James G. Fouassier, Esq.Associate Administrator of the Department of Managed Care at Stony Brook University Hospital, Stony Brook, New York
Is health care a basic human right or is it a commodity, subject to all the vagaries and vulgarities of the commercial market place? As long as our political leaders seek a compromise between these two diametrically irreconcilable concepts there never will be a satisfactory or successful resolution of this dilemma. Add to this mix the incredible influence of health insurance lobbyists both in Washington and in our respective state capitals and practical long term solutions based on sound financial foundations are even less likely.
The “Massachusetts Plan” to cover the uninsured and underinsured is being hailed as a model by which the problem of covering the uninsured may be solved. Minnesota and California also have announced plans to adopt programs similar in principle even though the Massachusetts model has yet to be fully implemented and is totally untested and unproven. Pennsylvania’s governor recently announced his new “Rx for Pennsylvania” initiatives. For acute care hospitals the critical question is whether the cure is worse than the disease: will hospitals be able to survive and continue to treat significant portions of the uninsured and underinsured populations when the full financial impact of the Massachusetts plan finally settles in?
Although the details vary widely from state to state, under most current hospital reimbursement systems there is some reasonable reimbursement to providers for uncompensated care, treatment and services performed for the medically indigent. Some portion of the cost to providers of rendering uncompensated care is returned to the provider by way of standard financial factors based on the calculation and analysis of “bad debt” and/or “charity care.” It is critical to remember that “bad debt” and “charity care” cost reporting cannot and do not include discounted adjustments to actual charges based on contracted rate agreements with institutional third party “volume” payers such as insurers, but instead are based on reported real dollars unrecovered by a provider because of the inability or unwillingness of the patient to pay. Under plans such as those adopted in Massachusetts, the government does not truly subsidize the cost of uncompensated health care rendered to uninsured or underinsured populations but instead subsidizes the risk incurred by commercial insurance carriers in insuring those populations. The significance of this difference is compelling. Replacing current systems of government sponsored reimbursement programs with government subsidies to private insurers in the form of premiums for commercial coverage is nothing more than another raid on the public fisc by the insurance industry and will only result in even greater profits that will fuel an already frenetic and obscene gluttony.
Hundreds of millions of state and federal dollars now earmarked by the state governments for reimbursement to providers for uninsured or underinsured care (DSH, pool money and other adjustments and incentives) almost certainly will be diverted to premiums for health insurers agreeing to cover those populations in their new commercial products. It is unlikely that sums uncollected from third party payers covering the newly insured indigent patient, be it by denied claims or short payments, will be considered “bad debt” under revised definitions. Consequently, even if there were some residual funds set aside for traditional bad debt reimbursement, these significant losses would not be eligible for even partial recovery through current bad debt reimbursement methodologies. Since providers no longer will be able to recover most of their bona fide bad debt and charity costs the impact of such lost revenue will be dramatic.
Since medical care for people newly covered by these plans will be paid exclusively through the private plans with no recourse to any “bad debt” reimbursement, providers virtually will be compelled to enroll in the new networks the insurance carriers will develop to cover their newly insured members. It is naïve to expect that the rates developed by carriers for these new products will be as competitive as more traditional commercial products: the premiums paid by the sponsoring government agencies will be low relative to premiums paid by individuals and groups (making it harder for the plans to squeeze out profits), and the plans know the providers will have to join simply to survive. To make matters worse, in addition to being compelled to accept greatly reduced rates providers will incur the same burdens of the numerous technical authorization and claims submission requirements and the denials that go hand in hand with other managed care products.
Let us be frank. The plans administering these programs will be driven primarily by profit. Technical, substantive (clinical) denials, short payments and all of the other problems endemic in managed care generally now will encompass care to the previously uninsured and underinsured. If, as expected, the premiums paid by government are relatively low and the risk assumed by the plans to cover these recently uninsured and underinsured populations is high we can be certain that as much of that risk as possible will be passed on to participating providers in the form of increased technical and substantive denials. (1)
A comparison with terrorism and flood insurance may be relevant. In Louisiana the federal government had to step in with reinsurance and direct subsidies to insurers to cover the costs of insured damage from Hurricane Katrina, yet complaints abounded over short payments and improper denials. In the meanwhile, insurers continue to post record profits. In truth, there is no more “risk” for insurance carriers; it’s become a sure bet.
