When Its More Profitable To Raise Rates Than Manage Care

Brian Klepper & Fred Goldstein

Posted 5/24/16 on The Doctor Weighs In

A recent Associated Press story reported that two health plans with deep managed Medicaid experience, Molina and Centene, have been successful with their commercial exchange offerings. The experience has been sufficiently positive that Molina is considering expanding into two more states next year.

Contrast this with the mainstream of commercial plans that have tended to be considerably pricier than the plans with managed Medicaid roots. A recent McKinsey & Company report noted that in 41 states, insurers in the individual markets, including exchanges, lost money. Several have said that they’ll reduce their participation in the exchanges.

UnitedHealth Group has been the most visible of the malcontents, announcing last month that they expect to lose about $650 million on exchange health plans in 2016. And that in 2017, they will withdraw from most of the 34 exchange markets where they currently have offerings. Stephen Hemsley, United’s CEO, cited the smaller markets and higher per patient costs in the exchanges relative to United’s larger book of business of employer groups.

Humana also announced that it would adjust exchange plan offerings and exit certain markets in 2017 to become more profitable. Its first-quarter earnings fell by 46%, in part due to a 21% drop in individual policies, including those on the exchanges.

Why Molina and Centene Outperform Other Commercial Exchange Plans

In Forbes, analyst and former health plan executive Bob Laszewski delved into why Molina and Centene outperformed the commercial plans. Both built their commercial exchange offerings on established Medicaid market presences, networks, and brand recognition, recruiting the 75% of low-income eligibles necessary for a sustainable risk pool balance of healthy and unhealthy participants. The populations they sought on the exchanges are familiar with their brands, and accept narrower networks in exchange for more reasonable premium contributions. More traditional plans sought higher income enrollees, who were more demanding and in shorter supply on the exchanges.

But there is another explanation as well. Plans like Molina and Centene, grounded in long managed Medicaid experience, have of necessity learned to manage risk more effectively than commercial plans. Medicaid plans receive a monthly rate for each enrollee, and then manage within that set budget. To accomplish this, they have become adept at understanding their populations’ clinical and financial risks, and putting medical management approaches into place that can mitigate those risks. In other words, when a plan with Medicaid experience moves into a fully insured (at-risk) commercial plan space, it is more likely to succeed.

The commercial plans, not so much. Most commercial plans have not been required to adhere to rigorous risk management disciplines and, if anything, their incentives are different. They can go light on large case management, for instance, allowing the costs of high-intensity patients to balloon, knowing that when costs exceed premium, they can recoup those costs through subsequent premium increases. Because of their ability to “play the increases forward,” their incentive has been to increase rather than manage cost. Employers and unions, assuming that costs can’t be controlled, simply pay more. And more. Unendingly.

Misaligned incentives

Molina’s and Centene’s success on the exchanges betrays the lie that healthcare costs can’t be managed, and that their competitors’ 30% higher premiums are necessary to remain in the exchanges. It is possible for the mainstream health plans to manage the risk but, over decades, they have not needed to exercise this expertise. Said another way, the important truth is that, under current rules, managing risk is not necessarily in their interest.

Letting plans that have lost money raise rates to their liking is the wrong answer. Instead, participation in the exchanges should require risk management within certain limits, based in part on evidence that others have been successful within those same constraints.

Brian Klepper is a health care analyst. Fred Goldstein is a former Medicaid HMO general manager. Both are Principals of Health Value Direct, which connects health care purchasers to high performing, high impact health care services.



Posted in General | 1 Comment

The Emergence of High Performance Health Care

The health care mainstream is investing in a variety of mechanisms to beat back America’s health care cost and quality crisis –  ACOs, medical homes, data analytics, practice transformation, technology and app integration, patient engagement and decision support – but few have borne fruit. Hidden in our system, though, are companies with unique and successful approaches. For example:

There are companies that, by collaboratively working on different parts of drug spend, consistently reduce pharmacy cost by 30-50 percent. This can result in savings of 6-12 percent of an organizational purchaser’s total health care spend, a huge amount!

Continue reading

Posted in General | Leave a comment

13 Questions To Ask Onsite Clinic Vendors

Brian Klepper

Published 2/24/10 in Workforce Magazine

Thinking about opening a primary care clinic at your business site? Many organizations are.

