Health Care:

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Health Care More Questions Than Answers
Stewart Lavelle Coventry Health Care, Inc.
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History Repeats Itself
The farther back you can look, the farther
forward you are likely to see. - Winston
Churchill
Yesterdays News Todays Headlines Tomorrows
Crystal Ball
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Yesterdays News (health care in good old days)

• Once upon a time not too long ago, health care
  was unlike any other product or service in
  America.
• Consumers of the product or service have no idea
  of the cost of the product or service.
• This blissful ignorance fostered what has been
  dubbed oblivious entitlement.

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Consumer Perceptions vs. reality of costs
Source BCBSA and Wall Street Journal Online /
Harris Interactive Health Care Poll Vol 3,
Issue 13 July 19, 2004
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The mess we got ourselves in yesterday
As the percent of GNP spent on health care
steadily rose at the end of the 20th century, the
percent paid out of pocket dropped!
of GNP spent on health care
paid out of pocket
Over 55 in 1960!!!
Source Greg Scandlen, National Center for Policy
Analysis HIU, December, 2000, and Uwe Reinhardt,
Princeton economist.
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Yesterdays News
And, of course, when managed care attempted to do
what it was being asked to do by its customers
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Todays headlines Necessity taking over

• The interest on the part of employers to pass on
  more of the cost of health care to employees.
  (Consumerism)
• Employers dropping coverage altogether.
• End users becoming (dare we say it?) better
  educated when it comes to health care costs and
  health care in general.

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Still The 1 Challenge Facing Health Care
Industry (and your customers )
Rising health care costs. Health care accounts
for more than 15 of the economy, with spending
on medical services rising at several times the
rate of growth of both the economy and wages.
Source USA Today, July 7, 2005 - Case bets on
business to heal health care system
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Drivers of rising health care costs
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The cost of poor quality
Cost of Litigation 2
Cost of Defensive Medicine 8
Healthcare Costs Associated with Quality 70
Remaining Cost of Poor Quality Health Care 20
Factors Fueling Rising Healthcare Costs 2006
Price Waterhouse Coopers
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Health coverage no longer an entitlement

• Growing ranks of the uninsured ... people whose
  employer isnt offering coverage and who arent
  poor enough to qualify for Medicaid.

Workers at Large Companies Dropping Health
Coverage 08. 25.06 Large companies that employ
1,000 or more workers are experiencing a decline
in participation in employer-sponsored health
plans because of increases in out-of-pocket
costs, the Wall Street Journal reports. The
percentage of employees at large companies who
enrolled in employer-sponsored health plans
declined from 87.7 to 81 between 1996 and 2004,
according to a new survey by the Agency for
Healthcare Research and Quality. The survey
polled more than 45,000 offices, plants and other
employer sites. The greatest decline in
participation rates occurred at large retailers,
with a drop from 83.8 to 67.3. Although 98 of
large employers offer health plans, increases in
premiums, deductibles and copayments have led
"many workers to forego their employers'
insurance," the Journal reports. Another reason
for the decline in health plan participation is
that "far fewer" married couples enroll in plans
at each spouse's company, the Journal reports.
"Premiums and costs have risen high enough that
more of these couples pick whichever plan offers
the best deal and sign the whole family onto it,"
according to the Journal.
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Uninsured impacts everyone
Health plan ranks take another hit from uninsured
stats The number of Americans without health
insurance coverage increased by 1.3 million from
45.3 million in 2004 to 46.6 million in 2005,
according to figures released by the U.S. Census
Bureau last week. In addition, the number of
people covered by employment-based health
insurance fell from 59.8 to 59.5 in 2005,
census data shows. The decline in individuals
covered by employer-based insurance is occurring
as rising health costs compel businesses to cut
costs and look to place more responsibility for
medical expenses on workers. The trend is also
the primary reason for the alarming increase in
the number of uninsured children, according to an
article in the Sept. 6 edition of the Washington
Post. The U.S. Census Bureau reported that of the
nation's 74 million children, about 8.3 million,
or 11.2, lacked health insurance in 2005 - an
increase of 10.8 from the previous year. -
Adviser newsletter 09.06.06
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Pressures of rising costs and growing uninsured
ranks are compounded by other factors

• Budget pressures on the states and Federal Govt.
• Cost shifting (Medicaid and Medicare).
• Benefit mandates for commercial business.
• Contentious providers.
• Aging Population.
• Technological advancements.

