Consumer Power Report #145

This week Business Insurance reports that United Health care is facing problems similar to other major carriers. Its share price has fallen 49 percent this year, “worse than its rivals,” says the article by Reuters, and it has “significantly reduced its profit expectations for 2008, in part because of pressures in its commercial (non-government) business.” The company has shaken up its senior staff and reorganized into regional business units that can respond better to localized trends. It has brought on Gail Boudreaux, who was EVP of Health Care Services Corp. (which runs the Blue plans in Illinois, New Mexico, Oklahoma, and Texas) to run the division.

Ms. Boudreaux is quoted in the article as saying, “We got a bit out of balance with more of a national focus. Our focus is about making sure we listen to the marketplace. Health care is an inherently local market, especially in the small group (employer) business. We are listening a lot more to our brokers, to our customers.” The article suggests that in the future United will emphasize customer service over “leveraging its scale.”

This is actually good news. United is beginning to place customer service ahead of leveraging provider discounts. The market is telling the large carriers that size is not the most important quality in a consumer-driven world.

Two weeks ago I wrote that carriers could dramatically cut their administrative expense by disregarding small claims until an individual’s expenses begin to approach their deductible. In fact they will need to do this to stay solvent in a high-deductible world with reduced premium income.

A number of brokers were bothered by this turn of events. One wrote: “I have found one of the biggest advantages of my (health) plan is the huge discounts I get off of billed charges when my carrier re-prices the claim. For example, my wife’s recent CT scan was re-priced from $930 to $409.”

Another wrote: “My question–how does the insured then know the proper price to pay for medical costs under the PPO prior to the deductible. This is important for 2 reasons. First, the insured should not have to pay a higher rate than that negotiated by his insurer. However most, if not all, providers have no idea of the appropriate charge unless they receive an EOB with the proper price. Secondly, only the PPO price for the services received will be credited toward the deductible so, if an insured pays more, they don’t receive credit for that toward the deductible.”

Yet another wrote: “Unfortunately, since there is no price transparency of the carrier’s discounts, and since virtually none of the provider systems could send out a bill that reflected these discounts, the current state of things requires that (the carrier) adjudicate the claim so that the patient will know the amount that they owe after discount.”

These gentlemen are not wrong, of course. They are describing the system as it exists today. As brokers, they can sell only what is currently available. Descriptions of how things could or should be do not help them in their business. Point taken.

However, we have often said that consumerism will change everything in health care, and this will be one of the most immediate changes. The current system of “negotiated” discounts cannot and will not survive. It makes no economic sense to charge a PPO patient one-half or less of what a self-pay patient has to pay. The cost of performing the service is roughly the same for both patients. The only way PPOs have been able to wrest these kinds of price concessions is through the threat of “leverage” (that is, the threat of boycotting a provider who refuses to accept the discounted charge.) But that is largely an empty threat, especially after the hospital consolidation of recent years. Hospitals are in a much stronger position to resist discounts today and a health plan will decertify a facility at the peril of creating a backlash among its customers.

Add to this is growing demand for price transparency from consumers, the media, and politicians, and the days of secret prices are rapidly fading. If it collapses around hospitals, it will not be sustained for physicians, either.

Further, the experience of Broker #1 above illustrates how misleading the idea of these discounts are. His wife was grateful that her CT scan was “re-priced” from $930 down to $409. But, if she had shopped around a bit and offered to pay cash, she might very well have found a lower price than $409. The CT provider would have done better by accepting $409 in cash from the woman at the time of service than filing a claim of $930 and waiting six weeks for the PPO to pay the $409. HSAs make that sort of shopping behavior possible.

I don’t underestimate how difficult this transformation will be. An entire infrastructure has built up around the current PPO model. But there is nothing like a falling share price to concentrate the mind and get companies to rethink their business models. That is what is happening today, and I wish the companies every success in reinventing themselves.

Dear Greg:

This is a comment on Jeremy Thompson’s section on Gov. Palin’s views on health care.

I think the summary of the whole thing is that we have a blank slate on her views on health care. Just because someone uses the key phrases “competition” and “HSAs” etc. in a sentence doesn’t mean they have the foggiest idea what is best for citizens. Her views on abortion/right to choose, banning books, and others suggest a scary retro approach to most of the issues we have been dealing with for the last few decades.

