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Would Having More ‘Blues’ Make Us Happier?

Many of you residing in Iowa reading this post are probably covered by a Blue Cross and Blue Shield health insurance policy. Most likely your health plan is insured by Iowa-based Wellmark, Inc. or Wellmark Health Plan of Iowa.

Using data from the Iowa Insurance Division, a recent Des Moines Business Record article reported that both Wellmark plans “account for roughly 78 percent of the large group market in Iowa and 81 percent of the (Iowa) small group market.” Additionally, the individual market in Iowa has Wellmark companies accounting for 45 percent of individual health policies in the state.

Overview

For decades, Blue Cross and Blue Shield (BCBS) plans located in each state, Iowa included, did not compete with ‘sister’ BCBS plans in other states. Wellmark BCBS was, in essence, protected from competing with other Blue plans for Iowa business.

However, there was one large exception to this friendly competitive arrangement. Other Blue insurers can compete for large national-account business ONLY if the home state Blue plan chose to “cede” the client to them. As an example, if Hy-Vee, headquartered in Iowa, wished to use a larger BCBS plan, such as Anthem, Inc. – the largest of all BCBS plans – Wellmark would need to ‘cede’ this Iowa-based business to the desired Blue plan. Employers really had little recourse on fighting this arrangement, other than threaten to choose a non-Blue plan such as United Healthcare, Cigna, Aetna, etc.

It is important to mention that within the Blues system, if a large, Iowa-based organization is enrolled with Wellmark, they gain access to the BlueCard® PPO for their out-of-state employees – which offers any additional negotiated arrangements made by each state’s Blue plan. This is a big advantage to large national accounts, and has worked reasonably well for decades. However, if the employer was, for some reason, unhappy with the services provided by that ‘home’ Blues plan, they would need to apply leverage to move to another desired Blue plan outside that state. As a result, the pursuit for seamless customer service was rather ‘clunky.’

In 2012, a national class-action lawsuit was brought on behalf of employers and individual policyholders with Blue coverage. The lawsuit alleged that anticompetitive behavior among BCBS plans who conspired to divvy up markets and avoid competing against one another, consequently drove up customers’ prices.

Tentative Antitrust Settlement on Blues

In September, a tentative deal was reached whereby the BCBS Association agreed to pay $2.7 billion to settle the claims and curtail competitive practices that limited competition among all 36 BCBS insurers – which includes Wellmark, Inc. According to the Wall Street Journal, the deal is not yet final, as U.S. District Judge R. David Proctor of Birmingham, AL, who presides over the case, must approve the arrangement. Additionally, the boards from each of the 36 BCBS plans must endorse the settlement.

Under the draft settlement, each of the 36 BCBS insurers can no longer be restricted to a little-known rule that required two-thirds of each Blue plan’s national net revenue from health plans and related services come from Blue-branded business. This rule limited each company’s ability to expand and open new growth pathways for each insurer. Theoretically, each Blue plan could maximize profits both in and out of their assigned service areas, causing greater competition in new territories, if desired.

As for the $2.7 billion settlement, the BCBS Association and all 36 independent Blue plans have agreed to chip in money to settle antitrust charges. Presumably, the amount will be apportioned based on the size of each Blue plan.

What Will This Mean to Iowa and Elsewhere?

Assuming the settlement is approved by Judge Proctor and all 36 Blue plans, there could eventually be more consolidations between Blue plans and non-Blue companies. Additionally, the largest of Blue plans, Anthem and Chicago-based Health Care Services Corp., would likely expand into other territories that were otherwise off-limits to them in the past.

In addition to having access to Wellmark products, eligible Iowa-based employers would have access to other Blue plans desiring to enter Iowa. Wellmark, on the other hand, could expand into other states, hoping to grow new members and revenue. Conceivably, Wellmark could purchase other smaller Blue or non-Blue organizations, or possibly be acquired by a suitor.

With this settlement allowing more Blue plans to enter new territories or states, insurance premiums in those markets could possibly fall. But it’s unclear whether increased competition will push larger discounts from local hospitals and health systems. Over time, this settlement may prompt enough consolidations that some geographical markets could become less competitive, not more.

Healthcare providers, specifically the American Hospital Association and American Medical Association, will have keen interest in how this settlement will eventually affect the revenues and practices of their own respective members at the local level. Additionally, how will state and federal exchanges be affected by this settlement?

In the end, will having additional Blue plans competing in Iowa make us happier because of increased competition? I’m not quite sure. Any unintended consequences will need to be thoroughly assessed as this settlement plays out over time.

With that said, this will be one interesting situation to follow in the months (and years) ahead.

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The Plight of Rural Hospitals (Part 2)

As shared in last week’s post, hospitals, specifically critical access hospitals (CAHs), are having a difficult time surviving under the strain of various financial challenges. This week discusses how highly-stressed hospitals can possibly be identified to warrent additional attention.

