Healthcare Transactions Weekly

OCR Exercises Its Enforcement Discretion

2011-04-12T13:34:00.000-07:00

Last month we had the first case in which Office of Civil Rights used it HIPAA civil money penalty power, and it is a douzy.

See full article here.

Note to self #1: respond to subpoena from the OCR.

Note to self #2: when responding to a HIPAA violation complaint, do not include PHI on 4,500 patients outside the scope of the complaint.

Co-ops and Co-ops

2011-03-08T20:36:00.001-08:00

Free federal money

PPACA provides for $6 billion for start up funding of Consumer Oriented and Operated Plans (Co-ops) to begin operations 1/1/2014. http://cciio.cms.gov/resources/co_op/index.html. If there are two Co-ops per state, that would be $60 million per Co-op. Rhode Island will probably be covered by a Boston Co-op, but California will likely have Coops for NorCal, SoCal, and the Central Valley, at a minimum. Given that the Co-ops are projected to only require about 25,000 members to be self-sufficient, we are looking at an acquisition and service cost per member of $2400 in the first year. Considering that risk-bearing PCMH pilots have been run successfully for $120 per year in administrative fees, 2000% of that amount should be plenty to see some of these organizations succeed.

Public benefit

Success will not be measured in terms of return on investment, however, but on number of members covered and quality of service provided. Co-ops must be nonprofit. This nonprofit requirement would be most obviously met by traditional physician-hospital constructs. An alternative, however, would be borrowing governance models from the credit union industry. Credit unions have retained the “community owned” character envisioned by PPACA founders where Blue Cross and Blue Shield plans have foundered to varying degrees. It is little wonder that PPACA bars any form of insurance industry participation in Co-ops.

Market size and participants

Congressional testimony on Co-ops indicates that these new entities will follow the growth plan of HSAs, which went from virtually no marketshare in 2000 to 12-15% in 2010. http://cciio.cms.gov/resources/files/j_bertko_testimony.pdf The credit unions largely missed out on the HSA land rush, however, seeing banks grab 99% of the market share. Could credit unions’ philosophical underpinnings, strong bricks and mortar presence, tight employer ties, together with facility with EFTs, make them emerge as a key participant serving Co-op customers?

Opportunity for Supreme Court to Address De-anonymized Data

2011-01-16T16:23:00.000-08:00

Last week, the Supreme Court granted review of Sorrell v. IMS Health Inc., after the Second Circuit Court of Appeal's decision to strike down Vermont's prescription confidentiality law. The law regulates data mining companies that sell or use doctors' prescribing records containing personal information on patients. The Second Circuit concluded as a matter of fact that “The PI data sold by the data-mining appellants is stripped of patient information, to protect patient privacy.” Will the publicity surrounding de-anonymization of Netflix data will present an opportunity for the Court to scrutinize individuals’ privacy rights as well?

Claremont Partners Collaborates with CHHS to Ensure Privacy of Medical Information

2010-06-10T12:15:00.000-07:00

Claremont Partners has presented its working paper on how to best align California's Confidentiality of Medical Information Act with HIPAA. The paper was presented at the most recent meeting of the Privacy, Security, and Accountability ("CalPSAB") Legal Committee, organized by the California Health and Human Services Office of Health Integrity. The full story and materials are available here.

Book Review: Total Cure

2010-05-31T16:23:00.000-07:00

One recent reform proposal blends elements of consumer driven healthcare with universal coverage. The author’s background as a health economist provides a perspective that supports market-based solutions. Hal Luft’s recent book, Total Cure (Cambridge: Harvard University Press), should be required reading for industry participants.

Background

Regardless of whether the public or private sector pays for patient care, all manner of healthcare reform proposals will almost certainly rely on private industry to administer the system. As such, implementation of any major health reform will require active private sector participation.[1]

Today private industry administers most of the health payment system even when the check ultimately clears out of a government account. Medicare, for example, contracts with insurance and technology companies to provide the actual insurance policies, processing, and payment of claims. At the other end of the spectrum, when individuals pay for medical care out of pocket, private industry also tends to perform a broad administrative function.

Increasingly, banks coordinate payments from custodial accounts (HSAs, FSAs, HRAs) to maximize the tax advantage of their customers and shorten care providers’ revenue cycles. Among the marketing slogans designed to convey the value of the bank to the provider network are “revenue cycle management” and “realtime adjudication and settlement”. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was largely responsible for these new niches for the banks. In response, insurance companies created their own banks as an end run around the competition. The insurance companies began functioning like banks while the banks were functioning like insurance companies, regardless of the government or a private party was ultimately responsible for payment.[2] Reform ought to focus on changing the way that private industry functions holistically rather than simply shifting cash flows from the insurance companies to the banks.

A Path Forward

Prompting private industry to adopt new standards often involves an iterative process of consensus building. Making think-tank ideas safe for consumption may involve large consulting engagements to “productize” knowledge in a digestible format for the public and private sector. Total Cure, a new book by Hal Luft of the Palo Alto Medical Foundation, evangelizes key shovel-ready healthcare reform concepts, and will likely influence the direction of public policy. For starters, Luft has created a sound byte-ready working title for his set of proposals: SecureChoice. The flowcharts littered throughout the book are ready-made for animated PowerPoint slides. Importantly, Luft takes his cue from B-school curriculums and articulates his vision of the future in present-tense; the SecureChoice platform is described as if it already exists. While as a public intellectual Luft’s acerbic wit may stymie consensus[3], SecureChoice provides a real roadmap for political and private sector implementation.

With years of experience as a healthcare economist and researcher, Luft has developed a keen eye for the practical side of system. A career of studying Medicare data sets allows him to speak credibly to professional implementers of technology, with comments like “coding improved once it made a difference in payments and quality assessment”.[4] The Total Cure spells out concepts in big blocks easily understood by decision-makers. First, everyone who experiences a major health problem will be entitled to superior medical care, as defined as care that is better than average. While readers outside of the business world may not be familiar with the increasing predictive power of empirical data, books like Super Crunchers have been on CEOs bookshelves for a few years now, so the idea of comparing outcomes between care providers should not cause too many blank stares. Superior care, then, is simply getting access to the providers and procedures that are likely to create an outcome in the top half of the distribution curve.

More generally, SecureChoice concepts are likely to be easily understood in the private sector because they are grounded in terms of economic incentives already familiar to managers. Every businessperson who has listened to a surgeon recommending surgery in a borderline case must wonder at how doctors and hospitals balance professional ethics against a strong economic incentive to recommend clinically aggressive procedures. Some legal prohibitions against remuneration for referral exist today, but if a treatment is provided by the same doctor or practice group that made the diagnosis, a possible conflict of interest exists. Because everyone is entitled to medical care for major problems under SecureChoice, the doctor providing the diagnosis would be forbidden from sharing any economic interest with the doctor providing the treatment.

Few incentives are better understood in the private sector than self interest. Accordingly, SecureChoice supports new growth markets for private sector capital. By formally splitting diagnosis from treatment, SecureChoice would be a boon for medical tourism, one of the fastest growing segments of the healthcare industry.[5]

The key tenet of SecureChoice is that health insurance should be for truly unpredictable events rather than for the routine care that is often covered under traditional health plans. This philosophy is likely to endear the platform to fiscal conservatives, as well as those entities that have already invested in high-deductible health plans. Business leaders do tend towards fiscal conservatism. Moreover, those who have invested in a high-deductible health plan approach will recognize this common vision of insurance as a backstop for catastrophic incidents.

Remaining Hurdles

The main challenge with SecureChoice is defining those medical conditions for which citizens are entitled to care. In an effort to distinguish the proper scope of the guaranteed coverage, Luft distinguishes major acute interventions and chronic conditions from minor acute interventions and preventive medicine.[6] While this distinction aligns with a conservative view of the purposes of insurance and incentivizing efficient behaviors, Luft does not provide guidance on resolving the disputes that implementing such a distinction would entail.[7] Practitioners and patients engaged in a holistic approach, for example, that focuses on the interconnectedness of physical and mental systems will find difficulty in separating minor from major conditions. SecureChoice is shovel-ready in many respects, so lack of detail on the distinction of major from minor medical conditions raises a red flag.

It may be that the line between distinguishing coverage for acute conditions should be revised to include both minor and major conditions, so long as the cost of the care does not exceed that average cost to deliver a superior outcome. While insurance theory purists may argue that because an occasional doctor visit for a sore throat or some other minor common condition ought to be anticipated and budgeted as an non-insured expense, covering these incidents will eliminate the more contentious debate over the distinction between a minor and a major condition.

[1] When ideas don’t gain traction with private industry, implementation becomes difficult. See the sad history of the CMS’ efforts to find a private-sector custodian of Medicare Savings Accounts.

[2] See, e.g., health FICA and other technologies where banks and other financial services have intermediated themselves into health carriers role as a provider of value to provider networks.

[3] On a 6/12/09 appearance on NPR’s Forum, Luft remarked that Visa would have “no problem” handling an enhanced healthcare payments system, which may overstate Visa’s competence. In response to a query on European health systems, he quipped that adoption of an European model would be as successful as adoption of the metric system.

[4] At 141

[5] http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=12714364

[6] SecureChoice would also entitle citizens to preventative medicine in some circumstances.

[7] He does, however, explicitly defer consideration of politically charged issues like abortion and end of life care.