I wish someone would just admit that, in our capitalist and diverse country, there is no ONE solution to our health care crisis, and that many programs and styles of choice and delivery are the only ones that will work. Senator Obama is the most open minded candidate we’ve had in years and is just humble enough (and smart enough) to listen to fresh ideas.

It’s not just what they say: it’s how they’ve behaved in the past and presumably the future. What we need is someone to listen to Americans, and not just talk.

Aimee Seidman, MD, FACP, CMD
15020 Shady Grove Road
Suite 300
Rockville, MD 20850
(301) 545-1811
fax (301) 545-1814

Medical Director
Asbury Methodist Village
Gaithersburg, MD 20877

Dear Mr. Scandlen:

We read with much interest your article “A Health Care Revolution Is Underway … No Thanks to Government ‘Help'” at http://www.heartland.org/Article.cfm?artId=23591. Being in the business of health care “revolution” – medical tourism, at Healthbase, we were especially drawn to your report.

We would like to comment on points 5 and 7 in your article – “Hospitals abandoning the practice of billing ‘self-pay patients’ the highest possible charge” and “The growth of medical tourism and physician-owned specialty hospitals” respectively.

Seeing competition from medical tourism, some American providers have taken a plunge into the medical tourism business themselves by matching the lower foreign prices for their services to US patients. At Healthbase, we have several such US health care provider partners who offer low prices for services to Healthbase clients. And, many big US hospital networks are in the process of following suit.

Recently, we helped one American patient receive a triple bypass surgery at one of our US partner hospitals for a price that closely matched what our overseas partners were offering.

We agree with you that a revolution is underway to reform the plagued US health care system.

Speaking of medical tourism, we got the following report from Dick Matthews following the recent Medical Tourism Conference in San Francisco.

Here I sit with hours to kill before my flight home, so I thought I would spend the time sending along my take on the last four days at the First Annual Medical Tourism Conference.

Here Is The Deal

MTA (Medical Tourism Association) just held the first annual Medical Tourism Conference in San Francisco. Your intrepid reporter was invited because I know the founder of this outfit and have done some business with him. We hooked up through our mutual interest in consumer-driven health care and his location in south Florida. As you might imagine, this is a nascent concept/business/enterprise – at least on the formal level. MTA is clearly the leader internationally in putting all of the pieces together, and therefore by osmosis I wind up taking notes and hanging out with some interesting and creative characters from all over the world.

For starters I was impressed by diversity and accomplishments of the attendees. Top physicians and entrepreneurs from all over the world. I heard someone say this was like “the United Nations but everyone has a great attitude” and that seemed to sum up the general vibe. It was international networking galore and I was certainly out of my league. But it sure was fun to watch docs and hospital administrators hunt down anyone that was breathing to either tell them what they were up to or ask the same of them.

Some General Reactions

It was made clear from the start that the focus was on creating and obtaining business from the US, Canada, and the UK. Being a provincial sort, I assumed the entire focus would be on pricing arbitrage available to US patients and payers. Way wrong. That was part of the presentation of course but a very real target of the international hospitals is Canada and the UK. It is not about the money. It is about access to quality care on a timely basis.

I have one word to say about the future of medicine – or at least surgery – KOREA. What a story – and they pulled no punches. We all remember “Japan Inc” and the impact it had on the American auto industry. The parallel with Korea and medicine is almost spooky. As their national rep said in his presentation: “First it was cell phones (Samsung), then direct TVs (LG), then cars (Hyundai), and now medicine.” This is a state-sponsored effort and it appears that there is no amount of cost they will not incur in order to be the best in the world.

The real deal for Korea is the amazing commitment to technology. According to the presentation, the Severence Hospital has done 610 prostate surgeries with the daVinci robot and not one single complication. This was but one example. Their commitment to tech is no news of course to anyone that has followed the last two decades of enterprise in that country.