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Squeeze a balloon and guess what happens

• Medicares long-term unfunded liability
• already 62 trillion.1

Medicare to Cut Doctor Payments In Effort To Rein
In Rapid Growth Wall Street Journal
08.09.06 WASHINGTON Medicare, moving to contain
health-care costs, announced plans to cut
physician payment rates by 5.1 next year. The
Centers for Medicine and Medicaid Services said
it will fine specialty hospitals as much as
10,000 a day if they fail to timely disclose
financial arrangements with physicians.
1 Managed Retreat? Wall Street Journal - July 13,
2005
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Not just a concern for the Federal government
Employers Chip Away at Retiree Health Benefits
L.A. Times 09.26.06 Geraldine Picha knew that
her pension would be modest, given her tenure of
just 15 years at the phone company. What she did
not expect was that her retiree health premium
would eat up every penny of that pension and
more. Its frightening, said Picha, 63, whose
former employer has raised her medical insurance
bill steadily since she retired in 1998. At 560
a month, it now eclipses the 514 pension check
Picha earned
Retiree health care may overwhelm govts Bob
Porterfield Associated Press 09.24.06 The
bill is coming due for years of generous benefits
bestowed upon the nations public employees and
its a stunner hundreds of billions of dollars
over the next three decades, threatening some
local governments with bankruptcy and all but
guaranteeing cuts in services like education and
public safety.
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Medicare Advantage and RX

• RX benefit 24 monthly premium.
• More than 50 options available in each State.
• 17 of seniors on Medicare Advantage private
  plans.
• Alternative price fixing bureaucracy?

Markets and MedicareWall Street Journal
10.04.06 If you're looking for some good news
from Washington, consider this semi-miracle The
Medicare prescription drug benefit is so far
costing less than anticipated, while seniors are
getting more insurance options at lower prices.
Lesson Maybe private competition works.
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Cost Shifting
One Example Cost Shifting in West Virginia
HOSPITAL COSTS vs REIMBURSEMENT
PERCENT OF COST PAID BY 1996 2000 2007
(Projected) Medicare 96 90 84 Medicaid 94
81 76 PEIA 114 97 90 PRIVATE
139 145 151
Source WV Healthcare Authority Revenue and
Expenses Statement - Private excludes charity
care and bad-debt expense.
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More cost-shifting coming into view
The launch of a new registry that will
significantly expand Medicares coverage of
positron emission tomography may bring even
more pressure on commercial health plans to cover
the high-cost scans.
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Thankfully, state mandates have abated
Number of new state mandates by year, 1995 - 2005
Factors Fueling Rising Healthcare Costs 2006
Price Waterhouse Coopers
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A new age of provider mandates / dictates?

• Increasingly contentious negotiation landscape
• One example in your back yard large hospital
  system
• If its ordered by a doctor, it should be paid
  for.
• "If provider purchases new technology, the health
  plan should pay for it (no questions asked)
• If doctor wants to bring patient in early on a
  weekend, stay should be covered.
• Dictate benefit levels never more than 30
  coinsurance. No product with mini-med.
• Health carrier needs to pursue patient for
  coinsurance responsibility.

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Let the buyer beware (i.e. decide)!

