Harvard Pilgrim-Tufts Health Plan Merger

Today’s Managing Health Care Costs Indicator is 2

  

Yesterday the big news in Boston was that Tufts Health Plan and Harvard Pilgrim Health Care were exploring a merger.  These are among the two best health plans in the country; each has a long and proud pedigree – and each has very deep roots in the community here.  Together, they are still just 2/3 the size of Blue Cross Blue Shield of Massachusetts (see below).

The Boston Globe reports that the two CEOs and Board Chairs have already agreed to positions, so it’s likely that this merger will indeed go through.

What does this mean for health care costs?

Some immediately imagine that a decrease in health plan competition is bad – and will raise costs for consumers.  We need to evaluate how health plans price their services, and how the merger will affect the acquisition costs for health care services.  I believe that decreased health plan competition in a market is likely to lower overall health care costs – and here’s why.

Jim Roosevelt (CEO of Tufts HP) and Eric Schultz (CEO of Harvard Pilgrim)  and said today that there would be administrative savings – and that’s absolutely true.  The two health plans will only need one set of senior executives, and will be able to have a single set of IT systems – so there are a bunch of fixed costs of having two health plans that will diminish when they merge.  They’ll  diminish, of course, after a brief period of increased costs associated with harmonizing different systems.  These lower administrative costs, though, aren’t how this merger can add social value by lowering health care costs.

There’s a lot of talk about high executive pay and administrative waste – but if you could dramatically lower administrative cost –that would not be the way to make health care (much) more affordable.  Health plans spend 85% in general on payments to physicians, hospitals, ancillary providers and others.  The “medical loss ratio” is closer to 90% for these regional nonprofits.  

The only way the merger will lower costs will be if it lowers the price paid by these health plans for medical care.  It can do this through larger discounts or different payment methodology – but the larger the health plan is, the more leverage it has to pressure the provider community.

One of our local NPR affiliates WBUR  had a series of health care experts talking about the impact of this merger on competition –and a number of them raised fears that health plan consolidation would lead to provider consolidation, and thus could raise prices.  Regina Herzlinger quoted this National Bureau of Economic Research working paper , which  does indeed express this fear. However, provider consolidation is subject to antitrust rules, and the Attorney General and the FTC can prevent provider consolidation that would lead to increased prices.  No surprise that the Mass Hospital Association expressed concern about the proposed merger.

It's a paradox that sometimes more competition can lead to higher prices if the fragmented intermediaries have to pay for higher 'ingredient' costs due to their lack of leverage.

My take - Tufts Health Plan and Harvard Pilgrim will fit well together culturally, will overcome the inevitable IT and ops integration challenges, and will after some period of time be more effective at procuring health care for a lower overall cost.  They will lower their total administrative costs, too (which means many of my friends and colleagues will be looking for new positions).   The AG hearings on this proposed merger will give us an interesting window into both health plans, and their strategy to increase value through the merger.  

Click on image to enlarge

Correction 1-27-11. HCHP changed to HPHC in first line of post. Thanks to an alert reader for pointing out my error 

Read More

Why Very Positive Results in Early Trials Fade to Mediocre Results Later

I briefly mentioned the Jonah Lehrer piece in the December 13 New Yorker on how initial studies tend to show large treatment effects, and subsequent studies show far less impact.  Harvard Link  NonHarvard Link 

The iPad version of this article had graphics from an obscure biology journal which demonstrate this concept especially well. 

Imagine a series of experiments with a very small number of experimental subjects in each one. These will have a large confidence interval – some of the experiments will look incredibly positive, and others will look impressively negative.  As researchers do experiments with more and more subjects, the confidence interval narrows –and even the most positive or negative experiment yields a result that is much closer to the ‘truth.’ 

BUT – and this is a very important but – what happens if we only find out about a small portion of the experiments that are completed? That’s not a surprise – the government established a registry of pharmaceutical trials for exactly that reason – the pharmas were only publishing articles that showed success, and were not publishing those which showed that drug didn’t work, or had unexpected side effects. 

