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INDUSTRY: The ever-growing power of Wal-Mart

There’s been plenty written elsewhere about the influence of Wal-Mart in America’s economy. For instance, this about Wal-Mart and the recording industry and this critical view of its influence on local communities. Somewhat under the radar Wal-Mart has been growing in scale as grocery store and a pharmacy chain. It’s now the number 3 pharmacy chain in the US, behind Walgreens and CVS. Jane Sarasohn Kahn has written an excellent article about Wal-Mart’s influence on the health care business.

One of the best known aspects of Wal-Mart’s presence is what it does to suppliers.  It forces them to cut costs and pays them later than they’d like, so Wal-Mart makes more of the "float" than other retailers.  In fact I was once told that Sam’s Club (its discount "club" store) actually makes zero margin on goods sold but turns over its inventory every 7 days and pays its suppliers in 90, giving it nearly 3 months to collect interest. Donald Johnson at The Business Word has written a fairly complimentary article about Wal-Mart’s employee health benefit program, particularly the emphasis on cost control and catastrophic care insurance, but he neglects to point out that it takes 6 months for an employee to be eligible for health benefits and that Wal-mart has 40% employee turnover a year. So great swathes of Wal-Mart employees are uninsured. (It could be worse–they could offer no health insurance).

One example of Walmart’s power over suppliers happened this morning.  It pulled out of a flu vaccination program is was going to offer with the FluMist product from MedImmune.  MedImmune’s stock price is off over 5%.

INDUSTRY: Major healthcare M&A deals this year

This Reuters report shows major healthcare M&A deals this year.  I found this after looking at GE’s further incursions into the health care business.  Most recently GE last week bought Amersham. Amersham makes reagents and fits in with GE’s MRI and other scanner business.  Meanwhile GE has also decided to to get further into medical IT, with its purhcase of the old Medicalogic EMR system from Medscape. Add to that Siemens purchase of SMS a couple of years back, and its apparent that the world’s biggest companies are starting to scrutinize the US’ biggest industry, and also see if there are opportunities on the information and medical technology side, as well as on the pharmaceutical side.

Note: Amersham’s interesting historical footnote is that it was the first company privatized by the Thatcher government in the 1980s, and possibly the first privatized company ever

TECHNOLOGY: Physician IT use–New Zealand leads the way

I mentioned anecdotally a while back that GPs in New Zealand and the UK are very advanced in their in-office IT use. A GP I stayed with there last March was using a computer to type his patient notes while the patient was in the office.  He was no fresh young doc, in fact he’s much closer to retirement than to hanging his shingle. So what caused this transformation? A national system, national planning, the creation of a single health identifier for everyone in the country, and funding for the technology.  The result is shown in this piece by the New Zealand Health IT Cluster:

80% of GPs use an EMR
95% of GPs, 100% of laboratories and 100% of radiology clinics are connected to the Health Data Network.

More from iHealthbeat

QUALITY QUICKIE: Design in HC–IDEO’s take

Famed Palo Alto industrial design firm IDEO is taking on the challenge of designing a more-patient friendly hospital process. Many of the ideas they are talking about are similar to the quality circles that the Japanese used to successfully destroy threaten the US auto industry. Don Berwick has been promoting these ideas in health care for many years, as I posted about here.

The most interesting idea the IDEO team comes up with is rapid prototyping.  They changed many things about the process, did it very quickly, and then observed the results immediately.

    Ordinarily the hospital spends a year or two in committee, create what they think is the perfect team process, and then goes out and tries it and fails. At IDEO we say, "fail early to succeed sooner." So after a half hour bringing into the field, we see how colleagues use it. Then we come back and revise it. So we get rapid prototyping in place. Previously it was death by committee.

On a side note, IDEO made its name in part on its design of the Palm V PDA (on the left in the picture).  What’s not so widely known is that IDEO stole assumed its role in the design process from a smaller design firm (for reasons that were totally unrelated to the design work). The smaller firm had already come up with this design, which IDEO if anything made less attractive in the final product. So it just shows that even the best and brightest amongst us have skeletons in our closets.

