As Insurers Like Aetna Balk, U.S. Makes New Push to Bolster Health Care Act
by Robert Pear and Reed Abelson - NYT
WASHINGTON — Facing high-profile withdrawals from online insurance exchanges and surging premiums, the Obama administration is preparing a major push to enroll new participants into public marketplaces under the Affordable Care Act.
The administration is eyeing an advertising campaign featuring testimonials from newly insured consumers, as well as direct appeals to young people hit by tax penalties this year for failing to enroll.
But as many insurers continue to lose money on the exchanges, they say the administration’s response is too late and too weak. The companies point to a fundamental dynamic in the marketplace in which too few healthy people are buying policies and too many sick people are filing costly claims.
And the uneasy truce between the government and insurers, which followed adoption of the health care law, appears to be fraying as some of the large companies say they are leaving or sharply scaling back. Aetna warned the Justice Department last month that the company would curtail its participation in the exchanges if the government sued to block its acquisition of Humana, a major competitor.
In a July 5 letter, disclosed by The Huffington Post, Mark T. Bertolini, the chairman and chief executive of Aetna, said that in the event of a lawsuit, “we will immediately take action to reduce our 2017 exchange footprint.” He argued that Aetna needed to form a combined insurance giant to mitigate its losses on the exchanges.
The Justice Department filed suit two weeks later, saying that the combination of Aetna and Humana would reduce competition in violation of federal antitrust law. On Monday, Aetna announced that it would sharply reduce its participation in the public marketplaces next year, offering individual insurance products in 242 of the 778 counties where it now provides such coverage.
An Aetna spokesman insisted on Wednesday that it was the growing financial losses in the exchanges — not the challenge to its acquisition of Humana — that ultimately “drove us to announce the narrowing of our public exchange presence for the 2017 plan year.”
Anthem, another big insurer, said that its losses had been increasing, but that it had no plans to leave the marketplaces. In a separate lawsuit, the Justice Department has challenged Anthem’s proposed acquisition of Cigna. Anthem operates for-profit Blue Cross plans in 14 states and says it can expand to other states only if the merger goes through.
“We’re all in,” said Joseph R. Swedish, the chief executive of Anthem. “We’re committed, but we do need adjustments and not just at the margins.”
The major insurers, which appeared more optimistic about the marketplaces earlier in the year, “have been seeing losses, and the losses have worsened,” said Ana Gupte, an analyst at Leerink Partners who follows the insurance industry. In the case of Aetna, she said, its ability to withstand those losses was weakened when it became clear it might not be able to rely on the cost savings it expected from its merger with Humana.
This tumult is happening as the administration prepares for the fourth annual open enrollment period under President Obama’s heath law, which is scheduled to start on Nov. 1, a week before Election Day. Most Americans still get their insurance through their employers or government programs such as Medicare, Medicaid and veterans health care.
The insurance exchanges were expected to be a major supplement to that system for people who do not have access to employer plans or government programs. But enrollment in the exchanges — 11 million at the end of March — is far below expectations, and insurers say it must increase to produce a better, more sustainable mix of healthy and less healthy consumers.
Administration officials said they would try to sign up more young adults, with a special emphasis on those turning 26 and moving off their parents’ plans. Officials said that they would, for the first time, send letters about marketplace coverage to people who had paid the tax penalty for being uninsured, a group in which young adults are overrepresented.
The administration is also hunting for consumers who can deliver “testimonials” advertising the benefits of coverage under the Affordable Care Act. “Interested consumers could appear in television, radio, print and/or digital ads and on social media,” the administration said in an appeal sent last week to health care advocates and insurance counselors.
The testimonials could counter negative publicity generated by rising premiums, the withdrawal of major insurers like Aetna, Humana and UnitedHealth from many counties, and the collapse of insurance cooperatives in at least a dozen states. The effort could also raise protests from Republicans in Congress.
Madison Hardee, a lawyer at Legal Services of Southern Piedmont, in Charlotte, N.C., said that “enrollment stories can be an incredibly powerful tool to connect with consumers.” Such testimonials are urgently needed, she said, because “consumers in North Carolina are already starting to get notices about health insurance companies leaving the marketplace, and they fear the changes will reduce their ability to get quality, affordable coverage.”
The administration has minimized the significance of such setbacks, but that response has rattled insurers even more, suggesting to some that federal officials do not appreciate the depth of the financial and other challenges facing insurers.
In a letter to state insurance commissioners last summer, Kevin J. Counihan, chief executive of the federal insurance marketplace, said that “recent claims data show healthier consumers” and “a decline in pent-up demand for services.” He said again last week, in a blog post, that the marketplace was “gaining healthier, lower-cost consumers.”
Marilyn B. Tavenner, a former Obama administration official who is now president and chief executive of America’s Health Insurance Plans, a trade group, said the administration’s latest assessment of the market was “overly optimistic.”
It is not only for-profit companies that are losing money. Health Care Service Corporation, which runs nonprofit Blue Cross and Blue Shield plans in Illinois, Montana, New Mexico, Oklahoma and Texas, said it lost $1.5 billion last year selling individual policies on the exchanges. In some states, insurers have increased their original rate requests for 2017 because, they say, costs surpass recent projections.
“Obamacare is spiraling out of control,” said Senator Lamar Alexander, Republican of Tennessee and chairman of the Senate health committee. Mr. Counihan, the administration official, said that with high consumer satisfaction and more people getting care, “the future of the marketplace is strong.” Moreover, the administration said, most people buying insurance on the exchanges receive federal subsidies, so they will not feel the full impact of higher premiums.
