Forbes OpEd – Medicaid Gambit

 

Op/Ed
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8/23/2012 @ 12:13PM |359 views

Fools’ Gold Rush: Obamacare And The Medicaid “Opportunity”

 

Senate Passes Insurance Industry Aid Bill

(Photo credit: Mike Licht, NotionsCapital.com)

By J.D. Kleinke

You know we’ve gone through the looking glass when the hottest health care money on Wall Street is chasing Medicaid.

No, I didn’t mean Medicare, the $560 billion per year federal program for insuring the elderly that has launched a thousand IPOs. The current darling of health care investors is Medicaid, the hybrid federal-state program for insuring the poor that now dominates, and often overwhelms, state government budgets.

Last month, Wellpoint agreed to pay $4.5 billion for Amerigroup, a Medicaid managed care company, representing a nearly 50% premium over Amerigroup’s market price.  Not to be outdone, Aetna this past week purchased Coventry for $5.7 billion, which also services Medicaid populations. These deals and several others like them rumored to be in the pipeline have driven up the share prices of Amerigroup’s competitors – other Medicaid managed care companies like Centene and Molinas – in anticipation of the latest round of monkey-see, monkey-acquire deals by health insurers.

Why the gold rush into Medicaid, the poorest, toughest segment of our health care system? Are there really fortunes to be made squeezing margins out of the pittance – $4,314 per year for adults, $2,717 for children – spent on the most destitute Americans? Wellpoint, Aetna, Independence Blue Cross, and other major insurers rushing in seem to think so, for two reasons.  First, those pittances roll up: analysts estimate that the enrollment of an expected 16 million new Medicaid beneficiaries under Obamacare could generate $40 billion in potential revenue. Second, buried in Obamacare is a forced migration of as many as nine million Americans, currently eligible for both Medicare and Medicaid, from richer Medicare plans into threadbare Medicaid programs – a transfer of the most costly and complex patients worth some $300 billion in potential annual revenue.

Big numbers, big money, and big profits, right? An inflow of the uninsured poor into the nation’s most financially sssed insurance program, combined with a systemic downgrading of benefits for the poor and disabled, will surely translate into great, uncontested corporate riches. Why shouldn’t the nation’s now largest insurer spend shareholders’ cash on what amounts to 18.4 times Amerigroup’s forward earnings on forays into the most economically distressed quarters of American medicine?

Because they will fail miserably. Unless they succeed.  In which case they will be driven, by a coalition of government budget-minders and populist scolds, into failure, thanks to a political process ever more hostile to profiteering on the sick.

In normal businesses, with willing buyers and sellers and functioning marketplaces, enormous revenue opportunities do not necessarily translate into commensurate opportunities for profit. And Medicaid is about as far from a normal business as one can imagine. It is the emergency room for our worst chronic social problems. Illiteracy, drug addiction, broken families, migrant labor, illegal immigration, teen pregnancy – you name it, and Medicaid gets to deal with it. Medicaid programs attempt, mostly through heroic individual efforts, to serve a desperately needy population of the poor, chronically ill, mentally unstable, and recklessly pregnant. They do so by overworking and underpaying the nation’s most aggrieved providers, gouging drug companies, and transferring costs wherever they can to the rest of the system.

This is why states offload these programs to companies like Amerigroup and Coventry, and why many states do not want the programs expanded under Obamacare.  Medicaid is a hybrid federal/state program because the fed does not want to manage; the states manage it only because the fed blackmails with just enough money to keep them hooked.  Obamacare attempted to double-down on this blackmail by threatening to withhold all Medicaid funding to any state unwilling to accept the expansion – a provision so coercive the Supreme Court struck it down while giving the rest of Obamacare a pass.

Despite the ruling, Obamacare proceeds apace, trying to jam between 8 and 16 million more people into the same system. (The estimate varies by a factor of two because Florida, Texas, South Carolina and Louisiana, emboldened by the Court’s decision, are just saying no.)  And the horses dragging the nine million duals into Medicaid, which will entail massive disruptions in their medical care, have also left the barn. But with $340 billion in combined potential annual revenue going into play, it would be hard for companies – starved for growth and squeezed by the profit-regulation rules in Obamacare – not to rush in with their picks and shovels.