Work-site medical clinics are catching on as employers discover they can save significant dollars and improve the care for their employees and families. Clinic vendors’ medical management and business models vary dramatically, however, and, as a result, so do their impacts on cost and quality.

Though on-site clinics have been around for more than 25 years, the designs have evolved. Some older clinic vendors offer elaborately expensive facilities with conventional doctor office arrangements, which makes it difficult to deliver savings. By contrast, contemporary vendors are more likely to heavily invest in tools and programs, creating comprehensive medical management platforms.

Continue reading

Posted in Brian Klepper, Clinics, Conflicts of Interest, General, Health Care Cost | Leave a comment

Why High Performance Health Care Remains Elusive

By Brian Klepper

Published 3/31/16 in Employee Benefits Advisor

Do you know about a high-value healthcare program that wildly exceeded your expectations by delivering provably better health outcomes at dramatically lower cost? If so, I want to know about it.

High performance healthcare services are available in virtually every costly healthcare clinical and financial niche: e.g., musculo-skeletal care, cardio-metabolic care, cancer, surgery, hospital bills, out-of-network claims, dialysis, large case management, imaging. Generally, these programs have deconstructed problems that consume large percentages of the healthcare dollar, and then developed solutions that are unconventional but more effective. They win, not by exploiting conventional healthcare’s perverse incentives as the mainstream does, but by exploiting market vacuums, like crazy pricing for mediocre health outcomes.

If benefit plan sponsors and unions go outside their health plans to favor these better services, their patients typically will fare better and they will achieve significant savings. But they’ll also disrupt the current excessive-care-and-cost-is-fine paradigm, and help bring things back to rights.

Advocates may gush about a particular program’s performance but, in my experience, high performance is rare. Few programs can provide hard data or credible testimonials showing that they solidly improve health outcomes or cost. Few can show that they can scale from performance at one location to another, or that their impact is enduring. Most telling, many vendors are unwilling to put part of their fees at financial risk against the bet that they’ll hit performance targets. More often, they want you to go at risk for their performance instead. So caveat emptor.

High performance healthcare is one answer to America’s healthcare cost and quality crisis. Are you in or do you know a high performance healthcare organization? Can you/they demonstrate it with data and testimonials? If so, let me know. As a working definition, we are searching for vendors that consistently achieve >20% improvement in either key health outcomes or cost. Thirty percent is better. The greater the impact, the more likely that purchasers will be willing to disrupt conventional processes.

Meaningful change won’t happen in healthcare until purchasers, including plan sponsors, work together to favor organizations that deliver better value and, equally important, start withholding favor from those that don’t.

Posted in General | 1 Comment

Congress’ Drug Addiction

Posted 2/26/16 on Employee Benefit News.

The Congressional committee that recently demanded Martin Shkreli’s appearance must have hoped to spotlight a smug jerk responsible for the outrageous prescription drug pricing that we’re all up against. Of course there are lots of Shkrelis running drug companies, but most are shrewder and less brash, and might not make for such good theater.

Rep. Elijah Cummings (D-MD), one of the Committee’s questioners, seemed to think that his witness could move healthcare forward by disclosing the machinery of the drug sector’s excesses. “The way I see it, you could go down in history as the poster boy for greedy drug company executives or you could change the system. Yeah, you.” Continue reading

Posted in Benefits, Brian Klepper, Conflicts of Interest, Health Care Cost, Market Dynamics, Medical Management, Policy/Law/Regulation, Politics, Quality | Tagged , , , , | 9 Comments

Florida’s Governor Scott and the Public’s Trust

Brian Klepper

Originally Posted 1/17/16 on The Doctor Weighs In

A CNN investigation by Elizabeth Cohen and Katherine Grise asserts that Florida Governor Rick Scott’s administration has scuttled longstanding state hospital quality standards after two Republican political groups received large contributions from Tenet. A for-profit hospital firm, Tenet, operates St. Mary’s Hospital in Palm Beach, which has been scrutinized recently for a high death rate in its pediatric cardiology program. External reviews concluded that the hospital’s program had too few surgeries to develop and maintain competency.

Florida’s pediatric community is scandalized. Louis St. Petery, a prominent Florida pediatric cardiologist, calls the action eliminating the quality standards “outrageous.” Dr. William Blanchard, Chairman of Pediatric Cardiology at Orlando’s Nemours Children’s Hospital, said eliminating the standards is “both poor public policy and poor politics.”

