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Was struck today that I have heard very little about the role of Medigap in the current health insurance debate…despite massive discussion of Medicare, Medicare Advantage, payment reform…etc.  In addition, it highlights how difficult it is to sort through the tangled web of money and influence…not sure how much I believe it, but its certainly food for thought.

This thought was triggered by Michelle Milkin’s post on AARP’s dependance on royalties from selling sponsored insurance plans:

A Hill source summed it up for me this way: “AARP has endorsed a huge reduction in funding of Medicare Advantage, which touches over 10 million middle-lower income seniors. If Medicare Advantage funding is reduced, and seniors are forced out of the program, they become potential buyers of the heavily-promoted and very profitable Medicare Supplement program sponsored by AARP (MediGap is 70% of AARP’s annual income). Medicare Supplement is a huge source of revenue to AARP. At a minimum, AARP should be required to disclose this every time they discuss Medicare Advantage.

Since AARP makes a substantial amount of money on a competing product that serves to drive up demand by eliminating co-pays, deductibles, and other elements of cost-sharing for a flat premium; it would make a bit more sense as to why they’re willing to sacrifice the Medicare Advantage improvement in benefits.  Per Bloomberg:

Laupus stumbled onto something that many members of the world’s largest seniors’ organization don’t know: The group, formerly called American Association of Retired Persons, collects hundreds of millions of dollars annually from insurers who pay for AARP’s endorsement of their policies.

The insurance companies build the cost of these so-called royalties and fees, which amounted to $497.6 million in 2007, into the premiums they charge AARP members, according to AARP’s consolidated financial statement for that year.

AARP uses the royalties and fees to fund about half the expenses that pay for activities such as publishing brochures about health care and consumer fraud — as well as for paying down the $200 million bond debt that funded the association’s marble and brass-studded Washington headquarters.

In addition, AARP holds clients’ insurance premiums for as long as a month and invests the money, which added $40.4 million to its revenue in 2007.

‘Fatting the Coffers’

“At the end of the day, it’s all about fattening the coffers of the organization,” says Thomas Orecchio, who was chairman of the Arlington Heights, Illinois-based National Association of Personal Financial Advisors until September. AARP, he says, is sponsoring insurance for its members at inflated prices.

“It’s the dirty little secret,” he says.

During the past decade, royalties and fees have made up an increasing percentage of AARP’s income, rising to 43 percent of its $1.17 billion in revenue in 2007 from 11 percent in 1999, according to AARP data.

So what of Medigap?  Here’s a comparison to Medicare Advantage in terms of how each may add upon the basic Medicare entitlement.

Medicare Advantage vs. Medigap

Members pay an upfront premium with Medigap to eliminate co-pays, co-insurance, deductibles, and other financial restraints on services.  This seems a little odd, when you think that the reason these were put in place was to reduce unnecessary utilization.

So why then isn’t Medigap part of the overall health reform debate in addition to Medicare Advantage?

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When I was a kid, I hit my head a fair bit, including getting knocked out once at football practice.  Initial care involved an evaluation, but scans weren’t the norm.  Now that they’ve become increasingly common in the evaluation of head injuries in youth, have we gained much?

The  Value of CT Scans in Youths Is Questioned in this study in the Lancet (article in NYTimes).

The study, one of the largest of its kind, enrolled 42,412 children ages 18 and younger who sought emergency care at dozens of medical centers after suffering mild head injuries in bike collisions, car crashes, falls and other accidents. Of the total group, 14,969 of the children, or just over one-third, had CT scans, but only 780 of the scans, or about 5 percent, picked up traumatic brain injuries, the study found.

The paper, published online in the Sept. 15 issue of The Lancet, offered a list of six indicators that could be used to determine whether a child was at risk for a serious brain injury, with a separate list for children under 2. The highest risk factors for children of all ages are an altered mental state and signs of a skull fracture.

Other factors to consider are loss of consciousness and whether the child was involved in a serious incident like a car crash. Vomiting and headaches are predictors in older children, while swelling of the scalp and abnormal behavior are warning signs in younger children.

The surprising stat to me was that after triage, only 5% of those who received a CT scan actually showed an issue (we’ll ignore potential false positives).

42,412 went to the emergency room

14,969 had a CT scan (35%)

780 showed traumatic brain injury (1.8% of ER visitors, 5.2% of those scanned)

It would seem that better triage would get us closer than a 1 out of 20 hit rate.  But in the current environment, why would a medical staff take the time to run through the 6 indications and risk a bad outcome?

