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Posts Tagged ‘Insurance’

In 2000, I was CFO of a health software startup in Austin, Texas. Our product: an innovative electronic medical record oriented to a doctor’s actual workflow. It was a good idea then, and it’s a good idea today. But one of the biggest hurdles (besides classic startup execution issues and the bursting of the tech boom) was how to get doctors to adopt it.

Even if it integrated perfectly into a doctor’s routine, there was the small issue of paying for thousands of dollars of hardware and software and, we hoped, a little bit of profit for us and our investors. Even if we could get insurers and medical suppliers to defray some costs, we would still need doctors to reach into their own pockets.

After a bit of research, it was obvious that the best way to drive adoption would be to design the EMR so that it boosted doctor earnings. There are, of course, good and bad ways to do that. The good ways help doctors avoid undercoding (i.e., mistakenly billing too little) or remind them to do appropriate, health-improving, billable activities  (e.g., “Mrs. Jones has diabetes, so consider checking her eyes and toes.”) The bad ways … well, you don’t need to be Neil Barofsky to realize that there are myriad ways that doctors could game the system. Our goal was to stay on the right side of that line.

But as a New York Times article by Reed Abelson, Julie Creswell, and Griffin Palmer makes clear, that clearly isn’t true for everyone:

[T]he move to electronic health records may be contributing to billions of dollars in higher costs for Medicare, private insurers and patients by making it easier for hospitals and physicians to bill more for their services, whether or not they provide additional care.

Hospitals received $1 billion more in Medicare reimbursements in 2010 than they did five years earlier, at least in part by changing the billing codes they assign to patients in emergency rooms, according to a New York Times analysis of Medicare data from the American Hospital Directory. Regulators say physicians have changed the way they bill for office visits similarly, increasing their payments by billions of dollars as well.

The most aggressive billing — by just 1,700 of the more than 440,000 doctors in the country — cost Medicare as much as $100 million in 2010 alone, federal regulators said in a recent report, noting that the largest share of those doctors specialized in family practice, internal medicine and emergency care.

For instance, the portion of patients that the emergency department at Faxton St. Luke’s Healthcare in Utica, N.Y., claimed required the highest levels of treatment — and thus higher reimbursements — rose 43 percent in 2009. That was the same year the hospital began using electronic health records.

The share of highest-paying claims at Baptist Hospital in Nashville climbed 82 percent in 2010, the year after it began using a software system for its emergency room records.

Some experts blame a substantial share of the higher payments on the increasingly widespread use of electronic health record systems. Some of these programs can automatically generate detailed patient histories, or allow doctors to cut and paste the same examination findings for multiple patients — a practice called cloning — with the click of a button or the swipe of a finger on an iPad, making it appear that the physicians conducted more thorough exams than, perhaps, they did.

Critics say the abuses are widespread. “It’s like doping and bicycling,” said Dr. Donald W. Simborg, who was the chairman of federal panels examining the potential for fraud with electronic systems. “Everybody knows it’s going on.”

I contain to believe that EMRs will eventually transform health care for the better. But the idea that they would instantly lead to cost savings always struck me as naive. As the NYT article illustrates, the killer app for doctors–both the vast majority of legit ones and the nasty minority of scammers–is to find a way to boost their revenues and profits.

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According to an article over at the Huffington Post (ht Natalie), students at 36 colleges will have a new option when they start classes this fall. Thanks to an outfit named Ultrinsic, students can now bet on whether they will get good grades. Students put up money at the start of the semester and then get payoffs at the end depending on how they do.

Calling it a bet isn’t completely fair, however, since the payoff creates an extra incentive for students to do well. So think of it as a combination of betting (if you think your odds of doing well are better than Ultrinsic thinks) and using a financial incentive to get your future self to study a bit harder. Naturally, Ultrinsic emphasizes the incentive perspective in describing its “Reward” product:

Do you like getting good grades? The right amount of cash should provide you with the needed motivation to pull all-nighters and stay awake during the lectures of your most boring professors. At Ultrinsic.com, you will be able to earn cash while working to achieve your academic goals.

