Why Backdating Stock Options Is Completely Understandable

June 4th, 2008 by DrRich

The Wall Street Journal Health Blog reported yesterday that Bill McGuire, the former CEO of UnitedHealth, did not know that backdating stock options was wrong. McGuire was eventually fired for his unfortunate backdating activities.

According to the WSJ, in the way of explaining how McGuire might be unaware that backdating stock options is frowned upon his attorneys state (in a brief filed on his behalf in a shareholder lawsuit), “Dr. McGuire has no formal training or degrees in finance, accounting or law. His only professional training is as a medical doctor with a specialty in pulmonology.”

The WSJ Health Blog, affecting its usual snarky tone, scoffs at this: “The Health Blog has no formal training in pulmonology, but the sums involved in this case do make us gasp for breath.” The value of McGuire’s backdated stock options, they go on to say, has been estimated at $1 billion.

It will undoubtedly be a great comfort to Dr. McGuire that DrRich now wishes to come to his defense.

Yes, it is clearly absurd for McGuire to argue that, because he’s just a dumb pulmonologist, he didn’t know that backdating was wrong. Every doctor, even radiologists*, understand that backdating important documents is wrong and probably illegal.

What the WSJ, and more importantly the litigious and thankless shareholders of UnitedHealth, fail to realize is that the skewing of McGuire’s moral compass has nothing whatever to do with his original profession or training. Rather, it is an essential skill required by anybody running a health insurance company.

These outfits, which exist to covertly ration healthcare, have got to do everything they can possibly get away with to avoid subscribers who are ill or might become ill, who are economically disadvantaged, or who are particularly demanding. They are obligated to do whatever it takes to deny coverage retrospectively to legitimate subscribers who have developed expensive illnesses. In a thousand ways they have got to play fast and loose with the rules and - more to the point - with documents. In fact, if the purpose of documents is not to manipulate the facts to the company’s best advantage, then what earthly good are they?

Once McGuire became the CEO of such an organization, manipulating the truth, largely through the creative use of documents, must have become second nature. And he must have become very good at it. (Otherwise why would the shareholders award him all those stock options?) Getting documents to say what you need them to say would become more than second nature to such a one; it would become why God put him on the earth in the first place.

So when a CEO of a big health insurer is given yet another document on which changing something as simple as a date will significantly improve the bottom line, it must have been unthinkable - nay, unethical! - for him to not simply go ahead and change the date.

The WSJ can laugh all it wants at McGuire’s plea that he didn’t know backdating was wrong. And the shareholders can profess as much outrage as they please. One might as well rail at a rigorously trained pit bull which, in the frenzy of a death match, clamps its jaws on the calf of a spectator who has inadvertently strayed too close to the action. If you’re going to employ such single-minded beasts, be careful of the objects you place before them.

DrRich hopes that it provides Dr. McGuire with a touch of consolation to know that at least one compassionate observer buys his protest of innocence without any reservation whatsoever. Indeed, DrRich would be far more disturbed by the notion that a CEO of a successful health insurance company might actually understand right from wrong, yet still do his job anyway.

* Cardiologists (like DrRich) and radiologists are traditional enemies, engaging as they often do in turf battles over medical procedures, promulgating dueling guidelines, and the like. Consequently, for a member of one group to impugn the native intelligence of the other, as DrRich has done here, is a revered and honored pastime for both of these specialties. So no one need take offense at DrRich’s gratuitous slur of radiological aptitude. Anyone who does is as thin-skinned as a pathologist.

Posted in Gekkonian Rationing | 1 Comment »

Hope for the Medical Home?

June 3rd, 2008 by DrRich

Last summer DrRich wrote a post that was pretty hard on the Medical Home, and since that time he has seen no good reason to reconsider his opinion. Rather (as usual after officially pontificating on some topic), DrRich has remained smugly satisfied that he nailed it.

But now something has happened to make DrRich wonder whether some good might come out of the Medical Home after all, namely, that Dr. Centor (the much admired DB) has become formally involved in developing demonstration projects of the Medical Home for the American College of Physicians (ACP) and American Society of Internal Medicine (ASIM).

DrRich is completely serious about this: if DB is involved, the Medical Home is worth another look. DB fully appreciates the importance of the doctor-patient relationship, the limitations of professional guidelines, and the potential for abuse with Pay for Performance. If a model for the Medical Home can be developed that adquately honors these considerations, it could be a very good thing for doctors, patients, and the healthcare system in general.

So DrRich pledges to keep an open mind as he follows DB’s reports on his work. Here are some things DrRich will be watching for, and some questions he will be asking himself as he observes.

1) The concept of Medical Home itself seems quite useful. Under the Medical Home paradigm, patients would have a dedicated personal physician who partners with them, over time, coordinating all their medical care and guiding them, whenever necessary, through the hostile halls of American healthcare. That’s the nugget of it, at least as DrRich understands it.

But really, what’s new here? Hasn’t this been the fundamental idea behind primary care medicine for the past 50 years? Why does the ACP find it necessary, at this juncture, to recapture and rechristen its own central idea?

2) The ACP, to its credit, asserts that the Medical Home will help to repair the doctor-patient relationship. But what does it mean by that? Is the ACP simply referring to the fact that, with a long-term relationship, doctors and patients will become closer, and doctors will get to really know their patients (i.e., will acquire a deep understanding of their medical conditions, likes, dislikes and propensities), which will enable better medical care? These are all good things, to be sure.