Tensions between insurance companies and federal officials over government programs are hardly unusual, said Sabrina Corlette, a professor at the Health Policy Institute of Georgetown University. She said that companies’ business interests may conflict with a program’s policy goals. “The bigger issue is a lot of people just don’t find it affordable,” she said. “Clearly that is something Congress is going to have to deal with.”
Obamacare Hits a Bump
by Paul Krugman - NYT
More than two and a half years have gone by since the Affordable Care Act, a.k.a. Obamacare, went fully into effect. Most of the news about health reform since then has been good, defying the dire predictions of right-wing doomsayers. But this week has brought some genuine bad news: The giant insurer Aetna announced that it would be pulling out of many of the “exchanges,” the special insurance markets the law established.
This doesn’t mean that the reform is about to collapse. But some real problems are cropping up. They’re problems that would be relatively easy to fix in a normal political system, one in which parties can compromise to make government work. But they won’t get resolved if we elect a clueless president (although he’d turn to terrific people, the best people, for advice, believe me. Not.). And they’ll be difficult to resolve even with a knowledgeable, competent president if she faces scorched-earth opposition from a hostile Congress.
The story so far: Since Obamacare took full effect in January 2014, two things have happened. First, the percentage of Americans who are uninsured has dropped sharply. Second, the growth of health costs has slowed sharply, so that the law is costing both consumers and taxpayers less than expected.
Meanwhile, the bad things that were supposed to happen didn’t. Health reform didn’t cause the budget deficit to soar; it didn’t kill private-sector jobs, which have actually grown more rapidly since Obamacare went into effect than at any time since the 1990s. Evidence also is growing that the law has meant a significant improvement in both health and financial security for millions, probably tens of millions, of Americans.
Continue reading the main story
So what’s the problem?
Well, Obamacare is a system that relies on private insurance companies to provide much of its expanded coverage (not all, because expanded Medicaid is also a big part of the system). And many of these private insurers are now finding themselves losing money, because previously uninsured Americans who are signing up turn out to have been sicker and more in need of costly care than we realized.
Some insurers are responding by hiking premiums, which were initially set well below what the law’s framers expected. And some insurers are simply pulling out of the system.
In Aetna’s case there’s reason to believe that there was also another factor: vindictiveness on the part of the insurer after antitrust authorities turned down a proposed merger. That’s an important story, but not central to the broader issue of health reform.
So how bad is the problem?
Much of the new system is doing pretty well — not just the Medicaid expansion, but also private insurer-based exchanges in big states that are trying to make the law work, California in particular. The bad news mainly hits states that have small populations and/or have governments hostile to reform, where the exit of insurers may leave markets without adequate competition. That’s not the whole country, but it would be a significant setback.
But it would be quite easy to fix the system. It seems clear that subsidies for purchasing insurance, and in some cases for insurers themselves, should be somewhat bigger — an affordable proposition given that the program so far has come in under budget, and easily justified now that we know just how badly many of our fellow citizens needed coverage. There should also be a reinforced effort to ensure that healthy Americans buy insurance, as the law requires, rather than them waiting until they get sick. Such measures would go a long way toward getting things back on track.
Beyond all that, what about the public option?
The idea of allowing the government to offer a health plan directly to families was blocked in 2010 because private insurers didn’t want to face the competition. But if those insurers aren’t actually interested in providing insurance, why not let the government step in (as Hillary Clinton is in fact proposing)?
The trouble, of course, is Congress: If Republicans control one or both houses, it’s all too likely that they’ll do what they do best — try to sabotage a Democratic president through lack of cooperation. Unless it’s such a wave election that Democrats take the House, or at least can claim an overwhelming mandate, the obvious fixes for health reform will be off the table.
That said, there may still be room for action at the executive level. And I’m hearing suggestions that states may be able to offer their own public options; if these proved successful, they might gradually become the norm.
However this plays out, it’s important to realize that as far as anyone can tell, there’s nothing wrong with Obamacare that couldn’t be fairly easily fixed with a bit of bipartisan cooperation. The only thing that makes this hard is the blocking power of politicians who want reform to fail.
http://www.nytimes.com/2016/08/19/opinion/obamacare-hits-a-bump.html?smprod=nytcore-iphone&smid=nytcore-iphone-share&_r=0
Obamacare Options? In Many Parts of Country, Only One Insurer Will Remain
by Reed Abelson and Margot Sanger-Katz - NYT
So much for choice. In many parts of the country, Obamacare customers will be down to one insurer when they go to sign up for coverage next year on the public exchanges.
A central tenet of the federal health law was to offer a range of affordable health plans through competition among private insurers. But a wave of insurer failures and the recent decision by several of the largest companies, including Aetna, to exit markets are leaving large portions of the country with functional monopolies for next year.
According to an analysis done for The Upshot by the McKinsey Center for U.S. Health System Reform, 17 percent of Americans eligible for an Affordable Care Act plan may have only one insurer to choose next year. The analysis shows that there are five entire states currently set to have one insurer, although our map also includes two more states because the plans for more carriers are not final. By comparison, only 2 percent of eligible customers last year had only one choice.
A similar analysis by Avalere Health, another consulting firm, also highlighted the increase in areas with only one insurance carrier.
The market is still in some flux. Final contracts between insurers and the federal government won’t be signed until late September. That means it is still possible that additional insurers will choose to enter new markets between now and then, and the competitive picture could improve. It is also possible that some carriers will decide to exit. It was just this week that Aetna surprised regulators and others with the news that it was leaving most of the markets where it offered policies on the exchange, leaving it in just four states.