Those Pesky Implementation Details

So how might the Medicaid gold rush actually pan out? It is difficult to imagine anything but a disaster, if you know where the miners are actually headed. There is encyclopedic health services literature documenting Medicaid’s chronic economic desperation, yawning unmet medical needs, and horrific outcomes, but a more visceral illustration of the challenge comes with a simple stroll through the waiting room of a typical Medicaid provider.  On my last visit to one, I watched a morbidly obese patient die, while slumped over in his wheelchair, among the 30 patients lined up that morning to see the doctor.  It took that doctor almost ten minutes to find his way to the waiting room to declare the patient dead, and an hour for the paramedics to show up and haul him away.

Such human misery, multiplied by tens of millions of people, rolls up into a bureaucratic colossus of breathtaking complexity. Running a Medicaid program involves coping with a jungle of paperwork, cacophony of regulations and, worst of all, sanctimony in nearly every conversation with every stakeholder. It requires constant vigilance against scam clinics, crooked providers, rogue labs, pill mills, vaporware vendors, and a scuzfest of health care bottom-feeders.  A successful day in the Medicaid “business” is measured not by goals achieved but catastrophes averted.  I have been involved in restructuring one of the Medicaid disasters the commercial health plans are suddenly so hellbent on turning into shareholder gold; from under every rock we rolled over, out would crawl something slimy, and its lawyer.

Wellpoint, Aetna, Independence, and the other insurers rushing into this business no doubt believe they have a magic formula for turning this misery into a profitable growth engine.  But such growth cannot come from the top-line: the federal and state governments funding Medicaid are already under intense political pressure to reduce deficits and spending, while expanding coverage, meaning total funding available per Medicaid enrollee – and the “duals” switched from Medicare to Medicaid – will inevitably shrink, fast. As a result, the profits needed to justify these acquisitions and the ongoing tie-up of capital needed to support them must come from cost-takeouts, from the squeezing of the Medicaid turnip.

The insurers have obviously convinced themselves there is much in the turnip to squeeze. That may certainly be true for the duals, who could benefit from coordinated case management and the other bells and whistles of “managed care.” But the real money will come in the form of arbitrage margins, as the duals are switched to Medicaid doctors and hospitals, who are paid a pittance compared with Medicare. This will work fine – for a time – if these “duals” happily tow the line and change doctors.  But history shows otherwise. People do not like to have their benefits downgraded, and they do not like  being forced to switch to cheaper doctors, especially if there are no doctors to switch to – overwhelmingly the case in Medicaid. Their doctors’ lobbyists may also have something to say about it.

As for the general Medicaid population, the single greatest medical demand placed on the program, in terms of volume if not dollars, is pregnancy and childbirth. It is the reason for half of all Medicaid hospitalizations; seven of the ten most common procedures performed during those hospitalizations are related to pregnancy, childbirth, and newborns. If cost-takeouts are the only road to profitability, are the insurers prepared to deal with pesky little matters like the public funding of birth control, abortion, home births and c-sections, i.e., with arguably health care’s ugliest culture wars?  My own experience working with insurers on the least incendiary of these issues – the silent epidemic of c-sections – is not encouraging.  C-sections account for more than 30 percent of all deliveries in the US, at roughly 1.5 times the average costs of a normal delivery, when the medically indicated rate is easily less than half that.

This would be the first place for an insurer to step in to reduce Medicaid costs, yes?  One little technical problem: aside from captive provider systems with electronic medical records like Kaiser, not a single insurer I know of in the US has any ability to affect this scandalously high rate of often unnecessary, always expensive, high-volume surgery.  Two major insurers have admitted to me that they have no systematic way of knowing who in their population of millions of covered women are even pregnant, until after they have delivered, the probably unnecessary c-section has been done, and the claims are coming in.  This might be an example of why the insurers are acquiring the Medicaid managed care companies – because they may have this expertise.  If so, no one is talking about it, because companies cannot even bring up the subject of pregnancy and childbirth among the poor without triggering the worst landmines in the health care policy debates, as we have witnessed since the daylighting of the Obamacare birth control mandate.