But it doesn’t actually address the fundamental problem with the doctor-patient relationship today, which is: doctors have been maneuvered into placing the needs of the payers (whether insurers or the feds) ahead of the needs of their patients. Instead of honoring their defining professional obligation to always make the needs of their individual patients their chief consideration, doctors have been told they need to make the needs of “society” primary.

Indeed, the inability of doctors to honor their fundamental ethical obligation has caused the ACP-ASIM to “revise” its formal declaration of medical ethics (under the theory that if it becomes too difficult to honor a code of ethics, then change it), so as to obligate doctors to honor society’s needs rather than their individual patient’s needs. A patient facing a doctor today cannot know whether the doctor’s recommendations are based on what would be best for that patient, or on what would be best for society (i.e., cost reduction), and for the doctor to place the patient into such a position has become perfectly ethical.

DrRich has gone on and on about how this “new ethic” formally destroys medical professionalism. The question for now is: In repairing the doctor-patient relationship, which ethic will the Medical Home honor, the traditional one or the “new” one?

3) Will the new Medical Home efforts of the ACP look any more promising than its first effort? That first effort was done in conjunction with UnitedHealth Group, and DrRich has written about it here. There was much not to like about it, but chief among them was the new physician reimbursement scheme that it incorporated:

“UnitedHealth Group will pay participating physician practices a monthly care-management fee based on projected savings for all patients that select a medical home. In addition, the company will share any excess savings that accrue from the pilot program with the physician practices and — by way of premium reductions — with employers.”

That is, doctors were to be paid according to their ability to not spend UnitedHealth Group’s money on patient care. The less they spend on patient care, the more doctors make.

Such an arrangement is all perfectly ethical, according to the new ACP-ASIM standards, but it doesn’t do much for the doctor-patient relationship, at least as DrRich conceives of it. Will the next ACP-endorsed Medical Home really be aimed at benefiting the doctor, the patient, and the doctor-patient relationship - or will it again be aimed at benefiting the bottom line?

In summary, given the deep and abiding need of the payers to covertly ration healthcare, given the steps that have already been taken to wreck medical professionalism and the doctor-patient relationship, and given the unpromising initial efforts of the ACP in the Medical Home arena, the sole cause for DrRich to have any degree of optimism is - DB.

To be sure, DrRich does not expect DB to single-handedly get the ACP-ASIM onto the right-thinking path and make the Medical Home what it really ought to be. But DrRich does trust that DB’s heart and intellect are in the right place and that he will make every effort to steer the Medical Home in as favorable a direction as possible. With at least a bit of hope in the outcome, DrRich wishes DB the strength and fortitude this new effort will require, and is very glad that somebody who understands the underlying issues, and who is capable of expressing them, is participating in it.

In the meantime, in order to get all the benefits of the Medical Home, including a fully restored traditional doctor-patient relationship, and without all the insurer’s schemes and incentives aimed at covertly rationing his medical care, DrRich will continue under the care of his excellent retainer internist.

Posted in New business models for healthcare, Primary Care in America | No Comments »

Why Big Health Insurance Supports the Democrats

May 30th, 2008 by DrRich

As difficult as it undoubtedly will be for most readers to believe, DrRich still hears from skeptics who ridicule his theory that a Democratic victory this fall will be the best thing that could happen to the health insurance industry. For example, consider this from Anonymous in Montana:

Democrats hate ALL corporations and want to eliminate profit as a concept. Democrats believe that the most evil companies in all the evil corporate world are the murderous health insurance outfits, because they make their filthy profits withholding healthcare from the sick. If the Democrats win this fall the health insurance industry is toast. For you to suggest that the health insurance industry will be better off with a Democratic victory is nonsense. And suggesting that the insurance industry will support the Democratic candidate is dumber than suggesting that Smith & Wesson will be a big Obama booster. You twit.

DrRich has not given much thought to which candidate the armaments industry will be supporting this year. He expects it will be Mr. McCain, who once operated some pretty impressive firepower himself. On the other hand, one could easily predict a huge boost in gun sales if Mr. Obama wins, triggered by concern (among those Bible-thumping, gun-toting non-supporters) over the possible repeal of the 2nd amendment. So, Smith & Wesson’s support could go either way. DrRich will have to consider the matter further.

But, my dear Anonymous, in regard to which candidates the health insurance industry will be supporting this year, the verdict is already in.

The Wall Street Journal Health Blog reported this week that the health industry has suddenly shifted from a preference for Republicans to a preference for Democrats. Specifically, political contributions from the health sector are showing a 55% to 45% split in favor of Democrats. This is a reversal of the traditional split that for at least 20 years has strongly favored Republicans.

Furthermore, a visit to the website of the Center for Responsive Politics, which tracks these sorts of data, will show that political contributions from HMOs (i.e., the big insurers) has trended even more strongly in favor of Democrats: 69% for Democratic candidates, and only 31% for Republicans. This is a Hillary-in-West-Virginia-magnitude rout.

Non-readers of this blog (and, of course, Anonymous) will be surprised by these statistics. After all, both Mr. Obama and Ms. Clinton propose to phase-out private health insurers (though they won’t come right out and say so) by attrition, by forcing them to compete for subscribers with a new government-sponsored, taxpayer-subsidized “Medicare for Everyone” health plan. Mr. McCain, on the other hand, proposes to maintain private health insurance as the backbone of the American healthcare system, relying nearly entirely on this industry as the engine for healthcare reform. So why would HMOs be giving financial aid to Obama/Clinton and not to McCain?