California's Unusual Protections for Medical Information

2010-04-30T13:26:00.000-07:00

Today's California Office of Health Information Integrity Privacy Security and Accountability Board Legal Committee meeting continued the discussion of possible deviation in California law from HIPAA.

Like many things in the 9th Circuit, California has its own rules for protection of medical information, the California Medical Information Act ("CMIA" Civ. Code Section 56 et al). Importantly, California Civil Code §56.10(c)(14) has been interpreted by the California Office of Health Information Integrity to possibly be less permissive than HIPAA. The minority view, at least, is that the "as authorized by law" provision applies only to laws pertaining to public safety. Because HIPAA does not pertain to public safety, the Legal Committee is now in the process of examining those state and federal laws that do pertain to public safety. The working list can be found here. The hope is that by better understanding the current scope of permitted disclosures of medical information, the California legislature can make a better decision about possibly revising the CMIA.

California Health Care Bills Pass Legislative Hurdle

2010-04-22T13:33:00.000-07:00

The Senate Health Committee yesterday passed out two bills that will help implement federal health care reform at the state level. They are the California Senate’s first measures to address the skyrocketing rate increases in the individual health insurance market (SB 890), and establish a health care exchange (SB 900).

SB 890 would stabilize the individual health insurance market and help Californians buy the best type of insurance suited to their needs. It would also be broader in scope than the recently enacted federal law.

By standardizing the individual insurance market, SB 890 would allow consumers to clearly compare health plans based on similarity, coverage and price. Currently, anyone who wants to purchase an individual insurance policy is presented with more than 100 options, causing confusion and making it almost impossible to make an appropriate choice.

Consumers would be given the freedom for the first time to switch to an equal or lower priced plan after one year, either within their health plan or to another health plan. Currently, consumers can only switch plans after 18 months, and only within their plan.

SB 900 would establish the California Health Insurance Exchange. A main feature of federal health reform legislation is the establishment a state level health insurance exchanges that will enable individuals to comparison shop for health coverage, facilitate their enrollment in coverage, and administer tax subsidies for low- to moderate-income people.

SB 900 would require insurers to offer five plan levels -- Platinum, Gold, Silver, Bronze and Catastrophic. This would give people a broader choice of individual plans that is more extensive than federal law, which only requires plans to offer a Silver and Gold plan.

California Strategic and Operational Plan for HIE Complete

2010-04-13T19:59:00.000-07:00

Healthcare Transactions Weekly is happy to report that its recommendations for amendments to California's submission to the Office of the National Coordinator (ONC) for HIE funds were included in the final Strategic and Operational Plan for HIE submitted to ONC on April 6th.

The original comments and their incorporation to the HIE Plan can be viewed on the CHHS website pages 12 and 13.

Unexpected Boon for HSAs: Medicare Surtax Shields

2010-04-05T14:50:00.000-07:00

HSAs have always shielded their owners from tax on ordinary income, investment income, and spending on medical expenses. Despite talk in early legislative sessions about extinguishing HSAs, the tax benefit of HSAs is now broader than before. While a significant portion of the Patient Protection and Affordable Care Act is funded by a 3.8% Medicare surtax, HSA holders are well equipped to avoid the additional tax.

Normally, HSA contributions are exempt from payroll taxes, like Medicare tax. In the case of high income individuals, however, the contribution limits of around $6000 cap the available tax benefit. Now, however, the tax shield is more effective because there are more taxes to protect against. High income individuals with investment income can shield a potentially unlimited amount of investment income from the Medicare tax, so long as the legal ownership of the investment is within the confines of an HSA trust account.

The following description of how the surtax functions is excerpted from U.S. Trust Tax Alert 2010-2.

This surtax of 3.8% will be imposed on certain individuals, trusts and estates. The surtax will be imposed on individuals with “net investment income” to the extent that modified adjusted gross income exceeds:

o $250,000 for taxpayers who are married filing jointly or surviving spouses;

o $125,000 for taxpayers who are married filing separately; and

o $200,000 in all other cases.

These amounts (e.g., $250,000 for a married couple) are not indexed for inflation.

Example: Assume the same facts as Example 1, and that husband and wife have net investment income of $100,000. Their modified adjusted gross income exceeds the threshold by $300,000 (i.e., $550,000 minus the $250,000 threshold). Accordingly, the Medicare surtax will be assessed only against the $100,000 of net investment income, resulting in $3,800 surtax.

Patient Protection and Affordable Care Act Opportunities

2010-04-04T22:05:00.000-07:00

Reading the healthcare reform legislation can be frustrating if you are not a government entity, nonprofit, or provider. As discussed at e-CareManagement this week, readers are likely interested in how they may participate in some of the demos and projects in HR 3590, Patient Protection and Affordable Care Act (PPACA). The problem is that many of the ideas for implementing the innovations contained in the bill do not exist in the government/nonprofit/provider context. My suggestion for implementers of technology would be to pursue the following analysis:

Step 1: What types of entities are eligible project participants? If your entity isn't eligible, go to step 2.

Step 2: Will the project be administered in a manner that provides opportunities for subcontractors? If so, go to step 3.

Step 3: Determine whether your organization is suited to be a subcontractor to an eligible entity.

Here's an example using Section 4206 on "Individualized Wellness Programs". Maybe you can be on the receiving end of "appropriation of such funds as may be necessary".

Step 1 – Eligibility. The recipient of funds under Sec. 4206 must be a “community health center” funded under 42 U.S.C. 245b, which is found under “health center” at 42 U.S.C. 254b. To qualify, you must fit within one of the trendy categories of “health services” listed there, or certain exceptions. If you don’t qualify, go to Step 2.

Step 2 – Administration. The Secretary of HHS will dole out grants for 4206 directly to the “community health center”. The health center will likely have ties to state government because one of the two factors for determining criteria is comments received from state officials. Sec. 254(b)(3)(B). Under open government protocols followed these days by most states, you will be able to find out which wellness programs your state is endorsing doing by looking at the state department of health web site.

Step 3 – Subcontracting Options. Section 4206 is a new program, so there aren’t any established entities with subcontracting processes to use as an example. But if you look at the pattern established with HITECH Act funds in California, for example, we aer just now getting through the public comment process of its operational plan for ARRA funds earmarked back in February 2009. Consulting firms have been facilitating the process and design of the solutions, and will likely continue to do so.

Here's a table showing the eligible entities and administrative processes for Sections 4206, as well as Section 3510 on Navigators and 4202 on Community-Based Wellness.

Mensa kids on Provigil can get 'er done

2010-04-03T17:54:00.000-07:00

The topic of this blog is healthcare transactions, having much to do with the way that incentives are organized in the healthcare industry. Attorneys get trained for years to criticize deals designed by other people, and healthcare at this point is running the gauntlet. But maybe the lawyers interpreting the new regulations should do a bit of navel-gazing themselves.

One of the chief concerns among would-be health system reformers is that the fee-for-service model creates perverse incentives. E.g., doctors get paid more when they do more, and more care tends on average to be worse care. The same concern applies in the legal setting. Lawyers looking at a deal who get compensated based on billable hours have an economic incentive to spend more time. The additional time spent can be helpful, or it can raise issues that are a harmful distraction from business fundamentals.

A refreshing approach is articulated at http://www.clientrevolution.com/, where Shepherd Law Group CEO observes the following:

"While many lawyers claim they cannot offer fixed prices because they cannot figure out what a particular matter costs, lawyers do not need to know if they are making money on every particular matter. They simply need to know their law firm is keeping revenues above expenses and operating overall at a profitable level. Their focus should be on bringing in as many new matters as possible."

This approach gives up the kinds of metrics and controls that accountants would consider to be essential safeguards. "Bringing in as many new matters as possible" sounds like a recipe for a client service shortfall, but then again maybe Mensa kids on Provigil can get 'er done. Or in corporate-speak, maybe a professional services firm is unlike other kinds of businesses, because the professional has instincts for when value is being delivered and a capacity to develop relationships that are intrinsically valuable. Time will tell the fate of Shepherd Law Group and its ilk.

DURSA, health reform, and California privacy rules

2010-03-28T16:56:00.000-07:00

The National Health information network has now provided a template agreement for organizations seeking to participate in health information exchange -- the Data Use and Reciprocal Support Agreement (DURSA).

California is one of the states challenged to determine what modifications to the DURSA, or state law, for health information exchange (HIE) to achieve its full potential. In my view, the DURSA review is a timely opportunity to address the proliferation of disease management services that may diverge from the disease management services contemplated in California Civil Code Sec. 56.10(c)(17).

Certain features of “accountable care” and “medical home” approaches contained in the recent health care legislation seek to enlist the services of a disease management firm to provide both the types of disease management services described in Health Code Section 1399.901, and additional services that would arguably provide better quality assurance and cost control in California if the disease management organization was more broadly permitted by the California law to participate in HIE under DURSA. A disease management organization seeking to validate population health trends or evidence-based practices, for example, would have to seek the support of either a multitude of physicians (Sec 56.10(c)(17)(A)), or the health services plan (56.10(c)(17)(B)), making such validations more difficult.

HR 3590 Signed!

2010-03-23T20:43:00.000-07:00

Time for all manner of vendors to consider whether their services will be rendered invaluable, redundant, or worthless as a result of the new legislation.

To support the political claims of "immediate impact", the bill contains certain sections will require states to procure new consulting and technology services.