Continue reading

Posted in General | Leave a comment

Why Does The FDA Approve Cancer Drugs That Don’t Work


Posted 10/23/15 on The Health Care Blog

A new study in JAMA Internal Medicine finds that two-thirds of cancer drugs considered by the US Food and Drug Administration (FDA) over the past five years were approved without evidence that they improve health outcomes or length of life. (This study closely corroborates and acknowledges the findings published last year by John Fauber of The Milwaukee Journal Sentinel and Elbert Chu of MedPage Today.) Follow-up studies showed that 86 percent of the drugs approved with surrogate endpoints (or measures) and more than half (57%) of the cancer drugs approved by the FDA “have unknown effects on overall survival or fail to show gains in survival.” In other words, the authors write, “most cancer drug approvals have not been shown to, or do not, improve clinically relevant end points.”

Continue reading

Posted in Analytics, Brian Klepper, Conflicts of Interest, Health Care Cost, Innovation, Life Sciences, Market Dynamics, Policy/Law/Regulation | Tagged , , | 3 Comments

Is Oncology Ground Zero For Reform?

Posted 10/13/15 on The Doctor Weighs In

Brian Klepper

BK 711A few weeks ago, the clinically positive results from the CLEOPATRA oncology trial were released, showing that pertuzumab, when added to docetaxel and trastuzumab as first line chemotherapy, produces an average survival benefit of 15.7 months in HER2 positive breast cancer patients.

That good news notwithstanding, the authors calculated that Genentech’s price for adding pertuzumab to gain one Quality Adjusted Life Year is a breathtaking $713,219. In dry academic language, the authors dropped a bombshell conclusion. “The addition of pertuzumab to a standard regimen … for treatment of metastatic HER2-overexpressing breast cancer is unlikely to provide reasonable value for money spent in the United States compared with other interventions generally deemed cost effective. This analysis highlights the economic challenges of extending life for patients with non-curable disease.”

Drugs only consume about a quarter of cancer costs. The other three-quarters are distributed between physicians, outpatient facilities and hospitals, delivering such lucrative returns that hospitals are rushing to get in on the action. As many as one in four US hospitals are building new cancer centers now. Hospitals’ acquisitions of oncology practices have accelerated, in part because they can charge almost twice as much as physician practices for chemotherapies and other cancer drugs. Continue reading

Posted in General | Tagged , , | 2 Comments

The Goose and the Elephant

Brian-KlepperAmerica’s drug and biotech industries are no doubt alarmed by the national firestorm that erupted when Turing Pharmaceuticals raised the price 55 times of its 62 year old lifesaving drug, daraprim. They must worry that CEO Martin Shkreli’s tone-deaf reactions to the public’s scorn could precipitate close scrutiny of broader drug industry dynamics. The last thing pharma wants is a vigorous, in-depth national discussion of pricing, value, what we can afford and how other advanced countries handle drug spending. All this could kill the golden goose.

Seeking distance from the furor, PhRMA tweeted that “Turing Pharma does not represent the values of PhRMA’s member companies.” Then BIO, the biotech industry’s association, rescinded Turing’s membership and returned its dues, the equivalent of booting Turing out of the country club.

Continue reading

Posted in General | Tagged , , , , , , | Leave a comment

The Case for High Performance Health Care

Brian Klepper

Posted 9/25/15 on The Employee Benefit News Blog

BK PhotoNote to would-be health care reformers: don’t bother trying to drive change through policy, because you’re vastly outgunned. The industry you would reform owns Congress and the legislatures.

Nearly every substantial health care organization spends lavishly to ensure that it is favored by regulation. In 2009, the year the Affordable Care Act was formulated, Congress accepted more than $1.2 billion in campaign contributions, presumably in exchange for influence over the shape of the law. Given that the context is currently a $4 trillion (and skyrocketing) annual health care spend and that the impacts of their lobbying will resonate for decades, the costs were nominal and the potential for return high. Unless we can galvanize the much larger non-health care business community to act in its (and our) interests, we don’t have a prayer. Continue reading

Posted in General | Leave a comment

Will Specialty Drug Pricing Be The Straw?

