OCR Exercises Its Enforcement Discretion

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

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

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

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

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

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

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

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

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

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

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

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!

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

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

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?

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

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

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

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

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.