The Obama administration says it is too early to evaluate competition in the Obamacare markets for 2017. Marjorie Connolly, a spokeswoman for the Department of Health and Human Services, said: “A number of steps remain before the full picture of marketplace competition and prices are known. Regardless, we remain confident that the majority of marketplace consumers will have multiple choices and will be able to select a plan for less than $75 per month when Open Enrollment begins Nov. 1.”
Many places in the country still have robust choice and competition, including many large population centers like Denver, Los Angeles, New York and Miami. But large areas have limited choice, like the five states that now have only one issuer: Alabama, Alaska, Oklahoma, South Carolina and Wyoming. (Our map also shows Kansas and North Carolina with only one, but the picture may change for parts of those states, because additional insurers have said they plan to enter.)
Large sections of other states may also be down to one carrier, including Florida, Utah and Missouri. It also appears that there is one county in Arizona, Pinal County, between Phoenix and Tucson, where no carriers are set to offer health plans in the marketplace.
While the dwindling competition may not be fatal, “it isn’t ideal,” conceded Larry Levitt, a senior executive at the Kaiser Family Foundation. People shopping for plans in the exchanges will be left with fewer insurer choices but also, probably, fewer choices of doctors and hospitals because the companies that remain will most likely offer sharply narrow networks.
Aetna Shows Exactly Why We Need Single Payer Insurance
by Robert Reich
The best argument for a single-payer health plan is the recent decision by giant health insurer Aetna to bail out next year from 11 of the 15 states where it sells Obamacare plans.
Aetna’s decision follows similar moves by UnitedHealth Group, the nation’s largest insurer, and Humana, one of the other giants.
All claim they’re not making enough money because too many people with serious health problems are using the Obamacare exchanges, and not enough healthy people are signing up.
The problem isn’t Obamacare per se. It’s in the structure of private markets for health insurance – which creates powerful incentives to avoid sick people and attract healthy ones. Obamacare is just making the structural problem more obvious.
In a nutshell, the more sick people and the fewer healthy people a private for-profit insurer attracts, the less competitive that insurer becomes relative to other insurers that don’t attract as high a percentage of the sick but a higher percentage of the healthy. Eventually, insurers that take in too many sick and too few healthy people are driven out of business.
If insurers had no idea who’d be sick and who’d be healthy when they sign up for insurance (and keep them insured at the same price even after they become sick), this wouldn’t be a problem. But they do know – and they’re developing more and more sophisticated ways of finding out.
It’s not just people with pre-existing conditions who have caused insurers to run for the happy hills of healthy customers. It’s also people with genetic predispositions toward certain illnesses that are expensive to treat, like heart disease and cancer. And people who don’t exercise enough, or have unhealthy habits, or live in unhealthy places.
So health insurers spend lots of time, effort, and money trying to attract people who have high odds of staying healthy (the young and the fit) while doing whatever they can to fend off those who have high odds of getting sick (the older, infirm, and the unfit).
As a result we end up with the most bizarre health-insurance system imaginable: One ever more carefully designed to avoid sick people.
If this weren’t enough to convince rational people to do what most other advanced nations have done and create a single-payer system, consider that America’s giant health insurers are now busily consolidating into ever-larger behemoths. UnitedHealth is already humongous. Aetna, meanwhile, is trying to buy Humana.
Insurers say they’re doing this in order to reap economies of scale, but there’s little evidence that large size generates cost savings.
In reality, they’re becoming very big to get more bargaining leverage over everyone they do business with – hospitals, doctors, employers, the government, and consumers. That way they make even bigger profits.
But these bigger profits come at the expense of hospitals, doctors, employers, the government, and, ultimately, taxpayers and consumers.
So the real choice in the future is becoming clear. Obamacare is only smoking it out. One alternative is a public single-payer system. The other is a hugely-expensive for-profit oligopoly with the market power to charge high prices even to healthy people – and to charge sick people (or those likely to be sick) an arm and a leg.
http://www.alternet.org/economy/aetna-opts-out-affordable-care-act
"The Blues Have Deep Reserves and They'll Be Here Long After We're Gone"--Here's How It Really Works
by Bob Laszewski - Health Policy and Marketplace Blog
The denials about just how bad the Obmacare exchange situation is keep piling up.
Maybe the most uniformed and naive was this comment in the Dallas Morning News:
These Blue Cross plans, particularly the community-based not-for-profits like Texas, do not have a bottomless bank account.
It's easy to look at the surplus accounts (reserves for outstanding claims are not the same as free capital, or surplus) of these Blue Cross plans and see unlimited bags of money. In fact, the not-for-profit parent company of Texas Blue Cross, Health Care Services Corporation (HCSC), has about $9 billion in surplus.
In May, S&P downgraded parent company HCSC's A+ rating to a still strong AA-. But S&P was clear that their continued confidence in the company was predicated on a return to profitability overall and in the Obamacare business specifically.
Fitch Rating Services was even more direct in their report from last October:
Now, read that last line in bold a second time. Ya, it's that bad.
Let's be clear, HCSC is still a well-capitalized and well-run company that operates Blue plans in a number of states. That they are giving 60% rate increases to their losing Texas Obamacare business speaks to their competence in this regard. But they have to see these Obamacare losses end and this business has to stabilize soon for the good of all of their other customers and their solvency. They don't have nine years to lose $9 billion.
This is why the clock really is ticking on Obamacare's exchanges.
With their backs against the wall, Blues plans might exit. They might also just keep raising the rates by large amounts knowing that the subsidized Obamacare subscribers will have these giant excess premiums paid by taxpayers no matter how big they are, while at the same time driving the millions of people that don't get subsidies out of the market with exploding rates. A really bad outcome either way.
