8 November 2012

California Edition
November 12-13
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Health Net, DHCS Settle Rate Lawsuit
Payout Based on Plan’s Future Medi-Cal Margins
Health Net has settled a long-running lawsuit with the Department of Health Care Services over the rates the agency paid for providing services to Medi-Cal managed care enrollees for much of the last decade. The terms reached between Health Net and the DHCS, which administers the MediCal program, are unusual: they will be based entirely on the insurer’s pre-tax prot margins from managing its Medi-Cal population over the next seven years. DHCS is being sued by several health plans over the issue, with the payers accusing them of setting Medi-Cal managed rates between 2003 and 2010 that were faulty. Meanwhile, California’s state budget has been groaning under multi-billion dollar decits for several years, prompting government agencies such as DHCS to nd creative resolutions to lawsuits that could inict even more nancial damage – all while keeping its safety net payer network intact. “What we wanted to do was resolve these lawsuits in a way that provides a framework for reducing very costly litigation,” said DHCS spokesman Norman Williams. Whether Health Net actually reaps anything from the settlement remains to be seen. It could receive hundreds of millions of dollars – or the DHCS may have to pay nothing at all to the Woodland Hills-based insurer. The payment terms were delineated in documents led earlier this week with the Securities and Exchange Commission. Health Net’s pre-tax margins for its Medi-Cal managed care business must reach 3.25% for each year between 2013 and 2016. If it falls below that threshold, its actual margin would be subtracted from the 3.25%, then multiplied by 50% to 75% of the premiums Health Net was paid. That amount would be part of the settlement sum paid Health Net. The threshold drops to 1.25% between 2016 and 2019. Conversely, if Health Net’s margins are above the 3.25% threshold in any year, it would have an equivalently calculated sum subtracted from what DHCS would owe.. When the nal payout is determined as early as 2019, it will ultimately be capped at $264 million, according to Williams. The DHCS has options to extend the settlement terms through 2022 and not pay up until then. According to Health Net spokesperson David Olson, the settlement allows Health Net to earn what is considered a reasonable prot from its Medi-Cal book of business: in a range of 2% to 4%. “They want the plans to be protable so they continue to reinvest in the business,” he

November 13-14
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December 3-4
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Continued on Next Page

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Settlement (Continued from Page One)
said. “It’s not in their interest to have plans leave (the state) and disrupt operations.” Olson noted that the original lawsuit was not based on how much Health Net was earning on its population, but how the payments were structured. “This was about the actuarial soundness of the rates. It did not hinge on whether Health Net made a prot,” he said. Litigation aside, the issue of Medi-Cal payments is expected to loom larger in the

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In Brief
Santa Clara County Voters Pass Initiative To Limit Executive Pay At El Camino Hospital
Santa Clara County voters narrowly passed an initiative that would cap the salaries of executives at El Camino Hospital in Mountain View at twice the salary of the sitting California governor. The initiative, Measure M, passed by just under a four-point margin. It was sponsored by Service Employees International Union and the United Health Care Workers West, which has undergone rounds of contentious negotiations in recent years with the hospital. Currently, Gov. Jerry Brown earns just under $174,000 a year. El Camino CEO Tomi Ryba earns just under $700,000. A non-profit hospital CEO in California earned average total compensation of about $732,000 in 2008, according to data compiled by Payers & Providers. El Camino officials said the initiative’s passage would impact not only Ryba’s pay, but at least nine other executives. El Camino’s board of directors said it would consider a legal challenge to the initiative when it meets next week.!

coming years as the Medi-Cal program expands under the Patient Protection and Affordable Care Act, and the state will rely even more on a dependable payer network. The settlement will cover all Medi-Cal lives enrolled in Health Net over at least the next seven years, Olson noted. Health Net currently has just over 1 million Medi-Cal enrollees under its management, and the number is expected to rise under ACA, according to Olson.