Among the most straightforward requirements are those found in Section 1103, requiring states to establish new web services in just 3 months. An extension may be granted, or the exact meaning of "establish" can be argued, but no doubt resource-strapped states will be turning to vendors for assistance.

Here's the text:

SEC. 1103. IMMEDIATE INFORMATION THAT ALLOWS CONSUMERS TO IDENTIFY AFFORDABLE COVERAGE OPTIONS.
(a) INTERNET PORTAL TO AFFORDABLE COVERAGE OPTIONS.— (1) IMMEDIATE ESTABLISHMENT.—Not later than July 1,
2010, the Secretary, in consultation with the States, shall estab- lish a mechanism, including an Internet website, through which a resident of any State may identify affordable health insurance coverage options in that State.
(2) CONNECTING TO AFFORDABLE COVERAGE.—An Internet website established under paragraph (1) shall, to the extent practicable, provide ways for residents of any State to receive information on at least the following coverage options: ...

This will be quite a boon to outfits like ConnectedHealth.com, which already have a clear and concise platform for giving realtime price quotes. The question will be the various states' appetites for making, buying, or renting the solutions they need.

Larger vendors like Accenture, with a long history of Medicaid management information systems, will have the ability to offer the full suite of information required to be provided by the sites. The information required requires tapping databases that have seldom been brought together in one place:

(A) Health insurance coverage offered by health insurance issuers, other than coverage that provides reimburse- ment only for the treatment or mitigation of—
(i) a single disease or condition; or
(ii) an unreasonably limited set of diseases or
conditions (as determined by the Secretary);
(B) Medicaid coverage under title XIX of the Social
Security Act.
(C) Coverage under title XXI of the Social Security
Act.

(D) A State health benefits high risk pool, to the extent
that such high risk pool is offered in such State; and
(E) Coverage under a high risk pool

Population Health Management

2010-03-05T11:27:00.000-08:00

As someone who lived in Wisconsin for 3 years, "population health management" sounds like issuing licenses to hunters to shoot deer. As applied to people, however, the hunt in population health management is for behavioral causes of disease within a population, and then identifying strategies to prevent the disease. Sounds harmless enough. To find the diseases and causes does require aggregating personal information of people within the population, raising some objections.

In Buck Consultants 2009 survey, several employers engaged in "managing wellness" announced 2 vision statements that are remarkable, especially since the trend has been for employers to shift away from defined benefits and towards defined contribution plans. Perhaps this shift is not indicative of an overall decrease in taking responsibility for employees' healthcare.

“valuing employees’ health as much as their intellectual knowledge”
“our vision is to make people feel better than they ever thought possible"

No doubt each of these statements will include qualifications and disclaimers of liability prior to becoming actual policy. Indeed, finalized corporate HR policies are often difficult to discern due to the care that is taken to avoid offense. If the above statements really do become the core of health benefits policy, it is worth considering the implications in the context of privacy and anti-discrimination regulations.

Valuing employees' health seems to give the employer the right incentives during the course of the employment relationship, but the hiring and termination decisions are also implicitly impacted by valuing employees' health. With average employment tenure approaching just 3 years, firing and hiring happens a lot. While various regulations protect employees in the hiring and firing process, those regulations cannot reach secret motives. In this case, the employer is making its preference for the health of its employees explicit. Careful wording of such preferences will be required to steer clear of privacy and ADA issues here.

California choice of law in class action on Canopy Financial

2010-02-16T21:53:00.000-08:00

Given all the attention to Canopy Financial in the recent posting, and then the relative paucity of content, some explanation is in order. In the course of transferring my license from Wisconsin to California, I’ve been heads-down in the law of the Golden State. In case you were wondering about the rationale for those “choice of law” provisions in contracts, here’s a quick note on how class action lawsuit procedure would work differently under California rules for a case like Canopy. It appears that a class of California accountholders, rather than all the accountholders nationwide, would be the most likely approach to succeed. Under California class action law, the court can make the defendant pay for the notification that goes out to all the accountholders. Under other rules, a single representative class member must pay those fees (although they could be fronted by the law firm).

Primer on choice of class action procedure

Yes, that’s right, the specific court in which the trial is heard makes a difference. While California Courts will generally enforce a contractual choice of law if he state whose law was has an interest in the parties’ controversy, if the state’s interests are materially greater than the interests of the state whose law was contractually chosen by the parties, California State law applies. Brack v. Omni Loan Company, CA Court of Appeal - 4th District, No. D049198, July 16, 2008.

The best point of comparison for California class action procedures is Federal Rules of Civil Procedure (FRCP). Corporate defendants tend to remove their cases to federal court, and federal courts apply Federal Civil Procedure. Assuming that the suit is brought in California on the basis of Canopy’s negligence, removal to federal court is possible if the amount in controversy (aggregated among class members) exceeds $75,000 and the corporation is not a citizen of California. Federal Courts are required to apply state law on substantive matters, but the FRCP trumps state procedural law, even on matters even as

It is worth noting that the Class Action Fairness Act of 2005 (CAFA) does provide an alternate means for obtaining or losing federal court jurisdiction. CAFA attempts to ensure that where class members are the primary defendants are citizens of the same state, the case will be heard in state court. The reverse is also true – if the class contains defendants from multiple states, they may sue in federal court.

FRCP requirements

1. Numerosity

2. Commonality

3. Typicality

4. Representative is adequate

Where money damages are being sought, it must also be shown that common questions of law and fact predominate over individual questions among class members, and that class action is the superior method for handling the dispute.

Once the class is “certified” on these bases, and counsel are appointed for the class, the court must send out a notice to all identifiable class members. This gets expensive, especially since it must be paid for by the representative. Compare this with the California requirements, below, where the court may decide to make the defendant pay for the cost of the notice.

California class action

In California, a class action requires both an ascertainable class and a well-defined community of interest. At first, these sound like the same thing. A “community of interest”, however, is further defined as a determination of whether

1) Common claims predominate

2) Representative is adequate

3) Class will result in substantial benefit to the parties and the court

Well, 2/3 of those factors are the same as under FRCP. The big difference, in my cynical view, is that individual notice to potential members of the class is not required, and the court can make the defendant pay for any notice that the court does require.

What was it about Canopy Financial that enamored VCs?

2009-12-02T22:48:00.000-08:00

Canopy’s valuations implied a greater than 20-to-1 price to earnings (P/E) ratio, far exceeding your typical financial service provider’s P/E. What was it about the health spending accounts administered by Canopy that promised big scalable growth? What was it that promised to make Canopy the next Google or Microsoft? Two words: health data. While Google and Microsoft reinvent themselves with their own proprietary personal health record formats, Canopy had a stable system for collecting this data through the auspices of major financial institutions. The Google and Microsoft network has a great many nodes, many of which require costly business development efforts. Canopy, on the other hand, could touch hundreds of thousands of individuals healthcare transaction records through integration with a single bank. Those individuals’ millions of transactions are like the millions of individual decisions that Google’s search engine crawls to make the web meaningful. Canopy was going to out-Google Google on health, 1/7^th of the U.S. economy.

Consumers using the Canopy platform had the ability to tag specific health spending account transactions with a particular category of medical care for a particular beneficiary, and electronically attach receipts to support tax deductions. This metadata was laborious for the accountholders to compile, but very valuable once compiled. In aggregate, it was the beginning of a cost-of-care database that spanned a variety of health plan designs.

Health plans have long been in the business of collecting cost information, but according to Dr. John Langefeld of Claremont Partners, health plans typically confound price sensitivity data by making macro benefit design changes in response to macro utilization trends. The constantly permutating benefit designs make it tough to have valid longitudinal data about individuals’ decisions for a particular clinical procedure. Canopy’s data, on the other hand, cut across multiple major health plans and geographies, and typically with a focus on pre-deductible spending.

This morning I learned from a former Canopy executive that at least one of its forward-looking bank clients looked to process of HRA and FSA substantiation to feed price data back from its accountholders back to its accountholder community. For the most part, however, Canopy’s clients were wowed by Canopy’s health data in theory rather than in practice. While Canopy’s bank and insurance clients were enticed by health data capabilities during the sales process, these clients seldom took full advantage of the capabilities that existed.

One hindrance to full realization of the potential of aggregate health data from bank transactions is concerns about privacy. Even once HIPAA compliance is assured, advances in technology create an arms race of technology to secure the data. Recent research at the University of Texas showed that the data must be anonymized to near meaninglessness in order to prevent skilled deanonymization. Nonetheless, aggregate health cost and quality information provides tremendous utility to society and individuals, and the transactional side of health care is the most scalable way to collect it.

For readers interested in porting over Canopy’s health data and/or developing a road map for consumer-participatory healthcare, please contact me here. As mentioned in previous postings, I am putting together a remediation team with experience in addressing these issues.

Remediation Plan for Canopy Financial Omnibus Custodians

2009-11-27T22:42:00.000-08:00

The meltdown at Canopy Financial is apparently placing client financial institutions' customers at risk sooner than expected. With most of the employees laid off, there are serious questions about how much longer the servers will keep running. I myself have an account at Sovereign Bank and am monitoring the situation. For those of you at Sovereign, Wachovia, Fifth Third, or CareMark, I am liaising with ABA HSA Council members to coordinate a response.

Some alternatives to Canopy are readily apparent. Lighthouse 1 has announced its interest in helping former canopy clients. Metavante would be another choice. Both of these vendors already assume an omnibus model, just like canopy. As a public company, Metavante might better smooth anxieties after the Canopy fiasco.