I was also blown away by the presentations of the Philippines and Jordan. We heard presentations from every region of the world over the four days. But I had no idea what Jordan was up do. Simply amazing in terms of quality hospitals and medical care. They intend to be the single best option for care in the Middle East – irrespective of what Dubai and UAE might think. The Philippines went to great lengths to point out how their culture is perfect for medical care – and stressed how they are famous for their nurses. They stressed their complete focus on the patient above all – and how many people would love to have that experience versus the often spotty care received in American hospitals – let alone UK and Canada.

All of this to say that I had no idea of the real quality available in medical care throughout the world. The affordability had always been clear to me but I never realized the great value available. If we ever find a way to allow our citizens to have real choice in their own care, the world will get even more flat than it is now.

The Patients

What a hoot! These folks (4 of them) had different and compelling stories ranging from a surgery not allowed in the US (hip resurfacing – FDA since changed collective mind) to major heart surgery with no insurance (COBRA ran out after heart attack) to bariatric procedure and the best of all – a total hip replacement for “Larry the Cable Guy” — right down to the camo baseball cap. A room full of people in suits and ties and very nice casual clothes. And here he is in blue jeans, plaid shirt and goofy cap. Perfect – just perfect. And he brought his wife (she being the only companion to report on the experience). They had never been out of Tennessee in their lives and all of a sudden they are on a plane to India! Scared to death and could not believe how well they were treated and taken care of. What a story – and he had us in tears laughing. He spent “a coupla years working double shifts to save the money whilst the Mrs. worked on gittin’ my passport. Had me some problems with that, ya know.” Just a natural story teller. Best part of the whole gig was listening to all of these folks discuss their actual experiences. But that all ended when we heard from our friends the insurance carriers and the AMA.

Predictable But Disappointing

Joined at the hip with the AMA were our friends from BUCA – Blue Cross, United, Cigna, and Aetna for those of you that may not know the acronym. Joined at the other hip were the HR honchos from Procter & Gamble and Black & Decker. I won’t take up your time to belabor this, but everything they said was what they always say — people are simply too stupid to handle something this sophisticated by themselves. All various forms of rent-seeking as Greg might say. Under the guise of “making sure our patients/members/employees are protected from evil,” they all came up with scores of reasons why we must go very slow on this whole MT idea.

The one very bright spot was Peter Hayes from Hanneford — the grocery chain that has embraced MT. It was pretty much a “point/counter point” and he refuted pretty much everything they said. This is what happens when a CFO makes decisions as opposed to HR types, lawyers, and insurance types. He had an answer for every objection from employees being able to handle their own decisions if given proper info and real choice, to telling Aetna (the carrier) exactly how this was going to work if they wanted to keep his business. Maybe the best part was when he pointed out what happened after the WSJ ran the story on a Saturday – as he said “a simple one-paragraph announcement of what we were up to.” He got calls the following Monday from three local hospitals pointing out that they would be happy to discuss negotiating new rates for his employees. Sort of amazing how this competition thing works.

Marketing

Right now all this is pretty much run by “facilitators” – middlemen that put all of the pieces together to make traveling thousands of miles for surgery/treatment work. It seems that most of these outfits are Internet-driven which makes sense given the fact that this is where folks go for information. The one exception to this was Korea. I met with the rep from the government and he made it very clear that they have no facilitator – the government IS the facilitator. They are happy to arrange everything one may need to make the trip.

The most compelling practical idea I heard was from a fellow that sells mini-meds. And it makes sense. Mini-meds present one with a bag of money – a voucher if you will. It is a fixed amount. People with this type of plan are natural shoppers – or forced to become shoppers. And right now, a significant number of folks with mini-meds are of Hispanic origin and have no trouble at all heading to Mexico or Costa Rica for their surgery. First the uninsured, then the so-called under-insured.

In the typical insurance arrangement, the only real practical opportunity I see right now is for self-funded plans. The employer can insist that the plan administrator offer a plan choice that includes a “table of allowances” or voucher for each type of surgical procedure. Employees would then be encouraged to shop for the best deal they can make – wherever that might be. It is clear that insurance companies will only come to this party kicking and screaming and employers like Hanneford will have to be the ones dragging them by the hair.

Safe to say I was blown away by the globalization of medical care and the quality available throughout the world. In particular in places where it does not seem possible. Right now the cost/pricing arbitrage makes this option very viable for consumerism.