial decision to promulgate a single reimbursement between Medicare and private insurance which can eliminate cost shifting and create a more unified public/private focus on clinical outcomes, reduced variability of care and population health management. The projected net present value of the Medicare deficit can been pared by responsible oversight impacting US debt standing and strengthening the dollar. State and Federal government should focus on interest free medical school loans to students electing to practice primary care as part of an American Family Practice Reinvestment Act.

Consumers – Medicare recipients must accept medical home models as an access point to the healthcare system. Focus will be on personal responsibility and the waiver of cost barriers (e.g. Co-pays and deductibles) for services required to keep the chronically ill stable. Consumers must comply with expectations for regular care and maintenance. Patients must become increasingly comfortable with compliance calls from physicians urging them to stay follow up with tests, maintenance drugs and check ups.  Patients must understand physicians will be rewarded for health maintenance and catastrophic cost risk mitigation. 80% of Americans in 2015 must access healthcare through a primary care provider and reduce ER visit for routine non-emergency treatment. Individuals must routinely check their biometric health indicators through work site based providers, kiosks, health clubs and provider offices to measure progress on key health management indicators.

Employers – Perhaps the most engaged stakeholders, employers must accept their reluctant role as the catalyst for market reforms. In striving for low single digit medical trends, employers must focus on population health improvement, compliance, value based plan designs, medical home, specialty services for key chronic illnesses such as diabetes, cardiovascular disease and orthopedic care. Partnering with CMS and private insurers, employers can take a front seat as the market force through the adoption of gate keeper, medical home models and high performance networks, to reduce, streamline and rebalance the secondary and tertiary care in America.

Pharmacy – Pharma and their intermediary partners, PBM’s must be required to disclose 100% of all rebates and to provide clarity around opaque pricing schemes. Decision support tools introduced through increased HIT and EMR  useage has elevated physician awareness around contradictions and the inconsistent outcomes surrounding certain specialty drugs.  Consolidation among pharmacy purchasers – state, federal, consortias and pharmacuetical benefit managers has eaten into industry margins.  Improved consumer adherance to chronic illness medication as a result of broader medical home oversight, digital consumer compliance tools and incentives has driven higher use of generics and reduced trends.  In this part of the island, only the large and strong survive.

Who Will Win? – As we watch Survivor 2015 unfold, we wonder whether the reality show of American Healthcare is a fair competition or rigged to the benefit of a few stakeholders.

In a free market economy, optimal balance is achieved differently in different segments of our economy.  The fewer the players and the closer one inches toward oligopoly or monopoly, the more important effective regulation is to allow for innovation while limiting abuses and excessive profit taking that disproportionately benefits too few while disenfranchising too many. However, Survivor 2015 must require personal responsibilities. There are no victims – only those who choose to be too self interested or too quick to default into angry populism that deflects from the real issues.

On this island, everyone needs to change. However, it is unlikely that we can have only one winner. In this fight for the future, we all win or lose. Stay tuned.