Things will not magically improve. To fix this we have to see a big wave of healthy people sign up in the coming 2017 open enrollment.
Today 40% of the eligible exchange population is enrolled and we need closer to 75% to get a healthy risk pool, the health plans have requested 2017 exchange rates that are, according to Charles Gaba who closely tracks Obamacare, a national average of 24% more, the deductibles and co-pays will be bigger in 2017, and the networks will be narrower.
After all of this why should we expect that people will find the Obamacare plans more attractive during the next open enrollment and the risk pool will be better in 2017?
http://healthpolicyandmarket.blogspot.com/2016/08/the-blues-have-deep-reserves-and-theyll.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed:+HealthCarePolicyAndMarketplaceBlog+(Health+Care+Policy+and+Marketplace+Blog)&m=1
Maybe the most uniformed and naive was this comment in the Dallas Morning News:
"The Blues have deep, deep reserves, and they'll be here long after we're gone,"[Sabrina] Collette [a research professor at Georgetown University], said. "They're probably calculating they can ride out this rocky time and emerge with a dominant position."In the same article it was reported that local Dallas HMO Scott and While Health Plan is withdrawing from the exchanges. The article also pointed out that Texas Blue Cross has lost more than $1 billion on the exchanges over the last two years and is now seeking a rate increase of 60% for 2017.
These Blue Cross plans, particularly the community-based not-for-profits like Texas, do not have a bottomless bank account.
It's easy to look at the surplus accounts (reserves for outstanding claims are not the same as free capital, or surplus) of these Blue Cross plans and see unlimited bags of money. In fact, the not-for-profit parent company of Texas Blue Cross, Health Care Services Corporation (HCSC), has about $9 billion in surplus.
In May, S&P downgraded parent company HCSC's A+ rating to a still strong AA-. But S&P was clear that their continued confidence in the company was predicated on a return to profitability overall and in the Obamacare business specifically.
Fitch Rating Services was even more direct in their report from last October:
The deterioration in HCSC's risk based capitalization [the free surplus capital with which to offset losses] is material and places downward pressure on ratings...[Risk based capital] has declined significantly from 614% of the CAL [company action level at which point the enterprise is in danger of not having sufficient cushion reserves] at year-end 2013 [just before Obamacare], and Fitch estimates could fall to 400% by year-end 2015 if losses continue at the same rate as the first half of 2015.Sorry for all of the brackets but this gets complicated. The most confusing part of all of this is that people look at $9 billion in surplus and think we can run the tank down to 1/2 or 1/4 and there is no problem. In October, what Fitch was saying was that, when you consider the point at which this company would be in real trouble, the parent company was in the process of losing about a third of its state regulated cushion (614% to 400% of the risk-based capital threshold) in just the first two years of Obamacare!
Now, read that last line in bold a second time. Ya, it's that bad.
Let's be clear, HCSC is still a well-capitalized and well-run company that operates Blue plans in a number of states. That they are giving 60% rate increases to their losing Texas Obamacare business speaks to their competence in this regard. But they have to see these Obamacare losses end and this business has to stabilize soon for the good of all of their other customers and their solvency. They don't have nine years to lose $9 billion.
This is why the clock really is ticking on Obamacare's exchanges.
With their backs against the wall, Blues plans might exit. They might also just keep raising the rates by large amounts knowing that the subsidized Obamacare subscribers will have these giant excess premiums paid by taxpayers no matter how big they are, while at the same time driving the millions of people that don't get subsidies out of the market with exploding rates. A really bad outcome either way.
Things will not magically improve. To fix this we have to see a big wave of healthy people sign up in the coming 2017 open enrollment.
Today 40% of the eligible exchange population is enrolled and we need closer to 75% to get a healthy risk pool, the health plans have requested 2017 exchange rates that are, according to Charles Gaba who closely tracks Obamacare, a national average of 24% more, the deductibles and co-pays will be bigger in 2017, and the networks will be narrower.
After all of this why should we expect that people will find the Obamacare plans more attractive during the next open enrollment and the risk pool will be better in 2017?
http://healthpolicyandmarket.blogspot.com/2016/08/the-blues-have-deep-reserves-and-theyll.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed:+HealthCarePolicyAndMarketplaceBlog+(Health+Care+Policy+and+Marketplace+Blog)&m=1
Maine Bureau of Insurance approves double-digit ACA rate increases
The hikes by three insurers won't affect most Mainers, who are eligible for federal subsidies that offset increases.
by Joe Lawlor - Portland Press Herald
The Maine Bureau of Insurance this week approved double-digit increases for the three insurers offering Affordable Care Act individual marketplace plans.
The bureau – which regulates rate requests by insurance companies – gave the OK Wednesday to a 25.5 percent increase for customers of Community Health Options, 21.1 percent for Harvard Pilgrim and 18 percent for Anthem. The rates still must be approved by the federal government and most of the increases will be offset by subsidies for those who qualify for government assistance.
About 90 percent of the roughly 84,000 Mainers who have individual plans under the ACA qualify for subsidies because they earn between 100 percent and 400 percent of the federal poverty limit. In Maine, the 400 percent threshold is $97,000 for a family of four.
“I do worry that the rate increases will be a hardship for people making just over the 400 percent,” said Emily Brostek, executive director of Consumers for Affordable Health Care, an Augusta-based health advocacy group. “If they were just barely able to make their payment now, they may not be able to afford it next year.”
For instance, a midrange Anthem plan for a 40-year-old non-smoker is currently about $300 per month without subsidies. Rates for that customer would increase by about $50 to $60 per month.