The project plan for the actual transition will be more complex. A couple suggested starting points:

1. Sourcing replacement: make/assemble/buy. As a vendor and a purchase, I've used RFPs for HSA services that ran to hundreds of pages.

2. Managing customer reaction: needs quick PR pieces re: security of data, with focus on HIPAA processes and how the PHI on the system will be retained

3. Managing transition to new CIF, if possible, so as not to fracture the back office.

If you are interested in learning more, drop me a line. I have a number of executives from the credit union, community banking, and software services industries that are collaborating on a solution.

Tough Times for HSA Software Vendors

2009-11-24T11:23:00.000-08:00

In a recent post, I cited HSA adoption figures from Canopy Financial. TechCrunch reports today that allegations of financial irregularities may be taking Canopy down. As pointed out by the TechCrunch, Canopy had been widely perceived as the market leader. At present, their website is down.

Could it be that the health spending account software model just doesn't work? Earlier this year, Members Health Network, the leading HSA software vendor to the credit union industry, liquidated its assets. According to an executive at HSA Bank, which has done custom work to modify a more standard core accounting system, there is just "not enough money in HSAs to split between the custodian and a service provider like them."

It will be interesting to see what other firms may attempt to take their banking clients, like Sovereign Bank, who had charged ahead touting a whitelabeled version of Canopy's product. Yet another joy for Santander, which acquired Sovereign last year. My bet would be http://www.hstechnology.com/, which has been around for a long time cautiously growing its network of insurance brokers that support its product. [EDIT 12/02/09 -- HST 's parent company, according an an executive there, has "made a decision to focus our human and financial capital on the Insurance Company that we acquired and reduce our emphasis on HST".]

Reid's Funding Mechanism for Senate Bill Rewards Cats

2009-11-12T09:17:00.000-08:00

According to today's Washington Post, Senate Majority Leader Harry Reid will shortly be announcing a plan to pay for healthcare expansion by increasing the federal Medicare payroll tax on high-earning individuals. This would be a big win for those firms that coordinate consumer-driven healthcare mechanisms with employers to exclude income from the federal Medicare payroll tax. Current law sets the tax at 1.45 percent of income, an amount matched by employers. An increase to the tax would increase the substantial incentives already existing to coordinate health care around a site of employment (see earlier post on cats versus dogs for more on these incentives).

The increased tax would likely be restricted to individuals earning $250,000 or more. These individuals already have an incentive to contribute the maximum allowable amount to a family health savings account (HSA), $5950. While the employer's share of the Medicare tax avoided through those contributions is only $86, it pays for a lot of account administration fees. If the tax doubles, the incentives of employers to put HSA utilization programs in place roughly doubles as well. Using an ASP software service costing a few dollars per employee per month, the employer would net a substantial savings across a broad employee base.

Cats versus Dogs in Consumer Driven Care

2009-10-30T15:18:00.000-07:00

In this multi-part series, I'll take a look at the cats and the dogs of electronic health records (EHRs), health savings accounts (HSAs), wellness companies, and the software companies that power them.

As a general rule, cats like places and dogs like people. In electronic health records (EHRs), the cats are the Epic Systems-type databases that capture everything relevant to a particular provider. The dog EHRs follow the patients around, attempting to interface with multiple provider settings, like Athena Health.

In the world of HSAs, the cats like to cuddle up to a place of employment. Credit unions are the most numerous cats of the HSA world. Several large credit unions sponsored by Fortune 500 businesses have more than 90% of the employer group as credit union members. While an employer-sponsored credit union will let you stay a customer if you lose your job, a big chunk of employer-sponsored credit union value proposition comes from the existence of a relationship with the select employer group (SEG). Credit unions with strong SEG relationships tailor their products the sponsoring employee group. Baxter Credit Union, for example, also has SEG relationships with CDW and Cardinal Health, each of which gets to see a differently designed website. The credit union makes sure that HR people at the employer are well-stocked with informational material about the credit union, may offer discounts to current employee within the SEG, and are sure to show up at benefits fairs to answer any questions about complex products like HSAs.

While complex, HSAs offer powerful advantages in a setting of high employee penetration. With more and more employers scaling back to high-deductible health plans (HDHP), we will likely to soon see more Fortune 500 employers go "full replacement" with HDHPs and HSAs. For those large employers with credit union relationships, suppose 90% of the employee group already treats the credit union as its preferred financial institution. That means the transaction accounts for medical spending are likely to be all in one place. This is a tremendous boon for the employer, who with appropriate technology can make sure that those transactions run through the HSA, boosting FICA savings. Using the latest figures from Canopy Financial, which provides HSA account management software for banks, the average family's HSA received $3528 in contributions. [UPDATE: need to double check these figure given recent news on Canopy] This generates FICA and Medicare tax savings of up to $269 for the employer per employee. At the same time, however, half of the people eligible for an HSA don't open one. For a 100,000 person employee group, that adds up to over $13 million in annual payroll tax savings forgone (50,000 * $269).

Technology solutions now exist that automate both creation of the account, and to “touch down” normal checking and credit card transactions for medical purchases in the HSA, so that the employer gets the full tax benefit. For those employees that otherwise would not contribute to the HSA, an automated routine can identify their actual medical expenditures from non-HSA accounts (or EHRs) and momentarily touch down a matching amount from their next paycheck into the HSA prior to moving the funds into their normal direct deposit account. Without any decrease in availability of paycheck funds to the employee, the employee has now accrued a tax advantage. With the average family's out of pocket medical expenses for HDHPs reaching $2620, an employee grossing $44,000 gets a $620 tax savings, equivalent to an $812 pre-tax raise.

In theory, this kind of technology could be deployed anywhere. In practice, it's a lot easier when the normal transaction accounts, direct deposit accounts, and HSA are all in one place. With the upwards of 90% penetration of the employee population select credit unions, the tax benefits are much easier to capture there.

In addition to maintaining stronger employer-sponsor ties, credit unions tend to be more technology savvy than their banking counterparts. Regulations prevented credit unions from running their own back-office systems until relatively recently, so they are much more likely to be real-time central information file (CIF) systems than their banking counterparts. Also, the capital structure of credit unions has necessitated acclimation to technology-powered growth strategies. While banks can raise funds by issuing equity, credit unions are restricted to the paid in capital of their members. With new branches costing $1 million, credit unions have traditionally focused on growing through non capex spending like internet banking.

How will all this fare in the next round of federal healthcare reform? Roy Ramthun, former advisor to the White House on Health Savings Accounts, predicts that credit unions are better poised than banks to influence consumer driven care in federal health reform. First, Roy pointed out the CUs are better positioned financially than banks. Second, Roy indicated that mobilization of grass-roots will be key. While "death panel" screamers at town hall meetings this summer didn't do much for the anti-reform crowd, credit unions have historically been very effective at mounting well-organized shows of support. With the opportunity to save their employer sponsors millions of dollars, my guess is that the credit unions will meow for retaining HSAs and related employer tax breaks.

Pareto-Optimal Wellness Incentives or Big Bad Wolf

2009-10-22T14:19:00.000-07:00

The argument that wellness incentives are a "wolf in sheep's clothing" to pass along premium increases for pre-existing conditions assumes that the health plan, government, or employer (the "third party payer") doesn't want the covered individual to meet the wellness targets. The corporate wellness programs surveyed in the recent Washington Post article, however, set fairly low bars for employees to meet. This seems to indicate that incentives drive third party payers to choose wellness targets that are achievable. Looking at UnitedHealthcare’s Vital Measures program literature, for example, “the benchmarks for each category vary, but in all cases are easier to achieve than those published by the National Institutes of Health.” See also the Healthy Blue from Blue Care Network.

When the government pays, the benchmarks have tended not to be outcomes-based. Florida's Medicaid reform efforts have entailed:

a $ 15 credit for six months of success in an alcohol or drug treatment program, a smoking cessation program, a weight loss program and an exercise program
two $ 15 credits for keeping all of his primary care appointments
one $ 25 credit for a colorectal screening per year
up to $ 125 in credits per year, and then they may use those credits to purchase first aid supplies, cough and cold medication, and other items at any Medicaid participating pharmacy.

The move from "pre-existing condition" to "wellness incentive" emphasizes personal responsibility and the possibility for future improvement. Certainly there will be some people who try very hard and cannot hit the wellness outcomes required for the premium discount, but they are likely in the minority. Moreover, in many cases the behavior of the majority is positively impacted by a shift towards wellness incentives in plan design.

Employees who bear direct increased financial costs due to a wellness incentives can still end up in a better overall financial position. A number of options exist for a Pareto optimal outcome, where the gains from a change to the system can be used to compensate those harmed in the system. Failure to achieve a wellness target, for example, could function like a health risk assessment to trigger more coordination of care through a disease management program. If a group plan were designed so that some of the savings from the healthy behaviors were used to pay for disease management for the less healthy, everyone would be better off. I don't see requirements for this in current versions of the legislation, but those concerned with system fairness might pursue this approach.