Similar to our vehicle’s check engine light, we hope to be alerted with any major problem BEFORE something catastrophic happens. Sometimes, however, depending on the make, model and year of the vehicle, once the red or yellow light is flashing, the damage may have been done, leaving us shocked, frustrated and perhaps stranded in the middle of nowhere.

Similarly, we don’t want this to happen to our CAHs. If a financial stress light is not activated early enough, indicating that a particular rural hospital is in deep financial trouble, local officials and state policymakers are forced to react to something that could’ve been addressed earlier had the problem been closely monitored. It’s about being proactive and having the right tools to assess and manage over a period of time.

National Academy for State Health Policy

In early August, I received an email from the National Academy for State Health Policy (NASHP) that caught my attention. NASHP is a “nonpartisan forum of policymakers throughout state governments” whose mission is to convene state leaders on health policy issues to help “lead and implement innovative solutions to health policy challenges.”

The email’s headline was simple and direct: “Transparency Model Law Requires Hospitals to Report their Financial Health.” In order to address rising healthcare costs and/or assure financial stability for hospitals so they continue to provide access to care, NASHP’s approach is for state policymakers and the public to have “detailed hospital financial information to understand a hospital’s assets as well as its expenses and liabilities.” Hospitals encompass one-third of each dollar spent on healthcare.

After reviewing many policies and practices from other states, NASHP developed hospital transparency model legislation that would give states the authority to collect data needed from hospitals – including what data to be collected and which hospital documents to be used to obtain this information. It is also important to determine which state agency or office would be responsible for analyzing this data on an ongoing basis.

The model legislation also includes a reporting template for hospitals. (Click on the ‘Hospital Financial Transparency Report Template’ link to download an Excel spreadsheet template.) By having this template, the state agency would receive standardized financial information from all hospital and medical organizations that would be required to annually submit this information. Additionally, NASHP provides a Q&A on how states can use this Model Law and Template to increase hospital and health care system financial transparency. Finally, NASHP shares A Community Leader’s Guide to Hospital Finance, which provides an overview of key questions policymakers can ask to better understand hospital finances.

Current Iowa Hospital Financial Reporting vs. NASHP Model

The NASHP Model legislation and reporting template naturally created more questions about ‘if’ and ‘how’ Iowa hospitals currently report audited financial statements to the Iowa Department of Public Health (IDPH). As mentioned in my Part 1 post, Iowa Code Section 135.75 generally outlines basic annual reports that hospitals and health care facilities must file to the IDPH. From this requirement, other Codes also apply, including:

Are the data elements found in the Iowa reporting requirements adequate to address rising healthcare costs and/or hospital solvency metrics? NASHP provided me with a very brief side-by-side comparison of the Iowa Hospital Financial Reporting versus the NASHP Model. It is worthwhile to mention that the NASHP model is intended to give broad authority to a designated state agency that would implement a uniform reporting system via regulations. The specific data elements of the NASHP Model are outlined in the template rather than in the legislation. Iowa’s current law appears to prescribe a few specific reporting elements that the IDPH must incorporate in a uniform reporting system. However, there is no Iowa ‘template’ and IDPH has indicated that not every hospital participates, nor is the information collated when received by IDPH. Finally, IDPH is not adequately staffed to do much with the information collected from hospitals.

According to NASHP, a few key takeaways from the brief comparison include:

  • The NASHP Model is more comprehensive and breaks down each data element – such as all types of assets, liabilities, gross and net patient revenue by payer while Iowa’s law broadly indicates that hospitals must report assets, liabilities, income, and expenses.
  • NASHP recommends reporting on a system-level basis while Iowa invites hospitals and facilities to report per facility. NASHP’s systems approach is based on the fact that, because of increased consolidation, most hospitals and health systems are now part of larger systems, and data must be collected from each parent system.
  • NASHPs Model template automatically analyzes hospital-reported data and requires the state agency to produce annual reports while Iowa no longer has an annual reporting requirement.

In other words, the NASHP Model requests data that is immediately actionable and helps policymakers understand key metrics of a hospital system’s financial status. This is very important, because state agencies – the IDPH included – may not have the necessary resources (personnel and financial) to analyze and summarize this data appropriately. What one does with the collected data is often just as important as the type of data being collected.

The Iowa Hospital Association and American Hospital Association Annual Survey 

After the Part 1 post was published last week, Perry Meyer, executive vice president of the Iowa Hospital Association (IHA), brought to my attention that the IHA, in conjunction with the American Hospital Association (AHA), “works with ALL Iowa hospitals each year to collect the AHA Annual Survey of Hospitals.” Perry further mentioned, “This is a comprehensive survey that includes Iowa hospitals reporting their audited financial information. Each year when completed, IHA provides this data on all Iowa hospitals to the IPDH in lieu of IDPH conducting a separate licensure survey. This agreement between IHA and IDPH has been in place for 30+ years. The comprehensive survey data is public and IDPH should have the information.”

