medical costs

St. Louis hospitals dispute coalition's capacity numbers

Wed, 21 May 2008 06:59:55 -0400

The way the St. Louis Business Health Coalition tells it, the region's prosperous hospitals have been engaging in billion-dollar building projects--such as cancer centers, heart hospitals and patient towers--despite having excess capacity already, needlessly driving up the cost of care. Between 2003 and 2005, the average cost per patient stay increased 10 percent a year in St. Louis hospitals, according to recent research by the Coalition. At the same time, fewer than 60 percent of the area's hospital beds were filled on an average day in 2005, the Coalition's researchers concluded.

The hospitals, meanwhile, are firing back, arguing that their building projects offer opportunities to improve care, update technology and boost patient safety. For example, St. John's Mercy Medical Center, which recently built a heart hospital and is constructing a patient tower, says that improvements there aren't expanding capacity, but instead, are creating private rooms that can cut infection rates. Missouri Baptist Medical Center, for its part, says that its recent emergency department expansion has reduced the ED's wait times, and that other projects have updated hospital space built many years ago.

To learn more about the St. Louis area debate:
- read this St. Louis Post-Dispatch article

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Health plans need new approaches to profitability

Wed, 14 May 2008 06:59:59 -0400

Now I get it. To get back their healthy profits--which have taken a serious plunge of late--all U.S. health plans have to do is a) raise premiums and b) lower reimbursements for providers. Easy as pie! This, at least, is the line being peddled by the likes of WellPoint CEO Angela Braly who, to her credit, probably didn't even laugh once when she briefed investors.

The truth is, though, rebuilding profit margins by pure muscle is something of a pipe dream. Actually, it's something of a wonder that health plans have been so profitable to date.

While some of the forces that have hit health plans' bottom lines are directly within their control, others--such as the investment climate--aren't going to obey their commands.

For example, WellPoint took its a drubbing on medical costs resulting from its Medicare program. Despite Braly's tough talk, the company can't just turn around and demand whatever premiums it wants from the federal government to make up for those losses. Actually, boosting Medicare plan income is a tricky game that involves improving your "risk adjustment factor." Sure, WellPoint may succeed, but not overnight.

What about demanding lower prices from doctors and hospitals? Sure, health plans can and will try to accomplish this, as they always do. No doubt, they'll succeed in some cases.

But while the evidence is fragmentary, some statistics I've seen suggest that very gradually, physicians are dropping managed care contracts when push comes to shove, or at least limiting the percentage of volume managed care represents in their practice. Hospitals are perhaps a bit slower to do so, but they are getting tougher on this front, too.

So, are health plans going to get much juice out of bullying providers? Probably not a lot more than they are from any other hard-nosed contracting sessions.

All told, it seems that health plans will need to try some new tricks--new partnerships with providers, new medical-cost management models (medical homes? chronic-care management programs? telemedicine?) or new investment models (buying up medical real estate? running health IT companies?). What I'm pretty sure of is that squeezing more blood out of provider and employer turnips isn't going to cut it. - Anne

Health plans to boost premiums, squeeze providers

Wed, 14 May 2008 06:59:57 -0400

As readers know, several leading health plans have taken a profitability beating over the last several months, for reasons that include operational issues, medical costs and losses in the financial markets. WellPoint, for one, missed Wall Street's first-quarter profit estimates by a wide margin, something that made financial analysts more than a bit nervous.

Now, hoping to calm watchers on the Street, industry leaders like WellPoint and UnitedHealth Group are assuring investors that they plan to raise premiums enough to stabilize their income--even if it means losing some members. "We will not sacrifice profitability for membership," WellPoint President and CEO Angela Braly recently told analysts during a conference call.

At the same time, the plans are promising to use their muscle to get better deals from their provider networks. This vow isn't surprising, given that both the plans and analysts see medical costs as a critical factor in sapping industry profits this year. However, it's not clear that plans like UnitedHealth--already known for extremely aggressive negotiations--can cut reimbursement any further.

To learn more about this trend:
- read this AMNews article

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Fear and trembling in health plan land

Wed, 07 May 2008 06:59:59 -0400

Well, this week caps it. It seems like we're looking at just about a clean sweep where bad-news health plan financials are concerned: UnitedHealth Group, Humana, Cigna, WellPoint, Kaiser and Health Net have already taken a hit, and that's just for the first quarter. It's hard to imagine the second quarter of this year will bring dramatically better news, either.

Now, it's worth noting that we're talking primarily about plans that have watched profits fall, not plans who've sunk into the red. It's not like WellPoint or Kaiser are headed for bankruptcy court by any means. But we are talking about a shock to the industry--and some plans are indeed in the hole. For example, Moody's has placed Health Net's senior debt on review for a downgrade following its first quarter net loss of $35.7 million.

So what's going on here? A lot of different factors seem to be in play, including the turmoil in the financial markets, medical costs, legal and regulatory issues, and more. For example, as you'll see in today's newsletter, Kaiser attributed its losses largely to the subprime mortgage debacle. Oxford Health Plans, meanwhile, reported a medical loss ratio of 102.8 percent in addition to losing money on Wall Street. (In other words, for those that don't speak insurance, Oxford paid out almost $1.03 for every premium dollar it took in.) Health Net took a drubbing, in part, because it had to pay off regulators in California who were fed up with its practice of canceling individual policies after they were issued.

Once Wall Street recovers, the plans' investment income will again cover a multitude of sins, and the industry will regain its swagger. In the meantime, things aren't going to be pleasant for its leaders, and providers who have to strike deals with them may find themselves getting savaged. After all, it can be dangerous to be trapped in a room with a rabid health plan executive. - Anne