Brostek said the “cliff” effect increases when rates rise substantially. For a family on the edge of qualifying for subsidies, there’s a financial disincentive to earn more money and then lose the subsidy.
The rates mostly matched the requests by the insurance companies, except for Anthem, which was reduced from a 19.4 increase to 18 percent.
A fourth insurer, Aetna, had filed paperwork to join the Maine marketplace, but withdrew last week. Aetna has drastically pulled back on ACA marketplace insurance offerings nationwide. The company is mired in controversy over leaked letters that indicate Aetna may have pulled out of state marketplaces in retaliation for the Obama administration blocking the company’s proposed merger with Humana.
Aetna will, however, offer off-marketplace individual plans in Maine in 2017, according to bureau filings.
The rate increases are due to a number of factors, including the overall cost of medicine, elimination of an ACA program that helped insurance companies mitigate losses and the insurance companies’ failure to predict the health of ACA customers who would be in the pool, Brostek said. If the customer pool is older and sicker, for instance, patients make more insurance claims and insurance companies can lose money.
Anthem, in a filing with the state on Aug. 5, said that the 19.4 percent rate increase it requested should not be reduced, due to the ripple effect of Aetna pulling out of the marketplace.
Aetna’s withdrawal “materially increases” Anthem’s financial risk for a number of reasons, including that Anthem is “likely to receive significantly greater enrollment than contemplated in its rates,” Anthem attorney Christopher Roach said.
When asked whether Anthem agreed with the decision by the bureau of insurance to reduce rates, Anthem spokesman Colin Manning did not directly respond to the question.
“We believe the rates that we requested appropriately reflected anticipated claims costs driven by the increased use of medical services and higher drug costs,” Manning wrote in an email.
Open enrollment begins Nov. 1 for the fourth year of the ACA’s individual marketplace.
Letter to the editor: Vote for Stein to support health care, not sick care
Gil Harris raises important points about there being no room for hate in Maine in his Aug. 9 letter supporting the Green presidential nominee.
Dr. Jill Stein of the Green Party offers a positive, uplifting alternative for Mainers looking toward a future for the greater good. She promotes a Green New Deal that would provide full employment while at the same time saving billions of dollars by tackling the cause of illnesses such as asthma and transitioning us to a 100 percent renewable energy future.
There are many reasons to vote for Dr. Stein. And as a student at Maine’s only medical school, I have to support the only candidate who will make true health care rather than sick care a right, and that is Dr. Jill Stein.
Frank Jackson
student, University of New England College of Osteopathic Medicine
York
Private Equity Pursues Profits in Keeping the Elderly at Home
by Sarah Varney - NYT
DENVER — Inside a senior center here, nestled along a bustling commercial strip, Vivian Malveaux scans her bingo card for a winning number. Her 81-year-old eyes are warm, lively and occasionally set adrift by the dementia plundering her mind.
Dozens of elderly men and women — some in wheelchairs, others whose hands tremble involuntarily — gather excitedly around the game tables. After bingo, there is more entertainment and activities: Yahtzee, tile-painting, beading.
But this is no linoleum-floored community center reeking of bleach. Instead, it’s one of eight vanguard centers owned by InnovAge, a company based in Denver with ambitious plans. With the support of private equitymoney, InnovAge aims to aggressively expand a little-known Medicareprogram that will pay to keep older and disabled Americans out of nursing homes.
Until recently, only nonprofits were allowed to run programs like these. But a year ago, the government flipped the switch, opening the program to for-profit companies as well, ending one of the last remaining holdouts to commercialism in health care. The hope is that the profit motive will expand the services faster.
Hanging over all the promise, though, is the question of whether for-profit companies are well-suited to this line of work, long the province of nonprofit do-gooders. Critics point out that the business of caring for poor and frail people is marred with abuse. Already, new ideas for lowering the cost of the program have started circulating. In Silicon Valley, for example, some eager entrepreneurs are pushing plans that call for a higher reliance on video calls instead of in-face doctor visits.
The business appeal is simple: A baby boom-propelled surge in government health care spending is coming. Medicare enrollment is expected to grow by 30 million people in the next two decades, and many of those people are potential future clients. Adding to the allure are hefty profit margins for programs like these — as high as 15 percent, compared with an average of 2 percent among nursing homes — and geographic monopolies that are all but guaranteed by state Medicaid agencies to ensure the solvency of providers.
The goal of the program, known as PACE, or the Program of All-Inclusive Care for the Elderly, is to help frail, older Americans live longer and more happily in their own homes, by providing comprehensive medical care and intensive social support. It also promises to save Medicare and Medicaid millions of dollars by keeping those people out of nursing homes.
For decades, though, the program has failed to catch on, with only 40,000 people enrolled as of January of this year.
“PACE is still a secret in the minds of the public,” Andy Slavitt, Medicare’s acting administrator, said at the National PACE Association meeting in April. The challenge, he said, was to make PACE “a clear part of the solution.”
Several private equity firms, venture capitalists and Silicon Valley entrepreneurs have jumped into the niche. F-Prime Capital Partners, a former Fidelity Biosciences group, provided seed funding for a PACE-related start-up, as have well-regarded angel investors like Amir Dan Rubin, the former Stanford Health Care president, and Michael Zubkoff, a Dartmouth health care economist.
And no company has moved with more tenacity than InnovAge. Last year, the company overcame protests from watchdog groups to convert from a nonprofit organization to a for-profit business in Colorado. And in May, InnovAge received $196 million in backing — the largest investment in a PACE business since the rule change was made — from Welsh, Carson, Anderson & Stowe, a private equity firm with $10 billion in assets under management.