This information from Perry is greatly appreciated. The IHA has a good pulse on what is happening to its hospital members, and with this knowledge, serves as a lobbyist for their members in Iowa legislative sessions. IDPH acknowledged receipt of the AHA/IHA survey results. And the data, according to my IDPH contact, is used to “check the number of licensed beds of each hospital.” The limited use of this data is a bit underwhelming, if not concerning, as the AHA annual survey also includes audited financial information that can be reviewed and analyzed. The IHA – presumably with the blessing of the state – appears to assume the check engine role for financially-stressed hospitals within our communities.

Going Forward…

The upcoming election will begin to determine the ‘new normal’ during the next two-to-four years. If former V.P. Joe Biden is elected president and the Democrats take hold of the Senate in addition to maintaining House majority, healthcare policy will be – along with Covid-19 and the economy – the top issue for years to come. Under this scenario, the Biden public health option will most likely be front and center, and the battles will become contentious by political party, payer and healthcare provider. As a result, one large battle will likely be centered around reimbursements for providers, specifically hospitals.  Bundled payments and alternative payment methods will presumably be analyzed to ensure that quality of care is being incentivized appropriately. But a key issue for hospitals and other providers will be just how much the public option will reimburse hospitals and how does it compare to current Medicare reimbursements that are largely considered to be at or below hospital cost.

In the final analysis, having a due diligence process in place, similar to the NASHP Model, will be necessary when assessing the survival of our critical access hospitals.

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The Plight of Rural Hospitals (Part 1)

Even before the Covid-19 pandemic hit Iowa and the U.S., rural hospitals were confronted with their own pandemic of sorts – a financial crunch that could determine business survival. As we know, all rural communities rely on having viable access to a broad spectrum of essential health care services. Iowa is no exception.

Critical Access Hospitals (CAHs)

For decades, rural hospitals in the U.S. have experienced poor financials due to a number of reasons. One large reason is the gradual exodus of people leaving rural communities for urban areas, primarily for seeking more promising career opportunities. Over time, this migration resulted in an older, lower-income population remaining in rural communities, heavily relying on Medicare and Medicaid for their health coverage. On top of this, rising patient deductibles have contributed to the overall rise in bad hospital debt.

Unfortunately for rural providers, specifically hospitals, government reimbursement levels are often below the cost of providing these services. To help offset this revenue shortage, private payments through commercial insurance carriers and self-insured employers, largely due to cost-shifting, are considerably higher than government reimbursements.

To rescue rural hospitals from the ‘death spiral’ during the 1980s and early 1990s, Congress created the Critical Access Hospital (CAH) designation (Balanced Budget of 1997 – Public Law 105-33). The CAH designation was designed to reduce the financial vulnerability of rural hospitals and improve access to healthcare, thereby keeping essential services in our rural communities. CAHs receive certain benefits, such as cost-based reimbursement for Medicare services.

Over the years, additional legislation has been amended to the CAH designation and related program requirements. As of July 19, 2019, there were 1,350 CAHs located in the U.S. According to the American Hospital Association, there are 5,198 community hospitals. Iowa has 119 community hospitals, with 82 being CAHs.  A July 2020 map shows the locations of each Iowa CAH.

In 2019, the Iowa Hospital Association (IHA) developed a proposal to reform rural health care to help address the growing financial challenges of rural hospitals using a three-pronged approach. The outcome of this initiative is unknown at present.

Arrival of the Covid-19 Pandemic

Just before the pandemic arrived in mid-March, the Cedar Rapids Gazette published an article reporting that rural Iowa hospitals are at risk of closing. The article cites a 2019 national report by Navigant, a Chicago-based consulting company, that found nearly 18 percent of Iowa’s rural facilities (about 17 hospitals) “are at high risk of closing unless their financial situations improve.” Navigant also reported that 21 percent of all U.S. hospitals (430 total) are facing a similar fate.

When the pandemic tsunami arrived, the financial hit to hospitals, specifically small, rural hospitals, became even more acute. The primary reason – due mostly to the suspension of elective procedures in clinics and hospitals, including ambulatory surgeries, inpatient surgeries and inpatient discharges.

In June, the IHA reported that audit firm, CliftonLarsonAllen, through financial modeling, projected a potential ten-figure loss for hospitals statewide due to the pandemic, jeopardizing several rural hospitals. The modeling showed that 89 Iowa hospitals may lose more than $1.4 billion by the end of September, and possibly a worst-case scenario showing more than a $2 billion loss by the end of 2020.