DrRich’s theory, first formulated six months ago, provides the answer. In the evolution of their managed care products, health insurers finally have reached the point where they need to demonstrate their ability to grow their profits by actually managing the medical care of sick people. The notion that they can do so is, of course, absurd. Furthermore, the notion that the Republicans would be relying on the insurers not only to make a profit, but also to reduce the cost of American healthcare at the same time, literally scares the bejeebers out of insurance executives. The very last thing Wellpoint and UnitedHealth Group want is for McCain to win the presidency, then turn to them and say, “OK boys, do your cost-reducing stuff!” A Republican victory would suddenly reveal the insurers to be entirely bankrupt of useful ideas, and would expose them to a sudden, ugly, stock-tanking demise.

Democrats, of course, will also bring about the demise of the private health insurance industry, just as Anonymous asserts. But at least they will have the grace to do it gradually and predictably - and with one last profit-inducing, stock-soaring windfall thrown in as a sweetener.

It was for these reasons that DrRich predicted last fall that the big insurers would have no choice but to root for and support the Democrats in 2008. (DrRich actually specified at that time that the insurers would support Ms. Clinton. He did not realize that she was then in the process of blowing the nomination by - among other things - forgetting to organize in the caucus states.)

Since DrRich initially posed his theory we have seen Warren Buffet (a major booster of Democratic candidates) placing a huge bet on the big health insurers - which undoubtedly means a) he strongly believes a Democrat will win the White House this fall, b) he understands what this victory will mean to the industry, and c) he reads this blog, which is the only place you can get political and economic theory like this.

We have also seen the major health insurers completely capitulate on their chief mission of providing affordable health insurance to the masses, thus announcing to the world that they no longer have the means, the will, or the intention of seriously trying to reduce the cost of healthcare. A clearer plea by the insurers to “Vote Democrat - Please!” could hardly be imagined (except, of course, for the fact that they are giving their financial support overwhelmingly, and for the very first time, to the Democrats).

DrRich admits that his theory originally was laced with a certain amount of sarcasm and irony, and was based at least partially on speculation, intuition, and confabulation. Nonetheless, developments since that time have provided us with hard facts that, while seemingly impossible to explain with more conventional thinking, are readily explained and even predicted by his theory.

Indeed, DrRich’s theory (and Warren Buffet’s investment strategy that is so obviously based upon it), look more infallible each and every day.

Posted in Healthcare economics, Investment "advice" | 2 Comments »

Attention Warren Buffet - Health Insurers Capitulate!

May 22nd, 2008 by DrRich

An article in the May 19 issue of American Medical News reports that America’s largest for-profit health plans will continue to rapidly increase their insurance premiums, even though doing so will continue to lose them subscribers.

In a conference call, WellPoint President and CEO Angela Braly told analysts, “We will not sacrifice profitability for membership.” Similarly, UnitedHealth Group CEO Stephen Hemsley said, “We continue to protect our margins. … We are committed to sustaining a quality business without taking shortsighted pricing positions.”

These statements, which are merely the actions of any responsible CEO trying to protect his/her company’s stock price, have garnered the expected expressions of outrage and indignation. After all, as Dr. Poses nicely documents for us, the mission statements of WellPoint and UnitedHealth Group assure us that these companies are both dedicated to making health insurance affordable and accessible. So how can these companies in good conscience abandon the effort to keep their products within a reasonable price range? Their failure to do so (as documented in the AMNews article) is already causing businesses to drop health coverage for employees, and contributing greatly to the rising number of uninsured Americans.

The answer, of course, is the obvious one. These publicly traded companies have a primary responsibility to their shareholders, and failing to take every opportunity to maintain a reasonable profit margin would make them guilty of violating their fiduciary duties. Besides (contrary to what most seem to think), the people who actually are insured with their products are in no way their customers. In fact, the insured (and their accomplices, the doctors) are the source of “medical loss,” and the insurance companies owe it to their shareholders to restrain these parties, by using every means at their disposal. So for insurance companies to take an action that is so manifestly against the interests of their subscribers ought not to surprise anybody.

The truly notable feature of this latest development is that it amounts to a complete and final capitulation, a straightforward admission that these companies have, at last, formally abandoned the purpose for which Congress turned them loose a couple of decades ago. Congress sanctioned for-profit HMOs, and gave them extraordinary protections under the law, for one purpose, and one purpose only - to harness the power of the free markets to control the cost of healthcare. And while it has been obvious for at least a decade now that for-profit insurers actually have no clue as to how to accomplish this feat (despite their numerous draconian efforts at covert rationing), until this moment they have publicly maintained the pretense that, given enough time and latitude, they’d find ways to bring costs down.

But that’s all over now. Ms. Braly and Mr. Hemsley have said it. We, the for-profit HMOs, the entities on which the Gekkonians have been pinning all their hopes for nigh unto 15 years, and the entities on which even today Mr. McCain is basing his entire healthcare reform plan, are completely bereft of cost-containing ideas. We haven’t a prayer of figuring out how to cut healthcare costs, or even how to slow cost inflation enough to prevent truly remarkable increases in our premiums - even though those increases are dropping our subscriber numbers and scaring the hell out of our shareholders and causing our market value to plummet. We, the for-profit HMOs, have officially entered the end-game.

So, Mr. Buffet: Your investment strategy is still on-track. You will soon be able to pick up several hundred thousand more shares of WellPoint and UnitedHealth Group at truly bargain prices, as current shareholders (seeing these companies circling the drain as surely as a subscriber with an expensive-to-treat cancer), scramble to bail out. And seeing a high probability of a Democratic victory in the fall, conventional wisdom will drive the prices even lower. So keep your powder dry.