INDUSTRY: Employer health costs moderating slightly

Hewitt Associates report on their annual survey on health costs for employers. They found that the 2004 premiums will be up an average of 12.6% next year as opposed to 14.7% in 2003. They also note that HMO costs continue to rise a little more than PPO and POS plans (13.5% vs 12%) which is one reason that HMO enrollment has been declining (although HMOs and POS are pretty similar these days). Don’t forget that these costs are for employers and are not really the same as overall health costs which are also paid by government and consumers. Employers are continuing to respond by imposing more costs onto their employees, which is leading to contentious labor relations in many industries, such as retail and public services (via The Bloviator). Hewitt expects some of the following tactics:

    Higher payroll contributions (from employees), lower subsidies for dependents, and increased office, hospital inpatient and emergency room copayments. (For drugs), implementing higher copayments, coinsurance models, mandated low-cost substitution provisions for certain therapeutic classes and generic incentives. (For chronic care)
    contracting with organizations that offer specialized or disease management programs. Offering new consumer-driven health plans.

In other words pay more and probably get less.

There are a couple of implications here for health plans serving the commercial market. One is the slow but steady emergence of the "consumer-directed health plan".  While this doesn’t appear to be any more than another fancy benefit-set such as the HMO, PPO or POS were in their day, it is making an appearance as this news from Siemens suggests. Expect consumer directed plans to mean employees choosing between a diminishing set of benefit options.

The other implication is that the slight reduction in cost increase may translate into lower revenue increases and therefore lower margins for health plans. Health plans (and insurance companies) ride out something called the underwriting cycle. Simplisticly put they charge more in some years to make up for losses in past years and they make big profits in those years–so big premium increases as we’ve seen in the past few years equal big profits for insurers.

Two of the biggest insurers, United and Wellpoint, have seen their stocks rise over 50% in the past 2 years, and beat the S&P500 by way more than that. This may not continue for much longer if costs are coming slightly more under control, which may have consequences for the vast amount of money with which United’s senior management have been rewarded, mostly with the approval of an exceedingly compliant board led by ex-New Jersey governor, Thomas Kean .

HEALTH PLANS–Using OTC as a lever for pushing costs onto members

Health plans and their PBMs failed in their mission to control drug costs in the 1990s. One option that has proved somewhat successful is to get members to use OTC versions of previously popular prescription drugs.  Wellpoint in particular waged a successful campaign to get Claritin (and other non-sedating anti-allergy drugs) reclassified as OTC by the FDA. They then gave away (initially) free coupons to Claritin users to persuade them to try the OTC variety and at the same time made it very expensive for members to get the prescription anti-allergy drugs, Zyrtec and Allegra, by essentially kicking them off the formulary. Now other plans including Aetna are doing something similar by promoting free use of Prilosec now it’s OTC.  Of course this means that Aetna members will probably have to pay much, much more if they want Prilosec’s replacement, Nexium, instead of OTC Prilosec.

While this is good business for the plans and obviously not so for the pharmas, it’s just one more indicator that costs are being pushed directly onto consumers.

QUALITY QUICKIE: Blue Cross’ Pay for Performance strategy

California Blue Cross (Wellpoint) is one of the plans participating in the California wide Pay for Performance (P4P) scheme, which rewards physician groups for improving a variety of quality scores.  The scheme is administered by the IHA, a provider/payer talking shop that’s seized on quality as an issue that might help improve the antagonistic relationship between plans and providers. This article from MD Practice Alert describes the way Blue Cross HMO is using pay for performance. The article is a little confusing; despite what it says there is no monolithic P4P standards.  All the health plans involved have slightly different metrics. The key thing is that they are all paying bonuses based on some performance measure and making those measures and bonuses publicly available.  For more information on differences between the plans, see here.

Like the other plans Blue Cross is rewarding the groups on the more preventative HEDIS-type measures that are the core of the current P4P. However, one difference between Blue Cross and some of the others is that it’s rewarding physician groups that have utilization management systems that track care given to the group’s patients outside the group’s walls, and especially that given to long-term inpatients in hospitals, rehab centers and skilled nursing facilities. In addition, Blue Cross is paying out more money ($28m) and a higher percentage of its overall payment budget (10%) via its version of P4P.