• Example that has emerged out west Peak Advantage
  tiered-network product.
• Aligns member responsibility with provider
  contracts for a cost-sharing approach that can
  result in cost-savings for the employer and the
  member.
• "Open-Access" products. Members not required to
  choose a Primary Care Provider (PCP) and do not
  need referrals to see specialists. Allows members
  to seek care from providers based on varying
  copay/coinsurance
• Peak Advantage providers are divided into three
  different benefit levels that correspond with the
  providers' reimbursement arrangement.
• As a point-of-service product, the member may
  choose a different provider each and every time
  they access care.

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Let the buyer have transparency!
Bush's Order on Health CareAims to Gauge Quality
of Service By JANE ZHANG-W all Street Journal
August 23, 2006 President Bush, hoping to use the
federal government's clout as the biggest
health-insurance buyer in the country, issued an
executive order that officials hope will change
how consumers buy health care and how doctors and
hospitals provide it. The order, signed yesterday
in Minnesota, requires federal agencies to
disclose the quality and cost of care provided to
Medicare beneficiaries, federal employees, the
military and veterans. It also orders the
agencies and their contractors to promote the use
of health-care technology and reward consumers
who shop for medical care based on quality and
value. The executive order covers one-fourth of
Americans with health insurance. The initiative
could affect the entire health-care market by
setting an example for private insurers,
officials say.
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Just one thing missing from Consumerism
Employees fearful, insecure about health care
decisions Employee Benefit News August 2005
After polling more than 1,400 U.S. workers in
employer-sponsored health plans, the global
consulting firm Towers Perrin found that 60 of
respondents communicated negative feelings about
the overall health care experience, notably
expressing fear and anxiety over health care
quality and their own ability to make informed
decisions.
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Margaret feels like a criminal for asking
Pricing health care? Its not that easy. Experts
say you should shop for the best deal, but
hospitals give patients scant information Chicago
Tribune August 10, 2006 When Margaret Zilm
needed cataract surgery, she wanted to know what
it would cost. Her medical policy has a 5,000
deductible, and her money was on the line. I
thought I should figure out the impact on my
budget, said Zilm of Kansas City, MO.. But one
eye doctors office told Zilm it had no idea what
her insurance company would pay. The insurer
wouldnt give out the information. And an
official at Missouris Department of Insurance
said such figures were confidential under medical
providers contracts with insurers. I felt like
a criminal for even asking, Zilm said.
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Wellness a key element of consumerism
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Americans finding value where?
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Global health care economy?
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HCA buyout - continued consolidation
Tune into any earnings briefing in the
for-profit hospital sector and youll hear
lamentation about the surge in self-pay
patients a term uttered with thumb and
forefinger clamped around the nostrils.
It also will have its unpleasant and
controversial moments as consumers are obliged to
shed the illusion that paying for hospital care
is somebody elses (or nobodys) responsibility
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Doctor-Owned Specialty Hospitals Get a New Lease
on Life
By DAVID ARMSTRONG August 29, 2006 Page
B1 Excavation crews are scheduled to start
digging the foundation for a new doctor-owned
specialty hospital in Fort Worth, Texas, this
week, the first of many likely to be built
following the Bush administration's decision
earlier this month not to extend a ban on the
hospitals. Such facilities, which tend to focus
on medicine's most lucrative procedures, often
provide high-quality care, but critics charge
they drive up health-care costs and undercut
nonprofit community hospitals, which must offer a
wider array of services -- like emergency rooms
and maternity wards -- that are costly to provide.
The building boomlet is certain to ignite more
controversy about the hospitals, most of which
concentrate on a narrow range of services, such
as heart care or back surgery. Supporters say the
new breed of hospitals are more efficient and
provide equal or better care to patients, but
detractors, including mainstream hospital groups,
accuse the specialty hospitals of "cream
skimming," or choosing to perform only those
procedures that bring the most profitable returns
under federal Medicare and private-insurance
schedules, leaving nonprofit competitors with the
most costly businesses and sickest patients.
Critics also say doctor-owned hospitals drive up
health-care costs, pointing to studies that have
shown that when the facilities open in a
community, they increase the number of procedures
that are performed in their specialty areas.
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Government Intervention?
Massachusetts lawmakers pass health reform bill
Associated Press April 5, 2006 - Lawmakers in
Massachusetts have approved a sweeping health
care reform package that includes a combination
of financial incentives and penalties to extend
coverage to the state's estimated 500,000
residents who are uninsured. The bill includes
free or heavily subsidized coverage for poor
people and levies tax penalties to those who can
afford coverage but do not get it.
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And then there are prescription drugs