Thanks to DrRich, only you (and the other people who read this blog, most of whom think DrRich is engaging in irony) know that it’s a Democratic victory, and not a Republican victory, that will send these stock prices soaring once again. What an opportunity!

You’re quite welcome.

Posted in Healthcare economics | No Comments »

Proof That Warren Buffet Reads This Blog

May 17th, 2008 by DrRich

Yesterday, Jacob Goldstein of the Wall Street Journal Health Blog reported that Warren Buffet greatly increased his stake in big health insurers during the first quarter of 2008. Specifically, he added 300,000 shares of WellPoint and 400,000 shares of UnitedHealth to the holdings of Berkshire Hathaway. Notably, the stock prices of both of these insurers have been tanking for months. So why would Mr. Buffet be buying them?

Mr. Buffet has a simple answer: “If we’re going to be buying things, we want to buy them on sale.”

To which the WSJ replies: “Of course, if it was simply a matter of increasing holdings that are falling, we’d all be billionaires. There must be more to it than that.”

Indeed, there is more to it than that, and careful readers of this blog (as Mr. Buffet must surely be) realize what that is.

The case against buying health insurance stock, it goes without saying, is plain for anyone to see. As DrRich has pointed out more than once, the mega-insurance companies have traditionally had three major pathways for increasing shareholder value:

1) Acquiring and privatizing community assets - generally non-profit hospitals and non-profit insurers - for a tiny fraction of their true value (through the collusion and/or ignorance of boards of trustees, state attorneys general, and state insurance commissioners), then letting the market assign the actual value of those formerly public assets to the company’s stock price.

2) Mergers and acquisitions of smaller insurers, i.e., through the consolidation of the industry.

3) Taking advantage of certain opportunities for “efficiency” that big insurance companies’ quasi-monopolies have bought them, such as cherrypicking patients, handcuffing doctors, retrospectively denying coverage to insured individuals, and the manifold other activities we can safely bundle under the rubric, “covert rationing.”

Obviously, all three of these pathways are closing off. There are few community-owned assets left to acquire, and consolidation has already left the U.S. with just a handful of important health insurance carriers. As for the “efficiencies,” opportunities here are drying up as well. For instance, this past December, shareholders of UnitedHealth Group (concerned because subscribers to the company’s insurance products had decreased by 315,000 in 2007) demanded a promise from company executives that the insurer would become “nicer” to its subscribers. Their own shareholders are wrecking their business model!

Insurance companies are left with the impossible task of trying to make a profit (and worse, to demonstrate continued growth) by actually managing the healthcare of sick people. This has never been accomplished in the modern era, and in all likelihood is not within the realm of possibility.

This explains why the stock prices of the big health insurers have been heading south for some time now. But what explains Warren Buffet’s enthusiasm for these failing businesses?

Two things. First, he recognizes the growing prospect of a Democratic victory this fall, in both houses of Congress and the Presidency. Second, he has clearly read and digested DrRich’s posting of six months ago that describes what will happen to the insurance industry with a Democratic victory.

Republican-style healthcare reform, even with a Republican such as John McCain, would bring the rapid and painful death of the health insurance industry. This, simply, is because the Republican strategy for healthcare reform relies on “competition and efficiency” in the private insurance market to save the healthcare system. Republicans, apparently, have not noticed that the insurance companies have been desperately trying their brand of “efficiency” for more than a decade now, and it’s been a disaster. The insurers have shot their efficiency wad; they’re entirely bereft of ideas; they haven’t a clue. Indeed, one can only imagine how the notion of a Republican victory, and the unbearable expectations such a victory will place upon them, must shake insurance executives to their core.

On the surface, Democrats will also put the insurance industry in an untenable position, as it is clearly their aim to drive insurers out of business (though they won’t actually tell us so). But Democrats actually have no performance expectations whatsoever for the insurance industry. Their only expectation is that the insurance companies should fail in due time. This prospect - as long as it’s preceded by one last, massive windfall - is quite acceptable to an insurance industry itself, which, realistically, can only be looking for a graceful exit strategy at this point.

As it happens, that one last windfall for the insurance industry is an integral part of the Democrat’s promise. For, before they drive private insurers into oblivion, the Democrats will present them with the gift of government-paid insurance premiums for many (Obama) or all (Clinton) of the 47 million uninsured Americans. These new premiums will amount to as much as $150 billion per annum. So, for at least a while, the Democrats will guarantee that health insurance profits will rise, executives bonuses will increase, and - more to the point - their stock prices will soar.

Which brings us back to what Warren Buffet is up to. DrRich is a great admirer of Mr. Buffet, and is sincerely happy to have been of assistance in furthering his understanding of the complex interplay between politics and the fiscal status of the big health insurers. So far, Mr. Buffet is playing the game perfectly.

DrRich does respectfully remind him, however, to carefully monitor this blog for the “sell” signal.

__________

Addendum. DrRich has just noticed that his deeply admired fellow blogger, DB, has challenged him this morning to a discussion of honor over the topic of malpractice reform, where DrRich has taken a very contrarian and highly unpopular position. Indeed, even DrRich hates himself for making such an argument. Nonetheless, DrRich is compelled, reluctantly, to answer in the affirmative (this being a matter of honor), and will post a reply within a day or two.

Posted in General Rationing Issues | 6 Comments »

Why Health Insurers Will Support Hillary Clinton

February 4th, 2008 by DrRich

As Hillary Clinton’s plans for American healthcare resolve into sharper relief, it is becoming clear that her plans dovetail quite nicely with the increasingly desperate needs of the health insurance industry. And, in contrast to 1993 (when the insurance industry initially supported her reforms, until getting a look at the monstrous volume of regulations she and her secretive committee finally produced, at which time they turned against her with extreme prejudice and a massive advertising campaign), this time Ms. Clinton can rely on the insurers’ steadfast - well, at least silence, if not outright support.