Obama’s Reelection Bakes In ACA
CHA Will Join Coalition to Reform Payments
The reelection of President Barack Obama to a second term virtually guarantees that the Patient Protection and Afforable Care Act he signed into law nearly three years ago will remain intact, with its biggest provisions and changes coming in 2014. That has cheered policymakers who are concerned about the millions of Californians who lack health insurance, but has stoked concerns among providers that they will likely not get paid enough to care for them. Although Democrats held the Senate and therefore would have made repealing the ACA or chipping at it through budget reconciliation unlikely, observers were concerned a Republican presidential administration would slow and even impede implementation. Now, a dramatic expansion of the MediCal program will begin to take place in 2014, along with the enrollment of more afuent Californians in the Cover California health insurance exchange, which will begin early enrollment in October 2013. The UCLA Center for Health Policy Research and the UC Berkeley Center for Labor Research had predicted between 1.8 million and 2.7 million Californians would receive healthcare coverage when reform is fully implemented by 2019. But Dylan A. Roby, the UCLA Center’s director of economics, believes now the state’s total number of insureds will be on the higher end – about 94% in all – due in part to Obama’s reelection. “If President Obama hadn’t been reelected you could see a world where executive orders would have been issued to lock up grant money, where there would have been stalling on certifying the exchanges as operational,” Roby said – along with a number of other acts intended to slow implementation, he observed. Although Roby waxed optimistic about the ACA’s implementation, more concerned is C. Duane Dauner, president of the California Hospital Association. “Will expanding coverage be good for every community and hospital? The answer is no,” he said. According to Dauner, hospitals are already getting clipped on rates for treating Medi-Cal patients, which are the 49th lowest among states and cover about 65% of actual costs. But he also fears that low and moderateincome people who buy insurance via the Cover California exchange could pose a nancial risk for hospitals. Should those enrollees purchase bronze or silver-level health plans – lower price products with commensurate levels of coverage – Dauner thinks uncompensated care costs for hospitals could rise. “The bronze plans covers 60% of cost, and silver covers 70%,” Dauner observed, noting that the rest of the cost comes out of the pocket of the patient and could “be bad debt for the hospitals.” As a result of these concerns, Dauner said the CHA and hospital lobbies in other states – about a dozen in all – will form a coalition to lobby Congress and the U.S. Department of Health and Human Services. More details on the coalition will be released next month, according to Dauner. “We believe Medicaid reform nationally is where it’s headed,” he said.

L.A. County Voters Approve Adult Film Reforms To Contain Spread Of STIs
Voters in Los Angeles County passed a ballot initiative that mandates adult lm stars use condoms when working. The initiative, Measure B, was authored and championed by the

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Kaiser Names Tyson Incoming CEO
Sector’s Highest-Ranking African-American Exec
Oakland-based Kaiser Permanente made swift ofcial. work of a national search to replace its “I am deeply honored to follow George outgoing CEO and chairman, naming its Halvorson’s incredible leadership and to serve number two executive to the top spot earlier this great organization as its next chairman this week. and chief executive ofcer,” Tyson said. “As The succession of Bernard J. Tyson, 53, we continue down the path of healthcare Kaiser’s current president and chief operating reform and the transformation of the ofcer, was made just a few healthcare industry, I am weeks after George excited about leading an Halvorson announced he organization so committed to would be retiring next year. high-quality and affordable However, Kaiser care for everyone.” ofcials indicated that By running an eight people were organization with 180,000 considered for the position, employees and 17,000 including several external physicians, the new position candidates. will arguably make Tyson the “The board’s decision most prominent Africanto offer this position to Mr. American healthcare executive Tyson is a testament to in the nation, and among the Kaiser Permanente’s robust most prominent in any sector. internal succession Kenneth C. Frazier, planning process,” said CEO of Merck, is the highestboard chairperson Kim ranking black executive in Bernard J. Tyson Kaiser. healthcare. However, Kaiser’s Tyson has devoted virtually industry prole is considerably more his entire career to Kaiser, having been with prominent than that of the drug manufacturer. the organization since 1984. He has been a Among health insurers Kaiser’s size, Ronald A. longtime Bay Area resident, and holds Williams, the former CEO and Aetna, is the undergraduate and MBA degrees from Golden only comparable African-American CEO. He Gate University in San Francisco. retired from that position in 2010 and as Aetna Tyson was appointed COO in 2010. Prior chairman last year. to that, he served as executive vice president Tyson serves as chairman of the Executive of health plan and hospital operations, and Leadership Council, which is comprised of also oversaw operations for Kaiser outside of current and former African-American California. executives at Fortune 500 companies. He is best known for implementing Tyson did not make any announcements Kaiser’s “Thrive” marketing campaign, which of specic plans for Kaiser when he assumes was launched when he served as senior vice the top job, although in media interviews he president of brand strategy and management. said he would focus on Kaiser’s sizable As part of the transition plan, Tyson will population of patients with chronic diseases, be appointed to the Kaiser board next month, as well as preparing to compete on health and will assume CEO duties in June 2013. He insurance exchanges where it does business, will be appointed board chairman at the end which includes nine states and the District of of 2013, when Halvorson’s retirement is Columbia.