Aside from concerns about system fairness, wellness plans may wish to offer disease management services as a “reasonable accommodation” in order to comply with the Americans with Disabilities Act (“ADA”). Wellness programs that target employees with chronic conditions (often the cost-driver employees) will inherently face legal requirements under existing federal ADA regulations and local analogues. Consider the individual with diabetes, who is often the focus of a wellness plan. Diabetes is sometimes a disability under the ADA if, for example, the individual proves that she was substantially limited in the major life activity of eating because of a severely restrictive and highly demanding diabetes treatment plan. Fraser v. Goodale, 342 F.3d 1032 (9th Cir. 2003). Or consider the two municipalities in California which prohibit employment discrimination on account of physical appearance, which lends some protections to overweight employees. Santa Cruz, Cal., Or. 92-11 § 1(9.83.010) (1992); City & County of San Francisco, Human Rights Commission, Compliance Guidelines to Prohibit Weight and Height Discrimination (2001), http://www.naafa.org/fatf/sf_height_weight_ guidelines.pdf.

Taking a health risk assessment arguably places the same burden on every employee, but the individualized health goals often will be much more arduous for an individual with diabetes. The net result: an employer is treating an employee with a disability differently than other employees. Thus the logic of the wellness plan offering disease management services which serve as the functional equivalent of a "reasonable accommodation".

Data Liquidity, not Coffee, in the Donut Hole

2009-10-15T11:36:00.000-07:00

“The future is here, it’s just not widely distributed yet” -- William Gibson

Looking at the tags for this blog, high deductible plans and health savings accounts figure prominently. According the Health 2.0 festival pundits, however, we may soon be witnessing a shift from consumer-driven healthcare to consumer-participatory healthcare. Data liquidity, among other trends, is giving consumers information as well as incentives to hold down health care costs.

As an executive at HSA Bank, we constantly reminded our customers to ask for generic drugs. Consumer Reports, the federal government, and insurance companies have all been doing this for over a decade, but many patients still don’t get engaged in seeking generics. AARP, for example, provides a tool powered by DestinationRx with one of the best online calculators for helping seniors avoid the Medicare donut hole. Approximately 30% of people still prefer name brand drugs, however. The next generation of online decision tools could change that.

Companies at the Health 2.0 conference last week in San Francisco would make the search for not just generics, but alternative courses of therapy, harness the wisdom of crowds (including group psychology). The Health 2.0 conference explored the possibility that Web 2.0 tools like Facebook could better engage patients in making behavioral changes. CureTogether.com, for example, allows users to compare the effectiveness of name brands, generics, as well as other approaches to management of diseases and symptoms. You can quickly become a member and see what others with similar health conditions are doing, and how successfully. While not enough data exists for all conditions, your participation will help the site gain critical mass. This kind of group-oriented psychology has been an enormous success in social and business networking, and just might work in health as well. If anecdotal evidence of the boomer generations' enthusiasm for sharing photos and chain emails is any indication, chances are this kind of Health 2.0 technology will make a difference in the donut hole.

The Best of Health 2.0 Conference, San Francisco, 2009

2009-10-15T11:30:00.000-07:00

1.     Social networks as a part of health (1) -- “You spend 15 minutes with a doctor, and the rest of the time with everyone else” – Chris Schroeder, HealthCentral, as interviewed by Elizabeth Cohen from CNN

2.     Social networks as a part of health (2) – “make personally relevant information clinically relevant” – anonymous

3.     Competition – “Our competitors are cheeseburgers, couches, and intertia” – Alexandra Drane, Eliza

4.     Hype Cycle – “We should pay people to smoke [because in the short term, longer lives are more expensive to the system]”. -- J.D. Kleinke, Mt Tabor Online Services

5.     Slices of a blunt object – “It’s a big jump to ‘manage your condition online’. Maybe we need to take a step back and start with ‘schedule an appointment’.” – David Cereno, Microsoft
*approximate

Audacious Goals at Health 2.0: rounded tabs, perfect shading

2009-10-06T22:51:00.000-07:00

What is Health 2.0?

After spending 14 hours at the Health 2.0 conference in San Francisco today, the pessimistic answer is that Health 2.0 is rounded corners and perfect shading. Many of the web technologies were accessed through a browser, so I started to get browser navigation fatigue.

Health 2.0, ultimately, is more audacious. My favorite proposition was by a Kaiser manager brainstorming a portable device that would assist patients with maintaining healthy behaviors. The use case described was a cross between a mood ring and LiveStrong bracelet. As described, such wristband would be deployed to a clinically obese patient, providing biofeedback and behavioral support. In this blog post I go a couple more steps to describe some of the possibilities that this could entail.

Device activation could occur by the wearer switching it on, or by an automatic trigger based on a biological indicator of increased risk of harmful behavior. If I start craving candy, for example, I could first switch on the device on my double-tapping or twisting the bracelet. Alternatively, a red LED on the wristband could take a glucose reading before I was conscious of wanting sugar.

In the scenario of automatic activation based on biological monitoring, the wristband could simply change colors to bring the wearer’s attention to the existence of a risk factor. Additionally, the device could provide various forms of explicit support. First, it could provide the opportunity for encouraging tweets from a community of peers in a weight loss program. Second, a brief message could be drawn from a database of tailored suggestions. Third, the message could come from a professional counselor or physician, likely segueing into a more traditional means of doctor-patient communication.

As an alternative, or in conjunction with these responses from the device, an opportunity would exist for the wearer to take action in response to the messaging from the device. A symbolic action to “take control” of the situation would be simply switching the device from red to green, an outward sign of the patient’s commitment and coping skill. Monitoring could be tied to whether or not such an action occurred; if the device was not acted upon, cell phone and other email alerts could be triggered to the patient and other stakeholders.

Such a device could have broad use for all manner of behavioral problems, not just behavioral problems tied to a current medical problem. Robust federal incentives for employer-based wellness programs, including meaningful incentives to participating individuals, could make these high tech mood rings a popular engagement tool for EAP and wellness programs.

Health Exchanges: Reform Impact to "Ancillary" Health Services

2009-10-02T20:00:00.000-07:00

I received a great set of questions on yesterday’s Wyden and Wellness posting:

"Regarding employees' purchase of government plans, what will happen to ancillary plans like Dental, Vision, and Mental? Many employers offer these, which are also very important from wellness viewpoints. Many cases, insurance brokers even package EAP, wellness programs, newsletters, together with physical health plans. What will insurance brokers will do? Or will employers basically offer a government plan as just one of the option through brokers? For example, most employers offer a few choices, e.g. BCBS, Aetna, Kaiser, etc. I can easily see they can add government plan on top of the list of offerings."

The questions were intended to be simple, but unfortunately the answers are not. A comprehensive account of how Wyden’s original bill, Wyden’s amendment, the House bill, and the two senate bills would impact each of the “ancillary” health benefits is beyond the scope of this blog. I will provide just the highlights and some speculative conclusions on how proposed legislation will collide with the provision of ancillary health benefits.

I’ll answer in reverse order.

Yes, Wyden’s Free Choice Act would allow an employer to add access to a government-sponsored exchange alongside its traditional health plans. This assumes that by “government plan” you mean a private insurance plan purchased through a government-sponsored exchange. The technical mechanism by which an employer would grant employees access to a government-sponsored exchange would be to pay out the employer’s contribution to the employee in cash and then leave it to the employee to shop around on the exchange. In fact, the employer would be required to do this in certain circumstances.

The degree to which a broker would be involved in setting up the “cash out” process is questionable. If the Free Choice Act is adopted, the federal government will specify regulations detailed to guide the cash out process. The end result will probably be more like COBRA administration – highly automated and low touch.

More broadly speaking, what role will brokers play with regard to the procurement of ancillary healthcare services? Let’s assume that brokers exist today to help employers and individuals sort through the details of ancillary plans and other complexities. Exchanges will supposedly simplify those complexities through mandated disclosures and coverage standards, reducing the role that the broker plays. I say “supposedly” because the fine print on your bank and credit card statements are government-mandated disclosures that fall short of simplicity. If the broker’s traditional role is lessened, however, brokerage firms could redeploy themselves towards winning lucrative government “navigator” contracts, where government funding is directed towards helping disadvantaged groups use exchanges effectively.

One of the possible standards that will be required in order to list a medical policy on the exchange will be that the policy must include some form of ancillary coverage. The House bill (HR 3200), for example, requires that the medical carrier itself include dental coverage for children. This would require some significant reshuffling of responsibilities from ancillary dental plans to the medical plans. According to Delta Dental, 97 percent of employer-sponsored dental contracts are written separately from medical coverage. Delta Dental is not happy about any decrease in that percentage.

In the case of wellness programs, the main reform legislation bills provide a variety of incentives, and do not appear to require bundling.

Wyden’s original Healthy Americans Act would require exchange listed policies to include wellness programs and mental health parity.
The House bill would require development of a national strategy for wellness activities and mental health parity.
The Senate HELP Committee bill would require health insurers to provide financial incentives to providers to promote wellness. It would also encourage employers to provide wellness programs by conducting targeted educational campaigns to raise awareness of the value of these programs and by increasing the allowable premium discount for employees who participate in these programs from 20 percent to 30 percent.
The Senate Finance Committee bill would provide grants to small businesses to establish comprehensive, evidence-based workplace wellness programs; it would also permit employers to offer employees rewards of up to 20% of the cost of coverage for participating in a wellness program.

My take-away is that wellness program will grow in the short term. As I posted yesterday, however, the separation of certain wellness programs from the rest of an employer’s benefit package could cause the efficacy of the programs to decrease.