The difference? In 1993-94 the insurance industry had options. As insurers looked out across the healthcare landscape in that golden era, they perceived only opportunity as far as the eye could see. But then they spent the next 15 years clear-cutting that rich landscape. Today when it lifts its eyes from devouring its latest kill (prizes that now require the greatest of exertions), the insurance industry can see only growing desolation. Ahead lie lean times, if not oblivion.

It takes merely a quick look at how the health insurance industry has made all its money since 1994 to reveal just how barren its current prospects have become. This topic is treated in detail here, but to summarize, the insurance industry has made its billions in three ways:

1) Acquiring and privatizing community assets - generally non-profit hospitals and non-profit insurers - for a tiny fraction of their true value (through the collusion and/or ignorance of boards of trustees, state attorneys general, and state insurance commissioners), then letting the market assign the actual value of those assets to the company’s stock price.
2) Mergers and acquisitions of smaller insurers, i.e., through the consolidation of the industry.
3) Taking advantage of certain opportunities for “efficiency” that its quasi-monopoly has brought it, such as cherrypicking patients, handcuffing doctors, retrospectively denying coverage to insured individuals, and the manifold other activities we can safely bundle under the rubric, “covert rationing.”

All three pathways to profit are nearly gone. There are few community-owned assets left to acquire, and consolidation has already left the U.S. with just a handful of important health insurance carriers. As for the “efficiencies,” opportunities here are drying up as well. For instance, in December, shareholders of UnitedHealth Group (concerned because subscribers to the company’s insurance products had decreased by 315,000 in 2007) demanded and received a promise from company executives that the insurer would become “nicer” to its subscribers. (This, obviously, is a sign that insurers’ efforts at covert rationing - which simply means rationing by whatever means you can get away with - is reaching its effective limits. When your own shareholders force you to back off, you’ve gone too far.)

Now that its three pathways to profit are rapidly closing, the insurance industry is at last faced with a truly frightening prospect - having to figure out how to make a profit (much less continue to grow, as shareholders commonly expect and demand) by actually managing the healthcare of sick people. Since they have absolutely no clue as to how to accomplish this feat, the insurers find themselves staring into the void.

And this is where Hillary Clinton comes in.

Each year more individuals and employers are being priced out of the health insurance market, so health insurers are already severely growth-challenged when it comes to their classic source of premiums-based income. Already, tapping into federal health insurance funds has become the chief and most reliable source of growth for health insurance companies. To say it another way, private health insurance companies are now relying on federal programs as their only viable source of future growth.

So right off the bat, Republicans are a non-starter for insurance company executives who are looking for a presidential candidate to support. Republican candidates would have us rely on the efficiencies of the marketplace and the ingenuity of American companies to solve the healthcare mess. Perhaps this is true for some species of entrepreneurs, but not so with health insurance executives. While the insurance industry was able to support such free-market solutions as recently as 1994, today they have completely shot their wad, and are now entirely bereft of serviceable ideas. Indeed, their only serviceable idea is to do what they’re already doing to the fullest extent they can - to go on the public dole.

Either of the remaining Democratic presidential candidates would suffice, but of the two, Ms. Clinton clearly offers the better deal. She, like Mr. Obama, wishes to insure the 47 million currently uninsured Americans, and is willing to subsidize premiums for private insurance for at least a proportion of those individuals. That, obviously, is good for insurance companies. But unlike Mr. Obama, Ms. Clinton would go further in making the purchase of such insurance mandatory. And better yet, it appears she’s willing to at least consider forcibly deducting your health insurance premiums from your wages (which, really, is no different from forcibly deducting income tax, Social Security or Medicare payments from your wages - so no big deal).

So with a Clinton victory, the health insurance industry stands to reap one last windfall for their efforts, after which they will go quietly into the long night. It will be a graceful exit, and a delayed one - far, far better than what the Republicans offer (a frenetic spinning of wheels followed by catastrophic collapse.)

To an American health insurance executive, Ms. Clinton’s offer is as good as it can possibly get, given that it’s 2008 and things are as they are. If she is the least bit worried about encountering Harry and Louise again as she advances her plan for healthcare reform (or rather, Jason and Tiffany, as they’d have to be named today), Ms. Clinton can relax.

Posted in General Rationing Issues | 2 Comments »

Let’s You Sue Medicare

November 26th, 2007 by DrRich

A post on this site last week provoked an enlightening discussion, which DrRich will now summarize for you, following which he will solicit a volunteer for a noble but dangerous mission.

The issue at hand is the contracts that insurance companies and Medicare present to doctors, which, while their terms are remarkably unfavorable, doctors sign with nary a peep of protest, often without even reading them. DrRich’s original point was that doctors have no choice but to sign, as their only other alternative would be to become florists (or concierge physicians).

In the ensuing discussion, a physician reader indicated that indeed, doctors have no leverage in the relationship with insurance companies and thus no choice about signing the contracts. Dr. Poses (who started this whole thing with a post on Health Care Renewal) seemed a bit scandalized by this notion. He responded,

. . .if physicians are really being forced to sign contracts under these circumstances, wouldn’t that be a national scandal? And aren’t you actually charging that crimes were committed, on a national scale, perhaps involving national conspiracies?