TECHNOLOGY: Customer service on health plan web sites–Now I’m mad! (with new UPDATE)

I tend not to let my personal feelings come out in this blog (as I have a couple of others for that) but I find myself pretty grumpy when I read the following passage in Today in E-HealthNews.

    Health-plan Web sites fail to provide adequate content when compared with the "high-quality" content users find at retail and media sites, finds Forrester Research’s Consumer Technographics Q3 North America Benchmark Study. According to the study, retail and media Web sites get overall satisfaction levels of 92% and 86%, respectively. But HMO Web sites receive an overall satisfaction level of only 47%, says Forrester. Even if health plans provide reasonable-quality content on their sites, according to the survey, members say they can’t find it. The study reports that 61% of health-plan Web site visitors say that the site’s navigation structures fail to meet their needs..

You may not know that I spent 2 years working for i-Beacon a company that sold web CRM software to health plans.  The software personalized and organized the presentation of a health plan site to the members based on their health conditions and their medications, as well as automatically extracting information about those conditions from the health plan’s claims system.  We argued that if the health plan installed the system, the plan would save money by having fewer people use their call centers because those members would find the information personalized to them on the web site. What does the report say about that?

    Forrester also finds that seven out of 10 consumers are so unimpressed by the customer-service capabilities of health-plan Web sites that most of the time they use the phone instead

Now I wouldn’t really mind about that fact that only 2 customers bought our product, if health plans as a whole had been buying and installing similar types of software. (Well, I would have minded but I’d have understood)! Instead, as I wrote in this article last year about my e-health experiences, almost all of them did nothing.  The few that have done something in this arena have not in general tried to integrate or personalize the information that they are presenting to their members, which has led to the poor consumer feedback that Forrester reports.

The problem is that despite all the guff about consumer-directed health care, the average health plan sells its products to HR people at big companies who are much more concerned about keeping costs down than the user experience of their members.  This view is so ingrained that appalling customer service from health plans has been totally accepted for ever.  So if the big accounts don’t care, then there’s no real incentive for health plans to make the effort and spend the money to improve.  Whereas in retail or media, if the individual consumer is unhappy they vote with their feet, their mouse and their dollars. Which is yet another reason why employer-based health insurance is a bad idea.

Meanwhile, if anyone wants to buy an excellent health CRM product going relatively cheap, let me know!

UPDATE: Via Tim Oren’s Due Diligence comes news from Jupiter (Forrester’s big rival) that too much personalization actually discourages web site visitors, and that attempts to figure out someone’s needs and wants from limited information is counterproductive. The report says:

    "Given flexible, usable navigation and search, Web site visitors will be more satisfied with their experiences and will find fewer barriers to the profitable behavior sought by site operators," according to the report published Tuesday. "In fact, good navigation can replace personalization in most cases."

So maybe the two companies disagree on their research findings, but perhaps health care web sites have neither personalization nor usable navigation.

DISEASE MANAGEMENT: Health-e-technologies Initiative launches

At the tail end of last week the RWJ-funded Health-e-technologies Initiative organization gave out its first round of grants.  Many of the subjects looked familiar to those of us who’ve spent time in the (nominally) for-profit eHealth sector.  For instance, Kate Lorig at Stanford who’s already running a huge study on self-treatment among arthritis patients will do a clinical trial by randomizing a sub-set of diabetics into either a web-based set of self-management classes or a control group.  Barbara Rimer at UNC is studying the effectiveness of cancer lit-servs.

Back in the mid-1990s several people were looking at these kinds of interventions having heard good things anecdotally about their effectiveness. For example, back in 1996 I had a cancer patient who was active online come and talk to my health care IT client group to show them what was happening in the on-line patient community. There is also lots of anecdotal evidence from work being done with online self-management programs, and even some real studies. So in some ways these studies are old news.  However, theoretically a health care product or service’s introduction  should go in the order A) Initial use and pilots, B) Clinical study (if possible RCT) C) Market development and adoption.