Expanded mental health parity requirements signed into existence late last year, supported by Senator Obama, are taking effect January 1^st 2010. These provisions had an exclusion for small business, but the HELP Committee bill makes full parity a requirement for any medical policy listed on an exchange. The ultimate compromise reform bill will probably also require full parity. Parity provisions don’t require that mental health coverage be included, however – just that any mental health coverage be similar in scope to traditional medical coverage.

Some have argued that extra taxes being levied on rich benefit plans, as planned in the Senate Finance Committee bill, would cause employers to drop ancillary coverage. I doubt that this prediction will come to fruition – the employer will likely be able to play with the numbers to keep ancillary plans included in mainstream health plans. Normally a broker would be making those calculations, but in the brave new world of health exchanges, the intent is to have it be simple enough for employer HR staff (no offense, HR people) to calculate.

Wyden and Employee Wellness

2009-10-01T21:06:00.000-07:00

In theory, Wyden’s Healthy Americans Act and Free Choice Act create an ideal blend of market-driven solutions from the right and mandates with subsidies from the left. There is inconsistency, however, in Wyden’s approach to wellness programs. Each of the major reform bills, including Wyden's, identifies wellness programs as a key cost containment strategy. Only the Healthy Americans Act and Free Choice Act, however, would allow employees to “cash out” of an employer-sponsored health plan in favor of a plan from a government run exchange. Allowing this kind of cash out may look like a great compromise, but it could undo much of the potential benefit from employer-sponsored wellness programs.

First, employee attrition to exchange plans decreases the population in the employer-sponsored plan. A smaller population in the employer-sponsored plan results in limiting the extent to which a wellness program can create productivity and premium savings for the employer. At a certain point, a paucity of participants in the program will make it difficult for the employer to justify the fixed costs of running the program. Moreover, if the government does a risk adjustment at the end of the year between those people who cashed out and those who stayed in the employer plan, it could wash out any savings from employer-run wellness programs.

Second, employee assistance program experts like Tom Bjornson and Asako Tsumagari believe that the social environment of the workplace is a deciding factor in the effectiveness of employer-sponsored wellness programs. If support for healthy behaviors does not coalesce from the “bottom up”, positive changes are likely to be short-lived. Employees cashing out of employer-sponsored health plans and wellness initiatives will no longer be contributing to the momentum of the employee social network, which would likely decrease the likelihood of the wellness initiatives’ success.

The other major reform bills currently under consideration do not contain these powerful disincentives to employer-sponsored wellness plans. The Healthy Americans Act had the foresight to mandate that wellness programs be included in any exchange listed medical policy, provide a tax deduction for employers offering wellness programs, and allow carriers to promote wellness programs through premium deductions. It is not clear, however, that these measures would preserve employer-sponsored wellness plans in the long term.

Consilience in Legal Protections for Health IP

2009-09-28T22:13:00.000-07:00

Gregg Bloche, a Yale-educated doctor and lawyer, recently published a new article on “The Emergent Logic of Health Law”. He describes health law as an emergent system as follows:

“Competing values and stakeholders, not grand designs, drive health law’s evolution. Reform-minded actors therefore should become opportunists. They should look for potential evolutionary pathways that launch from present-day institutional arrangements and incentives. And they should pursue legal and policy interventions that push our health system along these pathways, powered by stakeholders’ and legal decisionmakers’ interacting responses. The key here is to craft interventions that are “nonlinear” (in emergent systems argot)—interventions that achieve large, long-term impact through minimally disruptive short-term change. http://law.usc.edu/students/orgs/lawreview/documents/BlocheforWebsite.pdf

In other words, the strategic reformer must focus efforts on areas of consilience between the status quo and efforts for change. Bloche’s systems-based explanation provides a compelling rationale, for example, to President Obama’s deference to Congressional leadership. Congressional impramateur makes sense from an emergent systems perspective because Congress is, for better or worse, the best proxy for the many interest groups concerned with health care reform. From an emergent systems perspective, then, deference to Congress lets those interest groups define terms as much as possible while retaining political capital to intervene at critical junctures.

Bloche also has some micro-level suggestions for reformers who aren't Presidents or members of Congress. In this entry I’ll describe a particularly unique suggestion from Bloche on legal changes that could reform the system from the ground up, and also dish up some criticism where Bloche gets important facts wrong.

One of Bloche’s ideas for holding down costs in a politically savvy way is to find ways to disincent expensive procedures that don’t bring much benefit. Rather than denying end of life care, which despite its utilitarian merits strikes many as unpalatable, he proposes a strategy that will reduce the ongoing proliferation of “half way cures”. He defines “half way cures” as “marvels of engineering, electronics, and materials science, and of modest, often minimal medical benefit”. They are very expensive but minimally useful. To hold the cost down, then, Bloche proposes limiting the intellectual property protections available for these kinds of drugs, devices, and processes. He acknowledges that administrative challenges abound in trying to define “halfway cures”, but he does propose a useful starting point to be a determination of whether the treatment is based on a comprehensive grasp of the biological system. Penicillin, for example, was developed after understanding how to break down bacteria cell walls. His examples of treatments where our understanding of the biological system is less complete includes “drug-coated stents designed to keep atherosclerotic arteries open, high-technology life support, and last-ditch radiation and chemotherapy regimens meant mainly to sustain hope”. He also proposes using Medicare payments to make primary physician consultation and coordination time relatively better compensated than specialty “half way cures”. In time, this would likely result in decreased supply of the high cost minimal benefit technologies.

One emergent area of reform opportunities overlooked by Bloche is high deductible health plans. He states that “[Consumers have been reluctant to] appoint themselves as limit setters by signing up for lower-cost coverage that kicks in only after they and their families spend thousands of dollars on care out-of-pocket.” On the contrary, high deductible health plans have been the largest growth segment in the insurance marketplace. Moreover, the financial institutions that act as custodians to the health savings accounts (HSAs) coupled to high deductible health plans have been among the strongest investors in transparency and quality of care tools. The financial institutions seek to demonstrate value to the consumer by helping the consumer to make smart healthcare decisions. Banks have outperformed insurance companies on measures of trust (at least until recently), security, and availability. Online banking systems (see, e.g., Canopy Financial's suite as implemented by Sovereign Bank) now serve as a point of aggregation for all manner of health decision and quality tools for consumers. The current bills devote significant verbiage (see, e.g., provisions on "navigators") to setting up mechanisms for this kind of distribution of information and support to consumers. The Bacchus bill explicitly references HSA figures to set standards for coverage, perhaps taking a page from Bloche's "emergent systems" strategy suggestions. High deductible health plans coupled with HSAs may yet continue to form a point of consilience between the status quo and efforts for change.

Plasticity in Health Care Payments

2009-08-14T16:42:00.000-07:00

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.

Disease Management Thrives in Legislative Neglect

2009-08-05T17:59:00.000-07:00

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 (http://www.bcg.com/publications/files/Realizing_the_Promise_of_Disease_Management_Feb06.pdf) 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., http://healthcaretransactions.blogspot.com/2009/07/big-changes-even-in-stripped-down-bill.html )

Opportunity Cost: $2 Billion

2009-08-03T21:03:00.000-07:00

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.

Big Changes Even in a Stripped-Down Bill

2009-07-30T23:52:00.000-07:00

This evening there is much talk about the House bill (HR 3200) before the Energy and Commerce Committee being subject to compromise. While removing the public plan option and decreasing subsidies would remove key features of the bill, it is an overstatement to say that the revised bill no longer has the capacity to make healthcare more efficient.

For example, there are 4 mentions of “disease management” in HR 3200. Disease management is one of a handful of concepts that could make a significant difference in the efficiency of the system. See, e.g., BCG's predictions. Compare the prevalence of the term in HR3200 with the original HIPAA privacy rulemaking back in the year 2000, where HHS published comments for 65 FR 82462 that “we are unable to find generally accepted definitions of the terms ‘disease management’ and ‘disability management’”, and therefore omitted the terms. See the excerpt that follows:

Comment: Several commenters asked that disease management and disability management activities be explicitly included in the definition of health care operations. Many health plans asserted that they would not be able to provide disease management, wellness, and health promotion activities if the activity were solely captured in the rule's definition of “treatment.” They also expressed concern that “treatment” usually applies to an individual, not to a population, as is the practice for disease management.

Response: We were unable to find generally accepted definitions of the terms 'disease management' and 'disability management.' Rather than rely on this label, we include many of the functions often included in discussions of disease management in this definition or in the definition of treatment, and modify both definitions to address the commenters' concerns. For example, we have revised the definition of health care operations to include population-based activities related to improving health or reducing health care costs. This topic is discussed further in the comment responses regarding the definition of 'treatment,' below.

There is also a piece in the legislative history of 65 FR 82462 where "Commenters representing health plans were concerned that the “static” nature of the definition would stifle innovation and could not reflect the new functions that health plans may develop in the future that benefit consumers, improve quality, and reduce costs." Now, almost 10 years later, Congress is trying to legislate the innovation that was promised but never delivered.

Are tax increases and gov't control always Orwellian?

2009-07-28T22:32:00.001-07:00

Just a quick bump to MediaVortex's comment last week on impact of the new health legislation to ERISA:

"A big battle right now in the Senate Finance Committee centers around the idea of "actuarial equivalence." My conversations with a couple of actuaries leaves me with the conclusion that "actuarial equivalence" will be the weasel words that enable the "health choices commissioner" (don't you love the Orwellian irony of that title?) to not only effectively kill consumer-directed care, but provide Congress with the loophole to add special interest benefits to the plan to garner votes. Over time, this will drive up the cost of a public plan rather than reduce it. This will of course be followed by tax increases and the eventual government control of 1/5 of our nation's economy."