A new analysis by Epic Health Research Network and the Kaiser Family Foundation found that, if recent pandemic trends continue through the 2020 calendar year, total hospital admissions will be down by at least 10.5 percent of predicted levels for the entire year. If this prognostication comes close to reality, loss of revenue will adversely impact many rural hospitals that were merely holding on during the pre-pandemic era. According to an October 16 article from Becker’s Hospital CFO Report, at least 47 U.S. hospitals have closed or entered into bankruptcy in 2020.

Kirk Norris, the CEO of IHA, commented that Iowa hospitals have received millions in federal support from stimulus bills, CARES act and Paycheck Protection Program, but not enough to cover predicted losses.

According to IowaWatch, 77 Iowa hospitals collected $928.3 million in accelerated and advance Medicare payments as a government stimulus to cover expenses in the Covid-19 pandemic’s early days last spring. These funds, however, allowed health care providers to receive, in advance, three months of anticipated Medicare billings that must be paid back to Medicare and Medicaid Services. This program was separate from the CARES Act and other Covid-19-related emergency plans – such as a 20 percent add-on payment by Medicare for inpatient hospital Covid-19 patients. All told, 77 Iowa hospitals applied and received accelerated Medicare payments, including 44 critical access hospitals, who could seek ahead-of-time up to 125% of their anticipated Medicare payments for a six-month period. CMS suspended the accelerated program on April 24 to re-evaluate the other revenue sources being made available to healthcare providers.

Nationally, stimulus efforts included $175 billion in two initial rounds of CARES Act funding, with another $10 billion for rural hospitals and other distributions based on high Covid-19 admissions, etc.

Public Health Plan Option Under Biden

Another storm that could potentially hit rural Iowa hospitals will first depend on the upcoming election results. Joe Biden and the Democrats are proposing to create a public option to compete with private insurance companies. This public option would allow individuals to purchase a public option plan from marketplaces in addition to allowing employees to elect a public option plan through their employers. This would mean the payment mix received by Iowa hospitals would further erode because more Iowans would now have health coverage that reimburses hospital care at a lower rate than private insurance.

The key question, however, is just how much different will the public option reimburse healthcare providers when compared to the current Medicare arrangement? If Biden is elected and the Democrats control Congress, this will be a critical piece to watch when the public option is debated.

The process of culling out the eventual mayhem of rural hospitals under a public option approach began last year. In August 2019, Navigant released an analysis finding that Iowa’s rural hospitals could lose more than $476 million dollars under a public option, putting dozens of rural hospitals at risk for closure. Using three different scenarios, the study suggests that between 25 and 52 of Iowa’s rural hospitals would be at high financial risk for closure due to a loss of revenue.

It must be noted, however, the Navigant study was funded by an industry coalition, Partnership For America’s Health Care Future, an alliance consisting of pharmaceutical, insurance and hospital lobbyists whose desire is to fight off the expansion of Medicare and any government-driven payment system. According to IHA CEO Norris, Medicare is a low payer in Iowa relative to other parts of the country. Again, the big unknown is the reimbursement level a public option would have if passed by Congress and signed by the President. The devil will be in the details.

Transparency in Hospital Financial Reporting

In the U.S., hospitals account for the largest expenditure of healthcare dollars, comprising about 33 cents of each dollar spent. It is imperative, therefore, that to effectively address rising healthcare costs and assure financial viability of all types of hospitals serving Iowa communities, state policymakers and the public will need appropriate financial information necessary to assess and understand the financial health of hospitals.

Each state has disparate reporting requirements for hospitals to report audited financial information – with some states being more comprehensive than others. In addition to the IHA providing some hospital data on their website, Iowa does ‘require’ hospitals and healthcare facilities to report a balance sheet detailing assets, liabilities, net worth, income and expenses and “other reports of the costs incurred in rendering services as the department (of Public Health) may prescribe.” This requirement comes from Iowa Code, Section 135.75.

But is this information adequate?

According to my contact at the Iowa Department of Public Health (IDPH), Iowa hospitals submit their yearly balance sheets and capital expenditures to the IDPH, but not every hospital participates, and the IDPH does “not have the time to track down the ones that do not (report).” This statute does not have a template for hospitals to use when reporting, nor is the information collated when received by IDPH. Hospital financial information is not shared outside IDPH unless it is requested. On an as-needed basis, the financial data is reviewed for “future projects that may trigger a Certificate of Need (process)” In short, “We do not have the staff to do much more with the information and have not had for many years.”

If the fate of each rural hospital is truly critical to our communities and state – and it is – how can Iowa and other states successfully address the needs of each hospital and the communities being served?

Next week’s post will discuss an interesting initiative that a national organization has designed to help state officials assess the financial viability and transparent practices of hospitals.

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