In Brief
AIDS Healthcare Foundation. it passed by an 11-point margin. "This is what democracy looks like; we took this to county government, and they didn't act so we took it directly to the voters, and they spoke conclusively," AHF President Michael Weinstein said. Most of the nation’s adult lm production takes place in the Los Angeles, primarily in private homes. The AHF has been a vocal critic of the industry’s longstanding practice of having its performers engage in unprotected sex. Although adult lm stars are required to be tested for sexually transmitted infections every month, the AHF contended that did not stop the spread of HIV. Meanwhile, an organization called the Free Speech Coalition that has close ties to the adult lm industry said it would mount a legal challenge to the newly passed law.

SCAN Launches Health Literacy Initiative
Long Beach-based Medicare Advantage health insurer SCAN Health Plan has launched an initiative that focuses on ensuring its 130,000 members receive healthcare information they can understand and use. The goal of the program is to align SCAN with initiatives to improve health communication and literacy launched by the Institutes of Medicine and the U.S. Department of Health and Human Services. The insurer has launched an internal training program for its employees to identify the health literacy needs of its members, and to align its oral and written communications accordingly. “Health literacy is a major problem in the United States, and our program is designed to address this issue head on,” said Tim Schwab, M.D., SCAN’s chief medical ofcer. “Our commitment is to make sure that our members have the information they need to take charge of their health.”

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The WalMart Effect On Healthcare
Its Push For Deals And Data Should be Emulated
Walmart’s sheer size makes almost any of their initiatives newsworthy. That said, despite being a lightning rod for criticism on employee benets and healthcare, they have introduced initiatives with far-reaching impacts. Their generic drug program began in September 2006 – more than 300 prescription drugs for $4 per month or $10 for a 90-day supply – and was widely emulated. Imagine the difference it made to a lower middle class diabetic who had been paying more than $120 per month for medications, and suddenly could get them for about $24. Last month, Walmart announced that covered workers and their family members needing heart, spine or transplant surgeries could receive care with no out-of-pocket cost at six prominent health systems around the country: Mayo Clinics; Cleveland Clinic; Geisinger Clinic; Mercy Hospital Springeld; Scott & White Memorial Hospital and Virginia Mason Brian Medical Center. Walmart’s Center of Excellence program builds on its own and other organizations’ pioneering efforts with similar programs. Walmart developed a relationship with Mayo Clinics in 2007 for transplant and lung volume reduction surgeries. In March 2010, Lowes reached a similar arrangement with Cleveland Clinic for heart surgeries and, last December, Pepsico announced a global pricing deal with Johns Hopkins for cardiac and joint replacement surgeries. It’s worth asking why these large rms would bother to do these deals for expensive care, and what this means for healthcare in the future. What’s different about the health systems that have been involved? Could these arrangements catch on and inuence care elsewhere around the country? The procedures involved are typically complex and high cost. Because they provide health coverage for more than a million people, Walmart has accumulated tremendous data and experience, and they are famous for their analytical acumen. They know that these kinds of treatments, though relatively infrequent, consume disproportionately high resources. All of the organizations contracted in these arrangements have developed reputations for high quality. It’s worth noting that the unit pricing of their services can be high, but their episodic costs tend to be low. Their specialists are salaried, and therefore have no nancial stake in ordering unnecessary services. And, in the words of a colleague knowledgeable about these efforts, “because they use evidence-based vs. moneydriven care, they tend to get the diagnoses on complex cases right the rst time. They also coordinate care and are more likely to be accountable than other systems.” Absent a healthcare environment that, as a practical matter, actively shares and translates evidence into practice, the purchaser, out of enlightened self-interest, has incorporated this process as a cornerstone element of its program. Health systems and specialty groups in the US have operated completely outside conventional By market forces for decades, a fact that Klepper largely explains U.S. healthcare’s egregious cost, highly variable quality and rock-bottom value relative to health care in other industrialized nations. As the market becomes more cost-weary and price-sensitive, purchasers will follow the leads set by Walmart, Lowes and Pepsico. They’ll align with organizations that can measurably demonstrate better care at lower cost. As market forces take hold, success will be associated with driving appropriateness, and with accepting lower per patient revenues in exchange for more market share and greater patient volumes. Growth will come at the expense of entrenched, less agile competitors. The big winners here will be patients, who will be subjected to signicantly less unnecessary risk associated with overtreatment, and purchasers, who will receive far better value at lower cost.
Brian Klepper is an independent healthcare analyst and chief development officer for WeCare TLC Onsite Clinics. A version of this article was first posted on Medscape.com.
Op-ed submissions of up to 600 words are welcomed. Please e-mail proposals to editor@payersandproviders.com

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