Here’s the graphic that I found hugely helpful in explaining this phenomenon. This is called a funnel plot  and it’s a standard biostatistics tool to evaluate whether there is ‘publication bias,’ and to assess whether a ‘metaanalysis’ combining the results of multiple trials is valid.

The first graphic shows that as sample size increases (right on the horizontal axis), confidence interval decreases and results converge closer to the “truth”

The left side of this graphic represents small trials, and the right side represents trials with more subjects. 

The second graphic shows that we would expect that small (“underpowered”) studies with uninteresting results would not be published – hence we should have a funnel plot with a hollow core.

The final graphic shows what happens when there is publication bias. Results that initially look very positive look worse and worse over time, because the results looked so good in the early trials because of randomness alone, since neither the negative nor the neutral trials were not reported.

The implications of this are critical.  When you hear about early results showing that anything (new drug, new medical management program, new safety device for your automobile) is absolutely great - wait a while - and you'll often discover that it's not quite as good as it seemed at first.  If you see a meta-analysis combining data from many studies -- be sure that the authors have done a funnel plot to assess how severely publication bias might impact the results. 

The “Managing Health Care Costs Indicator” will return with the next post. Thanks for hanging with me on a wonky topic.

Here are links to the source article for these graphics:

Harvard Link  NonHarvard Link 

Read More

Mental Health Cuts: Short-Sighted and Painful

Today’s Managing Health Care Costs Indicator is $2 billion

The quickest, easiest way to cut medical claims expenses is to insure fewer people or to eliminate benefits.   This is often not the way to maximize social utility, and sometimes these types of cuts actually increase societal costs.  

There have been dramatic cuts in the mental health safety net in light of the recession and the dramatic decrease in state revenue.  Most mental health care is underwritten by private insurance and states; there is little mental health care delivered by the federal government outside of the Veteran’s Administration. There’s been more focus on this problem in light of the tragic shooting of Representative Gabrielle Giffords and 18 others in Tucson by a mentally ill 22 year old man. 

Mental health care costs have not climbed in parallel to the costs of the rest of the health care system – mental health is often “carved out” from traditional insurance, and the mental health management companies have been very effective at shortening hospital stays and reducing the overall cost of care.  States have closed their inpatient mental health facilities across the country – deinstitutionalizing all but the most dreadfully incapacitated with mental illness. 

Care in the community has unfortunately not kept pace with needs. It’s virtually impossible to find an available child psychiatrist, for instance, and emergency departments dread the arrival of someone who needs a psychiatric hospitalization.  Such patients will spend many hours awaiting the frantic work of psychiatrists and social workers to find an available bed.

But it gets worse. The LA Times reports that states have cut $2 billion from mental health programs since 2009, and closed 4000 inpatient mental health beds.  The state of Arizona cut 50% from its Department of Health, and reduced services for 14,000 with mental illness.

The New York Times points out that the cuts are across the country, and they are being proposed by politicians across the political spectrum.

·        Washington State: $19 million midyear cuts, and loss of 46 inpatient mental health beds

·        Kansas: Proposed $15.2 million cuts

·        Mississippi: Funding 13% less than that required for level services, and closure of 200 beds

In some instances, mental health cuts lead to increased costs elsewhere in the system.  The Arizona shootings might be an extreme example (and it’s possible that a more vibrant mental health system would not have prevented this tragedy).   Those emergency department and medicine hospital beds occupied by people awaiting a mental health bed aren’t available for other patients, and most of us clinically have seen people with unmet mental health needs requiring additional medical care.  It’s expensive to institutionalize the mentally ill; it’s often even more expensive to incarcerate them.

The real tragedy of underfunding mental health systems has nothing to do with whether or not costs are saved – it’s the impact on those with mental illnesses and their families.   Caring for a mentally ill loved one is overwhelming for many loving families, and these cuts make caring for a mentally ill child or relative all the more difficult.

Read More