• 10 - 15 national trend driven by
• Increased utilization
• Higher brand drug costs
• Therapy mix changes
• Lifestyle/Aging population
• Consumer demand
• Direct-to-consumer advertising
• Biotechnology drugs

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We are out-manned and out-moneyed
Direct To Consumer Drug Advertising Dollars
Billions,
Adapted from The Wall Street Journal and IMS
Health
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Trends in Rx seen any commercials recently?
How the drug industry abandoned science for
salesmanship. Novartis employs some of the best
medical researchers in the world, and they have
created such lifesavers as Gleevec, which treats
a deadly form of leukemia. But what is the
fourth-biggest seller in the Novartis medicine
cabinet? No lifesaver. It's Lamisil, a pill
for--horrors!--toenail fungus. The main effect of
the fungus is that it turns the toenail yellow
it can hurt, but no one has died of this
inconvenience. But a few people may have died
taking Lamisil. Federal regulators have linked
the drug to 16 cases of liver
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Private Drug Spend Third-party payers have borne
most of expenditure increase
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Although theres no simple prescription

• If third party payers want to manage pharmacy
  costs
• Move to coinsurance
• Move to generics

GM expects savings with switch to generic drugs
General Motors Corp., the largest private
provider of health insurance in the U.S., says it
expects to save millions by having its employees
switch to generic drugs. If workers on the
cholesterol-lowering drug Lipitor, for instance,
switch to the generic version of the statin
Zocor, due out this week, the company's annual
bill for cholesterol treatment could drop by as
much as 59, or 82 million.  
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Generic Drugs represent a unique opportunity in
health care

• Reduce costs while guaranteeing comparable
  quality
• Therapeutic equivalent of the brand name drug
• Similar in quality, safety and efficacy as brand
• Approved for the same indications as the brand
• Marketed after patent expiration of the brand
• Usually 20 -80 cheaper than brand

E.g. Prozac (Fluoxetine) 20 mg Strength, 30
caps Brand costs 131.85 Generic costs 5.29
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The unique opportunity is recognized by
Generic Price War Target Matches Wal-Mart, CVS
Says Wal-Mart Plan is Meaningless, Discounts by
Kmart, Wal-Mart, Target No word from
Walgreens September 23, 2006 Medicare Drug
Program News The pharmacy battle over who has the
best deal on generic drugs, which can help
millions of senior citizens falling into the
doughnut hole of their Medicare drug plan, has
been hot after Wal-Marts announcement of a 4
price on a 30-day supply of limited generics.
Kmart struck first, saying its deal is better at
15 for a 90 day supply. Then Target said it
will match the Wal-Mart offer. But CVS may have
hit the nail on the head saying, These 300 drugs
are all older generics that already have lower
reimbursement rates from health plans. They
represent less than 10 of the more than 3,000
unique generic products that we stock. The
nations largest pharmacy, Walgreens has yet to
issue a statement.
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The effect of more skin in the Rx game
Comparison of Tiered Prescription Drug
Formularies and Prescription Drug Cost Index,
2000 - 2004
Factors Fueling Rising Healthcare Costs 2006
Price Waterhouse Coopers
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Projected Spend for Specialty Medications
2006 Express Scripts Specialty Drug Trend Report
July 2006 Managed Care
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The future
Who knows?
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