In the case of these  IT-based self-treatment technologies, by 1997-8 the eHealth market fever had taken over and soon there was a software package and web site for every condition. No one did any clinical trials to see what worked (mind you that’s equally true for most new surgical procedures).  Now it looks like the clinical trials are going to get done.  Presuming that they show that eHealth self-care works, hopefully the lack of funding from Medicare and private insurers that delayed the emergence of eHealth in practice (rather than its emergence on the stock market in the bubble years) will be resolved. (Some companies like Lifemasters and American Healthways have been growing recently, but it’s been a decade of tough sledding, and most of their business is call center-based). After all, if web-based self-care makes patients better and saves money, it’ll be that much harder to deny it a CPT code.

Meanwhile, the Health-e-initiative has launched a discussion-based web site. It’s worth taking a look, and you can post if you like (not that I’ve got round to doing that yet).

POLICY: Fraud in Medi-Cal, by Matt Quinn

Guest contributor Matt Quinn reports from THCB’s Sacramento Bureau.  After reading his article, cogitate on this question. D’you think that a newcomer to the California political scene, elected Governor on a "platform" of cutting government bureaucracy, might find this information the basis for some (assume thick Austrian accent here) "full auditing"?

On Thursday a grand jury indicted two LA residents on Medi-Cal fraud charges totaling $40 million, the largest fraud case ever filed by the U.S. attorney’s office in Sacramento. The couple are charged with "stealing doctors’ and patients’ identities to bill the programs for laboratory tests, drugs and medical supplies that were never provided and for services that were exaggerated or provided by unlicensed personnel from 1996 to 2000. According to the indictment, ‘[a]lthough the patients did not see a doctor or receive any treatment or services,’ the defendants submitted bills ‘as if those individuals had been to an office visit.’ "

While this might seem like a momentous blow against the forces arrayed to defraud Medi-Cal, it hardly amounts to a drop in the bucket.   A recent study conducted by the Orange County Register estimates that 10-35% of the $29.2 billion Medi-Cal budget, which provides coverage to about 6.8 million residents, could be fraudulent.  And that most of the fraud was conducted by providers (or "fake providers") and not beneficiaries.  As in this case, the most common Medi-Cal fraud tactics include "inflated bills, false tests and bills for services not performed", according to the Register article. 

So why is Medi-Cal so easy to defraud…or at least get away with defrauding?  First, there are many, many Medi-Cal providers and not enough people to oversee them.  Within the Department of Justice Bureau of Medi-Cal Fraud and Elder Abuse, an agency that deals with fraud, 411, or 42%, of the current 973 pending fraud probes are not being investigated.  They report that anti-fraud efforts are "underfunded or overwhelmed, or both."

Next, Medi-Cal fraud is often not readily apparent, even with the recently revised enrollment guidelines and routine of provider re-enrollments and on-site reviews by the Department of Health Services, the agency that administers Medi-Cal.  When enrolled Medi-Cal providers correctly bill for services not actually performed on legitimate Medi-Cal enrollees and have the (legitimate looking but fake) purchase records for supplies and (legitimate looking but fake) medical records to back them up, it takes in-depth investigation, interviews with beneficiaries – in other words, plenty of resources – to find most fraud.  A 60 Minutes broadcast a couple of years ago exposed the industry that provides (mostly DME providers) with the fake billing records to back of the millions of dollars for orthotics and braces that they were billing Medi-Cal.  Sophisticated criminals, lots of money and not enough oversight  results in lots of fraud.

Finally, (and perhaps most disturbingly), the report detailing the billions of dollars of taxpayer money being looted by Medi-Cal fraud "went all but unnoticed in the Capitol," according to the Register report.  While I’m sure that the state of California couldn’t use an extra $3 – 10 billion right now (not that Gray Davis did, as I remember, propose to beef up the funding/staffing for investigators), I wonder why this isn’t a bigger issue.  As this case demonstrates, tens (hundreds?) of millions of dollars can be found without even looking into how doctors practice medicine (i.e. the realm of clinical quality, evidence-based medicine, and other touchy subjects).