“For years we were pariahs, and no one wanted anything to do with us,” said Julie Reiskin, executive director of the Colorado Cross-Disability Coalition, a nonprofit group that advocates for people with disabilities, many of whom are eligible for PACE.
“Now that there’s money involved,” Ms. Reiskin said, “everyone is all interested.”
Even the program’s supporters acknowledge that the movement needs fresh momentum. But they worry that commercial operators will tarnish their image in the same way many for-profits eroded trust in hospice care and nursing homes.
Three decades ago, after Congress authorized Medicare to pay for hospice care, commercial operators displaced the religious and community groups that had championed the movement. As recently as 2014, government inspectors found that for-profit hospice companies cherry-picked patients and stinted on care.
In addition, elderly patients with dementia and chronic ailments have frequently been targets of abuse and neglect at nursing homes, something advocates for the elderly say is correlated with the increased commercialization of that industry.
“I’m not wild about every knucklehead running around trying to do PACE,” said Thomas Scully, former Medicare administrator under President George W. Bush. “I would rather keep it below the radar.”
Not Quite Able
Early last year, Ms. Malveaux was drowning. She lived alone in a tidy red-brick home in a leafy Denver neighborhood that she paid for by working shifts at a Samsonite luggage factory, now closed.
Laundry piled up. Bills went unpaid. Doors were left unlocked. Pans sometimes burned on the stove as her memory failed.
For Americans who find themselves in this situation, the next stop is often a traditional nursing home. Ms. Malveaux’s son took her instead to visit an InnovAge day center.
The $9 million building south of downtown Denver is designed to calm people with dementia. It has subdued lighting and winding hallways that encircle the first floor like a running track and discourage “exit-seeking behaviors,” where patients search for ways out of a building.
For the frightened Ms. Malveaux, it seemed like paradise: a flower garden, a beauty salon and day trips to casinos and candy factories. And, most importantly, it had a team of doctors, nurses, psychiatrists, dentists, physical therapists, nutritionists, home health aides and social workers whose purpose was to help her live safely in her beloved brick home.
After joining the center last June 2015, Ms. Malveaux began seeing a psychiatrist and went on medication for depression. A social worker coached her grandson, Jermaine Malveaux, on how to care for someone with dementia. Three days a week, an InnovAge van picks up Ms. Malveaux at home and takes her to the center to share lunch with other older adults and try her luck at bingo and ceramics.
“I make friends easily,” she said with a smile. “And the guys flirt with me.”
The InnovAge center, like other PACE facilities, is inspired by Britain’s much-lauded Day Hospitals, outpatient health care facilities that arose in the 1950s that became a hub of daily life for many older people. In the United States, the earliest incarnation of PACE was started in San Francisco in 1971 by a group of Asian and Italian immigrant families seeking alternatives to the American nursing home.
Federal health officials allowed the group, called On Lok — Cantonese for “peaceful, happy abode” — to test what was then a novel and prophetic approach to health care financing. Instead of physicians billing Medicare each time they treated a patient, the government would pay a fixed amount to the center for each member. On Lok would assume the financial risk, similar to an insurance company. In 1990, Medicare officially sanctioned the model.
In exchange for a capped monthly payment from Medicare and Medicaid, PACE staff members arrange and pay for all of a patient’s doctors’ visits, medications, rehabilitation and hospitalizations. At the same time, they are supposed to pay attention to the patient’s daily needs — meals, bathing, housekeeping and transportation to day centers, where older people can ward off isolation and cognitive decline by socializing. (Studies have found that the intensive caretaking reduces costly hospital stays.)
Comparing the cost effectiveness of PACE against nursing homes is difficult, partly because state Medicaid agencies pay a variety of rates. But all the states are required to keep their rates below what they would pay for nursing home care. In Colorado, for example, that amounts to 7 percent less per patient.
On average, Medicare and Medicaid pay PACE providers $76,728 a person a year, about $5,500 less than the average cost of a nursing home. And the money going to PACE covers all of the person’s health and social needs, unlike nursing home care, which doesn’t include hospitalizations and other expensive medical care.
The flat government payment pushes the organizations to invest in maintaining a patient’s health and safety to avoid big hospital bills. Dentistry — excluded from traditional Medicare coverage — is a crucial focus: Programs invest heavily to fix broken teeth and dentures to avoid costly infections or poor nutrition that can cause cascading health problems.
If you’re neglecting these patients, the odds they’ll call an ambulance and go to the hospital and spend a week there because they’re really sick is pretty high, and that all comes out of the payment,” said Bob Kocher, a former senior health care adviser to President Obama.
Profits are in no way guaranteed, though. The centers still face major financial risk — it just takes a few patients with serious medical conditions to upend the books.
Dan Gray, a PACE financing consultant at Continuum Development Services, said too many trips to the emergency room or an expensive hospital stay can flip fortunes. One organization he advises had $300,000 in hospital medical claims in a month that he refers to as “Black August.”
“I had a nervous twitch,” he said.
High-Tech vs. High-Touch
In January, at the health care industry’s leading matchmaking event, the J.P. Morgan Healthcare Conference in San Francisco, word quickly spread that PACE programs could save states and the federal government up to 20 percent a patient. And suddenly, the program became one of the hottest topics of discussion.
“Every other conversation was, ‘What do you think we should do with PACE?’” said Bill Pomeranz, a managing director at Cain Brothers, who helped finance the nation’s first PACE program in the 1970s.
The message appeared to travel down Highway 101 as well, to the heart of the technology industry. At least eight start-ups have circulated PACE-related pitches to Silicon Valley venture capital firms, hoping to tap into new capital and create technology-enabled versions of the program.