Published 5/27/15 in Employee Benefit News

ALP_H_BK_0010Over the next few years, drug manufacturers will release a host of new drugs that are more complex and, in many cases, more effective than we’ve had access to in the past. There will be better solutions for common problems, and new solutions for uncommon ones. Specialty drugs, many of them “precision therapies,” will offer tremendous promise for better health outcomes across the breadth of human health and treatment.

Not surprisingly, most of these drugs will have breathtaking price tags, often a high multiple of conventional drugs. Specialty drugs are an exploding growth industry, with spending rising almost 20 times as fast as conventional drugs. Unless something changes, in just another five years we’ll likely spend more on specialty than non-specialty drugs. Or, for that matter, on doctors.

Continue reading

Posted in Analytics, Benefits, Brian Klepper, Health Care Cost, Innovation, Life Sciences, Market Dynamics, Medical Management, Policy/Law/Regulation, Politics, Quality | Tagged , , | Leave a comment

Marcus Welby, Dr. House and the Wizard of Oz

Elaine Waples

At a recent dinner party my husband and I joined two other couples in a lively discussion on the frustrations of American health care. We rounded up the usual suspects: cost, quality, access, politics, and broken systems. At some point the conversation took a subtle turn and we began to talk about the doctor-patient relationship.

Before long, I offered a comment that I probably wouldn’t have made before my last two years of serious doctor-going. I said that some patients want their doctors to be a combination of Marcus Welby, House and the Wizard of Oz.’  They want a great bedside manner, a brilliant diagnosis, and a miraculous solution. And I suspect that doctors want their patients to be compliant, accept a possible imperfect outcome, and have enough insurance to cover it all.

Continue reading

Posted in General | 2 Comments

Elaine-Waples Klepper (Sept. 3, 1946 – Nov 22, 2014)

SmilingOn Saturday, my precious wife Elaine finally succumbed to a long, protracted battle with  cancer. Below is her obituary, and I’ll also re-run several wonderful health care articles that she wrote over the past few years.

Here is her obituary.

Elaine Waples-Klepper was lost to us on the morning of November 22nd after a 55 month struggle against primary peritoneal (ovarian) cancer. Never, in the marathon of living with this disease, was she pessimistic, self-pitying or given to false hopes. She was reliably pragmatic and believed that living well created the most favorable environment for her care. She remained unfailingly buoyant, witty, graceful and fully engaged in life.

Continue reading

Posted in General | 10 Comments

Will Employers Favor Private Exchanges Over Coverage Sponsorship?

Brian Klepper

Originally posted 10/17/14 on The Health Affairs Blog

BK 711Over the past couple years, health care exchanges probably have consumed more of corporate benefits managers’ time and psychic energy than any other topic. An outstanding question is whether the rank and file of American businesses will drop the hassle that employer-sponsored coverage represents, or default to private exchanges.

Private exchange offerings typically move employees from their companies’ previous self-funded health plans to fully-insured individual arrangements, purporting to offer more flexibility and choice that can adapt to the wide-ranging needs of employees and employers, while creating a more competitive health plan marketplace.

Continue reading

Posted in General | Leave a comment

Developing a Coordinated, Considered Response to Predatory Health Care

Brian Klepper

Posted 9/21/14 on the NBCH Newsletter Blog

ALP_H_BK_0010In today’s New York Times, Elizabeth Rosenthal describes the growing and egregious over-treatment and overpricing practices by physicians and health systems, abetted by health plans.

The excesses detailed in this article are at the core of our national health care quality and cost crisis. The best solutions are collaborative, considered actions by group purchasers, potentially the most empowered of health care’s stakeholders.

When predatory anecdotes like these come to light, the benefits managers – or better yet, the CFOs – of local employers, unions and governmental agencies should immediately call the health plan and demand that the health systems, physicians and other providers involved be removed from the provider panel. (Small communities held hostage by a few dominant health care players are a separate topic that I’ll address soon.)

As Tom Emerick, former VP Human Resources at Walmart has stated repeatedly, health care will not improve until purchasers demand different behaviors from health care vendors, focusing business on organizations that facilitate high quality care at reasonable cost, and publicly avoiding those that do not.

This is a serious issue that demands a coordinated response. It is at the top of NBCH’s agenda. Join with us on this.

Brian Klepper is the CEO of the National Business Coalition on Health.

Posted in Analytics, Conflicts of Interest, Health Care Cost, Medical Management, Physicians, Policy/Law/Regulation, Quality | Tagged , , | 6 Comments