If government is contributing such a large share to provide health insurance for the medically indigent, should there not be some corollary control over insurance company profits? Better yet, why cannot the federal and state governments administer these programs directly or through fiscal intermediaries, as is the case with Medicare? Why is there always the presumption that government cannot manage anything as efficiently as the private sector? The reader would be surprised if he or she were to factor in the profits that insurance companies pull out of health insurance business and compare those profits against the so-called “inefficiency” of government. Most criticism of the “cost” of Medicare focuses not on the supposed inefficiency of the administration of the program but instead on the generous menu of services covered. Even the more vociferous critics of the program generally concede that the administration of benefits through fiscal intermediaries, compensated by fixed fees and not by profits generated by the aggressive management of risk, has proven its worth.
Recently Newsday’s Saul Friedman picked up on this theme in an article discussing planned changes in the New York State Medicare Part D EPIC drug program for seniors. One of his major concerns is that:
. . . EPIC is exchanging a well-working government-run, single-payer benefit for uncontrolled and unsupervised private coverage with competing, profit-driven insurance companies, each of which has different rules, different drug tiers depending on price and different co-pays. Furthermore, Part D plans may and do change their formularies with only a brief notice, and contracts with enrollees may end after a year if the insurer's earning are below its expectations. (2)
On June 11, CNNMoney.com reported on a Fortune magazine article that the “big money” in Medicaid is moving into “pure play” companies that specialize in Medicaid HMOs, such as Amerigroup, WellCare, Centene and Molina, rather than the traditional players like United and Wellpoint that handle the business as subsidiary operations. The four “pure players” covered in the story now manage five million members and collect $9 billion in annual premiums (presumably, most of these premiums come from the federal, state and local governments to cover medically indigent Medicaid eligible beneficiaries). CNN reports that the revenues of AmeriGroup in particular have risen at a rate of over sixty percent annually in the past decade, along with “generally stellar stock performance.” The report concludes with the expected observation that investors and executives in these companies have cleaned up. The parent company of WellCare saw a $70 million investment return almost $900 million. Top executives at these companies have seen their cash compensation and stock options multiply by millions of dollars. (3)
In a speech on June 14, Democratic presidential candidate John Edwards said the country’s health care system is in crisis and his plan would require that all Americans have some form of health care. The insurance and pharmaceutical industries would be his first two targets for cutting health care costs because, as Edwards said, “Three out of every $10 in insurance premiums now go to patient care and the rest goes to administrative costs and profits.” Edwards would mandate that 85% of all premiums go directly into health care.
Need I say more?
By eliminating insurance company profits from the paradigm many of the provider abuses endemic in commercial managed care may be avoided, more of the government’s dollar would go directly to the providers of health care services, and the government subsidy of health care for the uninsured and underinsured truly may be optimized.
1. “Prescription for Pennsylvania will strengthen oversight of health insurance companies and HMOs . . . . [which] will create a level playing field . . . by limiting premium increases, by establishing a standard basic health care package for individuals and small businesses, and by prohibiting insurance companies from driving up the cost of insurance based on certain demographic characteristics. For small businesses, insurers will be required to spend at least 85% of the premiums they collect to pay for health care.” Prescription for Pennsylvania, www.RXforPA.com. How insurers are expected to avoid losses and generate some margin of profit apparently was not factored into this equation. A carrier subscribing to this proposal will have to do some pretty creative UR, vigorously assert its perceived contract rights and hold a participating provider strictly to the terms of the agreement if the carrier expects to make any profit.
2. Saul Friedman, Family and Relationships, Newsday, May 26, 2007.
3. CNNMoney.com, “The Big Money In Medicaid”, Bethany McLean, Fortune Magazine, June 11, 2007.
James Fouassier, Esq. is the Associate Administrator of the Department of Managed Care at Stony Brook University Hospital, Stony Brook, New York and a member of the Metropolitan New York Chapter. His opinions are his own. He may be reached at: jfouassier@notes.cc.sunysb.edu.
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