April 1, 2023

Employers Test Plan to Cap Medical Spending

Hoping to cut medical costs, employers are experimenting with a new way to pay for health care, telling workers that their company health plan will pay only a fixed amount for a given test or procedure, like a CT scan or knee replacement. Employees who choose a doctor or hospital that charges more are responsible for paying the additional amount themselves.

Although it is in the early stages, the strategy is gaining in popularity and there is some evidence that it has persuaded high-priced hospitals to lower their prices.

In California, a large plan for public employees has been especially aggressive in using the tactic, and the results are being watched closely by employers and hospital systems elsewhere. Under the program, some employees are being given the choice of going to one of 54 hospitals, including well-known medical centers like Cedars-Sinai and Stanford University Hospital, that have agreed to charge no more than $30,000 for a hip or knee replacement. Prices for the surgery normally vary widely in the state, with hospitals billing from $15,000 to $110,000 for the same operation, a spread that is typical for much of the nation.

“It’s a symptom of the completely irrational pricing structure hospitals have,” said Ann Boynton, a benefits executive for the California Public Employees’ Retirement System, known as Calpers, which worked with the insurer Anthem Blue Cross, a unit of WellPoint, to introduce the program.

Overall costs for surgeries under the program fell 19 percent in 2011, the program’s first year, with the average amount it paid hospitals for a joint replacement falling to $28,695, from $35,408, according to an analysis by WellPoint’s researchers that was released Sunday at a health policy conference.

The study found no impact on quality of care.

“It’s a race to value,” said Dr. Samuel R. Nussbaum, the chief medical officer for WellPoint. One of the nation’s largest health insurers, Wellpoint operates Blue Cross plans in 14 states.

The hospitals may have been willing to drop their prices because Calpers has such clout, said James C. Robinson, a health economist at the University of California, Berkeley, who also analyzed the results.

The California plan, which is one of the nation’s largest buyers of health care benefits, is “viewed as a bellwether of what other large employers will do,” Mr. Robinson said. He and colleagues calculated the savings from the program for the first two years at $5.5 million.

While relatively few companies fully embrace the strategy now, more employers are experimenting with it. Using a technique called “reference pricing,” the employer sets a cap, based on what can be an average price for the service or a price that allows employeees to select from a wide group of hospitals or doctors but still excludes the very high-priced providers. The idea is to exert pressure on prices for certain procedures without limiting the individual’s choice of hospital or doctor for all kinds of care.

“There will be acute interest and focus on prices and price variation,” said Ron Fontanetta, a benefits consultant at Towers Watson, who said that programs like this represented one approach. About 15 percent of large employers say they expect to try the technique next year, compared with just 5 percent this year, according to a 2013 survey by the firm.

“This seems something that’s a no-brainer,” said Steve Wojcik, a vice president for public policy at the National Business Group on Health, which represents employers offering health benefits to their workers. “Why pay more if you can get it for less?”

Last year, WellPoint worked with the Kroger Company, a large grocery chain, to start a similiar program in which payments for certain M.R.I.’s and CT scans were capped at around $800, and employees were given a list of places that would charge that amount or less. Kroger picked services that had a significant variation in price but did not vary in quality from provider to provider, according to Theresa Monti, a benefits executive at Kroger. The company also chose to set the price the plan would pay at a point where employees would still have a wide range of choices, she said.

Article source: http://www.nytimes.com/2013/06/24/health/employers-test-plan-to-cap-medical-spending.html?partner=rss&emc=rss

DealBook: Aetna Agrees to Buy Coventry in $5.7 Billion Deal

An Aetna benefits card and medical information.Wilfredo Lee/Associated PressAn Aetna benefits card and medical information.

6:37 p.m. | Updated

Aetna announced on Monday that it would buy Coventry Health Care for about $5.7 billion in cash and stock, a move Aetna said would help it expand further into government-backed programs like Medicaid and Medicare.

It is the latest deal in an industry that has been spurred to seek consolidation in part because of the Obama administration’s sweeping expansion of health care coverage.

Last month, WellPoint agreed to buy Amerigroup for about $4.9 billion, in a deal that increased WellPoint’s presence in the markets for Medicare, for older patients, and Medicaid, for low-income patients. DaVita, Cigna and the private equity firms BC Partners and Silver Lake have also struck multibillion-dollar deals.

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But Aetna’s acquisition would be the biggest in the managed health care industry since the Affordable Care Act was signed into law in 2010. Under the terms of the deal, Aetna, based in Hartford, will pay $27.30 in cash and 0.3885 of a share for each of Coventry’s shares. At Friday’s prices, that amounts to $42.08, a 20 percent premium over Coventry’s closing price last week.

“Integrating Coventry into Aetna will complement our strategy to expand our core insurance business, increase our presence in the fast-growing government sector and expand our relationships with providers in local geographies,” Aetna’s chief executive, Mark T. Bertolini, said in a statement.

Aetna’s shares were up 5.6 percent, to $40.18. Shares in Coventry climbed to $42.04.

Coventry, based in Bethesda, Md., offers a variety of insurance services, including government-financed programs. It earned $543.1 million last year on revenue of $12.2 billion, and its shares rose 17.5 percent in the 12 months before the deal was announced.

Aetna said the deal was expected to close by the middle of next year, and would lead to around $400 million of annual cost savings by 2015.

Aetna’s move was widely praised. Analysts at JPMorgan Chase wrote in a research note on Monday that Coventry would enhance the company’s presence in markets like Florida, Kentucky and western Pennsylvania.

They added, however: “While certainly enhancing, we don’t see this as a game changer in terms of government focused capabilities for Aetna going forward.”

Goldman Sachs, UBS and the law firms Davis Polk Wardwell and Jones Day advised Aetna on the deal, while Greenhill Company and the law firms Wachtell, Lipton, Rosen Katz; Bass, Berry Sims; and Crowell Moring advised Coventry.

Article source: http://dealbook.nytimes.com/2012/08/20/aetna-is-said-to-strike-deal-for-coventry-health-for-5-7-billion/?partner=rss&emc=rss