DrRich, wanting no part of accusing UnitedHealth Group or Medicare of criminal conspiracy, soothed,

It is not a crime, nor is it really a conspiracy. The health insurance companies and the feds are really just doing what we (i.e., society) have deputized them to do - to covertly ration our healthcare. To do that, they absolutely must gain control over the behavior of physicians. Accordingly these “contracts” are merely tokens of the authority insurance plans have gained over physicians, authority that has been sanctioned by society, legislated by Congress, and upheld by the Supreme Court.

At this point a high-powered attorney specializing in negotiation and dispute resolution - Vickie Pynchon (check her credentials for yourself here) - offered a very provocative comment suggesting that, while such contracts (which she termed as adhesion contracts) are not criminal, they may indeed be unenforceable.

Although the law generally frowns on these non-negotiable agreements, it will enforce them. . .unless they are BOTH procedurally “unconscionable”(i.e., one-sided and “offered” on a take it or leave it basis to someone with very little or no bargaining power) AND substantively unconscionable (i.e., so unfair that it shocks the conscience).

She then went on to say that, in California at least, several adhesion contracts have been found to be unenforceable by the state Supreme Court.

This information set DrRich’s mind aflutter. If the only criteria needed to deem a non-negotiable contract unenforceable were that it had to be both procedurally and substantively unconscionable, well then, let’s have a look at Medicare.

Is the agreement between Medicare and physicians procedurally unconscionable, that is, offered on a take-it-or-leave-it basis? Why, most certainly.

There is virtually no choice for the average primary care doctor to opt out of Medicare, since the vast majority of his/her patients are enrolled in Medicare, and without those patients medical practice would be nearly impossible.

Is the Medicare agreement signed by physicians also substantively unconscionable? That is, is it so unfair as to shock the conscience? Here, too, the answer seems plain.

Physicians accepting Medicare have their pay rate determined not by market forces, but arbitrarily, by acts of Congress. Congress has famously been dialing back physician fees lately, so that, to make ends meet, doctors have to make it up with volume, moving from patient to patient every 7.5 minutes. Further, Medicare has fallen in love with something called Pay For Performance, whereby the feds get to script for the doctor exactly what he/she must spend those 7.5 minutes doing “for” the patient (no matter what the patient’s actual medical priorities). Medicare has in addition promulgated thousands of pages of arcane rules, regulations, guidelines and hints for proper medical behavior that are far less clear than, say, the IRS code. And it has launched a major Fraud Reduction program such that any minor violation of any of those impossible-to-interpret rules, regulations, etc., etc. are regarded as Healthcare Fraud, which (Congress has ruled) is now a federal crime, punishable by triple damages, $10,000 per “violation” and jail time. One form of such Healthcare Fraud would be to offer a patient a medical service that the doctor thinks the patient needs, but that Medicare has decided not to cover. Giving the Medicare patient the means to purchase desired medical services with his/her own money, in other words, is a barred and punishable activity (See Section 4507 of the Balanced Budget Act of 1997). Medicare has not come after huge numbers of doctors for fraud, but it seems to have done so arbitrarily, and when it points its fickle finger at you, well, given the tangled web of regs, you’re always guilty of something.

Any normal person - that is, a person who is not a politician or policymaker (who find this arrangement to represent the natural order) or physicians (many of whom seem to have become gradually inured, like frogs in a vat of gradually heated water, to such constraints on their professionalism and humanity) - would be shocked by a “business arrangement” like this, at least if you suggested it ought to apply to them.

Clearly, by its obvious procedural and substantial unconscionability, the Medicare agreement looks unenforceable. DrRich gently suggested as much to Ms. Pynchon: Looks like we have a case, huh?

It might not be that easy, she responded. It seems that determining whether a contract is substantially unconscionable (i.e., shocking to the conscience) depends on who is the shockee. It’s best, she indicated, if you are part of some group perceived as being relatively innocent or powerless.

Despite physicians’ reputation for general incompetence in their business and financial affairs (deserved or not) I do not believe the courts would treat them with special concern when it concerns their entry into contracts — adhesion or otherwise. They would, I presume, be treated as highly sophisticated “consumers” of insurance programs who could, if they wished, simply opt out of an insurance-based practice for a cash-on-the-barrel-head means of earning their compensation.

OK, so it’s not a slam dunk. There’s a slight possibility - despite all the evidence to the contrary - that the Medicare agreement with physicians is enforceable.

But look: Doctors can plausibly argue that they’re constitutionally lousy businesspersons (as Ms. Pynchon helpfully reminds us), that they were raised under a regime of “learned helplessness” (see Dr. Poses article), or that they’re just too damned busy doing P4P to read convoluted folios of legalese.

So what do you say. Any takers? Let’s you go ahead and sue Medicare on the unenforceability of the contract they make all doctors sign (in a procedurally unconscionable way) that places them in a substantively unconscionable position. DrRich would do it himself, but he’s still recovering from his last close encounter with the wrath of the Feds. Time for someone younger and less damaged to take up the cudgel.

DrRich will hold your coat.

Posted in Wonkonian Rationing | 5 Comments »

Pay for Performance and Covert Rationing (1)

September 11th, 2007 by DrRich

Pay for Performance (P4P) is the latest trend among health insurers and our friends in the government in their never-ending efforts to assure that patients in their charge are receiving top-quality healthcare. At least, that’s what they say.

Under P4P, certain “clinical practice guidelines” are developed by Medicare or private insurers, based on the principles of evidence-based medicine, to establish uniform standards of care for certain medical conditions. Then, doctors who meet specific “performance indicators” based on those guidelines will receive some sort of financial award at the end of the year. (The most common reward is a 5% bonus.)