No Good Implementation Goes Unpunished

Let’s give the Medicaid gold rushers the benefit of the doubt, and assume they pull off something like this. A few managed care type miracles, they lower costs for Medicaid patients without actually harming them and, in the case of unnecessary surgeries, actually help some of them.

Imagine also they pull off the trick of shuttling the “duals” from Medicare to Medicaid.  These highly motivated patients and their doctors somehow don’t scream bloody murder, and the insurers earn arbitrage margins on the switch. How long will financially stressed governments fund these margins, before putting the turnip squeeze on the insurers themselves? For those insurers who find Medicaid gold, what happens next? They will be vilified by the public as corporate, profiteering, care-denying murderers of the poor, and their margins will be mowed down with the stroke of the legislative pen.

Every health care sector has been on the receiving end of this at some point – hospitals, dialysis, home health, the list goes on – usually right after its own gold rush.  The government programs that represent an ever larger share of health care purchasing in the US do not overtly regulate profitability – that would be transparent and at least manageable. Instead they regulate profits implicitly, line-item by line-item via reimbursement adjustments, selective and punitive enforcements of providers, a whole gamut of bureaucratic tricks designed to avoid honest political debate about the role of money and medicine.

The health insurers already got a face full of cold water with this under Obamacare: new administrative cost and profit margin regulations set at completely arbitrary numbers. Those numbers will appear generous when the Medicaid gold proves to be nothing more than a very big flash in a very broken pan.

J.D. Kleinke is a Resident Fellow of the American Enterprise Institute and a former health care executive.  His latest book is Catching Babies, a novel about the training of obstetrician/gynecologists.

Obama Rated Higher in Trust on medicare

August 23, 2012

In Poll, Obama Is Given Trust Over Medicare

By and DALIA SUSSMAN

NY Times

The Romney-Ryan proposal to reshape Medicare by giving future beneficiaries fixed amounts of money to buy health coverage is deeply unpopular in Florida, Ohio and Wisconsin, according to new polls that found that more likely voters in each state trust President Obama to handle Medicare.

The Medicare debate was catapulted to the forefront of the presidential campaign this month when Mitt Romney announced that his running mate would be Representative Paul D. Ryan of Wisconsin, who is perhaps best known for proposing a budget plan, supported by Mr. Romney, to overhaul Medicare to rein in its costs.

After more than a week of frenzied campaigning on the issue, Medicare ranks as the third-most crucial issue to likely voters in Florida, Ohio and Wisconsin — behind the economy and health care, according to new Quinnipiac University/New York Times/CBS News polls of the three swing states. The Republican proposal to retool the program a decade from now is widely disliked.

Roughly 6 in 10 likely voters in each state want Medicare to continue providing health insurance to older Americans the way it does today; fewer than a third of those polled said Medicare should be changed in the future to a system in which the government gives the elderly fixed amounts of money to buy health insurance or Medicare insurance, as Mr. Romney has proposed. And Medicare is widely seen as a good value: about three-quarters of the likely voters in each state said the benefits of Medicare are worth the cost to taxpayers.

“On Medicare, I don’t like the Paul Ryan plan,” said Beverly McLaren, 72, an independent from St. Petersburg, Fla., who said in a follow-up interview that Medicare worked well for her and that she planned to vote to re-elect Mr. Obama. “I can’t see how it will help at all, and we’ll have more out-of-pocket expenses, and I’m not really clear how it will work.”

About 60 percent of independent voters in the three states support keeping Medicare as it is today, as do at least 8 in 10 Democrats. Republicans are closely divided on the issue in Florida and Ohio, but in Wisconsin, Mr. Ryan’s home state, a majority of Republicans support changing it along the lines he has proposed.

