Texas Managed Care Review: Market Trends and Issues

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Texas Managed Care ReviewMarket Trends and
Issues

• Presented to
• Texas Association of Health Plans
• October 17, 2007
• Allan Baumgarten, J.D., M.A.

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Presentation Outline

• Texas market trends
• Employers leave HMOs - who remains?
• New opportunities for Medicare and Medicaid
• Hospital maintain advantage and build
• Physicians struggle
• Key challenges and looming risks for
• Employer purchasers
• Health plans
• Hospitals and physicians
• Consumers

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Employers and Health Plans Migrate to PPOs - Why?

• Cant afford HMO benefit package - grasping for
  change to hold down premium increases
• Seek plan options with more cost-sharing - HMOs
  cant or wont write on their paper
• Perceived consumer preference for PPO plans -
  easier access even if more out-of-pocket cost
• Health plans steer employers away from HMOs -
  promote national networks and benefit plans
• Even as HMO enrollment drops, profitability is
  higher than ever

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Texas HMO Enrollment, 1994-2006
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HMO Enrollment Growth (or not) in Texas and
Other States
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Who Stays with the HMO Model?

• Medicaid and CHIP
• Medicare and special needs
• Employers? Local governments, unionized employers

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HMO Profitability - Best of Times
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2. New Opportunities for Medicaid and Medicare

• Niche markets for entrepreneurs and safety net
  hospitals Parkland, Harris, other districts
• State expansions lead to emergence of national
  HMOs for Medicaid/SCHIP - in Texas AmeriGroup,
  Centene (Superior) new Molina and Aetna
• Medicare Advantage plans - now seen as a
  profitable line of business - new HMOs form in
  Texas - new PFFS plans for Humana and United

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Growth of Medicaid HMOs in Texas
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3. Hospitals Maintain Upper Hand

• Consolidated systems challenge health plans and
  win - you need our hospitals to sell your
  insurance - brand name or geographic presence
• Huge construction programs now underway -improved
  profitability helps to finance
• deferred investment,
• new technology to keep star specialists happy,
• expansion into developing areas - but what risk
  if there are already 7 hospitals in Denton County
  or 4 in Round Rock?

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DFW Hospital Profitability
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2005 Hospital Market ShareDFW Area
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4. Physicians Struggle

• Who shares physicians interests? If not
  hospitals, what about Medicare HMOs?
• Physicians still struggle with organizational
  models, risk arrangements
• Certain specialists are able to exert leverage on
  hospitals and health plans
• Overall use of capitation declines

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Challenges Market Wide

• Demand for value - employers want health plans to
  demonstrate savings and improved quality and
  access
• Demand for transparency -
• show us the differences in your quality, your
  cost and how you practice.
• Or show us how you will measure providers.
• 25 without insurance in Texas - results in
  shifting to employer purchasers and individuals -
  care delayed - wider community impacts

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Challenges for Employer Purchasers

• Employers seeking predictability in costs, while
  preserving access to broad provider networks -
  will they go back to the future for limited
  networks?
• Employers pay when hospitals use their leverage
  to increase payment rates from health plans.
  Should employers oppose hospital building
  projects?
• Can you contain costs and not reduce benefits?
• Pay for Performance initiatives - what is the
  business case for paying extra to providers that
  meet expectations? Bonuses are for those that
  exceed expectations.

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2. Challenges for Health Plans

• Profitability is strong, but when will the
  downward side of the underwriting cycle kick in
  again?
• Health insurer stocks are depressed even with
  growing profits - can health plans contain costs
  and exert pressure on providers? Have they
  stopped trying?
• Variation in practice - can you design networks
  and benefit plans based on identifying high
  performing providers? Are the data adequate?
  Will employers and state government buy in?
  Examples of United, Aetna and others.

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Health Plans, Part Two

• Niche players succeed in Medicare and Medicaid
  but face risks
• Will Congress continue to provide the new dollars
  needed each year to keep Medicare Advantage
  profitable? If not, do we relive the two previous
  Medicare HMO cycles?
• Medicaid HMOs rely on a single customer in each
  state - what happens when HMO profits are the
  target for needed cost-cutting? Do Medicaid HMOs
  meet state goals of improved access to care? Do
  state demands for broad provider networks hurt
  ability to contain costs?

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3. Hospitals and Physicians

• How will they respond to Pay for Performance,
  tiered networks and other initiatives that seek
  to identify high performing doctors and reward
  them with patients and payments?
• What investments in IT are needed to participate
  in incentive and quality improvement programs?
• Is there a danger of overbuilding hospitals?
  Surplus capacity may give health plans new
  leverage in negotiating payments and terms.
• Will more consolidation on the health plan side
  swing the pendulum back?
• What about the cost of steel and wallboard?

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4. Consumers

• More cost sharing but skinnier benefits
• More responsibility for making choices of
  providers and care but limited tools to inform
  those choices
• Do consumer-directed plans and spending accounts
  deter patients from using needed care as well as
  inappropriate care? Do these plan designs shift
  more costs to consumers while trying to make them
  feel better about it?

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Conclusions/Comments

• The national challenge is the same how can we
  expand access to high-quality care while
  containing growth of costs?
• How can the interest of all parties be aligned -
  consumers, providers, purchasers and health
  plans?
• How to focus policymakers of issues of access,
  affordability and quality of care?

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For Additional Information

• Allan Baumgarten
• www.AllanBaumgarten.com
• 4800 W. 27th Street
• Minneapolis, MN 55416
• E-mail Baumg010_at_umn.edu
• 952/925-9121 Fax [phone]