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Gold Plated Wheelchairs

Does low administrative cost or pooled purchasing lead you to the best values?  When it comes to government purchasing, the results are surprisingly bad– the Medicare fee schedule rate for medical supplies can multiples higher than the cash price an individual can command.  HHS’s Inspector General, Daniel Levinson, gives us the shocking details in his report on Power Wheelchair Acquisition Costs for the Medicare program (via CNN.com)

The Executive Summary is a fascinating rebuke of Congress’ ability to remove pork from the Medicare program, driving up costs for both taxpayers and beneficiaries.  It also is a cry for help for a Medicare Administrator to take the steps required to appropriately run the government’s payor– we’ve missed the leadership a Mark McClellan can provide in the role (there hasn’t been a Senate-confirmed Medicare head since 2006).  Is this the future of a govenment plan focused on minimizing administration?

Medicare’s fee schedule amounts are based on manufacturer-suggested retail prices. They include reimbursement for the power wheelchair acquisition cost and services performed in conjunction with providing the wheelchair, such as assembling and delivering it and educating the beneficiary about its use. Prior Office of Inspector General (OIG) reviews have found that consumers can buy power wheelchairs for lower prices than Medicare and its beneficiaries. In May 2006, the Centers for Medicare & Medicaid Services (CMS) proposed a revised methodology for setting new fee schedule amounts that would not rely upon manufacturer-suggested retail prices and is responsive to the market. As of May 2009, CMS had not finalized this proposal.

CMS planned to use supplier-submitted competitive bids to establish reimbursement amounts for power wheelchairs and other durable medical equipment (DME), beginning in July 2008. Medicare and beneficiary payments under the Competitive Bidding Acquisition Program would have decreased by an average of 26 percent across all included categories of DME, saving up to an estimated $1 billion annually. However, Congress delayed the program and exempted complex rehabilitation power wheelchairs from future competitive bidding. To offset the cost savings lost by this delay, fee schedule amounts were reduced in January 2009 by 9.5 percent.

Medicare allowed an average of $4,018 for standard power wheelchairs that cost suppliers an average of $1,048 in the first half of 2007. Medicare and its beneficiaries paid almost four times the average amount paid by suppliers to acquire standard power wheelchairs during the first half of 2007. The beneficiary’s copayment ($804) covered 77 percent of suppliers’ average acquisition cost.

Medicare Pays 4X market rate for wheelchairs

In English, we’re paying based on a MSRP rate, that, like any sticker price is stuffed with a high profit margin.  In this case, comparing the lowest internet cost available to consumers in the category with 75% of the purchases was enlightening– the low price via the internet of $1452 was well under the average price (in a space where retail price competition doesn’t matter) of $2959 and the average government reimbursement of $4024.  In fact, in a world where we move to the efficient supplier, we need much less insurance…the price isn’t dramatically higher than the out-of-pocket being paid today.

Medicare is classicly setting paper tigers on its path to reform.  The opportunity is not to transition from an extremely high cost to the average cost that consumers can already find today.  The goal needs to be to use volume to drive below the lowest retail price available to the consumer– around 50% of the cost of the average purchase today (in an environment where no one shops for price).  There are big dollars that can be saved by moving to the most efficient intermediaries.  Even simple transparency tools would allow consumers to save hundreds of dollars and drive massive volume differences to the efficient players.  Imagine the WalMart effect spreading to other health care purchases.

Gandhi was quoted as saying, “Be the change you would see in the world.”  As President Obama looks to transform health care, perhaps he should start with the government agency he already controls, which should then make the benefits of moving to that model clear to the rest of us.

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I keep hearing about Comparative Effectiveness and how evidence needs to used in medical practice.  Then I remember my days in the clinic/hospital, where complex patients presented in ways that didn’t fit textbook definitions and whose multitude of issues offered contradictory readings from the literature.

So how are we to move forward?  I’m a strong believer that the best evidence needs to be used in clinical decision-making…the issue is in making this evidence usable in the field in a way that doctors can trust will be relevant to the person in front of them (as opposed to 300 carefully selected and studied patients in Finland).

So what will the new paradigm look like?  My sense is the RCT will fade as consumer-focused care comes into play.  If the best of science is directed to the patient sitting in front of a doctor, the goal will be to combine the information of others just like them (across multiple segments and disease phases) to predict both the natural course as well as the potential options for improvement (and their predicted results).

After all, isn’t it less important to know what a treatment does for the average study patient in Finland and more about what it does in people just like you in the real world?

Real-world data from Patients Like Me

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