The polls — the first in this series of swing-state surveys taken since Mr. Ryan joined the Republican ticket — showed that at least in Mr. Ryan’s home state, he may be helping Mr. Romney. A majority of likely Wisconsin voters said they approved of the way Mr. Ryan has handled his job in Congress, and 31 percent said his selection made them more likely to vote for Mr. Romney, while 22 percent said it made them less likely to do so. The race appears to have tightened a bit in both Florida and Wisconsin in recent weeks.

In Florida and Wisconsin, where Mr. Obama had led Mr. Romney by six percentage points in polls conducted before the selection of Mr. Ryan, the race is essentially tied. Mr. Obama is ahead in Florida by 49 percent to 46 percent and in Wisconsin by 49 percent to 47 percent — differences within the polls’ margin of sampling error of plus or minus three percentage points. Mr. Obama retains a six-point advantage in Ohio, where he leads Mr. Romney 50 percent to 44 percent, unchanged from last month’s survey.

The polls were largely conducted before the uproar over remarks on rape and abortion made by a Republican Senate candidate in Missouri, Representative Todd Akin, which officials in both parties agree could alter the dynamic of the race, especially among women. Mr. Obama enjoys solid support of a majority of women in each of these three states, the surveys found, but in Wisconsin his healthy lead among women has narrowed since the last poll and now trails the levels of the 2008 election, when he won the state.

The polls’ findings on Medicare underscore the risk Mr. Romney took when he chose Mr. Ryan to be his running mate. Mr. Ryan rose to prominence among conservatives who lauded his willingness to propose unpopular measures to balance the budget and cut the rising costs of Medicare — costs officials in both parties agree are on an unsustainable path. But while the polls found that Mr. Romney enjoyed a wide advantage in all three states on the question of who is better equipped to tackle the budget deficit, it found that he lagged on other questions voters feel strongly about — including who is better equipped to handle health care, Medicare and foreign policy. Some voters give them credit for campaigning on a politically contentious issue.

“It may be political suicide, but at least Romney and Ryan are willing to stand up and say we can’t keep shoveling money into this program and other programs like this,” said Michael Behnke, 59, an independent from Solon, Ohio.

When it comes to the running mates, Mr. Ryan comes out ahead with independents. On balance, they feel more favorable toward Mr. Ryan but have a more negative view of Vice President Joseph R. Biden Jr., who has drawn criticism in recent days for saying that Mr. Romney’s policies would unchain the financial sector and “put y’all back in chains.” But many voters in Florida and Ohio said they did not yet know enough about Mr. Ryan to form an opinion — and many in all three states said the choice of running mate would have no impact on their votes.

The polls were conducted by telephone (landline and cellphones) from Aug. 15 through Tuesday among 1,241 likely voters in Florida, 1,253 likely voters in Ohio and 1,190 likely voters in Wisconsin. All three are states Mr. Obama won, but where Republicans have since made gains in state and local elections.

Mr. Romney has taken pains to stress that his Medicare plan would not change the benefits for people 55 or over. But voters over 55 have strong feelings about it, including in Florida, the electoral-vote-rich state where Republicans will hold their convention next week.

Jim Ryan, 75, a retired executive from Bradenton, Fla., who is an independent, said it was an important issue because he and his wife were on Medicare.

“We’re enjoying the benefits now, and the Paul Ryan program of making it into a voucher system would change things,” he said. “I know it’s not intended to apply to people in our age group, but I’m concerned about the future. I think it’s a wonderful program, and I’ve got middle-aged children and I don’t want to see the program destroyed. It’s probably one of the best programs sponsored by the federal government that we’ve ever had. It does have to be made fiscally sound, but there are ways to do that without destroying the whole concept or the substance of it.”

Mr. Romney has been attacking Mr. Obama for counting on $716 billion in Medicare savings to help pay for his health care law — savings that Mr. Ryan also counted on in his budget plan but which Mr. Romney has promised to restore. The poll underscored how unpopular deep cuts to Medicare are.

Only about a tenth of the voters in each state said they would support major reductions in Medicare spending to reduce the federal deficit. Nearly half of the voters in each state said they would support minor reductions, and about a third said they would not support any reductions at all.

Reporting was contributed by Marjorie Connelly, Allison Kopicki, Marina Stefan and Megan Thee-Brenan.