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Tuesday, May 25, 2010

Health Reform as a Stimulus for the Consulting Sector

Business school colleagues of mine who worked in consulting beforehand had a unique view of HIPAA or the Health Insurance Portability and Accountability Act. Former consultants remember this as the Consultant Employment Act as it resulted in a bonanza of new business as the health care industry scrambled to figure out how to understand and implement this legislation.

Health care is as retro as the fashion industry and tends to repeat itself every 20 years (the 80's capitation payment models and leg warmers are both back in fashion). The latest health reform act has unleashed another horde of consulting opportunities. Consulting firms offer to help understand the strategic opportunities in key provisions or how to treat mandated provisions as new product opportunities. Niches have been created for companies to enter as there will be more money available in Medicare's customer rating system or money to be lost based on hospital readmissions. Providers are trying to figure out how to become effective Accountable Care Organizations which is really Capitation 2.0 (where providers would accept a fixed dollar amount per patient and be in charge of managing all of their health care).

As always, there is the good, the bad, and the ugly with the snake oil that consultants or new niche companies are selling to help the health care industry swallow health reform.

The Good:
Accountable Care Organizations (ACO) represent the best opportunity for consultants: However, no one is really piling into this space since it won't hit until 2014 and it's going to be hard. The reason it's such a good opportunity for consultants is that few provider groups or insurance companies can accomplish this without an objective third party. The third party doesn't even have to be smart, just objective, because these companies are crossing into industries where they had traditionally combative relationship. It's like Sue Sylvester coaching the Glee club.

An ACO is the offspring if an insurance company and provider group mated. They provide population-based health care across a fixed budget and are in charge of managing health and costs. Some insurance companies have these payments models set up and they also called risk sharing. Basically an insurance company would approach a provider group with the following offer. The insurance company keeps 10% of the insurance premium for administration and expects to pay 80% of the premium to the provider group for medical costs. The two will split the remaining 10% if everything goes well. If all goes better than expected, they split the surplus and health care costs are worse than expected they share the loss. There is some stop gap in place for the provider groups.

The typical current payment model involves insurance companies trying to squeeze every last dollar from providers to control costs. Providers don't have enough data or experience with population health to know if 80% of the premium is appropriate or how much risk to put on the table. Their main lever is to increase their utilization to make more money. Both sides are extremely entrenched in their current business models. They have built infrastructure like hospital charge master systems that produce incomprehensible bills because a revenue management consultant configured them to maximize Medicare reimbursement by making the cost for all bed pans a prime number.

The US health care industry need armies of consultants to figure Accountable Care organizations. Or they can just contact the public health systems at every other industrial nation (and some emerging markets) that have figured this out already.

The Bad:
Still charging to tell everyone what they don't know: The Obama administration has only provided guidance on a few of the big changes that will happen in October. That is what has passed for news at most of the $279 webinaires that are being offered. In the rush for first mover advantage, firms are launching webinaires touting their expertise with the grand conclusion of "We still don't know more than we do know." That's kind of like expecting your probation officer to be excited that you didn't jaywalk during your drug-fueled weekend crime spree.

The Ugly:
Overstating market opportunities and not understanding the work to achieve it: Consultants are good at identifying strategic opportunities but bad at figuring out a way to actually implement them. Yes, that statement is not exactly at the same level as one of the Lost Season Finale explanation of the flash sideways, but health reform has only exacerbated this tendency.

For example, Medicare will start paying 4% more for plans that receive 4 or more stars for their overall customer service rating. 23% of Medicare plans have a 4 star rating so there's lots of insurance plans who could use this revenue boost. That 4% more can mean an additional $25-$30 per month per member or $300-$360 per year or $3-$3.6 million per year for 10,000 members. Three million dollars can buy a lot of customer service staff to improve that rating which is why consulting companies are promoting this opportunity. In theory, an insurance plan can hit the Medicare reimbursement jack pot by hiring some staff to call Medicare members on their birthday or asking them how their doctor office visit went.

They have no idea if these calls are going to be considered welcoming or creepy to your average senior. They don't know how many customer service staff should be allocated or if there is another service issue that is causing problems. There are probably no proven methods to actually improve the Medicare star rating. No one has looked at this before because Medicare enrollees don't seem to care about the star rating.

All that is known is that there is a $3 million opportunity that can be achieved for far smaller costs. If consulting firms sell a few proposals, than they quickly advertise themselves as subject matter experts or even better, share best practices. Which is why this round of health reform can be called The Consultant Stimulus Package.

Thursday, May 20, 2010

Idealizing Rural Life in Southern Oregon

I have lived in rural South America and rural southern North America for a total of 2.5 years. Therefore, my idealization has an actual foundation. This is different than my idealization of spending a week in an opium den in Morocco which is grounded in fantasy from watching Naked Lunch.