Given the stated aims of P4P (quality improvement), and the fact that it is asserted to be grounded in state-of-the art medical science and mathematics, it immediately becomes inadvisable to criticize the effort, lest one be instantly revealed as a medical heathen.

DrRich will take the risk.

For, while P4P might be a reasonable tool for improving outcomes under some circumstances, under a healthcare system that fundamentally traffics in covert rationing (that is, where withholding healthcare covertly has become the prime directive), P4P is destined to be twisted to that end. P4P is an especially insidious tool for covert rationing precisely because it seems so reasonable and scientific on its face.

While P4P has been touted as a revolutionary new approach to quality healthcare, it is actually a repackaging of techniques traditionally used in managed care for many years. It is perhaps most similar to the “clinical pathway” initiatives that were common in the 1990s. The major difference, in fact, between clinical pathways and P4P is that the former were devised, implemented, monitored, and continuously adjusted locally, under the direct control of the doctors and administrators on the scene; whereas the latter are handed down from On High (either from Castle UnitedHealth Group, or from the Great City of Oz itself), and are not amenable to the continuous, data-driven process improvements that are the real hallmark of classic managed care. Far more than clinical pathways ever did, P4P threatens to become a matter of making ticks on a centrally-dictated check list.

P4P also relies on the Axiom of Industry - that the standardization of any process both improves quality and reduces cost. As DrRich has described elsewhere, the Axiom of Industry does not hold when the process involves actual human patients. This is because patients are not widgets. (While everyone agrees that patients are not widgets, the implication of this fact seems to have escaped many: What happens to the individual widget on an assembly line is immaterial - discarding even a high percentage of proto-widgets may be fine - as long as the ones that come out the other end are of sufficiently high quality as to yield the optimal price point in the market. Patients not being widgets, in theory we are supposed to care about what happens to the individual patient during the process.) Nonetheless, invoking the Axiom of Industry - equating reduced cost to improved quality - allows the central authorities to choose “quality measures” in their P4P efforts that will primarily reduce cost, and then to claim that their primary concern is for quality.

Those who have implemented P4P programs have been careful not to measure the results of their efforts based on patients’ actual clinical outcomes, but instead they determine the success of their programs based on the compliance of physicians with the received “practice guidelines.” Pay for performance is really pay for compliance. Compliance with guidelines received from on high BECOMES the outcome, the outcome that determines whether patients are receiving quality care.

But as any objective observer can tell you, care guidelines themselves are inherently problematic. (DB’s Medical Rants has an enlightening series of posts describing how this is so.) The scientific evidence used to establish guidelines is most often incomplete, is based on “idealized” and carefully chosen patients who rarely represent the actual patients seen by doctors in the wild, and is often inconsistent or contradictory. Such evidence can be applied to real patients only after careful consideration and interpretation, and making decisions based on such evidence requires a combination of clinical judgment and educated guesswork, even given a set of official guidelines. Whose judgment and guesswork ought best to be brought to bear - the clinician on the scene, or some remote bureaucrat? DrRich understands that the answer to this question is not straightforward for everyone, but he suspects most people would choose for their doctors to do it. In any case, the conceit voiced by proponents of P4P - that the right medical decision in most clinical situations can be predetermined objectively, and at a distance no less - is simply wrong.

But compliance is compliance, and doctors who do not comply with centrally-dictated guidelines will have a greater price to pay than merely missing their 5% bonus. Aetna, UnitedHealth Group and Cigna are already being scrutinized by the New York Attorney General for possibly steering patients away from less compliant (read: more expensive) doctors, on the purported grounds of their less-than-optimal quality of care.

These problems with P4P are at least reasonably straightforward and easy to spot. In his next post, DrRich will address some more insidious - and potentially more dangerous - aspects of P4P.

Posted in Gekkonian Rationing, Wonkonian Rationing, General Rationing Issues, Primary Care in America | 8 Comments »

Weep Not for UnitedHealth Group

September 6th, 2007 by DrRich

Vanessa Furhmans of the Wall Street Journal Health Blog reports that a group of state insurance commissioners “plan to announce a multi-state settlement with [UnitedHealth Group] concerning some of its claims-paying systems.” It appears that regulators from four states have been negotiating a settlement with the health insurance giant for years. According to Furhmans, “the settlement aims to improve the accuracy and timeliness [emphasis DrRich’s] of the company’s payment to health-care providers and consumers. The agreement is expected to include a set of performance benchmarks the insurer has agreed to meet.”

But how can this be? DrRich just recently described how the systematic inefficiencies that health insurers have built into their claims processing - the “Chutes and Ladders” paradigm - is a chief component of their business model. Does the pending settlement not strike at the very heart of profitability for UnitedHealth Group and its peers?

The Wonkonians certainly hope so. For, in the grand scheme of things, this new development is just the latest battle in the ongoing struggle between Wonkonians and Gekkonians. Here, the Wonkonian regulators are attempting to take a giant step toward their ultimate goal of pushing the Gekkonian insurance companies into fiscal oblivion.

But it’s way too early to give up on the insurance companies, which have flourished in the face of bigger challenges than this one. In this case several things can mitigate the damage.

First, the insurance companies themselves are the only entities that fully understand their labyrinthine reimbursement schemes; they control the process. In this light it is telling that UnitedHealth Group and the regulators have been “negotiating” the “improved” reimbursement procedures for at least a couple of years. In a culture swimming in seamless electronic processing systems, the puzzle of simplifying claims processing should have been solvable in a couple of weeks.