A way to protect the public plan from interest group politics would be to create an semi-autonomous entity like the Fed to run the program. Of course the Fed is catching a lot of heat right now, with new demands for accountability.

Assuming we do get increased taxes and government control of 1/5 of the economy, is that such a bad thing? First, in the higher income brackets, does tax policy really need to avoid creating a disincentive for hard work? It may be that it would be better for families and society if people making more than $250,000 did have a disincentive to put in that 81st billable hour -- more progressive taxation could accomplish that.

Second, some economists show that government spending has a multiplier effect on GDP greater than private spending. On what else might those funds be spent? "Gas and toys from china? Once that money is spent it is out of our economy and no longer grows GDP. That decrease our GDP by a factor of 7 to 20 depending on what they are buying. Besides healthcare and housing what other expenditures keep more money in the US? Is a Chinese made big screen really a better purchase? That is where our discretionary spending is being spent, people are choosing to purchase excessive healthcare. If we eliminate that then they will purchase excessive electronics or eating out or other non essential items. Our HC spending is not resulting in people starving in the streets."

Mobile Devices and Context Sensitivity

2009-07-27T23:26:00.000-07:00

Qualcomm recently pulled the plug on development of its leading mobile health device, but the sector seems poised to grow using a non-MVNO model. What better way to deploy context-sensitive information?

Context-sensitivity makes all the difference in the world when dealing with technical terms. “Cervical”, for example, means something much different coming from an OB/GYN than from a chiropractor. If a GPS-enabled mobile device knows where the individual lives, whether he takes the elevator or stairs, and what restaurants he visits, it can provide much more helpful information to the individual. When my iPhone asks me if it is okay to “use current location” to narrow searches, it is already a step in this direction. Moreover, additional medical device technology, such as LEDs that produce a spectrum that takes a radar-like reading of blood glucose, could be bolted on for multiple levels of context sensitivity.

Privacy questions abound. For starters, take the fact that 1 in 3 Americans is obese in some populations, and that obesity is an even greater health risk than smoking. For obese persons, then, the government could impose a higher sales tax on fatty foods. This is likely an unacceptable form of discrimination, but it is technologically possible, using the same methods that insurance carriers use for realtime repricing of medical services today. Carriers tie it to the health ID card, or a health spending debit card; but it could also be tied to a transaction-enabled mobile device as well. Call it "realtime repricing of health incentives". Clearly there would have to be some overall financial incentive, such as funds parked in a health savings account, to incent an individual to agree to such a program. Can existing cafeteria plan (IRC Sec 125) regulations be modified or interpreted to permit this?

New Technologies and Pay for Performance

2009-07-24T16:45:00.000-07:00

One of the key beliefs of President Obama and his advisors is that health technologies can make a significant difference to the quality and cost of care. In a recent speech at the Heritage Foundation, Professor Richard Epstein of the University of Chicago challenged this notion, maintaining that adoption of technology by government seldom goes well. It was not clear if he would also maintain that the government seldom gives effective impetus to adoption of new technologies in the private sector. Lots of counterexamples exist there: the Interstate Highways system leading to big box retailing and Walmart; ARPANET leading to Google.

In any case, Epstein maintains that if a technology’s value exceeds its price, it will be adopted by the private sector without any help from the government. That may hold true in a perfect market, but the healthcare system is far from perfect.

Is there a concise way of understanding the features of the healthcare system that have made private-sector innovation unable to stem the tide of cost? Epstein would likely cite government interference, particularly the unique tax treatment of employer-provided healthcare.
In Super Crunchers, Ian Ayres makes the case the increasingly powerful databases and processing power can significantly change how industries operate, including the medical field. Experience, however, seems to validate Epstein’s position. So far, large deployments of evidence-based medicine and pay-for-performance systems appear far and few between. A few notable examples do exist: Medicare bundles payments to hospitals based on diagnosis, forcing hospitals to internalize some incentives for efficiencies; California has the Pay for Performance Program; The Leapfrog Group of Fortune 500 employers has pursued making data on medical cost and outcomes more widely available. While these groups may have laid the foundation, it appears that the economics of healthcare payments has not changed much. The California Pay for Performance coalition, founded in 2001 set the modest goal in 2006 of 10% of physician compensation being outcome-based by 2010.

Blame it on doctor resistance? In that case, it may be a first mover problem and therefore a perfect example of a place for government to get involved.

Hal Luft has said that carriers just don’t have the incentives. Large employers are self-insured, which minimizes the carrier’s skin in the game. Moreover, helping the doctors keep costs down and deliver good outcomes helps the other insurance companies, since most doctors participate in multiple carrier networks.

Is an Accountable Care Organization a better model? Kaiser says no true ACOs exist today, but organizations like Claremont Partners do perform the kinds of longitudinal analysis and intervention that we would expect to see from an ACO.

This blog entry and the questions raised will be refined and answered in the coming days.

Reform Bill to Slow Consumer Driven Care

2009-07-23T17:41:00.000-07:00

The financial institutions and advisors that administer health savings accounts (HSAs) have relied upon an exemption from ERISA to streamline deployment of HSA-based consumer driven plans. Ironically, it may be the demise of ERISA itself that causes the greatest regulatory burdens to these firms. ERISA lets employers with self-funded health plans avoid costly federal and state regulations on covered treatments, pricing, rate setting and so on. According to a recent article in the WSJ, roughly 75% of employer-based coverage is governed by ERISA’s “freedom of purchase” rules.

The House health bill would override ERISA’s exemption of self-funded plans. The “health choices commissioner” created by the bill has authority to determine what constitutes a plan that satisfies the individual/employer mandate for coverage. The current Administration’s ambition for regulatory agencies to play an expansive role suggests that unless expressly barred by law, the Commissioner will elect include HSA features in the scope of any such examination. From my experience trying to explain HSAs to federal regulatory agencies (IRS, OCC, NCUA), no leaf of the HSA program will be exempt from the examination. So long, streamlined deployment of HSA-based plans.

Reporting requirements for health insurance carriers

2009-07-22T19:17:00.000-07:00

One small item in the Senate bill that may be foundational to longer-term improvements in the healthcare system is the requirement for reporting of cost data by carriers. This stands in contrast to the paucity of information that is available today.

I was preparing for a call to WellPoint dba Anthem / Blue Cross of California and wanted to pull down California-specific statistics. I found the Insurance Commissioners website easily enough, and the Company Profile section. Finding useful information as a consumer or employer is more difficult. The Company Information page for WellPoint states that their two lines of business are Disability and Life. "Life Insurance" is a defined term in the glossary, and but is not defined to include Health. Not exactly confidence-boulstering for the non-expert who knows just enough to know that WellPoint is in fact a health carrier. Financial reports are available, from which certain premium revenues and administrative expenses can be derived, but it is not for the faint of heart.

Section 2704 of the new legislation provides for reporting on:

‘‘(1) on reimbursement for clinical services provided to enrollees under such plan or coverage;
(2) for activities that improve health care quality; and
(3) on all other non-claims costs, including an explanation of the nature of such costs."

Having these three pieces of information would make comparison shopping much easier for consumers and employers. If there is simply a "first mover" problem with the carriers providing this information, then maybe having the federal government mandate that all the carriers use the same standard will bring value to the carriers as well. In banking we had quarterly call reports and even the credit unions have an equivalent quarterly public report. It was a great way to compare league tables, both inside the financial institution and for potential business partners of the financial institutions.

Process Interoperability in House and Senate Bills

2009-07-21T22:51:00.000-07:00

Yesterday I was poking fun at the two dozen mandates for “cultural and linguistic appropriateness” in the House and Senate bills. Vince Kuraitis’ recent posting on interoperability made me want to delve more into this bit of legislative doublespeak. To better understand the legislators' intent and ability to transfer from policy to private sector initiatives, take a look at Vince’s summary of “process interoperability”:

"Process interoperability is an emerging concept that has been identified as a requirement for successful system implementation into actual work settings. It was identified during the project by its inclusion in academic papers, mainly from Europe, and by its being highlighted by an Institute of Medicine (IOM) report issued in July 2005 which identified this social or workflow engineering as key to improving safety and quality in health care settings, and for improving benefits realization. It deals primarily with methods for the optimal integration of computer systems into actual work settings and includes the following:
Explicit user role specification
Useful, friendly, and efficient human-machine interface
Data presentation/flow supports work setting
Engineered work design
Explicit user role specification
Proven effectiveness in actual use"

Perhaps “cultural and linguistically appropriateness” was our legislators’ best attempt at mandating “process interoperability”. If they minded their own mandate (i.e., wanted people to understand and act upon it) they might just say: we need to make the healthcare system like an iPod. The iPod's linguistic appropriateness is that very little verbiage is required when listening to music. Perhaps we can design a healthcare system with similar elegance.

The iPod metaphor is a cliché, but clichés exist for a reason. This one regresses laterally towards absurdity when we think that Steve Jobs was looking at Porsches during his BFO, so let me get into the analysis to bridge the gap to healthcare:

1. It is possible to look at the healthcare system as a series of payment transactions (intellectual debt owed to Hal Luft and Metavante)
2. Payment systems require scale
3. Scale requires technology
4. Therefore we can see the healthcare system as a technology system.