I can't exactly put my finger on why I idealize rural living. I've spent some time in fields doing subsistence farming, know that night time entertainment options are drinking around a smoky charcoal pit, and trudged down muddy roads to get supplies so I know the less glamorous sides of it. I realize that I obviously like solitude, don't mind seeing the same people all the time, like that you can talk to strangers without creating suspicion, and probably really like the big open sky, towering forests, and foothills. The rural country store that includes a seating area, random religious-based gifts or folding knives and lighters that are decorated with screaming eagles also appeal to me. They're vaguely reassuring like the consistency that one finds in a Starbucks.

There were the feelings that I had in my rural Southern Oregon road trip this week. Despite bad weather conditions and snow levels up to 5000 feet, I drove out to Klamath Falls for some hiking and climbing. K Falls, its nickname that is too good not to overuse, looked beautiful as I approached the town. On the upper Klamath Lake, with Mt Shasta and McLoughlin in the background it changed my spirits. Kind of like approaching Philadelphia with the view of the Sunnoco refinery also changed my spirits but in the opposite direction.

Due to the conditions, I only attempted to scramble up Union Peak off route 62 near Crater Lake. The Pacific Crest Trail (PCT) was well marked so the fact that it was covered with snow wasn't a problem. At the right elevation, I picked a compass path off into the snow to find Union Peak. As I write this, I'm trying not to sound like I'm high fiving myself for my mad navigation skills.

Union Peak was steep and snow covered as I had expected. I kicked some footholds and punched hand holds halfway up the peak before snow conditions got worse and I descended. The picture on the left is Union Peak and the picture on the right is the view of Mt McLoughlin on this overcast day.

Given the weather, my next stop was the North Umpqua Hot Springs for a soak. The fact that someone built a shelter and carved this hot springs out of the stone is another reason I idealize rural life. Low population density and lack of foot traffic give incentive to build free public facilities like hot springs overlooking a river.

The hot springs is not clearly marked from the gravel road. It's 2 miles from the fork of route 34 and I noticed it because of another car parked on the road. There were a few people camping around there so look for signs of life or partying. After parking, cross a log bridge with no hand rails, head right and go up the hill that do have hand rails.

Tuesday, May 11, 2010

What happens when a Market Innovation becomes a Mandate

One aspect of health reform that looks great on paper is that preventive services must be covered in full by insurance companies. Mammograms, pap smears, well baby visit and other services listed on the US Preventive Task Force list as receiving an A or B rating are now free. A $1.50 will get you a cup of coffee and immunizations that are on the Center for Disease Control list.

It seems like a good idea. Preventive services are low cost and prevent disease or prevent chronic disease from getting worse. It also helps make health plans more uniform, easier to understand, and get closer to the ability to just purchase "1 health insurance". Insurance companies should have been doing this on their own. They were. It's called value-based plan design and it was gaining traction. Employer purchasers coalitions were promoting these plan designs and providing input for insurance companies. They are growing almost as fast as Health Savings Account plans which inject consumerism into health care.

Not all companies were interested in buying value-based plan designs that covered preventive services at not or low cost. Preventive services were generally available for $20. Some companies would switch insurance every year to take advantage of insurance companies who would try and buy their business. Some companies had mostly young men who thought a preventive visit involved using a condom and had no need to go to a doctor. These companies used to have the choice to not pay more upfront in the form of a higher price for plans. Now, they do not.

The problem with mandating a broad benefit design is that they no longer become a market innovation for a particular segment but instead become a cost. I support the mandate of coverage for benefits that a particular potentially vulnerable population needs like hearing aids for children. Mandating preventive services eliminates choice and adds cost to those who may not value it. Or creates a gold rush as providers or manufacturers will try to get their services classified as preventive. A former Medicare administrator told my MBA class a story of how Medtronic tried to get pacemakers classified as a preventive services so they could preemptively implant them in half the population.

One of the more obscure provisions in health reform involves grandfathering of existing plans. This is Obama's "If you like your plan, you can keep it provision." It will allow companies to avoid some mandates like the coverage of preventive services in full. This will provide a test of the market response to the coverage of preventive services in full. In a year, we will see if companies grandfather their health plans in order to avoid these types of mandates.

Monday, May 10, 2010

Portland, Where you don't gotta dance with them that brung you

Molly Ivins was right about politics when she wrote, You Gotta Dance with them What Brung You. That phrase usually applies to dancing too. However, I've got to say that the dance scene in Portland, OR is unique where you can dance with anyone anywhere.

Publications have praised Portland's beer, wine, spirits, food carts, bicycle lanes, quality of life, strip clubs, greenery, volcanoes, and hospitality. I'm here to praise the Portland dance scene which is not something traditionally praised in a city with a population that is 74% white. However, there is a sizable Cuban population in this town that has resulted in a good salsa scene. Someone told me that Cubans who don't want to settle in Florida are given a choice of resettlement assistance in Portland or some towns in upstate New York. I haven't been able to confirm this. Portland also ranks 12th highest in number of refugees who must be attracted to some combination of the Portland dance scene, beer, strip clubs, or bicycle lanes.