The interest of the tech industry is so far only nascent. But the possibility that Silicon Valley, notoriously aggressive and extremely deep-pocketed, could play a significant role in PACE underscores the changes that may lie ahead.
Building a center requires medical offices, rehabilitation equipment, food service and fleets of handicapped-accessible vans. On average, it takes up to $12 million just to get it off the ground. That is a lot of money for most nonprofits but relatively little in the technology world. Opening new centers may become less of a hurdle.
The tech industry and nonprofit world are driven by different impulses. The early centers were closely tied to local cultures, making them difficult to replicate. An aversion to aggressive marketing among the center’s leaders didn’t help, either. Tech likes to move as fast as possible.
“PACE reminds me of religious orthodoxy,” said Mr. Pomeranz, who said he had affection for the program. The movement’s leaders come from the world of public health and have a “social work mentality,” he added.
The pitches circulating among investors envision technology-enabled programs that would rely, in part, on video visits and sensors. Some studies have found that telemedicine can help patients better control certain chronic conditions and reduce health care spending. But those technologies are largely untested in geriatric care.
“The entrepreneurs coming into this space all believe there are much lower-cost ways to check on patients every day than driving them all to one building,” said Mr. Kocher, who is now a partner at the venture capital firm Venrock, which invests in health care companies.
These sorts of pitches, while promising, have not been universally welcomed. They have even been used as evidence that opening PACE up to for-profit companies might lead to unwanted consequences.
Veteran PACE providers, for example, are skeptical of virtual medicine’s benefits to seniors, especially those with dementia.
“Socialization goes a long way to improve the health of the participants we serve,” said Kelly Hopkins, president of Trinity Health PACE, a nonprofit health system that operates PACE centers in eight states. “It’s naïve to think you can do it virtually.”
Supporters of the change say the necessary safeguards are in place. The for-profit centers were approved, to little fanfare, after the Department of Health and Human Services submitted the results of a pilot study to Congress in June 2015. The demonstration project, in Pennsylvania, showed no difference in quality of care and costs between nonprofit PACE providers and a for-profit allowed to operate there.
The Centers for Medicare and Medicaid Services has vowed to closely track the performance of all PACE operators by measuring emergency room use, falls and vaccination rates, among other metrics. The National PACE Association, a policy and lobbying group, is also considering peer-reviewed accreditation to help safeguard the program. Oversight is now largely left to state Medicaid agencies.
Maureen Hewitt, InnovAge’s chief executive, said, “At the end of the day, we’re held to the same quality and care standards.”
Dr. Si France, a founder of WelbeHealth, an early-stage company based in Menlo Park, Calif., says start-ups can use technology to improve clinical communication, help caregivers make treatment decisions and monitor patients at home or in a hospital. But he insists even a high-tech PACE program cannot veer from its origins.
“It’s not a way to get rich or generate outsize returns,” said Dr. France, the former chief executive of GoHealth, a chain of urgent care centers acquired by TPG Capital, a private equity firm. “We think this is an arena for missionaries, not mercenaries.”
Will Money Change Things?
Families enrolled in InnovAge’s PACE program in Denver appeared to be unaware of its conversion into a for-profit enterprise. The company did not announce the change directly to its participants, but notified a patient advisory group.
Kathy Baron, 68, who lives in subsidized senior housing, was left disabled by breast cancer and debilitating nerve pain. Her daughter, Leah van Zelm, struggled to take care of her. So Ms. Baron, fearful she would be deemed unfit to stay in her apartment, signed up for InnovAge’s program.
“I would rather be dead than go into a nursing home,” Ms. Baron said.
She says InnovAge has been generous with services, echoing interviews with other patients. Each week, an InnovAge housekeeper changes the sheets on her bed, launders her clothes and cleans her apartment, a service provided to those unable to tidy their own homes. The few times her requests for special equipment or services were denied, Ms. Baron appealed and won.
But she worries new investors will skimp on what outsiders might view as unwarranted services. The company’s commercials, promising “Life on Your Terms” and voiced by the actress Susan Sarandon, have reinforced those concerns.
It’s a concern echoed by Ms. Malveaux’s family. “Anytime you involve money,” said Jermaine Malveaux, Ms. Malveaux’s grandson, “there’s always the concern for greed, especially with the elderly.”
At least in the near future, the number of companies getting into PACE programs will be limited. Most states cap enrollment in PACE centers. And each state — as Colorado did, opening the window for InnovAge — likely needs to amend its law to allow the for-profit companies. So far, it appears only California has done so.
Yet there is a growing realization among longtime PACE providers that new competition looms.
In a newsletter to the generally placid PACE community, one adviser warned that providers who failed to become bigger would face new entrants who “will find a way to meet the needs of persons in your community.”
Those needs will only grow as the adult children of baby boomers face difficult decisions about how to care for their parents.
In the meantime, for people like Ms. Van Zelm, the anxiety that once pervaded her daily life has diminished.
“When she’s stable,” Ms. Van Zelm said of her mother, “my daily life stress is reduced.”
Maine health care centers getting nearly $1.5 million in federal grants
The money is intended to help them expand their systems and improve delivery of primary care.
Associated Press
The federal government is giving Maine close to $1.5 million to invest in the improvement of its health care centers.
The money is coming from the U.S. Department of Health & Human Services, and it will be used by health centers in the state to expand their systems. The DHHS says the money will also be used to improve delivery of primary care.
The health centers receiving grants are located all around the state, from York County to Lubec. The largest grant is going to Pines Health Services in Aroostook County.
The grants are part of more than $100 million that the federal government is giving out to more than 1,300 health centers in all 50 states and several U.S. territories.