While less scary than cancer (except maybe for politicians), designing the intermediate steps of accessing, organizing, sharing, and distributing payment for healthcare is not trivial. Successfully piloting innovative payment strategies for physicians and care providers that foster disease prevention and care coordination will require active participation from many players in the private sector. The threat, and the call to action, is that they won’t use it if they don’t like it. That is the “process interoperability” requirement in a nutshell.

In line with Vince’s comment, processing power and cheap telecommunications make it easy for technology implementers to provide lots of data and lots of configurability; winners focus on culling the most useful information from data and making configuration choices on the consumer’s behalf. Likewise, important tradeoffs are to be made between interoperability and security.

Given that the private sector runs much of the healthcare payments infrastructure regardless of who foots the bill, I wish that legislation was more “process interoperable” with the mindset of those who run the back office pipes. It does give me hope when I see process interoperability as the mission statement of the micro-data crunchers at firms like Acumen LLC. They philosophize with a sledgehammer: “To us, the most important aspect of such systems is not the database, but rather the interfaces we design that make data meaningful to our clients.”

Gateways, Exchanges, and Navigators

2009-07-20T18:18:00.000-07:00

Looking at last week’s House and Senate bills, I saw a couple things that might be interesting to the wide class of firms that provides online health benefits procurement (e.g., BenefitFocus, eHealth, etc.,.) The bills start to describe what the Gateway/Exchange contemplated by Congress (and WellPoint) looks like.

In both the House (“Exchange”) and Senate (“Gateway”) versions, the entity is set up by the government. It is supposed to play a non-exclusive role, but I think the question haunting the whole insurance industry and vendor community is the longer-term viability of other distribution channels, especially if a public option is at play.

The Senate bill is a little more descriptive than the House bill, and provides that: “The Gateway will establish tools to enable consumers to obtain coverage, establish open enrollment periods, and assist consumers in the purchase of long term services and supports”. These are clearly some of the things that need doing, but ultimately the Gateway concept is a quasi-government entity so probably will not attract much private capital.

The Senate bill also describes the role of a “Navigator”, which is in the pleasant position of receiving government contracts but ostensibly could be a private firm:

"(a) The Secretary shall award grants to establishing States to enable the Gateway or Gateways in such States to enter into agreements with private and public entities under which such entities will serve as navigators in accordance with this section.
(b) ELIGIBILITY.—(1) IN GENERAL.—To be eligible to enter into an agreement under subsection (a), an entity shall demonstrate that the entity has existing relationships with, or could readily establish relationships with, employers and employees, and self-employed individuals, likely to be eligible to participate in the program under this title. …
(c) DUTIES.—An entity that serves as a navigator under an agreement under subsection (a) shall— (1) conduct public education activities to raise awareness of the program under this title (2) distribute fair and impartial information concerning enrollment in an[d] the availability of credits for qualified health plans; (3) assist with enrollment in a qualified health plan; and (4) provide information in a manner determined by the Secretary to be culturally and linguistically appropriate to the needs of the population served by the Gateway.”

I am still a bit more interested in a model that gets into the flow of cost and quality data than one that is "linguistically appropriate"… I’ll keep you posted.

New Business Models for Google in McAllen, TX

2009-07-17T16:30:00.000-07:00

Earlier this week I travelled to meet with Hal Luft, PhD, a Harvard-educated health economist and Director of the Palo Alto Medical Foundation Research Institute.

Hal’s recent book, Total Cure, reads to technology implementers like workflow documentation from the future, so I brought a variety of questions about what new business models might exist in the post-reform world. My favorite idea that he came up with was Google as a health transaction processor.

Hal pointed out that Google has done well by providing consumers with applications they want and then charging businesses for information generated by those applications. With all those servers guaranteeing the classic high availability Google search function, Google looks for ways to use spare processing power in down times. One possibility would be free insurance claims processing. Google could then anonymize and crunch the claims data, connecting diagnosis codes, treatment codes, and subsequent diagnosis codes in order to determine low cost and high quality outcomes. If I were an insurance company with covered lives in McAllen, Texas, which recently gained some notoriety as a region with unusually high medical costs, I would want to know which doctors were the most efficient, and I would pay for the information. The gain to society would be that information about the practices of the efficient doctors would be more widely disseminated. Fits well with Google’s model of “organize the world's information and make it universally accessible and useful”.

WSJ Article by Epstein on Malpractice Reform

2009-07-13T17:18:00.000-07:00

On a recent episode of NPR’s Forum, an expert guest commented that medical malpractice reform tends to be a red herring espoused by those who don’t want to change the broader dynamics of the healthcare system. http://www.kqed.org/epArchive/R906120900.
Nonetheless, it does deserve some attention. I’ll take this opportunity to take on Richard Epstein’s view of medical malpractice reform in his recent WSJ editorial (also on the University of Chicago Law School blog). http://online.wsj.com/article/SB124631652544770707.html#articleTabs%3Darticle

Epstein’s view and those of the responses commented on the WSJ and U of C site seem to take diametrically opposed views. Epstein favors allowing providers to contract out of civil jury trials; the commentators find this inequitable to the injured patient population. I take the view that a Pareto-efficient compromise position exists.

Administrative costs of the malpractice system (not including defensive practice of medicine) exceed total compensation to victims. (T.A. Brennan and M.M. Mello, "Patient Safety and Medical Malpractice: A Case Study," Annals of Internal Medicine 139 (2003): 267; D.M. Studdert et al., "Claims, Errors, and Compensation Payments in Medical Malpractice Litigation," New England Journal of Medicine 354 (2006): 2024.)

Abbreviating the trial process to focus on the question of whether an avoidable compensable event had occurred would be fairer to patients and physicians. An avoidable compensable event (ACE) is an injury that 1) is caused by treatment (or omission of treatment) and 2) should rarely occur when care is provided according to best practice. (H. Luft (2008) Total Cure, Cambridge: Harvard University Press). This standard would be fairer to the population of injured patients as a whole, which is much larger than those filing lawsuits under today's system. (Id). While compensation to patients as an aggregate class could be increased using the savings from administrative costs forgone, the injured patients would forgo damages for pain and suffering.

As detailed by Luft (2008), ceasing to award legal damages for pain and suffering, in addition to making a finding of negligence unnecessary, would make care providers less likely to practice defensive medicine. At the same time, punitive damages should be applied to care providers who demonstrate a pattern of failing to meet the applicable standard of care. (Id). This would require, however, removing the doctrine whereby hospitals and other care delivery teams can claim that they have no control over medical staffs. (Luft, 2008; http://www.abanet.org/publiced/practical/health/corporate_negligence_liability.html)

Doing brain surgery with boxing gloves on

2009-07-10T14:37:00.000-07:00

Yesterday we had a comment on the site that “unless the consumers incurring the cost have some direct stake in paying the bill, any cost controls on the health care system via government, much like the insurance companies, are the equivalent of doing brain surgery with boxing gloves on”

Could it be that there is a way to organize the payment system so that doctors also have a stake in keeping down costs? In some situations consumers (e.g., rural/uneducated/scared) are not well-equipped to individually bargain down fees for services.

A key element of the Baucus plan is bundling Medicare payments based on a medical condition rather than for specific services (Transforming the Health Care Delivery System, Senate Finance Committee, 4/29/09, at 14). The Senate Finance Committee review found that in treatment of medical episodes paid for by Medicaid, there was “a lack of accountability of providers for all care provided during the episode”, and proposed bundling to align financial incentives for care providers.

While Medicare (or a public plan) bears the risk that a particular medical condition occurs, the care provider could be made to bear the “production risk” of the medical services creating a good outcome. To isolate the quality of a providers’ care, however, variance must be controlled. Only so much can be controlled through diagnosis codes, even with variable severity built in. Recouping the cost for care for an extraordinarily sick patient within a category could take years of treating more average patients within the category. Today Medicare has an outlier reimbursement program, but the private sector entity would likely have better incentives to monitor payments under the program.

To the other point in yesterday’s comment, yes government bureaucracies often perform badly. At one point, Medicare was making “outlier reimbursement” payments to Tenet hospitals amounting to 17% of Tenet’s Medicare payments, whereas the national average was 5%. (http://www.businessweek.com/magazine/content/02_47/b3809059.htm ). Are there institutions in the private sector other than insurance companies that might do a better job?

CDH and HSA Founder Endorses Universal Coverage

2009-07-09T08:03:00.000-07:00

As a new entry, this blog looks back and looks forward. We quickly (by Congressional standards) approach the eve of the most important healthcare legislation since the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The 2003 legislation hatched a cottage industry centered on health savings accounts (HSAs). To what extent will reform in 2009 cause a reallocation of capital and skills from the consumer driven healthcare industry?

Regina Herzlinger, who is widely credited with the creation of HSAs and consumer driven healthcare, recently opined in the National Review that universal care is imminent. According to the article, the key task for CDH firms is to ensure that a strong degree of choice remains for consumers.

For Herzlinger, HSAs form just one plank in CDH. Professor Herzlinger’s take on HSAs and CDH was summarized in December by Business Week:
“Herzlinger does not want a regulation-free market. Nor does she think health savings accounts, favored by many Republicans, are the best solution. These plans, which combine high deductibles with tax exemptions for health-care dollars, have been adopted by only about 6% of Americans, and she figures that's about right. ‘Consumers should have hundreds of coverage options.’”

If HSAs are appropriate for 6% of the population, what health financing options will provide meaningful choices to the other 94%?