Friday, August 14, 2009

Plasticity in Health Care Payments

For better or worse, most legislative attempts at health reform shift costs. The Medicare Improvement Act of 2003, George W. Bush’s landmark reform, made it more feasible to shift responsibility for payment to individuals through HSAs. The current reform legislation underway will likely swing the pendulum back towards employer and government responsibility for payment. The one certainty is that shifting payment dynamics will lead to opportunity for new payment mechanisms.

With HSAs, banks took off after the opportunity to issue cards that would capture a share of interchange revenue. Webster Financial Corporation, for example, paid $26 million for a small bank in a community of less than 4000 people, because it had a strong HSA line of business. United Healthcare founded a bank just to get in on the action. The card vendors, in return, also began to make health payments a specific focus. American Express announced that it would be the new leader in the market for card-driven health benefits administration, although after several years left the market.

While mobile payment mechanisms garner much attention, paying for healthcare with credit or debit cards is still the mainstream. Visa surveys indicate that up to 90% of patients would prefer to pay with plastic. Where can the card vendors go from here? Providing payment mechanisms designed specifically to solve some of the system’s problems: smoothing payments for patients (much like what is called “insurance” today), simplifying revenue-cycles for providers, and perhaps consolidating data on diagnosis and outcomes.

With increased employer responsibility for healthcare, expect employers to continue to be a point of aggregation for card-related payment services. Today, employers and employees miss out on $2 billion in tax exemptions available through qualified high deductible health plans (HDHPs). For employers, this breaks down to about $140 per employee per year in federal payroll taxes that could be saved. The opportunity for the exemption of income is missed because nearly half of people covered by HDHPs do not open an HSA, and many of the accounts opened are not fully funded. Card vendors could increase HSA utilization by automating account opening, contributions, and distributions -- making tangible the tax advantage.

Wednesday, August 5, 2009

Disease Management Thrives in Legislative Neglect

A sentiment of lack of change exists, now that legislators are on break. A couple ideas occur to me, examining the disease management industry, that make the legislative slowdown neutral or good in terms of its effect upon the healthcare system.

First, I’ll examine the progress of the disease management industry in the benign neglect of Congress and the Health and Human Services Administration. I’ll then provide an example of how legislation already signed into law this year contradicts core tenets of the Senate and House proposals.

Back in 2000, when HHS was deliberating on how to develop regulations for the HIPAA privacy rule, the agency commented that “[w]e are unable to find generally accepted definitions of the terms ‘disease management’”, and omitted the terms from the final regulation, opting instead for the catch-all category of “health care operations”. Nonetheless, according to BCG ( disease management organizations (DMOs) grew from $346 million in revenue in 2000 to $1.1 billion in 2005. By 2008, outsourced DMOs alone generated $2.3 billion in revenue. While Medicare did experiment with a disease management pilot, to great initial fanfare, the program’s design failed to monitor a control population, and therefore did little to empirically support disease management's claims.

It may be that slower, more incremental progress is better. Witness, for example, the provisions in the recent American Recovery and Reinvestment Act (better known as the Recovery Bill, or ARRA), which permits individuals to opt out of having their data used for “health care operations”. Specifically, if an individual pays cash, the care provider must offer the individual an opportunity to not have his or her data used for “health care operations” purposes. “Health care operations” includes informatics and disease management, so the ARRA cuts away the empirical data on which those programs run. Individuals paying out of pocket are the minority today, but they represent an important shift towards consumer driven healthcare, and are growing at an increasing rate. In just a few years, omitting these individuals from disease management databases could significantly skew the data. This doesn’t bode so well for the reform bills, for which better disease management is a key cost control strategy. (see, e.g., )

Monday, August 3, 2009

Opportunity Cost: $2 Billion

Employers and individuals miss out on $2 billion per year in HSA tax breaks because they miss an opportunity to predictably match HSA contributions to out-of-pocket health spending from non-HSA accounts. This disconnect between physical and financial health is not being addressed by either healthcare or financial institutions. If there is an opportunity to use health transaction data to help HSA-eligible employees consolidate data on out-of-pocket expenses from non-HSA accounts, it would be a great value to the employee group. The data consolidator need not actually move the money -- the financial institutions can handle that pretty easily based on a file feed, so long as the consolidator has the employees’ imprimatur.