Obligatory note to my new crop of students: all-nighters are generally not an optimal learning strategy.

Like a race track, the company offers packages that pay off not only if you do well on a single course, but also if you perform well in multiple courses or over an entire semester. If a new freshman is really feeling motivated, he or she can also put down $20 up front for the opportunity to win (earn?) $2,000 for maintaining a 4.0 GPA throughout college.

And if students are feeling risk-averse, they can also buy insurance against bad grades. Bomb that final and get a cash reward.

Somehow I doubt many students will want to buy such insurance. Or that Ultrinsic will want to sell it given the risks of moral hazard. Perhaps Ultrinsic will screen for “pre-existing conditions” (like failing a related class) in order to limit the adverse selection. Or just offer such high premiums that only a few extremely risk-averse (or mathematically-challenged) students will apply.

The incentives product, however, seems much more promising. Indeed, it resembles some other efforts to help people modify their own behavior through financial incentives. See, for example, the folks at stikK.com whose service allows users to create their own incentives. For example, you could commit to give $500 to your favorite charity if you fail to lose 10 pounds by Christmas. Even better, you could commit to give $500 to your least-favorite charity if you fail to drop the pounds.

Ultrinsic is just applying this logic to college grades … and kindly offering to take a cut when students fall short.

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1102_p032-cobra_170x170The November 2 Forbes suggests that health insurance under COBRA provides a clear example of adverse selection in action. COBRA is the law that allows workers who leave a job (either voluntarily or not) to continue participating in the health insurance they were getting from their employer. To do so, however, they have to pay the full monthly premium—both the employee and the employer portions—plus a 2% administrative fee.

That sticker shock means that many eligible individuals decide not to continue their coverage under COBRA. Not surprisingly, those people tend to be healthier than average. The folks who use COBRA, on the other hand, tend to be less healthy—and, therefore, more expensive—than average. As a result, insurance companies report that COBRA coverage is a money loser:

Citi analyst Charles Boorady says health plans lose a considerable amount of money on Cobra policies. He estimates that the loss ratio–the amount spent on care compared to the premium collected–is around 200%.

Earlier this year, the stimulus bill created a federal subsidy that pays up to 65% of COBRA premiums for laid-off workers who meet certain income limits. That boosted COBRA enrollment and, according to the article, worsened the hit on insurers. It will be interesting to see whether the insurance industry raises any objections if Congress considers extending the COBRA subsidy (eligibility currently expires on December 31, 2009).

Bonus: Here’s a question I might ask my students in the spring, when we study adverse selection: Would insurers feel differently about a 100% federal subsidy for COBRA coverage for laid-off workers?

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Over the past few months, a politically-diverse group of health policy experts has been pondering a key question: what are the “specific, feasible steps” that policymakers could use to reduce the growth of health spending? In short, how can we bend the curve?

The fruits of their labor were published by the Brookings Institution on Tuesday as Bending the Curve: Effective Steps to Reduce Long-Term Health Care Spending Growth.

I encourage everyone interested in health policy to give it a close look.

The report’s recommendations for fixing health insurance particularly caught my eye:

Governments should ensure proper incentives for non-group and small-group health insurance markets to focus on competition based on cost and quality rather than selection. Achieving this requires near-universal coverage and insurance exchanges to pool risk outside of employment, augment choice, and align premium differences with differences in plan costs.

[Therefore, these insurance markets should be restructured to] focus insurer competition on cost and quality through requirements for guaranteed issue without — or with very limited — pre-existing condition exclusions; limited health rating, such as those related to age and behaviors only; and full risk-adjustment of premiums across insurers based on enrollees’ risk. For market stability, these reforms must be undertaken in the context of an enforced mandate that individuals maintain continuous, creditable basic coverage.

In short, the report recommends a combination of an individual mandate and reforms that eliminate both the ability of and the incentive for insurance companies to try to enroll only the healthy and low-cost.

(more…)

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