In Portland, I've danced salsa, belly, contra, and Irish, Macedonian, and Israeli folk dancing without even trying. It's lively dance scene that is easy to find and access. Last week, we attempted to find some contra dancing but stumbled upon Israeli folk dancing instead. We stayed and tried to keep pace with the class that had been dancing together for some time. What made the dance so accessible is that the class was composed of people who one would not typically expect to see in a dance class. The class was made up of the very young, very old, and very stiff and slow moving. My only complaint was that one of slower moving dancers had a very quick digestive system if you know what I mean. Fart smells aside, it was really great to such a variety of people dancing.

It's part of a unique dance scene that is as open and inclusive as your average pro gay marriage ballot measure. I'll raise an organic microbrew to the Portland dance scene and ride my bike from the latest food cart that was open by a graduate of culinary school to find the latest folk dance movement. This open and inclusive dance scene should also be as praised and publicized as anything else that the New York Times has made famous in Portland.

Thursday, May 6, 2010

Pulling an Anthem

In February, I wrote a defense of actuarial science as an excellent example of evidence-based practice in the context of Anthem's 39% price increase for individual insurance policy holders in California. There were calls of profiteering and that Anthem probably considered harvesting their policy holders' organs and selling them for profit as an alternative option to the price increase. As heroically as any blogger who writes in their pajamas, I defended Anthem and their actuaries as those who followed math and science to come up with their numbers and did not succumb to the pressure of quarterly earnings expectations. I called on others to come to terms with hard facts that the price increase is indicative of the increase in medical costs and the true health status of those who purchase Anthem's individual insurance.

Turns out that I was defending some actuaries who aren't that smart. Anthem's actuaries made math mistakes while calculating the 39% price increase. Now, I'm trying to figure out the right term for someone who fully intends to follow scientific guidelines and evidence-based practices but does it wrong. How about planted evidence-based? What about evidence-based with broken chain of custody?

What I do know, is that there is an opportunity for a new catch phrase that you don't have to be an actuary to understand. I would like to coin the phrase "Pulling an Anthem" (trade mark pending, all rights reserved).

Pulling an Anthem: verb, Publicly commit an egregrious mistake by misinterpreting the data in your environment

My friend invited me to Moby, the vegan rock star's BBQ. However, I dropped a plate of bacon on the grill and the smell filled the area in seconds. I really pulled an Anthem.

I had an interview with Cisco, the computer system company. Turns out that I had spent the night researching Sysco, the food distributor. I really pulled an Anthem.

I'm running with this idea. My last great patented idea was knitting patterns for cell phone cozies. One year after I knit the first cell phone cozy that anyone had ever seen, I saw patterns appearing everywhere. This time, I'm not going to pull an Anthem.

Tuesday, May 4, 2010

Medicare is Teaching Private Health Plans about Free Market Principles

I never thought that I would write a title about the Center for Medicare and Medicaid Services (CMS) is teaching private health plans about free market principles. I shouldn't be surprised considering how our current president has captured the merchandising opportunity that passing health care legislation presented. My sister bought me a T shirt from Obama's store that immortalized Joe Biden's reference that health care reform is a big f#cking deal. After seeing the Obama store, I don't see how anyone can accuse Obama of being a socialist. That's like accusing Dick Cheny of being nice.

Back to Medicare's venture into capitalism. They recently issued a memo announcing that if a health plan has multiple Medicare Advantage plan designs, there must be a significant difference the total out of pocket costs for a member. Medicare analyzed utilization for 15,000 Medicare members to come up with the significant cost difference at $20 per month between 2 plans that a company offers. Therefore, if a plan has 2 different Medicare Advantage plans (in the same category like both HMO or both PPO), than the member's copays, coinsurance and other costs must have greater than a $20 per month difference.

This is good old fashioned proper product segmentation. Good product design will result in plans that appeal to different segments based on how much they want to spend and the difference in benefit design. If plan sells 2 HMO plans and the only difference is the color of the brochures and $500 in hospital visit copays, that's poor product development. That's like selling cars whose only difference is the size of their spoiler. Or breeding yak whose only difference is whether there fur turns into dread locks (I haven't made an animal husbandry joke in a while). Those are 2 overlapping plans and the insurance company should have the good sense to terminate one of those plans or change it. They appeal to the same segment of customers and offer no significant choice or benefit.

However, private insurance plans have not done that themselves which is why Medicare has stepped in with a good lesson on proper product segmentation. In the early wild west of the Medicare Modernization gold rush, health plans through some plans on the wall just to see what stuck. Some ideas didn't work and it's the private plans fault for not correcting their portfolio on their own.
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