Maine Nonprofit Joins Growing Ranks of Obamacare Insurers Suing Feds
The state’s largest insurer of individual health plans is suing the federal government for over $20 million in owed payments.
The lawsuit, by Maine Community Health Options, or MCHO, marks the latest development in the ongoing struggle of Obamacare health co-ops, many of which have already shuttered because of financial woes.
It has been a rough year for MCHO. The nonprofit was one of nearly two dozen health care co-ops setup nationwide in 2014 and funded through the Affordable Care Act, or Obamacare, with over $2 billion in federal grants.
The co-ops were constructed as an alternative to commercial insurance. The priority is to write affordable health plans and provide coverage — generating profits is a secondary goal.
But health insurance is risky business. Despite a successful first year in which it posted a net income of $7.3 million, the Maine co-op showed a net loss of $74 million last year. Now the organization, which writes insurance plans for over 75,000 Mainers and once was held up as one of the few co-op success stories, is joining other insurers in suing the federal government for nonpayment of money that was designed to cover big losses in the marketplace.
“It’s what we feel like we need to do, what we have to do on behalf of our members,” says MCHO President Kevin Lewis. “Certainly the capital would be very helpful.”
Lewis says the organization is solvent, cutting costs and working its way out of the deficit. He says the effort would be made easier if the federal government would pay the nearly $23 million it owes MCHO through what’s called the risk corridor program.
The program is modeled after the Medicare Part D. It’s designed to entice typically risk-averse insurers to write plans for people whose health and medical history is unknown. Many of the new recipients were uninsured.
“This new market was bit of an unknown for them,” says Timothy Jost, professor emeritus at the Washington and Lee University School of Law.
Jost says the ACA provided insurers like MCHO with a government-backed safety net.
“It would recover excess profits from insurers who did very well and it would pay out to those who lost money on the program,” he says.
In 2014 MCHO was one of the few insurers that accumulated profits to pay into the program. But by the following year, enrollment through MCHO products soared, and so did utilization of insurance.
Lewis says the company didn’t want to jack up premiums for its members, and it miscalculated just how often the newly insured would use their coverage. That led to the big losses last year, he says.
Those losses are supposed to be protected by the risk corridor program in the ACA.
“It was really meant to kind of provide these guardrails on either side for the first three years of the program,” Lewis says.
But as insurers accumulated losses, the federal government slowed risk corridor payments to a trickle. That’s because Congress restricted the amount of money the U.S. Department of Health and Human Services can pay insurers like MCHO when it passed a spending bill in 2014.
That year, insurers claimed nearly $2.9 billion through the risk corridor program. The feds paid just over $360 million, less than 13 percent of the claims.
Now, all but seven of the 23 co-ops have shuttered. The others like MCHO, as well as big commercial insurers, are suing the feds for the risk corridor money. A class action suit has been filed in the federal appeals court.
Lewis says MCHO is going it alone for now. He wouldn’t rule out a future joint lawsuit.
Jost thinks the insurers like MCHO have a strong case.
“I and many other observers think they have a pretty good claim. The government is supposed to pay its debts and can’t simply decide not do that,” he says.
MCHO filed its claim in the U.S. Court of Federal Claims on Tuesday. Lewis said he wasn’t certain how long it would take to get a ruling.
Pfizer to Buy Medivation in $14
by Leslie Picker - NYT
Medivation, which makes treatments for prostate and breast cancers, has finally found its buyer in a fellow American drug maker, Pfizer.
After rebuffing an offer by the French drug maker Sanofi, pharmaceutical companies from all over the world placed bids for Medivation in an auction. On Monday, Pfizer said that it had prevailed, with $14 billion agreement to acquire Medivation, representing about $81.50 a share in cash.
The frenzy over Medivation shows what pharmaceutical companies are willing to pay for oncology deals. When Medivation agreed in July to speak with several interested parties, the company’s chairman, Kim Blickenstaff, said that it had “significant scarcity value as one of the only profitable, commercial-stage oncology companies.”
“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” said Ian Read, chairman and chief executive of Pfizer, in the statement on Monday.
The deal is Pfizer’s largest since its $152 billion merger with Allergan was terminated in April. That transaction had been structured as a so-called inversion, which meant that Pfizer would move its headquarters abroad to lower its tax bill. The United States Treasury issued new rules that caused the two companies to end their combination.
Medivation, based in San Francisco, has a portfolio includes Xtandi, an alternative to chemotherapy that has been used to treat 64,000 men with prostate cancer in the United States. The drug, marketed through Astellas Pharma, has generated $2.2 billion in net sales, the companies said in the statement on Monday. Medivation has two late-stage oncology assets as well: talazoparib, which is aimed at treating breast cancer, and pidilizumab for blood cancer.
“We believe that Pfizer is the ideal partner to extend the reach of our blockbuster Xtandi franchise and take our promising, late-stage assets — talazoparib and pidilizumab — to their next stages of development so that they can be made available to patients as quickly as possible,” David Hung, founder and chief executive of Medivation, said in the news release.
Sanofi went public in April with its Medivation offer, disclosing a $52.50-a-share offer. Medivation quickly rejected the bid, calling it “opportunistically timed.”
Pfizer’s deal is subject to regulatory clearance and the tender of a majority of Medivation’s shares. Pfizer expects to close the deal in the third or fourth quarter.
Evercore and JPMorgan provided financial advice to Medivation, while Guggenheim Securities and Centerview Partners worked with Pfizer. Cooley and Wachtell, Lipton, Rosen & Katz served as Medivation’s legal adviser, and Ropes & Gray counseled Pfizer.