Second, remember that the Wonkonians themselves, in the guise of Medicare and Medicaid, are also deeply engaged in purposefully mysterious reimbursement schemes. One suspects that there’s a limit to how far they’ll push the insurers toward transparency and simplicity, lest the expectation for similar processes is turned back on them.

Third, when was the last time any regulators have ever been able to simplify anything?

So whatever “improvements” come out of this settlement, it is unlikely to yield a straightforward claims processing system. It would not be a big surprise for claims processing to end up even be more complex than before, what with the regulatory benchmarks that will doubtless be glommed on to the whole mess.

Furthermore, the insurance industry - given that it has been “in negotiation” with regulators for years over their “Chutes and Ladders” reimbursement schemes - has had plenty of time to see the writing on the wall, and to devise new business models to take up the slack. Pay for Performance is one. UnitedHealth Group’s foray into the Medical Home is another. And recently, as pointed out by Dr RW and Retired Doc, the Wonkonians have demonstrated to the insurers yet another method to avoid paying for medical care, namely, Non-Pay for Non-Performance (NP4NP).

The ultimate demise of the big health insurers is by no means imminent. Weep not for UnitedHealth Group.

Posted in Gekkonian Rationing, Wonkonian Rationing | 1 Comment »

Medical Home Invasion

August 24th, 2007 by DrRich

Last year, the American College of Physicians (ACP) published a “policy monograph” on the Advanced Medical Home, which urges a “new” model of medical practice. Under the “medical home” paradigm, patients would have a personal physician who partners with them over time, coordinating all their medical care and guiding them, whenever necessary, through the confusing halls of American healthcare. Among the many benefits of such a practice model, the ACP notes, would be a strengthening of the doctor-patient relationship.

“Great idea!” DrRich found himself exclaiming when he first read the monograph. In fact, DrRich has felt this to be a great idea for 35 years, since he was first starting out. Indeed, this has been the fundamental idea behind behind primary care medicine for, well, forever. Heck, it was the driving force behind Marcus Welby. So why did the ACP (one of the premier organizations of primary care doctors in the world) find it necessary to “rediscover” its own central idea, and then to rechristened it? What gives?

Reading more carefully, DrRich found in the ACP monograph some clues. The medical home would require doctors to adopt evidence-based medicine and decision support tools to “guide” medical decisions, to demonstrate continuous improvement in key quality indicators, and to participate in programs that measure and report overall performance. Further, the medical home would require a new kind of reimbursement model for doctors. The specifics of such a reimbursement scheme were unspecified, but pay-for-performance was mentioned. Hmm.

Then, earlier this month light was shed upon what, exactly, gives. The beans were spilled by means of a press release issued by the ACP, two other prestigious primary care organizations - the American Academy of Family Physicians (AAFP) and the American Academy of Pediatrics - and UnitedHealth Group. (That’s right, UnitedHealth Group, the Uber-HMO.) The press release is titled “UnitedHealth Group and physician groups to launch ‘medical home’ pilot program to reward primary care doctors who improve patients’ total health.” (More details were provided by the AAFP here.)

In the press release, UnitedHealth Group (which at least was cagy enough not to put “and physician groups” in parentheses) gets top billing. And as you read the press release it quickly becomes apparent why they do - it’s their show.

In the pilot program for health home, UnitedHealth Group will provide participating physicians with “quality improvement and care management systems,” and the means for incorporating these tools into their practices. Apparently, then, UnitedHealth Group will control the data and the “decision support tools” for determining when and how patients are treated, and for what. Fear not, however, since all medical decisions supported by these tools will be geared toward both “quality and efficiency.”

Available public documents on this new effort do not specify what will happen when medical decisions that lead to optimal outcomes will result in significant increases in spending, rather than in “efficiencies.” (Contrary to managed care dogma, improvements in quality do not always result in cost savings, and vice versa.) But the medical home pilot, as one would predict for any healthcare scheme heartily endorsed by a major health insurer, has safeguards to assure that when quality and cost are at odds when making medical decisions, doctors will always tend to err on the side of reducing costs.

This is made plain by the new physician reimbursement scheme to be used by the medical home pilot:

“UnitedHealth Group will pay participating physician practices a monthly care-management fee based on projected savings for all patients that select a medical home. In addition, the company will share any excess savings that accrue from the pilot program with the physician practices and — by way of premium reductions — with employers.”

That is, doctors will be paid according to their ability to not spend UnitedHealth Group’s money on patient care. The less they spend on patient care, the more they make.

DrRich gets it now. This is not some new, revolutionary reimbursement scheme. It’s the same old reimbursement scheme, slightly dressed up.

Supreme Court Justice David Souter said it plainly in 2000, writing for a unanimous court in Pegram vs. Herdrich:

“Like other risk bearing organizations, HMOs take steps to reduce costs. These measures are commonly complemented by specific financial incentives to physicians, rewarding them for decreasing utilization of health-care services, and penalizing them for excessive treatment. Hence, an HMO physician’s financial interest lies in providing less care, not more….Inducement to ration care is the very point of any HMO scheme…”

UnitedHealth Group is simply responding to the request by the ACP for a “new model” of primary care by giving them what they want. But you can put lipstick on a pig all day long and it’s still a pig. Whether you call it medical home, pay for performance, or just plain managed care, as long as the big insurers (and the feds) are the ones who determine the doctor’s viability as a practitioner, and as long as patients are the individuals who cause doctors to risk their viability as practitioners, the genuine practice of medicine - and the fabled doctor-patient relationship - must remain fond dreams.

Posted in Gekkonian Rationing, Primary Care in America | 4 Comments »